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 October 3, 2004

or

(   )             
          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

     SECURITIES EXCHANGE ACT
OF 1934

For the transition
period from __________ to __________

Commission File No.
0-15443

THERAGENICS
CORPORATION®(Exact name of
registrant as specified in its charter)

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|Delaware(State or other jurisdiction ofincorporation or organization)              | 58-1528626(I.R.S. EmployerIdentification Number)
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|5203 Bristol Industrial WayBuford, Georgia(Address of principal executive offices) | 30518(Zip Code)                                 

Registrant's telephone number, including area code: (770) 271-0233

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YESX NO ___

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YESX NO ___

As of October 25, 2004 the number of
shares of $.01 par value common stock outstanding was 29,975,354.

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THERAGENICS
CORPORATION®

TABLE OF CONTENTS

|                                                                                                                          |         
|------------------------------------------------------------------------------------------------------------------------- | --------
|                                                                                                                          | Page No.
|PART I.        FINANCIAL INFORMATION:                                                                                     |         
|ITEM 1.        FINANCIAL STATEMENTS (UNAUDITED)                                                                           |         
|Balance Sheets - October 3, 2004 and December 31, 2003                                                                    | 3       
|Statements of Operations for the three and nine months ended October 3, 2004 and      October 5, 2003                     | 5       
|Statements of Cash Flows for the nine months ended October 3, 2004 and October 5, 2003                                    | 7       
|Statement of Shareholders' Equity for the nine months ended October 3, 2004                                               | 8       
|Notes to Financial Statements                                                                                             | 9       
|ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL         
            CONDITION AND RESULTS OF OPERATIONS | 16      
|ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET         
            RISK                            | 26      
|ITEM 4.        CONTROLS AND PROCEDURES                                                                                    | 27      
|PART II.       OTHER INFORMATION                                                                                          | 27      
|ITEM 1.        LEGAL PROCEEDINGS                                                                                          | 27      
|ITEM 6.        EXHIBITS                                                                                                   | 27      
|SIGNATURES                                                                                                                | 28      

-2-

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THERAGENICS CORPORATION®BALANCE SHEETS

(Amounts
in thousands, except per share data)

|                                                     |  | 
|---------------------------------------------------- |  | 
|ASSETS                                               |  | 
|                                                     |  | 
|                                                     |  | 
|                                                     |  | 
|                                                     |  | 
|CURRENT ASSETS                                       |  | 
|Cash and short-term investments                      |  | 
|Marketable securities                                |  | 
|Trade accounts receivable, less allowance of $177 in |  | 
|2004 and $118 in 2003                                |  | 
|Inventories                                          |  | 
|Deferred income tax asset                            |  | 
|Prepaid expenses and other current assets            |  | 
|                                                     |  | 
|TOTAL CURRENT ASSETS                                 |  | 
|PROPERTY AND EQUIPMENT                               |  | 
|Buildings and improvements                           |  | 
|Machinery and equipment                              |  | 
|Office furniture and equipment                       |  | 
|                                                     |  | 
|                                                     |  | 
|Less accumulated depreciation and                    |  | 
|amortization                                         |  | 
|                                                     |  | 
|                                                     |  | 
|Land                                                 |  | 
|Construction in progress                             |  | 
|                                                     |  | 
|TOTAL PROPERTY AND EQUIPMENT                         |  | 
|OTHER ASSETS                                         |  | 
|                                                     |  | 
|TOTAL ASSETS                                         |  | 
|                                                     |  | 

-3-

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THERAGENICS CORPORATION®BALANCE SHEETS - Continued

(Amounts
in thousands, except per share data)

|                                              |  | 
|--------------------------------------------- |  | 
|LIABILITIES & SHAREHOLDERS' EQUITY            |  | 
|                                              |  | 
|                                              |  | 
|                                              |  | 
|                                              |  | 
|CURRENT LIABILITIES                           |  | 
|Trade accounts payable                        |  | 
|Accrued salaries, wages and payroll taxes     |  | 
|Other current liabilities                     |  | 
|                                              |  | 
|TOTAL CURRENT LIABILITIES                     |  | 
|LONG-TERM LIABILITIES                         |  | 
|Deferred income taxes                         |  | 
|Asset retirement obligation                   |  | 
|Other liabilities                             |  | 
|                                              |  | 
|TOTAL LONG-TERM LIABILITIES                   |  | 
|SHAREHOLDERS' EQUITY                          |  | 
|Common stock, $.01 par value, 100,000         |  | 
|shares authorized; issued and outstanding,    |  | 
|29,975 in 2004 and 29,944 in 2003             |  | 
|Additional paid-in capital                    |  | 
|Retained earnings                             |  | 
|Accumulated other comprehensive income/(loss) |  | 
|                                              |  | 
|TOTAL SHAREHOLDERS' EQUITY                    |  | 
|                                              |  | 
|TOTAL LIABILITIES AND                         |  | 
|SHAREHOLDERS' EQUITY                          |  | 
|                                              |  | 

The
accompanying notes are an integral part of these statements.

-4-

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THERAGENICS CORPORATION®STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts
in thousands, except per share data)

|
|

|                                                    | Three Months Ended | Nine Months Ended
|--------------------------------------------------- | ------------------ | -----------------
|
|
|REVENUE                                             |                    |                  
|Product sales                                       |                    |                  
|Licensing fees                                      |                    |                  
|                                                    |                    |                  
|                                                    |                    |                  
|Total revenue                                       |                    |                  
|COST OF SALES                                       |                    |                  
|                                                    |                    |                  
|GROSS PROFIT                                        |                    |                  
|OPERATING EXPENSES                                  |                    |                  
|Selling, general & administrative                   |                    |                  
|Research & development                              |                    |                  
|                                                    |                    |                  
|                                                    |                    |                  
|                                                    |                    |                  
|EARNINGS/(LOSS) FROM OPERATIONS                     |                    |                  
|OTHER INCOME/(EXPENSE)                              |                    |                  
|Interest income                                     |                    |                  
|Interest and financing costs                        |                    |                  
|Other                                               |                    |                  
|                                                    |                    |                  
|                                                    |                    |                  
|                                                    |                    |                  
|Earnings/(loss) before income tax and cumulative    |                    |                  
|effect of change in accounting principle            |                    |                  
|Income tax expense/(benefit)                        |                    |                  
|                                                    |                    |                  
|Earnings/(loss) before cumulative effect of change  |                    |                  
|in accounting principle                             |                    |                  
|Cumulative effect of change in accounting principle |                    |                  
|(See Note F)                                        |                    |                  
|                                                    |                    |                  
|NET EARNINGS/(LOSS)                                 |                    |                  
|                                                    |                    |                  

-5-

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THERAGENICS CORPORATION®STATEMENTS OF OPERATIONS - Continued
(UNAUDITED)(Amounts
in thousands, except per share data)

|                                            | Three Months Ended | Nine Months Ended
|------------------------------------------- | ------------------ | -----------------
|
|
|NET EARNINGS/(LOSS) PER COMMON SHARE        |                    |                  
|Basic:                                      |                    |                  
|Earnings/(loss) before cumulative effect of |                    |                  
|change in accounting principle              |                    |                  
|Cumulative effect of change in accounting   |                    |                  
|principle                                   |                    |                  
|                                            |                    |                  
|Net earnings/(loss) per common share        |                    |                  
|                                            |                    |                  
|Diluted:                                    |                    |                  
|Earnings/(loss) before cumulative effect of |                    |                  
|change in accounting principle              |                    |                  
|Cumulative effect of change in accounting   |                    |                  
|principle                                   |                    |                  
|                                            |                    |                  
|Net earnings/(loss) per common share        |                    |                  
|                                            |                    |                  
|WEIGHTED AVERAGE SHARES:                    |                    |                  
|Basic                                       |                    |                  
|Diluted                                     |                    |                  
|Comprehensive income/(loss):                |                    |                  
|Net earnings/(loss)                         |                    |                  
|                                            |                    |                  
|Other comprehensive income/(loss)           |                    |                  
|Unrealized gain/(loss) on securities        |                    |                  
|available for sale:                         |                    |                  
|                                            |                    |                  
|                                            |                    |                  
|Total comprehensive income/(loss)           |                    |                  
|                                            |                    |                  
|                                            |                    |                  

The
accompanying notes are an integral part of these statements.

-6-

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THERAGENICS CORPORATION®
STATEMENTS OF CASH FLOWS(UNAUDITED)(Amounts in thousands)

|                                                     |  | 
|---------------------------------------------------- |  | 
|                                                     |  | 
|                                                     |  | 
|                                                     |  | 
|                                                     |  | 
|CASH FLOWS FROM OPERATING ACTIVITIES                 |  | 
|Net Earnings/(Loss)                                  |  | 
|Adjustments to reconcile net earnings/(loss) to      |  | 
|net cash provided by/(used by) operating activities: |  | 
|Cumulative effect of change in accounting principle  |  | 
|Deferred income taxes                                |  | 
|Depreciation & amortization                          |  | 
|Provision for allowances                             |  | 
|Stock based compensation                             |  | 
|Income tax benefit from options                      |  | 
|Loss on disposal of equipment                        |  | 
|Changes in assets and liabilities:                   |  | 
|Accounts receivable                                  |  | 
|Inventories                                          |  | 
|                                                     |  | 
|Prepaid expenses and other current assets            |  | 
|Other assets                                         |  | 
|Trade accounts payable                               |  | 
|Accrued salaries, wages and payroll taxes            |  | 
|Other current liabilities                            |  | 
|Other liabilities                                    |  | 
|                                                     |  | 
|Net cash provided by/(used by) operating activities  |  | 
|                                                     |  | 
|CASH FLOWS FROM INVESTING ACTIVITIES                 |  | 
|Purchases and construction of property and equipment |  | 
|Cash paid for acquisition                            |  | 
|Purchases of marketable securities                   |  | 
|Maturities of marketable securities                  |  | 
|                                                     |  | 
|Net cash used by investing activities                |  | 
|                                                     |  | 
|CASH FLOWS FROM FINANCING ACTIVITIES                 |  | 
|Exercise of stock options and stock purchase plan    |  | 
|                                                     |  | 
|Net cash provided by financing activities            |  | 
|                                                     |  | 
|                                                     |  | 
|NET DECREASE IN CASH AND                             |  | 
|SHORT-TERM INVESTMENTS                               |  | 
|CASH AND SHORT-TERM INVESTMENTS                      |  | 
|AT BEGINNING OF PERIOD                               |  | 
|                                                     |  | 
|CASH AND SHORT-TERM INVESTMENTS                      |  | 
|AT END OF PERIOD                                     |  | 
|                                                     |  | 

The
accompanying notes are an integral part of these statements.

-7-

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THERAGENICS CORPORATION®
STATEMENT OF SHAREHOLDERS' EQUITYFOR THE NINE MONTHS ENDED OCTOBER 3, 2004(UNAUDITED)(Amounts in thousands, except per share data)

|                                   |  |  |  |                 |  |  
|---------------------------------- |  |  |  | --------------- |  | -
|                                   |  |  |  | Common Stock    |  |  
|                                   |  |  |  | Number ofShares |  |  
|                                   |  |  |  |                 |  |  
|BALANCE, December 31, 2003         |  |  |  | 29,944          |  | $
|Exercise of stock options          |  |  |  | 18              |  |  
|Employee stock purchase plan       |  |  |  | 13              |  |  
|Equity incentive plan (See Note E) |  |  |  |                 |  |  
|Unrealized loss on securities      |  | 
|available for sale                 |  |  |  |                 |  |  
|Net loss for the period            |  |  |  |                 |  |  
|                                   |  |  |  |                 |  |  
|BALANCE, October 3, 2004           |  |  |  | 29,975          |  | $
|                                   |  |  |  |                 |  |  

The
accompanying notes are an integral part of these statements.

-8-

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THERAGENICS
CORPORATION®

NOTES TO FINANCIAL
STATEMENTS OCTOBER 3, 2004 (Unaudited)

NOTE A  BASIS OF
PRESENTATION

The interim financial statements
included herein have been prepared by the Company without audit. These statements reflect
all adjustments that are, in the opinion of management, necessary to present fairly the
financial position, results of operations, cash flows and changes in shareholders
equity for the periods presented. All such adjustments are of a normal recurring nature.
Beginning with the quarter ended July 4, 2004, the Company began reflecting the
quarter-end using the actual cut-off dates, rather than rounding the reporting dates to
the latest calendar quarter-end. The Companys three and nine month periods for 2004
ended on October 3, 2004. The Companys three and nine month periods for 2003 ended
on October 5, 2003. 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. The Company believes that
the financial statements and disclosures are adequate to make the information not
misleading. It is suggested that these financial statements and notes be read in
conjunction with the audited financial statements and notes for the year ended December
31, 2003, included in the Form 10-K filed by the Company. The results of operations for
the nine months ended October 3, 2004 are not necessarily indicative of the results to be
expected for a full year.

NOTE B 
DISTRIBUTION AGREEMENTS AND MAJOR CUSTOMERS

The Company sells its TheraSeed®
device directly to health care providers and to third party distributors.
Theragenics also manufactures and distributes I-Seed, an iodine-125 based medical
device, directly to health care providers. At the beginning of 2003, the Company had
non-exclusive distribution agreements in place with four companies. During the first
quarter of 2003, the distribution agreement with one distributor was discontinued upon
notification of the acquisition of the distributor by another TheraSeed® distributor.
In addition, during the second quarter of 2003, Theragenics was notified that this
same distributor acquired another TheraSeed® distributor. Currently, the Company has
non-exclusive distribution agreements in place with two companies for the distribution of
the TheraSeed® device, C. R. Bard and Oncura (a company formed by a merger of the
prostate cancer businesses of Amersham plc and Galil Medical Ltd.). The non-exclusive
distribution agreements for the distribution of the TheraSeed® device give each
distributor the right to distribute the TheraSeed® device in the U.S., Canada and
Puerto Rico for the treatment of prostate cancer and other solid localized cancerous
tumors. These non-exclusive agreements give the distributors the option to distribute the
TheraSeed® device internationally. The domestic and international distribution
agreements with one distributor allow each party the right to give notice of non-renewal
at the end of December 2004, which would be effective December 31, 2005. The Company is
currently evaluating its relationship with this distributor to determine whether to
continue it thereafter. The Companys other distributor has exercised its option to
extend its distribution agreement with the Company through December 2006.

Sales to the two non-exclusive
distributors represented 79.5% and 81.1% of total product revenue for the three and nine
months ended October 3, 2004, respectively, with each of the two non-exclusive
distributors, C. R. Bard and Oncura, each exceeding 10% of total revenue during those

-9-

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THERAGENICS
CORPORATION®

NOTES TO FINANCIAL
STATEMENTS - CONTINUED OCTOBER 3, 2004 (Unaudited)

periods.

Sales to the original four
non-exclusive distributors represented 77.8% and 80.3% of total product revenue for the
three and nine months ended October 5, 2003, respectively, with sales to two of the four
non-exclusive distributors, C. R. Bard and Oncura, each exceeding 10% of total revenue
during those periods.

Accounts receivable from the two
non-exclusive distributors represented approximately 74% and 74% of accounts receivable at
October 3, 2004 and December 31, 2003, respectively, with each of the two non-exclusive
distributors noted above each exceeding 10% of total accounts receivable.

NOTE C 
CONSTRUCTION IN PROGRESS AND PURCHASE COMMITMENTS

The U.S. Department of Energy (DOE)
has granted Theragenics access to unique DOE technology (plasma separation process
or PSP) for use in production of isotopes, including palladium-102. The
Company has constructed a facility in Oak Ridge, Tennessee to house the equipment,
infrastructure and work force necessary to support the production of isotopes, including
palladium-102, using this DOE technology. The building and the PSP became operational
during the latter half of 2002. Additional equipment in the amount of $1.7 million has not
yet been placed in service and is recorded as construction-in-progress on the accompanying
balance sheets. Due to delays by the DOEs primary contractor in Oak Ridge, the
Company currently anticipates that this additional equipment will become operational
during the first half of 2005.

In December 2003 the Company entered
into an asset purchase agreement with a contractor for the design and manufacture of
certain equipment. The capital asset purchase agreement in the amount of $1.2 million is
expected to be completed in late 2004. As of October 3, 2004, progress payments in the
amount of approximately $900,000 had been paid in relation to the purchase agreement.

NOTE D 
CONTINGENCIES

In January 1999, the Company and
certain of its officers and directors were named as defendants in certain securities
actions alleging violations of the federal securities laws, including Sections 10(b),
20(a) and Rule 10b-5 of the Securities and Exchange Act of 1934, as amended. These actions
have been consolidated into a single action pending in the U.S. District Court for the
Northern District of Georgia. The complaint, as amended, purports to represent a class of
investors who purchased or sold securities during the time period from January 29, 1998 to
January 11, 1999. The amended complaint generally alleges that the defendants made certain
misrepresentations and omissions in connection with the performance of the Company during
the class period and seeks unspecified damages. On May 14, 1999 a stockholder of the
Company filed a derivative complaint in the Delaware Court of Chancery purportedly on
behalf of the Company, alleging that certain directors breached their fiduciary duties by
engaging in

-10-

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THERAGENICS
CORPORATION®

NOTES TO FINANCIAL
STATEMENTS - CONTINUED OCTOBER 3, 2004 (Unaudited)

the conduct that is alleged in the
consolidated federal class action complaint. The derivative action has been stayed by the
agreement of the parties. On July 19, 2000, the Court granted the Companys motion to
dismiss the consolidated federal class action complaint for failure to state a claim
against the Company, and granted the plaintiffs leave to amend their complaint. On August
21, 2000, the plaintiffs filed a second amended complaint and on March 30, 2001, the Court
denied the defendants motion to dismiss the plaintiffs second amended
complaint. The Court also denied the Companys motion for reconsideration.
Subsequently, the Court certified the class and the parties commenced discovery. Discovery
in the case is complete. The Company filed a motion for summary judgment on September 30,
2003.

On July 1, 2004, while the summary
judgment motion was pending, the Company, the Companys directors and officers
liability insurance carrier, and the plaintiffs counsel reached an agreement to
settle the consolidated federal class action for an amount within the remaining limits of
the Companys directors and officers liability insurance. The plaintiffs will
dismiss their lawsuit against the defendants and, on behalf of the settling class, release
defendants from any and all liability arising from the incidents alleged in the second
amended complaint. The Company will not be required to make any financial contribution
toward the settlement. On September 29, 2004, the Court gave final approval to the
settlement, with no objectors and no requests for exclusion. The final approval allows the
right to appeal the final order until November 1, 2004. Barring any appeal of the final
order, the case will be over as of that date. The derivative lawsuit is still pending. Its
status is currently being reevaluated in light of the settlement of the securities class
action lawsuit.

The Company and Oncura are currently
arbitrating claims arising in connection with the Companys non-exclusive
distribution agreement with Oncura. Oncura claims that the Company has not addressed
Oncuras concerns about pricing by renegotiating pricing in good faith. Oncura is
seeking a change in the pricing terms of the distribution agreement through the
arbitration proceeding, and has indicated that it will seek to recover a portion of
payments previously made. The Company filed a counterclaim against Oncura alleging that
Oncura breached its obligations under the distribution agreement concerning marketing
brachytherapy products and the use of the Companys trademarks. The arbitrators have
been appointed and the parties are conducting discovery. Management believes that
Oncuras claims are without merit and is opposing them vigorously. Management
believes the Company has meritorious counter-claims.

From time to time the Company may be
a party to claims that arise in the ordinary course of business, none of which, in the
view of management, is expected to have a material adverse effect on the consolidated
financial position or results of operations of the Company.

NOTE E  ACCOUNTING
FOR STOCK-BASED COMPENSATION

The Company provides stock-based
compensation under equity incentive plans approved by stockholders. The plans collectively
provide for the granting of stock options, restricted stock and other equity incentives.
As of October 3, 2004 there were 2,562,083 options and restricted stock

-11-

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THERAGENICS
CORPORATION®

NOTES TO FINANCIAL
STATEMENTS - CONTINUED OCTOBER 3, 2004 (Unaudited)

rights outstanding and 316,979 shares
of Common Stock remaining available for issuance under the Companys equity incentive
plans.

Stock option grants to date have
required the exercise price of the options granted to be at least equal to 100% of market
value on the date granted. Stock options granted to date provide for the expiration of
options ten years from the date of grant and become exercisable over a three to five-year
vesting period. At the May 11, 2004 meeting of the Board of Directors, the Board approved
the vesting of all underwater options (defined as those options with exercise prices
greater than the closing price for the Companys stock on May 11, 2004) as of May 11,
2004. This approval resulted in 352,000 of previously unvested options immediately
becoming vested on May 11, 2004. Each of these options had exercise prices greater than
$4.73, the closing price of the Companys stock on May 11, 2004. This acceleration of
vesting did not result in any charge to the Companys results of operations, but is
reflected in the stock-based compensation amounts presented below on a pro forma basis.

Beginning in 2003, each non-officer
director began receiving 1,000 shares of restricted stock per year, with one year vesting,
as one component of director compensation. The Company issued 7,000 shares of restricted
stock to the non-officer directors in November, 2003 which will vest in November, 2004.
The total compensation cost associated with these restricted shares, $37,000, is being
recognized over the vesting period and is included in selling, general and administrative
expense in the accompanying statements of operations for the three and nine months ended
October 3, 2004. The Company intends to issue an additional 7,000 restricted shares to the
non-officer directors in November, 2004 with one year vesting. The compensation cost
related to these restricted shares will be recognized over the vesting period.

In August 2004, the Board of
Directors granted restricted stock rights to the Companys executive management. The
Company granted an aggregate of 48,000 restricted stock rights on August 10, 2004, to
executive management. Each right represents one share of common stock to be issued upon
vesting, provided that the executive remains in the Companys employ until the
vesting date of December 31, 2005. The Company recognized $22,000 of stock-based
compensation related to these restricted stock rights in the three and nine months ended
October 3, 2004. In June 2004, the Company also granted performance restricted stock
rights to executive management as part of a long-term incentive program. Under the
long-term incentive program, the number of shares issuable upon vesting of each
performance restricted stock right will depend on the companys stock price
appreciation plus dividends paid (total shareholder return, or TSR) relative
to an industry peer group based on a fixed schedule. Each performance restricted stock
right represents the right to a minimum of 0.30 of a share of common stock provided that
the executive remains in the Companys employ as of the vesting date, and a maximum
of two shares of common stock depending on the Companys TSR. TSR will be measured
for the period from January 1, 2004 through December 31, 2006, and rights will vest under
the program as of December 31, 2006. The performance restricted rights will vest at the
target achievement level upon a change of control. The number of shares that could be
earned in respect of the performance restricted stock rights ranges from 13,950 shares to
93,000 shares based on TSR performance. The Company recognized $15,000 of stock-based
compensation related to the 13,950 share minimum in the three and nine months ended
October 3, 2004. Management will monitor

-12-

---

THERAGENICS
CORPORATION®

NOTES TO FINANCIAL
STATEMENTS - CONTINUED OCTOBER 3, 2004 (Unaudited)

the TSR of the Company, compared to
the industry peer group, during the vesting period for the June 2004 grants and recognize
additional, or adjust previously recorded compensation expense, as appropriate. As of
October 3, 2004, no additional stock-based compensation expense was recorded based on TSR
during the three and nine months ended October 3, 2004.

In December 2002, the Financial
Accounting Standards Board (FASB) issued Statement No. 148, Accounting
for Stock-Based Compensation  Transition and Disclosure. FAS 148 amends FAS
123 Accounting for Stock-Based Compensation to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, FAS 148 amends the disclosure requirement
of FAS 123 to require more prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The additional disclosure requirements of
FAS 148 are effective for fiscal years ending after December 15, 2002. The Company
accounts for stock-based compensation for employees under Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and elected the disclosure-only alternative under SFAS No. 123,
Accounting for Stock-Based Compensation. No stock-based compensation cost
related to options issued to employees is included in net earnings, as all such options
granted have an exercise price equal to the market value of the stock on the date of
grant. Stock-based compensation costs of $9,000 and $37,000 are included in the results
for the three months ended October 3, 2004 related to the restricted stock issued to
directors and the restricted stock rights granted to executive management, respectively.
Stock-based compensation costs of $28,000 and $37,000 are included in the results for the
nine months ended October 3, 2004 related to the restricted stock issued to directors and
the restricted stock rights granted to executive management, respectively. In accordance
with SFAS No. 148, Accounting for Stock Based Compensation-Transition and
Disclosure, the following table presents the effect on net earnings and net earnings
per share had compensation cost for the Companys stock plans been determined
consistent with SFAS No. 123 (in thousands, except per share data):

|                                              | Three Months Ended | Nine Months Ended
|--------------------------------------------- | ------------------ | -----------------
|
|
|Net earnings/(loss), as reported              |                    |                  
|Less:  total stock-based compensation         |                    |                  
|expense determined under fair value           |                    |                  
|method for all stock options, net of          |                    |                  
|related income tax benefit                    |                    |                  
|                                              |                    |                  
|Pro forma net earnings/(loss)                 |                    |                  
|Basic net earnings/(loss) per common share:   |                    |                  
|As reported                                   |                    |                  
|Pro forma                                     |                    |                  
|Diluted net earnings/(loss) per common share: |                    |                  
|As reported                                   |                    |                  
|Pro forma                                     |                    |                  

-13-

---

THERAGENICS
CORPORATION®

NOTES TO FINANCIAL
STATEMENTS - CONTINUED OCTOBER 3, 2004 (Unaudited)

Fair value was calculated on the
grant dates using the Black-Scholes options-pricing model with the following assumptions
for options issued during the nine months ended October 3, 2004 and the nine months ended
October 5, 2003. No options were issued during the three months ended October 3, 2004 and
the three months ended October 5, 2003.

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NOTE F  RETIREMENT
OBLIGATIONS

In September 2001, the FASB issued
Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations, which was effective for the Companys 2003 fiscal year. Under
Statement 143, a future retirement obligation relating to future decommissioning costs of
the Companys equipment and buildings is recorded at present value by discounting the
Companys estimated future asset retirement obligation using the Companys
estimated credit-adjusted borrowing rate. The offset to the liability is capitalized as
part of the carrying amount of the related long-lived asset. The asset retirement
obligation (ARO) has been recorded in the accompanying balance sheet and will be adjusted
to fair value over the estimated useful lives of the assets as an accretion expense.

At January 1, 2003 the Company
adopted Statement 143 and recognized an initial ARO of approximately $478,000 and net
capitalized costs of $126,000. The impact of adopting the Statement was recognized as a
cumulative effect of change in accounting principle in the amount of $353,000 ($222,000
after income taxes). For the three and nine months ended October 3, 2004, the Company
recognized an increase in the ARO of approximately $9,000 and $28,000, respectively,
representing the accretion expense and approximately $8,000 and $23,000, respectively, in
amortization expense related to the capitalized cost. For the three and nine months ended
October 5, 2003, the Company recognized an increase in the ARO of approximately $9,000 and
$23,000, respectively, representing the accretion expense and approximately $10,000 and
$22,000, respectively, in amortization expense related to the capitalized cost.

NOTE G  NEW
ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued FASB
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities
and amended it by issuing FIN 46R in December 2003. Among other things, FIN 46R generally
deferred the effective date of FIN 46 for variable interest entities (VIEs) to the quarter
ended March 31, 2004. In general, a VIE is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity

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THERAGENICS
CORPORATION®

NOTES TO FINANCIAL
STATEMENTS - CONTINUED OCTOBER 3, 2004 (Unaudited)

investors with voting rights or (b)
has equity investors that do not provide sufficient financial resources for the entity to
support its activities. FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the investors do not have the
characteristics of a controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional subordinated financial
support from other parties. The adoption of FIN 46 did not have any impact on the
Companys financial statements since the Company currently has no variable interest
entities.

In December 2003, the SEC issued
Staff Accounting Bulletin No. 104 (SAB 104), Revenue
Recognition, which supersedes Staff Accounting Bulletin No. 101 (SAB
101), Revenue Recognition in Financial Statements. The primary purpose
of SAB 104 is to rescind accounting guidance contained in SAB 101 related to multiple
element revenue arrangements, which was superseded as a result of the issuance of Emerging
Issues Task Force 00-21 (EITF 00-21), Accounting for Revenue
Arrangements with Multiple Deliverables. SAB 104 also incorporated certain sections
of the SECs Revenue Recognition in Financial StatementsFrequently Asked
Questions and Answers document. While the wording of SAB 104 has changed to reflect
the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely
unchanged by the issuance of SAB 104. Management believes that the Companys revenue
recognition policy is in compliance with SAB 104.

NOTE H  REVENUE
RECOGNITION

Product sales represent orders for
the TheraSeed® and I-Seed devices and radiochemical products. The implantable
radiation devices produced according to patient and procedure requirements are sold to
third-party distributors, as well as to direct customers. Radiochemical products,
typically used in medical nuclear imaging procedures, are sold to direct customers. All
revenues from product sales are recognized upon shipment and are generally not returnable.
Licensing fees are recognized in the periods to which they relate.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Theragenics Corporation® is the
manufacturer of TheraSeed®, a rice-sized, FDA-cleared device used to treat solid
localized tumors, primarily prostate cancer, with a one-time, minimally invasive
procedure. 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 TheraSeed® device has also been
approved for marketing throughout the member countries of the European Union by obtaining
its CE Mark. Sales of the TheraSeed® device in Europe have not been significant.
The majority of sales are channeled through two third-party distributors. The Company also
sells its TheraSeed® devices directly to physicians.

Early in 2003 the Company diversified
its product line with the purchase of the U.S. iodine-125 prostate brachytherapy business
of BEBIG Isotopen-und Medizintechnik GmbH (BEBIG), formerly distributed by Isotope
Products Laboratories (both subsidiaries of a publicly traded German company, Eckert &
Ziegler AG). The purchase gives Theragenics exclusive U.S. manufacturing and
distribution rights to an FDA-cleared iodine-125-based medical device for the treatment of
prostate cancer. Theragenics began distribution of the iodine-125-based medical
device early in 2003, and subsequently began to produce I-Seed (the Theragenics
iodine-125-based medical device) early in 2004, utilizing the automated production
equipment procured in the business acquisition. The Company sells the I-Seed device
directly to physicians, hospitals and other healthcare providers. The non-exclusive
distributors of the TheraSeed® device have no distribution rights for the I-Seed
device. Non-exclusive rights to distribute the TheraSeed® device in Europe were
granted to BEBIG as part of the transaction. The Company believes that the ability to
provide both TheraSeed® and I-Seed devices enhances the Companys ability to
market to direct customers who seek a single source for both palladium-103 and iodine-125
brachytherapy seeds. The product line and equipment purchase will not affect the
Companys existing non-exclusive distribution agreements for the TheraSeed®
device.

The U.S. Department of Energy (DOE)
has granted Theragenics access to unique DOE technology, known as the PSP, for use
in production of isotopes, including palladium-102 (the PSP Operation). The
Company has constructed a facility in Oak Ridge, Tennessee to house the equipment,
infrastructure and work force necessary to support the production of isotopes, including
palladium-102, using this DOE technology. The building and the PSP became operational
during the latter half of 2002. The Company also has access to and has made investments in
other unique DOE resources. Additional equipment in the amount of $1.7 million, which is
physically located within DOE facilities in Oak Ridge, has not yet been placed in service
and is recorded as construction-in-progress on the accompanying balance sheets. Due to
delays by the DOEs primary contractor in Oak Ridge, the Company currently
anticipates that this additional equipment will become operational during the first half
of 2005. As a result of the sensitive nature of the PSP equipment and other unique DOE
resources and facilities, the specialized technology involved and the restrictions on
access to unique DOE-operated facilities, the Company has contracted with the DOEs
primary contractor for its Oak Ridge facilities to handle certain technical and
operational services that are critical to the operation, including designing and
fabricating new parts and modifications to the equipment and DOE facilities, operating and
providing ongoing access to DOE facilities, and providing access to other DOE resources.
The success of the PSP Operation is, in part, dependent on the continued cooperation of
the DOE and its primary contractor, which could be adversely affected by future changes in
governmental program priorities and funding. If there are problems with the operation or
modification of the DOE-operated facilities, problems with access to other DOE resources,
or if unforeseen challenges arise, the PSP Operation may not be successful or the costs or
availability associated with the PSP Operation could be adversely affected. Additionally,
as a result of the sensitive nature of the PSP equipment and the specialized technology
involved, the DOE is able to terminate the Companys access in the event of national
emergency or in the interest of national defense, or require the Company to perform
programmatic work involving use of the technology for the DOE in connection with carrying
out its governmental mission. The Company would be entitled to compensation in the event
of termination in connection with national emergency or defense or for programmatic use of
the technology for the DOE. Use of the PSP by Theragenics is also subject to
classification and export control restrictions imposed by the DOE and the U.S. government.

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In connection with the Companys
ongoing program targeted at diversifying its future revenue stream, the Company continues
to explore new applications for PSP technology. Among other things, the PSP technology
enables the Company to conduct feasibility runs designed to validate isotope usage in
various diverse industries and potential markets. In the first quarter of 2004 the
Companys Oak Ridge operations began to enrich palladium-102, which can be activated
in a nuclear reactor to produce palladium-103. The enriched palladium-102, along with
access to specialized reactor and related capabilities, can supply the palladium-103
radioisotope to support TheraSeed® production, if necessary. In addition, the
production of palladium-102 allows the Company to study the PSP and the interaction with
palladium-102 in order to calibrate the PSP and determine predictable yields generated by
the PSP. The initial production runs at the Oak Ridge facility did not deliver the
palladium-102 yields the Company had anticipated. During the third quarter of 2004,
production of palladium-102 continued with improved results in the yields produced. The Company completed production
of palladium-102 at the Oak Ridge facility during October 2004. The Company sold the excess
palladium metal remaining after the production of palladium-102 for approximately $431,000 in November
2004, which will reduce the carrying value of inventory by this amount. As a result of the
cessation of production of palladium-102 at the Oak Ridge facility, in the fourth quarter
of 2004 the company will cease capitalization of substantially all of the palladium-102 production costs.

The Companys diversification
program includes the clinical trial that utilizes a palladium-103 device, called the
TheraSource® Intravascular Brachytherapy System, designed to prevent restenosis or
renarrowing of arteries following treatment of peripheral vascular disease by percutaneous
transluminal angioplasty. Following the approval of the Investigational Device Exemption
granted by the U. S. Food and Drug Administration (FDA) in August 2002 to initiate the
TheraP clinical trial, Theragenics began a clinical trial using a palladium-103
device (patent pending) early in 2003. Theragenics closed enrollment in the TheraP
trial early in the second quarter of 2004 at 20 patients. Seventeen patients have
progressed to the six-month endpoint, one patient is yet to reach the six-month end-point,
and two patients have elected to discontinue follow-up in the trial. None of the twenty
patients enrolled has experienced a device-related adverse event. The Company is currently
assessing the results of the trial to determine the most appropriate course of action
going forward.

Additionally, an animal pilot study
using palladium-103 in a prototype device designed for the treatment of exudative (wet)
age-related macular degeneration (AMD), a disease that leads to loss of eyesight and in
some cases complete blindness, was completed early in 2002. During the second quarter of
2004, the Company filed an Investigational Device Exemption (IDE) with the FDA to begin a
human clinical trial for the TheraSight device. On July 29, 2004 the Company
received IDE approval granted by the FDA to initiate a human trial to test the safety and
feasibility of the TheraSight device. The Company has patents pending on the
TheraSight device and is currently enrolling patients in the clinical trial. The
Company plans to run the trial at six separate clinical sites and will treat approximately
30 patients. The first patient was treated in the TheraSight Trial at Emory Eye
Center in Atlanta, Georgia during the week of October 18, 2004. The Company continues to
be mindful of the emerging potential competition in this market. Research and development
expenditures are likely to continue as these initiatives are pursued.

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The Company has also identified
potential opportunities, utilizing its cyclotrons, for production of radiochemical
products, which are typically used in medical nuclear imaging procedures. During the
second quarter of 2004, the Company began regular shipments of one radiochemical to a
single customer. The revenue recognized during the three and nine months ended October 3,
2004 was not material. The Company has submitted a Drug Master File for this product with
the FDA, which will potentially allow access to a wider range of customers. The Company
also continues to assess the markets for other radiochemicals it is able to produce using
the existing cyclotrons. These developments could, if pursued, increase research and
development expenses. Radiochemical product sales are not expected to have a material
impact on revenue during 2004.

During the fourth quarter of 2003,
the DOE named the Company as a participant in a project that would involve the production
of medical isotopes from Cold War nuclear legacy material. The contract was awarded to
Isotek Systems LLC (Isotek) and calls for Isotek to extract thorium-229 from defense
legacy material during the down blending process. Theragenics proposed role
would have been to extract from the thorium the isotope actinium-225 and
actinium-225s daughter product, bismuth-213, which might be used in potential
medical applications and cancer research, such as the treatment of acute myologenous
leukemia. After careful consideration and analysis the Company concluded that this project
did not justify further participation and the Company exercised its right not to
participate. The Companys decision not to participate in this particular project
does not affect the right to participate in other similar future opportunities.

The Company is also searching for,
reviewing and evaluating external opportunities for diversification in the form of joint
ventures, partnerships, and/or acquisitions of technologies, products and companies.

Results of Operations

Revenues for the three months ended
October 3, 2004 were $8.3 million, compared to $8.5 million for the three months ended
October 5, 2003, a decrease of $0.2 million, or 2.8%. Revenues for the nine months ended
October 3, 2004 were $24.9 million, compared to $28.6 million for the nine months ended
October 5, 2003, a decrease of $3.7 million, or 12.9%. The decline in revenue during 2004
was primarily due to a 2.8% and a 14.2% decrease in unit sales of the TheraSeed®
device during the three and nine months ended October 3, 2004, respectively, compared to
the corresponding periods of 2003, partially offset by $174,000 and $631,000 of revenue
recognized in the three and nine months ended October 3, 2004, respectively, for certain
ancillary services to one distributor. The Company currently expects these ancillary
services to generate approximately $150,000 of revenue during the fourth quarter of 2004.
The average selling price of the TheraSeed® device was consistent during 2004 as
compared to the same periods of 2003. During the three and nine months ended October 3,
2004, Theragenics sold approximately 18.1% and 16.7%, respectively, of unit sales
directly to customers. During the three and nine months ended October 5, 2003,
Theragenics sold approximately 18.5% and 16.6%, respectively, of unit sales directly
to customers. Total revenues from sales of the Companys palladium-103
(TheraSeed®) device and iodine (I-Seed) device to direct customers were 20.3% and
18.8% during the three and nine months ended October 3, 2004, respectively, compared to
21.1% and 19.3% during the corresponding periods of 2003. Revenues from distributors,
including the $174,000 of revenue generated from ancillary services, decreased
approximately 1.4% during the three months ended October 3, 2004 compared to the three
months ended October 5, 2003. Revenues from distributors, including the $631,000 of
revenue generated from ancillary services, decreased approximately 12.5% during the nine
months ended October 3, 2004 compared to the nine months ended October 5, 2003.

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Currently, the Company has
non-exclusive distribution agreements in place with two companies for the distribution of
the TheraSeed® device, a reduction from the four in place at the beginning of 2003.
During 2003, one of the non-exclusive distributors of the TheraSeed® device acquired
two of the other three non-exclusive distributors of the TheraSeed® device. Comparing
this consolidated distributors unit sales during 2004 to the same three
distributors unit sales during 2003 shows a 10.3% increase for the three months
ended October 3, 2004 compared to the three months ended October 5, 2003 and a 6.9%
reduction for the nine months ended October 3, 2004 compared to the nine months ended
October 5, 2003. This distributor has exercised its option to extend its distribution
agreement with the Company through December 2006.

The domestic and international
distribution agreements with the other distributor allow each party the right to give
notice of non-renewal of the agreements at the end of December 2004, which would be
effective December 31, 2005. The Company is currently evaluating its relationship with
this distributor to determine whether to continue it thereafter. Sales to this distributor
for the three and nine months ended October 3, 2004 declined by 30% as compared to the
corresponding periods of 2003. Reduced sales to this distributor accounted for
approximately 62% of the reduction in the Companys total revenue for the nine months
ended October 3, 2004 compared to the corresponding period in 2003, although this
distributor accounted for only approximately 30% of total revenue during the first nine
months of 2003. The Company believes that sales through this distributor have been
adversely affected by the distributors efforts to market prostate cancer treatments
other than TheraSeed® or brachytherapy.

The Company and Oncura are currently
arbitrating claims arising in connection with the Companys non-exclusive
distribution agreement with Oncura. Oncura claims that the Company has not addressed
Oncuras concerns about pricing by renegotiating pricing in good faith. Oncura is
seeking a change in the pricing terms of the distribution agreement through the
arbitration proceeding, and has indicated that it will seek to recover a portion of
payments previously made. The Company filed a counterclaim against Oncura alleging that
Oncura breached its obligations under the distribution agreement concerning marketing
brachytherapy products and the use of the Companys trademarks. The arbitrators have
been appointed and the parties are conducting discovery. Management believes that
Oncuras claims are without merit and is opposing them vigorously. Management
believes the Company has meritorious counter-claims.

In addition to the impact of
disappointing performance by one of the two distributors of TheraSeed®, Management
believes that the brachytherapy industry continues to be affected by recent changes in
medicare reimbursement, declining prices for iodine-125 and palladium-103 seeds,
competitors selling tactics and the effects of consolidation in the industry. At any
point in time, Theragenics and/or its non-exclusive distributors may change their
respective pricing policies for the TheraSeed® or I-Seed (in the case of
Theragenics) device 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 the prices of the TheraSeed® or I-Seed device and
could have a favorable effect or prevent an unfavorable effect on market share and
volumes. Conversely, the Company and 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.

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Licensing fees revenue represents
licensing payments received for the Companys TheraSphere® technology. Such
licensing fees are not expected to become material in the foreseeable future.

Cost of sales was $3.3 million during
the three months ended October 3, 2004, resulting in a gross profit margin of 60.4%,
compared with cost of sales of $3.6 million and a gross profit margin of 57.6% during the
three months ended October 5, 2003. Cost of sales was $10.1 million during the nine months
ended October 3, 2004, resulting in a gross margin of 59.2%, compared with cost of sales
of $12.1 million and a gross margin of 57.6% during the nine months ended October 5, 2003.
The increased gross margin during 2004 was due primarily to the capitalization of costs
associated with the first production of palladium-102 material using the PSP technology at
the Companys Oak Ridge, Tennessee facility. Total production costs capitalized were
approximately $350,000 and $1.2 million during the three and nine months ended October 3,
2004, respectively. The total cost of the inventory, including the material and production
costs capitalized, is $1.8 million and is included in work-in-process inventory in the
accompanying October 3, 2004 balance sheet. The Company completed production
of palladium-102 at the Oak Ridge facility during October 2004. The Company sold the excess
palladium metal remaining after the production of palladium-102 for approximately $431,000 in November
2004, which will reduce the carrying value of inventory by this amount. As a result of the
cessation of production of palladium-102 at the Oak Ridge facility, in the fourth quarter
of 2004 the company will cease capitalization of substantially all of the palladium-102 production costs. The gross margin in
2004 was also favorably impacted by $174,000 and $631,000 of revenue from ancillary
services to a certain distributor during the three and nine months ended October 3, 2004,
respectively. Gross margin during 2004 was negatively impacted by the considerable fixed
cost component of Theragenics operations in combination with lower revenue
during the three and nine months ended October 3, 2004 compared to the corresponding
periods of 2003.

Selling, general and administrative
(SG&A) expense was $4.5 million during the three months ended October 3, 2004,
compared to $3.4 million during the three months ended October 5, 2003, an increase of
$1.1 million, or 31.1%. SG&A expense was $13.0 million during the nine months ended
October 3, 2004, compared to $10.0 million during the nine months ended October 5, 2003,
an increase of $3.0 million, or 29.7%. The increase in 2004 was primarily due to an
increase in professional fees for assistance in various key strategic initiatives, an
increase in marketing and advertising costs and an increase in salary and related expenses
due primarily to the expansion of the direct sales force.

Research and development (R&D)
expense increased to $2.7 million, or approximately 33.2% of revenue, during the three
months ended October 3, 2004, from $2.3 million, or approximately 27.6% of revenue, during
the three months ended October 5, 2003. R&D expense increased to $7.3 million, or
approximately 29.5% of revenue, during the nine months ended October 3, 2004, from $5.5
million, or approximately 19.1% of revenue, during the nine months ended October 5, 2003.
The increase in research and development expense during 2004 was primarily attributable to
an increase in costs to support the Companys peripheral vascular and macular
degeneration programs (see Overview above).

Management plans to continue efforts
in R&D as its initiatives to diversify move forward, and expects R&D expenditures
to be significant. Such expenditures in R&D may negatively affect results of
operations. However, R&D spending is dependent on the complex scheduling of R&D
activities in progress as well as the pursuit of other appropriate opportunities as they
arise. Accordingly, R&D expenses may fluctuate significantly from period to period.

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Other income, comprising interest
income and non-operating expenses, was $355,000 during the three months ended October 3,
2004 compared to $225,000 during the three months ended October 5, 2003. Other income was
$785,000 during the nine months ended October 3, 2004 compared to $678,000 during the nine
months ended October 5, 2003. The increases during 2004 are primarily the result of better
returns on the Companys investments as a result of higher interest rates in 2004 and
gains on sales of the Companys investments during 2004. 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, R&D activities, 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
other income to fluctuate accordingly.

The Companys effective income
tax rate was a benefit of 39.5% during the three months ended October 3, 2004 compared to
a benefit of 37.6% during the three months ended October 5, 2003. The Companys
effective income tax rate was a benefit of 37.3% during the nine months ended October 3,
2004 compared to an expense of 33.6% during the nine months ended October 5, 2003. The
Companys income tax rate in each period differed from statutory rates primarily due
to the recognition of tax credits generated by the Companys investments in its
expansion projects, research activities and tax-exempt interest income.

Critical Accounting
Policies

The financial statements of
Theragenics Corporation® are prepared in conformity with accounting principles
generally accepted in the United States of America. Management is required to make certain
estimates, judgments and assumptions that we believe are reasonable based upon the
information available. These estimates and assumptions affect the reported amounts of
assets and liabilities at the dates of the financial statements and the reported amounts
of revenues and expenses during the periods presented. The significant accounting policies
which we believe are the most critical to aid in fully understanding and evaluating our
reported financial results include the following:

Property, plant, equipment and
goodwill. 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
Company currently owns and operates 14 cyclotrons, the first of which entered service in
1993. 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.
Although the older cyclotrons require increased maintenance, all the cyclotrons remain in
service, including fully depreciated cyclotrons, because the material produced by each
machine is required for ongoing operations and the Companys current research and
development initiatives.

The PSP equipment was placed in
service during the second half of 2002 and is depreciated using an estimated fifteen-year
life. The PSP equipment utilizes specialized, unique technology.

Early in 2003 the Company entered
into an agreement to purchase the brachytherapy business of BEBIG Isotopen-und
Medizintechnik GmbH (BEBIG), a subsidiary company of Eckert & Ziegler AG. A total of
approximately $6.3 million was paid in connection with the acquisition and the payments
were allocated between the fair value of the assets in the amount of $3.7 million and $2.6
million to goodwill. The equipment became operational during the first quarter of 2004.
The Company has determined that the production line will be amortized over a fifteen-year
life.

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In accordance with Statement of
Financial Accounting Standards No. 142 (SFAS 142), Goodwill
and Other Intangible Assets, goodwill and intangible assets with indefinite lives
are annually evaluated for impairment. The Company will review the recoverability of the
carrying value of identified intangibles and other long-lived assets on an annual basis or
whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of these assets is determined based upon the
forecast of discounted future net cash flows from the operations to which the assets
relate, utilizing our best estimates, appropriate assumptions and projections at the time.
These projected future cash flows may vary significantly over time as a result of
increased competition, changes in technology, fluctuations in demand, consolidation of our
customers and reductions in average selling prices. If the carrying value is determined
not to be recoverable from future operating cash flows, the asset is deemed impaired and
an impairment loss is recognized to the extent the carrying value exceeds the estimated
fair market value of the asset. Intangible assets with definite lives are being amortized
and this amortization is included in the accompanying statements of operations.

Management will continue to
periodically examine estimates used for depreciation for reasonableness. If the Company
should determine that the useful life of property, plant or equipment should be shortened
or lengthened, depreciation expense would be adjusted accordingly for the remaining useful
life/(lives) of the identified asset/(s).

Allowance for doubtful accounts.
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
uncollectable. Accounts receivable are reduced by this allowance. Specifically, management
analyzes accounts receivable in relation to current economic trends and changes in our
customer payment history in establishing this allowance. The accounts receivable balance,
net of the provision for trade accounts receivables allowance of $177,000, was
approximately $5.8 million as of October 3, 2004.

Stock-based compensation. The Company
has granted performance restricted stock rights. The number of shares issuable upon
vesting of the performance restricted stock rights will vary based on total shareholder
return or TSR over the vesting period as compared to an industry peer group, as further
described in Note E of the Notes to Financial Statements above. Each quarter the Company
estimates TSR and records compensation expense based on TSR experienced to date. To the
extent that TSR varies significantly from period to period, the Company may record
additional compensation expense or adjust previously recorded compensation expense to
reflect the current estimate of TSR over the vesting period.

Liquidity and Capital
Resources

The Company had cash, short-term
investments and marketable securities of $62.3 million at October 3, 2004, compared to
$66.4 million at December 31, 2003. Cash and short-term investments were $24.9 million at
October 3, 2004 compared to $45.1 million at December 31, 2003. Marketable securities were
$37.4 million at October 3, 2004 compared to $21.3 million at December 31, 2003.
Marketable securities consist primarily of short-term cash investments and high-credit
quality corporate and municipal obligations, in accordance with the Companys
investment policies. The aggregate decrease in cash, short-term investments and marketable
securities was a result of cash used by operations and capital expenditures. Working
capital was $73.2 million at October 3, 2004, compared to $74.0 million at December 31,
2003. 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 with a three-year term. No borrowings were
outstanding under the Credit Agreement as of October 3, 2004. Letters of credit totaling
$933,000 were outstanding under the Credit Agreement as of October 3, 2004. These letters
of credit represent decommission funding required by the Georgia Department of Natural
Resources and a utility deposit to the City of Oak Ridge, Tennessee in connection with the
PSP facility.

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Cash used by operations was $793,000
during the nine months ended October 3, 2004 compared to cash provided by operations of
$4.6 million during the nine months ended October 5, 2003. Cash used by or generated from
operations consists of net earnings/(loss) plus non-cash expenses such as depreciation,
amortization, and changes in balance sheet items such as accounts receivable, inventories,
prepaid expenses and payables. Accounts receivable increased approximately $2.0 million
during the first nine months of 2004 as a result of increased revenue in the third quarter
of 2004 as compared to the fourth quarter of 2003 and the timing of payments received from
the Companys distributors. Inventories increased $1.6 million during the first nine
months of 2004 primarily as a result of the capitalization of costs associated with the
first production of palladium-102 material using the PSP technology at the Companys
Oak Ridge, Tennessee facility. Prepaid expenses and other current assets increased
$622,000 during the first nine months of 2004 primarily as a result of the tax benefit
generated from the loss from operations generated during the first nine months of 2004 as
well as prepayments required under the Companys advertising program, partially
offset by a refund of 2003 income taxes. Trade accounts payable increased $442,000 during
the first nine months of 2004 due primarily to liabilities related to the Companys
diversification efforts and advertising programs and the timing of payments for other
accounts payable partially offset by the payment of liabilities associated with the
Companys I-Seed acquisition during the first quarter of 2004. Other current
liabilities increased $436,000 during the first nine months of 2004 primarily as a result
of property tax liabilities which are due and payable during the fourth quarter of each
year.

Capital expenditures totaled $2.3
million and $1.2 million during the first nine months of 2004 and 2003, respectively. In
addition, the Company made payments of $1.0 million and $4.2 million during the first nine
months of 2004 and 2003, respectively, as part of the Companys purchase of the U. S.
iodine-125 prostate brachytherapy business of BEBIG (see Overview above). The
Company procured an automated production line as part of the agreement that became
operational during the first quarter of 2004. The $1.0 million payment during the first
quarter of 2004 was the last payment required under the agreement.

The Company expects that R&D
spending will continue at the current level during the remainder of 2004 (see
Results of Operations above). Cash could also be used in 2004 for increased
marketing and TheraSeed® support activities and in the pursuit of diversification
efforts such as the purchase of technologies, products or companies.

In addition to capital expenditures,
cash used for investing activities during the nine months ended October 3, 2004 included
$25.4 million used to purchase marketable securities, offset by maturities of other
investments amounting to $9.2 million. Marketable securities, consisting primarily of
short-term cash investments and high-credit quality corporate and municipal obligations,
are purchased in accordance with the Companys investment policies. The Company
expects to continue to invest cash as available.

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Cash provided by financing activities
was $88,000 and $491,000 in the first nine months of 2004 and 2003, respectively,
consisting of cash proceeds from the exercise of stock options and the Companys
Employee Stock Purchase Plan.

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.

Government Regulation

The Company is required under its
radioactive materials license to maintain radiation control and radiation safety
personnel, procedures, equipment and processes, and to monitor its facilities and its
employees and contractors. The Company is also required to provide financial assurance
that adequate funding will exist for end-of-life radiological decommissioning of its
cyclotrons and other radioactive areas of its property that contain radioactive materials.
The Company is also subject to federal, state and local regulations relating to the
discharge of materials into the environment generally. During 2003, the Company became
aware of the need for an Industrial Process Water Permit from the city of Buford, Georgia.
The Company has taken all the required steps to obtain this permit and expects to obtain
this permit, but has also requested a determination of non-applicability. The Company has
been authorized by the City to discharge industrial process water to the municipal sewage
system while the City considers its final decision.

Medicare Developments

Previously, Theragenics
TheraSeed® device and other brachytherapy seeds fell within various transitional
pass-through codes, which were separate from the procedure payment codes that
comprise much of Medicares Outpatient Prospective Payment System (OPPS). On April 1,
2002, the Centers for Medicare and Medicaid Services (CMS) implemented changes in hospital
payments for brachytherapy and other services provided under Medicares OPPS for the
remainder of 2002. Through December 31, 2002, CMS bundled a portion of pass-through
reimbursement for all brachytherapy seeds and other devices with the associated procedure
codes, thereby effectively sheltering seeds from pro rata reductions that
would otherwise have applied under Medicare Law. To the extent that these pass-through
device costs exceeded the bundled amount, the remaining cost was subject to a 63.6%
pro-rated reduction in reimbursement.

During 2003, CMS further revised its
policies by bundling the costs of the prostate brachytherapy procedure, as well as the
costs for catheters, needles and all seeds, into two new codes for prostate brachytherapy
(one for palladium-103 and one for iodine-125). By creating two codes and setting separate
reimbursement amounts for palladium-103 seed brachytherapy (including the TheraSeed®
device) and iodine-125 seed brachytherapy (including the I-Seed device), CMS made an
important, positive change in its final rule for 2003 compared to its initial proposal
published on August 9, 2002. Specifically, the per-patient reimbursement amount under
the 2003 final rule for palladium-103 prostate brachytherapy exceeded the original payment
amount proposed in August 2002 for both palladium-103 and iodine-125. The final 2003
per-patient amount for palladium-103 prostate brachytherapy also exceeded the 2003 payment
amount for iodine-125 prostate brachytherapy. To the extent that the brachytherapy costs
for an individual patient exceeded the bundled payment amount during 2003, the remaining
costs could not be submitted for additional reimbursement.

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On December 8, 2003, the President
signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 into law
that provides for improved reimbursement and coding policies in 2004 and beyond for
brachytherapy seeds/sources under Medicares OPPS. To reflect the changes in the
statute, CMS revised its November 7, 2003 final rule by publishing a new interim final
rule for 2004 on January 6, 2004.

The brachytherapy provisions in the
2003 Medicare legislation, which went into effect on January 1, 2004, require Medicare to
unbundle the cost of the seeds from the costs of the brachytherapy procedure, catheters
and needles under the OPPS. More specifically, the 2003 Medicare legislation requires
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). This means that hospital reimbursement is no longer limited to or
dictated by the reimbursement amounts assigned to the brachytherapy codes, which CMS used
in 2003.

With respect to coding, the
legislation requires the Medicare program to create and use coding that classifies
brachytherapy seeds/sources separately from all the other services and items reimbursed
under the OPPS. These separate codes for brachytherapy seeds/sources must be used in a
manner that reflects the type of radioactive isotope (for example, palladium-103), the
radioactive intensity and the number of brachytherapy seeds/sources used to treat each
patient.

Depending on the number of seeds
needed to treat each prostate cancer patient, the total reimbursement (for the combination
of the unbundled procedure codes and seeds) for the payment methodology in place until at
least December 31, 2006 may be higher than the 2003 bundled payment amounts. The
legislation enacted in 2003 also directs the U.S. General Accounting Office (GAO) to
conduct a study examining future payment policies for brachytherapy seeds.

The Company believes its efforts in
assisting policymakers in formulating and revising Medicare policies to recognize the
unique aspects of classification and reimbursement that apply to brachytherapy devices
such as TheraSeed® were pivotal to the enactment of the improved 2003 Medicare
legislation for brachytherapy seeds/sources. The Company plans to continue working to
assist policymakers regarding these important issues in the future.

The Company believes that the
significant number of proposed and actual changes in Medicare coding and reimbursement
policy in the years preceding and during 2003, created confusion for hospitals and
doctors, which may have had a detrimental impact on sales in 2003 and during the first
nine months of 2004 (see Results of Operations above). In addition, due to the
fact that the Medicare rules governing coding of brachytherapy seeds/sources have
undergone significant change during the past few years, the Company believes that Medicare
reimbursement may continue to create confusion for hospitals and doctors going forward. In
that regard, management continues to closely monitor any effects of the reimbursement
structure on the brachytherapy market as it continues to evaluate pricing, marketing and
distribution strategies. The Company continues to engage a consulting firm specializing in
reimbursement practices to help communicate brachytherapy reimbursement guidelines to
customers.

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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, 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, future cost of sales, R&D efforts and expenses,
inventory investment, SG&A expenses, other income, timing and ultimate outcome of the
Companys activities in peripheral vascular and macular degeneration programs and
other diversification efforts, potential new products and opportunities, the PSP-related
operations, the development of new markets and technologies, the capabilities of the PSP
to produce enriched isotopes, opportunities for isotopes produced by Theragenics,
including, but not limited to, radiochemical products, the identification and development
of new markets and applications for isotopes, Theragenics plans and strategies
for 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 research and
development activities, including animal studies and clinical trials related to new
products, risks associated with new product development cycles, effectiveness and
execution of marketing and sales programs of Theragenics and its non-exclusive
distributors, risks associated with customer distribution concentration and consolidation
among non-exclusive distributors and potential changes in distributor relationships,
potential costs and delays in capacity expansion and start-up, potential costs and delays
in PSP-related operations, effect of palladium-103 demand on cyclotron and PSP capacity
and investment in inventory, the iodine-125 product line, actual or potential changes in
product pricing, competitive conditions and selling tactics of the Companys
competitors, continued acceptance of TheraSeed® or the I-Seed devices by the market,
management of growth, acceptance and efficacy of palladium-103 for other applications,
adverse changes in governmental program priorities and budgetary funding by the relevant
governmental authorities, continuing access to unique DOE technology, the DOEs
ability to require the Company to use DOE technology for governmental purposes or
terminate the Companys use in the event of a national emergency or for national
defense, government regulation of the therapeutic radiological pharmaceutical and device
business, potential changes in third-party reimbursement, risks associated with market
development activities, potential inability of the PSP to produce isotopes suited for a
particular application, potential inability to produce selected isotopes at costs
competitive to other options or potential inability to produce selected isotopes at costs
to make applications economically feasible, risks associated with governmental regulations
and related export controls and security requirements for PSP technology and products. All
forward looking statements and cautionary statements included in this document are made as
of the date hereby 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. Letters
of credit totaling approximately $933,000 were outstanding under the terms of the Credit
Agreement as of October 3, 2004. No borrowings were outstanding under the Credit Agreement
as of October 3, 2004.

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Item 4.    Controls and
Procedures

The Companys President and
Chief Executive Officer and its Chief Financial Officer are responsible for establishing
and maintaining disclosure controls and procedures as defined in the rules promulgated
under the Securities Exchange Act of 1934, as amended. Based upon the evaluation of the
Companys disclosure controls and procedures as of October 3, 2004, the
Companys Chief Executive Officer and President and its Chief Financial Officer have
concluded that the Companys disclosure controls and procedures were effective as of
October 3, 2004. No changes in the Companys internal controls over financial
reporting were identified as having occurred in the fiscal quarter ending October 3, 2004
that have materially affected, or are reasonably likely to materially affect, the
Companys internal controls over financial reporting.

The Company has retained a third
party, independent consultant to assist management in the documentation and evaluation of
its internal controls over financial reporting in preparation for the management
assessment of internal controls required by Section 404 of the Sarbanes-Oxley Act of 2002
for the fiscal year ended December 31, 2004. The consultant made several recommendations
to strengthen existing internal controls and to implement additional controls, which the
Company is in the process of implementing.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

See Note D to the Companys
financial statements included in Part I, Item 1 of this report, which is hereby
incorporated by reference.

Item 6.  Exhibits

|            |                                                                                                                                                                            
|----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. | Title                                                                                                                                                                      
|31.1        | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                        
|31.2        | Certification of Chief Financial Officer pursuant to 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.

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SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

| |                                                                      
| | ---------------------------------------------------------------------
| | REGISTRANT:                                                          
| | THERAGENICS CORPORATION                                              
| |                                                                      
| | /s/ M. Christine Jacobs  M. Christine Jacobs  Chief Executive Officer

| |                                                                    
| | -------------------------------------------------------------------
| | /s/ James A. MacLennan  James A. MacLennan  Chief Financial Officer

Dated: November 4, 2004

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