**UNITED
          STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
  **FORM
        10-Q**
  x
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
  For
        the
        quarterly period ended September 30, 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
                  or other jurisdiction of
              (I.R.S.
                  Employerincorporation
                  or organization)
              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**
  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 the filing requirements
        for
        at least the past 90 days.
 YES x  
        NO o
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer in Rule 12b-2 of the Exchange
        Act.
  Large
                  Accelerated Filer  o
              Accelerated
                  Filer  x
              Non
                  Accelerated Filer  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
  As
        of
        November 1, 2007 the number of shares of $0.01 par value common stock
        outstanding was 33,271,372.
 
 
 THERAGENICS
        CORPORATION
  TABLE
        OF
        CONTENTS
  **Page
                  No.**PART
                  I. FINANCIAL INFORMATION
              3ITEM
                  1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
              3Condensed
                  Consolidated Balance Sheets – September 30, 2007 and December 31,
                  2006
              3Condensed
                  Consolidated Statements of Earnings and Comprehensive Income for
                  the three
                  and nine months ended September 30, 2007 and October 1,
                  2006
              5Condensed
                  Consolidated Statements of Cash Flows for the nine months ended
                  September
                  30, 2007 and October 1, 2006
              6Condensed
                  Consolidated Statement of Shareholders’ Equity for the nine months ended
                  September 30, 2007
              8Notes
                  to Condensed Consolidated Financial Statements
              9ITEM
                  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                  OF OPERATIONS
              18ITEM
                  3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK
              26ITEM
                  4. CONTROLS AND PROCEDURES
              26PART
                  II. OTHER INFORMATION
              27ITEM
                  1. LEGAL PROCEEDINGS
              27ITEM
                  1A. RISK FACTORS
              27ITEM
                  6. EXHIBITS
              28SIGNATURES
              29
  2
  **PART
        I. FINANCIAL INFORMATION**
  **Item
        1. Financial Statements**
  **THERAGENICS
        CORPORATION AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(Amounts
        in thousands, except per share data)**
  ASSETS
              
              **September
                  30,****2007**
              
              
              **December
                  31,****(Unaudited)**
              
              
              **2006**CURRENT
                  ASSETSCash
                  and short-term investments
              
              $
              22,682
              
              
              $
              18,258Marketable
                  securities
              
              
              22,405
              
              
              
              14,722Trade
                  accounts receivable, less allowance of $467 in 2007 and $617 in
                  2006
              
              
              8,703
              
              
              
              7,556Inventories
              
              
              7,632
              
              
              
              7,433Deferred
                  income tax asset
              
              
              5,434
              
              
              
              7,798Prepaid
                  expenses and other current assets
              
              
              1,208
              
              
              
              3,478Asset
                  held for sale
              
              
              3,400
              
              
              
              3,400TOTAL
                  CURRENT ASSETS
              
              
              71,464
              
              
              
              62,645PROPERTY
                  AND EQUIPMENTBuildings
                  and improvements
              
              
              22,430
              
              
              
              22,374Machinery
                  and equipment
              
              
              37,173
              
              
              
              36,732Office
                  furniture and equipment
              
              
              955
              
              
              
              92460,558
              
              
              
              60,030Less
                  accumulated depreciation
              
              
              33,358
              
              
              
              30,15527,200
              
              
              
              29,875Land
              
              
              822
              
              
              
              822Construction
                  in progress
              
              
              799
              
              
              
              204TOTAL
                  PROPERTY AND EQUIPMENT
              
              
              28,821
              
              
              
              30,901Goodwill
              
              
              38,658
              
              
              
              38,824Other
                  intangible assets, net
              
              
              12,350
              
              
              
              13,762Other
                  assets
              
              
              93
              
              
              
              11251,101
              
              
              
              52,698TOTAL
                  ASSETS
              
              $
              151,386
              
              
              $
              146,244
  The
        accompanying notes are an integral part of these statements.
  3
 
 **THERAGENICS
        CORPORATION AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS - Continued**
 **(Amounts
        in thousands, except per share data)**
  LIABILITIES
                  & SHAREHOLDERS’ EQUITY
              
              **September
                  30,****2007**
              
              
              **December
                  31,****(Unaudited)**
              
              
              **2006**CURRENT
                  LIABILITIESTrade
                  accounts payable
              
              $
              1,226
              
              
              $
              1,768Accrued
                  salaries, wages and payroll taxes
              
              
              2,038
              
              
              
              1,512Income
                  taxes payable
              
              
              894
              
              
              
              -Other
                  current liabilities
              
              
              671
              
              
              
              1,101TOTAL
                  CURRENT LIABILITIES
              
              
              4,829
              
              
              
              4,381LONG-TERM
                  LIABILITIESLong-term
                  debt
              
              
              7,500
              
              
              
              7,500Deferred
                  income taxes
              
              
              5,366
              
              
              
              6,148Contract
                  termination liability
              
              
              1,494
              
              
              
              1,513Decommissioning
                  retirement liability
              
              
              591
              
              
              
              561Other
              
              
              303
              
              
              
              —TOTAL
                  LONG-TERM LIABILITIES
              
              
              15,254
              
              
              
              15,722CONTINGENCIES
              
              
              —
              
              
              
              —SHAREHOLDERS’
                  EQUITYCommon
                  stock, authorized 100,000 shares of $0.01 par value, issued and
                  outstanding, 33,269 in 2007 and 33,096 in 2006
              
              
              333
              
              
              
              331Additional
                  paid-in capital
              
              
              72,763
              
              
              
              72,103Retained
                  earnings
              
              
              58,264
              
              
              
              53,789Accumulated
                  other comprehensive loss
              
              
              (57
              )
              
              
              (82
              )TOTAL
                  SHAREHOLDERS’ EQUITY
              
              
              131,303
              
              
              
              126,141TOTAL
                  LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              151,386
              
              
              $
              146,244
   The
        accompanying notes are an integral part of these statements.
  4
  **THERAGENICS
        CORPORATION AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE
        INCOME**
 **(UNAUDITED)**
 **(Amounts
        in thousands, except per share data)**
  **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **October
                  1,**
              
              
              **September
                  30,**
              
              
              **October
                  1,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**REVENUEProduct
                  sales
              
              $
              15,757
              
              
              $
              13,766
              
              
              $
              46,348
              
              
              $
              38,446License
                  fees
              
              
              244
              
              
              
              554
              
              
              
              679
              
              
              
              85816,001
              
              
              
              14,320
              
              
              
              47,027
              
              
              
              39,304COST
                  OF SALES
              
              
              8,207
              
              
              
              7,263
              
              
              
              24,180
              
              
              
              19,798GROSS
                  PROFIT
              
              
              7,794
              
              
              
              7,057
              
              
              
              22,847
              
              
              
              19,506OPERATING
                  EXPENSESSelling,
                  general & administrative
              
              
              4,498
              
              
              
              4,552
              
              
              
              14,252
              
              
              
              15,277Amortization
                  of purchased intangibles
              
              
              469
              
              
              
              471
              
              
              
              1,406
              
              
              
              846Research
                  & development
              
              
              430
              
              
              
              206
              
              
              
              1,100
              
              
              
              624Restructuring
                  expenses
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              369Gain
                  on sale of assets
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (201
              )5,397
              
              
              
              5,229
              
              
              
              16,758
              
              
              
              16,915EARNINGS
                  FROM OPERATIONS
              
              
              2,397
              
              
              
              1,828
              
              
              
              6,089
              
              
              
              2,591OTHER
                  INCOME/(EXPENSE)Interest
                  income
              
              
              530
              
              
              
              362
              
              
              
              1,653
              
              
              
              1,231Interest
                  expense
              
              
              (177
              )
              
              
              (114
              )
              
              
              (528
              )
              
              
              (249
              )Other
              
              
              (1
              )
              
              
              (39
              )
              
              
              1
              
              
              
              (58
              )352
              
              
              
              209
              
              
              
              1,126
              
              
              
              924Earnings
                  before income taxes
              
              
              2,749
              
              
              
              2,037
              
              
              
              7,215
              
              
              
              3,515Income
                  tax expense
              
              
              986
              
              
              
              380
              
              
              
              2,740
              
              
              
              650NET
                  EARNINGS
              
              $
              1,763
              
              
              $
              1,657
              
              
              $
              4,475
              
              
              $
              2,865NET
                  EARNINGS PER COMMON SHARE:Basic
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.14
              
              
              $
              0.09Diluted
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.13
              
              
              $
              0.09WEIGHTED
                  AVERAGE SHARESBasic
              
              
              33,118
              
              
              
              32,752
              
              
              
              33,101
              
              
              
              32,293Diluted
              
              
              33,237
              
              
              
              32,822
              
              
              
              33,262
              
              
              
              32,368Comprehensive
                  income:Net
                  earnings
              
              $
              1,763
              
              
              $
              1,657
              
              
              $
              4,475
              
              
              $
              2,865Other
                  comprehensive income/(loss):Reclassification
                  adjustment for realized loss included in net earnings
              
              
              5
              
              
              
              39
              
              
              
              5
              
              
              
              39Unrealized
                  gain/(loss) on securities available for sale, net of taxes
              
              
              5
              
              
              
              108
              
              
              
              20
              
              
              
              (3
              )Total
                  comprehensive income
              
              $
              1,773
              
              
              $
              1,804
              
              
              $
              4,500
              
              
              $
              2,901
  The
        accompanying notes are an integral part of these statements.
  5
 
 **THERAGENICS
        CORPORATION AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**
 **(Amounts
        in thousands)**
  **Nine
                  Months Ended****September
                  30,**
              
              
              **October
                  1,****2007**
              
              
              **2006**CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  earnings
              
              $
              4,475
              
              
              $
              2,865Adjustments
                  to reconcile net earnings to net cash provided by operating
                  activitiesDepreciation
                  and amortization
              
              
              4,711
              
              
              
              3,995Deferred
                  income taxes
              
              
              1,530
              
              
              
              540Realized
                  loss on sale of marketable securities
              
              
              5
              
              
              
              39Provision
                  (credit) for allowances
              
              
              (70
              )
              
              
              213Share-based
                  compensation
              
              
              575
              
              
              
              302Contract
                  termination liability
              
              
              (19
              )
              
              
              (16
              )Decommissioning
                  retirement liability
              
              
              30
              
              
              
              (123
              )Gain
                  on sale of equipment
              
              
              —
              
              
              
              (201
              )Changes
                  in assets and liabilities:Accounts
                  receivable
              
              
              (1,037
              )
              
              
              (432
              )Inventories
              
              
              (239
              )
              
              
              (685
              )Prepaid
                  expenses and other current assets
              
              
              2,270
              
              
              
              (258
              )Other
                  assets
              
              
              (64
              )
              
              
              27Trade
                  accounts payable
              
              
              (542
              )
              
              
              (311
              )Accrued
                  salaries, wages and payroll taxes
              
              
              526
              
              
              
              (359
              )Other
                  current liabilities
              
              
              (330
              )
              
              
              263Income
                  taxes payable
              
              
              997
              
              
              
              —Other
              
              
              303
              
              
              
              —Net
                  cash provided by operating activities
              
              
              13,121
              
              
              
              5,859CASH
                  FLOWS FROM INVESTING ACTIVITIESPurchases
                  and construction of property and equipment
              
              
              (1,223
              )
              
              
              (563
              )Proceeds
                  from sale of equipment
              
              
              —
              
              
              
              234Cash
                  paid for acquisition, net of cash acquired
              
              
              —
              
              
              
              (29,656
              )Purchases
                  of marketable securities
              
              
              (22,900
              )
              
              
              (8,108
              )Maturities
                  of marketable securities
              
              
              14,976
              
              
              
              22,770Proceeds
                  from sales of marketable securities
              
              
              280
              
              
              
              5,961Net
                  cash used by investing activities
              
              
              (8,867
              )
              
              
              (9,362
              )
  The
        accompanying footnotes are an integral part of these statements.
  6
 
 **THERAGENICS
        CORPORATION AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued**
 **(UNAUDITED)**
 **(Amounts
        in thousands)**
  **Nine
                  Months Ended****September
                  30,**
              
              
              **October
                  1,****2007**
              
              
              **2006**CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  from long-term debt
              
              
              —
              
              
              
              7,500Exercise
                  of stock options and stock purchase plan
              
              
              154
              
              
              
              62Excess
                  tax benefit from exercise of stock options
              
              
              16
              
              
              
              —Net
                  cash provided by financing activities
              
              
              170
              
              
              
              7,562NET
                  INCREASE IN CASH AND SHORT-TERM INVESTMENTS
              
              $
              4,424
              
              
              $
              4,059CASH
                  AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD
              
              
              18,258
              
              
              
              10,073CASH
                  AND SHORT-TERM INVESTMENTS AT END OF PERIOD
              
              $
              22,682
              
              
              $
              14,132SUPPLEMENTARY
                  CASH FLOW DISCLOSURE:Interest
                  paid
              
              $
              473
              
              
              $
              248Taxes
                  paid (received), net
              
              $
              (1,648
              )
              
              
              278NON-CASH
                  INVESTING AND FINANCING ACTIVITIES:Common
                  stock issued in acquisition
              
              $
              —
              
              
              $
              3,052Common
                  stock received for other receivable
              
              $
              83
              
              
              $
              —
   The
        accompanying footnotes are an integral part of these statements.
  7
 **THERAGENICS
        CORPORATION AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**
 **(Amounts
        in thousands)**
  **Common
                  Stock**
              
              
              
              
              
              
              
              
              **Accumulated****Number**
              
              
              **Par**
              
              
              **Additional**
              
              
              
              
              
              **Other****of**
              
              
              **value**
              
              
              **Paid-in**
              
              
              **Retained**
              
              
              **Comprehensive****Shares**
              
              
              **$****0.01**
              
              
              **Capital**
              
              
              **Earnings**
              
              
              **Loss**
              
              
              **Total**BALANCE,
                  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
              
              
              —
              
              
              
              —
              
              
              
              16
              
              
              
              —
              
              
              
              —
              
              
              
              16Employee
                  stock purchase plan
              
              
              10
              
              
              
              1
              
              
              
              27
              
              
              
              —
              
              
              
              —
              
              
              
              28Retirement
                  of common stock received in settlement for other
                  receivable
              
              
              (21
              )
              
              
              —
              
              
              
              (83
              )
              
              
              —
              
              
              
              —
              
              
              
              (83
              )Issuance
                  of common stock upon vesting of restricted units
              
              
              23
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Issuance
                  of restricted shares
              
              
              131
              
              
              
              1
              
              
              
              (1
              )
              
              
              —
              
              
              
              —
              
              
              
              —Share
                  based compensation
              
              
              —
              
              
              
              —
              
              
              
              575
              
              
              
              —
              
              
              
              —
              
              
              
              575Reclassification
                  adjustment for realized loss included in net earnings
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              5
              
              
              
              5Unrealized
                  gains on securities available for sale, net of taxes
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              20
              
              
              
              20Net
                  earnings for the period
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              4,475
              
              
              
              —
              
              
              
              4,475BALANCE,
                  September 30, 2007
              
              
              33,269
              
              
              $
              333
              
              
              $
              72,763
              
              
              $
              58,264
              
              
              $
              (57
              )
              
              $
              131,303
  
  
  The
        accompanying notes are an integral part of these statements.
 
 8
  **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(Unaudited)**
 **NOTE
        A - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS**
 
 The
        unaudited interim condensed consolidated financial statements included herein
        reflect the consolidated operations of Theragenics Corporation and its
        wholly-owned subsidiaries (collectively, “Theragenics” or the “Company”). All
        material intercompany accounts and transactions have been eliminated in
        consolidation. These statements reflect all adjustments that are, in the
        opinion
        of management, necessary to present fairly the consolidated financial position,
        consolidated results of operations, consolidated cash flows and changes in
        shareholders’ equity for the periods presented. All such adjustments are of a
        normal recurring nature. Pursuant to the rules and regulations of the Securities
        and Exchange Commission for reporting on Form 10-Q, certain information and
        footnote disclosures normally included in financial statements prepared in
        accordance with accounting principles generally accepted in the United States
        of
        America have been condensed or omitted. These unaudited condensed consolidated
        financial statements and notes should be read in conjunction with the audited
        consolidated financial statements and notes for the year ended December 31,
        2006, included in the Form 10-K Annual Report filed by the Company. The December
        31, 2006 condensed consolidated balance sheet included herein has been derived
        from the December 31, 2006 audited consolidated balance sheet included in
        the
        aforementioned Form 10-K.  The consolidated results of operations for
        the three and nine months ended September 30, 2007 are not necessarily
        indicative of the results to be expected for a full year.
 
 Theragenics
        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 – RECENTLY ISSUED ACCOUNTING STANDARDS**
  In
        June
        2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
        No. 48, *Accounting for Uncertainty in Income Taxes*, (“FIN 48”). The
        Company adopted FIN 48 on January 1, 2007.  See footnote
        E.
  In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        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. The Company is evaluating SFAS 157 and the potential impact of this
        statement on the Company’s consolidated financial statements has not been
        determined.
 
 In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        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. The Company is
        evaluating the impact of SFAS 159 and the potential impact of this statement
        on
        the Company’s consolidated financial statements has not been
        determined.
  9
  **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(Unaudited)**
  **NOTE
        C – ACQUISITION OF GALT MEDICAL**
  The
        Company acquired all of the outstanding common stock and other equity interests
        of Galt Medical Corp. (“Galt”) on August 2, 2006.  The acquisition was
        accounted for under the purchase method of accounting, in accordance with
        Statement of Financial Accounting Standards No. 141, *Business
        Combinations*. Results of operations of Galt are included in the Company’s
        financial statements subsequent to the acquisition date.
  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 $29.7 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 current 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
        products businesses and leverages the Company’s existing strengths within these
        markets.
  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 Galt as if the acquisition 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 had the
        acquisition 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):
  Three
                  Months Ended October 1, 2006
              
              
              Nine
                  Months Ended October 1, 2006Revenue
              
              $
              15,058
              
              
              $
              45,294Net
                  earnings
              
              $
              1,864
              
              
              $
              3,435Earnings
                  per shareBasic
              
              $
              0.06
              
              
              $
              0.10Diluted
              
              $
              0.06
              
              
              $
              0.10
  Certain
        pro forma adjustments have been made to reflect the impact of the purchase
        transaction, primarily consisting of amortization of intangible assets with
        determinate lives, reductions in interest income as a result of cash used
        in the
        acquisition, 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 rate for the period, and increases in
        weighted average shares outstanding for the common shares issued in the
        transaction.  The pro forma adjustments also include non-recurring
        charges of $474,000 for amortization of the fair market value adjustments
        for
        inventory and backlog for the nine months ended October 1, 2006.
  10
  **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(Unaudited)**
  **NOTE
        D - 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 upon
        management’s judgment of future realization. Inventories were comprised of the
        following (in thousands):
  **September
                  30**
                **2007**
              
              
              **December
                  31,**
                **2006**Raw
                  materials
              
              $
              4,341
              
              
              $
              4,409Work
                  in process
              
              
              1,423
              
              
              
              950Finished
                  goods
              
              
              1,626
              
              
              
              1,608Spare
                  parts and supplies
              
              
              750
              
              
              
              9358,140
              
              
              
              7,902Allowance
                  for slow moving and obsolete inventory
              
              
              (508
              )
              
              
              (469
              )Total
              
              $
              7,632
              
              
              $
              7,433
 
 **NOTE
        E - INCOME TAXES**
  The
        Company’s effective income tax rates for the three and nine months ended
        September 30, 2007 were approximately 36% and 38%, respectively, and include
        federal and state income taxes.  The year to date effective rate is
        reflective of the approximate effective rate expected for 2007.
  The
        Company’s effective tax rate for the three and nine months ended October 1, 2006
        was approximately 19%.  During 2006 the Company had an allowance for a
        deferred income tax asset that was reduced during the course of the year
        as it
        became more likely than not that some portion of the deferred tax asset would
        be
        realized.   The three and nine months ended October 1, 2006
        included a tax benefit of approximately $1.0 million and $1.4 million,
        respectively, representing a reduction in the allowance for the deferred
        income
        tax asset and significantly reduced the effective tax rate for each
        period.  In the fourth quarter of 2006, Management determined that it
        was more likely than not that substantially all of the remaining deferred
        tax
        asset would be recognized and, accordingly, the significant portion of the
        allowance was released.  The balance of the allowance at September 30,
        2007 is $241,000, primarily representing certain state net operating loss
        carryforwards for which the Company believes it is more likely than not that
        the
        benefit 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 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, 2003, 2004, 2005 and
        2006, the tax years that remain subject to examination by major tax
        jurisdictions as of September 30, 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 2003.   The Company concluded
        that there are no significant uncertain tax positions requiring recognition
        in
        the financial statements.  Accordingly, adoption of FIN 48 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.
  During
        2007, the IRS completed an examination of the Company’s 2004 and 2005 federal
        income tax return with no significant adjustments.  Upon settlement of
        the 2004 audit, 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 the second quarter
        of
        2007.
  11
  **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(Unaudited)**
  **NOTE
        F - SHARE-BASED COMPENSATION**
 
 Stock
        Options
 
 The
        following is a summary of activity in stock options outstanding during the
        first
        nine months of 2007 (shares and aggregate intrinsic value in
        thousands):
  **Shares**
              
              
              **Weighted**
                **average**
                **exercise**
                **price**
              
              
              **Weighted**
                **average**
                **remaining**
                **contractual**
                **life
                  (yrs)**
              
              
              **Aggregate**
                **intrinsic**
                **value**Outstanding,
                  beginning of period
              
              
              2,016
              
              
              $
              10.30Granted
              
              
              175
              
              
              
              5.00Exercised
              
              
              (30
              )
              
              
              4.23Forfeited
              
              
              (377
              )
              
              
              8.99Expired
              
              
              (16
              )
              
              
              11.75Outstanding,
                  end of period
              
              
              1,768
              
              
              $
              10.15
              
              
              
              3.2
              
              
              $
              53Exercisable
                  at end of period
              
              
              1,560
              
              
              $
              10.85
              
              
              
              2.5
              
              
              $
              41
  The
        grant
        date fair value of the stock options issued in 2007 was $2.68 per share and
        was
        estimated using the Black-Scholes options-pricing model using the following
        assumptions:
  Expected
                  dividend yield
              0.0%Expected
                  volatility
              49.9%Risk-free
                  interest rate
              4.8%Expected
                  life
              6
                  years
 
 Expected
        stock price volatility is 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 are 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 option 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
        $61,000 and $167,000 for the three and nine months ended September 30, 2007,
        respectively, and $15,000 and $46,000 for the three and nine months ended
        October 1, 2006, respectively.  As of September 30, 2007 there was
        approximately $316,000 of unrecognized compensation cost related to nonvested
        stock options, which is expected to be recognized over a weighted average
        period
        of approximately 2.2 years.  The total intrinsic value of options
        exercised was approximately $45,000 for the nine months ended September 30,
        2007.  No stock options were granted or exercised during the nine
        months ended October 1, 2006.
  12
  **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(Unaudited)**
  Restricted
        Stock
  A
        summary
        of activity in non-vested restricted stock awards during the first nine months
        of 2007 follows (shares in thousands):
 
 Shares
              
              
              Weighted
                average
                  grant
                date
                  fair valueNon-vested
                  at January 1, 2007
              
              
              53
              
              
              $
              3.27Granted
              
              
              131
              
              
              
              4.81Vested
              
              
              (20
              )
              
              
              3.66Forfeited
              
              
              -
              
              
              
              -Non-vested
                  at September 30, 2007
              
              
              164
              
              
              $
              4.49
  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 expense related to restricted stock totaled approximately
        $98,000 and $267,000 for the three and nine months ended September 30, 2007,
        respectively, and $16,000 and $92,000 for the three and nine months ended
        October 1, 2006, respectively. As of September 30, 2007, there was approximately
        $474,000 of unrecognized compensation cost related to the restricted shares,
        which is expected to be recognized over a weighted average period of 3.0
        years.  The total fair value of restricted stock vested during 2007
        was approximately $94,000 and $72,000 for the nine months ended September
        30,
        2007 and October 1, 2006, respectively.
  Stock
        Units
  There
        was
        no activity in stock units during the nine months ended September 30, 2007,
        and
        no stock units were vested during the nine months ended September 30, 2007
        or
        the nine months ended October 1, 2006.  Compensation expense related
        to stock units totaled approximately $49,000 and $136,000 for the three and
        nine
        months ended September 30, 2007, respectively,  and $45,000 and
        $154,000 for the three and nine months ended October 1, 2006,
        respectively.  As of September 30, 2007, there was approximately
        $159,000 of unrecognized compensation cost related to the stock units, which
        is
        expected to be recognized over a weighted average period of 1.2
        years.
  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 $2,000 and $5,000 for the three and nine months ended September
        30, 2007, respectively and $3,000 and $10,000 for the three and nine months
        ended October 1, 2006, respectively.
  **NOTE
        G - 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”) for the
        distribution of the TheraSeed® device
        (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 expire December 31, 2008, and will be automatically extended for one
        additional year unless either party gives notice of its intent not to extend
        by
        December 31, 2007. 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.
  13
  **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(Unaudited)**
  *Major
        Customers*
  Sales
        to
        Bard represented approximately 51% and 54% of total brachytherapy seed product
        revenue and approximately 26% and 28% of consolidated revenue for both the
        three
        months and nine months ended September 30, 2007, respectively.  Sales
        to Bard represented approximately 58% and 61% of total brachytherapy seed
        product revenue, and approximately 35% and 40% of consolidated revenue, for
        the
        three and nine months ended October 1, 2006, respectively.
  Accounts
        receivable from Bard represented approximately 46% of brachytherapy accounts
        receivable and 28% of consolidated accounts receivable at September 30, 2007.
        At
        December 31, 2006, accounts receivable from Bard represented approximately
        53%
        of brachytherapy accounts receivable and 31% of consolidated accounts
        receivable.
  For
        the
        three months ended September 30, 2007, one customer totaled 10% of surgical
        products sales.  No single customer equaled or exceeded 10% of
        surgical products sales for the nine months ended September 30,
        2007.  For the nine months ended October 1, 2006, two customers each
        totaled 10% of surgical products sales.  For the three months ended
        October 1, 2006, no customers exceeded 10% of surgical products sales. One
        customer totaled 12% of surgical products accounts receivable, and another
        customer totaled 10% of surgical products accounts receivable at September
        30,
        2007.  One customer totaled 11% of surgical products accounts
        receivable at December 31, 2006.
  **NOTE
        H – LICENSE FEES**
  The
        Company holds a worldwide exclusive license from the University of Missouri
        (the
“University”) for the use of technology patented by the University, used in the
        Company’s TheraSphere®
        product.  The Company has granted certain of its geographical rights
        under the licensing agreement with the University to Nordion International,
        Inc.
        Under the Nordion agreement, the Company is entitled to licensing fees for
        each
        geographic area in which Nordion receives new drug approval. The 2006 periods
        include $400,000 of one-time license fee revenue resulting from Nordion’s
        obtaining CE marking and European registration for TheraSphere® in the third
        quarter of 2006.  The Company is also entitled to a percentage of
        revenues earned by Nordion as royalties under the agreement.  License
        fee revenue is recognized in the periods to which they
        relate.  Continuing license fees from TheraSphere® product sales are
        not expected to be material in the near future.
  14
  **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(Unaudited)**
  **NOTE
        I - SEGMENT REPORTING**
  *Segment
        Reporting*
 Theragenics
        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):
 
 **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
                **2007**
              
              
              **October
                  1,**
                **2006**
              
              
              **September
                  30,**
                **2007**
              
              
              **October
                  1,**
                **2006**RevenuesBrachytherapy
                  seed
              
              $
              8,477
              
              
              $
              9,248
              
              
              $
              25,676
              
              
              $
              26,866Surgical
                  products
              
              
              7,587
              
              
              
              5,112
              
              
              
              21,498
              
              
              
              12,573Intersegment
                  eliminations
              
              
              (63
              )
              
              
              (40
              )
              
              
              (147
              )
              
              
              (135
              )$
              16,001
              
              
              $
              14,320
              
              
              $
              47,027
              
              
              $
              39,304Restructuring
                  expensesBrachytherapy
                  seed
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              369Surgical
                  products
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —$
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              369Gain
                  on sale of assetsBrachytherapy
                  seed
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              199Surgical
                  products
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2$
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              201Earnings
                  from operationsBrachytherapy
                  seed
              
              $
              1,244
              
              
              $
              1,708
              
              
              $
              3,335
              
              
              $
              1,647Surgical
                  products
              
              
              1,160
              
              
              
              140
              
              
              
              2,766
              
              
              
              977Intersegment
                  eliminations
              
              
              (7
              )
              
              
              (20
              )
              
              
              (12
              )
              
              
              (33
              )$
              2,397
              
              
              $
              1,828
              
              
              $
              6,089
              
              
              $
              2,591Capital
                  expendituresBrachytherapy
                  seed
              
              $
              59
              
              
              $
              14
              
              
              $
              391
              
              
              $
              100Surgical
                  products
              
              
              376
              
              
              
              361
              
              
              
              832
              
              
              
              463$
              435
              
              
              $
              375
              
              
              $
              1,223
              
              
              $
              563Depreciation
                  and amortizationBrachytherapy
                  seed
              
              $
              955
              
              
              $
              1,009
              
              
              $
              2,889
              
              
              $
              3,013Surgical
                  products
              
              
              617
              
              
              
              554
              
              
              
              1,822
              
              
              
              982$
              1,572
              
              
              $
              1,563
              
              
              $
              4,711
              
              
              $
              3,995
  
 Earnings
        from operations by segment do not include interest expense, interest income,
        other income and expense, or provisions for income
        taxes.  Intersegment eliminations primarily represent surgical
        products segment sales transactions.
  15
  **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(Unaudited)**
  Supplemental
        information related to significant assets and liabilities follows (in
        thousands):
  **September
                  30,**
                **2007**
              
              
              **December
                  31,**
                **2006**Identifiable
                  assetsBrachytherapy
                  seed
              
              $
              86,822
              
              
              $
              79,136Surgical
                  products
              
              
              70,689
              
              
              
              69,860Corporate
                  investment in subsidiaries
              
              
              61,667
              
              
              
              61,667Intersegment
                  eliminations
              
              
              (67,792
              )
              
              
              (64,419
              )$
              151,386
              
              
              $
              146,244GoodwillBrachytherapy
                  seed
              
              $
              2,578
              
              
              $
              2,578Surgical
                  products
              
              
              36,080
              
              
              
              36,246$
              38,658
              
              
              $
              38,824Other
                  intangible assetsBrachytherapy
                  seed
              
              $
              1
              
              
              $
              6Surgical
                  products
              
              
              12,349
              
              
              
              13,756$
              12,350
              
              
              $
              13,762
 
  Information
        regarding revenue by geographic regions follows (in thousands):
  **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
                **2007**
              
              
              **October
                  1,**
                **2006**
              
              
              **September
                  30,**
                **2007**
              
              
              **October
                  1,**
                **2006**United
                  States
              
              $
              14,771
              
              
              $
              12,792
              
              
              $
              43,709
              
              
              $
              36,470Europe
              
              
              856
              
              
              
              435
              
              
              
              2,140
              
              
              
              1,081Other
                  foreign countries
              
              
              130
              
              
              
              539
              
              
              
              499
              
              
              
              895License
                  fees (Canada)
              
              
              244
              
              
              
              554
              
              
              
              679
              
              
              
              858$
              16,001
              
              
              $
              14,320
              
              
              $
              47,027
              
              
              $
              39,304
 
 Foreign
        sales are attributed to countries based on the location of the customer.
        License
        fees are recognized from the TheraSphere® licensing
        agreement
        with Nordion, a Canadian 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.
 
 **NOTE
        J - RESTRUCTURING**
 
 Restructuring
        costs of $369,000 were incurred in the nine months ended October 1,
        2006.   These restructuring costs consisted primarily of site
        exit and disposal costs associated with the restructuring of the brachytherapy
        business that was announced and implemented in August
        2005.   These restructuring activities were completed in the
        second quarter of 2006.  Gain on sale of assets in the nine months
        ended October 1, 2006 includes $199,000 related to assets sold that were
        idled
        in the restructuring.
  16
  **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(Unaudited)**
 **NOTE
        K – EARNINGS PER SHARE**
  Basic
        earnings per share represents net earnings divided by the weighted average
        shares outstanding. Diluted earnings per share represents net earnings divided
        by weighted average shares outstanding adjusted for the incremental dilution
        of
        outstanding stock options and awards.  A reconciliation of weighted
        average common shares outstanding to weighted average common shares outstanding
        assuming dilution for the periods presented follows (in thousands, except
        per
        share data):
  **Three
                  months ended**
              
              
              **Nine
                  months ended****September
                  30,**
                **2007**
              
              
              **October
                  1,**
                **2006**
              
              
              **September
                  30,**
                **2007**
              
              
              **October
                  1,**
                **2006**Net
                  earnings
              
              $
              1,763
              
              
              $
              1,657
              
              
              $
              4,475
              
              
              $
              2,865Weighted
                  average common shares outstanding
              
              
              33,118
              
              
              
              32,752
              
              
              
              33,101
              
              
              
              32,293Incremental
                  common shares issuable under stock options and awards
              
              
              119
              
              
              
              70
              
              
              
              161
              
              
              
              75Weighted
                  average common shares outstanding assuming dilution
              
              
              33,237
              
              
              
              32,822
              
              
              
              33,262
              
              
              
              32,368Earnings
                  per shareBasic
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.14
              
              
              $
              0.09Diluted
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.13
              
              
              $
              0.09
  For
        the
        three and nine months ended September 30, 2007, potential common stock from
        approximately 1,716,000 and 1,576,000 stock options, respectively, were not
        included in the diluted earnings per share calculation because their effect
        is
        antidilutive. For both the three and nine months ended October 1, 2006,
        potential common stock from approximately 2,433,000 stock options were not
        included in the diluted earnings per share calculation because their effect
        is
        antidilutive.
  **NOTE
        L –CONTINGENCIES**
 
 From
        time
        to time, the Company is subject to legal proceedings and claims in the ordinary
        course of business.  Management currently is not aware of any such
        proceedings or claims that it believes will have, individually or in aggregate,
        a material adverse effect on the Company’s business, financial condition, or
        operating results.
 
 17
  **Item
        2. 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 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 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 I-Seed,
        an iodine-125 based 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 45% of consolidated revenue in the
        first
        nine months of 2007.  Prior to May 2005, the brachytherapy seed
        business constituted 100% of the Company’s revenue.
 
 Galt
        was
        acquired on August 2, 2006, for $32.7 million (net of $2.3 million of cash
        acquired), including $29.7 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 Galt subsequent
        to the
        acquisition date.
  ***Results
        of Operations***
  ***Revenue***
  Following
        is a summary of revenue by segment (in thousands):
  **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
                **2007**
              
              
              **October
                  1,**
                **2006**
              
              
              **Change**
                **(%)**
              
              
              **September
                  30,**
                **2007**
              
              
              **October
                  1,**
                **2006**
              
              
              **Change**
                **(%)**Brachytherapy
                  seedProduct
                  sales
              
              $
              8,233
              
              
              $
              8,694
              
              
              
              (5.3
              %)
              
              $
              24,997
              
              
              $
              26,008
              
              
              
              (3.9
              %)Continuing
                  licensing fees
              
              
              244
              
              
              
              154
              
              
              
              58.4
              %
              
              
              679
              
              
              
              458
              
              
              
              48.3
              %One-time
                  license fees
              
              
              —
              
              
              
              400
              
              
              
              (100.0
              %)
              
              
              —
              
              
              
              400
              
              
              
              (100.0
              %)Total
                  brachytherapy seed
              
              
              8,477
              
              
              
              9,248
              
              
              
              (8.3
              %)
              
              
              25,676
              
              
              
              26,866
              
              
              
              (4.4
              %)Surgical
                  products
              
              
              7,587
              
              
              
              5,112
              
              
              
              48.4
              %
              
              
              21,498
              
              
              
              12,573
              
              
              
              71.0
              %Intersegment
                  eliminations
              
              
              (63
              )
              
              
              (40
              )
              
              
              57.5
              %
              
              
              (147
              )
              
              
              (135
              )
              
              
              8.9
              %Consolidated
              
              $
              16,001
              
              
              $
              14,320
              
              
              
              11.7
              %
              
              $
              47,027
              
              
              $
              39,304
              
              
              
              19.6
              %
  The
        increase in consolidated revenue over the 2006 periods is a result of the
        increase in the surgical products segment, which includes wound closure and
        vascular access products.   Revenue for 2007 includes the results
        of Galt, which was acquired in August 2006.  A significant portion of
        wound closure and vascular access products are sold to original equipment
        manufacturers and distributors.  Ordering patterns of these customers
        vary and are difficult to predict.  Accordingly, surgical products
        revenue is subject to fluctuation on a quarter to quarter basis.
  18
  Brachytherapy
        product sales decreased 5% and 4% in the three and nine month period ended
        September 30, 2007, respectively, compared to the 2006 periods.  This
        decrease was due to a decline in sales to our main distributor, which decreased
        17% and 15% for the three and nine months ended September 30, 2007,
        respectively, somewhat offset by increased revenue from 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.  Continued declines in
        unit volumes sold to distributors would reduce gross profit further due to
        the
        significant fixed cost component of manufacturing expenses to the extent
        not
        offset by increased direct sales.  However, because of this
        significant fixed cost component, any appreciable increases in unit volumes
        to
        distributors could have the impact of increasing overall
        margins.   The future effect of the pricing reduction to the
        Company’s distributors is dependent upon the ability of the distributors to
        leverage this pricing reduction to maintain or increase unit
        volumes.
  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 10% and 11% for the three and nine months ended September
        30,
        2007, respectively, over the comparable 2006 periods. This increase in direct
        sales resulted from programs implemented by the direct sales force, including
        direct to consumer advertising programs.  The average selling price of
        the TheraSeed®
        device sold directly to hospitals and physicians during the third quarter
        and
        first nine months of 2007 was comparable to the respective 2006
        periods.
  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, 2008 (the “Bard Agreement”). Sales to Bard represented
        approximately 51% and 54% of total brachytherapy seed product revenue and
        approximately 26% and 28% of consolidated revenue for both the three months
        and
        nine months ended September 30, 2007, respectively.  Sales to Bard
        represented approximately 58% and 61% of total brachytherapy seed product
        revenue, and approximately 35% and 40% of consolidated revenue, for the three
        and nine months ended October 1, 2006, respectively.
  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, 2008, and will be automatically extended for one additional
        year
        unless either party gives notice by December 31, 2007 of its intent not to
        extend the agreement.
  Management
        believes that Medicare reimbursement policies have affected the brachytherapy
        market and can also continue to affect the brachytherapy market.  In
        December 2006 Congress enacted the Tax Relief and Health Care Act of 2006
        (the
“Act”), which retained the “charges adjusted to costs” reimbursement methodology
        for brachytherapy seeds throughout 2007.  The Company believes that it
        is likely that fixed reimbursement rates for seeds will be implemented beginning
        in 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.  This could have an adverse effect on
        brachytherapy 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.  The licensing agreement provides for continuing
        license fees from European and U.S. product sales of TheraSphere®, though
        continuing
        license fees are not expected to be significant in the near
        future.    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.
  Some
        of
        the Company’s competitors experienced a temporary interruption of their
        palladium-103 supply in the third quarter, and the Company supplied certain
        of
        those competitors’ customers for several weeks.  Although such sales
        did not materially affect revenues during the quarter ended September 30,
        2007,
        it demonstrates the value and reliability of the Company’s manufacturing
        capabilities.
  19
  ***Operating
        income and costs and expenses***
  Following
        is a summary of operating income by segment (in thousands):
  **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
                **2007**
              
              
              **October
                  1,**
                **2006**
              
              
              **Change**
                **(%)**
              
              
              **September
                  30,**
                **2007**
              
              
              **October
                  1,**
                **2006**
              
              
              **Change**
                **(%)**Brachytherapy
                  seedOperating
                  income
              
              $
              1,244
              
              
              $
              1,708
              
              
              
              (27.2
              %)
              
              $
              3,335
              
              
              $
              1,647
              
              
              
              102.5
              %One-time
                  license fees
              
              
              —
              
              
              
              (400
              )
              
              
              n/a
              
              
              
              —
              
              
              
              (400
              )
              
              
              n/aRestructuring
                  related items
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              170
              
              
              
              n/aBrachytherapy
                  seed excluding special items
              
              
              1,244
              
              
              
              1,308
              
              
              
              (4.9
              )%
              
              
              3,335
              
              
              
              1,417
              
              
              
              135.4
              %Surgical
                  products
              
              
              1,160
              
              
              
              140
              
              
              
              728.6
              %
              
              
              2,766
              
              
              
              977
              
              
              
              183.1
              %Intersegment
                  eliminations
              
              
              (7
              )
              
              
              (20
              )
              
              
              (65.0
              %)
              
              
              (12
              )
              
              
              (33
              )
              
              
              (63.6
              %)Operating
                  incomeConsolidated
              
              $
              2,397
              
              
              $
              1,828
              
              
              
              31.1
              %
              
              $
              6,089
              
              
              $
              2,591
              
              
              
              135.0
              %Excluding
                  special items
              
              $
              2,397
              
              
              $
              1,428
              
              
              
              67.9
              %
              
              $
              6,089
              
              
              $
              2,361
              
              
              
              157.9
              %
  
 Operating
        income excluding special items is a non-GAAP financial measure used by
        management in its analysis of the Company’s operating
        performance.   Because of the significance of the one-time
        license fee and restructuring related items, we believe presentation of
        financial measures excluding the impact of these items 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 Company's reported GAAP results.
  Operating
        income excluding special items in the brachytherapy segment increased 135%
        in
        the nine month period compared to the 2006 period.   This
        increase was a result of cost reductions in operating expenses as compared
        to
        2006, partially offsetting the effect of lower revenue.  Cost
        reductions were a result of operating efficiencies and other savings programs
        implemented in the third quarter of 2006.  Gross margins on product
        sales were approximately 54% in the 2007 nine month period compared to 52%
        in
        2006.  Selling, general and administrative (SG&A) expenses were
        the significant portion of the cost reductions in the nine months ended
        September 30, 2007, decreasing by $2.5 million as compared to 2006. These
        SG&A reductions were primarily a result of decreases in advertising and
        professional fees.    Operating income excluding special
        items for the three months ending September 30, 2007 decreased 5% compared
        to
        2006, affected by lower revenue.  Expense savings compared to the
        prior year were not as significant in the third quarter of 2007 as they were
        for
        the nine month period because the cost reduction programs generating the
        expense
        savings were implemented in the third quarter of 2006. Accordingly, we do
        not
        currently expect continued cost reductions on a year over year
        basis.  Gross margins on product sales were 55% and 53% in the third
        quarter of 2007 and 2006, respectively. Looking forward, gross margins in
        the brachytherapy seed business are expected to be dependent primarily on
        sales
        levels, due to the high fixed cost component of brachytherapy
        operations.
  Operating
        income in the surgical products segment include the results of Galt, acquired
        in
        August 2006.  Gross margins in the surgical products segment were 43%
        and 42% for the three and nine months ended September 30, 2007, respectively,
        and are dependent on product and sales channel mix.   In addition
        to the inclusion of Galt, operating income improved over the 2006 periods
        due to
        reductions in professional fees and bad debt expenses 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 25% for the three months ended September 30, 2007 from 32% in
        the
        comparable 2006 period and to 27% for the first nine months of 2007 compared
        to
        30% in the comparable 2006 period.  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.
  20
  Research
        and development (“R&D”) expenses increased over the 2006 periods as
        investments were made in new product development.  The Company expects
        to continue to invest in R&D during 2007 and 2008 as investments are made in
        product development to address growth opportunities in our
        businesses.
  ***Other***
  Interest
        income was $530,000 and $1,653,000 for the three and nine months ended September
        30, 2007, respectively, compared to $362,000 and $1,231,000 for the comparable
        2006 periods. The 2007 nine month period includes $309,000 of one-time interest
        income related to $1.9 million of refunded federal income taxes.  The
        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, partially offset due to having fewer invested
        funds in the 2007 periods, as $29.7 million in cash was utilized for the
        acquisition of Galt in August 2006.  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.
  ***Income
        tax expense***
  The
        Company’s effective income tax rates for the three and nine months ended
        September 30, 2007 were approximately 36% and 38%, respectively, and include
        federal and state income taxes. The year to date effective rate is reflective
        of
        the approximate effective tax rate expected for 2007.
  The
        Company’s effective tax rate for the three and nine months ended October 1, 2006
        was approximately 19%.  During 2006 the Company had an allowance for a
        deferred income tax asset that was reduced during the course of the year
        as it
        became more likely than not that some portion of the deferred tax asset would
        be
        realized.   The three and nine months ended October 1, 2006
        included a tax benefit of approximately $1.0 million and $1.4 million,
        respectively, representing a reduction in the allowance for the deferred
        income
        tax asset and significantly reducing the effective tax rate for each
        period.  In the fourth quarter of 2006, Management determined that it
        was more likely than not that substantially all of the remaining deferred
        tax
        asset would be recognized and, accordingly, the significant portion of the
        allowance was released.  The balance of the allowance at September 30,
        2007 is $241,000, primarily representing certain state net operating loss
        carryforwards for which the Company believes it is more likely than not that
        the
        benefit 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 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, 2003, 2004, 2005 and
        2006, the tax years that remain subject to examination by major tax
        jurisdictions as of September 30, 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 2003.   The Company concluded
        that there are no significant uncertain tax positions requiring recognition
        in
        the financial statements.  Accordingly, adoption of FIN 48 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.
  During
        2007, the IRS completed an examination of the Company’s 2004 and 2005 federal
        income tax return with no significant adjustments.  Upon settlement of
        the 2004 audit, 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 the second quarter
        of
        2007.
  21
  ***Critical
        Accounting Policies***
  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 included
        in its Annual Report on Form 10-K and as updated in its Forms 10-Q for the
        current fiscal year. 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.
  *Property,
        plant and equipment*. Property, plant 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 September 30, 2007, the Company owned and operated eight cyclotrons, the
        first of which entered service in 1998. Each of the Company’s cyclotrons is
        depreciated using an estimated 10-year life. Management’s estimate of the useful
        life of these cyclotrons is based on the Company’s experience to date with these
        cyclotrons. Based on experience gained relative to the operation, refurbishment,
        and maintenance of the cyclotrons, Management believes there is a substantive
        basis for the current depreciable lives of the cyclotrons.
  Management
        will continue to periodically examine estimates used for depreciation for
        reasonableness. If the Company determines that the useful life of property,
        plant 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.
  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.
  *Goodwill*.
        The Company has $36.1 million of goodwill associated with its surgical products
        business and $2.6 million of goodwill associated with its brachytherapy seed
        business.  The Company accounts for goodwill and other intangible
        assets in accordance with the provisions of Statement of Financial Accounting
        Standards 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. 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.
  22
  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 the current reporting period
        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 2006 and the Company determined that goodwill was not
        impaired.
  Goodwill
        of $20.5 million was recorded in connection with the acquisition of Galt
        in
        August 2006.  During the first nine months of 2007, goodwill was
        reduced by $166,000 as a result of certain adjustments made to the allocation
        of
        the purchase price.
  Intangible
        assets with definite lives are being amortized, and this amortization is
        included in the accompanying consolidated statements of operations.
  *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 current
        economic trends, changes in our customer payment history, and changes in
        sales
        returns history in establishing this allowance.
  *Share-based
        compensation.* The Company accounts for share-based compensation in
        accordance with Statement of Financial Accounting Standard No. 123R,
*Shared-based Payment*(‘SFAS 123R”).  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. Determining the fair value of share-based
        awards at the grant date requires judgment, including estimating the Company’s
        stock price volatility, employee stock option exercise behaviors and, for
        performance based awards, expected performance rates during the vesting
        period.
 
 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.
  In
        February 2006, the Compensation Committee of the Board of Directors approved
        the
        issuance of 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. 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 cumulative
        compensation expense.
  *Income
        taxes*. Our judgments, assumptions and estimates relative to the provision
        for income taxes 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.
  23
  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.  At September 30, 2007, the Company has recorded a
        current gross deferred tax asset of $5.6 million, a long-term deferred tax
        liability of $5.4 million and an allowance of $241,000.
  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 FASB Statement 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 and penalties, accounting in interim periods, disclosure and
        transition. The adoption of FIN 48 did not have a material effect on the
        Company’s financial statements.  Management considers many factors
        when evaluating and estimating tax positions and tax benefits, which may
        require
        periodic adjustments and may not accurately anticipate actual
        outcomes.
  ***Liquidity
        and Capital Resources***
  The
        Company had cash, short-term investments and marketable securities of $45.1
        million at September 30, 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, short-term investments and marketable securities
        was
        primarily the result of cash generated from operations.
  Working
        capital was $66.6 million at September 30, 2007, compared to $58.3 million
        at
        December 31, 2006. The Company also has a Credit Agreement with a financial
        institution that provides for revolving borrowings of up to $40.0 million,
        including a $5.0 million sub-limit for letters of credit, through a credit
        facility that expires on October 31, 2009.  Borrowings of $7.5 million
        were outstanding under the Credit Agreement as of September 30,
        2007.  Interest is payable quarterly at LIBOR plus 1% (effective rate
        of 6.5% at September 30, 2007).  Letters of credit, representing
        decommission funding required by the Georgia Department of Natural Resources,
        totaling $876,000 were outstanding under the Credit Agreement as of September
        30, 2007. 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 and tests.  The Company was in
        compliance with these covenants as of September 30, 2007.
  Cash
        provided by operations was $13.1 million and $5.9 million during the nine
        months
        ended September 30, 2007 and October 1, 2006, respectively. Cash provided
        by
        operations consists of net earnings plus non-cash expenses such as depreciation,
        amortization, deferred income taxes and stock based compensation, and changes
        in
        balance sheet items such as accounts receivable, inventories, prepaid expenses
        and payables.  In addition to higher net earnings and non cash
        expenses, significant items affecting the increase in cash from operations
        for
        2007 over 2006 include a $2.3 million decrease in prepaid expenses and other
        current assets, arising primarily due to the receipt of a federal income
        tax
        refund of $1.9 million in 2007, and an increase of $1.0 million in income
        taxes
        payable.  A significant item reducing cash from operations was an
        increase in accounts receivable of $1.0 million, resulting from higher
        sales.  As of September 30, 2007, the Company has utilized
        substantially all of its net operating loss carryforwards for income taxes.
        Accordingly, the Company expects to begin paying income taxes at normal rates
        going forward, which will have a negative effect on cash flow from operations
        in
        the future.
  Capital
        expenditures totaled $1.2 million and $563,000 during the first nine months
        of
        2007 and 2006, respectively. The Company expects current capital expenditure
        rates to continue in 2007 and 2008 as investments continue to be made to
        support
        capacity, primarily in the surgical products business.  In 2006, $29.7
        million in cash was used for the acquisition of Galt.
  24
  Cash
        provided by financing activities was $170,000 and $7.6 million in the first
        nine
        months of 2007 and 2006, respectively.  The 2006 amount was primarily
        a result of $7.5 million in borrowings under the Company’s $40.0 million credit
        facility.  The remainder consists of cash proceeds from the exercise
        of stock options and the Company’s Employee Stock Purchase Plan.
  Cash
        is
        expected to be used in 2007 for increased marketing and brachytherapy support
        activities, support for growth in the surgical products segment, and in the
        pursuit of additional diversification efforts such as the purchase of
        technologies, products or companies.
  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.
  ***Medicare
        Developments***
  The
        Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”),
        which went into effect on January 1, 2004, contained brachytherapy provisions
        requiring Medicare to reimburse hospitals 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 MMA 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 hospitals would have been reimbursed
        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
“Act”), which extended and refined the Medicare safeguards initially enacted by
        Congress in 2003 for brachytherapy seeds administered in the hospital outpatient
        setting. The Act’s provisions on brachytherapy superceded the final rule
        published by CMS on November 1, 2006 by extending the current “charges adjusted
        to cost” reimbursement policies 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
        legislation established a permanent requirement for Medicare to use separate
        codes for the reimbursement of stranded brachytherapy devices, beginning
        no
        later than July 1, 2007. Stranded seeds are becoming a larger portion of
        Theragenics’ brachytherapy business.  This important provision should
        allow reimbursement rules to recognize the value of this important clinical
        configuration even after 2007.
  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 Act.  In early November
        2007, CMS also posted a final OPPS rule for calendar year 2008 with fixed
        prospective reimbursement rates for these new codes.  The Company
        believes it is likely that fixed reimbursement rates for seeds will be
        implemented beginning in 2008, and that this and other factors can be expected
        to lead to continued pricing pressure from hospitals and other health care
        providers.  This could have an adverse effect on brachytherapy
        revenue.  The Company also continues to work through the Coalition for
        the Advancement of Brachytherapy, the brachytherapy industry trade organization,
        in an effort to extend the current “charges adjusted to costs” reimbursement
        methodology for brachytherapy seeds.
  25
  ***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, including, but
        not limited to, 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, the development of new markets and technologies,
        diversification of operations, 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, other research and development activities and similar matters.
        These forward-looking statements are subject to certain risks, uncertainties
        and
        other factors which could cause actual results to differ materially from
        those
        anticipated, including risks associated with new product development cycles,
        effectiveness and execution of marketing and sales programs of the Company’s
        business segments and its distributors, third party distribution agreements,
        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, continued 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, ability to recognize benefits from
        areas of shared expertise, competition within the medical device industry,
        development and growth of new applications within the markets for brachytherapy,
        wound closure, vascular access, and, more broadly, medical devices, competition
        from companies within brachytherapy, wound closure, vascular access and,
        more
        broadly, medical device 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 Part
        II,
        Item 1A of the Company’s most recent 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.
  **Item
        3. Quantitative and Qualitative Disclosures About Market
        Risk**
  The
        Company’s market risk exposure related to market risk sensitive financial
        instruments is not material. As of September 30, 2007, the Company had
        borrowings of $7.5 million and letters of credit of approximately $876,000
        outstanding under the terms of its Credit Agreement.  Interest on
        outstanding borrowings is payable monthly at LIBOR plus 1% (effective rate
        of
        6.5% as of September 30, 2007).
  **Item
        4. 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 the effectiveness of the design and operation 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 September 30, 2007, the end of the period covered by this
        report.
 
 The
        Company acquired Galt Medical Corp. (“Galt”) on August 2, 2006. Since the date
        of acquisition, the Company has been focusing on analyzing, evaluating, and
        implementing changes in Galt's procedures and controls to determine their
        effectiveness and to make them consistent with our disclosure controls and
        procedures. Prior to our acquisition of Galt, Galt was not required to prepare
        financial statements in accordance with accounting principles generally accepted
        in the United States of America. In addition, Galt was not previously required
        to maintain disclosure controls and procedures or maintain, document and
        assess
        internal control over financial reporting, in each case as required under
        the
        rules and regulation of the Securities and Exchange Commission. As noted
        in
        Management's Report on Internal Control over Financial Reporting in the
        Company’s Form 10-K for the year ended December 31, 2006 and as permitted by
        guidance issued by the staff of the U.S. Securities and Exchange Commission,
        Galt was excluded from the scope of management’s assessment over the
        effectiveness of internal control over financial reporting as of December
        31,
        2006. We have similarly excluded Galt from the scope of our quarterly discussion
        of material changes in internal control over financial reporting below. Galt
        constituted 19.4% of consolidated revenue for the nine months ended September
        30, 2007 and 22.7% of consolidated assets as of September 30, 2007.
  26
  No
        changes in the Company’s internal control over financial reporting were
        identified as having occurred during the quarter ended September 30, 2007
        that
        have materially affected, or are reasonably likely to materially affect,
        the
        Company’s internal control over financial reporting, except as described above
        with respect to Galt.
  **PART
        II. OTHER INFORMATION**
  **Item
        1. Legal Proceedings**
  From
        time
        to time, the Company is subject to legal proceedings and claims in the ordinary
        course of business. Management currently is not aware of any such legal
        proceedings or claims that it believes will have, individually or in aggregate,
        a material adverse effect on the Company’s business, financial condition, or
        operating results.
  **Item
        1A. Risk Factors**
  In
        addition to the other information set forth in this report, and in the following
        paragraph, the factors discussed in Part I, “Item 1A. Risk Factors” in our
        Annual Report on Form 10-K for the year ended December 31, 2006, which could
        materially affect our business, financial condition or future results, should
        be
        carefully considered. The risks described in our Annual Report on Form 10-K
        are
        not the only risks facing our Company. Additional risks and uncertainties
        not
        currently known to us or that we currently deem to be immaterial also may
        materially adversely affect our business, financial condition and/or operating
        results.
  Management
        believes that the brachytherapy industry continues to be affected by competition
        from alternate therapies, declining prices for iodine-125 and palladium-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 2006 Congress enacted the Tax
        Relief and Health Care Act of 2006, which retained the “charges adjusted to
        cost” reimbursement methodology for brachytherapy seeds for 2007.  The
        Company believes it is likely that fixed prospective reimbursement rates
        for
        seeds will be implemented beginning in 2008, (see “*Medicare
        Developments*” above) and that this and other factors can be expected to
        lead to continued pricing pressure from hospitals and other health care
        providers.  This could have an adverse effect on brachytherapy
        revenue.  Additionally, 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.
  27
  **Item
        6. Exhibits**
  **Exhibit
                  No.**
              
              **Title**3.1
              
              Amended
                  and Restated Bylaws of Theragenics Corporation (incorporated by
                  reference
                  from the Current Report on Form 8-K dated August 17,
                  2007)10.1
              
              Employment
                  Agreement dated August 21, 2007 between Galt Medical Corp. and
                  Michael
                  Lang.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 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 to Section 906 of the Sarbanes-Oxley
                  Act of 2002.
  28
  SIGNATURES
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  REGISTRANT:THERAGENICS
                  CORPORATIONDate: November
                  8, 2007
              
              By:
              /s/ M.
                  Christine JacobsM.
                  Christine Jacobs
                Chief
                  Executive Officer
  Date:
                  November 8, 2007
              
              By:
              /s/ Francis
                  J. TaralloFrancis
                  J. Tarallo
                Chief
                  Financial Officer
   29