**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 July 1, 2007




or




o TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      transition period from __________ to __________




Commission
      File No. 0-15443




**THERAGENICS
      CORPORATION** **®**


(Exact
      name of registrant as specified in its charter)




**Delaware**
            **58-1528626**(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                Number)**5203
                Bristol Industrial Way****Buford,
                Georgia**
            **30518**(Address
                of principal executive offices)
            (Zip
                Code)




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




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




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer in Rule 12b-2 of the Exchange
      Act.




Large
                Accelerated Filero
            Accelerated
                Filerx
            Non
                Accelerated Filero




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
      August 1, 2007 the number of shares of $0.01 par value common stock outstanding
      was 33,287,807.







1





THERAGENICS
      CORPORATION




TABLE
      OF
      CONTENTS




**Page
                No.**PART
                I. FINANCIAL INFORMATION
            
            3ITEM
                1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
            
            3Condensed
                Consolidated Balance Sheets - July 1, 2007 and December 31,
                2006
            
            3Condensed
                Consolidated Statements of Earnings and Comprehensive Income for
                the three
                and six months ended July 1, 2007 and July 2, 2006
            
            5Condensed
                Consolidated Statements of Cash Flows for the six months ended July
                1,
                2007 and July 2, 2006
            
            6Condensed
                Consolidated Statement of Shareholders’ Equity for the six months ended
                July 1, 2007
            
            8Notes
                to Condensed Consolidated Financial Statements
            
            9ITEM
                2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                OF OPERATIONS
            
            18ITEM
                3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            
            25ITEM
                4. CONTROLS AND PROCEDURES
            
            25PART
                II. OTHER INFORMATION
            
            26ITEM
                1. LEGAL PROCEEDINGS
            
            26ITEM
                1A. RISK FACTORS
            
            26ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            26ITEM
                6. EXHIBITS
            
            27SIGNATURES
            
            28





2





**PART
      I. FINANCIAL INFORMATION**




**Item
      1.** **Financial
      Statements**




**THERAGENICS
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(Amounts
      in thousands, except per share data)**




ASSETS**July
                1,**
              **2007**
              **(Unaudited)**
            ****
            **December
                31,**
              **2006**CURRENT
                ASSETSCash
                and short-term investments
            
            $
            22,702
            
            $
            18,258Marketable
                securities
            
            
            18,740
            
            
            14,722Trade
                accounts receivable, less allowance of $537 in 2007 and $617 in
                2006
            
            
            7,998
            
            
            7,556Inventories
            
            
            8,047
            
            
            7,433Deferred
                income tax asset
            
            
            5,195
            
            
            7,798Prepaid
                expenses and other current assets
            
            
            1,204
            
            
            3,478Assets
                held for sale
            
            
            3,400
            
            
            3,400TOTAL
                CURRENT ASSETS
            
            
            67,286
            
            
            62,645PROPERTY
                AND EQUIPMENTBuildings
                and improvements
            
            
            22,399
            
            
            22,374Machinery
                and equipment
            
            
            37,059
            
            
            36,732Office
                furniture and equipment
            
            
            949
            
            
            92460,407
            
            
            60,030Less
                accumulated depreciation
            
            
            32,345
            
            
            30,15528,062
            
            
            29,875Land
            
            
            822
            
            
            822Construction
                in progress
            
            
            609
            
            
            204TOTAL
                PROPERTY AND EQUIPMENT
            
            
            29,493
            
            
            30,901Goodwill
            
            
            38,721
            
            
            38,824Other
                intangible assets, net
            
            
            12,823
            
            
            13,762Other
                assets
            
            
            93
            
            
            11251,637
            
            
            52,698TOTAL
                ASSETS
            
            $
            148,416
            
            $
            146,244




The
      accompanying notes are an integral part of these statements.





3





**THERAGENICS
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS - Continued**


**(Amounts
      in thousands, except per share data)**




LIABILITIES
                & SHAREHOLDERS’ EQUITY**July
                1,**
              **2007**
              **(Unaudited)**
            ****
            **December
                31,**
              **2006**CURRENT
                LIABILITIESTrade
                accounts payable
            
            $
            1,536
            
            $
            1,768Accrued
                salaries, wages and payroll taxes
            
            
            1,842
            
            
            1,512Other
                current liabilities
            
            
            1,021
            
            
            1,101TOTAL
                CURRENT LIABILITIES
            
            
            4,399
            
            
            4,381LONG-TERM
                LIABILITIESLong-term
                debt
            
            
            7,500
            
            
            7,500Deferred
                income taxes
            
            
            4,963
            
            
            6,148Contract
                termination liability
            
            
            1,501
            
            
            1,513Decommissioning
                retirement liability
            
            
            581
            
            
            561Other
            
            
            82
            
            
            —TOTAL
                LONG-TERM LIABILITIES
            
            
            14,627
            
            
            15,722CONTINGENCIES
            
            
            —
            
            
            —SHAREHOLDERS’
                EQUITYCommon
                stock, authorized 100,000 shares of $0.01 par value, issued and
                outstanding, 33,285 in 2007 and 33,096 in 2006
            
            
            333
            
            
            331Additional
                paid-in capital
            
            
            72,623
            
            
            72,103Retained
                earnings
            
            
            56,501
            
            
            53,789Accumulated
                other comprehensive loss
            
            
            (67
            )
            
            (82
            )TOTAL
                SHAREHOLDERS’ EQUITY
            
            
            129,390
            
            
            126,141TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            148,416
            
            $
            146,244




The
      accompanying notes are an integral part of these statements.





4





**THERAGENICS
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME**


**(UNAUDITED)**


**(Amounts
      in thousands, except per share data)**




**Three
                Months Ended**
            ****
            **Six
                Months Ended**
            ********
            ****
            **July
                1, 2007**
            ****
            **July
                2, 2006**
            ****
            **July
                1, 2007**
            ****
            **July
                2, 2006**REVENUEProduct
                sales
            
            $
            15,364
            
            $
            12,424
            
            $
            30,591
            
            $
            24,680Licensing
                fees
            
            
            211
            
            
            166
            
            
            435
            
            
            30415,575
            
            
            12,590
            
            
            31,026
            
            
            24,984COST
                OF SALES
            
            
            7,864
            
            
            6,480
            
            
            15,973
            
            
            12,535GROSS
                PROFIT
            
            
            7,711
            
            
            6,110
            
            
            15,053
            
            
            12,449OPERATING
                EXPENSESSelling,
                general & administrative
            
            
            4,898
            
            
            5,378
            
            
            9,754
            
            
            10,725Amortization
                of purchased intangibles
            
            
            468
            
            
            187
            
            
            937
            
            
            375Research
                & development
            
            
            379
            
            
            179
            
            
            670
            
            
            418Restructuring
                expenses
            
            
            —
            
            
            63
            
            
            —
            
            
            369Gain
                on sale of assets
            
            
            —
            
            
            —
            
            
            —
            
            
            (201
            )5,745
            
            
            5,807
            
            
            11,361
            
            
            11,686EARNINGS
                FROM OPERATIONS
            
            
            1,966
            
            
            303
            
            
            3,692
            
            
            763OTHER
                INCOME/(EXPENSE)Interest
                income
            
            
            734
            
            
            454
            
            
            1,123
            
            
            869Interest
                expense
            
            
            (168
            )
            
            (65
            )
            
            (351
            )
            
            (134
            )Other
            
            
            1
            
            
            1
            
            
            2
            
            
            (20
            )567
            
            
            390
            
            
            774
            
            
            715Earnings
                before income taxes
            
            
            2,533
            
            
            693
            
            
            4,466
            
            
            1,478Income
                tax expense
            
            
            989
            
            
            260
            
            
            1,754
            
            
            270NET
                EARNINGS
            
            $
            1,544
            
            $
            433
            
            $
            2,712
            
            $
            1,208NET
                EARNINGS PER COMMON SHARE:Basic
            
            $
            0.05
            
            $
            0.01
            
            $
            0.08
            
            $
            0.04Diluted
            
            $
            0.05
            
            $
            0.01
            
            $
            0.08
            
            $
            0.04WEIGHTED
                AVERAGE SHARESBasic
            
            
            33,112
            
            
            32,077
            
            
            33,093
            
            
            32,064Diluted
            
            
            33,264
            
            
            32,120
            
            
            33,236
            
            
            32,114Comprehensive
                income:Net
                earnings
            
            $
            1,544
            
            $
            433
            
            $
            2,712
            
            $
            1,208Other
                comprehensive income/(loss):Unrealized
                gain/(loss) on securities available for sale, net of taxes
            
            
            6
            
            
            3
            
            
            15
            
            
            (111
            )Total
                comprehensive income
            
            $
            1,550
            
            $
            436
            
            $
            2,727
            
            $
            1,097




The
      accompanying notes are an integral part of these statements.





5





**THERAGENICS
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**


**(Amounts
      in thousands)**





**Six
                Months Ended****July
                1,**
              **2007**
            
            **July
                2,**
              **2006**CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                earnings
            
            $
            2,712
            
            $
            1,208Adjustments
                to reconcile net earnings to net cash provided by operating
                activitiesDeferred
                income taxes
            
            
            1,409
            
            
            260Depreciation
                and amortization
            
            
            3,139
            
            
            2,432Provision
                for allowances
            
            
            (26
            )
            
            172Share
                based compensation
            
            
            365
            
            
            223Contract
                termination liability
            
            
            (12
            )
            
            —Decommissioning
                retirement liability
            
            
            20
            
            
            (135
            )Gain
                on sale of equipment
            
            
            —
            
            
            (201
            )Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (380
            )
            
            22Inventories
            
            
            (650
            )
            
            (278
            )Prepaid
                expenses and other current assets
            
            
            2,377
            
            
            (530
            )Other
                assets
            
            
            19
            
            
            (154
            )Trade
                accounts payable
            
            
            (232
            )
            
            (345
            )Accrued
                salaries, wages and payroll taxes
            
            
            330
            
            
            (244
            )Other
                current liabilities
            
            
            (80
            )
            
            263Other
            
            
            82
            
            
            (12
            )Net
                cash provided by operating activities
            
            
            9,073
            
            
            2,681CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                and construction of property and equipment
            
            
            (788
            )
            
            (246
            )Proceeds
                from sale of equipment
            
            
            —
            
            
            234Purchases
                of marketable securities
            
            
            (10,100
            )
            
            (7,617
            )Maturities
                of marketable securities
            
            
            6,102
            
            
            8,700Net
                cash provided (used) by investing activities
            
            
            (4,786
            )
            
            1,071CASH
                FLOWS FROM FINANCING ACTIVITIESExercise
                of stock options and stock purchase plan
            
            
            141
            
            
            44Excess
                tax benefit from exercise of stock options
            
            
            16
            
            
            —Net
                cash provided by financing activities
            
            
            157
            
            
            44NET
                INCREASE IN CASH AND SHORT-TERM INVESTMENTS
            
            $
            4,444
            
            $
            3,796CASH
                AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD
            
            
            18,258
            
            
            10,073CASH
                AND SHORT-TERM INVESTMENTS AT END OF PERIOD
            
            $
            22,702
            
            $
            13,869




The
      accompanying footnotes are an integral part of these statements.





6





**THERAGENICS
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued**


**(UNAUDITED)**


**(Amounts
      in thousands)**




**Six
                Months Ended****July
                1,**
              **2007**
            
            **July
                2,**
              **2006**Supplementary
                cash flow disclosure:Interest
                paid
            
            $
            354
            
            $
            134Taxes
                paid (received), net
            
            $
            (1,617
            )
            
            371




The
      accompanying footnotes are an integral part of these statements.





7





**THERAGENICS
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY**


**FOR
      THE SIX MONTHS ENDED JULY 1, 2007**


**(UNAUDITED)**


**(Amounts
      in thousands)**









**Common
                Stock****Number**
              **of**
              **Shares**
            
            **Par**
              **value**
              **$0.01**
            
            **Additional**
              **Paid-in**
              **Capital**
            
            **Retained**
              **E****arnings**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **Loss**
            
            **Total**BALANCE,
                December 31, 2006
            
            
            33,096
            
            $
            331
            
            $
            72,103
            
            $
            53,789
            
            $
            (82
            )
            $
            126,141Exercise
                of stock options
            
            
            28
            
            
            —
            
            
            121
            
            
            —
            
            
            —
            
            
            121Tax
                benefit of stock option exercises
            
            
            —
            
            
            —
            
            
            16
            
            
            —
            
            
            —
            
            
            16Employee
                stock purchase plan
            
            
            7
            
            
            1
            
            
            19
            
            
            —
            
            
            —
            
            
            20Issuance
                of common stock under vesting of restricted units
            
            
            23
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Issuance
                of restricted shares
            
            
            131
            
            
            1
            
            
            (1
            )
            
            —
            
            
            —
            
            
            —Share
                based compensation
            
            
            —
            
            
            —
            
            
            365
            
            
            —
            
            
            —
            
            
            365Unrealized
                gains on securities available for sale, net of taxes
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            15
            
            
            15Net
                earnings for the period
            
            
            —
            
            
            —
            
            
            —
            
            
            2,712
            
            
            —
            
            
            2,712BALANCE,
                July 1, 2007
            
            
            33,285
            
            $
            333
            
            $
            72,623
            
            $
            56,501
            
            $
            (67
            )
            $
            129,390




The
      accompanying notes are an integral part of these statements.















8
 **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **July
          1, 2007**
 **(Unaudited)**









**NOTE
      A - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS**





The
      unaudited interim condensed consolidated financial statements included herein
      reflect the consolidated operations of Theragenics Corporation and its
      wholly-owned subsidiaries (collectively, “Theragenics” or the “Company”). All
      material intercompany accounts and transactions have been eliminated in
      consolidation. These statements reflect all adjustments that are, in the opinion
      of management, necessary to present fairly the consolidated financial position,
      consolidated results of operations, consolidated cash flows and changes in
      shareholders’ equity for the periods presented. All such adjustments are of a
      normal recurring nature. Pursuant to the rules and regulations of the Securities
      and Exchange Commission for reporting on Form 10-Q, certain information and
      footnote disclosures normally included in financial statements prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America have been condensed or omitted. These unaudited condensed consolidated
      financial statements and notes should be read in conjunction with the audited
      consolidated financial statements and notes for the year ended December 31,
      2006, included in the Form 10-K Annual Report filed by the Company. The December
      31, 2006 condensed consolidated balance sheet included herein has been derived
      from the December 31, 2006 audited consolidated balance sheet included in the
      aforementioned Form 10-K. The consolidated results of operations for the three
      and six months ended July 1, 2007 are not necessarily indicative of the results
      to be expected for a full year.





Theragenics
      is a medical device company serving the cancer treatment and surgical markets,
      operating in two business segments. In its brachytherapy seed business, the
      Company produces, markets and sells TheraSeed ® ,
      its premier palladium-103 prostate cancer treatment device, I-Seed, its
      iodine-125 based prostate cancer treatment device, and related products and
      services. The Company’s surgical products business consists of wound
      closure and vascular access products. Wound closure includes sutures, needles,
      and other surgical products with applications in, among other areas, urology,
      veterinary, cardiology, orthopedics, plastic surgery, and dental. Vascular
      access includes introducers and guidewires used in the interventional radiology,
      interventional cardiology, and vascular surgery markets.




**NOTE
      B - RECENTLY ISSUED ACCOUNTING STANDARDS**




In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      No. 48, *Accounting
      for Uncertainty in Income Taxes* ,
      (“FIN
      48”). The Company adopted FIN 48 on January 1, 2007. See footnote E.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, *Fair
      Value Measurements,* (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements. SFAS 157 does not require any new fair value
      measurements. SFAS 157 is effective for the Company beginning January 1, 2008. The
      Company is evaluating SFAS 157 and the potential impact of this statement on
      the
      Company’s consolidated financial statements has not been
      determined.





In
      February 2007, the FASB issued Statement of Financial Accounting
      Standards No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities -
      Including an amendment of FASB Statement No. 11* ,
      (“SFAS 159”) *.* SFAS 159
      permits entities to choose to measure eligible items at fair value at specified
      election dates and report unrealized gains and losses on items for which the
      fair value option has been elected in earnings at each subsequent reporting
      date. SFAS 159 is effective for the Company beginning January 1, 2008. The
      Company is evaluating the impact of SFAS 159 and the potential impact of this
      statement on the Company’s consolidated financial statements has not been
      determined.


9
 **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **July
          1, 2007**
 **(Unaudited)**


**NOTE
      C - ACQUISITION OF GALT MEDICAL**




The
      Company acquired all of the outstanding common stock and other equity interests
      of Galt Medical Corp. (“Galt”) on August 2, 2006. The acquisition was accounted
      for under the purchase method of accounting, in accordance with Statement of
      Financial Accounting Standards No. 141, *Business
      Combinations* .
      Results
      of operations of Galt are included in the Company’s financial statements
      subsequent to the acquisition date.




The
      total
      purchase price, including transaction costs, was approximately $32.7 million
      (net of cash acquired of approximately $2.3 million). The purchase price was
      paid $29.6 million in cash and the issuance of 978,065 shares of common stock
      valued at approximately $3.1 million. Galt develops, manufactures and markets
      disposable medical devices utilized for vascular access, primarily serving
      the
      interventional radiology, interventional cardiology and vascular surgery
      markets. Galt’s current products include guidewires, micro-introducer kits and
      tear-away introducer sets and kits, and hemostasis valved introducer kits and
      sets. This transaction further diversifies Theragenics’ medical device and
      surgical products businesses and leverages the Company’s existing strengths
      within these markets.




Goodwill
      of $20.4 million was recorded in connection with the acquisition of Galt in
      August 2006. In the second quarter of 2007, goodwill was reduced by $103,000
      as
      a result of certain adjustments made to the allocation of the purchase
      price.




Pro
      Forma Information




The
      following unaudited pro forma summary combines the Company’s results with those
      of Galt as if the acquisition had occurred at the beginning of the calendar
      year
      of the period presented. This unaudited pro forma information is not intended
      to
      represent or be indicative of the Company’s consolidated results of operations
      or financial condition that would have been reported had the acquisition been
      completed as of the beginning of the calendar year presented, and should not
      be
      taken as indicative of the Company’s future consolidated results of operations
      or financial condition (in thousands, except per share data):







**Three
                Months Ended**
              **July
                2, 2006**
            
            **Six
                Months Ended**
              **July
                2, 2006**Revenue
            
            $
            15,333
            
            $
            30,235Net
                earnings
            
            $
            697
            
            $
            1,572Earnings
                per shareBasic
            
            $
            0.02
            
            $
            0.05Diluted
            
            $
            0.02
            
            $
            0.05




Certain
      pro forma adjustments have been made to reflect the impact of the purchase
      transaction, primarily consisting of amortization of intangible assets with
      determinate lives, reductions in interest income as a result of cash used in
      the
      acquisition, increases in interest expense resulting from borrowings under
      the
      Company’s credit facility, elimination of share based compensation on equity
      awards that terminated upon a change in control of the acquired company, income
      taxes to reflect the Company’s effective rate for the period, and increases in
      weighted average shares outstanding for the common shares issued in the
      transaction. The pro forma adjustments also include non-recurring charges of
      $76,000 and $474,000 for amortization of the fair market value adjustments
      for
      inventory and backlog for the three and six months ended July 2, 2006,
      respectively.


10
 **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **July
          1, 2007**
 **(Unaudited)**




**NOTE
      D - INVENTORIES**




Inventories
      are stated at the lower of cost or market. Cost is determined using the
      first-in, first-out (FIFO) method. Market is replacement cost or net realizable
      value. The Company estimates reserves for inventory obsolescence based upon
      management’s judgment of future realization. Inventories were comprised of the
      following (in thousands):







**July
                1,**
              **2007**
            
            **December
                31,**
              **2006**Raw
                materials
            
            $
            4,230
            
            $
            4,409Work
                in process
            
            
            1,627
            
            
            950Finished
                goods
            
            
            1,906
            
            
            1,608Spare
                parts and supplies
            
            
            788
            
            
            9358,551
            
            
            7,902Allowance
                for slow moving and obsolete inventory
            
            
            (504
            )
            
            (469
            )Total
            
            $
            8,047
            
            $
            7,433







**NOTE
      E - INCOME TAXES**




The
      Company’s effective income tax rate for the three and six months ended July 1,
      2007 was approximately 39%, which is reflective of the approximate effective
      rate expected for 2007. This includes federal and state income taxes, and is
      higher than taxes computed at the statutory rates due to certain non-deductible
      items.




The
      Company’s effective tax rate for the three and six months ended July 2, 2006 was
      approximately 38% and 18%, respectively. During 2006 the Company had an
      allowance for a deferred income tax asset that was reduced during the course
      of
      the year as it became more likely than not that some portion of the deferred
      tax
      asset would be realized. The three and six months ended July 2, 2006 included
      a
      tax benefit of approximately $25,000 and $337,000, respectively, representing
      a
      reduction in the allowance for the deferred income tax asset and reducing the
      effective tax rate for each period. In the fourth quarter of 2006, Management
      determined that it was more likely than not that substantially all of the
      remaining deferred tax asset would be recognized and, accordingly, all but
      $239,000 of the allowance was released. The allowance of $239,000 remains at
      July 1, 2007, and primarily represents certain state net operating loss
      carryforwards for which the Company believes it is more likely than not that
      the
      benefit will not be realized.




The
      Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN 48”), on January 1, 2007. FIN 48 clarifies the accounting for
      uncertainty in income taxes recognized in an enterprise’s financial statements
      in accordance with Statement of Financial Accounting Standards No. 109, *Accounting
      for Income Taxes* ,
      and prescribes a recognition threshold and measurement process for financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on derecognition,
      classification, interest expense and penalties, accounting in interim periods,
      disclosure and transition. The Company has evaluated its tax positions for
      the
      tax years ended December 31, 2003, 2004, 2005 and 2006, the tax years that
      remain subject to examination by major tax jurisdictions as of July 1, 2007.
      With few exceptions, the Company is no longer subject to U.S. federal, state
      and
      local, or income tax examinations by tax authorities for years prior to 2003.
      The Company concluded that there are no significant uncertain tax positions
      requiring recognition in the financial statements. Accordingly, adoption of
      FIN
      48 did not have a material effect on the Company’s financial
      statements.




The
      Company’s policy is to recognize accrued interest expense and penalties
      associated with uncertain tax positions as a component of income tax expense.
      Inasmuch as the Company has concluded that there are no significant uncertain
      tax positions, no amounts of interest or penalties have been accrued.





During
      the second quarter of 2007 the IRS completed an examination of the Company’s
      2004 federal income tax return, with no significant adjustments. Upon settlement
      of this audit, the Company received a refund of federal income taxes previously
      paid of $1.9 million.  This refund resulted from the carryback of
      tax losses that were reported in the Company’s 2004
      federal
      income tax return.  The Company also received $309,000 of interest
      income related to this refund, which was recognized upon settlement of the
      IRS
      examination in the second quarter of 2007. The Company’s federal income tax
      return for 2005 is currently under examination by the IRS. The examination
      is
      not expected to have a material adverse effect on the Company’s consolidated
      financial position or results of operations.


11
 **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **July
          1, 2007**
 **(Unaudited)**







**NOTE
      F - SHARE-BASED COMPENSATION**





Stock
      Options





The
      following is a summary of activity in stock options outstanding during the
      first
      six months of 2007 (shares and aggregate intrinsic value in
      thousands):




**Shares**
            
            **Weighted**
              **average**
              **exercise**
              **price**
            
            **Weighted**
              **average**
              **remaining**
              **contractual**
              **life
                (yrs)**
            
            **Aggregate**
              **intrinsic**
              **value**Outstanding,
                beginning of period
            
            
            2,016
            
            $
            10.30Granted
            
            
            175
            
            
            5.00Exercised
            
            
            (28
            )
            
            4.25Forfeited
            
            
            (319
            )
            
            8.00Expired
            
            
            (16
            )
            
            11.75Outstanding,
                end of period
            
            
            1,828
            
            $
            10.30
            
            
            3.4
            
            $
            13Exercisable
                at end of period
            
            
            1,615
            
            $
            11.00
            
            
            2.6
            
            $
            10







The
      grant
      date fair value of the stock options issued in 2007 was $2.68 per share and
      was
      estimated using the Black-Scholes options-pricing model using the following
      assumptions:







Expected
                dividend yield
            0.0%Expected
                volatility
            49.9%Risk-free
                interest rate
            4.8%Expected
                life
            6
                years





Expected
      stock price volatility is based on the historical volatility of the Company’s
      stock price over the most recent period commensurate with the expected option
      life. When  determining
      the expected life of stock options, the Company classifies options into groups
      for employees where relatively homogeneous exercise behavior is expected. The
      vesting period of the options, the length of time similar grants have remained
      outstanding in the past, and the expected volatility of the stock are also
      considered. These factors may cause the expected volatility and expected life
      of
      options granted to differ from period to period.




The
      Company recognizes compensation expense for option awards with graded vesting
      on
      a straight-line basis over the requisite service period for each separately
      vesting portion of the award. Compensation cost related to stock options totaled
      $61,000 and $106,000 for the three and six months ended July 1, 2007,
      respectively and $18,000 and $31,000 for the three and six months ended July
      2,
      2006, respectively. As of July 1, 2007 there was approximately $377,000 of
      unrecognized compensation cost related to nonvested stock options, which is
      expected to be recognized over a weighted average period of approximately 2.3
      years. The total intrinsic value of options exercised was approximately $45,000
      for the six months ended July 1, 2007.  No stock options were granted or
      exercised during the six months ended July 2, 2006.


12
 **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **July
          1, 2007**
 **(Unaudited)**




Restricted
      Stock




A
      summary
      of activity in non-vested restricted stock awards during the first six
      months of 2007 follows (shares in thousands):







Shares
            
            Weighted
              average
                grant
              date
                fair valueNon-vested
                at January 1, 2007
            
            
            53
            
            $
            3.27Granted
            
            
            131
            
            
            4.73Vested
            
            
            (20
            )
            
            3.66Forfeited
            
            
            -
            
            
            -Non-vested
                at July 1, 2007
            
            
            164
            
            $
            4.43




Fair
      value of restricted shares granted to employees and directors is based on the
      fair value of the underlying common stock at the grant date. The fair value
      of
      the restricted shares granted to non-employees is remeasured each period until
      they are vested based on the fair value of the underlying common stock.
      Compensation expense related to restricted stock totaled approximately $91,000
      and $169,000 for the three and six months ended July 1, 2007, respectively,
      and
      $65,000 and $76,000 for the three and six months ended July 2, 2006,
      respectively. As of July 1, 2007, there was approximately $563,000 of
      unrecognized compensation cost related to the restricted shares, which is
      expected to be recognized over a weighted average period of 3.2 years. The
      total
      fair value of restricted stock vested during 2007 was approximately $94,000
      and
      $72,000 for the six months ended July 1, 2007 and July 2, 2006,
      respectively.




Stock
      Units




There
      was
      no activity in stock units during the six months ended July 1, 2007, and no
      stock units were vested during the six months ended July 1, 2007 or the six
      months ended July 2, 2006. Compensation expense related to stock units totaled
      approximately $19,000 and $87,000 for the three and six months ended July 1,
      2007, respectively, and $78,000 and $109,000 for the three and six months ended
      July 2, 2006, respectively. As of July 1, 2007, there was approximately $187,000
      of unrecognized compensation cost related to the stock units, which is expected
      to be recognized over a weighted average period of 1.4 years.




Employee
      Stock Purchase Plan




The
      Theragenics Corporation Employee Stock Purchase Plan (the “ESPP”) allows
      eligible employees the right to **** purchase
      common stock on a quarterly basis at the lower of 85% of the market price at
      the
      beginning or end of each quarterly offering period. Compensation cost related
      to
      the ESPP totaled approximately $1,000 and $3,000 for the three and six months
      ended July 1, 2007, respectively and $3,000 and $7,000 for the three and six
      months ended July 2, 2006, respectively.




**NOTE
      G - DISTRIBUTION AGREEMENT AND MAJOR CUSTOMERS**




*Distribution
      Agreement*




The
      Company’s brachytherapy business sells its TheraSeed ® device directly to health care providers and to third party distributors. The
      Company’s primary non-exclusive distribution agreement is with C. R. Bard
      (“Bard”) for the distribution of the TheraSeed ® device (the “Bard Agreement”). The terms of the Bard Agreement provide for
      automatic one year extensions of the term, unless either party gives notice
      of
      its intent not to renew at least twelve months prior to the end of the current
      term. The current terms expires December 31, 2008, and will be automatically
      extended for one additional year unless either party gives notice of its intent
      not to extend by December 31, 2007. The Bard Agreement gives Bard the
      non-exclusive right to distribute the TheraSeed ® device in the U.S., Canada, and other international locations for the treatment
      of prostate cancer and other solid localized cancerous tumors.


13
 **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **July
          1, 2007**
 **(Unaudited)**









*Major
      Customers*




Sales
      to
      Bard represented approximately 55% of total brachytherapy seed product revenue
      and approximately 30% of consolidated revenue for both the three months and
      six
      months ended July 1, 2007. Sales to Bard represented approximately 60% and
      62%
      of total brachytherapy seed product revenue, and approximately 40% and 43%
      of
      consolidated revenue, for the three and six months ended July 2, 2006,
      respectively.




Accounts
      receivable from Bard represented approximately 52% of brachytherapy accounts
      receivable and 31% of consolidated accounts receivable at July 1, 2007. At
      December 31, 2006, accounts receivable from Bard represented approximately
      53%
      of brachytherapy accounts receivable and 31% of consolidated accounts
      receivable.




For
      the
      three and six months ended July 1, 2007, no single customer equaled or exceeded
      10% of surgical products sales. For the six months ended July 2, 2006, three
      customers equaled or exceeded 10% of surgical products sales, with one customer
      totaling 13% of sales and two customers each totaling 10% of sales. For the
      three months ended July 2, 2006, one customer totaled 14% and another customer
      totaled 11% of surgical products sales. No single customer equaled or exceeded
      10% of surgical products accounts receivable at July 1, 2007. One customer
      totaled 11% of surgical products accounts receivable at December 31, 2006.


14
 **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **July
          1, 2007**
 **(Unaudited)**




**NOTE
      H - SEGMENT REPORTING**




*Segment
      Reporting*


Theragenics
      is a medical device company serving the cancer treatment and surgical markets,
      operating in two business segments. In its brachytherapy seed business, the
      Company produces, markets and sells TheraSeed ® ,
      its
      premier palladium-103 prostate cancer treatment device, I-Seed, its iodine-125
      based prostate cancer treatment device, and related products and
      services. The Company’s surgical products business consists of wound
      closure and vascular access products. Wound closure includes sutures, needles
      and other surgical products with applications in, among other areas, urology,
      veterinary, cardiology, orthopedics, plastic surgery and dental. Vascular access
      includes introducers and guidewires used in the interventional radiology,
      interventional cardiology and vascular surgery markets. The
      following tables provide certain information for these segments (in
      thousands):





**Three
                Months Ended**
            
            **Six
                Months Ended****July
                1,**
              **2007**
            
            **July
                2,**
              **2006**
            
            **July
                1,**
              **2007**
            
            **July
                2,**
              **2006**RevenuesBrachytherapy
                seed
            
            $
            8,551
            
            $
            8,610
            
            $
            17,200
            
            $
            17,618Surgical
                products
            
            
            7,071
            
            
            4,019
            
            
            13,910
            
            
            7,461Intersegment
                eliminations
            
            
            (47
            )
            
            (39
            )
            
            (84
            )
            
            (95
            )$
            15,575
            
            $
            12,590
            
            $
            31,026
            
            $
            24,984Restructuring
                expensesBrachytherapy
                seed
            
            $
            —
            
            $
            63
            
            $
            —
            
            $
            369Surgical
                products
            
            
            —
            
            
            —
            
            
            —
            
            
            —$
            —
            
            $
            63
            
            $
            —
            
            $
            369Gain
                on sale of assetsBrachytherapy
                seed
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            199Surgical
                products
            
            $
            —
            
            
            —
            
            
            —
            
            
            2—
            
            $
            —
            
            $
            —
            
            $
            201Earnings
                (loss) from operationsBrachytherapy
                seed
            
            $
            940
            
            $
            (233
            )
            $
            2,090
            
            $
            (61
            )Surgical
                products
            
            
            1,029
            
            
            528
            
            
            1,607
            
            
            837Intersegment
                eliminations
            
            
            (3
            )
            
            8
            
            
            (5
            )
            
            (13
            )$
            1,966
            
            $
            303
            
            $
            3,692
            
            $
            763Capital
                expendituresBrachytherapy
                seed
            
            $
            209
            
            $
            75
            
            $
            332
            
            $
            144Surgical
                products
            
            
            237
            
            
            49
            
            
            456
            
            
            102$
            446
            
            $
            124
            
            $
            788
            
            $
            246Depreciation
                and amortizationBrachytherapy
                seed
            
            $
            965
            
            $
            1,020
            
            $
            1,934
            
            $
            2,004Surgical
                products
            
            
            607
            
            
            216
            
            
            1,205
            
            
            428$
            1,572
            
            $
            1,236
            
            $
            3,139
            
            $
            2,432







E arnings
      from operations by segment do not include interest expense, interest income,
      other income and expense, or provisions for income taxes.
      Intersegment eliminations represent surgical products segment sales
      transactions.


15
 **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **July
          1, 2007**
 **(Unaudited)**


Supplemental
      information related to significant assets and liabilities follows (in
      thousands):




**July
                1,**
              **2007**
            
            **December
                31,**
              **2006**Identifiable
                assetsBrachytherapy
                seed
            
            $
            84,601
            
            $
            79,136Surgical
                products
            
            
            70,241
            
            
            69,860Corporate
                investment in subsidiaries
            
            
            61,667
            
            
            61,667Intersegment
                eliminations
            
            
            (68,093
            )
            
            (64,419
            )$
            148,416
            
            $
            146,244GoodwillBrachytherapy
                seed
            
            $
            2,578
            
            $
            2,578Surgical
                products
            
            
            36,143
            
            
            36,246$
            38,721
            
            $
            38,824Other
                intangible assetsBrachytherapy
                seed
            
            $
            5
            
            $
            6Surgical
                products
            
            
            12,818
            
            
            13,756$
            12,823
            
            $
            13,762







Information
      regarding revenue by geographic regions follows (in thousands):




**Three
                Months Ended**
            
            **Six
                Months Ended****July
                1, 2007**
            
            **July
                2, 2006**
            
            **July
                1, 2007**
            
            **July
                2, 2006**United
                States
            
            $
            14,527
            
            $
            11,888
            
            $
            28,938
            
            $
            23,678Europe
            
            
            663
            
            
            354
            
            
            1,284
            
            
            646Other
                foreign countries
            
            
            174
            
            
            182
            
            
            369
            
            
            356License
                fees (Canada)
            
            
            211
            
            
            166
            
            
            435
            
            
            304$
            15,575
            
            $
            12,590
            
            $
            31,026
            
            $
            24,984





Foreign
      sales are attributed to countries based on the location of the customer. License
      fees are recognized from the TheraSphere ® licensing agreement with Nordion, a Canadian based company. All other foreign
      sales are related to the surgical products segment. All of the Company’s
      long-lived assets are located within the United States.





**NOTE
      I - RESTRUCTURING**





Restructuring
      costs of $63,000 and $369,000 were incurred in the three and six months ended
      July 2, 2006, respectively. These restructuring costs consisted primarily of
      the
      ongoing site exit and disposal costs associated with the restructuring of the
      brachytherapy business that was announced and implemented in August 2005. These
      restructuring activities were completed in the second quarter of 2006. Gain
      on
      sale of assets in the six months ended July 2, 2006 includes $199,000 related
      to
      assets sold that were idled in the restructuring.





16
 **THERAGENICS
          CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **July
          1, 2007**
 **(Unaudited)**


**NOTE
      J - EARNINGS PER SHARE**




Basic
      earnings per share represents net earnings divided by the weighted average
      shares outstanding. Diluted earnings per share represents net earnings divided
      by weighted average shares outstanding adjusted for the incremental dilution
      of
      outstanding stock options and awards. A reconciliation of weighted average
      common shares outstanding to weighted average common shares outstanding assuming
      dilution for the periods presented follows (in thousands, except per share
      data):







**Three
                months ended**
            
            **Six
                months ended****July
                1,**
              **2007**
            
            **July
                2,**
              **2006**
            
            **July
                1,**
              **2007**
            
            **July
                2,**
              **2006**Net
                earnings
            
            $
            1,544
            
            $
            433
            
            $
            2,712
            
            $
            1,208Weighted
                average common shares outstanding
            
            
            33,112
            
            
            32,077
            
            
            33,093
            
            
            32,064Incremental
                common shares issuable under stock options and awards
            
            
            152
            
            
            43
            
            
            143
            
            
            50Weighted
                average common shares outstanding assuming dilution
            
            
            33,264
            
            
            32,120
            
            
            33,236
            
            
            32,114Earnings
                per shareBasic
            
            $
            0.05
            
            $
            0.01
            
            $
            0.08
            
            $
            0.04Diluted
            
            $
            0.05
            
            $
            0.01
            
            $
            0.08
            
            $
            0.04









For
      the
      three and six months ended July 1, 2007, potential common stock from
      approximately 1,430,000 and 1,440,000 stock options, respectively, were not
      included in the diluted earnings per share calculation because their effect
      is
      antidilutive. For both the three and six months ended July 2, 2006, potential
      common stock from approximately 2,433,000 stock options were not included in
      the
      diluted earnings per share calculation because their effect is
      antidilutive.








**NOTE
      K - CONTINGENCIES**





From
        time
        to time, the Company is subject to certain legal proceedings and claims in
        the
        ordinary course of business. Management currently is not aware of any such
        legal
        proceedings or claims that it believes will have, individually or in aggregate,
        a material adverse effect on the Company’s business, financial condition, or
        operating results.


17







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




***Overview***





Theragenics
      Corporation is a medical device company serving the cancer treatment and
      surgical markets, operating in two business segments. In its brachytherapy
      seed
      business, the Company produces, markets and sells TheraSeed ® ,
      its
      premier palladium-103 prostate cancer treatment device; I-Seed, its iodine-125
      based prostate cancer treatment device; and other related products and services.
      Theragenics is the world’s largest producer of palladium-103, the radioactive
      isotope that supplies the therapeutic radiation for its TheraSeed ® device.
      Physicians, hospitals and other healthcare providers, primarily located in
      the
      United States, utilize the TheraSeed ® device.
      The majority of TheraSeed ® sales
      are channeled through third-party distributors. The Company also sells its
      TheraSeed ® and
      I-Seed devices directly to physicians.





The
      Company’s surgical products business consists of wound closure and vascular
      access products. Wound closure includes sutures, needles and other surgical
      products with applications in, among other areas, urology, veterinary,
      cardiology, orthopedics, plastic surgery and dental. Vascular access includes
      introducers and guidewires used in the interventional radiology, interventional
      cardiology and vascular surgery markets.





The
      Company has substantially diversified its operations and revenues in recent
      years. Prior to 2003, the Company’s sole product was the palladium-103
      TheraSeed ® prostate cancer treatment device. In 2003, the Company began to market I-Seed,
      an iodine-125 based prostate cancer treatment device. In May 2005, the Company
      expanded into the surgical products business with the acquisition of CP Medical
      Corporation (“CP Medical”), followed by the acquisition of Galt Medical Corp.
      (“Galt”) in August 2006. CP Medical and Galt comprise the Company’s surgical
      products business, which accounted for 45% of consolidated revenue in the first
      six months of 2007. Prior to May 2005, the brachytherapy seed business
      constituted 100% of the Company’s revenue.





Galt
      was
      acquired on August 2, 2006, for $32.7 million (net of $2.3 million of cash
      acquired), including $29.6 million in cash and the issuance of common shares
      valued at $3.1 million. The Company borrowed $7.5 million under its $40.0
      million credit facility in connection with the Galt acquisition. The Company’s
      consolidated results of operations include the results of Galt subsequent to
      the
      acquisition date.









***Results
      of Operations***




***Revenue***




Following
      is a summary of revenue by segment (in thousands):




**Three
                  Months Ended**
              
              **Six
                  Months Ended****July
                  1, 2007**
              
              **July
                  2, 2006**
              
              **Change
                  (%)**
              
              **July
                  1, 2007**
              
              **July
                  2, 2006**
              
              **Change
                  (%)**Brachytherapy
                  seedProduct
                  sales
              
              $
              8,340
              
              $
              8,444
              
              
              (1.2
              %)
              $
              16,765
              
              $
              17,314
              
              
              (3.2
              %)License
                  fees
              
              
              211
              
              
              166
              
              
              27.1
              %
              
              435
              
              
              304
              
              
              43.1
              %Total
                  brachytherapy seed
              
              
              8,551
              
              
              8,610
              
              
              (.7
              %)
              
              17,200
              
              
              17,618
              
              
              (2.4
              %)Surgical
                  products
              
              
              7,071
              
              
              4,019
              
              
              75.9
              %
              
              13,910
              
              
              7,461
              
              
              86.4
              %Intersegment
                  eliminations
              
              
              (47
              )
              
              (39
              )
              
              20.5
              %
              
              (84
              )
              
              (95
              )
              
              (11.6
              %)Consolidated
              
              $
              15,575
              
              $
              12,590
              
              
              23.7
              %
              $
              31,026
              
              $
              24,984
              
              
              24.2
              %




The
      increase in consolidated revenue over the 2006 periods is a result of the
      increase in the surgical products segment, which includes wound closure and
      vascular access products. Revenue for 2007 includes the results of Galt, which
      was acquired in August 2006. A significant portion of wound closure and vascular
      access products are sold to original equipment manufacturers and distributors.
      Ordering patterns of these customers vary and are difficult to predict.
      Accordingly, surgical products revenue is subject to fluctuation on a quarter
      to
      quarter basis.


18









Brachytherapy
      product sales decreased 1% and 3% in the three and six month period ended July
      1, 2007, respectively, compared to the 2006 periods. This decrease was due
      to a
      decline in sales to our main distributor, which decreased 9% and 14% for the
      three and six months ended July 1, 2007, respectively, largely offset by
      increased revenue from direct sales. The decline to this main distributor was
      attributable to decreases in unit volumes and in the transfer price, which
      was
      reduced by 6% effective February 1, 2007. Continued declines in unit volumes
      to
      distributors would reduce gross profit further due to the significant fixed
      cost
      component of manufacturing expenses to the extent not offset by increased direct
      sales. However, because of this significant fixed cost component, any
      appreciable increases in unit volumes to distributors could have the impact
      of
      increasing overall margins. The future effect of the pricing reduction to the
      Company’s distributors is dependent upon the ability of the distributors to
      leverage this pricing reduction to maintain or increase unit volumes.




The
      Company also maintains its own internal brachytherapy sales force that sells
      TheraSeed ® and
      I-Seed directly to hospitals and physicians. Revenue from direct sales increased
      7% and 11% for the three and six months ended July 1, 2007, respectively, over
      the comparable 2006 periods. This increase in direct sales resulted from
      programs implemented by the direct sales force, including direct to consumer
      advertising programs. The average selling price of the TheraSeed ® device
      sold directly to hospitals and physicians during the second quarter and first
      six months of 2007 was comparable to the respective 2006 periods.




The
      Company has two non-exclusive distribution agreements in place for the
      distribution of the TheraSeed ®  device.
      The primary distribution agreement is with C. R. Bard (“Bard”), which is
      effective through December 31, 2008 (the “Bard Agreement”). Sales to Bard
      represented 55% of brachytherapy products sales and 30% of consolidated sales
      for both the three and six months ended July 1, 2007. For the six months ended
      July 2, 2006, sales to Bard represented 62% of brachytherapy product sales
      and
      43% of consolidated sales. The terms of the Bard Agreement provide for automatic
      one-year extensions of the term, unless either party gives notice of its intent
      not to renew at least twelve months prior to the end of the current term. The
      current term expires on December 31, 2008, and will be automatically extended
      for one additional year unless either party gives notice of its intent not
      to
      extend by December 31, 2007.




Management
      believes that Medicare reimbursement policies have affected the brachytherapy
      market and can also continue to affect the brachytherapy market. In December
      2006 Congress enacted the Tax Relief and Health Care Act of 2006 (the “Act”),
      which retained the “charges adjusted to costs” reimbursement methodology for
      brachytherapy seeds throughout 2007. The Company believes that it is likely
      that
      fixed reimbursement rates for seeds will be implemented beginning in 2008,
      (see
“ *Medicare
      Developments* ”
below)
      and that this and other factors can be expected to lead to continued pricing
      pressure from hospitals and other health care providers.




***Operating
      income and costs and expenses***




Following
      is a summary of operating income by segment (in thousands):







**Three
                Months Ended**
            
            **Six
                Months Ended****July
                1, 2007**
            
            **July
                2, 2006**
            
            **Change
                ($)**
            
            **July
                1, 2007**
            
            **July
                2 2006**
            
            **Change
                ($)**Operating
                income (loss)Brachytherapy
                seed
            
            $
            940
            
            $
            (233
            )
            $
            1,173
            
            $
            2,090
            
            $
            (61
            )
            $
            2,151Surgical
                products
            
            
            1,029
            
            
            528
            
            
            501
            
            
            1,607
            
            
            837
            
            
            770Intersegment
                eliminations
            
            
            (3
            )
            
            8
            
            
            (11
            )
            
            (5
            )
            
            (13
            )
            
            8Consolidated
            
            $
            1,966
            
            $
            303
            
            $
            1,663
            
            $
            3,692
            
            $
            763
            
            $
            2,929









The
      increase in operating income in the brachytherapy segment was a result of
      reductions in operating expenses. Cost of sales decreased $336,000 and $289,000
      for the three and six months ended July 1, 2007, respectively, compared to
      the
      2006 periods. These decreases were a result of cost reductions from operating
      efficiencies. As a result, gross margins on product sales increased to 55%
      in
      the second quarter of 2007 from 50% in 2006, and to 54% for the first six months
      of 2007 compared to 52% in the comparable 2006 period. Looking forward, gross
      margins in the brachytherapy seed business are expected to be dependent
      primarily on sales levels, due to the high fixed cost component of brachytherapy
      operations. Selling, general and administrative (“SG&A”) expenses decreased
      $922,000 and $2.2 million for the three and six months of 2007, respectively,
      compared to the 2006 periods primarily due to declines in advertising and
      professional fees.


19









Operating
      income in the surgical products segment include the results of Galt, acquired
      in
      August 2006. Gross margins in the surgical products segment were 44% and 42%
      for
      the three and six months ended July 1, 2007, respectively, and are dependent
      on
      product and sales channel mix. In addition to the inclusion of Galt, operating
      income improved over the 2006 periods due to reductions in professional fees
      and
      bad debt expenses partially offset by severance costs. In addition, efficiencies
      were realized because of the larger scale of the surgical products business
      in
      2007. Overall SG&A expenses as a percent of sales in the surgical products
      segment decreased to 27% for the three months ended July 1, 2007 from 29% in
      the
      comparable 2006 period and to 28% for the first six months of 2007 compared
      to
      29% in the comparable 2006 period. To support anticipated growth, the Company
      expects to continue to make investments in staffing and other infrastructure
      in
      the surgical products segment. Accordingly, SG&A expenses may fluctuate as a
      percentage of sales in future periods.




Research
      and development (“R&D”) expenses increased over the 2006 periods as
      investments were made in new product development. The Company expects to
      continue to invest in R&D during 2007 as investments are made in product
      development to address growth opportunities in our businesses.




***Other***




Interest
      income was $734,000 and $1,123,000 for the three and six months ended July
      1,
      2007, respectively, compared to $454,000 and $869,000 for the comparable 2006
      periods. The 2007 periods include $309,000 of one-time interest income related
      to $1.9 million of refunded federal income taxes. The interest income was
      recognized in the three months ended July 1, 2007 upon settlement of the IRS’
examination of the Company’s 2004 federal income tax return. This increase in
      interest income was partially offset due to having fewer invested funds in
      the
      2007 periods, as $29.6 million in cash was utilized for the acquisition of
      Galt
      in August 2006. The Company’s investments consist primarily of short-term cash
      investments and high-credit quality corporate and municipal obligations, in
      accordance with the Company’s investment policies. Funds available for
      investment have and will continue to be utilized for the Company’s current and
      future expansion programs and strategic opportunities for growth and
      diversification. As funds continue to be used for these programs and activities,
      and as interest rates continue to change, management expects interest income
      to
      fluctuate accordingly.




***Income
      tax expense***




The
      Company’s effective income tax rate for the three and six months ending July 1,
      2007 was approximately 39%, which is reflective of the approximate effective
      rate expected for 2007. This includes federal and state income taxes, and is
      higher than taxes computed at the statutory rates due to certain non-deductible
      items.




The
      Company’s effective tax rate for the three and six months ending July 2, 2006
      was approximately 38% and 18%, respectively. During 2006 the Company had an
      allowance for a deferred income tax asset that was reduced during the course
      of
      the year as it became more likely than not that some portion of the deferred
      tax
      asset would be realized. The three and six months ended July 2, 2006 included
      a
      tax benefit of approximately $25,000 and $337,000, respectively, which
      represented a reduction in the allowance for the deferred income tax asset
      and
      reduced the effective tax rate for that period. In the fourth quarter of 2006,
      Management determined that it was more likely than not that substantially all
      of
      the remaining deferred tax asset would be recognized and, accordingly, all
      but
      $239,000 of the allowance was released. The allowance of $239,000 remains at
      July 1, 2007, and primarily represents certain state net operating loss
      carryforwards for which the Company believes it is more likely than not that
      the
      benefit will not be realized.




The
      Company adopted the provisions of Financial Accounting Standards Board
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”) on January 1, 2007 (see *“Critical
      Accounting Policies”* below).
      The Company has evaluated its tax positions and concluded that there are no
      significant uncertain tax positions requiring recognition in the financial
      statements. This evaluation was performed for all tax years that remain subject
      to examination by major tax jurisdictions as of July 1, 2007. Accordingly,
      adoption of FIN 48 did not have a material effect on the Company’s financial
      statements. However, Management considers many factors when evaluating and
      estimating tax positions and tax benefits, which may require periodic
      adjustments and may not accurately anticipate actual outcomes.


20







During
      the second quarter of 2007 the IRS completed an audit of the Company’s 2004
      federal income tax return, with no significant adjustments. The Company’s
      federal income tax return for 2005 is currently under examination by the IRS.
      The examination is not expected to have a material adverse effect on the
      Company’s
      consolidated financial position or results of operations.




***Critical
      Accounting Policies***




The
      preparation of financial statements requires Management to make estimates and
      assumptions that affect the reported amount of assets and liabilities and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. The SEC defines “critical accounting policies” as those that
      require application of management’s most difficult, subjective or complex
      judgments, often as a result of the need to make estimates about the effect
      of
      matters that are inherently uncertain and may change in subsequent periods.
      The
      following is not intended to be a comprehensive list of all of the Company’s
      accounting policies. The Company’s significant accounting policies are more
      fully described in the notes to its consolidated financial statements included
      in its Annual Report on Form 10-K and as updated in its Forms 10-Q for the
      current fiscal year. In many cases, the accounting treatment of a particular
      transaction is specifically dictated by accounting principles generally accepted
      in the United States, with no need for Management’s judgment in their
      application. The accounting policies described below are those which we believe
      are most critical in fully understanding and evaluating our reported financial
      results, and are areas in which Management’s judgment in selecting an available
      alternative might produce a materially different result.




*Property,
      plant and equipment* . Property,
      plant and equipment are recorded at cost and depreciated on a straight-line
      basis over the estimated useful lives of such assets. The Company’s estimates
      can result in differences from the actual useful lives of certain assets. The
      significant portion of equipment is comprised of the Company’s cyclotrons,
      utilized in the brachytherapy business. As of July 1, 2007, the Company owned
      and operated eight cyclotrons, the first of which entered service in 1998.
      Each
      of the Company’s cyclotrons is depreciated using an estimated 10-year life.
      Management’s estimate of the useful life of these cyclotrons is based on the
      Company’s experience to date with these cyclotrons. Based on experience gained
      relative to the operation, refurbishment, and maintenance of the cyclotrons,
      Management believes there is a substantive basis for the current depreciable
      lives of the cyclotrons.




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




Management
      assesses the impairment of its depreciable assets whenever events or
      circumstances indicate that such assets might be impaired. In the event the
      expected undiscounted future cash flow attributable to the asset is less than
      the carrying value of the asset, an impairment loss equal to the excess of
      the
      asset’s carrying value over its fair value is recorded. The estimation of fair
      value, whether in conjunction with an asset to be held and used or with an
      asset
      held for sale, also involves judgment.




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




*Goodwill* . The
      Company has $36.1 million of goodwill associated with its surgical products
      business and $2.6 million of goodwill associated with its brachytherapy seed
      business. The Company accounts for goodwill and other intangible assets in
      accordance with the provisions of Statement of Financial Accounting Standards
      No. 142, *Goodwill
      and Other Intangible Assets* (“SFAS 142”). Under SFAS 142, goodwill and intangible assets with indefinite
      lives are not amortized to expense and must be reviewed for impairment annually
      or more frequently if events or changes in circumstances indicate that such
      assets might be impaired. The first step of the impairment test, used to
      identify potential impairment, compares the fair value of a reporting unit
      with
      its carrying amount, including goodwill and intangible assets with indefinite
      lives. If fair value exceeds book value, goodwill is considered not impaired.
      If
      book value exceeds fair value, the second step of the impairment test is
      performed to measure the amount of impairment loss, if any. For this step the
      implied fair value of the goodwill is compared with the book value of the
      goodwill. If the carrying amount of the goodwill exceeds the implied fair value
      of the goodwill, an impairment loss would be recognized in an amount equal
      to
      that excess. Any loss recognized cannot exceed the carrying amount of goodwill.
      After an impairment loss is recognized, the adjusted carrying amount of goodwill
      is its new accounting basis. Subsequent reversal of a previously recognized
      impairment loss is prohibited once the measurement of that loss is
      completed.


21









The
      Company performs an annual goodwill impairment assessment during the fourth
      quarter. Management also makes judgments about goodwill whenever events or
      changes in circumstances indicate that impairment in the value of goodwill
      recorded on our balance sheet may exist. The timing of an impairment test may
      result in charges to our statements of income in the current reporting period
      that could not have been reasonably foreseen in prior periods. In order to
      estimate the fair value of goodwill, Management typically makes various
      assumptions about the future prospects for the reporting unit that the asset
      relates to, considers market factors specific to that reporting unit and
      estimates future cash flows to be generated by that reporting unit. Assumptions
      used in these assessments are consistent with the Company’s internal planning.
      The most recent assessment was performed in the fourth quarter of 2006 and
      the
      Company determined that goodwill was not impaired.




Goodwill
      of $20.4 million was recorded in connection with the acquisition of Galt in
      August 2006. In the second quarter of 2007, goodwill was reduced by $103,000
      as
      a result of certain adjustments made to the allocation of the purchase
      price.




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




*Allowance
      for doubtful accounts and returns* . Management
      judgments and estimates are made and used in connection with establishing an
      allowance for the possibility that portions of our accounts receivable balances
      may become uncollectible or subject to return. Accounts receivable are reduced
      by this allowance. Specifically, Management analyzes accounts receivable in
      relation to current economic trends, changes in our customer payment history,
      and changes in sales returns history in establishing this allowance.




*Share-based
      compensation.* The
      Company accounts for share-based compensation in accordance with Statement
      of
      Financial Accounting Standard No. 123R, *Shared-based
      Payment* (“SFAS
      123R”). Under
      the fair value recognition provisions of this statement, share-based
      compensation cost is measured at the grant date based on the value of the award
      and is recognized as expense over the vesting period. Determining the fair
      value
      of share-based awards at the grant date requires judgment, including estimating
      the Company’s stock price volatility, employee stock option exercise behaviors
      and, for performance based awards, expected performance rates during the vesting
      period.





Expected
      stock price volatility is primarily based on the historical volatility of the
      Company’s stock price over the most recent period commensurate with the expected
      option life. When  determining
      the expected life of stock options, the Company classifies options into groups
      for employees where relatively homogeneous exercise behavior is expected. The
      vesting period of the options, the length of time similar grants have remained
      outstanding in the past, and the expected volatility of the stock is also
      considered. These factors may cause the expected volatility and expected life
      of
      options granted to differ from period to period.




In
      February 2006, the Compensation Committee of the Board of Directors approved
      the
      issuance of performance restricted stock units to executive officers, which
      vest
      on December 31, 2008 (the “2006 Performance Restricted Stock Units”). The number
      of common shares issuable upon vesting of the 2006 Performance Restricted
      Stock Units is subject to a minimum of 31,200 shares and a maximum of
      208,000 shares, and will be partly based on the Company’s revenue and earnings
      per share from 2006 to 2008, relative to its strategic objectives over the
      same
      period, and partly based on the subjective discretion of the Compensation
      Committee. The grant date fair value of the 2006 Performance Restricted Stock
      Units was based on the fair value of the underlying common stock and is
      recognized over the three-year requisite service period. For the portion of
      the
      2006 Performance Restricted Stock Units containing performance conditions,
      the
      grant date fair value is adjusted each period for the number of shares
      ultimately expected to be issued. For the portion of the 2006 Performance
      Restricted Stock Units subject to discretionary performance conditions, the
      grant date has not been established and accordingly, the fair value of the
      award
      is updated each period for changes in the fair value of the underlying common
      stock. T o
      the extent that the underlying fair value of the Company’s common stock varies
      significantly, and/or the number of shares issuable is determined, the Company
      may record additional compensation expense or adjust cumulative compensation
      expense.




*Income
      taxes* . Our
      judgments, assumptions and estimates relative to the provision for income taxes
      take into account current tax laws and our interpretation of current tax laws.
      Management must make assumptions, judgments and estimates to determine our
      tax
      provision and our deferred income tax assets and liabilities, including the
      valuation allowance to be recorded against a deferred tax asset. Actual
      operating results and the underlying amount and category of income
      in future years could differ materially from our current assumptions,
      judgments and estimates of recoverable net deferred taxes.


22









Management
      evaluates the realizability of the deferred tax assets and assesses the need
      for
      the valuation allowance each reporting period. In the future if, based on the
      facts and circumstances surrounding the Company’s ability to generate adequate
      future taxable income, it becomes more likely than not that some or all of
      the
      deferred tax asset will not be realized, the valuation allowance may be required
      to be increased. At July 1, 2007, the Company has recorded a current deferred
      tax asset of $5.2 million, a long-term deferred tax liability of $5.0 million
      and an allowance of $239,000.




The
      Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty
      in income taxes recognized in an enterprise’s financial statements in accordance
      with FASB Statement 109, *Accounting
      for Income Taxes* ,
      and
      prescribes a recognition threshold and measurement process for financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. The adoption of FIN 48 did not have a material effect
      on the Company’s financial statements. Management considers many factors when
      evaluating and estimating tax positions and tax benefits, which may require
      periodic adjustments and may not accurately anticipate actual
      outcomes.




***Liquidity
      and Capital Resources***




The
      Company had cash, short-term investments and marketable securities of $41.4
      million at July 1, 2007, compared to $33.0 million at December 31, 2006.
      Marketable securities consist primarily of high-credit quality corporate and
      municipal obligations, in accordance with the Company’s investment policies. The
      aggregate increase in cash, short-term investments and marketable securities
      was
      primarily the result of cash generated from operations.




Working
      capital was $62.9 million at July 1, 2007, compared to $58.3 million at December
      31, 2006. The Company also has a Credit Agreement with a financial institution
      that provides for revolving borrowings of up to $40.0 million, including a
      $5.0
      million sub-limit for letters of credit, through a credit facility that expires
      on October 31, 2009. Borrowings of $7.5 million were outstanding under the
      Credit Agreement as of July 1, 2007. Interest is payable quarterly at LIBOR
      plus
      1% (effective rate of 6.3% at July 1, 2007). Letters of credit, representing
      decommission funding required by the Georgia Department of Natural Resources,
      totaling $876,000 were outstanding under the Credit Agreement as of July 1,
      2007. The Credit Agreement is unsecured, but provides for a lien to be
      established on substantially all of the assets of the Company (subject to
      certain exceptions) in the event certain events of default occur under the
      Credit Agreement. The Credit Agreement, as amended, contains representations
      and
      warranties, as well as affirmative, reporting and negative covenants, customary
      for financings of this type. Among other things, certain provisions of the
      Credit Agreement limit the incurrence of additional debt and require the
      maintenance of certain financial ratios and tests. The Company was in compliance
      with these covenants as of July 1, 2007.




Cash
      provided by operations was $9.1 million and $2.7 million during the six months
      ended July 1, 2007 and July 2, 2006, respectively. Cash provided by operations
      consists of net earnings plus non-cash expenses such as depreciation,
      amortization, and stock based compensation, and changes in balance sheet items
      such as accounts receivable, inventories, prepaid expenses and payables. During
      the first six months of 2007, inventories increased $650,000 and accounts
      receivable increased $380,000, each as a result of higher sales volumes compared
      to the fourth quarter of 2006. The increase in cash provided by operations
      from
      2006 was primarily due to increases in net earnings and non-cash expenses,
      plus
      a reduction in prepaid expenses mainly generated by the receipt of a federal
      income tax refund of $1.9 million plus related interest income of $309,000.




Capital
      expenditures totaled $788,000 and $246,000 during the first six months of 2007
      and 2006, respectively. The
      Company expects capital expenditures in 2007 to continue to be higher than
      2006
      as investments continue to be made primarily in the surgical products
      business.




Cash
      provided by financing activities was $157,000 and $44,000 in the first six
      months of 2007 and 2006, respectively, consisting of cash proceeds from the
      exercise of stock options and the Company’s Employee Stock Purchase
      Plan.




Cash
      could be used in 2007 for increased marketing and brachytherapy support
      activities, support for growth in the surgical products segment, and in the
      pursuit of additional diversification efforts such as the purchase of
      technologies, products or companies.




The
      Company believes that current cash and investment balances and cash from future
      operations and credit facilities will be sufficient to meet its current
      anticipated working capital and capital expenditure requirements. In the event
      additional financing becomes necessary, management may choose to raise those
      funds through other means of financing as appropriate.


23









***Medicare
      Developments***




The
      Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”),
      which went into effect on January 1, 2004, contained brachytherapy provisions
      requiring Medicare to reimburse hospitals for each brachytherapy seed/source
      furnished between January 1, 2004 to December 31, 2006 based on the hospital’s
      costs for each patient (calculated from the hospital’s charges adjusted by the
      hospital’s specific cost-to-charge ratio). The MMA also directed the U.S.
      Government Accountability Office (“GAO”) to conduct a study examining future
      payment policies for brachytherapy seeds. The GAO published its report on July
      25, 2006, concluding that the Centers for Medicare & Medicaid Services
      (“CMS”), the regulatory body that sets Medicare reimbursement policies, could
      establish separate prospective payment rates effective in 2007 for palladium-103
      brachytherapy seeds/sources (such as TheraSeed ® )
      and
      iodine-125 seeds/sources using Medicare’s hospital outpatient data.




Although
      subsequently superceded by Congress, CMS posted a final rule on November 1,
      2006
      with fixed prospective payment rates for brachytherapy seeds for Medicare's
      hospital outpatient prospective payment system (“OPPS”) that would have applied
      to calendar year 2007. The use of prospective payment rates would have
      fixed the per seed rate at which hospitals would have been reimbursed in 2007.
      The Company believed that CMS’ approach to determining the fixed prospective
      reimbursement rate for brachytherapy seeds was fundamentally flawed. For
      example, CMS did not stratify cost data on differing seed configurations, such
      as loose versus “stranded” seeds. Accordingly, the Company continued to work
      with policy makers in an effort to rectify the shortcomings it believed to
      be
      contained in the new CMS rule.




In
      December 2006, Congress enacted the Tax Relief and Health Care Act of 2006
      (the
“Act”), which extended and refined the Medicare safeguards initially enacted by
      Congress in 2003 for brachytherapy seeds administered in the hospital outpatient
      setting. The Act’s provisions on brachytherapy superceded the final rule
      published by CMS on November 1, 2006 by extending the current “charges adjusted
      to cost” reimbursement policies for brachytherapy seeds through the end of 2007,
      ensuring that the Medicare program would not implement potentially restrictive
      caps on reimbursement during that period. In addition, the legislation
      recognized that prostate cancer patients must have meaningful access to stranded
      brachytherapy seeds, which increasingly are used in clinical practice to further
      enhance the safety and efficacy of treatment. The legislation established a
      permanent requirement for Medicare to use separate codes for the reimbursement
      of stranded brachytherapy devices, beginning no later than July 1, 2007.
      Stranded seeds are becoming a larger portion of Theragenics’ brachytherapy
      business. This important provision should allow reimbursement rules to recognize
      the value of this important clinical configuration even after 2007.




Effective
      July 2007, CMS issued new reimbursement codes for brachytherapy sources. The
      codes are isotope specific and recognize the distinction between nonstranded
      versus stranded seeds, as mandated by the Act. In late July 2007, CMS also
      posted a proposed OPPS rule for calendar year 2008 with proposed fixed
      prospective reimbursement rates for these new codes. The Company believes it
      is
      likely that fixed reimbursement rates for seeds will be implemented beginning
      in
      2008, and that this and other factors can be expected to lead to continued
      pricing pressure from hospitals and other health care providers. The Company
      also continues to work through the Coalition for the Advancement of
      Brachytherapy, the brachytherapy industry trade organization, in an effort
      to
      extend the current “charges adjusted to costs” reimbursement methodology for
      brachytherapy seeds.




***Forward
      Looking and Cautionary Statements***




This
      document contains certain forward-looking statements within the meaning of
      the
      Private Securities Litigation Reform Act of 1995 including, without limitation,
      statements regarding sales, marketing and distribution efforts, ordering
      patterns of customers, the Company’s direct sales organization, including, but
      not limited to, its growth and effectiveness, third-party reimbursement, CMS
      policy, sales mix, effectiveness and continuation of non-exclusive distribution
      agreements, pricing for the TheraSeed ® and
      I-Seed devices, anticipated growth in the Surgical Products business segment,
      future cost of sales and gross margins, R&D efforts and expenses, investment
      in additional personnel and infrastructure, SG&A expenses, other income,
      potential new products and opportunities, the development of new markets and
      technologies, diversification of operations, results in general, plans and
      strategies for continuing diversification, and the sufficiency of the Company’s
      liquidity and capital resources. From time to time, the Company may also make
      other forward-looking statements relating to such matters as well as statements relating
      to anticipated financial performance, business prospects, technological
      developments, other research and development activities and similar matters.
      These forward-looking statements are subject to certain risks, uncertainties
      and
      other factors which could cause actual results to differ materially from those
      anticipated, including risks associated with new product development cycles,
      effectiveness and execution of marketing and sales programs of the Company’s
      business segments and its distributors, third party distribution agreements,
      competitive conditions and selling tactics of the Company’s competitors,
      potential changes in third-party reimbursement (including CMS), changes in
      product pricing by the Company’s brachytherapy business segment, changes in cost
      of materials used in production processes, continued acceptance of the Company’s
      products by the market, continued demand for the Company’s brachytherapy, wound
      closure and vascular access products, capitalization on opportunities for
      growth within the Company’s Surgical Products business segment, ability to
      recognize benefits from areas of shared expertise, competition within the
      medical device industry, development and growth of new applications within
      the
      markets for brachytherapy, wound closure, vascular access and, more
      broadly, medical devices, competition from companies within brachytherapy,
      wound
      closure, vascular access and, more broadly, medical device markets,
      competition from other methods of treatment, ability to execute on acquisition
      opportunities on favorable terms and successfully integrate any acquisitions,
      and the risks identified in Part II, Item 1A of the Company’s most recent Form
      10-K Annual Report. All forward looking statements and cautionary statements
      included in this document are made as of the date 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.


24






**Item
      3.** **Quantitative
      and Qualitative Disclosures About Market Risk**




The
      Company’s market risk exposure related to market risk sensitive financial
      instruments is not material. As of July 1, 2007, the Company had borrowing
      of
      $7.5 million and letters of credit of approximately $876,000 outstanding under
      the terms of its Credit Agreement. Interest on outstanding borrowing is payable
      monthly at LIBOR plus 1% (effective rate of 6.3% as of July 1,
      2007).




**Item
      4.** **Controls
      and Procedures**




Under
      the
      supervision and with the participation of the Company’s management, including
      its Chief Executive Officer and Chief Financial Officer, the Company conducted
      an evaluation of the effectiveness of the design and operation of its disclosure
      controls and procedures, as such term is defined under Rule 13a-15(e)
      promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”). Based on this evaluation, the Chief Executive Officer and Chief Financial
      Officer concluded that the Company’s disclosure controls and procedures were
      effective as of July 1, 2007, the end of the period covered by this
      report.





The
      Company acquired Galt Medical Corp. (“Galt”) on August 2, 2006. Since the date
      of acquisition, the Company has been focusing on analyzing, evaluating, and
      implementing changes in Galt's procedures and controls to determine their
      effectiveness and to make them consistent with our disclosure controls and
      procedures. Prior to our acquisition of Galt, Galt was not required to prepare
      financial statements in accordance with accounting principles generally accepted
      in the United States of America. In addition, Galt was not previously required
      to maintain disclosure controls and procedures or maintain, document and assess
      internal control over financial reporting, in each case as required under the
      rules and regulation of the Securities and Exchange Commission. As noted in
      Management's Report on Internal Control over Financial Reporting in the
      Company’s Form 10-K for the year ended December 31, 2006 and as permitted by
      guidance issued by the staff of the U.S. Securities and Exchange Commission,
      Galt was excluded from the scope of management’s assessment over the
      effectiveness of internal control over financial reporting as of December 31,
      2006. We have similarly excluded Galt from the scope of our quarterly discussion
      of material changes in internal control over financial reporting below. Galt
      constituted 18.3% of consolidated revenue for the six months ended July 1,
      2007
      and 23.1% of consolidated assets as of July 1, 2007.




No
      changes in the Company’s internal control over financial reporting were
      identified as having occurred during the quarter ended July 1, 2007 that have
      materially affected, or are reasonably likely to materially affect, the
      Company’s internal control over financial reporting, except as described above
      with respect to Galt.


25




**PART
      II. OTHER INFORMATION**




**Item
      1.** **Legal
      Proceedings**




From
      time to time, the Company is subject to certain legal proceedings and claims
      in
      the ordinary course of business. Management currently is not aware of
      any such legal proceedings or claims that it believes will have,
      individually or in aggregate, a material adverse effect on the Company’s business,
      financial condition, or operating results.




**Item
      1A.** **Risk
      Factors**




In
      addition to the other information set forth in this report, and in the following
      paragraph, the factors discussed in Part I, “Item 1A. Risk Factors” in our
      Annual Report on Form 10-K for the year ended December 31, 2006, which could
      materially affect our business, financial condition or future results, should
      be
      carefully considered. The risks described in our Annual Report on Form 10-K
      are
      not the only risks facing our Company. Additional risks and uncertainties not
      currently known to us or that we currently deem to be immaterial also may
      materially adversely affect our business, financial condition and/or operating
      results.




Management
      believes that the brachytherapy industry continues to be affected by competition
      from alternate therapies, declining prices for iodine-125 and palladium-103
      seeds, competitors’ selling tactics and the effects of consolidation in the
      industry. Theragenics’ brachytherapy business also continues to be affected by
      the Company’s non-exclusive distributors. Medicare reimbursement policies have
      affected the brachytherapy market and can also continue to affect the
      brachytherapy market. In December 2006 Congress enacted the Tax Relief and
      Health Care Act of 2006, which retained the “charges adjusted to cost”
reimbursement methodology for brachytherapy seeds for 2007. The Company believes
      it is likely that fixed prospective reimbursement rates for seeds will be
      implemented beginning in 2008, (see “ *Medicare
      Developments* ”
above)
      and that this and other factors can be expected to lead to continued pricing
      pressure from hospitals and other health care providers. Accordingly,
      Theragenics and/or its non-exclusive distributors may continue to change their
      respective pricing policies for the TheraSeed ® device
      and Theragenics may change its pricing policy with respect to I-seed in order
      to
      take advantage of market opportunities or respond to competitive situations.
      Responding to market opportunities and competitive situations could have an
      adverse effect on average selling prices. Responding to market opportunities
      and
      competitive situations could also have a favorable effect or prevent an
      unfavorable effect on market share and volumes. Conversely, the Company or
      its
      non-exclusive distributors could individually and independently decide to
      maintain per unit pricing under certain competitive situations that could
      adversely affect current or potential market share and volumes.







**Item
      4. Submission of Matters to a Vote of Security Holders**




(a)
            The
                Company’s annual meeting of stockholders was held on May 17,
                2007.




(b)
            M.
                Christine Jacobs was elected to the board of directors to serve for
                a
                three-year term. Ms. Jacobs received 22,606,339 votes for her election
                with 4,910,318 withholding authority.




(c)
            The
                appointment of Dixon Hughes PLLC was ratified as the Company’s independent
                registered public accounting firm for the year ending December 31,
                2007
                with 27,394,121 votes for ratification, 82,760 votes against ratification
                and 39,776 abstentions.





26





**Item
      6.** **Exhibits**




**Exhibit
                No.**
            
            **Title**31.1
            
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a) and Section
                302 of
                the Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a) and Section
                302 of
                the Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Chief Executive Officer pursuant to Section 1350, Chapter 63 of
                Title
                18, United States Code, as adopted to Section 906 of the Sarbanes-Oxley
                Act of 2002.32.2
            
            Certification
                of Chief Financial Officer pursuant to Section 1350, Chapter 63 of
                Title
                18, United States Code, as adopted to Section 906 of the Sarbanes-Oxley
                Act of 2002.







27







SIGNATURES




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




REGISTRANT:THERAGENICS
                CORPORATIONDate: August
                8, 2007
            
            By:
            /s/ M.
                Christine JacobsM.
                Christine Jacobs
              Chief
                Executive Officer




Date: August
                8, 2007
            
            By:
            /s/ Francis
                J. TaralloFrancis
                J. Tarallo
              Chief
                Financial Officer














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