**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 2, 2005
 or
 
 ( 
         )      TRANSITION REPORT PURSUANT TO SECTION 13
        OR 15(d) OF THE
 SECURITIES
        EXCHANGE ACT OF 1934
 
 For
        the
        transition period from __________ to __________
  Commission
        File No. 0-15443
 
 
 **THERAGENICS
        CORPORATION** **®**
 (Exact
        name of registrant as specified in its charter)
 
 
  Delaware
              58-1528626(State
                  or other jurisdiction of
              (I.R.S.
                  Employerincorporation
                  or organization)
              Identification
                  Number)
 
  5203
                  Bristol Industrial WayBuford,
                  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 such filing requirements
        for
        the past 90 days. YES   x NO    o
 
 Indicate
        by check mark whether the registrant is an accelerated filer (as defined
        in Rule
        12b-2 of the Exchange Act). YES   x NO  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 October 31, 2005
        the number of shares of $0.01 par value common stock outstanding was
        31,959,161.
 
 Table
            of Contents







THERAGENICS
      CORPORATION ®





TABLEOF
      CONTENTS













Page
                    No.PART
                    I.
                FINANCIAL
                    INFORMATION
                3ITEM
                    1.
                FINANCIAL
                    STATEMENTS (UNAUDITED)
                3Consolidated
                    Balance Sheets - October 2, 2005 and December 31, 2004
                3Consolidated
                    Statements of Operations for the three and nine
                    months ended October 2, 2005 and October 3, 2004
                5Consolidated
                    Statements of Cash Flows for the nine
                    months ended October 2, 2005 and October 3, 2004
                6Consolidated
                    Statement of Shareholders’ Equity for the nine
                    months ended October 2, 2005
                7Notes
                    to Consolidated Financial
                    Statements
                8ITEM
                    2.
                MANAGEMENT’S
                    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS
                19ITEM
                    3.
                QUANTITATIVE
                    AND QUALITATIVE DISCLOSURES ABOUT MARKET
                    RISK
                30ITEM
                    4.
                CONTROLS
                    AND PROCEDURES
                30PART
                    II.
                OTHER
                    INFORMATION
                31ITEM
                    1.
                LEGAL
                    PROCEEDINGS
                31ITEM
                    6.
                EXHIBITS
                31SIGNATURES
                32













Table
          of Contents








**PART
                I. FINANCIALINFORMATION**
              
              **Item
                1.****FinancialStatements
                (Unaudited)**
              
              **THERAGENICS
                CORPORATION****®****AND SUBSIDIARY****CONSOLIDATED
                BALANCESHEETS****(Amounts
                in thousands, except per share data)**ASSETSOctober
                2,
              2005
              (unaudited)
            
            December
                  31,2004CURRENT
                ASSETSCash
                and short-term investments
            
            $
            9,125
            
            $
            26,150Marketable
                securities
            
            
            34,814
            
            
            36,111Trade
                accounts receivable, less allowance of $481 in 2005 and $177 in
                2004
            
            
            7,480
            
            
            5,787Inventories
            
            
            4,953
            
            
            2,996Deferred
                income tax asset
            
            
            -
            
            
            410Assets
                held for sale
            
            
            3,433
            
            
            -Prepaid
                expenses and other current assets
            
            
            3,898
            
            
            4,221TOTAL
                CURRENT ASSETS
            
            
            63,703
            
            
            75,675PROPERTY
                AND EQUIPMENTBuildings
                and improvements
            
            
            21,793
            
            
            43,618Machinery
                and equipment
            
            
            35,041
            
            
            61,560Office
                furniture and equipment
            
            
            699
            
            
            81057,533
            
            
            105,988Less
                  accumulated depreciation andamortization
            
            
            (24,955
            )
            
            (41,226
            )32,578
            
            
            64,762Land
            
            
            822
            
            
            822Construction
                in progress
            
            
            226
            
            
            4,631TOTAL
                PROPERTY AND EQUIPMENT
            
            
            33,626
            
            
            70,215Goodwill
            
            
            17,728
            
            
            2,578Other
                intangible assets, net
            
            
            6,653
            
            
            124Other
                assets
            
            
            65
            
            
            86TOTAL
                ASSETS
            
            $
            121,775
            
            $
            148,678





-3-
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**THERAGENICS
                CORPORATION****®****AND SUBSIDIARY****CONSOLIDATED
                BALANCE SHEETS - Continued****(Amounts
                in thousands, except per share data)**LIABILITIES
                & SHAREHOLDERS’ EQUITYOctober
                2,
              2005
              (unaudited)
            
            December
                  31,2004CURRENT
                LIABILITIESTrade
                accounts payable
            
            $
            1,851
            
            $
            1,871Accrued
                salaries, wages and payroll taxes
            
            
            1,194
            
            
            608Other
                current liabilities
            
            
            727
            
            
            607TOTAL
                CURRENT LIABILITIES
            
            
            3,772
            
            
            3,086LONG-TERM
                LIABILITIESDeferred
                income taxes
            
            
            -
            
            
            6,920Asset
                retirement obligation
            
            
            665
            
            
            549Other
                liabilities
            
            
            1,565
            
            
            63TOTAL
                LONG-TERM LIABILITIES
            
            
            2,230
            
            
            7,532SHAREHOLDERS’
                EQUITYCommon
                stock, $0.01 par value, 100,000shares
                authorized; issued and outstanding,31,959
                in 2005 and 29,989 in 2004
            
            
            320
            
            
            300Additional
                paid-in capital
            
            
            68,575
            
            
            61,987Deferred
                compensation
            
            
            (106
            )
            
            (23
            )Retained
                earnings
            
            
            47,160
            
            
            75,930Accumulated
                other comprehensive loss
            
            
            (176
            )
            
            (134
            )TOTAL
                SHAREHOLDERS' EQUITY
            
            
            115,773
            
            
            138,060TOTAL
                LIABILITIES ANDSHAREHOLDERS'
                EQUITY
            
            $
            121,775
            
            $
            148,678The
                accompanying notes are an integral part of these
                statements.








-4-
 Table
          of Contents




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




Three
                    Months Ended
                
                Nine
                    Months EndedOctober
                    2,
                
                October
                    3,
                
                October
                    2,
                
                October
                    3,2005
                
                2004
                
                2005
                
                2004REVENUEProduct
                    sales
                
                $
                11,845
                
                $
                8,196
                
                $
                32,489
                
                $
                24,654Licensing
                    fees
                
                
                157
                
                
                87
                
                
                424
                
                
                22812,002
                
                
                8,283
                
                
                32,913
                
                
                24,882COST
                    OF SALES
                
                
                6,833
                
                
                3,282
                
                
                17,871
                
                
                10,147GROSS
                    PROFIT
                
                
                5,169
                
                
                5,001
                
                
                15,042
                
                
                14,735OPERATING
                    EXPENSESSelling,
                    general & administrative
                
                
                4,414
                
                
                4,463
                
                
                14,828
                
                
                13,004Research
                    & development
                
                
                823
                
                
                2,749
                
                
                3,374
                
                
                7,335Restructuring
                    expenses
                
                
                32,915
                
                
                -
                
                
                32,915
                
                
                -38,152
                
                
                7,212
                
                
                51,117
                
                
                20,339LOSS
                    FROM OPERATIONS
                
                
                (32,983
                )
                
                (2,211
                )
                
                (36,075
                )
                
                (5,604
                )OTHER
                    INCOME/(EXPENSE)Interest
                    income
                
                
                326
                
                
                322
                
                
                1,049
                
                
                847Interest
                    and financing costs
                
                
                (44
                )
                
                (42
                )
                
                (144
                )
                
                (132
                )Other
                
                
                6
                
                
                75
                
                
                6
                
                
                70288
                
                
                355
                
                
                911
                
                
                785Loss
                    before income tax
                
                
                (32,695
                )
                
                (1,856
                )
                
                (35,164
                )
                
                (4,819
                )Income
                    tax benefit
                
                
                (5,457
                )
                
                (734
                )
                
                (6,394
                )
                
                (1,797
                )NET
                    LOSS
                
                $
                (27,238
                )
                $
                (1,122
                )
                $
                (28,770
                )
                $
                (3,022
                )NET
                    LOSS PER COMMON SHARE:Basic
                
                $
                (0.85
                )
                $
                (0.04
                )
                $
                (0.93
                )
                $
                (0.10
                )Diluted
                
                $
                (0.85
                )
                $
                (0.04
                )
                $
                (0.93
                )
                $
                (0.10
                )WEIGHTED
                    AVERAGE SHARESBasic
                
                
                31,915
                
                
                29,974
                
                
                31,024
                
                
                29,967Diluted
                
                
                31,915
                
                
                29,974
                
                
                31,024
                
                
                29,967Comprehensive
                    loss:Net
                    loss
                
                $
                (27,238
                )
                $
                (1,122
                )
                $
                (28,770
                )
                $
                (3,022
                )Other
                    comprehensive income/(loss):
                  Unrealized
                    gain/(loss) on securities available for sale, net of taxes
                
                
                (64
                )
                
                44
                
                
                (42
                )
                
                (111
                )Total
                    comprehensive loss
                
                $
                (27,302
                )
                $
                (1,078
                )
                $
                (28,812
                )
                $
                (3,133
                )
  The
                    accompanying notes are an integral part of these
                    statements.





-5-
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          of Contents





**THERAGENICSCORPORATION** **®** **AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**
 **(Amounts
        in thousands)**





Nine
                  Months EndedOctober
                  2,
                2005
              
              
              October
                  3,
                2004CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  Loss
              
              $
              (28,770
              )
              $
              (3,022
              )Adjustments
                  to reconcile net loss to net cash
                provided
                  by/(used by) operating activities:Deferred
                  income taxes
              
              
              (6,510
              )
              
              52Non-cash
                  restructuring expenses
              
              
              32,041
              
              
              -Depreciation
                  & amortization
              
              
              5,487
              
              
              5,209Provision
                  for allowances
              
              
              279
              
              
              56Stock
                  based compensation
              
              
              163
              
              
              37Deferred
                  rent
              
              
              7
              
              
              (2
              )Loss
                  on disposal of equipment
              
              
              -
              
              
              6Changes
                  in assets and liabilities:Accounts
                  receivable
              
              
              (465
              )
              
              (2,000
              )Inventories
              
              
              (41
              )
              
              (1,563
              )Prepaid
                  expenses and other current assets
              
              
              349
              
              
              (622
              )Other
                  assets
              
              
              -
              
              
              58Trade
                  accounts payable
              
              
              (638
              )
              
              442Accrued
                  salaries, wages and payroll taxes
              
              
              514
              
              
              120Other
                  current liabilities
              
              
              (2
              )
              
              436Net
                  cash provided by/(used by) operating activities
              
              
              2,414
              
              
              (793
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESPurchases
                  and construction of property and equipment
              
              
              (338
              )
              
              (2,287
              )Acquisition
                  of CP Medical Corporation, net of cash acquired
              
              
              (20,468
              )
              
              -Acquisition
                  of I-Seed product line
              
              
              -
              
              
              (1,000
              )Purchases
                  of marketable securities
              
              
              (13,701
              )
              
              (28,546
              )Maturities
                  of marketable securities
              
              
              14,956
              
              
              9,248Net
                  cash used by investing activities
              
              
              (19,551
              )
              
              (22,585
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESExercise
                  of stock options and stock purchase plan
              
              
              112
              
              
              88Net
                  cash provided by financing activities
              
              
              112
              
              
              88NET
                  DECREASE IN CASH AND SHORT-TERM INVESTMENTS
              
              
              (17,025
              )
              
              (23,290
              )CASH
                  AND SHORT-TERM INVESTMENTS
                AT
                  BEGINNING OF PERIOD
              
              
              26,150
              
              
              45,104CASH
                  AND SHORT-TERM INVESTMENTS
                AT
                  END OF PERIOD
              
              $
              9,125
              
              $
              21,814Supplemental
                  disclosures:Non-cash
                  investing activities:Common
                  stock issued in acquisition of CP Medical Corporation
              
              $
              6,250
              
              $
              -


The
                  accompanying notes are an integral part of these
                  statements.


-6-
 Table
          of Contents








**THERAGENICS
                CORPORATION****®****AND SUBSIDIARY****CONSOLIDATEDSTATEMENT
                OF SHAREHOLDERS'
                EQUITY****FOR
                THE NINE MONTHS ENDED OCTOBER 2, 2005****(UNAUDITED)**
              **(Amounts
                in thousands, except per share
                data)**





AccumulatedCommon
                Stock
            
            Additional
            
            
            
            
            
            OtherNumber
                of
            
            Par
                value
            
            Paid-in
            
            Deferred
            
            Retained
            
            ComprehensiveShares
            
            $0.01
            
            Capital
            
            Compensation
            
            Earnings
            
            Loss
            
            TotalBALANCE,
                December 31, 2004
            
            
            29,989
            
            $
            300
            
            $
            61,987
            
            $
            (23
            )
            $
            75,930
            
            $
            (134
            )
            $
            138,060Exercise
                of stock options
            
            
            26
            
            
            
            
            
            42
            
            
            
            
            
            
            
            
            
            
            
            42Employee
                stock purchase plan
            
            
            24
            
            
            1
            
            
            69
            
            
            
            
            
            
            
            
            
            
            
            70Issuance
                of common stock foracquisition
                of CP Medical
            
            
            1,885
            
            
            19
            
            
            6,231
            
            
            
            
            
            
            
            
            
            
            
            6,250Stock
                based compensationshares
                issued (See Note F)
            
            
            35
            
            
            
            
            
            120
            
            
            (120
            )
            
            
            
            
            
            
            
            -Amortization
                of stock basedcompensation
                (See Note F)
            
            
            
            
            
            
            
            
            126
            
            
            37
            
            
            
            
            
            
            
            
            163Unrealized
                loss on securitiesavailable
                for sale, net of taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (42
            )
            
            (42
            )Net
                loss for the period
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (28,770
            )
            
            
            
            
            (28,770
            )BALANCE,
                October 2, 2005
            
            
            31,959
            
            $
            320
            
            $
            68,575
            
            $
            (106
            )
            $
            47,160
            
            $
            (176
            )
            $
            115,773The
                accompanying notes are an integral part of these
                statements.








-7-
 Table
          of Contents
 **THERAGENICS
            CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **October
          2, 2005**
 **(Unaudited)**








**NOTEA
      - BASIS OF PRESENTATION AND DESCRIPTION OF
      BUSINESS**





The
      unaudited interim consolidated financial statements included herein reflect
      the
      consolidated operations of the Company and all of its wholly-owned subsidiaries.
      All 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. 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, 2004,
      included in the Form 10-K filed by the Company. The consolidated results of
      operations for the nine months ended October 2, 2005 are not necessarily
      indicative of the results to be expected for a full year.





Theragenics
      Corporation is a medical device company serving the cancer treatment and
      surgical markets, including TheraSeed®, a palladium-103 prostate cancer
      treatment device, and wound closure and other medical products through its
      CP
      Medical subsidiary. CP Medical products serve markets including cardiology,
      orthopedic, dental, plastic surgery, veterinary, and brachytherapy, among
      others. Theragenics also manufactures and distributes I-Seed, an iodine-125
      based prostate cancer treatment device.








**NOTE
      B - DISTRIBUTION AGREEMENTS**





The
      Company sells its TheraSeed ® device
      directly to health care providers and to a third party distributor, and sells
      its I-Seed device directly to health care providers. Currently, the Company
      has
      a non-exclusive distribution agreement in place with C. R. Bard (“Bard”) for the
      distribution of the TheraSeed ® device,
      which expires on December 31, 2006 (the “Bard Agreement”). The Bard Agreement
      gives Bard the right to distribute the TheraSeed ® device
      in the U.S., Canada, Puerto Rico and other international locations for the
      treatment of prostate cancer and other solid localized cancerous tumors. A
      distribution agreement with Medi-Physics, Inc. (formerly d/b/a Nycomed Amersham
      and part of Oncura) terminated on September 8, 2005 (see Note E).








**NOTE
      C - ACQUISITION OF CP MEDICAL**





On
      May 6,
      2005, the Company acquired CP Medical Corporation (“CP Medical”) for
      approximately $25.3 million, including $19.0 million in cash and 1,885,370
      shares of common stock valued at approximately $6.3 million. The Company also
      incurred approximately $1.5 million in direct transaction costs. The Company
      has
      agreed to make additional payments to the sellers in the event that some portion
      of the gain from the sale is taxable at ordinary federal income (instead of
      capital gain) tax rates. The stock portion of the purchase price is subject
      to
      adjustment based on the difference between the working capital of CP Medical
      at
      closing and as of December 31, 2004.





-8-
 Table
          of Contents
 **THERAGENICS
            CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **October
          2, 2005**
 **(Unaudited)**





CP
      Medical is a manufacturer and supplier of innovative wound closures and other
      medical products such as sutures, cardiac pacing cables, and brachytherapy
      needles/spacers/sleeves sold in the professional surgical and veterinary fields.
      The transaction established a new growth platform for the Company within the
      field of medical devices and also serves to diversify the Company’s product
      offerings within its core brachytherapy business. Consolidated results of
      operations for the nine months ended October 2, 2005 include the results of
      CP
      Medical since May 7, 2005, the first date after the closing of the
      acquisition.





The
      acquisition was recorded under the purchase method of accounting and,
      accordingly, the purchase price was allocated based on the fair value of the
      assets acquired and liabilities assumed. The goodwill recorded as a result
      of
      the acquisition will not be amortized but will be included in the review of
      goodwill for impairment. The total purchase price of $26,823,000 consisted
      of
      the following (in thousands):





Purchase
                price in cash
            
            $
            19,032Value
                of common stock issued
            
            
            6,250Direct
                transaction costs
            
            
            1,541Total
                purchase consideration
            
            $
            26,823





The
      purchase consideration was allocated to the estimated fair values of the assets
      acquired and the liabilities assumed. Based upon management’s estimate of fair
      value, which was based upon an independent valuation, the purchase price
      allocation is as follows (in thousands, except years):





Purchase
                Price
            
            AmortizationAllocation
            
            LifeTangible
                assets
            
            $
            5,656
            
            
            VariousGoodwill
            
            
            15,150
            
            
            IndefiniteCustomer
                relationships
            
            
            3,500
            
            
            9
                yearsTrade
                names
            
            
            1,700
            
            
            IndefiniteNon-compete
                agreements
            
            
            1,269
            
            
            1-
                5 yearsDeveloped
                technology
            
            
            360
            
            
            7
                yearsLiabilities
                assumed
            
            
            (812
            )
            
            -Total
                purchase price allocation
            
            $
            26,823





Pro
      Forma
      Financial Information





The
      following unaudited pro forma summary combines the results of the Company with
      CP Medical as if the acquisition of CP Medical had occurred on January 1, 2004.
      Certain adjustments have been made to reflect the impact of the purchase
      transaction. These pro forma results have been prepared for comparative purposes
      only and are not necessarily indicative of what would have occurred had the
      acquisition been made at the beginning of the respective periods, or the results
      which may occur in the future (in thousands, except per share
      amounts):








-9-
 Table
          of Contents
 **THERAGENICS
            CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **October
          2, 2005**
 **(Unaudited)**








Pro
                FormaThree
                Months Ended
            
            Nine
                Months EndedOctober
                2, 2005
            
            October
                3, 2004
            
            October
                2, 2005
            
            October
                3, 2004Total
                revenue
            
            $
            12,002
            
            $
            10,787
            
            $
            36,526
            
            $
            31,737Net
                loss
            
            $
            (27,238
            )
            $
            (977
            )
            $
            (28,848
            )
            $
            (2,683
            )Net
                loss per share, basic
            
            $
            (0.85
            )
            $
            (0.03
            )
            $
            (0.93
            )
            $
            (0.09
            )Net
                loss per share, diluted
            
            $
            (0.85
            )
            $
            (0.03
            )
            $
            (0.93
            )
            $
            (0.09
            )








**NOTE
      D - RESTRUCTURING**





On
      August
      11, 2005, the Company announced a restructuring that resulted in th e
      closure
      of the plasma separation process facility in Oak Ridge, Tennessee, ended the
      research and development activities related to the vascular, macular
      degeneration and breast cancer areas, and eliminated production of radiochemical
      products. Curtailing these activities allowed the Company to shrink its asset
      base by shutting down six cyclotrons and closing the Newton Terrace Facility
      in
      Buford, Georgia. The objective of the restructuring is to sharpen the Company’s
      focus on its two main business segments; brachytherapy seeds and CP Medical
      products, as well as provide a more focused platform for continued
      diversification and expansion through acquisitions or other channels.





As
      a
      result, restructuring charges of $32,915,000 were recorded in the third quarter
      of 2005. These restructuring charges were comprised of one time, non-cash
      impairment charges totaling $28,789,000 which were related to the impairment
      of
      the PSP equipment and facilities in Oak Ridge, Tennessee, the Newton Terrace
      facility in Buford, Georgia, and six cyclotrons and related equipment and
      facilities; other one time, non-cash charges of $3,252,000, including the write
      off of inventory, other assets and contract termination costs related to the
      Oak
      Ridge land lease; and approximately $874,000 of severance, site exit and
      disposal costs and other expenses. Completion of the restructuring will take a period of months, and the Company
      expects to incur additional pre tax restructuring expenses during the fourth
      quarter of 2005 of approximately $700,000 to $900,000, and a further $1.4
      million to $1.6 million during 2006. These future charges are expected to
      primarily relate to on-going site exit and disposal costs.











-10-
 Table
          of Contents
 **THERAGENICS
            CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **October
          2, 2005**
 **(Unaudited)**








A
      schedule of certain information related to these restructuring charges follows
      (in thousands):




Total
                amount
              expected
                to
              be
                incurred
            
            Amount
                incurred
              July
                4, 2005
              to
                October 2, 2005
            
            Cumulative
                amount
              incurred
                through
              October
                2, 2005Impairment
                of long-lived assets
            
            $
            28,789
            
            $
            28,789
            
            $
            28,789Write
                off of inventory and other assets
            
            
            1,757
            
            
            1,757
            
            
            1,757Contract
                termination costs
            
            
            1,495
            
            
            1,495
            
            
            1,495Severance
                costs
            
            
            919
            
            
            699
            
            
            699Site
                exit and disposal costs
            
            
            2,353
            
            
            73
            
            
            73Other
            
            
            122
            
            
            102
            
            
            102$
            35,435
            
            $
            32,915
            
            $
            32,915





A
      reconciliation of liabilities attributable to the restructuring follows (in
      thousands):





Activity,
                7/5/05 to 10/2/05Accrual
                at
              July
                3, 2005
            
            Charged
                to
              expenses
            
            Other
            
            Payments
            
            Accrual
                at
              Oct
                2, 2005Contract
                termination costs
            
            $
            -
            
            $
            1,495
            
            $
            72(a
            )
            $
            2
            
            $
            1,565Severance
                (b)
            
            
            -
            
            
            698
            
            
            -
            
            
            337
            
            
            361Site
                exit and disposaldisposal
                activities (c)
            
            
            -
            
            
            73
            
            
            -
            
            
            73
            
            
            -





(a)
            -
                previously recorded deferred rent balance attributable to Oak Ridge
                land
                lease.


(b)
            -
                accrued severance is vested in accordance with severance agreements.
                Certain portions will be paid over time. Additional severance may
                be
                earned based on period of time affected employees remain during shut
                down
                period. Any additional severance will be expensed in the period in
                which
                it is earned.


(c)
            -
                site exit and disposal activities related to Oak Ridge facilities
                are
                expensed as incurred.





The
      accrual for contract termination costs is included in other liabilities and
      the
      accrual for severance costs is included in accrued salaries, wages and payroll
      taxes in the accompanying consolidated balance sheet as of October 2, 2005.





Assets
      held for sale of approximately $3.4 million at October 2, 2005, represents
      the
      estimated fair market value of the Oak Ridge related equipment and facilities
      to
      be disposed of in connection with the restructuring. The Company is
      currently marketing these assets and the intent is to sell the assets as soon
      as
      possible. However, due to their nature, especially the real estate, market
      conditions and other factors may have an effect on the Company’s ability to sell
      these assets within one year.





-11-
 Table
          of Contents
 **THERAGENICS
            CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **October
          2, 2005**
 **(Unaudited)**








**NOTE
      E - 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 were consolidated
      into a single action in the U.S. District Court for the Northern District of
      Georgia. The amended complaint generally alleged that the defendants made
      certain misrepresentations and omissions in connection with the performance
      of
      the Company during the class period and sought unspecified damages. In 2004,
      the
      consolidated federal securities class action was settled for an amount within
      the limits of the Company’s directors and officers’ liability insurance. The
      Company was not required to make any financial contribution toward the
      settlement and the federal securities case was officially over as of November
      1,
      2004.





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 the conduct
      that was alleged in the consolidated federal class action complaint. The
      derivative action was stayed by the agreement of the parties. Its status is
      currently being reevaluated in light of the settlement of the securities class
      action lawsuit.





The
      Company and one of its distributors, Oncura, had been arbitrating claims arising
      in connection with the non-exclusive distribution agreement between the parties
      (the “Oncura Agreement”). As of April 9, 2005, the arbitration was settled by
      mutual consent of the parties. As part of the settlement, each party has dropped
      the claims it had been arbitrating against the other and the parties agreed
      to
      advance the termination of the Oncura Agreement to September 8, 2005.





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
      F - 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 2, 2005
      there were 2,539,133 options and 138,177 restricted stock rights (representing
      from 77,152 to 225,355 shares depending on performance as described below)
      outstanding and 124,750 shares of Common Stock remaining available for issuance
      under the Company’s equity incentive plans (based on assumed vesting of
      outstanding rights at target performance level).





Stock
      option grants to date have been granted with an exercise price 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.








-12-
 Table
          of Contents
 **THERAGENICS
            CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **October
          2, 2005**
 **(Unaudited)**








Restricted
      Stock Issued to Non-Officer Directors





In
      2003
      and 2004, the Company issued an aggregate of 14,000 shares of restricted stock
      to non-officer directors which vest one year after issuance as a portion of
      director compensation. In 2005, the Board of Directors approved a change in
      director compensation effective January 1, 2005 that eliminated the granting
      of
      stock options and increased the number of restricted shares granted annually
      to
      each non-officer director to the lesser of 5,000 shares of common stock or
      a
      number of shares calculated by dividing $50,000 by the closing trading price
      of
      one share of common stock on the last business day preceding the date of the
      annual meeting. On May 10, 2005, the Company issued an aggregate of 35,000
      restricted shares to non-officer directors under this
      new
      director compensation program, with accelerated vesting upon death, disability,
      change of control, or subject to the discretion of the Board of Directors,
      or
      resignation with the consent of the Board of Directors. These restricted shares
      vest ratably over a three year period.





Amortization
      of share-based compensation related to restricted shares issued to non-officer
      directors is included in selling, general and administrative expense in the
      accompanying consolidated statements of operations and totaled approximately
      $17,000 and $37,000 for the three and nine months ended October 2, 2005,
      respectively, and $8,000 and $23,000 for the three and nine months ended October
      3, 2004, respectively.





Restricted
      Stock Rights Issued to Employees





In
      August
      2004 the Board of Directors granted an aggregate of 48,000 restricted stock
      rights to executive management which vest on December 31, 2005, and in August
      2005 the Board of Directors granted 10,000 restricted stock rights to a newly
      appointed executive officer that vests on December 31, 2006. Each right
      represents one share of common stock to be issued upon vesting.





The
      Company has also issued performance restricted stock rights to executive
      management as long-term incentives (the “Performance Stock Rights”). Under these
      long-term incentives , the
      number of shares issuable upon vesting of each Performance Stock Right will
      depend on the Company’s stock price appreciation plus dividends paid (total
      shareholder return, or “TSR”) relative to the total shareholder return of an
      industry peer group based on a fixed schedule over a three year period. Each
      Performance 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. Performance
      Stock
      Rights may, but will not necessarily, be prorated for executive managers who
      commence participation in this long-term incentive subsequent to the grant
      date.
      The Performance Stock Rights become fully vested at the target achievement
      level
      upon a change of control. If an employee terminates employment under certain
      circumstances or dies or becomes disabled, the employee will be entitled to
      a
      pro rata number of shares measured at the end of the performance period. A
      summary of Performance Stock Rights granted as long-term incentives
      follows:





3
                Year
            Vesting
            Common
                Shares issuableTSR
                period
            date
            Minimum
            Maximum2004-2006
            12/31/06
            13,052
            87,0182005-2007
            12/31/07
            13,099
            87,336








-13-
 Table
          of Contents
 **THERAGENICS
            CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **October
          2, 2005**
 **(Unaudited)**








Amortization
      of share-based compensation related to restricted stock rights and performance
      restricted stock rights issued to employees is included in selling, general
      and
      administrative expense in the accompanying consolidated statements of operations
      and totaled approximately $47,000 and $126,000 for the three and nine months
      ended October 2, 2005, respectively and $37,000 and $37,000 for the three and
      nine months ended October 3, 2004, respectively.





In
      December 2002, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure* (“SFAS
      148”). SFAS 148 amends Statement No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123”), 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,
      SFAS 148 amends the disclosure requirement of SFAS 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 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 123. Compensation related
      to
      issuance of restricted stock is base on the fair value of the underlying stock
      at the date of grant, amortized over the vesting period. Compensation related
      to
      performance restricted stock rights is recorded on the number of shares expected
      to be issued based on the expected outcome of the performance criteria, and
      the
      fair value of the underlying stock at the date of grant, amortized over the
      vesting period. 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.
      In
      accordance with SFAS 148, 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 123 (in thousands, except
      per
      share data):





**Three Months
                  Ended**
              
              
              **Nine
                  Months Ended****October
                    2,**
                  **2005**
              
              
              **October
                    3,**
                **2004**
              
              
              **October
                    2,**
                  **2005**
              
              
              **October
                  3,**
                **2004**Net
                  loss, as reported
              
              $
              (27,238
              )
              $
              (1,122
              )
              $
              (28,770
              )
              $
              (3,022
              )Add:
                  Stock-based compensation as reported, net of related tax
                  benefit
              
              
              53
              
              
              27
              
              
              133
              
              
              38Less:
                  Stock-based compensation expense determined under fair value method
                  for
                  all stock options, net of related tax benefit
              
              
              (79
              )
              
              (149
              )
              
              (212
              )
              
              (404
              )Pro
                  forma net loss
              
              $
              (27,264
              )
              $
              (1,244
              )
              $
              (28,849
              )
              $
              (3,388
              )*Basic
                  net loss per common share:*As
                  reported
              
              $
              (0.85
              )
              $
              (0.04
              )
              $
              (0.93
              )
              $
              (0.10
              )Pro
                  forma
              
              $
              (0.85
              )
              $
              (0.04
              )
              $
              (0.93
              )
              $
              (0.11
              )*Diluted
                  net loss per common share:*As
                  reported
              
              $
              (0.85
              )
              $
              (0.04
              )
              $
              (0.93
              )
              $
              (0.10
              )Pro
                  forma
              
              $
              (0.85
              )
              $
              (0.04
              )
              $
              (0.93
              )
              $
              (0.11
              )








-14-
 Table
          of Contents
 **THERAGENICS
            CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **October
          2, 2005**
 **(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 2, 2005 and October 3, 2004. The Company did not grant any options
      during the three months ended October 2, 2005 and October 3, 2004.




Nine
                  Months EndedOctober
                  2,
                2005
              
              October
                  3,
                2004Expected
                  dividend yield
              
              
              0.0
              %
              
              0.0
              %Expected
                  stock price volatility
              
              
              45.8
              %
              
              64.1
              %Risk-free
                  interest rate
              
              
              3.0
              %
              
              3.2
              %Expected
                  life of option (years)
              
              
              3.1
              
              
              5.4





**NOTE
      G - SEGMENT REPORTING AND MAJOR CUSTOMERS**





*Segment
      Reporting*





The
      Company operates in two segments, the brachytherapy seed segment and the CP
      Medical wound closure and medical products segment. The brachytherapy seed
      segment is comprised of the Company’s TheraSeed ® and
      I-Seed products as well as related products and services. CP Medical is the
      manufacturer and supplier of innovative sutures, cardiac pacing cables,
      brachytherapy needles/spacers/sleeves, and other related medical products sold
      in the professional surgical and veterinary fields. The following tables provide
      information concerning these two segments for the three and nine months ended
      October 2, 2005 and October 3, 2004 and as of October 2, 2005 and December
      31,
      2004 (amounts in thousands):





Three
                Months Ended
            
            Nine
                Months EndedOctober
                2, 2005
            
            October
                3, 2004
            
            October
                2, 2005
            
            October
                3, 2004RevenuesBrachytherapy
                seed
            
            $
            9,076
            
            $
            8,283
            
            $
            27,889
            
            $
            24,882CP
                Medical
            
            
            2,926
            
            
            -
            
            
            5,024
            
            
            -$
            12,002
            
            $
            8,283
            
            $
            32,913
            
            $
            24,882Operating
                income/(loss)Brachytherapy
                seed
            
            $
            (33,585
            )
            $
            (2,211
            )
            $
            (37,182
            )
            $
            (5,604
            )CP
                Medical
            
            
            602
            
            
            -
            
            
            1,107
            
            
            -$
            (32,983
            )
            $
            (2,211
            )
            $
            (36,075
            )
            $
            (5,604
            )Capital
                expendituresBrachytherapy
                seed
            
            $
            114
            
            $
            736
            
            $
            270
            
            $
            2,287CP
                Medical
            
            
            47
            
            
            -
            
            
            68
            
            
            -$
            161
            
            $
            736
            
            $
            338
            
            $
            2,287Depreciation
                and amortizationBrachytherapy
                seed
            
            $
            1,632
            
            $
            1,749
            
            $
            5,143
            
            $
            5,209CP
                Medical
            
            
            203
            
            
            -
            
            
            344
            
            
            -$
            1,835
            
            $
            1,749
            
            $
            5,487
            
            $
            5,209








-15-
 Table
          of Contents
 **THERAGENICS
            CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **October
          2, 2005**
 **(Unaudited)**








October
                2,
            
            December
                31,2005
            
            2004Identifiable
                assetsBrachytherapy
                seed
            
            $
            120,656
            
            $
            148,678CP
                Medical
            
            
            28,466
            
            
            -Intersegment
                eliminations
            
            
            (27,347
            )
            
            -$
            121,775
            
            $
            148,678GoodwillBrachytherapy
                seed
            
            $
            2,578
            
            $
            2,578CP
                Medical
            
            
            15,150
            
            
            -$
            17,728
            
            $
            2,578Other
                intangible assetsBrachytherapy
                seed
            
            $
            106
            
            $
            124CP
                Medical
            
            
            6,547
            
            
            -$
            6,653
            
            $
            124





All
      of
      the Company’s assets are located within the United States. Revenue outside the
      United States was not material for the three and nine months ended October
      2,
      2005 and October 3, 2004.





*Major
      Customers*





Sales
      to
      Bard and Oncura represented 68.2% and 79.5% of total brachytherapy seed product
      revenue for the three months ended October 2, 2005 and October 3, 2004,
      respectively. Sales to Bard and Oncura represented 73.0% and 81.1% of total
      brachytherapy seed product revenue for the nine months ended October 2, 2005
      and
      October 3, 2004, respectively. During the three months ended October 2, 2005,
      Bard was the only customer accounting for more than 10% of brachytherapy seed
      revenue. During the three months ended October 3, 2004, and during the nine
      months ended October 2, 2005 and October 3, 2004, Bard and Oncura were the
      only
      customers that exceeded 10% of brachytherapy seed revenue.





Accounts
      receivable from Bard and Oncura represented approximately
      44.8% and 73.5% of gross
      consolidated accounts receivable at October 2, 2005 and December 31, 2004,
      respectively. No customer represented more than 10% of gross consolidated
      accounts at October 2, 2005 other than Bard. No customer represented more than
      10% of gross consolidated accounts receivable at December 31, 2004 other than
      Bard and Oncura.








**NOTE
      H - INCOME TAXES**





Primarily
      as a result of the restructuring charges incurred in the third quarter of 2005,
      the Company generated a net deferred tax asset of approximately $6.6 million
      at
      October 2, 2005. Due to the recent history of operating losses, and
      uncertainties surrounding the projection of future taxable income sufficient
      to
      recognize these deferred tax assets, a valuation allowance for the full amount
      of the net deferred tax asset has been recorded, reducing the income tax benefit
      recognized in the 2005 periods. The valuation allowance for any net deferred
      tax
      asset is evaluated each reporting period.





-16-
 Table
          of Contents
 **THERAGENICS
            CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **October
          2, 2005**
 **(Unaudited)**








**NOTE
      I - NEW ACCOUNTING PRONOUNCEMENTS**





In
      November 2004, the FASB issued Statement of Financial Accounting Standards
      No.
      151, *Inventory
      Costs, an amendment of ARB No. 43, Chapter 4* (“SFAS
      151”). SFAS 151 clarifies that certain items be recognized as current-period
      charges regardless of whether they meet the “so abnormal” criterion outlined in
      ARB No. 43. In addition, SFAS 151 requires that allocation of fixed production
      overhead to the cost of conversion be based on normal capacity of the production
      facilities. SFAS 151 is effective for inventory costs incurred during fiscal
      years beginning after June 15, 2005. While the Company is still evaluating
      the
      impact of this statement, it does not currently believe it will have a material
      impact on its financial statements.





In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      No.
      123 (revised 2004), *Share-based
      Payments* (“SFAS
      123R”), which replaces the prior SFAS No. 123, *Accounting
      for Stock-based Compensation* ,
      and
      supersedes APB Opinion No. 25, *Accounting
      for* *Stock
      Issued to Employees* .
      SFAS
      123R requires compensation costs related to share-based payment transactions
      to
      be recognized in the financial statements based on the grant date fair value
      of
      the award, and recognized over the period during which an employee is required
      to provide services, usually the vesting period. SFAS 123R is effective for
      the
      Company beginning January 1, 2006. While the Company is still evaluating the
      impact of this statement, it does not currently believe it will have a material
      impact on its financial statements.





In
      December 2004, the FASB issued Statement of Financial Account Standards No.
      153, *Exchanges
      of Nonmonetary Assets, an amendment of APB Opinion No. 29* (“SFAS
      153”), and is effective for nonmonetary exchanges occurring in fiscal periods
      beginning after June 15, 2005, with earlier application permitted. The Company
      is currently evaluating SFAS 153, but does not believe it will have a material
      impact on its financial statements.





In
      December 2004, the FASB issued FASB Staff Position No. FAS 109-1, *Application
      of FASB Statement No. 109, "Accounting for Income Taxes," to the Tax
      Deduction on Qualified Production Activities Provided by the American Jobs
      Creation Act of 2004* ,
      and
      FASB Staff Position No. FAS 109-2, *Accounting
      and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
      the American Jobs Creation Act of 2004* . The
      Company does not expect the adoption of these new pronouncements to have a
      material impact on its financial statements.





In
      March
      2005, the FASB issued Interpretation No. 47, “ *Accounting
      for Conditional Asset Retirement Obligations,* ”
(“FIN
      47”). FIN 47 requires an entity to recognize a liability for a conditional asset
      retirement obligation when incurred if the liability can be reasonably
      estimated.





FIN
      47 is
      effective no later than the end of fiscal years ending after December 15, 2005.
      The Company is currently evaluating FIN 47, but does not believe it will have
      a
      material impact on its financial statements.





In
      May
      2005, the FASB issued Statement of Financial Accounting Standards No. 154,
      “ *Accounting
      Changes and Error Corrections* ”
(“SFAS
      154”). SFAS 154 requires retroactive application of a voluntary change in
      accounting principle to prior period financial statements unless it is
      impracticable. SFAS 154 also requires that a change in method of depreciation,
      amortization, or depletion for long-lived, non-financial assets be accounted
      for
      as a change in





-17-
 Table
          of Contents
 **THERAGENICS
            CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **October
          2, 2005**
 **(Unaudited)**








accounting
      estimate that is affected by a change in accounting principle. SFAS 154 replaces
      APB Opinion 20, “ *Accounting
      Changes* ,”
and
      SFAS 3, “ *Reporting
      Accounting Changes in Interim Financial Statements* .”
SFAS
      154 is effective for accounting changes and corrections of errors made in fiscal
      years beginning after December 15, 2005. The Company does not expect the
      adoption of SFAS 154 to have a material impact on its financial
      statements.





**NOTE
      J - GOODWILL AND OTHER INTANGIBLE ASSETS**





The
      following table summarizes intangible assets of the Company as of October 2,
      2005 and December 31, 2004 (in thousands):





October
                2, 2005
            
            December
                31, 2004Gross
                Carrying
            
            
            Accumulated
            
            
            Gross
                Carrying
            
            
            AccumulatedAmount
            
            
            Amortization
            
            
            Amount
            
            
            AmortizationGoodwill
            
            $
            17,728
            
            $
            -
            
            $
            2,578
            
            $
            -Customer
                relationships
            
            
            3,500
            
            
            162
            
            
            -
            
            
            -Non-compete
                agreements
            
            
            1,269
            
            
            129
            
            
            -
            
            
            -Trade
                names
            
            
            1,700
            
            
            -
            
            
            -
            
            
            -Developed
                technology
            
            
            360
            
            
            21
            
            
            -
            
            
            -Patents
            
            
            329
            
            
            193
            
            
            298
            
            
            174$
            24,886
            
            $
            505
            
            $
            2,876
            
            $
            174








Amortization
      expense was $193,000 and $330,000 for the three and nine months ended October
      2,
      2005, respectively. Amortization expense was $6,000 and $18,000 for the three
      and nine months ended October 3, 2004, respectively.








**NOTE
      K - REVENUE RECOGNITION**





Revenue
      from product sales are recognized upon shipment and products are generally
      not
      returnable. Licensing fees are recognized in the periods to which they relate.








**NOTE
      L - RECLASSIFICATIONS**





Certain
      amounts included in the 2004 financial statements have been reclassified to
      conform to the 2005 presentation. These reclassifications are not
      material.








-18-
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**Item2.** **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,
      including TheraSeed ® ,
      its
      premier palladium-103 prostate cancer treatment device, and wound closure and
      other medical products through its CP Medical subsidiary .
      The
      Company also manufactures and distributes I-Seed, its iodine-125 based prostate
      cancer treatment device. 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, though sales in Europe have not
      been significant. The majority of sales are channeled through one third-party
      distributor. The Company also sells its TheraSeed ® devices
      directly to physicians.




On
      May 6,
      2005, the Company acquired CP Medical Corporation (“CP Medical”) for
      approximately $25.3 million, including $19.0 million in cash and 1,885,370
      shares of common stock valued at approximately $6.3 million. The Company also
      incurred approximately $1.5 million in direct transaction costs.





CP
      Medical is a manufacturer and supplier of innovative wound closures and other
      medical products such as sutures, cardiac pacing cables, and brachytherapy
      needles/spacers/sleeves sold in the professional surgical and veterinary fields.
      Historically, CP Medical has generated the majority of its revenue in the wound
      closure market, an estimated $2.0 billion annual market worldwide and an
      estimated $1.2 billion annual market in the United States. During 2004,
      approximately 70% of CP Medical’s revenue was generated in the veterinary wound
      closure market, an estimated $50 million annual market in the United States,
      and
      approximately 15% of revenue was generated in the brachytherapy market. The
      transaction established a new growth platform for the Company within the field
      of medical devices and also serves to diversify the Company’s product offerings
      within its core brachytherapy business. Consolidated results of operations
      for
      the nine months ended October 2, 2005 include the results of CP Medical since
      May 7, 2005, the first date after the closing of the acquisition.





During
      the third quarter of 2005 a plan to restructure the Company was implemented.
      This plan was announced on August 11, 2005. The restructuring resulted in the
      closure of the plasma separation process facility in Oak Ridge, Tennessee,
      ended
      the research and development activities related to the vascular, macular
      degeneration and breast cancer areas, and eliminated production of radiochemical
      products. Curtailing these activities allowed the Company to shrink its asset
      base by shutting down six cyclotrons and closing the Newton Terrace Facility
      in
      Buford, Georgia. The objective of the restructuring is to sharpen the Company’s
      focus on its two main business segments; brachytherapy seeds and CP Medical
      products, as well as provide a more focused platform for continued
      diversification and expansion through acquisitions or other channels. As a
      result, restructuring charges of approximately $32.9 million were recorded
      in
      the third quarter of 2005, including approximately $32.0 million of one time,
      non cash charges. See *“Restructuring”* below.





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”). The purchase gives Theragenics ® exclusive U.S. manufacturing and distribution rights to an FDA-cleared
      iodine-125-based medical device (I-Seed) for the treatment of prostate cancer.
      The Company sells the I-Seed device directly to physicians, hospitals and other
      healthcare providers. 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.





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***Restructuring***





On
      August
      11, 2005, the Company announced a restructuring that resulted in th e
      closure
      of the plasma separation process facility in Oak Ridge, Tennessee, ended the
      research and development activities related to the vascular, macular
      degeneration and breast cancer areas, and eliminated production of radiochemical
      products. Curtailing these activities allowed the Company to shrink its asset
      base by shutting down six cyclotrons and closing the Newton Terrace Facility
      in
      Buford, Georgia. The objective of the restructuring is to sharpen the Company’s
      focus on its two main business segments; brachytherapy seeds and CP Medical
      products, as well as provide a more focused platform for continued
      diversification and expansion through acquisitions or other channels.





As
      a
      result, restructuring charges of approximately $32.9 million were recorded
      in
      the third quarter of 2005. These restructuring charges were comprised of one
      time, non-cash impairment charges totaling $28.8 million which were related
      to
      the impairment of the PSP equipment and facilities in Oak Ridge, Tennessee,
      the
      Newton Terrace facility in Buford, Georgia, and six cyclotrons and related
      equipment and facilities; other one time, non-cash charges of $3.2 million,
      including the write off of inventory and other assets, and contract termination
      costs related to the Oak Ridge land lease; and $900,000 of severance, site
      exit
      and disposal, and other costs. Completion of the restructuring will take a period of months, and the Company
      expects to incur additional pre-tax restructuring expenses during the fourth
      quarter of 2005 of approximately $700,000 to $900,000, and a further $1.4
      million to $1.6 million during 2006. These future charges are expected to
      primarily relate to on going site exit and disposal costs.





During
      2005 the restructuring is expected to generate pre-tax operating expense savings
      of approximately $1.9 million to $2.2 million, including cash savings of
      approximately $1.1 million to $1.3 million. The significant portion of these
      savings is expected to occur in the fourth quarter, having just implemented
      the
      restructuring in the third quarter. Beginning in 2006, the restructuring is
      expected to generate pre-tax operating expense savings of approximately $6.5
      million to $7.0 million annually, including pre-tax cash savings of
      approximately $4.0 million to $4.4 million annually. On a pre-tax net cash
      flow
      basis, the restructuring is expected to require approximately $300,000 to
      $700,000 in cash in 2005, and produce a positive pre-tax cash flow impact of
      approximately $2.4 million to $3.0 million in 2006.





The
      Company intends on disposing of the assets idled by the restructuring. The
      Company does not expect to be able to sell its leasehold interest in the PSP
      equipment because of its highly specialized nature and the classification and
      export control regulations applicable to this technology. However, the Company
      is actively marketing its interest in its Oak Ridge real estate and the
      intellectual property generated by the curtailed R&D programs. Assets held
      for sale of approximately $3.4 million are included in the accompanying
      consolidated balance sheet at October 2, 2005.











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***Results
      of Operations***





Consolidated
      revenue for the three months ended October 2, 2005 was $12.0 million, consisting
      of sales in the brachytherapy seed segment of $9.1 million and sales at CP
      Medical of $2.9 million. This represents an increase of $3.7 million, or 44.9%,
      over revenue in the third quarter of 2004, and an increase in brachytherapy
      seed
      revenue of $800,000, or 9.6% over the 2004 period (revenue for the third quarter
      of 2004 was $8.3 million). Revenue for the nine months ended October 2, 2005
      was
      $32.9 million, consisting of sales in the brachytherapy seed segment of $27.9
      million and sales at CP Medical of $5.0 million (revenue for the comparable
      nine
      month period in 2004 was $24.9 million). This represents an increase of $8.0
      million, or 32.3%, over the first nine months of 2004 and an increase in
      brachytherapy seed revenue of $3.0 million, or 12.1%, over the comparable 2004
      period. Total revenue from sales to direct customers (TheraSeed ® and
      I-Seed) was 30.5% and 26.5% of total brachytherapy seed product revenue during
      the three and nine months ended October 2, 2005, respectively, compared to
      20.3%
      and 18.8% of total brachytherapy seed product revenue during the three and
      nine
      months ended October 3, 2004, respectively. The average selling price of the
      TheraSeed® device during the 2005 periods was comparable to the average selling
      price during the 2004 periods. Management believes that the increases in
      brachytherapy revenue are a result of the efforts of the Company’s direct sales
      force and its direct to consumer advertising programs.





Currently,
      the Company has a non-exclusive distribution agreement in place with C. R.
      Bard
      (“Bard”) for the distribution of the TheraSeed ® device,
      which is effective through December 31, 2006 (the “Bard Agreement”). . The
      Company also had a non exclusive distribution agreement in place with
      Medi-Physics, Inc., formerly d/b/a Nycomed Amersham and now part of Oncura,
      a
      company formed by a merger of the brachytherapy business of Amersham plc and
      Galil Medical Ltd. (the “Oncura Agreement”). In December 2004, Oncura notified
      the Company that it would not be renewing its distribution agreement effective
      December 31, 2005 and subsequently, the Oncura Agreement was terminated
      effective September 8, 2005 (see below). Sales to Oncura during the three and
      nine months ended October 2, 2005 declined by 55.4% and 36.5%, respectively,
      compared to the corresponding periods of 2004.





The
      Company and Oncura had been arbitrating claims arising in connection with the
      Oncura Agreement and on April 9, 2005, the arbitration was settled by mutual
      consent of the parties. As part of the settlement, each party has dropped the
      claims it had been arbitrating against the other and the parties agreed to
      advance the termination of Oncura’s distribution agreement for
      TheraSeed ® to
      September 8, 2005. The
      Company’s direct sales force and C.R. Bard, its other distributor, have
      aggressively marketed TheraSeed ® to
      customers of Oncura in an effort to retain the business. Subsequent to the
      termination of the Oncura Agreement on September 8, 2005, approximately 85%
      of
      the TheraSeed® unit volume from former Oncura customers has been retained (based
      on comparison to the average weekly volume for sales to such customers for
      the
      first ten months of 2004). While the Company believes that a significant portion
      of the customers previously supplied through Oncura will continue to order
      TheraSeed ® ,
      some of
      these customers may not and accordingly transition issues may affect sales.
      To
      the extent that the Company is able to convert customers of Oncura to direct
      customers, margins would be improved on these particular sales.




In
      addition to the impact of the termination of the Oncura Agreement, management
      believes that the brachytherapy industry continues to be affected by competition
      from alternative therapies, changes and uncertainties regarding 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 average selling prices and could have a favorable effect or prevent an
      unfavorable effect on market share and volumes. Conversely, the Company and
      its
      non-exclusive distributor 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 for the Company’s
      TheraSphere ® technology. Such licensing fees are not expected to become material in the
      foreseeable future.





Cost
      of
      sales was $6.8 million during the three months ended October 2, 2005, resulting
      in a gross profit margin of 43.1%, compared with cost of sales of $3.3 million
      and a gross profit margin of 60.4% during the three months ended October 3,
      2004. Cost of sales was $17.9 million during the nine months ended October
      2,
      2005, resulting in a gross profit margin of 45.7%, compared with cost of sales
      of $10.1 million and a gross profit margin of 59.2% during the nine months
      ended
      October 3, 2004. Included in cost of sales for the three and nine months ended
      October 2, 2005, was $1.8 million and $2.8 million, respectively, of cost of
      sales associated with CP Medical. The decreased gross margin during 2005 was
      due
      primarily to a decrease of $1.3 million and $2.6 million in the amount of
      palladium-103 material produced and used to support research and development
      efforts during the three and nine months ended October 2, 2005, respectively,
      compared to the corresponding periods of 2004. These fixed costs associated
      with
      the palladium-103 cyclotron production base remained in cost of sales during
      2005. Additionally, $350,000 and $1.2 million of production costs were
      capitalized during the three and nine months ended October 3, 2004,
      respectively, associated with the first production of palladium-102 material
      using the PSP technology at the Company’s Oak Ridge, Tennessee facility. As a
      result of the cessation of production of palladium-102 during the fourth quarter
      of 2004, no production costs were capitalized during the three and nine months
      ended October 2, 2005. The gross margin in 2005 was favorably impacted by the
      considerable fixed cost component of Theragenics’ ® operations in combination with increased revenue during the 2005 periods. Going
      forward, the recent restructuring is expected to have a positive impact on
      margins.





Selling,
      general and administrative (“SG&A”) expense was $4.4 million during the
      three months ended October 2, 2005, compared to $4.5 million during the three
      months ended October 3, 2004, a decrease of $100,000 or 1.1%. SG&A expense
      was $14.8 million during the nine months ended October 2, 2005, compared to
      $13.0 million during the nine months ended October 3, 2004, an increase of
      $1.8
      million or 14.0%. In the third quarter of 2005, SG&A expense included
      $556,000 of SG&A at CP Medical, offset primarily by a reduction in
      advertising and legal expenses as compared to the third quarter of 2004. The
      increase for the nine month period of 2005 over 2004 was primarily attributable
      to $1.1 million of SG&A for CP Medical, approximately $1.0 million of
      severance expenses not related to the restructuring, and increased legal and
      other costs associated with the now settled arbitration with Oncura, the former
      distributor. These increases were slightly offset by a decrease in advertising
      expenses for the 2005 period. The Company expects to continue to invest in
      its
      direct sales force and that direct to consumer advertising activities will
      increase in the fourth quarter.





Research
      and development (“R&D”) expense decreased to $823,000, or approximately 6.9%
      of revenue, during the three months ended October 2, 2005, from $2.7 million,
      or
      approximately 33.2% of revenue, during the three months ended October 3, 2004.
      R&D expense decreased to $3.4 million, or approximately 10.3% of revenue,
      during the nine months ended October 2, 2005, from $7.3 million, or
      approximately 29.5% of revenue, during the nine months ended October 3, 2004.
      Included in R&D expense for the three and nine months ended October 2, 2005
      was approximately $19,000 and $26,000, respectively, of R&D expense
      associated with CP Medical. The Company was previously conducting clinical
      trials related to the use of palladium-103 for the





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prevention
      of restenosis or renarrowing of arteries following treatment of peripheral
      vascular disease by percutaneous transluminal angioplasty (the “TheraP trial”),
      and clinical trials related to the use of palladium-103 to treat exudative
      (wet)
      age related macular degeneration (the “TheraSight trial”). The decrease in
      R&D expense during 2005 was primarily attributable to decreases of $1.3
      million and $2.6 million in the amount of palladium-103 material produced and
      used in these research and development efforts during the three and nine months
      ended October 2, 2005, respectively, compared to the corresponding periods
      of
      2004. Additionally, a reduction of other R&D costs occurred due to the
      completion of the TheraP trial during the second quarter of 2005 and delays
      in
      enrolling patients in the TheraSight trial. In connection with the recent
      restructuring, all activities related to the TheraP trial have been
      discontinued, and activities related to the TheraSight trial have been
      curtailed. Looking forward, the only activity expected related to these programs
      is the treatment of patients that have enrolled in the TheraSight trial by
      October 31, 2005, and the follow up of all patients treated in the TheraSight
      trial, in accordance with the FDA-approved protocol for this trial.





Other
      income, comprising interest income and non-operating expenses, was $288,000
      during the three months ended October 2, 2005 compared to $355,000 during the
      three months ended October 3, 2004. Other income was $911,000 during the nine
      months ended October 2, 2005 compared to $785,000 during the nine months ended
      October 3, 2004. The decrease during the third quarter of 2005 is primarily
      the
      result of a decrease in the amount of invested funds during 2005 as a result
      of
      the acquisition of CP Medical partially offset by better returns on the
      Company’s investments as a result of higher interest rates in 2005 compared to
      2004. The increase in the nine months ended October 2, 2005 is primarily the
      result of better returns on the Company’s investments as a result of higher
      interest rates in 2005 compared to 2004, partially offset by a decrease in
      the
      amount of invested funds during 2005 as a result of the acquisition of CP
      Medical. 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 16.7% during the three
      months ended October 2, 2005 compared to a benefit of 39.5% during the three
      months ended October 3, 2004. The Company’s effective income tax rate was a
      benefit of 18.2% during the nine months ended October 2, 2005 compared to a
      benefit of 37.3% during the nine months ended October 3, 2004. Primarily as
      a
      result of the restructuring charges incurred during the third quarter of 2005,
      the Company generated approximately $6.6 million of net deferred tax assets
      at
      October 2, 2005. The recent history of operating losses incurred by the Company
      and uncertainties surrounding the projection of future taxable income sufficient
      to recognize these deferred tax assets has resulted in a valuation allowance
      recorded for the full amount of the net deferred tax assets, reducing the income
      tax benefit recognized in the 2005 periods. The Company’s income tax rate in
      each period also 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 â 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:





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*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. As
      of
      October 2, 2005, 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 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).





Management
      assesses the impairment of its depreciable assets whenever events or
      circumstances indicate that such assets might be impaired. In the event the
      expected undiscounted future cash flow attributable to the asset is less than
      the carrying value of the asset, an impairment loss equal to the excess of
      the
      asset’s carrying value over its fair value is recorded. The estimation of fair
      value, whether in conjunction with an asset to be held and used or with an
      asset
      held for sale, also involves judgment. During the third quarter of 2005 the
      Company recorded impairment charges of approximately $28.8 million related
      to
      the PSP facility, the Newton Terrace facility, six cyclotrons and other related
      long-lived assets. The impairment charge reflects the excess of these assets
      carrying value over their fair value as a result of the restructuring actions
      taken during the third quarter of 2005. See *“Restructuring”* above.





It
      is
      possible that Management’s estimates concerning the realizability of the
      Company’s depreciable assets could change in the future.





*Goodwill.*  On
      May 6,
      2005, the Company completed the acquisition of CP Medical. A total of
      approximately $26.8 million was paid in connection with the acquisition (see *“Overview”* above)
      and the payments were allocated between the fair value of tangible assets
      acquired, identifiable intangible assets and liabilities assumed. The excess
      of
      cost over the fair value of acquired net assets in the amount of $15.2 million
      is recorded as goodwill. Early
      in
      2003 the Company entered into an agreement to purchase the brachytherapy
      business of BEBIG Isotopen-und Medizintechnik GmbH, 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.





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





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with
      its
      carrying amount, including goodwill and intangible assets with indefinite lives.
      If fair value exceeds book value, goodwill is considered not impaired, and
      the
      second step of the impairment test is unnecessary. If book value exceeds market
      value, the second step of the impairment test is preformed 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. The Company completed
      its annual goodwill impairment assessment associated with the I-Seed business
      as
      of November 28, 2004 and determined that goodwill was not impaired and no
      impairment charge was recorded. The Company will complete an impairment
      assessment of the CP Medical and I-Seed goodwill during the fourth quarter
      of
      2005.





Intangible
      assets with definite lives are being amortized and this amortization is included
      in the accompanying consolidated statements of operations.





*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 $481,000, was
      approximately $7.5 million as of October 2, 2005.





*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 F of the Notes to Consolidated
      Financial Statements. 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.





*Valuation
      allowance for deferred tax assets.* A
      full
      valuation reserve related to a $6.6 million net deferred tax asset has been
      provided as of October 2, 2005. In the future, if sufficient evidence of the
      Company’s ability to generate adequate future taxable income becomes apparent,
      the valuation allowance may be required to be reduced, resulting in income
      tax
      benefits in the consolidated statement of operations. Management evaluates
      the
      realizability of the deferred tax assets and assesses the need for the valuation
      allowance each reporting period.

















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***Liquidity
      and Capital Resources***





The
      Company had cash, short-term investments and marketable securities of $43.9
      million at October 2, 2005, compared to $62.3 million at December 31, 2004.
      Cash
      and short-term investments were $9.1 million at October 2, 2005 compared to
      $26.2 million at December 31, 2004. Marketable securities were $34.8 million
      at
      October 2, 2005 compared to $36.1 million at December 31, 2004. 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 primarily the result of the acquisition of CP Medical
      (see “Overview” above).





Working
      capital was $59.9 million at October 2, 2005 (including assets held for sale
      of
      $3.4 million), compared to $72.6 million at December 31, 2004. 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 which expires on October 29, 2006.
      No borrowings were outstanding under the Credit Agreement as of October 2,
      2005.
      Letters of credit totaling $933,000 were outstanding under the Credit Agreement
      as of October 2, 2005. 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. The Credit
      Agreement is unsecured, but provides for a “springing 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.





Cash
      provided by operations was $2.4 million during the nine months ended October
      2,
      2005 compared to cash used by operations of $793,000 during the nine months
      ended October 3, 2004. 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 $465,000
      during the first nine months of 2005 as a result of increased revenue during
      the
      third quarter of 2005 compared to the fourth quarter of 2004 and the timing
      of
      payments received from the Company’s distributors. Prepaid expenses and other
      current assets decreased $349,000 during the first nine months of 2005 primarily
      as a result of the timing of prepayments under the Company’s advertising and
      group health insurance programs in the third quarter of 2005 compared to the
      fourth quarter of 2004. Trade accounts payable decreased $638,000 during the
      first nine months of 2005 due primarily to the final payment made under a
      $570,000 purchase agreement of the Company with
      a
      contractor for the design and manufacture of certain equipment. Accrued
      salaries, wages and payroll taxes increased $514,000 during the first nine
      months of 2005 due primarily to the timing of the Company’s payroll cycle and
      the accrual of incentive compensation.





Capital
      expenditures totaled $338,000 and $2.3 million during the first nine months
      of
      2005 and 2004, respectively. The spending during 2004 was related to equipment
      placed in service during the first quarter of 2005 that allows the Company
      to
      provide seed loading and sterilization services. During the first nine months
      of
      2004, the Company made the final payment of $1.0 million 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.





In
      connection with the recent restructuring (see “Restructuring” above) the
      Company incurred net pre-tax cash expenditures of approximately $874,000 during
      the third quarter of 2005, primarily related to severance costs and site exit
      and disposal activities, and expects further pre-tax cash expenditures of
      approximately $700,000 to $900,000 during the fourth quarter of 2005 and $1.4
      million to $1.6 million during 2006. The Company expects pre-tax cash savings
      of
      approximately $1.1 million to $1.3 million during 2005 and approximately $4.0
      million to $4.4 million in 2006 (s ee *“Restructuring”* above).





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On
      May 6,
      2005, the Company acquired CP Medical Corporation (“CP Medical”) for
      approximately $25.3 million, including $19.0 million in cash and 1,885,370
      shares of common stock valued at approximately $6.3 million. The Company also
      incurred approximately $1.5 million in direct transaction costs.





Cash
      could also be used in 2005 for increased marketing and TheraSeed ® support
      activities, support for CP Medical growth and in the pursuit of additional
      diversification efforts such as the purchase of technologies, products or
      companies.





Cash
      provided by financing activities was $112,000 and $88,000 in the first nine
      months of 2005 and 2004, 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 has provided this financial assurance through the issuance of letters
      of
      credit. 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***





On
      December 8, 2003, the President signed the Medicare Prescription Drug,
      Improvement and Modernization Act of 2003 (“MMA”) into law that provides for
      improved reimbursement and coding policies in 2004 and beyond for brachytherapy
      seeds/sources under Medicare’s hospital outpatient prospective payment system
      (“OPPS”).





The
      brachytherapy provisions in the MMA, which went into effect on January 1, 2004,
      require Medicare to unbundle the cost of the brachytherapy seeds/sources from
      the costs of the brachytherapy procedure, catheters and needles under the OPPS.
      More specifically, the MMA 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 bundled
      reimbursement amounts assigned to the brachytherapy codes that the Centers
      for
      Medicare and Medicaid Services (“CMS”) used in 2003.





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The
      MMA
      also directs the U.S. Government Accountability Office (“GAO”, formerly the
      General Accounting Office) to conduct a study examining future payment policies
      for brachytherapy seeds. The GAO study is still pending.





On
      July
      25, 2005, CMS published its proposed rule on the OPPS for calendar year
      2006.  There are no changes proposed in reimbursement policy for
      brachytherapy seeds/sources for 2006, although some reductions are proposed
      for
      hospital payments for procedures required to implant brachytherapy seeds. 
CMS' final rule is still pending.  Additionally, the GAO study referred to
      above may have an effect on the reimbursement level for seeds beginning January
      1, 2007. Any new reimbursement policies may have an adverse effect on
      utilization of the Company's brachytherapy products.





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 â 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.





Due
      to
      the fact that the Medicare rules governing coding of brachytherapy seeds/sources
      and the procedures required to implant seeds have undergone significant change
      during the past few years, and are likely to continue to undergo additional
      changes, 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. Medicare’s OPPS reimbursement levels for
      the procedures performed during prostate brachytherapy could influence the
      utilization of brachytherapy seeds, including the Company’s brachytherapy
      products.








***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, potential new products and
      opportunities, the development of new markets and technologies, execution of
      restructuring plans, estimated impairment and other restructuring expenses,
      expected operating expense savings and associated cash expenditures and savings,
      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





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activities,
      including risks associated with new product development cycles, including
      changes in the competitive landscape, effectiveness and execution of marketing
      and sales programs of Theragenics ® and its
      non-exclusive distributor, risks associated with customer distribution
      concentration and potential changes in distributor relationships, potential
      costs and delays in capacity expansion and start-up, 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, government regulation of
      the
      therapeutic radiological pharmaceutical and device business, potential changes
      in third-party reimbursement, risks associated with market development
      activities, risks associated with governmental regulations, changes in
      assumptions used in estimating restructuring charges and operating expense
      savings, and unforeseen costs and cash expenditures associated with the
      restructuring plan. 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.





An
      important element of our strategy is to seek acquisition prospects and
      diversification opportunities that we believe will complement or diversify
      our
      existing product offerings, augment our market coverage and customer base,
      enhance our technological capabilities or offer revenue and profit growth
      opportunities. We acquired CP Medical in May 2005. Further transactions of
      this
      nature could result in potentially dilutive issuance of equity securities,
      use
      of cash and/or the incurring of debt and the assumption of contingent
      liabilities.





Acquisitions
      entail numerous costs, challenges and risks, including difficulties in the
      assimilation of acquired operations, technologies, personnel and products and
      the retention of existing customers and strategic partners, diversion of
      management’s attention from other business concerns, risks of entering markets
      in which we have limited or no prior experience and potential loss of key
      employees of acquired organizations. Other risks include the potential strain
      on
      the combined companies’ financial and managerial controls and reporting systems
      and procedures, greater than anticipated costs and expenses related to
      integration, and potential unknown liabilities associated with the acquired
      entities. No assurance can be given as to our ability to successfully integrate
      the businesses, products, technologies or personnel acquired in past
      acquisitions or those of other entities that may be acquired in the future
      or to
      successfully develop any products or technologies that might be contemplated
      by
      any future joint venture or similar arrangement. A failure to integrate CP
      Medical or to integrate future potential acquisitions could result in our
      failure to achieve our revenue growth or other objectives associated with
      acquisitions, or recover costs associated with these acquisitions, which could
      affect our profitability or cause the market price of our common stock to fall.





The
      integration of CP Medical may be complex, time consuming and expensive and
      may
      disrupt our businesses. The combined company will need to overcome significant
      challenges in order to realize benefits or synergies from the acquisition.
      These
      challenges include the timely, efficient and successful execution of a number
      of
      post-acquisition events, including:





·
            integrating
                the operations and technologies of the two
                companies;


·
            retaining
                and assimilating the key personnel of each
                company;


·
            retaining
                existing customers of both companies and attracting additional
                customers;


·
            retaining
                strategic partners of each company and attracting new strategic
                partners; and


·
            creating
                uniform standards, controls, procedures, policies and information
                systems.





The
      execution of these post-acquisition events will involve considerable risks
      and
      may not be successful. These risks include:





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·
            the
                potential disruption of the combined companies ongoing businesses
                and
                distraction of management;


·
            the
                potential strain on the combined companies financial and managerial
                controls and reporting systems and
                procedures;


·
            potential
                unknown liabilities associated with the acquisition and the combined
                operations.





The
      Company may not succeed in addressing these risks or any other problems
      encountered in connection with the acquisition. The inability to successfully
      integrate the operations, technology and personnel of the two companies, or
      any
      significant delay in achieving integration, could have a material adverse effect
      on the Company.





**Item3.** **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 2, 2005.
      No borrowings were outstanding under the Credit Agreement as of October 2,
      2005.








**Item4.** **Controls
      and Procedures**





The
      Company’s 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.





The
      Company acquired CP Medical on May 6, 2005. Since the date of acquisition,
      the
      Company has been focusing on analyzing, evaluating, and implementing changes
      in
      CP Medical’s procedures and controls to determine their effectiveness and to
      make them consistent with our disclosure controls and procedures. Prior to
      our
      acquisition of CP Medical, CP Medical was not required to prepare financial
      statements in accordance with generally accepted accounting principles. In
      addition, CP Medical 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. Accordingly, we expect that it will take
      several months to continue to analyze CP Medical’s procedures and controls and
      expect to make additional changes in those controls in the future. We have
      performed additional procedures to review accounting records and substantiate
      the financial information of CP Medical included in this report. CP Medical’s
      total revenues following the acquisition accounted for 15.3% of the Company’s
      total revenues for the nine months ended October 2, 2005.





Based
      on
      their evaluation as of the end of the period covered by this report, the
      Company’s Chief Executive Officer and Chief Financial Officer have concluded
      that the Company’s disclosure controls and procedures are effective to ensure
      that the information required to be disclosed in reports that the Company files
      or submits under the Securities Exchange Act of 1934 is recorded, processed,
      summarized and reported within the specified time periods, taking into account
      the totality of the circumstances, including those described as to the Company’s
      acquisition of CP Medical.





Other
      than as described above with respect to the integration of CP Medical, no
      significant changes in the Company’s internal control over financial reporting
      during the Company’s third fiscal quarter were identified that have materially
      affected or are reasonably likely to materially affect the Company’s internal
      control over financial reporting. Changes to processes, information technology
      systems, and other components of internal control over financial reporting
      resulting from the acquisition of CP Medical are expected as the integration
      proceeds.





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**PARTII.  OTHER
      INFORMATION**





**Item
      1.** **LegalProceedings**





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








**Item6.** **Exhibits**





Exhibit
                No.
            Title31.1
            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.








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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 JacobsM.
                Christine JacobsChief
                Executive Officer/s/
                Francis J. TaralloFrancis
                J. TaralloChief
                Financial Officer


Dated:
      November 8, 2005












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