UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-K
 
  x ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
EXCHANGE ACT OF 1934
 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2007
 OR
 o 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
      of incorporation)
              (I.R.S.
      Employer Identification Number)
 
  5203
      Bristol Industrial Way
                Buford,
      Georgia
              30518(Address
      of principal executive offices)
              (Zip
      Code)
 
 Registrant's
telephone number, including area code:
 (770) 271-0233
 
 Securities
registered pursuant to Section 12(b) of the Act:
 
 Name
      of each exchange onTitle of each
      class
              which
      registeredCommon
      stock, $.01 par value,
                Together
      with associated
                Common
      Stock Purchase Rights
              New
      York Stock Exchange
  Securities
registered pursuant to Section 12(g) of the Act: None
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o  No x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes o   No
x
 
 
  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 o
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K.
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of
the Exchange Act.     Large accelerated filer o     
Accelerated filer x     
Non-accelerated filer o Smaller
reporting company o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o  
No x
 
 The
aggregate market value of the common stock of the registrant held by
non-affiliates of the registrant, as determined by reference to the closing
price of the Common Stock as reported on the New York Stock Exchange on June
29,  2007, the last business day of the registrant’s most recently
completed second fiscal quarter, was $128,863,525 .
 
 As of
March 11, 2008 the number of shares of Common Stock, $.01 par value, outstanding
was 33,402,171.
 
 Documents
incorporated by reference: Proxy Statement for the registrant’s 2008 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
not later than 120 days after December 31, 2007 is incorporated by reference in
Part III herein.
  
  THERAGENICS
CORPORATION® AND
SUBSIDIARIES
 TABLE OF
CONTENTS
 
 
 
 
 PART
      I
              PageItem
      1.
              Business
              I-1Item
      1A.
              Risk
      Factors
              I-11Item
      1B.
              Unresolved
      Staff Comments
              I-21Item
      2.
              Properties
              I-21Item
      3.
              Legal
      Proceedings
              I-21Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              I-21PART
      IIItem
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              II-1Item
      6.
              Selected
      Financial Data
              II-2Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and
    Operations
              II-4Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              II-18Item
      8.
              Financial
      Statements and Supplementary Data
              II-18Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              II-18Item
      9A.
              Controls
      and Procedures
              II-18Item
      9B.
              Other
      Information
              II-21PART
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance
              III-1Item
      11.
              Executive
      Compensation
              III-1Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              III-1Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              III-1Item
      14.
              Principal
      Accounting Fees and Services
              III-1PART
      IVItem
      15.
              Exhibits,
      Financial Statement Schedules
              IV-1Signatures
              IV-5
 
 
 
  Part
I
 
 Item
1. BUSINESS
 
 Overview
  Theragenics
Corporation® (the
“Company”) is a medical device company serving the cancer treatment and surgical
markets, operating in two business segments.
  In its
brachytherapy seed business, the Company produces, markets and sells
TheraSeed®, its
premier palladium-103 prostate cancer treatment device; I-Seed, its iodine-125
based prostate cancer treatment device; and other related products and services.
Theragenics is the world’s largest producer of palladium-103, the radioactive
isotope that supplies the therapeutic radiation for its TheraSeed® device.
Physicians, hospitals and other healthcare providers, primarily located in the
United States, utilize the TheraSeed® device.
The majority of TheraSeed® sales
are channeled through one third-party distributor. The Company also maintains an
in-house sales force and sells its TheraSeed® and
I-Seed devices directly to physicians.
 
 The
Company’s surgical products business consists of wound closure and vascular
access products.  Wound closure includes sutures, needles and other
surgical products with applications in, among other areas, urology, veterinary,
cardiology, orthopedics, plastic surgery and dental. Vascular access includes
introducers and guidewires used in the interventional radiology, interventional
cardiology and vascular surgery markets.  The surgical products
business sells its devices and components primarily to original equipment
manufacturers (“OEM”) and to a network of distributors.
 
 The
Company has substantially diversified its operations and revenues in recent
years. Prior to 2003, the Company’s sole product was the
palladium-103 TheraSeed® prostate
cancer treatment device. In 2003, the Company began to market an iodine-125
prostate cancer treatment device. In May 2005, the Company expanded into the
surgical products business with the acquisition of CP Medical Corporation (“CP
Medical”), followed by the acquisition of Galt Medical Corp. (“Galt”) in August
2006. CP Medical and Galt comprise the Company’s surgical products business,
which accounted for 46% of consolidated revenue in 2007. Prior to 2005, the
brachytherapy seed business constituted 100% of the Company’s
revenue.
  The
Company acquired CP Medical on May 6, 2005, for approximately $26.7 million,
including $20.6 million in cash and the issuance of 1,840,458 shares of common
stock valued at approximately $6.1 million. Galt was acquired on August 2, 2006,
for $32.7 million (net of $2.3 million of cash acquired), including $29.6
million in cash and the issuance of 978,065 share of common stock valued at $3.1
million.
 
  2005
Restructuring
  The
Company implemented a restructuring of the brachytherapy segment in August 2005
that resulted in the closure of the Plasma Separation Process (“PSP”) facility
in Oak Ridge, Tennessee, ended the research and development activities related
to the use of palladium-103 in the vascular, macular degeneration and breast
cancer areas, and eliminated production of radiochemical products. Curtailing
these activities allowed the Company to shrink its asset base by shutting down
six cyclotrons, closing the Newton Terrace facility in Buford, Georgia, and
closing the PSP facility. The objective of the restructuring was to sharpen the
Company’s focus on its two main business segments, brachytherapy seeds and
surgical products, as well as provide a more focused platform for continued
diversification and expansion through acquisitions or other channels.
Restructuring charges of $33.4 million were recorded in 2005.  In
2006, restructuring charges of $369,000 were recorded, as the Company completed
the shut down of its Oak Ridge facility.  The Company also recognized
gains on the sale of assets of $199,000 in 2006, representing the sale of
equipment idled by the restructuring.  The Company is actively
marketing its interest in its Oak Ridge real estate.
 
 I-1
  Description
of the Business
 
 Financial
Information about Operating Segments and Geographic Areas
 
 The
Company operates in two segments; the brachytherapy seed segment and the
surgical products segment. Information related to revenue from external
customers, measure of profit and loss by segment, total assets by segment, and
geographic areas, is contained in Note M to the consolidated financial
statements included in Part IV of this report.
 
 Brachytherapy
Seed Business
 
 Overview
 
 Excluding
skin cancer, prostate cancer is the most common form of cancer, and the second
leading cause of cancer deaths, in men. The American Cancer Society estimates
there will be 186,320 new cases of prostate cancer diagnosed and an estimated
28,660 deaths associated with the disease in the United States during
2008.
 
 According
to the American Cancer Society, more than 90% of all prostate cancers are found
in the local and regional stages (local means it is still confined to the
prostate; regional means it has spread from the prostate to nearby areas, but
not to distant sites such as other organs). According to the American Cancer
Society, the 5-year survival rate for men with prostate cancers found in the
local and regional stages is nearly 100%.
  Theragenics
produces TheraSeed®, an
FDA-cleared device for treatment of all solid localized tumors and currently
used principally for the treatment of prostate cancer. In the prostate
application, TheraSeed®devices
are implanted throughout the prostate gland in a minimally invasive surgical
technique, assisted by transrectal ultrasound guidance. The radiation emitted by
the seeds is contained within the immediate prostate area for the purpose of
killing the tumor while attempting to spare surrounding organs of significant
radiation exposure. The seeds, whose capsules are biocompatible, remain
permanently in the prostate after delivering their radiation dose. The
TheraSeed® device
is best suited for solid localized tumors.
 
 Management
believes the TheraSeed® device
offers significant advantages over other treatment options, including reduced
incidence of side effects such as impotence and incontinence. Recent multi-year
clinical studies indicate that seeding offers success rates for early-stage
prostate cancer that are comparable to or better than alternative treatment
options and is associated with reduced complication rates. In addition,
brachytherapy is a one-time outpatient procedure with a typical two to three day
recovery period. By comparison, other treatment modalities typically require a
lengthy hospital stay and recovery period.
 
 The
TheraSeed® device
is a radioactive "seed" roughly the size of a grain of rice. Each seed consists
of biocompatible titanium that encapsulates the radioactive isotope
palladium-103 (“Pd-103”). The half-life of Pd-103, or the time required to
reduce the emitted radiation to one-half of its initial level, is 17 days. The
half-life characteristics result in the loss of almost all radioactivity in less
than four months. The number of seeds implanted normally ranges from 50 to
150, but the number of seeds varies depending on the size of the prostate. The
procedure is usually performed under local anesthesia in an outpatient
setting. An experienced practitioner typically performs the procedure in
approximately 45 minutes, with the patient often returning home the same
day.
 
 The
Company also offers the I-Seed device, which is a “seed” device similar to
TheraSeed®, except
that it utilizes the radioactive isotope iodine-125 (“I-125”). The half-life of
I-125 is approximately 60 days. The half-life characteristics result in the loss
of almost all radioactivity in approximately 20 months. While management
believes that Pd-103 continues to have certain advantages over I-125, including
(i) higher dose rates without the risk of side effects that may be associated
with even higher dose rates; (ii) a shorter half-life, which shortens the
duration of some radiation induced side effects by two-thirds; and (iii) reduced
radiation exposure to medical personnel in treatment follow-up, the offering of
its I-Seed iodine product enables the Company to compete more effectively for
those direct customers who prefer to buy both seeds from a single
source.
  I-2
  Treatment
Options - Brachytherapy Seed Business
 
 In
addition to brachytherapy, there are many treatment options for localized
prostate cancer. Some therapies may be combined to address a specific cancer
stage or patient need. The following is a summary of treatment options for
prostate cancer other than seeding.
 
 Radical Prostatectomy is the
most common surgical procedure. Radical Prostatectomy (“RP”) involves the
complete surgical removal of the prostate gland and has been used for over 30
years in treating early-stage, localized tumors. RP typically requires a
three-day average hospital stay and a lengthy recovery period (generally three
to five weeks). Possible side effects include impotence and incontinence.
Alternative forms of radical prostatectomy include laparoscopic radical
prostatectomy (“LRP”) and robotic radical prostatectomy
(“RRP”).  These forms of radical prostatectomy are intended to be less
invasive than a traditional radical prostatectomy and are more complex to
perform.
 
 External Beam Radiation
Therapy (“EBRT”) involves directing a beam of radiation at the prostate
gland from outside the body to destroy tumorous tissue and has been a common
technique for treating many kinds of cancer since the 1950s. Patients are
usually treated five days per week in an outpatient center over a period of
eight to nine weeks. Side effects include impotence, incontinence and rectal
complications.
 
 Newer
forms of external beam radiation include three-dimensional conformal radiation
therapy (“3DCRT”) and Intensity Modulated Radiation Therapy (“IMRT”). These
treatments generally utilize x-rays, computerized mapping and other techniques
in an attempt to more accurately aim the radiation at the prostate. Conformal
proton radiation is another newer form of radiation therapy that uses a similar
approach, but instead of using x-rays this technique focuses proton beams on the
cancer.
 
 Cryosurgery treats the cancer
by freezing the cells with cold metal probes, destroying the prostate. Patients
usually remain in the hospital for one to two days. Side effects may include
soreness, swelling, impotence and incontinence.
 
 Ancillary Therapies,
primarily consisting of hormone therapy and chemotherapy, are used to slow the
growth of cancer and reduce tumor size, but are generally not intended to be
curative.
 
 Watchful Waiting, while not a
treatment, is recommended by some physicians in certain circumstances based on
the severity and growth rate of the disease, as well as on the age and life
expectancy of the patient. The aim of watchful waiting is to monitor the
patient, treat some of the attendant symptoms and determine when more active
intervention is required.
 
 In
addition to the treatment options described above, other forms of treatment and
prevention, including drugs and other forms of radiation, may be undergoing
development and testing in clinical settings.
 
 Clinical Results - Brachytherapy Seed
Business
 
 Strong Efficacy Results.
Clinical data indicates that seeding offers success rates for early-stage
prostate cancer treatment that are comparable to or better than those of RP or
EBRT.
 
 A
twelve-year study published in the Volume 4, Issue 1 (2005) edition of the
Journal Brachytherapyrevealed that high-risk prostate cancer patients treated with
brachytherapy using Pd-103 experienced greater success than patients treated
with radical prostatectomy. The study was conducted by Dr. Jerrold Sharkey of
the Urology Health Center in New Port Richey, Florida, Dr. Alan
Cantor, et al, and retrospectively reviewed 1,707 prostate cancer patients
treated from 1992 to 2004.  80% were treated with brachytherapy and
20% were treated with surgery. High-risk patients treated with seeding showed an
88% cure rate compared to a 43% cure rate obtained from surgery at 12 years.
Intermediate-risk patients reflected a success rate of 89% with seed therapy
compared to a 58% success rate with surgery at 12 years, and for low-risk
patients the success rate for seeding was 99% compared to a 97% success rate
with surgery at 10 years.
  I-3
  An
eight-year study by Dr. Gregory Merrick, Dr. Kent Wallner, et al, of the
Schiffler Cancer Center and Wheeling Jesuit Hospital,
disputes a common view that men under the age of 60 should be treated with
radical prostatectomy.  The study, published in the British Journal of Urology, 2006, showed that
men aged 54 and younger have a high probability of a good 8-year BPFS
(biochemical progression-free survival) when treated with permanent interstitial
brachytherapy, with or without supplemental external beam radiation
therapy.  For the entire group, the actuarial BPFS rate was
96%.  For low- (57 men), intermediate- (47 men) and high- (four men)
risk patients, the BPFS rates were 96%, 100%, and three of four,
respectively.
 
 In
January of 2008, an article in the Journal of
Clinical Oncology authored by H. Mitsuyama et al, titled;
"The Prognostic Significance of Gleason Pattern 5 in Prostate
Cancer Patients Treated with Palladium 103 Brachytherapy" reviewed the
significance of having a component of Gleason factor 5 in a diagnosis of
prostate cancer.  The article found that patients that had a Gleason
factor five identified upon biopsy did not have as favorable outcomes as
patients with other Gleason scores.  The authors concluded that the
presence of pattern 5 disease is a risk factor for biochemical failure. 
But in contrast to prior studies, Pd-103 brachytherapy based radiation appears
to provide such patients with a high likelihood of cancer
eradication.
 
 Combination
Treatment:Seeding treatment in combination with EBRT has also
recorded impressive results in the treatment of higher risk prostate cancer
patients.
 
 A study
published in June 2007 by Michael Dattoli, M.D. of the Dattoli Cancer Center
& Brachytherapy Research Institute, Kent Wallner, M.D., of the Department of
Radiation Oncology, University of Washington, et al showed that high tumor
control rates are possible with brachytherapy and supplemental conformal
radiation even in patients having intermediate- and high-risk
disease.  The study summarized long-term outcomes from treatment of
prostate cancer among patients with increased risk of extracapsular cancer
extension who had brachytherapy-based treatment.  282 patients were
treated between 1992 and 1996 with external beam radiation followed by treatment
with Pd-103 seeds.  Overall actuarial freedom from biochemical
progression at 14 years was 81%, including the 87% and 72% of patients having
intermediate and high-risk disease, respectively.  The study confirmed
the effectiveness of treatment with the TheraSeed® device
combined with EBRT in patients with aggressive cancer who previously were
considered poor candidates for seeding.
 
 A 15-year
study by John E. Sylvester, M.D., Peter D. Grimm, D.O., John C. Blasko, M.D., et
al, of the Seattle Prostate Institute reported excellent 15-year biochemical
control in patients treated with interstitial permanent brachytherapy combined
with moderate-dose EBRT.  The study, published in the International Journal of Radiation Oncology Biology
Physics, 2007, followed a group of 223 consecutively treated patients
with clinical T1-T3 prostate cancer.  15-year BFRS (biochemical
relapse-free survival) of the group, treated with either Pd-103 or I-125
brachytherapy, was 74%.  Results for low-, intermediate- and high-risk
patients were 88%, 80%, and 53%, respectively, using the Memorial
Sloan-Kettering risk cohort analysis.
 
 An
eight-year clinical study published in the January 2005 issue ofInternational Journal of Radiation
Oncology Biology and Physics, reported biochemical progression-free
survival rates of 98.2%, 98.4% and 88.2% for low-, intermediate-, and high-risk
patients, respectively, who underwent brachytherapy using either
Pd-103 or
I-125 and supplemental EBRT or androgen deprivation therapy (“ADT”). The study
was conducted by Dr. Gregory Merrick, et al., of the
Schiffler Cancer Center and included 668 patients who underwent
brachytherapy between April 1995 and January 2001 followed by EBRT and/or
ADT.
 
 Isotope
Selection:The following publications show that isotope
selection has an effect on treatment outcome.
 
 Louis
Potters, M.D., Yijan Cao, Ph.D., et al, Memorial Sloan Kettering Cancer Center,
published a comprehensive review of CT-based dosimetry parameters and
biochemical control in 719 consecutive patients treated with either Pd-103 or
I-125 permanent prostate brachytherapy in the July, 2001 International Journal of Radiation Oncology Biology
Physics.  This review showed that there was no statistically
significant difference in treatment outcome when the treatment dose was
optimal.  However, when the dose was less than optimal, patients
achieved much better biochemical control and suffered fewer relapses with Pd-103
than those treated with I-125: 83.4% freedom from failure compared to
63.8%.
  I-4
  A study
of 5,889 patients over the course of 15 years presented at the 2006 ASTRO annual
meeting found that formula and isotope make a significant difference on the
future prognosis of prostate cancer patients.  Presented by Dr. Louis
Potters of the New York Prostate Institute, the nomogram, or predictive model,
showed a more positive outcome for a patient treated with Pd-103 compared to
I-125.  Dr. Potters noted that “results were compelling in that it
provides a platform by which the medical community can distinguish how we
prescribe brachytherapy based on a patient’s underlying risk.”
 
 Lower Treatment Cost. The
total one-time cost of seeding is typically lower than the cost of RP, which
usually requires a three-day average hospital stay, and EBRT, which requires a
six-to-eight week course of treatment.
 
 Production
- Brachytherapy Seed Business
 
 With the
exception of rhodium-103 (“Rh-103”), all raw materials used in the production of
the TheraSeed® and
I-Seed devices are relatively inexpensive and readily available from third party
suppliers. Rh-103 is relatively expensive but readily available on the open
market.  The Company’s brachytherapy seed production does not require
significant amounts of Rh-103.  In addition, for reasons of quality
assurance, sole source availability or cost effectiveness, certain components
and raw materials are available only from sole suppliers.
 
 The
Company produces its Pd-103, a radioactive isotope, by proton bombardment of
Rh-103 in cyclotrons. The Pd-103 is then harvested from the cyclotrons and
moved through a number of proprietary production processes until it reaches its
final seed form. There are other methods of producing Pd-103, including by
neutron bombardment of palladium-102 in a nuclear reactor and by proton
bombardment of palladium-104 in a cyclotron.
 
 The
Company has produced Pd-103 using Company-owned cyclotrons since 1993. The
Company currently has eight cyclotrons in production, and has no current plans
to purchase additional cyclotrons. The Company's cyclotrons were designed,
built, installed and tested by a company specializing in the construction of
such equipment.
 
 The
Company began production of the I-Seed product early in 2004. The Company does
not produce the I-125 isotope.  This isotope is relatively inexpensive
and is readily available from multiple suppliers.
 
 Since
1997, the Company’s quality control system related to its medical device
manufacturing has been certified as meeting all the requirements of the
International Organization for Standards (ISO) Quality System Standard, and is
currently certified to ISO 13485:2003.
 
 Marketing
and Major Customers - Brachytherapy Seed Business
 
 The
Company sells its TheraSeed® device
directly to health care providers and to third party distributors through two
non-exclusive distribution agreements, and sells its I-Seed device directly to
health care providers. Currently, the Company has non-exclusive distribution
agreements with two distributors for the distribution of the TheraSeed® device.   The
Company’s primary distribution agreement is in place with C. R. Bard (“Bard”).
The terms of the distribution agreement with Bard (the “Bard Agreement”) provide
for automatic one-year extensions of the term, unless either party gives notice
of its intent not to renew at least twelve months prior to the end of the
current term. The current term expires on December 31, 2009 and will be
automatically extended for one additional year unless either party gives notice
of its intent not to extend by December 31, 2008. The Bard Agreement gives Bard
the right to distribute the TheraSeed® device
in the U.S., Canada, Puerto Rico and other international locations for the
treatment of prostate cancer and other solid localized cancerous tumors. A
distribution agreement with Oncura, now a part of GE Healthcare, terminated on
September 8, 2005. A summary of sales to significant customers
follows:
  Percentage
      of
              
              
              
              Percentage
      ofBrachytherapy
      Product Revenue
              
              
              
              Consolidated
      Revenue2007
              
              
              
              2006
              
              
              
              2005
              
              
              
              2007
              
              
              
              2006
              
              
              
              2005Bard
              
              
              52.7
              %
              
              
              60.2
              %
              
              
              61.0
              %
              
              
              27.6
              %
              
              
              38.4
              %
              
              
              49.0
              %Oncura
              
              
              0.0
              %
              
              
              0.0
              %
              
              
              9.6
              %
              
              
              0.0
              %
              
              
              0.0
              %
              
              
              7.7
              %
  I-5
  The
Company maintains an internal brachytherapy sales force that sells the
TheraSeed® and
I-seed devices directly to
hospitals.Direct sales comprised approximately 46%, 39% and 29% of
brachytherapy product revenue in 2007, 2006 and 2005, respectively.The Company also expects
to continue direct to consumer advertising and other activities in an attempt to
support its brand name and increase demand for the TheraSeed® device,
including direct to consumer television and print advertising, clinical studies
aimed at showing the advantages of the TheraSeed® device
in the treatment of prostate cancer, technical field support to TheraSeed®
customers, and other customer service and patient information
activities.
 
 Patents
and Licenses; Trade Secrets - Brachytherapy Seed Business
 
 The
Company holds a number of United States patents directed to radiation
delivery devices for therapeutic uses, as well as certain corresponding
international patents.  The Company’s policy is to file patent
applications in the United States and foreign countries where rights are
available and when the Company believes it is commercially advantageous to do
so.  The Company considers the ownership of patents important, but not
necessarily essential, to its brachytherapy operations. The Company also uses a
strategy of confidentiality agreements and trade secret treatment to provide
primary protection to a number of proprietary design modifications in the
cyclotrons, as well as various production processes.
 
 The
Company also holds a worldwide exclusive license from the University of Missouri
for the use of technology required for producing the TheraSphere® device.
Theragenics holds the rights to all improvements developed by the University of
Missouri on this technology. The Company, in turn, sublicenses exclusive
worldwide rights to this technology and all improvements to Nordion
International, Inc. (“Nordion”).  Pursuant to its licensing agreement
with the University of Missouri, the Company is obligated to pay the university
the greater of a fixed annual amount or a percentage of the gross sales amount
derived from sales of the TheraSphere®
device.
 
 Competition
- Brachytherapy Seed Business
 
 The
Company’s brachytherapy business competes in a market characterized by
technological innovation, extensive research efforts and significant
competition. In general, the TheraSeed® and
I-Seed devices compete with conventional methods of treating localized cancer,
including, but not limited to, radical prostatectomy, which includes
laparoscopic radical prostatectomy and robot-assisted radical prostatectomy, and
external beam radiation therapy which includes intensity modulated radiation
therapy, as well as competing permanent devices. Management believes that if
general conversion from these treatment options (or other established or
conventional procedures) to brachytherapy treatment does occur, such conversion
will likely be the result of a combination of equivalent or better efficacy,
reduced incidence of side effects and complications, lower cost, other quality
of life issues and pressure by health care providers and patients.
  Several
companies produce and distribute Pd-103 and I-125 seeds, which compete directly
with the TheraSeed® and
I-Seed devices. Bard, Oncura, North American Scientific, Inc., Core Oncology and
others all manufacture and/or sell Pd-103 and/or I-125 brachytherapy
seeds.  Management believes that Theragenics has competitive
advantages over these companies including, but not limited to: (i) its
proprietary production processes that have been developed and patented; (ii)
its 20 year history of manufacturing radioactive medical devices and its
record of reliability and safety in its manufacturing operations; (iii) vertical
integration of production and related services, (iv) the time and resources
required for competitors’ production capabilities to ramp up to commercial
production on a scale comparable to Theragenics; (v) maintenance of the
Company’s cancer information center, (vi) its direct sales force, (vii) its
direct to consumer advertising programs and (viii) the non-exclusive
distribution agreements that the Company currently has in place.
  Other
isotopes are also utilized in seeding, including cesium-131 (“Cs-131”),
introduced during 2005. Cs-131 has an average energy that is significantly
higher than that of Pd-103 and is similar to that of I-125.  Cs-131’s
half-life is significantly shorter than that of I-125.  The
combination of Cs-131’s higher energy and shorter half-life may cause issues
related to production, handling and side effects associated with its use. The
Company is not aware of any long-term clinical data demonstrating the
effectiveness of Cs-131 as a therapy for prostate cancer.
  I-6
  In
February 2007, the Company reduced its transfer price to its two non-exclusive
distributors by 6%, in recognition of the current competitive environment and
new distributor strategies.  At any point in time, management of
Theragenics and/or its non-exclusive distributors may continue to change their
respective pricing policies for the TheraSeed® device,
and Theragenics may change its pricing policies for the I-Seed device, in order
to take advantage of market opportunities or respond to competitive situations.
Responding to market opportunities and competitive situations, including but not
limited to competitor selling tactics, could have an adverse effect on the
prices of the TheraSeed® or
I-Seed device.  Responding to market opportunities and competitive
situations may also have a favorable effect on market share and volumes, while
failure to do so could adversely affect market share and volumes although per
unit pricing could possibly be maintained.
 
 In
addition to the competition from the procedures and companies noted above, many
companies, both public and private, are researching new and innovative methods
of preventing and treating cancer. In addition, many companies, including many
large, well-known pharmaceutical, medical device and chemical companies that
have significant resources available to them, are engaged in radiological
pharmaceutical and device research. These companies are located in the United
States, Europe and throughout the world. Significant developments by any of
these companies either in refining existing treatment protocols (such as
enhancements in surgical techniques) or developing new treatment protocols could
have a material adverse effect on the demand for Theragenics’
products.
  Surgical
Products Business
 
 Overview
 
 The
Company’s surgical products segment primarily manufactures and distributes
medical devices used for wound closure and vascular access
applications.   Sales are primarily on an OEM basis and to a
network of distributors.
 
 Wound
closure products include sutures and other surgical products with applications
in urology, veterinary, cardiology, orthopedics, plastic surgery, and other
fields.  The wound closure market is estimated by industry sources to
be a $2.0 billion annual worldwide market, and a $1.2 billion annual market in
the United States.  Sutures represent approximately $700 million of
the world wide wound closure market.  The Company’s wound closure
products are used to hold skin, internal organs, blood vessels and other tissue
together, after they have been severed by injury or surgery.  Wound
closure products such as sutures are produced in various dimensions,
configurations, and types of materials, depending on the
application.  The Company produces and distributes over 800 wound
closure line items, including sterile and non-sterile
products.  Sutures represent the majority of wound closure products
sold by the Company.  Of the Company’s suture products, approximately
60% were in veterinary applications and 40% were in human applications in
2007.  In 2006, approximately 70% of suture was in veterinary
applications and 30% was in human applications.
 
 Vascular
access products include a variety of introducer sheaths, guidewires and
accessories used in interventional radiology, interventional cardiology and
vascular surgery.  The interventional radiology and interventional
cardiology markets are estimated by industry sources to be in excess of $6.0
billion.  The market for access devices is estimated to be 5% to 10%
of the total market, or $300 million to $600 million.  The Company’s
introducers are used to create a conduit through which a physician can insert a
device, such as a catheter, into a blood vessel.  Such a device is
introduced into the vasculature by first using a needle to access the vein. A
guidewire is then inserted through the needle and the needle is removed. The
introducer, consisting of a hollow sheath and a dilator, is then inserted over
the guide wire to expand the opening. The guidewire and dilator are then
removed, leaving only the hollow sheath through which the catheter or other
device is inserted. Once the device is in place, the introducer sheath is
removed. This is typically done by splitting the introducer in half when the
“tear away” version of the product is utilized. Introducers and guidewires are
produced in various dimensions, configurations and types of material, depending
upon the application.  The Company produces and distributes over 200
introducer line items, many of which are procedure kits that, in addition to
introducers and guidewires, may include needles, scalpels and other
components.  These products are sold sterile to distributors and on an
OEM basis in sterile and bulk, non-sterile configurations.
 
 I-7
  Major
product lines in the company’s surgical products business include:
 
 Sutures:
 Sutures
are classified as absorbable or non-absorbable; monofilament, multifilament or
braided; and natural or synthetic. Absorbable or non-absorbable describes the
sutures effective life within tissue. Absorbable sutures lose the majority of
their tensile strength within 60 days after use. Non-absorbable sutures are
resistant to living tissue and do not break down. Monofilament, multifilament
and braided describes the structure or configuration of the suture and is based
on the number of strands used to manufacture the product. Natural or synthetic
describes the origin of the suture. Natural suture materials include surgical
gut, chromic gut, and silk. Synthetic suture materials include nylon, polyester,
stainless steel, polypropylene, polyglycolic acid, ployglycolide-cocaprolactone,
and polydioxanone.
 
 Staples:
 Staples
are made from stainless steel and come in multiple sizes. Staples are a quicker
method of wound closure than suture and are particularly effective in areas of
high skin or tissue tension. Lower infection rates have been experienced with
the use of staples for wound closure due to a lesser degree of tissue
penetration than suture. Staplers are designed for a single use, come preloaded
with staples, and are lightweight and disposable.
 
 Strips
and Tape:
 Strips
and tapes are made of paper, plastic or polyester fabric backed by an adhesive.
Strips and tapes are easy to use and are particularly effective for small wound
closure and for use in conjunction with other wound closure
materials.
 
 Glues and
other surgical sealants:
 Glues and
sealants are easy to use and eliminate some of the difficulties associated with
suture such as variances in absorption rates and tissue reaction. However they
can cause inflammation and are not effective for use in areas of high tissue
tension.
 
 Needles:
 Needles used in general surgery,
including a line of needles and related products used in brachytherapy surgical
procedures.  Smooth and echogenic introducer needles are also
available as sterile products.
 
 Guidewires:
 Guidewires
function as a mechanical assist for the percutaneous introduction and exchange
of various types of plastic catheters or introducer systems into the
vasculature.  Once the catheter is in place, the guidewire is removed
and serves no other function. Materials commonly used in the production of
guidewires are stainless steel, Nitinol, precoated polytetrafluoroethylene(“PTFE”) stainless steel wire, and platinum alloys.  Guidewires
are sold OEM on a bulk, non-sterile basis as well as packaged sterile for direct
hospital sales.  The Company has the technological and manufacturing
capability to produce diagnostic and interventional guidewires, and currently
offers a sterile product line with approximately 40 line items.
 
 Micro-Introducer
Kits:
 Micro-Introducers
are commonly called coaxial dilators and are utilized when a small entry site
(21 gauge needle) is desirable.  Micro-Introducers are introduced
over a guidewire.  These introducers are packaged in a sterile kit
that includes a Micro-Introducer set, a 21 gauge needle and a .018” diameter
guidewire.  The standard product offerings consist of standard and
stiffen variations.  Various iterations are accomplished by using
three different needle types and four different mandrel type
guidewires.  The current sterile product line consists of
approximately 50 line items.
 
 Tearaway
Introducer Sets and Kits:
 This
product consists of a Teflon sheath and a High Density Polyethylene (“HDPE”)
dilator set that is introduced over a guidewire.  Once that
introduction is made the guidewire and the dilator are removed leaving the
sheath in place as a vascular access.  Once the definitive device
(catheter) is introduced through the sheath, the sheath is easily split and
removed leaving the desired catheter in place.  These products are
offered sterile as an introducer sheath/dilator set or as a complete introducer
kit that includes a needle and a guidewire.  The sterile product line
consists of approximately 130 line items with lengths from 5cm to
50cm.  Additionally, the components are sold on a bulk, non-sterile
basis to OEM customers.
  I-8
  Elite HVTM
Introducer Kits:
 This
product consists of a sheath that incorporates a hemostasis valve and an HDPE
dilator for arterial access.  It is introduced into the vasculature as
a set over a guidewire.  The guidewire and dilator are removed leaving
a “closed” vascular access system.  The product line consists of
standard .035” compatible sheaths, as well as .018” Micro-access kits, which
allows for a less invasive entry.  Recent enhancements include a line
of 24 cm sheaths, as well as the option of a raidopaque band to assist in tip
visibility under fluoroscopy.  The present product line consists of
nine line items and is sold sterile and bulk, non-sterile.
 
 ReDialTM
4cm High Flow Introducer Sheath
 This product consists of a sheath that
incorporates a hemostasis valve, HDPE dilator, larger bore tubing, side holes,
and color coded clamps for use in de-clotting dialysis shunts. The larger bore
tubing and side holes allow for high flow procedures. The ReDialTM is available
with or without radiopaque band, and consists of 12 line items. The present
product line is sold sterile and bulk, non sterile.
 
 Radial
Artery Access Kits:
 This product consists of a sheath that
incorporates a hemostasis valve and an HDPE dilator for arterial access via the
radial artery.  Radial artery access reduces trauma and recovery
time.  The radial artery access kits are available in three different
lengths to meet the preference of the physician, and include a needle and
guidewire. These introducer sheaths are used during coronary angioplasty
procedures.
 
 The
Company’s surgical products business manufactures and distributes surgical
products under the following registered trademarks:
 
 Monoswift®
      polyglicolide- - cocaprolactone suture
              Visorb®
      polyglycolic acid (PGA) sutureMono-Dox®
      polydioxanone (PDO) suture
              CP
      Fiber®
      high strength polyethylene suturesMonomid®
      nylon monofilament suture
              Medbond®
      skin adhesivePolyamid®
      braided nylon suture
              X-act®
      skin staplersPolybond®
      braided polyester suture
              Polypro®
      polypropylene monofilament sutureElite
      HVTM hemostasis vale introducer
              ReDialTM
      Introducer Sheath
 
 Production
- Surgical Products Business
  The
Company designs, manufactures, assembles, packages and distributes its
products.  Component raw materials primarily include natural and
synthetic sutures, tubing, wire, plastic resins and other components,
which are generally readily available from third party suppliers. Suppliers are
located in the United States, as well as in Latin America, Europe, and Asia. A
significant portion of the Company’s products in the surgical products segment
is produced on an OEM basis as private labeled products or in a bulk,
non-sterile configuration.
  Marketing
and Major Customers - Surgical Products Business
  A network
of distributors in the United States and Europe is used to market and distribute
the Company’s surgical products. A small direct sales force is maintained for
direct sales to healthcare providers (human use and veterinary) and group
purchasing organizations, as well as to service the needs of
distributors. No single customer represented 10% or more of surgical products
revenue for 2007.  One customer represented approximately 10% and 14%
of surgical products revenue for 2006 and 2005, respectively.
  Competition
- Surgical Products Business
  The
Company’s surgical products business operates primarily in the wound closure,
interventional radiology, interventional cardiology and vascular surgery
markets, which are dominated by a few large suppliers that can limit the growth
opportunities available to smaller participants. The primary suppliers are
Ethicon, Inc., a subsidiary of Johnson and Johnson, Covidien Ltd. (a spin off of
Tyco), Angiodynamics, Boston Scientific, Cook Medical, Inc., C.R. Bard, Inc.,
Greatbatch, Inc., Merit Medical and Terumo Medical. The Company’s surgical
products business competes in these markets by providing custom labeled
products, high quality, timely and cost effective products, and a high level of
customer service in niche markets that are underserved by the larger suppliers.
The Company’s surgical products business also has extensive experience and
knowledge of the markets as well as many established relationships with
distributors and providers.
  I-9
  Patents
and Licenses; Trade Secrets - Surgical Products Business
 
 The
Company’s surgical products business holds several U.S. patents related to
suture dispensing systems, suture and needle design, and vascular introducer
system design. The Company’s policy is to file patent applications in the United
States and foreign countries where rights are available and when the Company
believes it is commercially advantageous to do so. The Company considers
the ownership of patents important, but not necessarily essential, to its
surgical products business.  A strategy of confidentiality agreements
and trade secret treatment is also utilized to protect non-patented proprietary
information.
 
 Seasonality
 
 Although
effects from seasonality cannot be identified in relation to a specific quarter
or quarters for either business segment, management believes that holidays,
major medical conventions and vacations taken by physicians, patients and
patients’ families, may have a seasonal impact on sales in both the
brachytherapy seed and surgical products segments.
  Research
and Development
 
 Research
and development (R&D) expenses were $1.4 million, $805,000 and $3.6
million in 2007, 2006 and 2005, respectively. R&D expenses in 2005 were
related primarily to the use of Pd-103 in the peripheral vascular and macular
degeneration programs in the brachytherapy business. These programs were
curtailed in connection with the Company’s restructuring in 2005 (see “2005Restructuring” above). In
2007, the brachytherapy segment developed a new device to assist with the
configuration of seeds.  This new device allows a physician to perform
real time stranding of seeds and customize the brachytherapy procedure while in
the operating room.  R&D in the surgical products segment was
primarily related to new product development.  These product
development activities are focused on products that can be marketed once they
have received 510(k) clearance by the U.S. Food and Drug Administration, rather
than products that would require costly and lengthy clinical
trials.  Looking forward, management expects consolidated R&D
expenses in 2008 to continue at levels similar to 2007, with more R&D
incurred in the surgical products segment and less in the brachytherapy
segment.  However, the rate of R&D spending in 2008 could change
based on the opportunities identified.   In January 2007, the
Company contracted with Peter J. Fitzgerald, M.D., Ph.D. to serve as its Chief
Medical Director.  Dr. Fitzgerald will consult with the Company to
identify opportunities, and advise on research and product development in the
interventional cardiology, interventional radiology and wound closure
markets.
 
 Government
Regulation
 
 The
Company’s present and future intended activities in the development, manufacture
and sale of cancer therapy products and wound closure and vascular access
products are subject to extensive laws, regulations, regulatory approvals and
guidelines. Within the United States, the Company’s medical devices must comply
with the U.S. Federal Food, Drug and Cosmetic Act, which are enforced by the
Food and Drug Administration (FDA). The Company is also subject to regulation by
other governmental agencies, including the Occupational Safety and Health
Administration (OSHA), the Environmental Protection Agency (EPA), the Nuclear
Regulatory Commission, and other federal and state agencies. The Company must
also comply with the regulations of the Competent Authorities of the European
Union for its products that have been CE Marked and are sold in the member
nations of the European Union.
 
 The
Company is also required to adhere to applicable FDA regulations for Quality
System Regulation (previously known as Good Manufacturing Practices), including
extensive record keeping and periodic inspections of manufacturing
facilities.
 
 The
Company has obtained FDA 510(k) clearances for its medical devices in the
brachytherapy and surgical products businesses. New FDA clearances would be
required for any modifications in such products or its labeling that could
significantly affect the safety or effectiveness of the original
product.
  I-10
  The
Company’s manufacturing, distribution and security of radioactive materials are
governed by the State of Georgia in agreement with the Nuclear Regulatory
Commission (NRC). The users of the TheraSeed® device
are also required to possess licenses issued either by the states in which they
reside or the NRC depending upon the state involved and the production process
used.
 
 The
Company is required under its radioactive materials license to maintain
radiation control and radiation safety personnel, procedures, equipment and
processes, and to monitor its facilities and its employees and contractors. The
Company is also required to provide financial assurance that adequate funding
will exist for end-of-life radiological decommissioning of its cyclotrons and
other areas of its property where radioactive materials are handled. The
Company’s decommissioning obligations will increase if production capacity is
expanded.
 
 The
Company transfers low-level radioactive waste to licensed commercial radioactive
waste treatment or disposal facilities for incineration or land disposal. The
Company provides training and monitoring of its personnel to facilitate the
proper handling of all materials.
  Employees
 
 As of
December 31, 2007, the Company and its subsidiaries had 338 full time
employees. None of its employees are represented by a union or a collective
bargaining agreement, and management considers employee relations to be
good.
 
 Available
Information
 
 The
Company’s website address is http://www.theragenics.com.
The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports filed pursuant
to Section 13(a) or 15(c) of the Securities and Exchange Act of 1934 are
available free of charge through its website by clicking on the “Investor
Relations” page and selecting “SEC Filings.” These reports will be available as
soon as reasonably practicable after such material has been electronically filed
with, or furnished to, the SEC. These reports are also available through the
SEC’s website at http://www.sec.gov.
The information on these websites and the information contained therein or
connected thereto are not intended to be incorporated by reference into this
Form 10-K. In addition the Company will provide paper copies of these filings
(without exhibits) free of charge to its shareholders upon request.
 
 Item
1A. Risk Factors
 
 The
Company operates in continually changing business environments and new risk
factors may emerge from time to time.  Management cannot predict such
new risk factors, nor can they assess the impact, if any, of such new risk
factors on the business or to the extent to which any factor or combination of
factors may cause actual results to differ materially from those expressed in
any forward looking statement.  Additional risks and uncertainties not
currently known to management or that management might currently deem to be
immaterial also may adversely affect our business, financial condition and/or
operating results.
  The
Company operates multiple businesses.  When management refers to
“brachytherapy” or the “brachytherapy business”, management is referring to the
business that produces, markets and sells TheraSeed®, its
premier palladium-103 prostate cancer treatment device, I-Seed, our iodine-125
based prostate cancer treatment device, and related products and
services. When management refers to “surgical products” or the “surgical
products business”, management is referring to the business that produces
markets and sells wound closure products, disposable medical devices used for
vascular access and other surgical related products.
  I-11
 
 Risks
Related to our Business
  There
are risks associated with our acquisitions, potential acquisitions and joint
ventures.
  An
important element of our strategy is to seek acquisition prospects and
diversification opportunities that we believe will complement or diversify our
existing product offerings, augment our market coverage and customer base,
enhance our technological capabilities or offer revenue and profit growth
opportunities. We acquired CP Medical in May 2005 and Galt in August
2006.  Further transactions of this nature could result in potentially
dilutive issuance of equity securities, use of cash and/or the incurring of debt
and the assumption of contingent liabilities.
 
 Acquisitions
entail numerous costs, challenges and risks, including difficulties in the
assimilation of acquired operations, technologies, personnel and products and
the retention of existing customers and strategic partners, diversion of
management’s attention from other business concerns, risks of entering markets
in which we have limited or no prior experience and potential loss of key
employees of acquired organizations. Other risks include the potential strain on
the combined companies’ financial and managerial controls and reporting systems
and procedures, greater than anticipated costs and expenses related to
integration, and potential unknown liabilities associated with the acquired
entities. No assurance can be given as to our ability to successfully integrate
the businesses, products, technologies or personnel acquired in past
acquisitions or those of other entities that may be acquired in the future or to
successfully develop any products or technologies that might be contemplated by
any future joint venture or similar arrangement. A failure to integrate CP
Medical, Galt or future potential acquisitions could result in our failure to
achieve our revenue growth or other objectives associated with acquisitions, or
recover costs associated with these acquisitions, which could affect our
profitability or cause the market price of our common stock to
fall.
 
 We
may not realize the benefits of acquisitions.
  The
process of integrating our acquisitions may be complex, time consuming and
expensive and may disrupt our businesses, and could affect our financial
condition, results of operations or future prospects. The Company will need to
overcome significant challenges in order to realize benefits or synergies from
the acquisitions. These challenges include the timely, efficient and successful
execution of a number of post-acquisition events, including:
 
 ·
              integrating
      the operations and technologies of the acquired
  companies;·
              retaining
      and assimilating the key personnel of each company;·
              retaining
      existing customers of both companies and attracting additional
      customers;·
              retaining
      strategic partners of each company and attracting new strategic
      partners; and·
              creating
      uniform standards, controls, procedures, policies and information
      systems.
 
 The
execution of these post-acquisition events will involve considerable risks and
may not be successful. These risks include:
 
 ·
              the
      potential disruption of the combined companies’ ongoing businesses and
      distraction of management;·
              the
      potential strain on the combined companies’ financial and managerial
      controls and reporting systems and procedures; and·
              the
      potential unknown liabilities associated with the acquisition and the
      combined operations.
 
 The
Company may not succeed in addressing these risks or any other problems
encountered in connection with the acquisitions. The inability to successfully
integrate the operations, technology and personnel of the two companies
acquired, or any significant delay in achieving integration, could have a
material adverse effect on the Company.
  The
cost of acquisitions could harm our financial results.
  If the
benefits of acquisitions do not exceed the associated costs, including costs
related to integrating the companies acquired and dilution to our stockholders
resulting from the issuance of shares in connection with the acquisitions, our
financial results, including earnings per share, could be materially
harmed.
  I-12
  We
are dependent on key personnel.
  We are
highly dependent upon our ability to attract and retain qualified management,
scientific and technical personnel.  Therefore, our future success is
dependent on our key employees.  If the services of our chief
executive or other key employees cease to be available, the loss could adversely
affect our business and financial results.  We carry key employee
insurance for M. Christine Jacobs, our Cheif Executive Officer, in the
amount of $1 million.
  Our
stock price has been and may continue to be subject to large
fluctuations.
  The
trading price of our Common Stock has been and may continue to be subject to
wide fluctuations in response to quarter-to-quarter variations in operating
results, announcements of technological innovations, new products or
acquisitions by us or our competitors, developments with respect to patents or
proprietary rights, general conditions in the medical device and surgical
products industries, or other events or factors. In addition, the stock market
can experience extreme price and volume fluctuations, which can particularly
affect the market prices of technology companies and which can be unrelated to
the operating performance of such companies. Average daily trading volume in our
Common Stock is not significant and can cause significant price
fluctuations.  Specific factors applicable to the Company or broad
market fluctuations may materially adversely affect the market price of our
Common Stock. We have experienced significant fluctuations in our stock price
and share trading volume in the past and may continue to do so.
  We
face production risks.
  Theragenics’
manufacturing process in the brachytherapy business requires, among other
things, the use of cyclotrons, which are used to manufacture Pd-103 for our
brachytherapy seed products.  Cyclotron capacity and performance
directly affect the Company’s ability to support any increases in sales
levels.  Due to the intricate nature of cyclotrons and the Company’s
exacting specifications for their performance, planned downtime for maintenance
and repair is crucial and unexpected downtime may occur.  Unexpected
mechanical breakdowns or other production delays could materially adversely
affect the Company’s production capacity and its business, financial condition
and results of operations.
  Manufacturing
or quality control problems may arise in any of the Company’s businesses as the
Company increases production or as additional manufacturing capacity is required
in the future.  These factors may have an adverse impact on the
Company’s business, financial condition and results of operations.
  Surgical
product components are obtained from suppliers located in the United States, as
well as in Latin America, Europe, and Asia.  While we believe there is
adequate access to alternative suppliers, any disruption in supply could have a
material adverse effect on our business, financial condition and results of
operations.
  The
Company operates three primary production facilities, each of which manufactures
unique products.  If an event occurred that resulted in damage to one
or more of our production facilities, we may be unable to produce the relevant
products at previous levels or at all.  In addition, for reasons of
quality assurance, sole source availability or cost effectiveness, certain
components and raw materials are available only from a sole
supplier.  Due to the FDA’s and other stringent regulations regarding
the manufacture of our products, we may not be able to quickly establish
replacement sources for certain component materials.  Any interruption
in manufacturing, or in the ability to obtain raw materials and component
supplies, could have a material adverse effect on our business.
  We
are subject to stringent government regulation.
  The
manufacture and sale of the Company’s products are subject to stringent
government regulation in the United States and other countries.  The
Company’s medical devices have 510(k) clearance by the FDA for commercial
distribution in the United States.  FDA and other governmental
approvals and clearances are subject to continual review, and later discovery of
previously unknown problems could result in restrictions on a product’s
marketing or withdrawal of the product from the market.  The
commercial distribution in the United States of new medical devices developed by
the Company often will be dependent on obtaining the prior approval or clearance
of the FDA, which can take many years to obtain and entail significant
costs.  No assurances can be made that any such approvals or
clearances will be obtained on a timely basis or at all.  In countries
in which the Company’s medical devices are not approved, the use or sale of such
medical devices will require approvals by government agencies comparable to the
FDA.  The process of obtaining such approvals can be lengthy,
expensive and uncertain.  There can be no assurance that the necessary
approvals for the marketing of the Company’s products in other markets will be
obtained on a timely basis or at all.  The Company is also required to
comply with applicable FDA regulations for Quality System Regulation (“QSR”),
including extensive record keeping, reporting and periodic inspections of its
manufacturing facilities.  Similar requirements are imposed by
governmental agencies in other countries.  A new 510(k) clearance is
required for any modifications to previously approved medical devices or their
labeling that could significantly affect the safety or effectiveness of the
original products.  Under the FDA’s regulatory scheme, the decision
whether to seek 510(k) clearance for a modified device is left to the
manufacturer in the first instance, and management has thus far determined that
no such clearance has been required.  The FDA has the right to review
and revoke 510(k) clearance at any time.  The FDA may determine that a
pre-market approval, whereby the FDA conducts a scientific and regulatory review
of a Class III scientific device for safety and effectiveness, may be required
for future products or for future modifications to the Company’s existing
medical devices.
  I-13
  Certain
of the Company’s medical devices have also been approved for marketing
throughout the member countries of the European Union by obtaining appropriate
CE Marks.  As a result of receiving CE Marks, the Company must also
comply with the regulations of the Competent Authorities of the European Union
for any such devices sold in the member nations of the European
Union.
  The
Company’s brachytherapy manufacturing operations involve the manufacturing and
possession of radioactive materials, which are subject to stringent
regulation.  The users of the Company’s brachytherapy seed products
are required to possess licenses issued by the states in which they reside or
the U.S. Nuclear Regulatory Commission (the “NRC”).  User licenses are
also required by some of the foreign jurisdictions in which the Company may seek
to market its products.  There can be no assurance that current
licenses held by the Company for its manufacturing operations will remain in
force or that additional licenses required for the Company’s operations will be
issued.  There also can be no assurance that the Company’s customers
will receive or retain the radioactive materials licenses required to possess
and use TheraSeed® or
I-Seed or that delays in the granting of such licenses will not hinder the
Company’s ability to market its products.  Furthermore, regulation of
the Company’s radioactive materials manufacturing processes involves the
imposition of financial requirements related to public safety and
decommissioning, and there are costs and regulatory uncertainties associated
with the disposal of radioactive waste generated by the Company’s manufacturing
operations.  There can be no assurance that the imposition of such
requirements and the costs and regulatory restrictions associated with disposal
of waste will not, in the future, adversely affect the Company’s business,
financial condition and results of operations.
  The
Company is required under its radioactive materials license to maintain
radiation control and radiation safety personnel, procedures, equipment and
processes, and to monitor its facilities and its employees and
contractors.  The Company is also required to provide financial
assurance that adequate funding will exist for end-of-life radiological
decommissioning of its cyclotrons and other radioactive areas of its properties
that contain radioactive materials.  The Company has provided this
financial assurance through the issuance of letters of credit.  The
Company has so far been successful in explaining to the Georgia Department of
Natural Resources that it will not have to dispose of its cyclotrons, but
instead will be able to sell them for re-use or use for spare parts if it ceases
to operate them.  Thus, the Company is only required to estimate and
provide financial assurance for the end-of-life remediation and disposal costs
associated with ancillary structures, such as plumbing, laboratory equipment and
chemical processing facilities.  However, if the Georgia Department of
Natural Resources was to require that the Company include the cost of
decommissioning its cyclotrons in its financial assurance demonstration, the
amount of funds required to be set aside by the Company to cover decommissioning
costs could dramatically increase.
  Failure
to obtain and maintain regulatory approvals, licenses and permits could
significantly delay the Company’s marketing efforts.  Furthermore,
changes in existing regulations, or interpretations of existing regulations or
the adoption of new restrictive regulations could adversely affect the Company
from obtaining, or affect the timing of, future regulatory
approvals.  Failure to comply with applicable regulatory requirements
could result in, among other things, significant fines, suspension of approvals,
seizures or recalls of products, operating restrictions or criminal prosecution
and materially adversely affect the Company’s business, financial condition and
results of operations.
  I-14
  We
face risk related to lack of diversification.
  Through
April 2005, virtually all of the Company’s revenues were generated from the
brachytherapy seed market.  The growth of our surgical products
business has reduced our dependence on the brachytherapy
business.  However, there is no assurance that we can continue to
successfully diversify our business, and a lack of diversification or over
reliance on any one of our businesses can be a risk.
  We
are dependent on new technological development.
  The
Company competes in markets characterized by technological innovation, extensive
research efforts and significant competition.  New developments in
technology may have a material adverse effect on the development or sale of the
Company’s products and may render such products noncompetitive or
obsolete.  Other companies, many of which have substantially greater
capital resources, marketing experience, research and development staffs and
facilities than the Company, are currently engaged in the development of
products and innovative methods for treating cancer, caring for wounds,
providing vascular access, and addressing other surgical procedures that are
similar to, or compete with, the Company’s brachytherapy products, surgical
products, and technologies.  Significant developments by any of these
companies or advances by medical researchers at universities, government
research facilities or private research laboratories could eliminate the entire
market for any or all of the Company’s products.
  We
face significant competition.
  Our
brachytherapy business is also subject to intense competition within the
brachytherapy seed market.  C.R. Bard, Inc., Oncura (a part of GE
Healthcare), North American Scientific, Inc., Core Oncology and others all
manufacture and/or sell Pd-103 and/or I-125 brachytherapy seeds. Our surgical
products business competes with other suppliers of wound closure and vascular
access products.    Many of these competitors, including
Bard, Ethicon, Inc., a Johnson & Johnson company, Covidien Ltd. (a spin off
of Tyco), Angiodynamics, Boston Scientific, Cook Medical, Inc., Greatbatch,
Inc., Merit Medical and Terumo Medical have substantially greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition and a larger customer base, than
Theragenics.  Additionally, many companies located outside of the
United States, in particular in Asia, produce and supply similar surgical
products.  These companies may have access to substantially lower
costs of production.  Accordingly, such competitors or future
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their products than us.  As a
result, we may be at a disadvantage when competing with these larger
companies.  If we fail to compete effectively, our business, financial
condition and results of operations may be adversely affected.
  We
are highly dependent on our marketing and advertising specialists and our direct
sales organization in the brachytherapy business.  Any failure to
build and manage our direct sales organization could negatively affect our
revenues.
  We are
highly dependent on our direct sales organization comprised of brachytherapy
specialists who promote and support our brachytherapy products.  There
is intense competition for skilled sales and marketing employees, particularly
for people who have experience in the radiation oncology market. Accordingly, we
could find it difficult to hire or retain skilled individuals to sell our
products. Failure to retain our direct sales force could adversely affect our
growth and our ability to meet our revenue goals.  There can be no
assurance that our direct sales and marketing efforts will be successful. If we
are not successful in our direct sales and marketing, our sales revenue and
results of operations are likely to be materially adversely
affected.
  I-15
  We
depend partially on our relationships with distributors and other industry
participants to market our brachytherapy and surgical products, and if these
relationships are discontinued or if we are unable to develop new relationships,
our revenues could decline.
  We rely,
and will continue to rely, upon collaborative relationships with agents and
distributors and other industry participants to maintain market access to
potential customers. Some of the entities with which we have relationships to
help market and distribute our products also produce or distribute products that
directly compete with our products.  In particular, C.R. Bard, one of
our primary competitors, is also a distributor of our TheraSeed® product.
Sales to Bard represented 53% of brachytherapy product revenue in 2007. The
terms of our distribution agreement with Bard provides for automatic one-year
extensions of the term, unless either party gives notice of its intent not to
renew at least twelve months prior to the end of the current term. The current
term expires on December 31, 2009, and will be automatically extended for one
additional year unless either party gives notice of its intent not to extend by
December 31, 2008. There is no assurance that this distribution agreement will
be extended and if it is not, how much unit volume being sold through Bard will
be able to be captured by our direct sales force.
  A
significant portion of our surgical products revenue is derived from our
relationships with dealers and distributors. There is no assurance that we will
be able to maintain or develop these relationships with agents and distributors
and other industry participants or that these relationships will continue to be
successful. If any of these relationships is terminated, not renewed or
otherwise unsuccessful, or if we are unable to develop additional relationships,
our product sales could decline, and our ability to grow our product lines could
be adversely affected.
  Doctors
and hospitals may not adopt our products and technologies at levels sufficient
to sustain our business or to achieve our desired growth rate.
  To date,
we have attained only limited penetration of the total potential market for our
products. Our future growth and success depends upon creating broad awareness
and acceptance of our products by doctors, hospitals and freestanding clinics,
as well as patients. This will require substantial marketing and educational
efforts, which will be costly and may not be successful. The target customers
for our products may not adopt these technologies or may adopt them at a rate
that is slower than desired. In addition, potential customers who decide to
utilize any of our devices may later choose to purchase competitors’ products.
Important factors that will affect our ability to attain broad market acceptance
of our products include:
  ·
              doctor
      and/or patient awareness and acceptance of our
products;·
              the
      real or perceived effectiveness and safety of our
  products;·
              the
      relationship between the cost of our products and the real or perceived
      medical benefits of our products;·
              the
      relationship between the cost of our products and the financial benefits
      to our customers using our products, which will be greatly affected by the
      coverage of, and reimbursement for, our products by governmental and
      private third-party payors; and·
              market
      perception of our ability to continue to grow our business and develop
      enhanced products.
  Failure
of our products to gain broad market acceptance could cause our revenues to
decline and our business to suffer.
  I-16
  Evolving
regulation of corporate governance and public disclosure may result in
additional expenses and continuing uncertainty.
  Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and
NYSE rules are creating uncertainty for public companies, and are particularly
burdensome for smaller public companies such as Theragenics. We cannot predict
or estimate the amount of the additional costs we may incur relating to
regulatory developments or the timing of such costs. These new or changed laws,
regulations and standards are subject to varying interpretations, in many cases
due to their lack of specificity, and as a result, their application in practice
may evolve over time as new guidance is provided by regulatory and governing
bodies. This could result in continuing uncertainty regarding compliance matters
and higher costs necessitated by ongoing revisions to disclosure and governance
practices.
  We are
committed to maintaining high standards of corporate governance and public
disclosure. As a result, we have invested resources to comply with evolving
laws, regulations and standards, and this investment may result in increased
general and administrative expenses and a diversion of management time and
attention from revenue-generating activities to compliance activities. If our
efforts to comply with new or changed laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due to
ambiguities related to practice, regulatory authorities may initiate legal
proceedings against us and our business, financial position and results of
operations may be adversely affected.
  There
are limitations on our ability to protect our intellectual property, and we are
dependent on trade secrets.
  The
Company’s success will depend, in part, on its ability to obtain, assert and
defend patent rights, protect trade secrets and operate without infringing the
proprietary rights of others.  The Company holds rights to issued
United States and foreign patents.  There can be no assurance that
rights under patents held by or licensed to the Company will provide it with
competitive advantages that others will not independently develop similar
products or design around or infringe the patents or other proprietary rights
owned by or licensed to the Company.  In addition, there can be no
assurance that any patent obtained or licensed by the Company will be held to be
valid and enforceable if challenged by another party.
  There can
be no assurance that patents have not been issued or will not be issued in the
future that conflict with the Company’s patent rights or prevent the Company
from marketing its products.  Such conflicts could result in a
rejection of the Company’s or its licensors’ patent applications or the
invalidation of patents, which could have a material adverse effect on the
Company’s business, financial condition and results of operations.  In
the event of such conflicts, or in the event the Company believes that
competitive products infringe patents to which the Company holds rights, the
Company may pursue patent infringement litigation or interference proceedings
against, or may be required to defend against litigation or proceedings
involving, holders of such conflicting patents or competing
products.  There can be no assurance that the Company will be
successful in any such litigation or proceeding, and the results and cost of
such litigation or proceeding may materially adversely affect the Company’s
business, financial condition and results of operations.  In addition,
if patents that contain dominating or conflicting claims have been or are
subsequently issued to others and such claims are ultimately determined to be
valid, the Company may be required to obtain licenses under patents or other
proprietary rights of others.  No assurance can be given that any
licenses required under any such patents or proprietary rights would be made
available on terms acceptable to the Company, if at all.  If the
Company does not obtain such licenses, it could encounter delays or could find
that the development, manufacture or sale of products requiring such licenses is
foreclosed.
  The
Company relies to a significant degree on trade secrets, proprietary know-how
and technological advances that are either not patentable or that the Company
chooses not to patent.  The Company seeks to protect non-patented
proprietary information, in part, by confidentiality agreements with suppliers,
employees and consultants.  There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company’s trade secrets and proprietary know-how
will not otherwise become known or be independently discovered by
others.  The disclosure to third parties of proprietary non-patented
information could have a material adverse effect on the Company’s business,
financial condition and results of operations.
  I-17
  We
are dependent on Medicare reimbursement policies and policies of other third
party payors.
  Medicare
covers a substantial percentage of the patients treated for prostate cancer in
the United States, and consequently, the costs for prostate cancer treatment are
subject to Medicare’s prescribed rates of reimbursement. The utilization of
TheraSeed®, I-Seed
and many of the products in our surgical products business may be influenced by
Medicare’s reimbursement levels, and the policies of other third party payors,
which can change periodically.  Unfavorable reimbursement levels and
confusion regarding potential changes in Medicare have adversely affected sales
of our brachytherapy products in the past, and could do so in the
future.
  Management
believes that the brachytherapy industry continues to be affected by competition
from alternate therapies, declining prices for I-125 and Pd-103 seeds,
competitors’ selling tactics and the effects of consolidation in the industry.
Theragenics’ brachytherapy business also continues to be affected by the
Company’s non-exclusive distributors.  Medicare reimbursement policies
have affected the brachytherapy market and can also continue to affect the
brachytherapy market.  In December 2007 Congress enacted the Medicare,
Medicaid and SCHIP Extension Act of 2007, which retained the “charges adjusted
to cost” reimbursement methodology for brachytherapy seeds under Medicare
through June 30, 2008.  Under the current law, fixed reimbursement
rates for seeds will be implemented in July 2008, (see “Medicare Developments”
included in “Management’s
Discussion and Analysis” below). This and other factors can be
expected to lead to continued pricing pressure from hospitals and other health
care providers.  Accordingly, Theragenics and/or its non-exclusive
distributors may continue to change their respective pricing policies for the
TheraSeed® device
and Theragenics may change its pricing policy with respect to I-Seed in order to
take advantage of market opportunities or respond to competitive situations.
Responding to market opportunities and competitive situations could have an
adverse effect on average selling prices.  Responding to market
opportunities and competitive situations could also have a favorable effect or
prevent an unfavorable effect on market share and volumes. Conversely, the
Company or its non-exclusive distributors could individually and independently
decide to maintain per unit pricing under certain competitive situations that
could adversely affect current or potential market share and
volumes.
 
 There can
be no assurance that (i) current or future limitations or requirements for
reimbursement by Medicare or other third party payors for prostate cancer
treatment will not materially adversely affect the market for our brachytherapy
or other products, (ii) that health administration authorities outside of the
United States will provide reimbursement at acceptable levels, if at all or
(iii) that any such reimbursement will be continued at rates that will enable
the Company to maintain prices at levels sufficient to realize an appropriate
return.
  We
may be unable to maintain sufficient liability insurance.
  The
Company’s business is subject to product liability risks inherent in the
testing, manufacturing and marketing of medical devices. The Company maintains
liability policies with limits of $25 million per occurrence and in the
aggregate.  The Company’s product liability and general liability
policies are provided on a claims-made basis and are subject to annual
renewal.  There can be no assurance that liability claims will not
exceed the scope of coverage or limits of such policies or that such insurance
will continue to be available on commercially reasonable terms or at
all.  If the Company does not or cannot maintain sufficient liability
insurance, its ability to market its products may be significantly
impaired.  In addition, product liability claims, as well as negative
publicity arising out of such claims, could have a material adverse effect on
the business, financial condition and results of operations of the
Company.
  If
we do not comply with laws and regulations relating to our use of hazardous
materials, we may incur substantial liabilities.
  We use
hazardous materials and chemicals in our manufacturing operations. We are
required to comply with increasingly rigorous laws and regulations governing
environmental protection and workplace safety, including requirements governing
the handling, storage and disposal of hazardous substances and the discharge of
materials into the environment generally. Although, we believe that we handle,
store and dispose of these materials in a manner that complies with state and
federal regulations, the risk of accidental contamination or injury exists. In
the event of an accident, we could be held liable for decontamination costs,
other clean-up costs and related damages or liabilities.  To help
minimize these risks, we employ a full-time Environmental Health and Safety
Officer and, when appropriate, we utilize outside professional services
organizations to help us evaluate environmental regulations and monitor our
compliance with such regulations.In addition, the
Company procures insurance specifically designed to mitigate environmental
liability exposures.
  I-18
 
 Litigation
may harm our business or otherwise distract our management.
  Substantial,
complex or extended litigation could cause us to incur large expenditures and
distract our management, and could result in significant monetary or equitable
judgments against us.  For example, lawsuits by employees, patients,
customers, licensors, licensees, suppliers, business partners, distributors,
stockholders, or competitors could be very costly and could substantially
disrupt our business.  Disputes from time to time with such companies or
individuals are not uncommon, and we cannot assure that we will always be able
to resolve such disputes out of court or on terms favorable to us.
  Defects
in, or misuse of, our products, or any detrimental side effects that result from
the use of our products, could result in serious injury or death and could
require costly recalls or subject us to costly and time-consuming product
liability claims. This could harm future sales and require us to pay substantial
damages.
  TheraSeed® and
I-Seed deliver a highly concentrated and confined dose of radiation directly to
the prostate from within the patient’s body.  Surrounding tissues and
organs are typically spared excessive radiation exposure.  Our wound
closure and vascular access products are also utilized directly on
patients.  It is an inherent risk of the industries in which we
operate that we might be sued in a situation where one of our products
results in, or is alleged to result in, a personal injury to a patient, health
care provider, or other user. Although we believe that as of the current date we
have adequate insurance to address anticipated potential liabilities associated
with product liability, any unforeseen product liability, exposure in excess of,
or outside the scope of, such insurance coverage could adversely affect our
operating results. Any such claim brought against us, with or without merit,
could result in significant damage to our business.
  The FDA’s
medical device reporting regulations require us to report any incident in which
our products may have caused or contributed to a death or serious injury, or in
which our products malfunctioned in a way that would be likely to cause or
contribute to a death or serious injury if the malfunction reoccurred. Any
required filing could result in an investigation of our products and possibly
subsequent regulatory action against us if it is found that one of our products
caused the death or serious injury of a patient.
  Because
of the nature of our products, the tolerance for error in the design,
manufacture or use of our products may be small or nonexistent. If a product
designed or manufactured by us is defective, whether due to design or
manufacturing defects, or improper assembly, use or servicing of the product or
other reasons, the product may need to be recalled, possibly at our expense.
Furthermore, the adverse effect of a product recall might not be limited to the
cost of the recall. For example, a product recall could cause applicable
regulatory authorities to investigate us as well as cause our customers to
review and potentially terminate their relationships with us. Recalls,
especially if accompanied by unfavorable publicity or termination of customer
contracts, could cause us to suffer substantial costs, lost revenues and a loss
of reputation, each of which could harm our business. Products as complex as our
planning and dose calculation software systems may also contain undetected
software errors or defects when they are first introduced or as new versions are
released. Our products may not be free from errors or defects even after they
have been tested, which could result in the rejection of our products by our
customers and damage to our reputation, as well as lost revenue, diverted
development resources and increased support costs. We may also be subject to
claims for damages related to any errors in our products.
  Although
a number of the surgical products are Class II devices subject to certain
special controls by the FDA, many of the products are Class I devices, meaning
that the FDA considers these products to present minimal potential for harm to
the user.  Nonetheless, if there is an error in the design,
manufacture or use of any of these products, there remains a risk of recall,
rejection of our product by our customers, damage to our reputation, lost
revenue, diverted development of resources and increased support
costs.  We may also be subject to claims for damages related to any
error in such products.
  I-19
  We
may require additional capital in the future and we may be unable to obtain
capital on favorable terms or at all.
  Although
we expect our existing capital resources and future operating cash flows to be
sufficient for the foreseeable future, certain events, such as operating losses
could significantly reduce our remaining cash, cash equivalents and investments
in marketable securities. Furthermore, we may require additional capital for
research and development, the purchase of other businesses, technologies or
products. Our capital requirements will depend on numerous factors, including
the time and cost involved in expanding production capacity, the cost involved
in protecting our proprietary rights and the time and expense involved in
completing product development programs.
  We have a
Credit Agreement with a financial institution that expires October 31, 2009
and provides for revolving borrowings of up to $40.0 million at any time
outstanding, including a $5.0 million sub-limit for letters of
credit.  The Credit Agreement is subject to early termination upon the
occurrence of certain events of default.  In addition, the lender may
decide to not extend this Credit Agreement at the expiration of the
term.  Finally, the Credit Agreement is unsecured and includes a
springing lien on substantially all of the assets of the Company and its
subsidiaries (subject to certain limited exceptions) in the event certain events
of default occur under the Credit Agreement.  The Credit Agreement
contains representations and warranties, as well as affirmative, reporting and
negative comments, customary for financings of this type.  In the
event the Credit Agreement terminates early or is not extended, we will not have
access to future borrowings in order to fund our capital requirements unless we
can find new financing.  No assurances are made regarding whether such
refinancing can be arranged.
  If
we are unable to develop new enhancements and new generations, we may be unable
to retain our existing customers or attract new customers.
  Rapid and
significant technological change in products offered as well as enhancements to
existing products and surgical techniques coupled with evolving industry
standards and new product introductions characterize the market for our
brachytherapy, wound closure and vascular access products. Many of our
brachytherapy and surgical products are technologically innovative and require
significant planning, design, development and testing. These activities require
significant capital commitments and investment. If we are unable to raise needed
capital on favorable terms or at all, we may be unable to maintain our
competitive advantage in the marketplace.
 
 New
product developments in the healthcare industry are inherently risky and
unpredictable. These risks include:
 ·
              failure
      to prove feasibility;·
              time
      required from proof of feasibility to routine
  production;·
              timing
      and cost of product development and regulatory approvals and
      clearances;·
              competitors’
      response to new product developments;·
              development,
      launch, manufacturing, installation, warranty and maintenance cost
      overruns;·
              failure
      to obtain customer acceptance and payment;·
              customer
      demands for retrofits of both old and new products; and·
              excess
      inventory caused by phase-in of new products and phase-out of old
      products.
 
 The high
cost of technological innovation is coupled with rapid and significant change in
the regulations governing the products that compete in both the brachytherapy
and innovative surgical markets, by industry standards that could change on
short notice, and by the introduction of new products and technologies that
could render existing products and technologies uncompetitive. We cannot be sure
that we will be able to successfully develop new products or enhancements to our
existing brachytherapy products and innovative surgical products. Without new
product introductions, our revenues will likely suffer. Even if customers accept
new or enhanced products, the costs associated with making these products
available to customers, as well as our ability to obtain capital to finance such
costs, could reduce or prevent us from increasing our operating
margins.
  I-20
  Our cash balances and marketable
securities are subject to risks which may cause losses and affect the liquidity
of these investments.
 
 At
December 31, 2007, we had $28.7 million in cash and cash equivalents and $20.1
million of investments in marketable securities.  Our cash and cash
equivalents represent cash deposits, money market funds, commercial paper and
certificates of deposit, and are invested with four financial
institutions.  Our marketable securities primarily represent
investments in high-credit quality corporate and municipal obligations, in
accordance with the Company’s investment policies. Certain of these cash, cash
equivalents and marketable securities investments are subject to general credit,
liquidity, market and interest rate risks, which may be exacerbated by sub-prime
mortgage defaults and other credit related problems that have affected various
sectors of the financial markets and caused credit and liquidity
issues.  These market risks associated with our investment portfolio
may have a negative adverse effect on our results of operations, liquidity and
financial condition.
 
 
 Item
1B.  Unresolved Staff Comments.
 
 None.
 
 Item
2. Properties
 
 The
executive offices of the Company are located in Buford, Georgia, in a facility
that the Company owns.  Approximately 144,000 square feet of
manufacturing and development facilities in the brachytherapy seed business are
also located in Buford, Georgia, and are owned by the
Company.  Approximately 72,000 square feet of space in leased
facilities in the surgical products business are located in Portland, Oregon,
and Garland, Texas.
 
 The
Company also owns approximately 32 acres in Buford, Georgia on which
its executive offices and facilities for its brachytherapy seed business
are located. Included in these 32 acres, land remains available for future
development adjacent to its current Buford facility.
 
 The
Company leases 21 acres of land in the Oak Ridge, Tennessee area, on which it
constructed its Company-owned facility to house the PSP equipment. The Oak Ridge
facility was shut down in connection with the Company’s restructuring in August
2005. The Company is actively marketing its interest in its Oak Ridge real
estate (See “2005
Restructuring”above and Item 7 - “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”).
 
 Approximately
23,200 square feet of production, warehouse and office space located in
Portland, Oregon, is leased for our surgical products business from an entity
controlled by the former owner of CP Medical, who is currently an officer and
stockholder of Theragenics. Monthly payments of approximately $17,000 are due
under this lease through April 2010.
 
 All of
the Company’s owned and leased space is well maintained and suitable for the
operations conducted in it.
 
 Item
3. Legal Proceedings
 
 From time
to time the Company may be a party to claims that arise in the ordinary course
of business, none of which, in the view of management, is expected to have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
 
 Item
4. Submission of Matters to a Vote of Security Holders
 
 The Company did not submit any matter
to a vote of its security holders during the fourth quarter of calendar year
2007.
  I-21
  PART
II
 
 Item 5. Marketfor Registrant's Common Equity,
Related Stockholder MattersandIssuer Purchases of Equity
Securities
 
 The
Company’s Common Stock, $.01 par value, (“Common Stock”) is traded on the New
York Stock Exchange (NYSE) under the symbol “TGX”. The high and low prices for
the Company’s Common Stock for each quarterly period in 2007 and 2006 are as
follows:
 High
              
              
              Low2007
                First
      Quarter
              
              $
              6.32
              
              
              $
              3.00Second
      Quarter
              
              
              6.95
              
              
              
              4.00Third
      Quarter
              
              
              4.58
              
              
              
              3.40Fourth
      Quarter
              
              
              4.74
              
              
              
              3.372006
                First
      Quarter
              
              $
              3.90
              
              
              $
              3.01Second
      Quarter
              
              
              3.50
              
              
              
              2.90Third
      Quarter
              
              
              3.62
              
              
              
              2.83Fourth
      Quarter
              
              
              3.36
              
              
              
              2.60
  As of
March 11, 2008, the closing price of the Company's Common Stock was $3.41 per
share. Also, as of that date, there were approximately 438 holders of
record of the Company's Common Stock. The number of record holders does not
reflect the number of beneficial owners of the Company's Common Stock for whom
shares are held by depositary trust companies, brokerage firms and
others.
 
 The
Company has a Stockholder Rights Plan (the “Rights Plan”), which contains
provisions designed to protect the Company’s stockholders. Pursuant to the
Rights Plan, each share of the Company’s Common Stock contains a share purchase
right (a “Right”). The Rights expire in February 2017, and do not become
exercisable unless certain events occur including the acquisition of, or
commencement of a tender offer for, 20% or more of the outstanding Common Stock.
In the event certain triggering events occur, including the acquisition of 20%
or more of the outstanding Common Stock, each Right that is not held by the 20%
or more stockholders will entitle its holder to purchase additional shares of
Common Stock at a substantial discount to then current market prices. The Rights
Plan and the terms of the Rights, which are set forth in a Rights Agreement
between the Company and Computershare Investor Services LLC, as Rights Agent,
could add substantially to the cost of acquiring the Company, and consequently
could delay or prevent a change in control of the Company.
 
 Dividend
Policy
 
 The
Company has never declared or paid a cash dividend on its Common Stock. It is
the present policy of the Board of Directors to retain all earnings to support
operations and the Company’s strategy of continued diversification and
expansion. Consequently, the Board of Directors does not anticipate declaring or
paying cash dividends on the Common Stock in the foreseeable future. In
addition, the Company's current credit facility prohibits the payment of
dividends.
  II-1
  Item 6. Selected Financial
Data
 
 The
following selected financial data are derived from the consolidated financial
statements of the Company. The selected financial data set forth below should be
read in conjunction with the consolidated financial statements of the Company
and related notes thereto and Management's Discussion and Analysis
of Financial Condition and Results of Operations included elsewhere
herein.
 
 Year
      ended December 31,(Amounts in thousands, except
      per share data)2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Statement
      of Earnings Data:Product
      sales
              
              $
              61,286
              
              
              $
              53,076
              
              
              $
              43,693
              
              
              $
              33,030
              
              
              $
              35,393Licensing
      fees
              
              
              924
              
              
              
              1,020
              
              
              
              577
              
              
              
              308
              
              
              
              187Total
      revenue
              
              
              62,210
              
              
              
              54,096
              
              
              
              44,270
              
              
              
              33,338
              
              
              
              35,580Cost
      of sales
              
              
              31,994
              
              
              
              27,752
              
              
              
              23,763
              
              
              
              14,122
              
              
              
              15,628Gross
      profit
              
              
              30,216
              
              
              
              26,344
              
              
              
              20,507
              
              
              
              19,216
              
              
              
              19,952Selling,
      general and administrative
              
              
              19,131
              
              
              
              19,951
              
              
              
              19,652
              
              
              
              17,619
              
              
              
              13,788Amortization
      of purchased intangibles
              
              
              1,875
              
              
              
              1,371
              
              
              
              500
              
              
              
              -
              
              
              
              -Research
      and development
              
              
              1,365
              
              
              
              805
              
              
              
              3,632
              
              
              
              9,583
              
              
              
              7,467Write
      down of asset held for sale
              
              
              500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Restructuring
      expenses
              
              
              -
              
              
              
              369
              
              
              
              33,390
              
              
              
              -
              
              
              
              -(Gain)
      loss on sale of assets
              
              
              -
              
              
              
              (201
              )
              
              
              14
              
              
              
              15
              
              
              
              -Operating
      profit (loss)
              
              
              7,345
              
              
              
              4,049
              
              
              
              (36,681
              )
              
              
              (8,001
              )
              
              
              (1,303
              )Other
      income, net
              
              
              1,502
              
              
              
              1,104
              
              
              
              1,281
              
              
              
              1,149
              
              
              
              894Net
      earnings (loss) before income tax and cumulative effect of change in
      accounting principle
              
              
              8,847
              
              
              
              5,153
              
              
              
              (35,400
              )
              
              
              (6,852
              )
              
              
              (409
              )Income
      tax expense (benefit)
              
              
              3,212
              
              
              
              (1,712
              )
              
              
              (6,394
              )
              
              
              (2,542
              )
              
              
              (319
              )Earnings
      (loss) before cumulative effect of change in accounting
      principle
              
              
              5,635
              
              
              
              6,865
              
              
              
              (29,006
              )
              
              
              (4,310
              )
              
              
              (90
              )Cumulative
      effect of change in accounting principle, net of tax
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (222
              )Net
      earnings (loss)
              
              $
              5,635
              
              
              $
              6,865
              
              
              $
              (29,006
              )
              
              $
              (4,310
              )
              
              $
              (312
              )Earnings
      (loss) per common shareBasic:Earnings
      (loss) before cumulative effect of change in accounting
      principle
              
              $
              0.17
              
              
              $
              0.21
              
              
              $
              (0.93
              )
              
              $
              (0.14
              )
              
              $
              (0.00
              )Cumulative
      effect of change in accounting principle, net of tax
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (0.01
              )Net
      earnings (loss)
              
              $
              0.17
              
              
              $
              0.21
              
              
              $
              (0.93
              )
              
              $
              (0.14
              )
              
              $
              (0.01
              )Diluted:Earnings
      (loss) before cumulative effect of change in accounting
      principle
              
              $
              0.17
              
              
              $
              0.21
              
              
              $
              (0.93
              )
              
              $
              (0.14
              )
              
              $
              (0.00
              )Cumulative
      effect of change in accounting principle, net of tax
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (0.01
              )Net
      earnings (loss)
              
              $
              0.17
              
              
              $
              0.21
              
              
              $
              (0.93
              )
              
              $
              (0.14
              )
              
              $
              (0.01
              )
 
 Weighted
average common shares
 Basic
              
              
              33,103
              
              
              
              32,452
              
              
              
              31,273
              
              
              
              29,971
              
              
              
              29,902Diluted
              
              
              33,299
              
              
              
              32,540
              
              
              
              31,273
              
              
              
              29,971
              
              
              
              29,902
  II-2
 
 December
    31,(In
      thousands)
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Balance
      Sheet Data:Cash
      and cash equivalents
              
              $
              28,666
              
              
              $
              18,258
              
              
              $
              10,073
              
              
              $
              28,450
              
              
              $
              45,104Marketable
      securities
              
              
              20,123
              
              
              
              14,722
              
              
              
              35,535
              
              
              
              33,811
              
              
              
              21,327Property
      and equipment, net
              
              
              27,972
              
              
              
              30,901
              
              
              
              32,766
              
              
              
              70,215
              
              
              
              73,372Total
      assets
              
              
              148,821
              
              
              
              146,244
              
              
              
              122,064
              
              
              
              148,678
              
              
              
              152,789Long-term
      debt, including current installments
              
              
              7,500
              
              
              
              7,500
              
              
              
              -
              
              
              
              -
              
              
              
              -Contract
      termination liability, including current installments
              
              
              1,513
              
              
              
              1,537
              
              
              
              1,560
              
              
              
              -
              
              
              
              -Shareholders'
      equity
              
              $
              132,619
              
              
              $
              126,141
              
              
              $
              115,683
              
              
              $
              138,060
              
              
              $
              142,326
  II-3
  THERAGENICS
CORPORATION
 
 Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
 
 Overview
  Theragenics
Corporation is a medical device company serving the cancer treatment and
surgical markets, operating in two business segments. In its brachytherapy seed
business, the Company produces, markets and sells TheraSeed®, its
premier palladium-103 prostate cancer treatment device; I-Seed, its iodine-125
based prostate cancer treatment device; and other related products and services.
Theragenics is the world’s largest producer of palladium-103, the radioactive
isotope that supplies the therapeutic radiation for its TheraSeed® device.
Physicians, hospitals and other healthcare providers, primarily located in the
United States, utilize the TheraSeed® device.
The majority of TheraSeed® sales
are channeled through third-party distributors. The Company also maintains an
in-house sales forces and sells its TheraSeed® and
I-Seed devices directly to physicians.
 
 The
Company’s surgical products business consists of wound closure and vascular
access products.  Wound closure includes sutures, needles and other
surgical products with applications in, among other areas, urology, veterinary,
cardiology, orthopedics, plastic surgery and dental. Vascular access includes
introducers and guidewires used in the interventional radiology, interventional
cardiology and vascular surgery markets.  The Company’s surgical
products business sells primarily to original equipment manufacturers and to a
network of distributors.
 
 The
Company has substantially diversified its operations and revenues in recent
years. Prior to 2003, the Company’s sole product was the
palladium-103 TheraSeed® prostate
cancer treatment device. In 2003, the Company began to market an iodine-125
based I-Seed prostate cancer treatment product. In May 2005, the Company
expanded into the surgical products business with the acquisition of CP Medical
Corporation (“CP Medical”), followed by the acquisition of Galt Medical Corp.
(“Galt”) in August 2006. CP Medical and Galt comprise the Company’s surgical
products business, which accounted for 46% of consolidated revenue in
2007.  Prior to May 2005, the brachytherapy seed business constituted
100% of the Company’s revenue.
  CP
Medical was acquired on May 6, 2005, for $26.7 million, including $20.6 million
in cash and the issuance of common shares valued at $6.1 million. Galt was
acquired on August 2, 2006, for $32.7 million (net of $2.3 million of cash
acquired), including $29.6 million in cash and the issuance of common shares
valued at $3.1 million. The Company borrowed $7.5 million under its $40.0
million credit facility in connection with the Galt acquisition. The Company’s
consolidated results of operations include the results of CP Medical and Galt
subsequent to their respective dates of acquisition.
 
 2005
Restructuring
  The
Company implemented a restructuring of the brachytherapy segment in August 2005
that resulted in the closure of the Plasma Separation Process (“PSP”) facility
in Oak Ridge, Tennessee, ended the research and development activities related
to the use of palladium-103 in the vascular, macular degeneration and breast
cancer areas, and eliminated production of radiochemical products (the “2005
Restructuring”). Curtailing these activities allowed the Company to shrink its
asset base by shutting down six cyclotrons, closing the Newton Terrace facility
in Buford, Georgia, and closing the PSP facility. The objective of the
restructuring was to sharpen the Company’s focus on its two main business
segments, brachytherapy seeds and surgical products, as well as provide a more
focused platform for continued diversification and expansion through
acquisitions or other channels. As a result, restructuring charges of $33.4
million were recorded in 2005.  In 2006, restructuring charges
totaling $369,000 were recorded, as the Company completed the shut down of its
Oak Ridge facility.  The Company also recognized gains on the sale of
assets of $199,000 in 2006, representing the sale of equipment idled by the
restructuring.  The Company is actively marketing its interest in its
Oak Ridge facility, which has been shut down and held for sale since August
2005.
 
 II-4
  Results
of Operations
 
 Following
is a summary of revenue and operating income by segment for each of the three
years in the period ended December 31, 2007 (in thousands):
  Revenue
      by segment
              
              Year
      ended December 31,2007
              
              
              2006
              
              
              2005Brachytherapy
      seedProduct
      sales
              
              $
              32,596
              
              
              $
              33,860
              
              
              $
              35,795Continuing
      licensing fees
              
              
              924
              
              
              
              620
              
              
              
              577One-time
      license fees
              
              
              —
              
              
              
              400
              
              
              
              -Total
      brachytherapy seed
              
              
              33,520
              
              
              
              34,880
              
              
              
              36,372Surgical
      products
              
              
              28,896
              
              
              
              19,372
              
              
              
              7,921Intersegment
      eliminations
              
              
              (206
              )
              
              
              (156
              )
              
              
              (23
              )Consolidated
              
              $
              62,210
              
              
              $
              54,096
              
              
              $
              44,270
 
 
 
 Operating
      income (loss) by segment
              
              Year
      ended December 31,2007
              
              
              2006
              
              
              2005Brachytherapy
      seedOperating
      income
              
              $
              3,403
              
              
              $
              2,122
              
              
              $
              (38,111
              )One-time
      license fees
              
              
              —
              
              
              
              (400
              )
              
              
              -Write
      down of asset held for sale
              
              
              500
              
              
              
              —
              
              
              
              -Restructuring
      related items, net
              
              
              —
              
              
              
              170
              
              
              
              33,390Other
      severance
              
              
              -
              
              
              
              -
              
              
              
              731Brachytherapy
      seed excluding special items
              
              
              3,903
              
              
              
              1,892
              
              
              
              (3,990
              )Surgical
      products
              
              
              3,977
              
              
              
              1,955
              
              
              
              1,430Intersegment
      eliminations
              
              
              (35
              )
              
              
              (28
              )
              
              
              -Operating
      income (loss)Consolidated
              
              $
              7,345
              
              
              $
              4,049
              
              
              $
              (36,681
              )Excluding
      special items
              
              $
              7,845
              
              
              $
              3,819
              
              
              $
              (2,560
              )
 
  Operating
income excluding special items is a non-GAAP financial measure used by
management to make operational decisions, evaluate performance, prepare internal
forecasts and allocate resources.  Management believes presentation of
these non-GAAP financial measures provides supplemental information that is
helpful to an understanding of the operating results of the Company’s businesses
and period-to-period comparisons of performance. Non-GAAP financial measures
should be considered in addition to, but not as a substitute for, the comparable
measure calculated and presented in accordance with generally accepted
accounting principles in the United States (“GAAP”).
  II-5
  Year
Ended December 31, 2007, Compared to Year Ended December 31, 2006
  Revenue
  Consolidated
revenue increased 15.0% over 2006 as a result of the increase in revenue in the
surgical products segment. Results for 2007 include the results of Galt for the
entire year.  Galt, which was acquired in August 2006, was included
for approximately five months in 2006.   A significant portion of
wound closure and vascular access products are sold to original equipment
manufacturers and a network of distributors.  Ordering patterns of
these customers vary and are difficult to predict.  Accordingly,
surgical products revenue is subject to fluctuation, especially on a quarter to
quarter basis.
  Brachytherapy
product sales decreased 4% in 2007, compared to 2006.  This decrease
was due to a 15% decline in sales to our main distributor, partially offset by
an increase in direct sales.  The sales decline to this main
distributor was attributable to a 6% reduction in transfer price, which was
effective February 1, 2007, with the remaining decreases due to lower unit
volumes.  The reduction in transfer price was given in recognition of
competitive marketplace pressures and new distributor strategies.
  The
Company also maintains its own internal brachytherapy sales force that sells
TheraSeed®and I-Seed directly to hospitals and physicians.  Revenue from
direct sales increased 13% in 2007 over 2006, and direct sales totaled 46% of
brachytherapy product revenue in 2007 compared to 39% in 2006. This increase in
direct sales resulted from programs implemented by the direct sales force, and
direct to consumer advertising programs. The average selling price of the
TheraSeed® device
sold directly to hospitals and physicians in 2007 was comparable to
2006.
  The
Company has two non-exclusive distribution agreements in place for the
distribution of the TheraSeed® device.  The
primary distribution agreement is with C. R. Bard (“Bard”), which is effective
through December 31, 2009 (the “Bard Agreement”). Sales to Bard represented
approximately 53% and 60% of brachytherapy product revenue in 2007 and 2006,
respectively, and 28% and 38% of consolidated product revenue in 2007 and 2006,
respectively.  Revenue generated from the second non-exclusive
distributor was not material in 2007 and is not expected to be material in
2008.
  The terms
of the Bard Agreement provide for automatic one-year extensions of the term,
unless either party gives notice of its intent not to renew at least twelve
months prior to the end of the current term. The current term expires on
December 31, 2009, and will be automatically extended for one additional year
unless either party gives notice by December 31, 2008 of its intent not to
extend the agreement.
  In
addition to the impact of the disappointing performance by our largest
distributor, management believes that the brachytherapy industry continues to be
affected by competition from alternative therapies, declining prices for
iodine-125 and palladium-103 seeds, competitors’ selling tactics and the effects
of consolidation in the industry.  Medicare reimbursement policies
have affected and, management believes, will continue to affect the
brachytherapy market.  During 2007 Medicare continued to reimburse for
brachytherapy seeds under the “charges adjusted to costs” methodology, which is
based on the actual invoiced cost of the seeds and we sometimes refer to as a
“pass-through” methodology. In December 2007, Congress enacted the Medicare,
Medicaid and SCHIP Extension Act of 2007, which extended the existing cost-based
reimbursement methodology through June 30, 2008.  Under current law,
fixed reimbursement rates for seeds are scheduled to be implemented under
Medicare in July 2008, (see “Medicare Developments” below)
and that this and other factors can be expected to lead to continued pricing
pressure from hospitals and other health care providers.  Any of these
factors could have an adverse effect on brachytherapy revenue.
  Revenue
in the 2006 period included $400,000 of one-time license fee revenue in the
brachytherapy segment related to the licensee’s receipt of the CE Mark and
European registration for TheraSphere®in
certain European countries.  During 2007, license fees represented
only the continuing royalties from continuing license fees from European and
U.S. product sales of TheraSphere®.
Commencing in the second quarter of 2008, the licensing rate will be reduced to
approximately one-half of its current rate, and license fee revenue will decline
accordingly. Expenses related to the license agreement will decline by a like
amount, and no net effect on operating income is expected.
  II-6
  Operating
income and costs and expenses
  Operating
income excluding special items in the brachytherapy segment increased to $3.9
million, more than double the $1.9 million in 2006.   This
increase in profitability was a result of reductions in operating expenses in
2007, partially offsetting the effect of lower revenue.  Cost
reductions were a result of operating efficiencies and other savings programs
implemented in the last half of 2006.  As a result of these cost
reductions, gross margins on brachytherapy product sales increased to 54% in
2007 compared to 52% in 2006, even as revenue declined in
2007.   In December 2007 the Company increased the estimated
service lives of its cyclotron equipment from 10 years to 15
years.  The effect of this change was not significant in
2007.  However, this change is expected to reduce manufacturing
related depreciation expense by approximately $1.4 million in
2008.  Other than this reduction in depreciation expense,
manufacturing related expenses in the brachytherapy segment are not expected to
continue to decline in 2008, and the significant portion of brachytherapy
manufacturing expenses will be “fixed” in nature.
  In 2007,
selling, general and administrative (SG&A) expenses in the brachytherapy
segment decreased by $2.6 million as compared to 2006.  These SG&A
reductions were primarily a result of decreases in advertising and professional
fees. We do not expect continued reductions in SG&A expenses in
2008.  During 2007 the Company did record a $500,000 write down of the
carrying value of its Oak Ridge facility, which has been shut down and held for
sale since August 2005.  This write down was based on the length of
time the facility has been for sale, the general deterioration of the commercial
real estate markets and recent signs of weakness in the overall economy in the
United States.
  Operating
income in the surgical products segment includes the results of Galt, acquired
in August 2006.  Gross margins in the surgical products segment were
43% in 2007 and 41% in 2006 and are dependent on product and sales channel
mix.  In addition to the inclusion of Galt for a full year in 2007,
operating income improved over the 2006 periods due to reductions in
professional fees and bad debt expense partially offset by severance
costs.  Efficiencies were also realized because of the larger scale of
the surgical products business in 2007.  Overall SG&A expenses as
a percent of sales in the surgical products segment decreased to 20% in 2007
from 22% in 2006.  To support anticipated growth, the Company expects
to continue to make investments in staffing and other infrastructure in the
surgical products segment.  Accordingly, SG&A expenses may
fluctuate as a percentage of sales in future periods.
  Research
and development (“R&D”) expenses increased to $1.4 million in 2007, compared
to $805,000 in 2006.   The brachytherapy segment developed a new
device to assist with the configuration of seeds.  This new device
allows a physician to perform real time stranding of seeds and customize the
brachytherapy procedure while in the operating room.  R&D in the
surgical products segment was primarily related to new product
development.  These product development activities are focused on
products that can be marketed once they have received 501(k) approval by the
U.S. Food and Drug Administration, rather than products that would require
costly and lengthy clinical trials.  Looking forward, management
expects consolidated R&D expenses in 2008 to continue at levels similar to
2007, with more R&D incurred in the surgical products segment and less in
the brachytherapy segment.  However, the rate of R&D spending in
2008 could change based on the opportunities identified.
  Other
income/expense
  Interest
income was $2.2 million in 2007 compared with $1.5 million in 2006. The 2007
amount included $309,000 of one-time interest income related to $1.9 million of
refunded federal income taxes.  This interest income was recognized in
the second quarter of 2007 upon settlement of the IRS’ examination of the
Company’s 2004 federal income tax return.  Other increases in interest
income were a result of higher interest rates in 2007.  The Company’s
investments consist primarily of short-term cash investments and high-credit
quality corporate and municipal obligations, in accordance with the Company’s
investment policies. Funds available for investment have and will continue to be
utilized for the Company’s current and future expansion programs and strategic
opportunities for growth and diversification. As funds continue to be used for
these programs and activities, and as interest rates continue to change,
management expects interest income to fluctuate accordingly.
  Interest
expense increased from $419,000 in 2006 to $691,000 in 2007, as the $7.5 million
in borrowings under the Company’s credit facility was outstanding for all of
2007.  In 2006, these borrowings were outstanding for approximately 5
months.  Interest on outstanding borrowings is payable at LIBOR plus
1%, which was an effective rate of 6.2% at December 31, 2007 and 6.3% at
December 31, 2006.  The Company expects to utilize its credit facility
to provide flexibility for future strategic initiatives and
diversification.  Interest expense will be impacted by increases or
decreases in the effective interest rate on the borrowings and any future
borrowings to support expansion programs and strategic opportunities for growth
and diversification.
  II-7
  Income
tax expense
  The
Company’s effective income tax rate for 2007 was 36.3%.  In 2006, the
Company recognized an income tax benefit of $1.7 million. This net benefit was a
result of recognizing income tax expense of $1.9 million, offset by a benefit
resulting from the release of $3.6 million of the deferred tax asset valuation
allowance. The valuation allowance was released in 2006 as it became more likely
than not the Company’s deferred income tax assets would be
realized.  Excluding the release of the allowance, the effective tax
rate for 2006 would have been 37.1%. Future tax rates can be affected by, among
other things, changes in tax regulations, changes in statutory tax rates,
changes in the tax jurisdictions in which the Company must file income tax
returns, and many other items that affect the taxability and deductibility of
the Company’s revenue and expenses and for which we cannot currently
predict.
  The
Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109 (“FIN 48”), on
January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes,
and prescribes a recognition threshold and measurement process for financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest expense and penalties, accounting in interim periods,
disclosure and transition.  The Company has evaluated its tax
positions for the tax years ended December 31, 2004, 2005, 2006 and 2007,
the tax years that remain subject to examination by major tax jurisdictions as
of December 31, 2007. With few exceptions, the Company is no longer subject to
U.S. federal, state and local, or income tax examinations by tax authorities for
years prior to 2004.   The Company believes there are no
significant uncertain tax positions requiring recognition in the consolidated
financial statements.  Accordingly, adoption of FIN 48 did not have a
material effect on the Company’s consolidated financial statements.
  During
2007, the IRS completed an examination of the Company’s 2004 and 2005 federal
income tax returns with no significant adjustments.  Upon settlement
of the 2004 audit, during 2007 the Company received a refund of federal income
tax previously paid of $1.9 million.  This refund resulted from the
carryback of tax losses that were reported in the Company’s 2004 federal income
tax return. The Company also received $309,000 of interest income related to
this refund.  The interest income was recognized in 2007 upon
settlement of the IRS examination of the 2004 income tax return.
 
 Year
Ended December 31, 2006, Compared to Year Ended December 31, 2005
  Revenue
  Revenue
in the 2006 periods included $400,000 of one-time license fee revenue in the
brachytherapy business related to the license of the Company’s TheraSphere® product.
Under the terms of the license agreement, this one-time fee was due upon the
licensee receiving the CE Mark and European registration for TheraSphere® in
certain European countries, which was recorded in the third
quarter.  The licensing agreement provides for continuing fees from
European and U.S. product sales of TheraSphere®.
  Other
increases in revenue in the 2006 periods were a result of increases in the
surgical products segment.  2006 includes revenue from Galt, which was
acquired in August 2006, and a full year of operations of CP Medical, which was
acquired in May 2005.
  Excluding
the one-time license fee revenue, brachytherapy sales decreased 5.2% in 2006
from 2005.  This decrease primarily reflects softness in sales to our
main distributor, which decreased 6% in 2006.  Decreases from the loss
of another distributor in late 2005 were partially offset by increases in direct
sales during the 2006. The Company maintains its own internal brachytherapy
sales force that sells TheraSeed®and
I-Seed directly to hospitals and physicians.  Direct sales increased
from 29% of brachytherapy product revenue in 2005 to 39% in 2006.  The
average selling price of the TheraSeed® device
during 2006 was comparable to 2005.
  II-8
  The
Company’s primary brachytherapy distribution agreement in 2006 was with
Bard.  Sales to Bard represented approximately 60% of brachytherapy
product revenue in 2006 and 61% in 2005.  The Company also had a
non-exclusive distribution agreement in place with a second distributor, though
revenue generated from the second distributor was not material in 2006. Prior to
2006, the Company also had a non-exclusive distribution agreement in place with
Oncura, currently a part of GE Healthcare (the “Oncura Agreement”). In December
2004, Oncura notified the Company that it would not be renewing its distribution
agreement effective December 31, 2005 and subsequently, the Oncura Agreement was
terminated effective September 8, 2005.
  Operating
income and costs and expenses
  Operating
income excluding special items in the brachytherapy segment improved in 2006
primarily due to cost savings generated from the 2005 Restructuring, which
significantly reduced costs of manufacturing and research and
development.  Gross margins on product sales in the brachytherapy
business were 52% in 2006, with costs of manufacturing totaling $16.4
million.  Brachytherapy operating income before special items in 2006
also improved from 2005 as a result of a reduction in direct to consumer
activities, decreases in advertising, and decreases in legal
expenses.
  Operating
income in the surgical products segment increased by $525,000 in 2006 over 2005,
reflecting the acquisition of Galt in August 2006, and the inclusion of CP
Medical for the entire year in 2006.  Gross margins in the surgical
products business were 41% in 2006, with costs of manufacturing totaling $11.5
million. As a component of gross margin, costs of manufacturing included
$407,000 of non-cash charges related to the purchase accounting for Galt that
did not recur in 2007.  Another $170,000 of non-cash charges was
included in selling, general, and administrative expenses related to Galt
purchase accounting that did not recur in 2007.  Operating income for
2006 also reflected higher personnel and other costs to support increased
capacity and anticipated future growth, and higher professional fees resulting
from Sarbanes-Oxley related compliance costs.
  Research
and development expenses declined significantly in the brachytherapy business in
2006 due to the restructuring and the discontinuance of the clinical trials and
research programs underway at the time the restructuring was
implemented.
  Other
income/expense
  Interest
income was comparable between the 2006 and 2005 periods.  Higher
interest rates and yields were offset by a decrease in invested funds due to
cash used for the CP Medical and Galt acquisitions. Interest and financing costs
increased from $160,000 in 2005 to $419,000 in 2006.  The increase is
a result of the $7.5 million in borrowings under the Company’s $40.0 million
credit facility in August 2006.  Interest on outstanding borrowings is
payable at LIBOR plus 1%, which was an effective rate of 6.3% at December 31,
2006.
  Income
tax benefit
  The
Company recognized an income tax benefit of $1.7 million in
2006.  This net benefit was a result of recognizing income tax expense
of $1.9 million, offset by a benefit resulting from the release of $3.6 million
of the deferred tax asset valuation allowance.
  Mainly as
a result of the 2005 Restructuring, the Company had operating loss carryforwards
and other future deductible temporary differences that resulted in a net
deferred tax asset of $6.8 million at December 31, 2005. Because of the recent
history of operating losses, the uncertainty of projecting future taxable income
sufficient to recognize these deferred tax assets, and management’s belief that
the Company had to establish a track record of returning to sustained
profitability, a valuation allowance for the full amount of the net
deferred tax asset was recorded at that time. In the third quarter of 2006, $2.9
million of deferred income tax liability arising from fair value adjustments in
purchase accounting related to the acquisition of Galt were recorded as a
reduction of the allowance for the net deferred tax asset and a reduction in the
goodwill arising from the transaction.  Also during 2006, the Company
determined it was more likely than not that a significant portion of these
deferred tax assets would be realized and, accordingly, released $3.6 million of
the valuation allowance.   Factors considered by management in
determining that the significant portion of the deferred tax assets would be
realized included, among other things, the Company’s performance for the year
which included four consecutive quarters of profitability, a full fiscal year of
realization of the cost savings associated with the 2005 restructuring which
exceeded the expected cost savings, certain changes in federal laws and policies
occurring in December 2006 related to Medicare reimbursement of brachytherapy
seeds, and the continued successful diversification of the Company’s business
through its surgical products segment.
  II-9
 
 Critical
Accounting Policies and Estimates
  The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
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. The SEC defines “critical accounting policies” as those that
require application of management’s most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain and may change in subsequent periods. The
following is not intended to be a comprehensive list of all of the Company’s
accounting policies. The Company’s significant accounting policies are more
fully described in the notes to its consolidated financial statements. In many
cases, the accounting treatment of a particular transaction is specifically
dictated by accounting principles generally accepted in the United States, with
no need for management’s judgment in their application. The accounting policies
described below are those which we believe are most critical in fully
understanding and evaluating our reported financial results, and are areas in
which management’s judgment in selecting an available alternative might produce
a materially different result. The significant accounting policies, which
we believe are the most critical to aid in fully understanding and evaluating
our reported financial results, include the following:
  Property and equipment.
Property and equipment are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of such assets. The
Company’s estimates can result in differences from the actual useful lives of
certain assets. The significant portion of equipment is comprised of the
Company’s cyclotrons, utilized in the brachytherapy business.  As of
December 31, 2007, the Company owned and operated eight cyclotrons, the first of
which entered service in 1998.  In December 2007 the Company changed
the estimated service lives of certain depreciable assets, mainly the cyclotron
equipment. The estimated service life of the cyclotron equipment was increased
from 10 years to 15 years, and was based on, among other things, an assessment
of the equipment’s operating and maintenance history and expected future
performance.  The Company accounted for this change as a change in
estimate in accordance with Statement of Financial Accounting (“SFAS”) No. 154,
Accounting Changes and Error
Corrections.  Accordingly, this change was accounted for in the
period of the change and will be accounted for in future periods.  The
effect of this change was not significant in 2007.  In 2008, this
change is expected to reduce depreciation expense by approximately $1.4
million.
  Management
will continue to periodically examine estimates used for depreciation for
reasonableness. If the Company determines that the useful life of property or
equipment should be shortened or lengthened, depreciation expense would be
adjusted accordingly for the remaining useful lives of the identified
assets.
  Management
assesses the impairment of its depreciable assets whenever events or
circumstances indicate that such assets might be impaired. In the event the
expected undiscounted future cash flow attributable to the asset is less than
the carrying value of the asset, an impairment loss equal to the excess of the
asset’s carrying value over its fair value is recorded. The estimation of fair
value, whether in conjunction with an asset to be held and used or with an asset
held for sale, also involves judgment. During the third quarter of 2005 the
Company recorded impairment charges of approximately $28.8 million related to
the PSP facility, the Newton Terrace facility, six cyclotrons and other related
long-lived assets. This impairment charge reflects the excess of these assets’
carrying value over their fair value as a result of the restructuring actions
taken during the third quarter of 2005 (see “2005Restructuring”above).  Additionally, the Company wrote down the carrying
value of its Oak Ridge facility by $500,000 in 2007.  This facility
has been shut down and held for sale since August 2005.  The reduction
in the carrying value was based upon the length of time the facility has been
for sale, the general deterioration of the commercial real estate markets and
recent signs of weakness in the overall economy in the United
States.
  It is
possible that management’s estimates concerning the realizability of the
Company’s depreciable assets or assets held for sale could change in the
future.
  Goodwilland other intangible
assets. The
Company has $36.0 million of goodwill associated with its surgical products
business and $2.6 million of goodwill associated with its brachytherapy
business.  The Company accounts for goodwill and other intangible
assets in accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”). Under SFAS 142, goodwill and intangible assets with
indefinite lives are not amortized to expense and must be reviewed for
impairment annually or more frequently if events or changes in circumstances
indicate that such assets might be impaired. The first step of the impairment
test, used to identify potential impairment, compares the fair value of a
reporting unit with its carrying amount, including goodwill and intangible
assets with indefinite lives. If fair value exceeds book value, goodwill is
considered not impaired, and the second step of the impairment test is
unnecessary. If book value exceeds fair value, the second step of the impairment
test is performed to measure the amount of impairment loss, if any. For this
step the implied fair value of the goodwill is compared with the book value of
the goodwill. If the carrying amount of the goodwill exceeds the implied fair
value of the goodwill, an impairment loss would be recognized in an amount equal
to that excess. Any loss recognized cannot exceed the carrying amount of
goodwill. After an impairment loss is recognized, the adjusted carrying amount
of goodwill is its new accounting basis. Subsequent reversal of a previously
recognized impairment loss is prohibited once the measurement of that loss is
completed.
  II-10
  The
Company performs an annual goodwill impairment assessment during the fourth
quarter. Management also makes judgments about goodwill whenever events or
changes in circumstances indicate that impairment in the value of goodwill
recorded on our balance sheet may exist. The timing of an impairment test may
result in charges to our statements of income in future reporting periods
that could not have been reasonably foreseen in prior periods. In order to
estimate the fair value of goodwill, management typically makes various
assumptions about the future prospects for the reporting unit that the asset
relates to, considers market factors specific to that reporting unit and
estimates future cash flows to be generated by that reporting
unit.  Assumptions used in these assessments are consistent with the
Company’s internal planning. The most recent assessment was performed in the
fourth quarter of 2007 and the Company determined that goodwill was not
impaired.
  Other
intangible assets determined to have finite lives are amortized over their
useful lives using a method that is expected to reflect the pattern of its
economic benefit.  When a pattern of economic benefit cannot be
determined, or if the straight-line method results in greater amortization, then
the straight-line method is used.  To date, all finite lived
intangible assets have been amortized using the straight-line method. The
Company also reviews finite lived intangible assets for impairment to ensure
they are appropriately valued if conditions exist that indicate the carrying
value may not be recoverable.
  Allowance for doubtful accounts and
returns. Management judgments and estimates are made and used in
connection with establishing an allowance for the possibility that portions of
our accounts receivable balances may become uncollectible or subject to return.
Accounts receivable are reduced by this allowance. Specifically, Management
analyzes accounts receivable in relation to customer creditworthiness, current
economic trends, changes in our customer payment history, and changes in sales
returns history in establishing this allowance. It is possible that these or
other underlying factors could change and impact the Company’s financial
position and results of operations.
  Asset retirement
obligation.  SFAS No. 143, Accounting for Asset Retirement
Obligations,requires the Company to estimate the future cost of asset
retirement obligations, to discount that cost to its present value, and record a
corresponding asset and liability in its consolidated balance
sheet.  The values ultimately derived are based on many significant
estimates, including future decommissioning costs, inflation, cost of capital,
and market risk premiums.  The nature of these estimates requires
management to make judgments based on historical experience and future
expectations.  Revisions to the estimates may be required based on
such things as changes to cost estimates or the timing of future cash
outlays.  Any such changes that result in upward or downward revisions
in the estimated obligation will result in an adjustment to the related
capitalized asset and corresponding liability on a prospective
basis.
  Share-based compensation. The Company accounts for share-based
compensation in accordance with SFAS No. 123R, Share-Based Payment,as
interpreted by SEC Staff Accounting Bulletin No. 107. Under the fair value
recognition provisions of this statement, share-based compensation cost is
measured at the grant date based on the value of the award and is recognized as
expense over the vesting period. In order to determine the fair value of stock
options on the date of grant, we utilize the Black Scholes model. Inherent in
this model are assumptions related to expected stock-price volatility, option
life, risk-free interest rate and dividend yield. The risk-free interest rate
and dividend yield are based on factual data derived from public sources. The
expected stock-price volatility and option life assumptions require significant
judgment, which makes them critical accounting estimates. The Company’s expected
volatility is based upon weightings of the historical volatility of the
Company’s stock.  With respect to the weighted-average option life
assumption, the Company considers the exercise behavior of past grants and
models the pattern of aggregate exercises.
  II-11
  The grant
date fair value of Restricted Stock Units and Performance Restricted Stock
Units (collectively, the "Stock Units") are based on the fair value of the
underlying common stock and is recognized over the requisite service
period.  For Stock Units containing performance conditions, the grant
date fair value is adjusted each period for the number of shares ultimately
expected to be issued. For Stock Units subject to discretionary performance
conditions, the grant date has not been established and accordingly, the fair
value of the award is updated each period for changes in the fair value of the
underlying common stock. To the extent that the underlying fair value of the
Company’s common stock varies significantly, and/or the number of shares
issuable is determined, the Company may record additional compensation expense
or adjust previously recognized compensation expense.
  Accounting for income
taxes.  Our judgments, assumptions and estimates relative to
the current provision for income tax take into account current tax laws and our
interpretation of current tax laws.  Management must make assumptions,
judgments and estimates to determine our tax provision and our deferred income
tax assets and liabilities, including the valuation allowance to be recorded
against a deferred tax asset. Actual operating results and the underlying amount
and category of income in future years could differ materially from our
current assumptions, judgments and estimates of recoverable net deferred
taxes.
  Management
periodically evaluates the recoverability of the Company’s deferred tax assets
and recognizes the tax benefit only as reassessment demonstrates that they are
realizable. At such time, if it is determined that it is more likely than not
that the deferred tax assets are realizable, the valuation allowance is
adjusted. In 2005, a $6.8 million net deferred tax asset arose primarily as a
result of the existence of operating losses and other deductible temporary
differences related to the Company’s 2005 Restructuring.  At that
time, a valuation allowance for the entire amount of the net deferred tax asset
was established due to uncertainties surrounding its
realizability.  In the third quarter of 2006, $2.9 million of deferred
income tax liabilities arising from fair value adjustments in purchase
accounting related to the acquisition of Galt were recorded as a reduction of
the allowance.  Also during 2006, the Company determined it was more
likely than not that a significant portion of these deferred tax assets would be
realized and, accordingly, released $3.6 million of the valuation
allowance.   Factors considered by management in determining that
the significant portion of the deferred tax assets would be realized included,
among other things, the Company’s performance for the year which included four
consecutive quarters of profitability, a full fiscal year of realization of the
cost savings associated with the 2005 restructuring which exceeded the expected
cost savings, certain changes in federal laws and policies occurring in December
2006 related to Medicare reimbursement of brachytherapy seeds, and the continued
successful diversification of the Company’s business through its surgical
products segment.
  Management
evaluates the realizability of the deferred tax assets and assesses the need for
the valuation allowance each reporting period. In the future if,
based on the facts and circumstances surrounding the Company’s ability to
generate adequate future taxable income, it becomes more likely than not that
some or all of the deferred tax asset will not be realized, the valuation
allowance may be required to be increased.
 
 II-12
  Commitments
and Other Contractual Obligations
  Contractual
Obligations
  The
Company leases equipment and production, warehouse, office and other space under
non-cancelable leases that expire at various dates through June 2013. The
Company also has $7.5 million of borrowings outstanding under its Credit
Agreement.  Approximate minimum payments of these obligations are as
follows (amounts in thousands):
  Obligation
              
              
              
              
              Less
      than
              
              
              
              
              
              
              
              
              More
      thanTotal
              
              
              1
      year
              
              
              1-3
      years
              
              
              3-5
      years
              
              
              5
      yearsOperating
      lease obligationsRental
      space and equipment
              
              $
              1,357
              
              
              $
              362
              
              
              $
              509
              
              
              $
              387
              
              
              $
              99Production,
      office and  warehouse space - related party (1)
              
              
              474
              
              
              
              203
              
              
              
              271
              
              
              
              -
              
              
              
              -Total
      operating lease obligations
              
              
              1,831
              
              
              
              565
              
              
              
              780
              
              
              
              387
              
              
              
              99Long-term
      debt (2)
              
              
              7,500
              
              
              
              -
              
              
              
              7,500
              
              
              
              -
              
              
              
              -Interest
      on long-term debt (3)
              
              
              853
              
              
              
              465
              
              
              
              388
              
              
              
              -
              
              
              
              -Total
      long-term debt
              
              
              8,353
              
              
              
              465
              
              
              
              7,888
              
              
              
              -
              
              
              
              -Other
      long-term obligations
              
              
              255
              
              
              
              -
              
              
              
              255
              
              
              
              -
              
              
              
              -Total
              
              $
              10,439
              
              
              $
              1,030
              
              
              $
              8,923
              
              
              $
              387
              
              
              $
              99
 
 (1)
              The
      surgical products business leases production, warehouse and office space
      from an entity controlled by the former owner of CP Medical, who is
      currently an officer and stockholder of Theragenics. Monthly payments
      of approximately $17,000 are due under this lease through April
      2010.(2)
              Outstanding
      borrowings under the Company’s $40.0 million credit facility are due
      October 31, 2009(3)
              Interest
      on outstanding borrowings under credit facility at the December 31, 2007
      effective rate of 6.2%
 
 Contract Termination
Liability
  A
contract termination liability of $1,513,000 (including $26,000 classified as
short term) included in the accompanying consolidated balance sheet at December
31, 2007, consists of the present value of future payments due under the
Company’s Oak Ridge land lease, using a discount rate of 8.5%. This represents a
liability for costs that will continue to be incurred through the remaining term
of that lease agreement without economic benefit to the Company, measured at its
fair value when the Company ceased using its Oak Ridge facility in August 2005,
and recorded in connection with the Company’s 2005 Restructuring. The land lease
requiresmonthly
payments of $12,824 through April 2029, adjusted every five years beginning in
2010 for changes in the Consumer Price Index. Future principal maturities of
obligations under this lease are as follows: 2008, $26,269; 2009, $28,591; 2010,
$31,119; 2011, $33,869; 2012, $36,860; beyond, $1,356,559.
  Other
 
 The
Company has a letter of credit outstanding under the Credit Agreement as of
December 31, 2007 totaling approximately $876,000. This letter of credit is
related to asset retirement liabilities of long-lived assets.
  II-13
  Liquidity
and Capital Resources
 
 The
Company had cash, cash equivalents and marketable securities of $48.8 million at
December 31, 2007, compared to $33.0 million at December 31, 2006. Marketable
securities consist primarily of high-credit quality corporate and municipal
obligations, in accordance with the Company’s investment policies. The aggregate
increase in cash, cash equivalents and marketable securities was primarily the
result of $17.0 million in cash from operations less capital expenditures
of $1.5 million.
 
 Working
capital was $62.3 million and $58.3 million at December 31, 2007 and 2006,
respectively. The Company also has a Credit Agreement with a financial
institution that provides for borrowings of up to $40.0 million, including a
$5.0 million sub-limit for letters of credit, which expires on October 31, 2009.
Borrowings of $7.5 million were outstanding under the Credit Agreement at
December 31, 2007. Interest is payable quarterly at LIBOR plus 1% (effective
rate of 6.2% at December 31, 2007) for outstanding
borrowings.  The Company also has a letter of credit totaling
$876,000 outstanding under the Credit Agreement, representing decommission
funding required by the Georgia Department of Natural Resources. The Credit
Agreement is unsecured, but provides for a lien to be established on
substantially all of the assets of the Company (subject to certain exceptions)
in the event certain events of default occur under the Credit Agreement. The
Credit Agreement, as amended, contains representations and warranties, as well
as affirmative, reporting and negative covenants, customary for financings of
this type. Among other things, certain provisions of the Credit Agreement limit
the incurrence of additional debt and require the maintenance of certain
financial ratios. As of December 31, 2007, the Company was in compliance
with the terms of its Credit Agreement.
 
 Cash
provided by operations was $17.0 million for the year ended December 31, 2007,
compared to $10.0 million in 2006. Cash provided by operations consists of net
earnings, plus non-cash expenses such as depreciation, amortization, deferred
income taxes, and changes in balance sheet items such as accounts receivable,
inventories, prepaid expenses and payables. Net earnings were $5.6 million in
2007 compared to $6.9 million in 2006.  However, 2006 net earnings
included a $3.6 million non-cash benefit from the release of the deferred tax
asset valuation allowance.  Additionally, 2007 results include a $2.2
million refund of income taxes paid in prior periods including
interest.  During 2007, the Company utilized all of its net operating
loss carryforwards for federal income taxes, significantly reducing income tax
payments for the year compared to what they would have been. As of December 31,
2007, the Company has no remaining net operating loss carryforwards for federal
income tax purposes and limited carryforwards for state income tax
purposes.  Accordingly, the Company expects to pay income taxes at
normal rates going forward, which will have a negative effect on cash flows from
operations in the future.  The Company does have a deferred tax asset
of $3.7 million related to its asset held for sale that is expected to reduce
income taxes payable in the period in which it is sold.
 
 Capital
expenditures totaled $1.5 million and $733,000 during 2007 and 2006,
respectively. The increase was primarily due to supporting continued growth and
capacity in the surgical products business. Capital expenditures are
expected to continue to increase in 2008 as the Company continues its
investments to support growth in the surgical products segment and maintain the
brachytherapy segment.
 
 Cash
provided by financing activities was $177,000 and $7.6 million in 2007 and
2006, respectively.  Cash provided by financing activities in 2007
consisted of cash proceeds from the exercise of stock options and the Company’s
Employee Stock Purchase Plan.  During 2006 the Company borrowed $7.5
million under its $40.0 million Credit Agreement.
 
 In August
2006 the Company acquired Galt for approximately $32.7 million, including $29.6
million in cash and $3.1 million in common stock.  Growth through
acquisitions is a part of the Company’s long term diversification
strategy.  Accordingly, cash could be used in 2008 for the acquisition
of businesses, technologies or products, as well as for increased support for
growth and research and development in the surgical products
business.
 
 The
Company believes that current cash and investment balances and cash from future
operations and credit facilities will be sufficient to meet its current
anticipated working capital and capital expenditure requirements. In the event
additional financing becomes necessary, management may choose to raise those
funds through other means of financing as appropriate.
  II-14
  Medicare
Developments
 
 The
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “2003
Act”), which went into effect on January 1, 2004, contained brachytherapy
provisions requiring Medicare to reimburse hospital outpatient
departments for each brachytherapy seed/source furnished between January 1,
2004 to December 31, 2006 based on the hospital’s costs for each patient
(calculated from the hospital’s charges adjusted by the hospital’s specific
cost-to-charge ratio). The 2003 Act also directed the U.S. Government
Accountability Office (“GAO”) to conduct a study examining future payment
policies for brachytherapy seeds. The GAO published its report on July 25, 2006,
concluding that the Centers for Medicare & Medicaid Services (“CMS”), the
regulatory body that sets Medicare reimbursement policies, could establish
separate prospective payment rates effective in 2007 for palladium-103
brachytherapy seeds/sources (such as TheraSeed®) and
iodine-125 seeds/sources using Medicare’s hospital outpatient data.
  Although subsequently superceded by Congress, CMS posted a final rule on
November 1, 2006 with fixed prospective payment rates for brachytherapy seeds
for Medicare's hospital outpatient prospective payment system (“OPPS”) that
would have applied to calendar year 2007.  The use of prospective
payment rates would have fixed the per seed rate at which Medicare would
have been reimbursed hospitals in 2007.  The Company believed that
CMS’ approach to determining the fixed prospective reimbursement rate for
brachytherapy seeds was fundamentally flawed.  For example, CMS did
not stratify cost data on differing seed configurations, such as loose versus
“stranded” seeds. Accordingly, the Company continued to work with policy makers
in an effort to rectify the shortcomings it believed to be contained in the new
CMS rule.
 
 In
December 2006, Congress enacted the Tax Relief and Health Care Act of 2006 (the
“2006 Act”), which extended and refined the Medicare safeguards initially
enacted by Congress in 2003 for brachytherapy seeds administered in the hospital
outpatient setting. The 2006 Act’s provisions on brachytherapy superceded the
final rule published by CMS on November 1, 2006 by extending the
existing  “charges adjusted to cost” reimbursement policies (which we
sometimes refer to as a “pass-through” methodology) for brachytherapy seeds
through the end of 2007, ensuring that the Medicare program would not implement
potentially restrictive caps on reimbursement during that period.  In
addition, the legislation recognized that prostate cancer patients must have
meaningful access to stranded brachytherapy seeds, which increasingly are used
in clinical practice to further enhance the safety and efficacy of
treatment.  The 2006 Act also established a permanent requirement for
Medicare to use separate codes for the reimbursement of stranded brachytherapy
devices. Stranded seeds are becoming a larger portion of Theragenics’
brachytherapy business.
 
 Effective
July 2007, CMS issued new reimbursement codes for brachytherapy sources. The
codes are isotope specific and recognize the distinction between nonstranded
versus stranded seeds, as mandated by the 2006 Act.  In early November
2007, CMS again posted a final OPPS rule for calendar year 2008 with fixed
prospective reimbursement rates for all brachytherapy source new codes,
including the new codes established in July 2007.
 
 In
December 2007, Congress passed the Medicare, Medicaid and SCHIP Extension Act of
2007 (the “2007 Act”), which once again superseded another CMS’ final OPPS rule
by extending the existing “pass-through” reimbursement policies for
brachytherapy seeds through June 30, 2008.  Fixed reimbursement rates
would have been scheduled to become effective on January 1, 2008 without the
enactment of the 2007 Act.  Under the current law, fixed reimbursement
rates for seeds will be implemented in July 2008.  This and other
factors can be expected to lead to continued pricing pressure from hospitals and
other health care providers.  Any of these factors could have an
adverse effect on brachytherapy revenue.  The Company intends to
continue to pursue delays in implementation of fixed reimbursement.
  II-15
  Forward
Looking and Cautionary Statements
 
 This
document contains certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 including, without limitation,
statements regarding sales, marketing and distribution efforts, ordering
patterns of customers, the Company’s direct sales organization and its growth
and effectiveness, third-party reimbursement, CMS policy, sales mix,
effectiveness and continuation of non-exclusive distribution agreements, pricing
for the TheraSeed® and
I-Seed devices, anticipated growth in the surgical products business segment,
future cost of sales and gross margins, R&D efforts and expenses, investment
in additional personnel and infrastructure, SG&A expenses, other income,
potential new products and opportunities, results in general, plans and
strategies for continuing diversification, 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 statements
relating to anticipated financial performance, business prospects, technological
developments 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 new product development cycles, effectiveness and execution of marketing
and sales programs of the Company’s business segments and its distributors,
competitive conditions and selling tactics of the Company’s competitors,
potential changes in third-party reimbursement (including CMS), changes in
product pricing by the Company’s brachytherapy business segment, changes in cost
of materials used in production processes, continued acceptance of the Company’s
products by the market, potential changes in demand for the Company’s
brachytherapy, wound closure and vascular access products, integration of
acquired companies into the Theragenics organization, capitalization on
opportunities for growth within the Company’s surgical products business
segment, competition within the medical device industry, development and growth
of new applications within our markets, competition from other methods of
treatment, ability to execute on acquisition opportunities on favorable terms
and successfully integrate any acquisitions, and the risks identified in this
Form 10-K Annual Report. All forward looking statements and cautionary
statements included in this document are made as of the date hereof based on
information available to the Company as of the date hereof, and the Company
assumes no obligation to update any forward looking statement or cautionary
statement.
 
 Recent
Accounting Pronouncements
  In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(“SFAS
157”).  SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 does not require any new
fair value measurements.  SFAS No. 157 is effective for the Company
beginning January 1, 2008 and is not expected to have a material impact on the
Company’s consolidated financial statements.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
11 (“SFAS 159”).  SFAS 159 permits entities to choose to
measure eligible items at fair value at specified election dates and report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date.  SFAS No. 159
is effective for the Company beginning January 1, 2008 and is not expected to
have a material impact on the Company’s consolidated financial
statements.
 
 In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations"
(“SFAS 141R”), which establishes principles and requirements for the reporting
entity in a business combination, including recognition and measurement in the
financial statements of the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree. This statement also
establishes disclosure requirements to enable financial statement users to
evaluate the nature and financial effects of the business combination. SFAS 141R
is effective for the Company beginning January 1, 2009. The Company is currently
evaluating the effect that the adoption of SFAS 141R will have on the Company’s
consolidated financial statements.
 
 II-16
  Quarterly
Results
 
 The
following table sets forth certain statement of operations data for each of the
Company's last eight quarters. This unaudited quarterly information has been
prepared on the same basis as the annual audited information presented elsewhere
in this Form 10-K, reflects all adjustments (consisting only of normal,
recurring adjustments) which are, in management’s opinion, necessary for a fair
presentation of the information for the periods covered and should be read in
conjunction with the consolidated financial statements and notes thereto. The
operating results for any quarter are not necessarily indicative of results for
any future period. Quarterly data presented may not reconcile to totals for full
year results due to rounding.
 
 2007
              
              
              2006First
              
              
              Second
              
              
              Third
              
              
              Fourth
              
              
              First
              
              
              Second
              
              
              Third
              
              
              FourthQtr
              
              
              Qtr
              
              
              Qtr
              
              
              Qtr
              
              
              Qtr
              
              
              Qtr
              
              
              Qtr
              
              
              Qtr(Amounts
      in thousands, except per share data)Total
      revenue
              
              $
              15,451
              
              
              $
              15,575
              
              
              $
              16,001
              
              
              $
              15,183
              
              
              $
              12,394
              
              
              $
              12,590
              
              
              $
              14,320
              
              
              $
              14,792Cost
      of product sales
              
              
              8,109
              
              
              
              7,864
              
              
              
              8,207
              
              
              
              7,814
              
              
              
              6,055
              
              
              
              6,480
              
              
              
              7,263
              
              
              
              7,954Gross
      profit
              
              
              7,342
              
              
              
              7,711
              
              
              
              7,794
              
              
              
              7,369
              
              
              
              6,339
              
              
              
              6,110
              
              
              
              7,057
              
              
              
              6,838Selling,
      general and administrative
              
              
              4,856
              
              
              
              4,898
              
              
              
              4,498
              
              
              
              4,879
              
              
              
              5,347
              
              
              
              5,378
              
              
              
              4,552
              
              
              
              4,674Amortization
      of purchased intangibles
              
              
              469
              
              
              
              468
              
              
              
              469
              
              
              
              469
              
              
              
              188
              
              
              
              187
              
              
              
              471
              
              
              
              525Research
      and development
              
              
              291
              
              
              
              379
              
              
              
              430
              
              
              
              265
              
              
              
              239
              
              
              
              179
              
              
              
              206
              
              
              
              181Write
      down of asset held for sale
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Restructuring
      expenses
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              306
              
              
              
              63
              
              
              
              -
              
              
              
              -Gain
      on sale of assets
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              201
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
      income
              
              
              207
              
              
              
              567
              
              
              
              352
              
              
              
              376
              
              
              
              325
              
              
              
              390
              
              
              
              209
              
              
              
              180Net
      earnings before income taxes
              
              
              1,933
              
              
              
              2,533
              
              
              
              2,749
              
              
              
              1,632
              
              
              
              785
              
              
              
              693
              
              
              
              2,037
              
              
              
              1,638Income
      tax expense (benefit)
              
              
              765
              
              
              
              989
              
              
              
              986
              
              
              
              472
              
              
              
              10
              
              
              
              260
              
              
              
              380
              
              
              
              (2,362
              )Net
      earnings
              
              $
              1,168
              
              
              $
              1,544
              
              
              $
              1,763
              
              
              $
              1,160
              
              
              $
              775
              
              
              $
              433
              
              
              $
              1,657
              
              
              $
              4,000
 Earnings
      per common share:Basic
              
              $
              0.04
              
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.04
              
              
              $
              0.02
              
              
              $
              0.01
              
              
              $
              0.05
              
              
              $
              0.12Diluted
              
              $
              0.04
              
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.03
              
              
              $
              0.02
              
              
              $
              0.01
              
              
              $
              0.05
              
              
              $
              0.12Weighted
      average shares outstanding:Basic
              
              
              33,074
              
              
              
              33,112
              
              
              
              33,118
              
              
              
              33,103
              
              
              
              32,052
              
              
              
              32,077
              
              
              
              32,752
              
              
              
              33,041Diluted
              
              
              33,170
              
              
              
              33,264
              
              
              
              33,237
              
              
              
              33,299
              
              
              
              32,085
              
              
              
              32,120
              
              
              
              32,822
              
              
              
              33,125
  II-17
  Inflation
 
 Management
does not believe that the relatively moderate levels of inflation, which have
been experienced in the United States in recent years, have had a significant
effect on the Company’s results of operations.
 
 Item 7A. Quantitative and Qualitative
Disclosureabout Market Risk
 
 The
Company's market risk exposure, related to market risk sensitive financial
instruments, is not material. Borrowings of $7.5 million and letters of credit
totaling approximately $876,000 were outstanding under the terms of the
Company’s $40.0 million credit facility as of December 31, 2007. Interest on
outstanding borrowings is payable monthly at LIBOR plus 1% (effective rate of
6.2% as of December 31, 2007).
 
 Item
8.    Financial Statements and Supplementary
Data
 
 See index
to Financial Statements (Page F-1) and following pages.
 
 Item
9.    Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
 
 As reported in its Form 8-K filed on
March 19, 2007, the Audit Committee of the Company’s Board of Directors
dismissed Grant Thornton LLP and voted to appoint Dixon Hughes PLLC as the
Company’s independent registered public accounting firm on March 13, 2007, and
the Company's stockholders ratified the selection of Dixon Hughes on May 17,
2007.
 
 Item 9A. Controls and
Procedures
  Evaluation
of Disclosure Controls and Procedures
  Under the
supervision and with the participation of the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, the Company conducted
an evaluation of its disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Based on this evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures were effective as of December 31, 2007, the end of the
period covered by this annual report.
 
 Management’s
Report on Internal Control over Financial Reporting
 
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is defined in
Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of
1934, as amended, as a process designed by, or under the supervision of, a
company’s principal executive and principal financial officers and effected by a
company’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:
 
 ·
              Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      company;·
              Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company
      are being made only in accordance with authorizations of management and
      directors of the company; and·
              Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the company’s assets that
      could have a material effect on the financial
  statements.
  II-18
  All
internal control systems, no matter how well designed, have inherent limitations
and can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been detected. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
  Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2007. In making its assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control-Integrated Framework. Based on that
assessment, management believes that, as of December 31, 2007, the Company’s
internal control over financial reporting is effective based on those
criteria.
  Dixon Hughes PLLC, an independent registered public accounting firm, has audited
the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2007, as stated in their report, which is included
below.
  Changes
in Internal Control over Financial Reporting
  No
changes in the Company’s internal control over financial reporting were
identified as having occurred during the quarter ended December 31, 2007 that
have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
 
 II-19
  Report of Independent
Registered Public Accountants – Internal Controls Over Financial
Reporting
 
 
 To the
Board of Directors and
 Shareholders
of Theragenics Corporation
 
 We have
audited Theragenics Corporation and subsidiaries’ (the “Company”) internal
control overfinancial reporting as
of December 31, 2007, based on criteria established inInternal Control—Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). The Company’s management is responsible for
maintaining effective internal control overfinancial reporting and
for its assessment of the effectiveness of internal control overfinancial reporting,
included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control overfinancial reporting
based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
 
 A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America. A
company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that could
have a material effect on the financial statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal
Control—Integrated Framework issued by COSO.
 
 We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements of the
Company as of December 31, 2007 and for the year then ended, and our report
dated March 12, 2008, expressed an unqualified opinion on those
consolidated financial statements.
 
 
 /s/ DIXON
HUGHES PLLC
 
 Atlanta,
Georgia
 March 12,
2008
  II-20
  Item 9B. Other Information
  None.
  II-21
  PART
III
 
 Item
10.  Directors, Executive Officers and Corporate
Governance*
 
 The
Company has adopted a Code of Ethics for the Chief Executive Officer and Senior
Financial Officers and a Code of Conduct for all employees. These codes are
available on the Company’s website at http://www.theragenics.com.
These codes are also available without charge upon request directed to Investor
Relations, Theragenics Corporation, 5203 Bristol Industrial Way, Buford, Georgia
30518. The Company intends to disclose amendments or waivers of these codes with
respect to the Chief Executive Officer, Senior Financial Officers or Directors
required to be disclosed by posting such information on its
website.
 
 The
Company's Chief Executive Officer is required to certify to the New York Stock
Exchange each year that she was not aware of any violation by the Company of the
Exchange's corporate governance listing standards. The Chief Executive Officer
made her annual certification to that effect to the New York Stock Exchange on
May 31, 2007. The Company's Form 10-K on file with the Securities and Exchange
Commission includes the certifications of the Company's Chief Executive Officer
and Chief Financial Officer required by Rule 13a-14 and Section 302 of the
Sarbanes-Oxley Act of 2002.
 
 Item
11.  Executive Compensation*
 
 Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters*
 
 Item
13.  Certain Relationships and Related Transactions, Director
Indepedence*
 
 Item
14.  Principal Accounting Fees and Services*
 
 *           Except
as set forth above,the information called
for by Items 10, 11, 12, 13 and 14 is omitted from this Report and is
incorporated by reference to the definitive Proxy Statement to be filed by the
Company not later than 120 days after December 31, 2007, the close of its fiscal
year.
  III-1
  PART
IV
 
 Item
15. Exhibits and Financial Statement Schedules
 
 a)
              The
      following documents are filed as part of this Report.1.
              Financial
      StatementsSee
      index to financial statements on page F-1.2.
              Financial
      SchedulesSee
      financial statement schedule on page
S-2.
  IV-1
  3.
              Exhibits
  3.1
              Certificate
      of Incorporation as amended through July 29, 1998 (incorporated by
      reference to Exhibit 3.1 of the Company’s report on Form 10-Q for the
      quarterly period ended June 30, 1998)3.2
              Amended
      and Restated By-Laws (incorporated by reference to Exhibit 3.1 of the
      Company’s Current Report on Form 8-K filed August 17,
  2007)4.1
              See
      Exhibits 3.1 - 3.2 for provisions in the Company's Certificate of
      Incorporation and By-Laws defining the rights of holders of the Company's
      Common Stock4.2
              See
      Exhibit 10.3310.1
              License
      Agreement with University of Missouri, as amended (incorporated by
      reference to Exhibit 10.3 of the Company’s registration statement on Form
      S-1, File No. 33-7097, and post-effective amendments
    thereto)10.2
              Reassignment
      and Release Agreement among the Company, John L. Russell, Jr., and Georgia
      Tech Research Institute (incorporated by reference to Exhibit 10.8 of the
      Company’s registration statement on Form S-1, File No. 33-7097, and
      post-effective amendments thereto)10.3
              Agreement
      with Nordion International Inc. (incorporated by reference to the
      Company’s report on Form 8-K dated March 23, 1995)10.4
              Credit
      Agreement dated October 29, 2003 between Theragenics Corporation and
      SouthTrust Bank (incorporated by reference to Exhibit 10.1 of the
      Company’s report on Form 10-Q for the quarterly period ended September 30,
      2003)10.4A
              Borrower
      Party Joinder Agreement dated May 6, 2005 among CP Medical Corporation,
      the Company, and Wachovia Bank, National Association, successor by merger
      to SouthTrust Bank, amending the Credit Agreement dated as of August 12,
      2005 between the Company and SouthTrust Bank (incorporated by reference to
      Exhibit 10.4 of the Company’s report on Form 10-Q for the quarterly period
      ended July 3, 2005)10.4B
              Amendment
      to Credit Agreement dated August 11, 2005 among CP Medical Corporation,
      the Company, and Wachovia Bank, National Association, successor by merger
      to SouthTrust Bank, amending the Credit Agreement dated October 29, 2003
      between the Company and SouthTrust Bank (incorporated by reference to
      Exhibit 10.6 of the Company’s report on Form 10-Q for the quarterly period
      ended July 3, 2005)10.4C
              Third
      Amendment to Credit Agreement by and among Theragenics Corporation, CP
      Medical Corporation and Wachovia Bank, National Association, successor by
      merger to SouthTrust Bank, dated June 29, 2006 (incorporated by reference
      to Exhibit 10.1 of the Company’s Form 8-K filed July 3,
    2006)10.5
              1986
      Incentive and Non-Incentive Stock Option Plan* (incorporated by reference
      to Exhibit 10.11 of the Company’s registration statement on Form S-1, File
      No. 33-7097, and post-effective amendments thereto)10.6
              1990
      Incentive and Non-Incentive Stock Option Plan* (incorporated by reference
      to Exhibit 10.10 of the Company’s report on Form 10-K for the year ended
      December 31, 1990)10.7
              Theragenics
      Corporation 1995 Stock Option Plan* (incorporated by reference to Exhibit
      10.1 of the Company’s common stock registration statement on Form S-8,
      file no. 333-15313)10.8
              1997
      Stock Incentive Plan* (incorporated by reference to Appendix B of the
      Company’s Proxy Statement for its 1997 Annual Meeting of Stockholders
      filed on Schedule 14A)10.9
              Theragenics
      Corporation Employee Stock Purchase Plan* (incorporated by reference to
      Appendix A of the Company’s Proxy Statement for its 1998 Annual Meeting of
      Stockholders filed on Schedule 14A)10.10
              Theragenics
      Corporation 2000 Stock Incentive Plan* (incorporated by reference to
      Exhibit 10.16 of the Company’s report on Form 10-K for the year ended
      December 31, 1999)10.11
              Employment
      Agreement dated April 13, 2000 of M. Christine Jacobs* (incorporated by
      reference to Exhibit 10.1 of the Company’s report on Form 10-Q for the
      quarterly period ended March 31, 2000)
 10.11A
                First
      Amendment dated July 8, 2003 to Executive Employment Agreement for M.
      Christine Jacobs* (incorporated by reference to Exhibit 10.1 of the
      Company’s report on Form 10-Q for the quarterly period ended June 30,
      2003)
 IV-2
 10.11B
              Amendment
      to Employment Agreement dated August 8, 2006, between Theragenics
      Corporation and M. Christine Jacobs* (incorporated by reference to Exhibit
      10.3 of the Company’s report on Form 10-Q for the quarterly period ended
      July 2, 2006)10.12
              Employment
      Agreement dated January 1, 1999 of Bruce W. Smith* (incorporated by
      reference to Exhibit 10.22 of the Company’s report on Form 10-K for the
      year ended December 31, 1998)10.12A
              Amendment
      to Executive Employment Agreement dated June 29, 1999 for Bruce W. Smith*
      (incorporated by reference to Exhibit 10.18 of the Company’s report on
      Form 10-K for year ended December 31, 2002)10.12B
              Second
      Amendment dated June 15, 2001 to Executive Employment Agreement for Bruce
      W. Smith* (incorporated by reference to Exhibit 10.19 of the Company’s
      report on Form 10-K for year ended December 31, 2002)10.12C
              Third
      Amendment dated September 3, 2002 to Executive Employment Agreement for
      Bruce W. Smith* (incorporated by reference to Exhibit 10.20 of the
      Company’s report on Form 10-K for year ended December 31,
      2002)10.12D
              Fourth
      Amendment dated May 28, 2003 to Executive Employment Agreement for Bruce
      W. Smith* (incorporated by reference to Exhibit 10.2 of the Company’s
      report on Form 10-Q for the quarterly period ended June 30,
      2003)10.12E
              Fifth
      Amendment to Executive Employment Agreement for Bruce W. Smith*
      (incorporated by reference to Exhibit 10.15E of the Company’s report on
      Form 10-K for the year ended December 31, 2005)10.13
              Employee
      Employment Agreement dated January 1, 2000 for Michael O’Bannon*
      (incorporated by reference to Exhibit 10.26 of the Company's report on
      Form 10-K for the year ended December 31, 2003)10.13A
              Amendment
      to Employee Employment Agreement dated October 25, 2001 for Michael
      O’Bannon* (incorporated by reference to Exhibit 10.27 of the Company's
      report on Form 10-K for the year ended December 31,
  2003)10.13B
              Amendment
      to Employee Employment Agreement for Michael O’Bannon* (incorporated by
      reference to Exhibit 10.16B of the Company’s report on Form 10-K for the
      year ended December 31, 2005)10.14
              Forms
      of Option Award for grants prior to 2007* (incorporated by reference to
      Exhibit 10.22 of the Company’s report on Form 10-K for the year ended
      December 31, 2004)10.15
              Advisor
      to the Chief Executive Officer Agreement dated February 18, 2008 with John
      Herndon* +10.16
              Form
      of Directors and Officers Indemnification Agreement* (incorporated by
      reference to Exhibit 10.28 of the Company’s report on Form 10-K for the
      year ended December 31, 2003)10.17
              Form
      of Restricted Stock Agreement for directors as of May 2005* (incorporated
      by reference to Exhibit 10.1 of the Company’s report on Form 10-Q for the
      quarterly period ended July 3, 2005)10.18
              Form
      of Performance Restricted Stock Rights Agreement used in 2004 and 2005*
      (incorporated by reference to Exhibit 10.2 of the Company’s report on Form
      10-Q for the quarterly period ended July 3, 2005)10.18A
              Form
      of Amendment to Performance Restricted Stock Rights Agreement *(incorporated
      by reference to Exhibit 10.1 of the Company's Form 8-K filed January 5,
      2006)10.19
              Form
      of Restricted Stock Rights Agreement* for 2004 grants (incorporated by
      reference to Exhibit 10.3 of the Company’s report on Form 10-Q for the
      quarterly period ended July 3, 2005)10.20
              Employment
      Agreement between the Company and Francis J. Tarallo dated August 10,
      2005* (incorporated by reference to Exhibit 10.5 of the Company’s report
      on Form 10-Q for the quarterly period ended July 3,
  2005)10.21
              Form
      of Performance Restricted Stock Rights Agreement for 2006 grants*
      (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed
      February 22, 2006)10.22
              Theragenics
      Corporation Incentive Stock Option Award for 2007 grants* (incorporated by
      reference to Exhibit 10.1 of the Company’s Form 8-K dated February 20,
      2007)10.23
              Restricted
      Stock Award Pursuant to the Theragenics Corporation 2006 Stock Incentive
      Plan for 2007 grants* (incorporated by reference to Exhibit 10.2 of the
      Company’s Form 8-K dated February 20,
2007)
  IV-3
  10.24
              Theragenics
      Corporation Amended and Restated 2007 Long-Term Cash Incentive Plan*
      +10.25
              Additional
      Compensation Information* +10.26
              Registration
      Rights Agreement dated May 6, 2005 by and among the Company, Patrick
      Ferguson and Cynthia Ferguson (incorporated by reference to Exhibit 10.2
      of the Company's Form 8-K filed May 12, 2005)10.27
              Employment
      Agreement dated May 6, 2005 by and between the Company and Patrick
      Ferguson* (incorporated by reference to Exhibit 10.1 of the Company’s Form
      8-K filed May 12, 2005)10.28
              Stock
      Purchase Agreement by and among the Company, CP Medical Corporation,
      Patrick Ferguson and Cynthia Ferguson (incorporated by reference to
      Exhibit 2.1 of the Company’s Form 8-K filed April 29,
  2005)10.29
              Theragenics
      Corporation 2006 Stock Incentive Plan* (incorporated by reference to
      Appendix A to the Company’s definitive proxy statement for its May 9, 2006
      annual meeting of stockholders filed with the Securities and Exchange
      Commission on March 27, 2006).10.29A
              First
      Amendment to Theragenics Corporation 2006 Stock Incentive Plan*
      (incorporated by reference to Exhibit 18.1 on Form 8-K filed November 13,
      2006)10.30
              Stock
      Purchase Agreement by and among Theragenics Corporation, James R. Eddings,
      as Sellers’ Representative, those shareholders and holders of Company
      Stock Derivatives of Galt Medical Corp. listed on Schedule 1 thereto,
      dated August 2, 2006 (incorporated by reference to Exhibit 2.1 of Form 8-K
      filed on August 8, 2006)10.31
              Employment
      Agreement between Galt Medical Corp. and James R. Eddings, dated as of
      August 2, 2006 * (incorporated by reference to Exhibit 10.1 of Form 8-K
      filed on August 8, 2006)10.32
              Registration
      Rights Agreement between Theragenics Corporation and James R. Eddings, as
      Sellers’ Representative, dated as of August 2, 2006 (incorporated by
      reference to Exhibit 10.2 of Form 8-K filed on August 8,
      2006).10.33
              Rights
      Agreement dated February 14, 2007 between the Company and Computershare
      Investor Services LLC (incorporated by reference to Exhibit 99.1 of the
      Company’s registration statement on Form 8-A/A filed February 16,
      2007)10.34
              Employment
      Agreement between Galt Medical Corp. and Michael F. Lang dated August 21,
      2007* (incorporated by reference to Exhibit 10.1 of the Company’s Form
      10-Q filed November 8, 2007)10.35
              Theragenics
      Corporation Incentive Stock Option Award for 2008 grants*
      (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
      dated February 25, 2008)10.36
              Restricted
      Stock Award for 2008 grants, pursuant to the Theragenics
      Corporation 2006 Stock Incentive Plan* (incorporated by
      reference to Exhibit 10.2 of the Company's Form 8-K dated February
      25, 2008)10.37
              Theragenics
      Corporation 2008 Long-Term Cash Incentive Plan* (incorporated by
      reference to Exhibit 10.3 of the Company's Form 8-K dated February
      25, 2008)21.1
              Subsidiaries
      of Registrant+23.1
              Consent
      of Dixon Hughes PLLC+23.2
              Consent
      of Grant Thornton LLP+31.1
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and Section 302 of
      the Sarbanes-Oxley Act of 2002+31.2
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and Section 302 of
      the Sarbanes-Oxley Act of 2002+32.1
              Certification
      of Chief Executive Officer pursuant to Section 1350, Chapter 63 of Title
      18, United States Code, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002+32.2
              Certification
      of Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title
      18, United States Code, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002+
 
 *
Management contract or compensatory plan.
 +
Enclosed herewith.
  IV-4
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) 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.
 
 
 THERAGENICS
      CORPORATION(Registrant)By:
              /s/ M. Christine JacobsM.
      Christine JacobsChief
      Executive OfficerDated:
      March 13, 2008Buford,
      Georgia
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 Name
              
              Title
              
              Date/s/ M. Christine
      Jacobs
              
              Chief
      Executive Officer
              
              3/13/08M.
      Christine Jacobs
              
              (Principal
      Executive Officer)President
      and Chairman/s/ Francis J.
      Tarallo
              
              Chief
      Financial Officer (Principal Financial
              
              3/13/08Francis
      J. Tarallo
              
              and
      Accounting Officer) and Treasurer/s/ Luther T.
      Griffith
              
              Director
              
              3/13/08Luther
      T. Griffith/s/ John V.
      Herndon
              
              Director
              
              3/13/08John
      V. Herndon/s/C. David
      Moody, Jr.
              
              Director
              
              3/13/08C.
      David Moody, Jr./s/ Peter A.A.
      Saunders
              
              Director
              
              3/13/08Peter
      A. A. Saunders
 
 IV-5
 
 THERAGENICS
CORPORATION®
 
 TABLE
OF CONTENTS
 
  PageREPORTS
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
              F-2CONSOLIDATED
      FINANCIAL STATEMENTSConsolidated
      Balance Sheets - December 31, 2007 and 2006
              F-4Consolidated
      Statements of Operations and Comprehensive Earnings (Loss) for each of the
      three years in the period ended December 31, 2007
              F-6Consolidated
      Statements of Shareholders’ Equity for each of the three years in the
      period ended December 31, 2007
              F-8Consolidated
      Statements of Cash Flows for each of the three years in the period ended
      December 31, 2007
              F-11NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
              F-13REPORTS
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS ON
    SCHEDULE
              S-1Schedule
      II - Valuation and Qualifying Accounts for each of the three years in the
      period ended December 31, 2007
              S-3
 
  F-1
  
 Report of Independent
Registered Public Accountants
 
 
 
 To the
Board of Directors and
 Shareholders
of Theragenics Corporation
 
 We have
audited the accompanying consolidated balance sheet of Theragenics Corporation
and subsidiaries (the “Company”) as of December 31, 2007, and the related
consolidated statements of operations and comprehensive earnings (loss),
shareholders’ equity, and cash flows for the year then ended. 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 audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the 2007 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2007, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2007, based on criteria established in InternalControl—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 12, 2008 expressed an unqualified opinion
thereon.
 
 
 /s/ DIXON
HUGHES PLLC
 
 Atlanta,
Georgia
 March 12,
2008
 
 F-2
 
 
 Report of Independent
Registered Public Accountants
 
 
 Board of
Directors and Shareholders of
 Theragenics
Corporation
 
 We have
audited the accompanying consolidated balance sheet of Theragenics Corporation
(a Delaware corporation) and Subsidiaries (the “Company”) as of December 31,
2006, and the related consolidated statements of operations and comprehensive
earnings (loss), shareholders’ equity, and cash flows for each of the two years
in the period ended December 31, 2006. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 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 consolidated financial position of the Company as
of December 31, 2006 , and the consolidated results of its operations and its
consolidated cash flows for each of the two years in the period ended December
31, 2006, in conformity with accounting principles generally accepted in the
United States of America.
 
 As
discussed in Note B to the Consolidated Financial Statements, the Company
adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment,effective January 1, 2006.
 
 
 /s/ GRANT
THORNTON LLP
 
 Atlanta,
Georgia
 March 7,
2007
  F-3
  
 Theragenics
Corporation and Subsidiaries
 
 CONSOLIDATED
BALANCE SHEETS
 
 December
31,
 
 (Amounts
in thousands, except per share data)
  ASSETS
 2007
              
              
              2006CURRENT
      ASSETSCash
      and cash equivalents
              
              $
              28,666
              
              
              $
              18,258Marketable
      securities
              
              
              20,123
              
              
              
              14,722Trade
      accounts receivable, less allowance of $372 in 2007 and $617 in
      2006
              
              
              7,882
              
              
              
              7,556Inventories
              
              
              7,644
              
              
              
              7,433Deferred
      income tax asset
              
              
              1,664
              
              
              
              7,798Prepaid
      expenses and other current assets
              
              
              1,338
              
              
              
              3,478Asset
      held for sale
              
              
              -
              
              
              
              3,400Total
      current assets
              
              
              67,317
              
              
              
              62,645PROPERTY
      AND EQUIPMENT - AT COSTBuildings
      and improvements
              
              
              22,579
              
              
              
              22,374Machinery
      and equipment
              
              
              37,349
              
              
              
              36,732Office
      furniture and equipment
              
              
              988
              
              
              
              92460,916
              
              
              
              60,030Less
      accumulated depreciation
              
              
              34,327
              
              
              
              30,15526,589
              
              
              
              29,875Land
      and improvements
              
              
              822
              
              
              
              822Construction
      in progress
              
              
              561
              
              
              
              204Property
      and equipment, net
              
              
              27,972
              
              
              
              30,901OTHER
      ASSETSGoodwill
              
              
              38,658
              
              
              
              38,824Other
      intangible assets
              
              
              11,881
              
              
              
              13,762Asset
      held for sale
              
              
              2,900
              
              
              
              -Other
              
              
              93
              
              
              
              11253,532
              
              
              
              52,698Total
      assets
              
              $
              148,821
              
              
              $
              146,244
  F-4
  Theragenics
Corporation and Subsidiaries
  CONSOLIDATED
BALANCE SHEETS - Continued
  December
31,
  (Amounts
in thousands, except per share data)
  LIABILITIES
AND SHAREHOLDERS’ EQUITY
 
 2007
              
              
              2006CURRENT
      LIABILITIESAccounts
      payable
              
              $
              1,530
              
              
              $
              1,768Accrued
      salaries, wages and payroll taxes
              
              
              1,868
              
              
              
              1,512Income
      tax payable
              
              
              867
              
              
              
              -Other
      current liabilities
              
              
              724
              
              
              
              1,101Total
      current liabilities
              
              
              4,989
              
              
              
              4,381LONG
      TERM LIABILITIESLong-term
      debt
              
              
              7,500
              
              
              
              7,500Deferred
      income taxes
              
              
              1,369
              
              
              
              6,148Contract
      termination liability
              
              
              1,487
              
              
              
              1,513Decommissioning
      retirement
              
              
              602
              
              
              
              561Other
      long-term liabilities
              
              
              255
              
              
              
              -Total
      long term liabilities
              
              
              11,213
              
              
              
              15,722COMMITMENTS
      AND CONTINGENCIES
              
              
              -
              
              
              
              -SHAREHOLDERS’
      EQUITYCommon
      stock - authorized 100,000 shares of $.01 par value; issued and
      outstanding, 33,274 in 2007 and 33,096 in 2006
              
              
              333
              
              
              
              331Additional
      paid-in capital
              
              
              72,918
              
              
              
              72,103Retained
      earnings
              
              
              59,424
              
              
              
              53,789Accumulated
      other comprehensive loss
              
              
              (56
              )
              
              
              (82
              )Total
      shareholders’ equity
              
              
              132,619
              
              
              
              126,141Total
      liabilities and shareholders’ equity
              
              $
              148,821
              
              
              $
              146,244The
      accompanying notes are an integral part of these consolidated
      statements.
 
 F-5
 
 Theragenics
Corporation and Subsidiaries
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 AND
COMPREHENSIVE EARNINGS (LOSS)
 
 Year
ended December 31,
 
 (Amounts
in thousands, except per share data)
  2007
              
              
              2006
              
              
              2005RevenueProduct
      sales
              
              $
              61,286
              
              
              $
              53,076
              
              
              $
              43,693License
      fees
              
              
              924
              
              
              
              1,020
              
              
              
              57762,210
              
              
              
              54,096
              
              
              
              44,270Cost
      of sales
              
              
              31,994
              
              
              
              27,752
              
              
              
              23,763Gross
      profit
              
              
              30,216
              
              
              
              26,344
              
              
              
              20,507Operating
      expensesSelling,
      general and administrative
              
              
              19,131
              
              
              
              19,951
              
              
              
              19,652Amortization
      of purchased intangibles
              
              
              1,875
              
              
              
              1,371
              
              
              
              500Research
      and development
              
              
              1,365
              
              
              
              805
              
              
              
              3,632Write
      down of asset held for sale
              
              
              500
              
              
              
              -
              
              
              
              -Restructuring
      expenses
              
              
              -
              
              
              
              369
              
              
              
              33,390(Gain)
      loss on sale of equipment
              
              
              -
              
              
              
              (201
              )
              
              
              1422,871
              
              
              
              22,295
              
              
              
              57,188Earnings
      (loss) from operations
              
              
              7,345
              
              
              
              4,049
              
              
              
              (36,681
              )Other
      income (expense)Interest
      income
              
              
              2,192
              
              
              
              1,541
              
              
              
              1,429Interest
      expense
              
              
              (691
              )
              
              
              (419
              )
              
              
              (160
              )Other
              
              
              1
              
              
              
              (18
              )
              
              
              121,502
              
              
              
              1,104
              
              
              
              1,281Earnings
      (loss) before income taxes
              
              
              8,847
              
              
              
              5,153
              
              
              
              (35,400
              )Income
      tax expense (benefit)
              
              
              3,212
              
              
              
              (1,712
              )
              
              
              (6,394
              )NET
      EARNINGS (LOSS)
              
              $
              5,635
              
              
              $
              6,865
              
              
              $
              (29,006
              )
 
 F-6
  Theragenics
Corporation and Subsidiaries
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 AND
COMPREHENSIVE EARNINGS (LOSS) – Continued
 
 Year
ended December 31,
 
 (Amounts
in thousands, except per share data)
  2007
              
              
              2006
              
              
              2005NET EARNINGS
      (LOSS) PER SHAREBasic
              
              $
              0.17
              
              
              $
              0.21
              
              
              $
              (0.93
              )Diluted
              
              $
              0.17
              
              
              $
              0.21
              
              
              $
              (0.93
              )WEIGHTED AVERAGE
      SHARESBasic
              
              
              33,103
              
              
              
              32,452
              
              
              
              31,273Diluted
              
              
              33,299
              
              
              
              32,540
              
              
              
              31,273COMPREHENSIVE
      EARNINGS (LOSS)Net
      earnings (loss)
              
              $
              5,635
              
              
              $
              6,865
              
              
              $
              (29,006
              )Other
      comprehensive earnings (loss), net of taxesReclassification
      adjustment for realized loss included in net earnings
              
              
              5
              
              
              
              39
              
              
              
              -Unrealized
      gain (loss) on securities arising during the year
              
              
              21
              
              
              
              63
              
              
              
              (50
              )Total
      other comprehensive earnings (loss)
              
              
              26
              
              
              
              102
              
              
              
              (50
              )Total
      comprehensive earnings (loss)
              
              $
              5,661
              
              
              $
              6,967
              
              
              $
              (29,056
              )The
      accompanying notes are an integral part of these consolidated financial
      statements.
 
 
 F-7
  Theragenics
Corporation and Subsidiaries
 
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
 
 For the
three years ended December 31, 2007
 
 (Amounts in thousands, except per share
data)
  Common
      StockNumber
      of
                Shares
              
              
              Par
                value
                $0.01
              
              
              Additional
                paid-in
                capital
              
              
              Deferred
      compensation
              
              
              Retained
                earnings
              
              
              Accumulated
                other
                comprehensive
                loss
              
              
              TotalBalance,
      December 31, 2004
              
              
              29,989
              
              
              $
              300
              
              
              $
              61,987
              
              
              $
              (23
              )
              
              $
              75,930
              
              
              $
              (134
              )
              
              $
              138,060Issuance
      of common stock for acquisition of CP Medical
              
              
              1,840
              
              
              
              18
              
              
              
              6,083
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,101Exercise
      of stock options
              
              
              112
              
              
              
              1
              
              
              
              272
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              273Employee
      stock purchase plan
              
              
              32
              
              
              
              1
              
              
              
              89
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              90Issuance
      of restricted shares
              
              
              35
              
              
              
              -
              
              
              
              120
              
              
              
              (120
              )
              
              
              -
              
              
              
              -
              
              
              
              -Share
      based compensation
              
              
              -
              
              
              
              -
              
              
              
              166
              
              
              
              49
              
              
              
              -
              
              
              
              -
              
              
              
              215Other
      comprehensive loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (50
              )
              
              
              (50
              )Net
      loss for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (29,006
              )
              
              
              -
              
              
              
              (29,006
              )Balance,
      December 31, 2005
              
              
              32,008
              
              
              $
              320
              
              
              $
              68,717
              
              
              $
              (94
              )
              
              $
              46,924
              
              
              $
              (184
              )
              
              $
              115,683
 
 F-8
 
 Theragenics
Corporation and Subsidiaries
 
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY – Continued
 
 For the
three years ended December 31, 2007
 
 (Amounts
in thousands, except per share data)
  Common
      StockNumber
      of
                Shares
              
              
              Par
                value
                $0.01
              
              
              Additional
                paid-in
                capital
              
              
              Deferred
      Compensation
              
              
              Retained
                earnings
              
              
              Accumulated
                other
                comprehensive
                loss
              
              
              TotalBalance,
      December 31, 2005
              
              
              32,008
              
              
              $
              320
              
              
              $
              68,717
              
              
              $
              (94
              )
              
              $
              46,924
              
              
              $
              (184
              )
              
              $
              115,683Adoption
      of SFAS 123R
              
              
              -
              
              
              
              -
              
              
              
              (94
              )
              
              
              94
              
              
              
              -
              
              
              
              -
              
              
              
              -Issuance
      of restricted units and restricted shares
              
              
              80
              
              
              
              1
              
              
              
              (1
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Issuance
      of common stock for acquisition of Galt
              
              
              978
              
              
              
              10
              
              
              
              3,042
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,052Employee
      stock purchase plan
              
              
              30
              
              
              
              -
              
              
              
              77
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              77Share
      based compensation
              
              
              -
              
              
              
              -
              
              
              
              362
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              362Other
      comprehensive earnings
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              102
              
              
              
              102Net
      earnings for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,865
              
              
              
              -
              
              
              
              6,865Balance,
      December 31, 2006
              
              
              33,096
              
              
              $
              331
              
              
              $
              72,103
              
              
              $
              -
              
              
              $
              53,789
              
              
              $
              (82
              )
              
              $
              126,141
   The
accompanying notes are an integral part of these consolidated
statements.
 F-9
  Theragenics
Corporation and Subsidiaries
 
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY – Continued
 
 For the
three years ended December 31, 2007
 
 (Amounts
in thousands, except per share data)
  Common
      StockNumber
      of
                Shares
              
              
              Par
                value
                $0.01
              
              
              Additional
                paid-in
                capital
              
              
              Deferred
      Compensation
              
              
              Retained
                earnings
              
              
              Accumulated
                other
                comprehensive
                loss
              
              
              TotalBalance,
      December 31, 2006
              
              
              33,096
              
              
              $
              331
              
              
              $
              72,103
              
              
              $
              -
              
              
              $
              53,789
              
              
              $
              (82
              )
              
              $
              126,141Exercise
      of stock options
              
              
              30
              
              
              
              -
              
              
              
              126
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              126Tax
      benefit from exercise of stock options
              
              
              -
              
              
              
              -
              
              
              
              15
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              15Issuance
      of restricted units and restricted shares
              
              
              135
              
              
              
              1
              
              
              
              (1
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Restricted
      shares forfeited
              
              
              (1
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Issuance
      of common stock upon vesting of restricted units
              
              
              23
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Retirement
      of common stock received in settlement for other
receivable
              
              
              (21
              )
              
              
              -
              
              
              
              (83
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (83
              )Employee
      stock purchase plan
              
              
              12
              
              
              
              1
              
              
              
              35
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              36Share
      based compensation
              
              
              -
              
              
              
              -
              
              
              
              723
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              723Other
      comprehensive earnings
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              26
              
              
              
              26Net
      earnings for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,635
              
              
              
              -
              
              
              
              5,635Balance,
      December 31, 2007
              
              
              33,274
              
              
              $
              333
              
              
              $
              72,918
              
              
              $
              -
              
              
              $
              59,424
              
              
              $
              (56
              )
              
              $
              132,619
 
  The
accompanying notes are an integral part of these consolidated
statements.
 F-10
  Theragenics
Corporation and Subsidiaries
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 Year
ended December 31,
 
 (Amounts
in thousands)
 
 
 2007
              
              
              2006
              
              
              2005Cash
      flows from operating activities:Net
      earnings (loss)
              
              $
              5,635
              
              
              $
              6,865
              
              
              $
              (29,006
              )Adjustments
      to reconcile net earnings (loss) to net cash provided by operating
      activities:Depreciation
      and amortization
              
              
              6,146
              
              
              
              6,029
              
              
              
              6,818Deferred
      income taxes
              
              
              1,300
              
              
              
              (1,935
              )
              
              
              (6,510
              )Write
      down of asset held for sale
              
              
              500
              
              
              
              -
              
              
              
              -Impairment
      of long-term assets
              
              
              -
              
              
              
              -
              
              
              
              28,789Other
      non-cash restructuring charges
              
              
              -
              
              
              
              -
              
              
              
              3,315Share
      based compensation
              
              
              723
              
              
              
              362
              
              
              
              215Contract
      termination liability
              
              
              (26
              )
              
              
              (24
              )
              
              
              (2
              )Provision
      for allowances
              
              
              19
              
              
              
              517
              
              
              
              326Decommissioning
      retirement liability
              
              
              41
              
              
              
              (111
              )
              
              
              -(Gain)
      loss on sale of equipment
              
              
              -
              
              
              
              (201
              )
              
              
              14Realized
      loss on sale of marketable securities
              
              
              5
              
              
              
              39
              
              
              
              -Changes
      in assets and liabilities:Accounts
      receivable
              
              
              (124
              )
              
              
              764
              
              
              
              (657
              )Inventories
              
              
              (325
              )
              
              
              (1,113
              )
              
              
              (873
              )Prepaid
      expenses and other current assets
              
              
              2,140
              
              
              
              (745
              )
              
              
              1,527Other
      assets
              
              
              (64
              )
              
              
              27
              
              
              
              9Trade
      accounts payable
              
              
              (238
              )
              
              
              (41
              )
              
              
              (1,041
              )Accrued
      salaries, wages and payroll taxes
              
              
              356
              
              
              
              (342
              )
              
              
              980Income
      tax payable
              
              
              970
              
              
              
              -
              
              
              
              -Other
      current liabilities
              
              
              (277
              )
              
              
              (125
              )
              
              
              285Other
              
              
              255
              
              
              
              -
              
              
              
              -Net
      cash provided by operating activities
              
              
              17,036
              
              
              
              9,966
              
              
              
              4,189Cash
      flows from investing activities:Purchases
      and construction of property and equipment
              
              
              (1,450
              )
              
              
              (733
              )
              
              
              (533
              )Proceeds
      from sale of equipment
              
              
              -
              
              
              
              234
              
              
              
              -Acquisition
      of business, net of cash acquired
              
              
              -
              
              
              
              (29,656
              )
              
              
              (20,468
              )Purchases
      of marketable securities
              
              
              (29,493
              )
              
              
              (9,699
              )
              
              
              (22,455
              )Maturities
      of marketable securities
              
              
              21,658
              
              
              
              24,535
              
              
              
              20,527Proceeds
      from sales of marketable securities
              
              
              2,480
              
              
              
              5,961
              
              
              
              -Net
      cash used in investing activities
              
              
              (6,805
              )
              
              
              (9,358
              )
              
              
              (22,929
              )Cash
      flows from financing activities:Proceeds
      from long-term debt
              
              
              -
              
              
              
              7,500
              
              
              
              -Proceeds
      from exercise of stock options and stock purchase plan
              
              
              162
              
              
              
              77
              
              
              
              363Excess
      tax benefit from exercise of stock options
              
              
              15
              
              
              
              -
              
              
              
              -Net
      cash provided by financing activities
              
              
              177
              
              
              
              7,577
              
              
              
              363
  F-11
  Theragenics
Corporation and Subsidiaries
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS - Continued
 
 Year
ended December 31,
 
 (Amounts
in thousands)
 
 
 2007
              
              
              2006
              
              
              2005Net
      increase (decrease) in cash and cash equivalents
              
              $
              10,408
              
              
              $
              8,185
              
              
              $
              (18,377
              )Cash
      and cash equivalents at beginning of year
              
              
              18,258
              
              
              
              10,073
              
              
              
              28,450Cash
      and cash equivalents at end of year
              
              $
              28,666
              
              
              $
              18,258
              
              
              $
              10,073Supplementary Cash
      Flow DisclosureInterest
      paid
              
              $
              662
              
              
              $
              419
              
              
              $
              80Income
      taxes paid (received), net
              
              $
              (928
              )
              
              $
              281
              
              
              $
              (543
              )Non-cash investing and
      financing activities:Stock
      issued for acquisition
              
              $
              -
              
              
              $
              3,052
              
              
              $
              6,101Common
      stock received in settlement of other receivable
              
              $
              83
              
              
              $
              -
              
              
              $
              -
 
 
 The
accompanying notes are an integral part of these consolidated
statements.
 F-12
 
 Theragenics
Corporation and Subsidiaries
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2007 and 2006
  NOTE
A - ORGANIZATION AND DESCRIPTION OF BUSINESS
 
 Theragenics
Corporation (the “Company”) is a medical device company serving the cancer
treatment and surgical markets, operating in two business segments. In its
brachytherapy seed business, the Company produces, markets and sells
TheraSeed®, its
premier palladium-103 prostate cancer treatment device, I-Seed, its iodine-125
based prostate cancer treatment device, and related products and
services. The Company’s surgical products business consists of wound
closure and vascular access products.  Wound closure includes sutures,
needles and other surgical products with applications in, among other areas,
urology, veterinary, cardiology, orthopedics, plastic surgery and dental.
Vascular access includes introducers and guidewires used in the interventional
radiology, interventional cardiology and vascular surgery markets.
 
 NOTE
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 A summary
of the significant accounting policies consistently applied in the preparation
of the accompanying financial statements follows:
 
 1. 
Consolidation
 
 These
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, CP Medical Corporation (“CP Medical”) and Galt
Medical Corp. (“Galt”). All significant intercompany accounts and transactions
have been eliminated. The Company has no unconsolidated entities and no special
purpose entities.
  2. 
Use of
Estimates
 
 In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”), management is
required to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at
the date of the balance sheet, and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
 
 3. 
Revenue Recognition
and Cost of Sales
 
 Product
sales are recognized upon shipment and are generally not returnable, including
sales to third party distributors. License fees are recognized in the periods to
which they relate.
 
 Shipping
and handling costs are included in cost of sales.  Any sales taxes are
excluded from both net sales and expenses.
 
 4. 
Cash and Cash
Equivalents
 
 For
purposes of reporting cash flows, cash and cash equivalents include cash on
hand, cash in banks, variable rate demand notes, treasury investments and U.S.
obligations and commercial paper with maturities equal to or less than 90 days
from purchase.
 
 5.Marketable
Securities and Fair Value of Financial Instruments
 
 The
Company’s financial instruments include cash, cash equivalents and marketable
securities. The carrying value of cash and cash equivalents approximates fair
value due to the relatively short period to maturity of the instruments.
Marketable securities, which consist primarily of high-credit quality corporate
and municipal obligations, are classified as available-for-sale and are reported
at fair value based upon quoted market prices, with unrealized gains or losses
excluded from earnings and included in other comprehensive income, net of
applicable taxes. The cost of marketable securities sold is determined using the
specific identification method.
  F-13
 Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 Available-for-sale
securities consist of (in thousands):
   December
      31,2007
              
              
              
              2006Gross
              
              
              
              Estimated
              
              
              
              
              
              
              
              Gross
              
              
              
              EstimatedAmortized
              
              
              
              Unrealized
              
              
              
              Fair
              
              
              
              Amortized
              
              
              
              Unrealized
              
              
              
              FairCost
              
              
              
              Loss
              
              
              
              Value
              
              
              
              Cost
              
              
              
              Loss
              
              
              
              ValueState
      and municipal securities
              
              $
              13,890
              
              
              $
              -
              
              
              $
              13,890
              
              
              $
              352
              
              
              $
              (3
              )
              
              $
              349U.S.
      government and agency securities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,000
              
              
              
              (1
              )
              
              
              1,999Corporate
      and other securities
              
              
              6,319
              
              
              
              (86
              )
              
              
              6,233
              
              
              
              12,500
              
              
              
              (126
              )
              
              
              12,374Total
              
              $
              20,209
              
              
              $
              (86
              )
              
              $
              20,123
              
              
              $
              14,852
              
              
              $
              (130
              )
              
              $
              14,722
 
 The
estimated fair value of marketable securities by contractual maturity at
December 31, 2007, is as follows (in thousands):
 
 Due
      in one year or less
              
              $
              18,782Due
      after one year through five years
              
              $
              1,341
 
 6.
              Accounts Receivable
      and Allowance for Doubtful Accounts and
  Returns
 
 Trade
accounts receivable arise from sales in the Company’s various markets, are
stated at the amount expected to be collected and do not bear
interest.  The Company maintains an allowance for doubtful accounts
based upon the review of accounts receivable aging and management’s estimate of
the expected collectibility of accounts receivable.  The
collectibility of trade receivable balances is regularly evaluated based on a
combination of factors such as customer credit-worthiness, past transaction
history with the customer, current economic industry trends, and changes in
customer payment terms.  If it is determined that a customer will be
unable to fully meet its financial obligation, such as in the case of a
bankruptcy filing or other material events impacting its business, a specific
reserve for bad debt is recorded to reduce the related receivable to the amount
expected to be recovered.
 
 7.
              Inventories
 
 Inventories
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method. Market is replacement cost or net realizable
value. The Company estimates reserves for inventory obsolescence based on
management’s judgment of future realization. Inventories consist of the
following (in thousands):
   December
      31,2007
              
              
              2006Raw
      materials
              
              $
              3,702
              
              
              $
              4,409Work
      in progress
              
              
              1,463
              
              
              
              950Finished
      goods
              
              
              2,211
              
              
              
              1,608Spare
      parts and supplies
              
              
              913
              
              
              
              9358,289
              
              
              
              7,902Allowance
      for obsolete inventory
              
              
              (645
              )
              
              
              (469
              )Total
              
              $
              7,644
              
              
              $
              7,433
 
 F-14
 Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 
 8.  Property, Equipment, and
Depreciation
 
 Property
and equipment are recorded at historical cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives on a straight-line basis. Leasehold improvements
are amortized over the useful life of the asset or the lease term, whichever is
shorter.  Depreciation expense related to property and equipment
charged to operations was approximately $4,272,000, $4,195,000 and $6,106,000
for 2007, 2006 and 2005, respectively. Estimated service lives are 30 years for
buildings and improvements, and 3 to 15 years for machinery, equipment and
furniture.  Expenditures for repairs and maintenance not considered to
substantially lengthen the life of the asset or increase capacity or efficiency
are charged to expense as incurred.
 
 The
Company reassesses the estimated service lives of its depreciable assets on a
periodic basis.  In December 2007 the Company changed the estimated
service lives of certain depreciable assets, mainly the cyclotron equipment used
in its brachytherapy segment.  The estimated service life of the
cyclotron equipment was increased from 10 years to 15 years, and was based on,
among other things, an assessment of the equipment’s operating and maintenance
history and expected future performance.  The Company accounted for
this change as a change in estimate in accordance with Statement of Financial
Accounting (“SFAS”) No. 154, Accounting Changes and Error
Corrections.  Accordingly, this change was accounted for in the
period of the change and will be accounted for in future periods.  The
effect of this change was not significant in 2007.  This change is
expected to reduce depreciation expense by approximately $1.4 million in
2008.  Periods prior to this change have not been restated or
retrospectively adjusted.
  9.Impairment
of Long-Lived Assets
 
 Pursuant
to SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets,the Company
periodically evaluates long-lived assets, including property and equipment and
finite lived intangible assets whenever events or changes in conditions may
indicate that the carrying value may not be recoverable. Factors that management
considers important that could initiate an impairment review include the
following:
  •
              significant
      operating losses;•
              recurring
      operating losses;•
              significant
      adverse change in legal factors or in the business
  climate;•
              significant
      declines in demand for a product produced by an asset capable of producing
      only that product;•
              assets
      that are idled or held for sale;•
              assets
      that are likely to be divested
  The impairment review requires the
Company to estimate future undiscounted cash flows associated with an asset or
group of assets.  If the future undiscounted cash flows are less than
the carrying amount of the asset, the Company must estimate the fair value of
the asset. If the fair value of the asset is below the carrying value,
thenthe difference will be written-off.
Estimating future cash flows requires the Company to make judgments regarding
future economic conditions, product demand and pricing. Although the Company
believes its estimates are appropriate, significant differences in the actual
performance of the asset or group of assets may materially affect the Company’s
asset values and results of operations.
  No
impairment charges have been recorded for the year ended December 31, 2007 or
2006. Impairment charges of $28.8 million were recorded in 2005. These assets
consisted of buildings and equipment for operations that have been permanently
closed in conjunction with the Company’s 2005 restructuring
activities.  The charges represented the difference between the
carrying value of the assets and their estimated fair value.
 
 F-15
 
 Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
   10.Goodwill
and Intangible Assets
 
 The
Company accounts for goodwill and other intangible assets in accordance with the
provisions of SFAS No. 142, Goodwill and Other Intangible
Assets. Under SFAS No. 142, goodwill and intangible assets with
indefinite lives are not amortized. The Company tests such goodwill and other
intangible assets with indefinite lives for impairment annually, or more
frequently if events or circumstances indicate that an asset might be impaired.
Other intangible assets determined to have finite lives are amortized over their
useful lives using a method that is expected to reflect the pattern of its
economic benefit.  When a pattern of economic benefit cannot be
determined, or if the straight line method results in greater amortization, then
the straight line method is used.  To date, all finite lived
intangible assets have been amortized using the straight line method. The
Company also reviews finite lived intangible assets for impairment to ensure
they are appropriately valued if conditions exist that indicate the carrying
value may not be recoverable.
 
 11.Income
Taxes
 
 The
Company accounts for income taxes using the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
applied to taxable income. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is provided for deferred tax assets when
it is more likely than not that the asset will not be realized.
 
 The
Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on
January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with SFAS
No. 109, Accounting for Income
Taxes, and prescribes a recognition threshold and measurement process for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest expense and penalties, accounting in
interim periods, disclosure and transition.  The adoption of FIN 48 in
2007 did not have a material effect on the Company’s financial
statements.
 
 The
Company’s policy is to recognize accrued interest expense and penalties
associated with uncertain tax positions as a component of income tax
expense.  Inasmuch as the Company has concluded that there are no
significant uncertain tax positions, no amounts of interest or penalties have
been accrued.
 
 12.Earnings
Per Share and Common Stock
 
 Basic net
earnings (loss) per common share is based upon the weighted average number of
common shares outstanding during the period. Diluted net earnings(loss) per
common share is based upon the weighted average number of common shares
outstanding plus dilutive potential common shares, including options and awards
outstanding during the period.
 
 13. ShareBased
Compensation
 
 The
Company adopted SFAS No. 123R, Share-Based Payment (“SFAS
123R”), effective January 1, 2006. SFAS No. 123R revises SFAS No. 123, Accounting for Stock-Based
Compensation (“SFAS 123”), and supersedes Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (“APB 25”). SFAS No. 123R requires compensation costs related
to share based payments, including stock options and other equity awards, to be
measured based on the grant date fair value of the award. The Company has
adopted SFAS No. 123R using the modified prospective application, which applies
to new awards and to awards modified, repurchased, or cancelled after January 1,
2006. Additionally, compensation cost for the portion of awards for which the
requisite service has not been rendered that were outstanding as of January 1,
2006 is recognized as the requisite service is rendered, based on their grant
date fair value as calculated for the pro forma disclosures required under SFAS
No. 123. Accordingly, financial results for 2005 were not restated. Previously,
the Company accounted for share based payments in accordance with APB 25. In
accordance with APB 25, compensation cost was recorded for restricted stock and
stock unit awards and recognized over the vesting periods of the awards. No
compensation had been recognized for stock options issued to employees and
directors, as all options granted had an exercise price at least equal to the
market value of the underlying common stock at the date of grant.
  F-16
 Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
   Stock
options outstanding at January 1, 2006 for which the requisite service period
had not been rendered were not significant. Restricted stock and stock unit
awards were previously recorded using fair value in a manner substantially
equivalent to the accounting required under SFAS No. 123R. Accordingly, the
adoption of SFAS No. 123R did not have a material effect on the Company’s
results of operations, earnings per share or cash flows in 2006.
 
 14. Research and Development
Costs
 
 Research
and development (R&D) costs are expensed as incurred.
 
 15.Advertising
 
 Advertising
costs are expensed as incurred, and totaled approximately $1,589,000, $2,447,000
and $3,054,000 for the years ended December 31, 2007, 2006 and 2005,
respectively.
 
 16. Concentrations
 
 The
Company is potentially subject to financial instrument concentration of credit
risk through its cash and cash equivalents, marketable securities and trade
accounts receivable. To mitigate these risks, the Company maintains policies,
which require minimum credit ratings, and restricts the amount of credit
exposure with any one counterparty for short-term investments and marketable
securities.  For cash and cash equivalents, the Company maintains
approximately $28.7 million with four financial institutions.  The
Company periodically evaluates the credit standing of these financial
institutions. Trade accounts receivable are subject to risks related to the
medical device industry generally, and the prostate cancer treatment, wound
closure and vascular access markets specifically.  These industries
are in turn largely dependent upon the health care market generally, which can
be affected by, among other things, innovation and advances in treatments and
procedures, insurance and government reimbursement policies, preferences of
physicians and other health care providers, demographics and patient
requirements, and government regulation.  The significant portion of
the Company’s trade accounts receivable is with customers based in the United
States.  The Company does have certain customers, which comprise ten
percent or more of its trade accounts receivable and net revenue.  See
Note N.
 
 17.  Recently Issued Accounting
Standards
  In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
(“SFAS 157”).  SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS 157 does not require any
new fair value measurements.  SFAS 157 is effective for the Company
beginning January 1, 2008.  SFAS 157 is not expected to have a
material impact on the Company’s financial statements.
  In
February 2007, the FASB issued SFAS No. 159, the Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
11, (“SFAS 159”).  SFAS 159 permits entities to choose to
measure eligible items at fair value at specified election dates and report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date.  SFAS 159 is
effective for the Company beginning January 1, 2008.  SFAS 159 is not
expected to have a material impact on the Company’s financial
statements.
  F-17
 Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
  In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("FAS
141R"), which establishes principles and requirements for the reporting entity
in a business combination, including recognition and measurement in the
financial statements of the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree. This statement also
establishes disclosure requirements to enable financial statement users to
evaluate the nature and financial effects of the business combination. SFAS 141R
is effective for the Company beginning January 1, 2009. The Company is currently
evaluating the effect that the adoption of SFAS 141R will have on the Company’s
consolidated financial statements
  NOTE
C - ACQUISITIONS
  The
Company accounts for acquisitions under the purchase method of accounting, in
accordance with SFAS No. 141, Business Combinations.
Accordingly, the purchase price is allocated based on the fair values of the
assets acquired and liabilities assumed at the date of acquisition, with the
excess of the purchase price over the fair value of the net assets acquired
recorded as goodwill. Results of operations of acquired companies are included
subsequent to the acquisition date.
  CP
Medical
  The
Company acquired all of the outstanding common stock of CP Medical on May 6,
2005.  The total purchase price, including transaction costs, was
approximately $26.7 million, including $20.6 million in cash and 1,840,458
shares of common stock valued at approximately $6.1 million. CP Medical is a
manufacturer and distributor of innovative wound closure and other medical
products such as sutures, cardiac pacing cables, brachytherapy needles and
supplies, and other surgical products. These products have applications in
urology, veterinary, cardiology, plastic surgery, dental, orthopedics, and other
fields. This acquisition established a new growth platform for the Company
within the field of medical devices and serves to diversify the Company’s
product offerings within its brachytherapy business.  Following is a
summary of the fair value of the assets acquired and liabilities assumed (in
thousands):
  
 Fair
      value
              
              Amortization
                life
                of
      intangible
                assetsCurrent
      assets
              
              $
              4,565
              
              —Equipment
              
              
              314
              
              —Goodwill
              
              
              15,792
              
              IndefiniteTrade
      names
              
              
              1,700
              
              IndefiniteCustomer
      relationships
              
              
              3,500
              
              9
      yearsNon-compete
      agreements
              
              
              1,269
              
              1-5
      yearsDeveloped
      technology
              
              
              360
              
              7
      yearsPatents
              
              
              31
              
              17
      yearsCurrent
      liabilities
              
              
              (857
              )
              —Net
      assets acquired
              
              $
              26,674
  The
weighted average life of intangible assets subject to amortization is 7.9 years.
The goodwill acquired is being deducted for income tax purposes.
  Galt
  The
Company acquired all of the outstanding common stock and other equity interests
of Galt on August 2, 2006.  The total purchase price, including
transaction costs, was approximately $32.7 million (net of cash acquired of
approximately $2.3 million).  The purchase price was paid $29.6
million in cash and the issuance of 978,065 shares of common stock valued at
approximately $3.1 million.  Galt develops, manufactures and markets
disposable medical devices utilized for vascular access, primarily serving the
interventional radiology, interventional cardiology and vascular surgery
markets.  Galt’s products include guidewires, micro-introducer kits
and tear-away introducer sets and kits, and hemostasis valved introducer kits
and sets.  This transaction further diversifies Theragenics’ medical
device and surgical businesses and leverages the Company’s existing strengths
within these markets.
  F-18
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
  Following
is a summary of the fair value of the assets acquired and liabilities assumed
(in thousands):
  
 Fair
      value
              
              Amortization
                life
                of
      intangible
                assetsCurrent
      assets
              
              $
              2,937
              
              —Property
      and equipment
              
              
              1,597
              
              —Goodwill
              
              
              20,454
              
              IndefiniteTrade
      name
              
              
              900
              
              IndefiniteCustomer
      relationships
              
              
              5,100
              
              7.5
      yearsNon-compete
      agreements
              
              
              1,700
              
              3-4
      yearsDeveloped
      technology
              
              
              900
              
              14
      yearsBacklog
              
              
              170
              
              3
      mosCurrent
      liabilities
              
              
              (717
              )
              —Deferred
      income tax liability
              
              
              (333
              )
              —Net
      assets acquired
              
              $
              32,708
  The
weighted average life of intangible assets subject to amortization is 7.3 years.
The intangible assets acquired, including goodwill, are not being deducted for
income tax purposes.
  At the
time of acquisition, $2.9 million of deferred income tax liability arising from
fair value adjustments in purchase accounting related to the acquisition of Galt
was recorded as a reduction of the allowance for the Company’s net deferred tax
asset and a reduction in the goodwill arising from the
transaction.  The deferred income tax liability of $333,000 recorded
in the purchase allocation above related to the fair value of the trade name
acquired, for which the income tax basis is zero and for which the timing of the
deduction for financial reporting purposes cannot be determined.
  Goodwill
of $20.5 million was recorded in connection with the acquisition of Galt in
August 2006.  During 2007 goodwill was reduced by $166,000 as a result
of certain adjustments made to the allocation of the purchase
price.
  Pro Forma
Information
  The
following unaudited pro forma summary combines the Company’s results with those
of the acquired companies as if the acquisitions had occurred at the beginning
of the calendar year of the period presented.  This unaudited pro
forma information is not intended to represent or be indicative of the Company’s
consolidated results of operations or financial condition that would have been
reported for 2006 or 2005 had the acquisitions been completed as of the
beginning of the calendar year presented, and should not be taken as indicative
of the Company’s future consolidated results of operations or financial
condition (in thousands, except per share data):
  December
      31,2006
              
              
              2005Revenue
              
              $
              60,086
              
              
              
              55,063Net
      earnings (loss)
              
              $
              7,685
              
              
              
              (28,481
              )Earnings
      per shareBasic
              
              $
              0.23
              
              
              
              (0.87
              )Diluted
              
              $
              0.23
              
              
              
              (0.87
              )
  F-19
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
  Certain
pro forma adjustments have been made to reflect the impact of the purchase
transactions, primarily consisting of amortization of intangible assets with
determinate lives, reductions in interest income as a result of cash used in the
acquisitions, increases in interest expense resulting from borrowings under the
Company’s credit facility, elimination of share based compensation on equity
awards that terminated upon a change in control of the acquired company, income
taxes to reflect the Company’s effective tax rate for the period, and increases
in weighted average shares outstanding for the common shares issued in each
transaction.  The pro forma adjustments also include non-recurring
charges of $474,000 and $341,000 in 2006 and 2005, respectively, for
amortization of the fair market value adjustments for inventory and
backlog.
  NOTE
D - GOODWILL AND INTANGIBLE ASSETS
 
 Goodwill
and trade names are assigned to reporting units and are not
amortized.  The Company performs tests for impairment of goodwill and
other intangible assets that are not amortized on an annual basis, or more
frequently if events or circumstances indicate it might be impaired. Such tests
include comparing the estimated fair value of the reporting unit with its
carrying value, including goodwill and other intangible assets that are not
amortized. Impairment assessments are performed primarily using discounted cash
flow analyses.  Assumptions used in these analyses are consistent with
the Company’s internal planning. The Company completed its most recent annual
impairment assessments in the fourth quarter of 2007 after its annual
forecasting and budgeting process, and determined that goodwill and other
intangible assets were not impaired.  During 2007 goodwill was reduced
by $166,000 as a result of certain adjustments made to the allocation of the
purchase price of Galt.
  Changes
in the carrying amount of goodwill are as follows (in thousands):
 
 Surgical
                products
              
              
              Brachytherapy
              
              
              TotalBalance,
      January 1, 2005
              
              $
              -
              
              
              $
              2,578
              
              
              $
              2,578Goodwill
      acquired during the year
              
              
              15,792
              
              
              
              -
              
              
              
              15,792Balance,
      December 31, 2005
              
              
              15,792
              
              
              
              2,578
              
              
              
              18,370Goodwill
      acquired during the year
              
              
              20,454
              
              
              
              -
              
              
              
              20,454Balance,
      December 31, 2006
              
              
              36,246
              
              
              
              2,578
              
              
              
              38,824Adjustments
      to purchase price allocation
              
              
              (166
              )
              
              
              -
              
              
              
              (166
              )Balance,
      December 31, 2007
              
              $
              36,080
              
              
              $
              2,578
              
              
              $
              38,658
  F-20
 Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 Other
intangibles assets include the following (in thousands):
  December
      31,2007
              
              
              2006
              
              Weighted
                Average
      LifeTrade
      names
              
              $
              2,600
              
              
              $
              2,600
              
              indefiniteCustomer
      relationships
              
              
              8,600
              
              
              
              8,600
              
              8
      yearsNon-compete
      agreements
              
              
              2,900
              
              
              
              2,969
              
              4
      yearsDeveloped
      technology
              
              
              1,260
              
              
              
              1,260
              
              12
      yearsLoan
      fees, patents and other
              
              
              403
              
              
              
              414
              
              17
      years15,763
              
              
              
              15,843Less
      accumulated amortization
              
              
              3,882
              
              
              
              2,081$
              11,881
              
              
              $
              13,762
 
 At
December 31, 2007, the weighted average life of intangible assets subject to
amortization was 7.7 years. Amortization expense related to purchased
intangibles was $1,875,000, $1,371,000 and $500,000 in 2007, 2006 and 2005,
respectively, and is disclosed as such in the accompanying consolidated
statements of operations and comprehensive earnings. Amortization expense
related to other intangibles was $5,000, $21,000 and $57,000 for 2007, 2006 and
2005, respectively, and is included in selling, general and administrative
expenses.
 
 As of
December 31, 2007, future approximate aggregate amortization expense for
intangible assets subject to amortization is as follows (in
thousands):
 
 Year
      Ending
                December
      31,2008
              
              
              1,8772009
              
              
              1,8352010
              
              
              1,4712011
              
              
              1,1862012
              
              
              1,152Beyond
              
              
              1,760$
              9,281
 
 NOTE
E – RESTRUCTURING AND ASSET HELD FOR SALE
 
 On August
11, 2005, the Company announced a restructuring that resulted in the closure of
the Plasma Separation Process (“PSP”) facility in Oak Ridge, Tennessee,
ended the research and development activities related to the use of
palladium-103 in the vascular, macular degeneration and breast cancer areas, and
eliminated production of radiochemical products. All of these activities were
within the Company’s brachytherapy seed business segment. Curtailing these
activities allowed the Company to shrink its asset base by shutting down six
cyclotrons, closing its Newton Terrace facility in Buford, Georgia, and closing
its PSP facility in Oak Ridge, Tennessee. The objective of the restructuring was
to sharpen the Company’s focus on its two business segments, brachytherapy seeds
and surgical products, as well as provide a more focused platform for continued
diversification and expansion through acquisitions and other
channels.
  F-21
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 Activity
for the 2005 restructuring for each of the three years in the period ended
December 31, 2007 was as follows (in thousands):
 
 
 Balance
                January
      1
              
              
              Costs
                incurred
              
              
              Cash
                payments
              
              
              Non-cash
                adjustments
              
              
              Balance
                December
      31Year
      ended December 31, 2007:Contract
      termination costs
              
              $
              1,537
              
              
              $
              -
              
              
              $
              (24
              )
              
              $
              -
              
              
              $
              1,513Employee
      severance
              
              
              162
              
              
              
              -
              
              
              
              (162
              )
              
              
              -
              
              
              
              -Total
              
              
              1,699
              
              
              
              -
              
              
              
              (186
              )
              
              
              -
              
              
              
              1,513Year
      ended December 31, 2006:Contract
      termination costs
              
              
              1,560
              
              
              
              -
              
              
              
              (23
              )
              
              
              -
              
              
              
              1,537Employee
      severance
              
              
              530
              
              
              
              14
              
              
              
              (382
              )
              
              
              -
              
              
              
              162Site
      exit and disposal costs
              
              
              -
              
              
              
              355
              
              
              
              (355
              )
              
              
              -
              
              
              
              -Total
              
              
              2,090
              
              
              
              369
              
              
              
              (760
              )
              
              
              -
              
              
              
              1,699Year
      ended December 31, 2005Impairment
      of long lived assets
              
              
              -
              
              
              
              28,789
              
              
              
              -
              
              
              
              (28,789
              )
              
              
              -Write
      off of inventory and other
              
              
              -
              
              
              
              1,757
              
              
              
              -
              
              
              
              (1,757
              )
              
              
              -Contract
      termination costs
              
              
              -
              
              
              
              1,495
              
              
              
              (7
              )
              
              
              72
              
              
              
              1,560Employee
      severance
              
              
              -
              
              
              
              890
              
              
              
              (360
              )
              
              
              -
              
              
              
              530Site
      exit and disposal costs
              
              
              -
              
              
              
              357
              
              
              
              (357
              )
              
              
              -
              
              
              
              -Other
              
              
              -
              
              
              
              102
              
              
              
              (102
              )
              
              
              -
              
              
              
              --
              
              
              
              33,390
              
              
              
              (826
              )
              
              
              (30,474
              )
              
              
              2,090Total
              
              $
              -
              
              
              $
              33,759
              
              
              $
              (1,772
              )
              
              $
              (30,474
              )
              
              $
              1,513
 
  All
restructuring activities related to this action were completed in the second
quarter of 2006.
 
 Contract
termination costs relate to the land lease at the Oak Ridge, Tennessee facility.
This represents a liability for costs that will continue to be incurred through
the remaining term of that lease agreement without economic benefit to the
Company, measured at its fair value when the Company ceased using the facility
in August 2005. The accrual includes $26,000 and $24,000 classified as other
current liabilities in the accompanying consolidated balance sheets at December
31, 2007 and 2006, respectively, representing the current portion of the
liability due.
 
 Severance
costs were expensed as they became vested in accordance with the terms of the
severance agreements.
 
 The asset
held for sale in the accompanying consolidated balance sheets represents the
estimated fair market value of the Oak Ridge facility to be disposed of related
to the 2005 restructuring, less estimated costs to sell.  This
facility has been shut down and has not been used in the Company’s operations
since the restructuring plan was approved by the Company’s Board of Directors in
August 2005. Since that time the facility has been actively marketed and remains
vacant and for sale.  The commercial real estate market in the Oak
Ridge, Tennessee area has been such that as of December 31, 2007, the Company
has been unable to sell the facility.  Management has taken actions to
respond to these market conditions, including reducing the asking price of the
facility. Due to these circumstances, the asset has been classified as long-term
in 2007.
 
 The
Company periodically reassesses the estimated fair value of this
facility.  In the fourth quarter of 2007, based on the length of time
the facility has been for sale, the commercial real estate market in the Oak
Ridge area specifically and, more broadly, in the United States, and other
economic factors in the United States which have deteriorated generally in late
2007, the Company reduced its estimate of the fair value of the
facility.  Accordingly, a write down to the carrying value of the
facility in the amount of $500,000 was recorded, reducing the estimated fair
value less costs to sell to $2.9 million.
  F-22
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
  NOTE
F - ASSET RETIREMENT OBLIGATIONS
  The
Company provides for retirement obligations relating to future decommissioning
costs associated with certain of the Company’s equipment and buildings in
accordance with SFAS No. 143, Accounting for Asset Retirement
Obligations. The liability is recorded at present value by discounting
the Company’s estimated future cash flows associated with future decommissioning
activities using the Company’s estimated credit-adjusted borrowing rate. The
asset retirement obligation has been recorded in the accompanying consolidated
balance sheets and will be adjusted to fair value over the estimated useful
lives of the assets as an accretion expense. Changes in estimated future cash
flows are adjusted in the period of change.
  The
following summarizes activity in the Company’s asset retirement obligation
liability (in thousands):
   Year
      ended2007
              
              
              2006Asset
      retirement obligation at beginning of period
              
              $
              561
              
              
              $
              672Accretion
      expense
              
              
              41
              
              
              
              46Revision
      in estimated cash flows
              
              
              -
              
              
              
              (157
              )Asset
      retirement obligation at end of period
              
              $
              602
              
              
              $
              561
 
 NOTE
G - CREDIT AGREEMENT
 
 The
Company has a credit agreement with a financial institution that provides for
borrowings of up to $40.0 million, including a $5.0 million sub-limit for
letters of credit (the “Credit Agreement”). Interest on outstanding borrowings
is payable at the rate of interest periodically designated by the financial
institution as its base rate, or, at the option of the Company, interest may
accrue at a LIBOR based rate, plus an applicable margin which is subject to
quarterly adjustment. Interest on base rate loans is payable monthly, while
interest on LIBOR loans is payable on the last day of the applicable one, two or
three month interest period.  The Company had $7.5 million of
borrowings outstanding under the Credit Agreement at December 31, 2007 and 2006,
at an interest rate of LIBOR plus 1% (6.2% and 6.3% at December 31, 2007 and
2006, respectively).  All outstanding borrowings are due upon
expiration of the Credit Agreement, which is October 31, 2009.
  The
Credit Agreement is unsecured, but provides for a lien to be established on
substantially all of the assets of the Company (subject to certain exceptions)
in the event certain events of default occur under the Credit Agreement. The
Credit Agreement contains representations and warranties, as well as
affirmative, reporting and negative covenants, customary for financings of this
type. Among other things, certain provisions of the Credit Agreement limit the
incurrence of additional debt and require the maintenance of certain financial
ratios. The Company was in compliance with these debt covenants at December 31,
2007.
 
 Letters
of credit totaling approximately $876,000 were outstanding under the Credit
Agreement at December 31, 2007 and 2006. These letters of credit are related to
asset retirement liabilities of long-lived assets and utility
deposits.   The letters of credit are subject to terms identical
to those of borrowings under the Credit Agreement.
  F-23
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 NOTE
H - INCOME TAXES
 
 The
income tax provision (benefit) consisted of the following (in
thousands):
 
 Year
      ended December 31,2007
              
              
              2006
              
              
              2005CurrentFederal
              
              $
              1,743
              
              
              $
              134
              
              
              $
              -State
              
              
              169
              
              
              
              89
              
              
              
              1161,912
              
              
              $
              223
              
              
              $
              116DeferredFederal
              
              $
              1,392
              
              
              $
              1,745
              
              
              $
              (5,699
              )State
              
              
              (41
              )
              
              
              (55
              )
              
              
              (811
              )Change
      in allowance
              
              
              (51
              )
              
              
              (3,625
              )
              
              
              -$
              1,300
              
              
              $
              (1,935
              )
              
              $
              (6,510
              )Income
      tax expense (benefit)
              
              $
              3,212
              
              
              $
              (1,712
              )
              
              $
              (6,394
              )
 
 
 The
Company’s temporary differences are summarized as follows (in
thousands):
  December
      31,2007
              
              
              2006Deferred
      tax assets:Asset
      held for sale
              
              $
              3,706
              
              
              $
              4,414Net
      operating loss carryforwards
              
              
              285
              
              
              
              3,583Non-deductible
      accruals and allowances
              
              
              347
              
              
              
              265Inventories
              
              
              820
              
              
              
              284Share
      based compensation
              
              
              547
              
              
              
              471Asset
      retirement obligation
              
              
              201
              
              
              
              207Credits
              
              
              -
              
              
              
              511Contract
      termination liability
              
              
              545
              
              
              
              569Other
              
              
              69
              
              
              
              284Gross
      deferred tax assets
              
              
              6,520
              
              
              
              10,588Deferred
      tax liabilities:Property
      and equipment
              
              
              (2,604
              )
              
              
              (5,009
              )Goodwill
      and intangible assets
              
              
              (3,433
              )
              
              
              (3,669
              )Other
              
              
              -
              
              
              
              (21
              )Gross
      deferred tax liabilities
              
              
              (6,037
              )
              
              
              (8,699
              )Valuation
      allowance
              
              
              (188
              )
              
              
              (239
              )Net
      deferred tax asset
              
              $
              295
              
              
              $
              1,650
 
 F-24
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 
 The net deferred tax asset is
classified in the accompanying consolidated balance sheets as follows (in
thousands):
 
 December
      31,2007
              
              2006Current
      deferred tax asset
              
              $
              1,664
              
              
              $
              7,798Long-term
      deferred tax liability
              
              
              (1,369
              )
              
              
              (6,148
              )Net
      deferred tax asset
              
              $
              295
              
              
              $
              1,650
 
 Activity
in the valuation allowance for deferred tax assets is as follows (amounts in
thousands):
 
 
 Year
      ended December 31,2007
              
              
              2006
              
              
              2005Valuation
      allowance, beginning of period
              
              $
              239
              
              
              $
              6,756
              
              
              $
              -Increase
      in allowance
              
              
              -
              
              
              
              -
              
              
              
              6,756Decrease
      in allowance from acquisition
              
              
              -
              
              
              
              (2,892
              )
              
              
              -Release
      of allowance
              
              
              (51
              )
              
              
              (3,625
              )
              
              
              -Valuation
      allowance, end of period
              
              $
              188
              
              
              $
              239
              
              
              
              6,756
  Management
periodically evaluates the recoverability of the deferred tax assets and
recognizes the tax benefit only as reassessment demonstrates that they are
realizable. At such time, if it is determined that it is more likely than not
that the deferred tax assets are realizable, the valuation allowance is
adjusted. A $6.8 million net deferred tax asset arose in 2005 primarily as a
result of the existence of operating losses and other deductible temporary
differences related to the Company’s 2005 restructuring.  At that
time, a valuation allowance for the entire amount of the net deferred tax asset
was established due to uncertainties surrounding its
realizability.  During 2006, $2.9 million of deferred income tax
liabilities arising from fair value adjustments in purchase accounting related
to the acquisition of Galt were recorded as a reduction of the
allowance.  Also during 2006, the Company determined it was more
likely than not that a significant portion of these deferred tax assets would be
realized and, accordingly, released $3.6 million of the valuation
allowance.   Factors considered by management in determining that
the significant portion of the deferred tax assets would be realized included,
among other things, the Company’s performance for the year which included four
consecutive quarters of profitability, a full fiscal year of realization of the
cost savings associated with the 2005 restructuring which exceeded the expected
cost savings, certain changes in federal laws and policies occurring in December
2006 related to Medicare reimbursement of brachytherapy seeds, and the continued
successful diversification of the Company’s business through its surgical
products segment.  The remaining allowance at December 31, 2007 and
2006 relates primarily to certain state net operating loss carryforwards for
which the Company believes it is more likely than not that the benefit will not
be realized.
 
 A
reconciliation of the statutory federal income tax rate and the effective tax
rate follows:
  2007
              
              
              
              2006
              
              
              
              2005Tax
      at applicable federal rates
              
              
              34.0
              %
              
              
              35.0
              %
              
              
              (35.0
              )%State
      tax, net of federal income tax
              
              
              1.1
              
              
              
              2.2
              
              
              
              (2.0
              )Deferred
      tax asset valuation allowance
              
              
              (0.5
              )
              
              
              (70.0
              )
              
              
              18.9Tax
      exempt interest
              
              
              (1.0
              )
              
              
              (0.9
              )
              
              
              (0.3
              )Deferred
      tax rate adjustment
              
              
              0.6
              
              
              
              -
              
              
              
              -Domestic
      production deduction
              
              
              (1.5
              )
              
              
              -
              
              
              
              -Non
      deductible stock compensation
              
              
              0.9
              
              
              
              -
              
              
              
              -Other
              
              
              2.7
              
              
              
              .5
              
              
              
              0.336.3
              %
              
              
              (33.2
              )%
              
              
              (18.1
              )%
  F-25
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 
 During
2007, the IRS completed an examination of the Company’s 2004 and 2005 federal
income tax returns with no significant adjustments.  Upon settlement
of the 2004 audit, during 2007 the Company received a refund of federal income
tax previously paid of $1.9 million.  This refund resulted from the
carryback of tax losses that were reported in the Company’s 2004 federal income
tax return. The Company also received $309,000 of interest income related to
this refund, which was recognized upon settlement of the IRS examination in
2007.
 
 The
Company has evaluated its tax positions for the tax years ended
December 31, 2004, 2005, 2006 and 2007, the tax years that remain subject
to examination by major tax jurisdictions as of December 31, 2007. With few
exceptions, the Company is no longer subject to U.S. federal, state and local,
or income tax examinations by tax authorities for years prior to
2004.   The Company concluded that there are no significant
uncertain tax positions requiring recognition in the consolidated financial
statements.
 
 NOTE
I - COMMITMENTS AND CONTINGENCIES
 
 Licensing
Agreement
 
 The
Company holds a worldwide exclusive license from the University of Missouri for
the use of technology patented by the University, used in the Company’s
TheraSphere® product.
The licensing agreement provides for the payment of royalties based on the level
of sales and on lump sum payments received pursuant to a licensing agreement
with Nordion International, Inc.
 
 The
Company has granted certain of its geographical rights under the licensing
agreement with the University of Missouri to Nordion International, Inc., a
Canadian company that is a producer, marketer and supplier of radioisotope
products and related equipment. Under the Nordion agreement, the Company is
entitled to licensing fees for each geographic area in which Nordion receives
new drug approval. The Company will also be entitled to a percentage of revenues
earned by Nordion as royalties under the agreement. Royalties from this
agreement are recorded as “Licensing fees” in the accompanying consolidated
statements of operations. Revenue in 2006 includes $400,000 of one-time license
fees resulting from Nordion’s obtaining CE marking and European registration for
TheraSphere® during the year.
 
 Lease Commitments and
Obligations
 
 The
Company leases equipment and production, warehouse, office and other space under
non-cancelable leases that expire at various dates through June 2013.
Approximate minimum lease payments under the leases are as follows: 2008,
$565,000; 2009, $525,000; 2010, $255,000; 2011, $191,000; 2012, $196,000; and
2013, $99,000.
  The
Company leases certain production, warehouse and office space from an entity
controlled by the former owner of CP Medical, who is currently an officer and
stockholder of Theragenics. Monthly payments of approximately $17,000 are due
under this lease through April 2010 and are included in the above lease
commitments.
 
 Rent
expense was approximately $589,000, $471,000 and $453,000 for the years ended
December 31, 2007, 2006 and 2005, respectively, including rent expense of
approximately $185,000, $167,000 and $109,000 in 2007, 2006 and 2005,
respectively, under the related party leases referred to above.
 
 The contract termination liability of
approximately $1,513,000 (including $26,000 classified as short term) included
in the accompanying consolidated balance sheet at December 31, 2007, consists of
the present value of future payments due under the Company’s Oak Ridge land
lease, using a discount rate of 8.5%. This represents a liability for costs that
will continue to be incurred through the remaining term of that lease agreement
without economic benefit to the Company, measured at its fair value when the
Company ceased using its Oak Ridge facility in August 2005, and recorded in
connection with the Company’s restructuring. The land lease requiresmonthly payments of $12,824 through
April 2029, adjusted every five years beginning in 2010 for changes in the
Consumer Price Index. Future maturities of obligations under this lease are as
follows: 2008, $26,269; 2009, $28,591; 2010, $31,119; 2011, $33,869; 2012,
$36,860; beyond, $1,356,559.
  F-26
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 
 Contingencies
  From time
to time the Company may be a party to claims that arise in the ordinary course
of business, none of which, in the view of management, is expected to have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
 
 NOTE
J - SHARE BASED COMPENSATION AND SHAREHOLDERS’ EQUITY
  The
Company provides share-based compensation under equity incentive plans approved
by stockholders, which provide for the granting of stock options, restricted
stock and other equity incentives. As of December 31, 2007 there were 1,638,729
options and restricted stock rights outstanding and 1,555,199 shares of common
stock remaining available for issuance under the Company’s equity incentive
plans. The Company issues new shares from its authorized but unissued share
pool.
  Stock
Options
  Stock
options granted to date have had an exercise price at least equal to 100% of
market value of the underlying common stock on the date granted. These options
expire ten years from the date of grant and become exercisable over a three to
five-year vesting period.
  The
following is a summary of activity in stock options outstanding during the year
ended December 31, 2007 (shares in thousands):
   Shares
              
              
              
              Weighted
                average
                exercise
                price
              
              
              Weighted
                average
                remaining
                contractual
                life
      (yrs)
              
              
              Aggregate
                intrinsic
                valueOutstanding,
      beginning of period
              
              
              2,016
              
              
              $
              10.30Granted
              
              
              175
              
              
              
              5.00Exercised
              
              
              (30
              )
              
              
              4.23Forfeited
              
              
              (377
              )
              
              
              8.99Expired
              
              
              (369
              )
              
              
              17.17Outstanding,
      end of period
              
              
              1,415
              
              
              $
              8.33
              
              
              
              3.7
              
              
              $
              —Exercisable
      at end of period
              
              
              1,225
              
              
              $
              8.86
              
              
              
              2.9
              
              
              $
              —
  A summary
of grant date fair values and intrinsic values follows (in thousands, except per
share amounts):
   Year
      ended December 31,2007
              
              
              2006
              
              
              2005Weighted
      average grant date fair value of options granted
              
              $
              2.68
              
              
              
              N/A
              
              
              $
              1.38Total
      intrinsic value of options exercised
              
              $
              45
              
              
              
              N/A
              
              
              $
              62Total
      fair value of options vested
              
              $
              75
              
              
              $
              155
              
              
              $
              506
  F-27
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 The fair
values were estimated using the Black-Scholes options-pricing model with the
following weighted average assumptions:
 
 2007
              
              
              2006
              
              
              2005Expected dividend
      yield
              
              
              0.0
              %
              
              N/A
              
              
              
              0.0
              %Expected
      stock price volatility
              
              
              49.9
              %
              
              N/A
              
              
              
              45.8
              %Risk-free
      interest rate
              
              
              4.8
              %
              
              N/A
              
              
              
              3.5
              %Expected
      life of option (years)
              
              
              6.0
              
              
              N/A
              
              
              
              3.1
 
 Expected stock price volatility is
primarily based on the historical volatility of the Company’s stock price over
the most recent period commensurate with the expected option life.
Whendetermining the expected life of stock
options, the Company classifies options into groups for employees where
relatively homogeneous exercise behavior is expected. The vesting period of the
options, the length of time similar grants have remained outstanding in the
past, and the expected volatility of the stock is also considered. These factors
may cause the expected volatility and expected life of options granted to differ
from period to period.
  The
Company recognizes compensation expense for awards with graded vesting on a
straight-line basis over the requisite service period for each separately
vesting portion of the award. Compensation cost related to stock options totaled
$228,000 and $62,000 for the year ended December 31, 2007 and 2006,
respectively. As of December 31, 2007, there was approximately $255,000 of
unrecognized compensation cost related to nonvested stock options, which is
expected to be recognized over a weighted average period of approximately 2.1
years.
  Restricted
Stock
  The
Company may issue restricted stock to employees, directors and
others.  Restrictions limit the sale or transfer of the shares until
vested.  Vesting of restricted stock is time-based over a three to
four year period.  A summary of activity in non-vested restricted
stock awards for the year ended December 31, 2007 follows (shares in
thousands):
  
 Non-vested
      Restricted Stock
              
              Shares
              
              
              Weighted
                average
      grant
                date
      fair
                valueNon-vested
      at January 1, 2007
              
              
              53
              
              
              $
              3.27Granted
              
              
              135
              
              
              
              4.89Vested
              
              
              (26
              )
              
              
              3.76Forfeited
              
              
              (1
              )
              
              
              4.60Non-vested
      at December 31, 2007
              
              
              161
              
              
              $
              4.32
  Fair
value of restricted shares granted to employees and directors is based on the
fair value of the underlying common stock at the grant date.  The fair
value of the restricted shares granted to non-employees is remeasured each
period until they are vested based on the fair value of the underlying common
stock.  Compensation cost related to the restricted shares is based on
the grant date fair value of the common stock granted and is recorded over the
requisite service period of three to four years.  The weighted average
per share grant date fair value of restricted shares issued was $4.89, $3.21 and
$3.45 in 2007, 2006 and 2005, respectively. Compensation expense related to the
restricted stock totaled approximately $363,000, $115,000 and $50,000 in 2007,
2006 and 2005, respectively. As of December 31, 2007, there was approximately
$361,000 of unrecognized compensation cost related to the restricted shares,
which is expected to be recognized over a weighted average period of 2.7
years.
  F-28
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
   Stock
Units
  The
Company issues restricted stock units and performance restricted stock
units.  The following is a summary of activity for Stock
Units:
  Restricted
Stock Units
  In August
2004, the Board of Directors granted an aggregate of 48,000 Restricted Stock
Units to executive officers which vested on December 31, 2005.  The
weighted average grant date fair value of these awards was
$3.90.   In August 2005 the Board of Directors granted 10,000
Restricted Stock Units to a newly appointed executive officer that vested on
December 31, 2006. The grant date fair value of this award was
$3.42.  Vesting for all Restricted Stock Units was
time-based.  Compensation cost related to the Restricted Stock Units
was based on the grant date fair value of the common stock granted and recorded
over the requisite service period.  Compensation expense related to
the Restricted Stock Units totaled approximately $24,000 and $115,000 in 2006
and 2005, respectively.
  Performance
Restricted Stock Units
  The Board
of Directors approved the issuance of performance restricted stock units in 2004
and 2005 to executive officers as long-term incentives (the “2004 and 2005
Performance Restricted Stock Units”). Under the original terms of these
long-term incentives, the number of shares issuable upon vesting of each of the
2004 and 2005 Performance Restricted Stock Units was dependent upon on the
Company’s stock price appreciation plus dividends paid (total shareholder
return, or “TSR”) relative to the TSR of an industry peer group based on a fixed
schedule over a three year period. Each Performance Restricted Stock Unit
represented the right to a minimum of 0.30 of a share of common stock and a
maximum of 2 shares of common stock, provided the employee remained in the
Company’s employ as of the vesting date.
  Under
SFAS No. 123R, the Company’s 2004 and 2005 Performance Restricted Stock Units
based on TSR would be considered to be based on a “market condition” as defined
in SFAS No. 123R. Under SFAS No. 123R, valuation of share based payments with
market conditions requires a complex valuation methodology that would be unduly
costly for a company the size of Theragenics. In view of this potentially
significant administrative cost associated with valuing the Company’s
outstanding Performance Restricted Stock Units under SFAS No. 123R, in November
2005 the Compensation Committee of the Board of Directors revised the 2004 and
2005 Performance Restricted Stock Units held by current executive officers. The
revision included termination of the performance cycle for measuring TSR under
the outstanding 2004 and 2005 Performance Restricted Stock Units as of December
31, 2005. As a result, the number of shares to be issued upon vesting was
determined based on TSR through December 31, 2005. Vesting remains conditioned
on continued employment through the original term of the award, subject to
acceleration in certain events as set forth in the original award. Terms of 2004
and 2005 Performance Restricted Stock Units outstanding and held by former
employees were not changed.
  In
February 2006, the Compensation Committee approved the issuance of 104,000
performance restricted stock units to executive officers, which vest on December
31, 2008 (the “2006 Performance Restricted Stock Units”). The number of common
shares issuable upon vesting of the 2006 Performance Restricted Stock Units
is subject to a minimum of 31,200 shares and a maximum of 208,000 shares, and
will be partly based on the Company’s revenue and earnings per share from 2006
to 2008, relative to its strategic objectives over the same period, and partly
based on the subjective discretion of the Compensation Committee. The grant date
fair value of the 2006 Performance Restricted Stock Units was based on the fair
value of the underlying common stock and is recognized over the three-year
requisite service period.  For the portion of the 2006 Performance
Restricted Stock Units containing performance conditions, the grant date fair
value is adjusted each period for the number of shares ultimately expected to be
issued. For the portion of the 2006 Performance Restricted Stock Units subject
to discretionary performance conditions, the grant date has not been established
and accordingly, the fair value of the award is updated each period for changes
in the fair value of the underlying common stock.
  F-29
 
 Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 
  A summary
of activity in non-vested Performance Restricted Stock Units follows (shares in
thousands):
  
 Non-vested  Performance
      Restricted Stock Units
              
              Units
              
              
              Weighted
                average
      grant
                date
      fair
                valueNon-vested
      at January 1, 2007
              
              
              148
              
              
              $
              3.43Granted
              
              
              -
              
              
              
              -Vested
              
              
              (44
              )
              
              
              3.67Forfeited
              
              
              -
              
              
              
              -Non-vested
      at December 31, 2007
              
              
              104
              
              
              $
              3.50
  The
minimum, target and maximum shares issuable under the Performance Restricted
Stock Units outstanding at December 31, 2007 are as follows (shares in
thousands):
  SharesMinimum
      award
              
              
              31Target
      award
              
              
              104Maximum
      award
              
              
              208
  The
weighted average per share grant date fair value of Performance Restricted Stock
Units granted was $3.33 and $3.66 in 2006 and 2005, respectively.  No
Performance Restricted Stock Units were granted in 2007.  Compensation
cost related to Performance Restricted Stock Units totaled $126,000, $150,000
and $50,000 in 2007, 2006 and 2005, respectively.  As of December 31,
2007 there was approximately $96,000 of unrecognized compensation cost related
to Performance Restricted Stock Units issued to employees, which is expected to
be recognized in 2008.
  Employee Stock Purchase
Plan
  The
Theragenics Corporation Employee Stock Purchase Plan (the “ESPP”) allows
eligible employees the right to purchase common stock on a quarterly basis at
the lower of 85% of the market price at the beginning or end of each quarterly
offering period. Compensation cost related to the ESPP totaled approximately
$6,000 and $11,000 in 2007 and 2006, respectively. As of December 31, 2007, 2006
and 2005, there were 39,000, 49,000 and 79,000 shares of common stock reserved
and un-issued for the ESPP, respectively, and 161,000, 151,000 and 121,000
shares had been issued under the plan, respectively.
  Pro Forma
results
  The
following represents the effect on net loss and loss per share if the Company
had applied the fair market value recognition provisions of SFAS 123R for the
year ended December 31, 2005 (in thousands, except per share data):
 
 Net
      loss
              As
      reported
              
              $
              (29,006
              )Pro
      forma
              
              
              (29,112
              )Basic
      net loss per common share
              As
      reported
              
              $
              (0.93
              )Pro
      forma
              
              
              (0.93
              )Diluted
      net loss per common share
              As
      reported
              
              $
              (0.93
              )Pro forma
              
              
              (0.93
              )
 
 F-30
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
   Shareholder Rights
Plan
 
 The
Company has a Shareholder Rights Plan (the “Rights Plan”), which contains
provisions designed to protect the Company’s shareholders in the event of an
unsolicited takeover attempt. It is not intended to prevent a takeover on terms
that are favorable and fair to all shareholders and will not interfere with a
merger approved by the Board of Directors. Pursuant to the Rights Plan each
share of the Company’s Common Stock contains a share purchase right (a “Right”),
which expire in February 2017 and do not become exercisable unless a group
acquires or announces a tender or exchange offer for 20% or more of the
Company’s outstanding Common Stock. Each Right that is not held by the 20% or
more shareholders will entitle its holder to purchase additional shares of
Common Stock at a substantial discount to then current market
prices.
 
 NOTE
K – 401(K) SAVINGS
PLANS
 
 The
Company and its subsidiaries sponsor 401(k) defined contribution retirement
savings plans for employees. Matching contributions are made in Company stock or
in cash, depending on the plan. Matching contributions are charged to operating
expenses and totaled approximately $313,000, $114,000 and $91,000 in 2007, 2006
and 2005, respectively.
  F-31
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
   NOTE
L - EARNINGS/(LOSS) PER SHARE
 
 Earnings
(loss) per common share was computed as follows (in thousands, except per share
data):
 
 
 Year
      ended December 31,2007
              
              
              2006
              
              
              2005Net
      earnings (loss)
              
              $
              5,635
              
              
              $
              6,865
              
              
              $
              (29,006
              )Weighted
      average common shares outstanding
              
              
              33,103
              
              
              
              32,452
              
              
              
              31,273Incremental
      common shares issuable from stock options and awards
              
              
              196
              
              
              
              88
              
              
              
              -Weighted
      average common shares outstanding assuming dilution
              
              
              33,299
              
              
              
              32,540
              
              
              
              31,273Basic
      earnings (loss) per share
              
              $
              0.17
              
              
              $
              0.21
              
              
              $
              (0.93
              )Diluted
      earnings (loss) per share
              
              $
              0.17
              
              
              $
              0.21
              
              
              $
              (0.93
              )
  Diluted
earnings (loss) per share does not include the effect of certain stock options
and awards as their impact would be anti-dilutive. Approximately 1,236,000,
2,016,000 and 2,433,000 stock options and awards for the years ended
December 31, 2007, 2006 and 2005, respectively, were not included in the
computation of diluted earnings (loss) per share for those years because their
effect would be anti-dilutive.
  F-32
 Theragenics
Corporation and Subsidiaries
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
   NOTE
M - SEGMENT REPORTING
  The
Company is a medical device company serving the cancer treatment and surgical
markets, operating in two business segments. In its brachytherapy seed business,
the Company produces, markets and sells TheraSeed®, its premier palladium-103
prostate cancer treatment device, I-Seed, its iodine-125 based prostate cancer
treatment device, and related products and services. The Company’s surgical
products business consists of wound closure and vascular access
products.  Wound closure includes sutures, needles and other surgical
products with applications in, among other areas, urology, veterinary,
cardiology, orthopedics, plastic surgery and dental. Vascular access includes
introducers and guidewires used in the interventional radiology, interventional
cardiology and vascular surgery markets. The following tables provide certain
information for these segments (in thousands):
 
 Year
      ended December 31,2007
              
              
              2006
              
              
              2005RevenueBrachytherapy
      seed
              
              $
              33,520
              
              
              $
              34,880
              
              
              $
              36,372Surgical
      products
              
              
              28,896
              
              
              
              19,372
              
              
              
              7,921Intersegment
      eliminations
              
              
              (206
              )
              
              
              (156
              )
              
              
              (23
              )$
              62,210
              
              
              $
              54,096
              
              
              $
              44,270Earnings
      (loss) from operationsBrachytherapy
      seed
              
              $
              3,403
              
              
              $
              2,122
              
              
              $
              (38,111
              )Surgical
      products
              
              
              3,977
              
              
              
              1,955
              
              
              
              1,430Intersegment
      eliminations
              
              
              (35
              )
              
              
              (28
              )
              
              
              -$
              7,345
              
              
              $
              4,049
              
              
              $
              (36,681
              )Write-down
      of asset held for saleBrachytherapy
      seed
              
              $
              500
              
              
              $
              -
              
              
              $
              -Surgical
      products
              
              
              -
              
              
              
              -
              
              
              
              -$
              500
              
              
              $
              -
              
              
              $
              -Restructuring
      expensesBrachytherapy
      seed
              
              $
              -
              
              
              $
              369
              
              
              $
              33,390Surgical
      products
              
              
              -
              
              
              
              -
              
              
              
              -$
              -
              
              
              $
              369
              
              
              $
              33,390Capital
      expenditures,excluding
      acquisition of businessesBrachytherapy
      seed
              
              $
              345
              
              
              $
              131
              
              
              $
              335Surgical
      products
              
              
              1,105
              
              
              
              602
              
              
              
              198$
              1,450
              
              
              $
              733
              
              
              $
              533Depreciation
      and amortizationBrachytherapy
      seed
              
              $
              3,701
              
              
              $
              3,994
              
              
              $
              6,281Surgical
      products
              
              
              2,445
              
              
              
              2,035
              
              
              
              537$
              6,146
              
              
              $
              6,029
              
              
              $
              6,818
  The Company evaluates business segment
performance based on segment revenue and segment earnings from
operations.Earnings from operations by segment do
not include interest expense, interest income, other income and expense, or
provisions for income taxes.  Intersegment eliminations are primarily
for surgical products segment sales transactions.
  F-33
  Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 Segment
information related to significant assets follows (in thousands):
 
 December
      31,2007
              
              
              2006Identifiable
      assetsBrachytherapy
      seed
              
              $
              83,934
              
              
              $
              79,136Surgical
      products
              
              
              74,906
              
              
              
              69,860Corporate
      investment in subsidiaries
              
              
              61,667
              
              
              
              61,667Intersegment
      eliminations
              
              
              (71,686
              )
              
              
              (64,419
              )$
              148,821
              
              
              $
              146,244GoodwillBrachytherapy
      seed
              
              $
              2,578
              
              
              $
              2,578Surgical
      products
              
              
              36,080
              
              
              
              36,246$
              38,658
              
              
              $
              38,824Other
      intangible assetsBrachytherapy
      seed
              
              $
              1
              
              
              $
              6Surgical
      products
              
              
              11,880
              
              
              
              13,756$
              11,881
              
              
              $
              13,762Asset
      held for saleBrachytherapy
      seed
              
              $
              2,900
              
              
              $
              3,400Surgical
      products
              
              
              -
              
              
              
              -$
              2,900
              
              
              $
              3,400
 
 Information
regarding revenue by geographic regions follows (in thousands):
 
 Year ended December
      31,2007
              
              
              2006
              
              
              2005United
      States
              
              $
              57,643
              
              
              $
              50,534
              
              
              $
              42,559Europe
              
              
              2,978
              
              
              
              1,921
              
              
              
              764Other
      foreign countries
              
              
              665
              
              
              
              621
              
              
              
              370License
      fees (Canada)
              
              
              924
              
              
              
              1,020
              
              
              
              577$
              62,210
              
              
              $
              54,096
              
              
              $
              44,270
 
 Foreign
sales are attributed to countries based on location of the customer. License
fees are recognized from the TheraSphere®
licensing agreement with Nordion, a Canada-based
company.    All other foreign sales are related to the
surgical products segment.  All of the Company’s long-lived assets are
located within the United States.
  F-34
 Theragenics
Corporation and Subsidiaries
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
   NOTE
N - DISTRIBUTION AGREEMENT AND MAJOR CUSTOMERS
 
 Distribution
Agreement
  The
Company’s brachytherapy business sells its TheraSeed® device
directly to health care providers and to third party distributors. The
Company’s primary non-exclusive distribution agreement is with C.
R. Bard (“Bard”) (the “Bard Agreement”). The terms of the Bard Agreement provide
for automatic one-year extensions of the term, unless either party gives notice
of its intent not to renew at least twelve months prior to the end of the
current term. The current terms expires December 31, 2009, and will be
automatically extended for one additional year unless either party gives notice
of its intent not to extend by December 31, 2008. The Bard Agreement gives Bard
the non-exclusive right to distribute the TheraSeed® device
in the U.S., Canada, and other international locations for the treatment of
prostate cancer and other solid localized cancerous tumors. A distribution
agreement with Medi-Physics, Inc. (formerly d/b/a Nycomed Amersham and part of
Oncura) terminated on September 8, 2005.
 
 Major
Customers
 
 Sales to
Bard represented approximately 53% and 60% of brachytherapy product revenue in
2007 and 2006, respectively, and 28% and 38% of consolidated product revenue in
2007 and 2006, respectively.  Combined sales to Bard and Oncura
represented approximately 71% of brachytherapy product revenue in 2005 and 57%
of consolidated revenue in 2005.
 
 Accounts
receivable from Bard represented approximately 40% and 53% of brachytherapy
accounts receivable and 24% and 31% of consolidated accounts receivable at
December 31, 2007 and December 31, 2006, respectively.
 
 One
customer represented approximately 10% and 14% of surgical products revenue for
2006 and 2005, respectively, and 4% and 2% of consolidated product revenue in
2006 and 2005, respectively.  This customer also totaled 23% and 11%
of surgical products accounts receivable at December 31, 2007 and 2006,
respectively, and 10% and 4% of consolidated accounts receivable at December 21,
2007 and 2006, respectively. No single customer equaled or exceeded 10% of
surgical products sales for the year ended December 31, 2007.
 
 NOTE
O - RELATED PARTY TRANSACTIONS
 
 CP
Medical leases production, warehouse and office space from an entity owned by
the President of CP Medical. See Note I.
  F-35
 Theragenics
Corporation and Subsidiaries
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Continued
 December
31, 2007 and 2006
 
 NOTE
P - QUARTERLY FINANCIAL DATA (UNAUDITED)
 
 The
following summarizes certain quarterly results of operations (in thousands,
except per share data):
 
 Year
      ended December 31, 2007:
              
              Quarter
      endedApril
      1
              
              
              July
      1
              
              
              September
      30
              
              
              December
      31Net
      revenue
              
              $
              15,451
              
              
              $
              15,575
              
              
              $
              16,001
              
              
              $
              15,183Gross
      profit
              
              
              7,342
              
              
              
              7,711
              
              
              
              7,794
              
              
              
              7,369Write
      down of asset held for sale
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (500
              )Net
      earnings
              
              
              1,168
              
              
              
              1,544
              
              
              
              1,763
              
              
              
              1,160Net
      earnings per common shareBasic
              
              $
              0.04
              
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.04Diluted
              
              $
              0.04
              
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.03
  Year
      ended December 31, 2006:
              
              Quarter
      endedApril 2
              
              
              July 2
              
              
              October 1
              
              
              December
31Net
      revenue
              
              $
              12,394
              
              
              $
              12,590
              
              
              $
              14,320
              
              
              $
              14,792Gross
      profit
              
              
              6,339
              
              
              
              6,110
              
              
              
              7,057
              
              
              
              6,838Restructuring
      expenses
              
              
              306
              
              
              
              63
              
              
              
              -
              
              
              
              -Net
      earnings
              
              
              775
              
              
              
              433
              
              
              
              1,657
              
              
              
              4,000Net
      earnings per common shareBasic
              
              $
              0.02
              
              
              $
              0.01
              
              
              $
              0.05
              
              
              $
              0.12Diluted
              
              $
              0.02
              
              
              $
              0.01
              
              
              $
              0.05
              
              
              $
              0.12
  F-36
   Report of
Independent Registered Public Accountants on Schedule
 
 To the
Board of Directors and
 Shareholders
of Theragenics Corporation
 
 We have
audited in accordance with the standards of the Public Company Accounting
Oversight Board (United States) the 2007 consolidated financial statements of
Theragenics Corporation and subsidiaries referred to in our report dated
March 12, 2008, which is included in the annual report to security holders
and included in Part II of this form. Our audit was conducted for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. Schedule II is presented for purposes of additional analysis and is
not a required part of the basic consolidated financial statements.
The 2007 information in Schedule II has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, the 2007 information is fairly stated in all material
respects in relation to the basic consolidated financial statements taken as a
whole.
 
 
 /s/ DIXON
HUGHES PLLC
 
 Atlanta,
Georgia
 March 12,
2008
 
 
 S-1
  
 Report of
Independent Registered Public Accountants on Schedule
 
 
 To the
Board of Directors and
 Shareholders
of Theragenics
Corporation
 
 We have
audited in accordance with the standards of the Public Company Accounting
Oversight Board (United States) the consolidated financial statements of
Theragenics Corporation and Subsidiaries referred to in our report dated March
7, 2007, which is included in the annual report to security holders and
incorporated by reference in Part II of this form.  Our report on the
consolidated financial statements includes an explanatory paragraph, which
discusses the adoption of Statement of Financial Accounting Standard No. 123R,
Share Based-Payment,
effective January 1, 2006, as discussed in Note B to the Consolidated Financial
Statements.  Our audit was conducted for the purpose of forming an opinion
on the basic financial statements taken as a whole.  Schedule II is
presented for purposes of additional analysis and is not a required part of the
basic financial statements.  The 2006 and 2005 information contained in
Schedule II has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, the 2006 and 2005
information is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
 
 /s/ GRANT
THORNTON LLP
 
 Atlanta,
Georgia
 March 7,
2007
 
 
 S-2
 
 Theragenics
Corporation and Subsidiary
 
 SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
 
 For each
of the three years in the period ended December 31, 2007
 (Amounts
in thousands)
 
 
  Column A - Description
              
              Column
      B
              
              
              Column
      C - Additions
              
              
              
              Column
      D
              
              
              
              Column
      EBalance
      at
                beginning
                of
      period
              
              
              (1)
                Charged
      to
                costs
      and
                expenses
              
              
              (2)
                Charged
      to
                other
                accounts
              
              
              
              Deductions
              
              
              
              Balance
                at
      end of
                periodYear
      ended December 31, 2007
              
              
              
              
              
              
              
              
              
              
              
              202
              (a)Allowance
      for doubtful  accounts receivable
              
              $
              617
              
              
              $
              -
              
              
              $
              -
              
              
              
              $
              43
              (b)
              
              
              $
              372Year
      ended December 31, 2006Allowance
      for doubtful  accounts receivable
              
              $
              517
              
              
              $
              338
              
              
              $
              32
              (d)
              
              
              $
              270
              (b)
              
              
              $
              617Year
      ended December 31, 2005Allowance
      for doubtful  accounts receivable
              
              $
              177
              
              
              $
              278
              
              
              $
              76
              (c)
              
              
              $
              14
              (b)
              
              
              $
              517
 
 (a)  -
reduction in allowance amounts
 (b)  -
write-off of uncollectible amounts
 (c)  -
acquisition of CP Medical
 (d)  -
acquisition of Galt
    S-3