**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 2, 2006




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 WayBuford,
                Georgia
            
            30518(Address
                of principal executive offices)
            
            (Zip
                Code)




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




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





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





Large
      Accelerated Filer  o  Accelerated
      Filer x   Non
      Accelerated Filer o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). YES
o  
NO x




As
      of
      July 31, 2006 the number of shares of $0.01 par value common stock outstanding
      was 32,092,534.














THERAGENICS
      CORPORATION




TABLE
      OF
      CONTENTS




**Page
                No.**PART
                I. FINANCIAL INFORMATION
            3ITEM
                1. CONSOLIDATED FINANCIAL STATEMENTS
                (UNAUDITED)
            3Consolidated
                Balance Sheets - July 2, 2006 and December 31,
                2005
            3Consolidated
                Statements of Operations and Comprehensive
                Income for the three and six months ended July 2, 2006 and July 3,
                2005
            5Consolidated
                Statements of Cash Flows for the six months
                ended July 2, 2006 and July 3, 2005
            6Consolidated
                Statement of Shareholders’ Equity for the six
                months ended July 2, 2006
            8Notes
                to Consolidated Financial
                Statements
            9ITEM
                2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS
            20ITEM
                3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK
            26ITEM
                4. CONTROLS AND PROCEDURES
            26PART
                II. OTHER INFORMATION
            27ITEM
                1. LEGAL PROCEEDINGS
            27ITEM
                1A. RISK FACTORS
              
              ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                HOLDERS
            28
              
              37ITEM
                6. EXHIBITS
            37SIGNATURES
            38




2




PART I. FINANCIAL
      INFORMATION  **Item
      1.
Financial
      Statements**


**THERAGENICS
        CORPORATION AND SUBSIDIARY**


**CONSOLIDATED
        BALANCE SHEETS**
 **(Amounts
          in thousands)**


ASSETS**July
                2,**
              **2006**
              **(Unaudited)**
            
            **December
                31,**
              **2005**CURRENT
                ASSETSCash
                and short-term investments
            
            $
            13,869
            
            $
            10,073Marketable
                securities
            
            
            34,342
            
            
            35,535Trade
                accounts receivable, less allowance of $559 in 2006 and $517 in
                2005
            
            
            7,411
            
            
            7,622Inventories
            
            
            5,337
            
            
            5,042Prepaid
                expenses and other current assets
            
            
            3,250
            
            
            2,720Assets
                held for sale
            
            
            3,400
            
            
            3,433TOTAL
                CURRENT ASSETS
            
            
            67,609
            
            
            64,425PROPERTY
                AND EQUIPMENTBuildings
                and improvements
            
            
            21,802
            
            
            21,793Machinery
                and equipment
            
            
            35,434
            
            
            35,271Office
                furniture and equipment
            
            
            713
            
            
            70157,949
            
            
            57,765Less
                accumulated depreciation
            
            
            (28,000
            )
            
            (25,960
            )29,949
            
            
            31,805Land
            
            
            822
            
            
            822Construction
                in progress
            
            
            201
            
            
            139TOTAL
                PROPERTY AND EQUIPMENT
            
            
            30,972
            
            
            32,766Goodwill
            
            
            18,370
            
            
            18,370Other
                intangible assets, net
            
            
            5,996
            
            
            6,388Other
                assets
            
            
            269
            
            
            11524,635
            
            
            24,873TOTAL
                ASSETS
            
            $
            123,216
            
            $
            122,064




The
      accompanying notes are an integral part of these statements.




3




**THERAGENICS
        CORPORATION AND SUBSIDIARY**


**CONSOLIDATED
        BALANCE SHEETS - Continued**
 **(Amounts
          in thousands)**




LIABILITIES
                & SHAREHOLDERS’ EQUITY**July
                2,**
              **2006**
              **(Unaudited)**
            
            **December
                31,**
              **2005**CURRENT
                LIABILITIESTrade
                accounts payable
            
            $
            1,143
            
            $
            1,488Accrued
                salaries, wages and payroll taxes
            
            
            1,415
            
            
            1,659Other
                current liabilities
            
            
            1,288
            
            
            1,025TOTAL
                CURRENT LIABILITIES
            
            
            3,846
            
            
            4,172LONG-TERM
                LIABILITIESDeferred
                income taxes
            
            
            260
            
            
            —Decommissioning
                retirement
            
            
            537
            
            
            672Contract
                termination liability
            
            
            1,526
            
            
            1,537TOTAL
                LONG-TERM LIABILITIES
            
            
            2,323
            
            
            2,209SHAREHOLDERS’
                EQUITYCommon
                  stock, authorized 100,000 shares of$0.01
                  par value, issued and outstanding,32,085 in 2006 and 32,008 in
                  2005
            
            
            321
            
            
            320Additional
                paid-in capital
            
            
            68,889
            
            
            68,623Retained
                earnings
            
            
            48,132
            
            
            46,924Accumulated
                other comprehensive loss
            
            
            (295
            )
            
            (184
            )TOTAL
                SHAREHOLDERS' EQUITY
            
            
            117,047
            
            
            115,683TOTAL
                LIABILITIES ANDSHAREHOLDERS'
                EQUITY
            
            $
            123,216
            
            $
            122,064





The
      accompanying notes are an integral part of these statements.




4




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




**Three
                  Months Ended**
              ****
              **Six
                  Months Ended**
              ********
              ****
              **July
                  2,**
                **2006**
              ****
              **July
                  3,**
                **2005**
              ****
              **July
                  2,**
                **2006**
              ****
              **July
                  3,**
                **2005**REVENUEProduct
                  sales
              
              $
              12,424
              
              $
              11,182
              
              $
              24,680
              
              $
              20,644Licensing
                  fees
              
              
              166
              
              
              190
              
              
              304
              
              
              26712,590
              
              
              11,372
              
              
              24,984
              
              
              20,911COST
                  OF SALES
              
              
              6,480
              
              
              6,244
              
              
              12,535
              
              
              11,038GROSS
                  PROFIT
              
              
              6,110
              
              
              5,128
              
              
              12,449
              
              
              9,873OPERATING
                  EXPENSESSelling,
                  general & administrative
              
              
              5,565
              
              
              5,913
              
              
              11,100
              
              
              10,414Research
                  & development
              
              
              179
              
              
              1,143
              
              
              418
              
              
              2,550Restructuring
                  expenses
              
              
              63
              
              
              —
              
              
              369
              
              
              —Gain
                  on sale of assets
              
              
              —
              
              
              —
              
              
              (201
              )
              
              —5,807
              
              
              7,056
              
              
              11,686
              
              
              12,964EARNINGS(LOSS)
                  FROM OPERATIONS
              
              
              303
              
              
              (1,928
              )
              
              763
              
              
              (3,091
              )OTHER
                  INCOME/(EXPENSE)Interest
                  income
              
              
              454
              
              
              339
              
              
              869
              
              
              722Interest
                  and financing costs
              
              
              (65
              )
              
              (45
              )
              
              (134
              )
              
              (100
              )Other
              
              
              1
              
              
              (2
              )
              
              (20
              )
              
              —390
              
              
              292
              
              
              715
              
              
              622Earnings
                  (loss) before income taxes
              
              
              693
              
              
              (1,636
              )
              
              1,478
              
              
              (2,469
              )Income
                  tax expense (benefit)
              
              
              260
              
              
              (600
              )
              
              270
              
              
              (936
              )NET
                  EARNINGS (LOSS)
              
              $
              433
              
              $
              (1,036
              )
              $
              1,208
              
              $
              (1,533
              )NET
                  EARNINGS (LOSS) PER COMMON SHARE:Basic
              
              $
              0.01
              
              $
              (0.03
              )
              $
              0.04
              
              $
              (0.05
              )Diluted
              
              $
              0.01
              
              $
              (0.03
              )
              $
              0.04
              
              $
              (0.05
              )WEIGHTED
                  AVERAGE SHARESBasic
              
              
              32,077
              
              
              31,213
              
              
              32,064
              
              
              30,589Diluted
              
              
              32,120
              
              
              31,213
              
              
              32,114
              
              
              30,589Comprehensive
                  income (loss):Net
                  earnings (loss)
              
              $
              433
              
              $
              (1,036
              )
              $
              1,208
              
              $
              (1,533
              )Other
                  comprehensive income/(loss):Unrealized
                  gain/(loss) on securities available for sale, net of taxes
              
              
              3
              
              
              85
              
              
              (111
              )
              
              22Total
                  comprehensive income (loss)
              
              $
              436
              
              $
              (951
              )
              $
              1,097
              
              $
              (1,511
              )
  The
        accompanying notes are an integral part of these statements.




5




**THERAGENICS
      CORPORATION AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**


**(Amounts
      in thousands)**




**Six
                Months Ended****July
                2,**
              **2006**
            
            **July
                3,**
              **2005**CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                earnings (loss)
            
            $
            1,208
            
            $
            (1,533
            )Adjustments
                to reconcile net earnings (loss) to net cash provided by operating
                activitiesDeferred
                income taxes
            
            
            260
            
            
            (998
            )Depreciation
                and amortization
            
            
            2,432
            
            
            3,652Provision
                for allowances
            
            
            172
            
            
            49Share
                based compensation
            
            
            223
            
            
            99Deferred
                rent
            
            
            —
            
            
            9Decommissioning
                retirement liability
            
            
            (135
            )
            
            —Gain
                on sale of equipment
            
            
            (201
            )
            
            —Changes
                in assets and liabilities:Accounts
                receivable
            
            
            22
            
            
            (940
            )Inventories
            
            
            (278
            )
            
            73Prepaid
                expenses and other current assets
            
            
            (530
            )
            
            159Other
                assets
            
            
            (154
            )
            
            —Trade
                accounts payable
            
            
            (345
            )
            
            (417
            )Accrued
                salaries, wages and payroll taxes
            
            
            (244
            )
            
            251Other
                current liabilities
            
            
            263
            
            
            354Other
            
            
            (12
            )
            
            —Net
                cash provided by operating activities
            
            
            2,681
            
            
            758CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                and construction of property and equipment
            
            
            (246
            )
            
            (177
            )Proceeds
                from sale of equipment
            
            
            234
            
            
            —Cash
                paid for acquisition
            
            
            —
            
            
            (20,468
            )Purchases
                of marketable securities
            
            
            (7,617
            )
            
            (7,530
            )Maturities
                of marketable securities
            
            
            8,700
            
            
            10,860Net
                cash provided (used) by investing activities
            
            
            1,071
            
            
            (17,315
            )CASH
                FLOWS FROM FINANCING ACTIVITIESProceeds
                from employee stock purchase plan
            
            
            44
            
            
            89Net
                cash provided by financing activities
            
            
            44
            
            
            89NET
                INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS
            
            $
            3,796
            
            $
            (16,468
            )CASH
                AND SHORT-TERM INVESTMENTS ATBEGINNING
                OF PERIOD
            
            
            10,073
            
            
            26,150CASH
                AND SHORT-TERM INVESTMENTS ATEND
                OF PERIOD
            
            $
            13,869
            
            $
            9,682




The
      accompanying footnotes are an integral part of these statements.




6




**THERAGENICS
      CORPORATION AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS - CONTINUED**


**(UNAUDITED)**


**(Amounts
      in thousands)**


**Six
                  Months Ended**
              ********
              **July
                      2,**
                    **2006**
              ****
              **July
                    3,2006**Supplementary
                  cash flow disclosure:Interest
                  paid
              
              $
              134
              
              $
              —Taxes
                  paid
              
              $
              371
              
              $
              —Non-cash
                  investing activities:Common
                  stock issued in acquisition
              
              $
              —
              
              $
              6,250




The
      accompanying footnotes are an integral part of these statements.





7


**THERAGENICS
      CORPORATION AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENT OF SHAREHOLDERS'
      EQUITY**


**FOR
      THE SIX MONTHS ENDED JULY 2, 2006** (UNAUDITED)


**(Amounts
      in thousands)**




**Common
                  Stock**
              ****
              ****
              ****
              ****
              ****
              ****
              ****
              ****
              ****
              ****
              ********
              ****
              **Number**
                **of**
                **Shares**
              ****
              **Par**
                **value**
                **$0.01**
              ****
              **Additional**
                **Paid-in**
                **Capital**
              ****
              **Deferred**
                **Compensation**
              ****
              **Retained**
                **Earnings**
              ****
              **Accumulated**
                **Other**
                **Comprehensive**
                **Loss**
              ****
              **Total**BALANCE,
                  December 31, 2005
              
              
              32,008
              
              $
              320
              
              $
              68,717
              
              $
              (94
              )
              $
              46,924
              
              $
              (184
              )
              $
              115,683Adoption
                  of SFAS 123R
              
              
              —
              
              
              —
              
              
              (94
              )
              
              94
              
              
              —
              
              
              —
              
              
              —Employee
                  stock purchase plan
              
              
              17
              
              
              —
              
              
              44
              
              
              —
              
              
              —
              
              
              —
              
              
              44Issuance
                  of shares under restricted units
              
              
              40
              
              
              1
              
              
              (1
              )
              
              —
              
              
              —
              
              
              —
              
              
              —Issuance
                  of restricted shares
              
              
              20
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Stock
                  based compensation
              
              
              —
              
              
              —
              
              
              223
              
              
              —
              
              
              —
              
              
              —
              
              
              223Unrealized
                    loss on securities available
                    for sale, net of taxes
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (111
              )
              
              (111
              )Net
                  earnings for the period
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,208
              
              
              —
              
              
              1,208BALANCE,
                  July 2, 2006
              
              
              32,085
              
              $
              321
              
              $
              68,889
              
              $
              —
              
              $
              48,132
              
              $
              (295
              )
              $
              117,047




The
        accompanying notes are an integral part of these statements.




8




**THERAGENICS
        CORPORATION AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        2, 2006**
 **(Unaudited)**




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





The
      unaudited interim consolidated financial statements included herein reflect
      the
      consolidated operations of the Company and its wholly-owned subsidiary, CP
      Medical Corporation. All intercompany accounts and transactions have been
      eliminated in consolidation. These statements reflect all adjustments that
      are,
      in the opinion of management, necessary to present fairly the consolidated
      financial position, consolidated results of operations, consolidated cash flows
      and changes in shareholders’ equity for the periods presented. All such
      adjustments are of a normal recurring nature. 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 financial statements and notes should be read in conjunction with
      the
      audited financial statements and notes for the year ended December 31, 2005,
      included in the Form 10-K filed by the Company. The consolidated results of
      operations for the six months ended July 2, 2006 are not necessarily indicative
      of the results to be expected for a full year.





Theragenics
      Corporation is a medical device company serving the cancer treatment and
      surgical markets, 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 other surgical products and supplies at CP Medical Corporation
      (“CP
      Medical”). CP Medical produces sutures, cardiac pacing cables, brachytherapy
      needles and other surgical supplies. These products have applications in
      urology, veterinary, cardiology, orthopedics, plastic surgery, dental, and
      other
      fields.





**NOTE
      B - ACQUISITION OF CP MEDICAL**





On
      May 6,
      2005, the Company acquired all of the outstanding common stock of CP Medical
      Corporation (“CP Medical”) for approximately $26.7 million, including $20.6
      million in cash and 1,840,458 shares of common stock valued at approximately
      $6.1 million. Common shares issued were valued based on their average market
      price over the 20 day period from March 28, 2005 to April 22, 2005. CP Medical
      is a manufacturer and distributor of innovative wound closure and other medical
      products such as sutures, cardiac pacing cables, brachytherapy needles and
      supplies, and other surgical products. These products have applications in
      urology, veterinary, cardiology, plastic surgery, dental, orthopedics, and
      other
      fields. This acquisition established a new growth platform for the Company
      within the field of medical devices and serves to diversify the Company’s
      product offerings within its brachytherapy business. The Company’s consolidated
      results of operations for 2006 include the results of CP Medical. The 2005
      periods only include CP Medical operations subsequent to the May 6, 2005
      acquisition date.





The
      acquisition was recorded under the provisions of Statement of Financial
      Accounting Standards No. 141, *Business
      Combinations* .
      Accordingly, the purchase price was allocated based on the fair values of the
      assets acquired and liabilities assumed at the date of acquisition, with the
      excess of the purchase price over the fair value of the net assets acquired
      recorded as goodwill. Following is a summary of the fair value of the assets
      acquired and liabilities assumed (in thousands):





**Fair
                value**
            ****
            **Amortization
                life of intangible assets**Current
                assets
            
            $
            4,565
            
            
            —Equipment
            
            
            314
            
            
            —Goodwill
            
            
            15,792
            
            
            IndefiniteTrade
                names
            
            
            1,700
            
            
            IndefiniteCustomer
                relationships
            
            
            3,500
            
            
            9
                yearsNon-compete
                agreements
            
            
            1,269
            
            
            1-5
                yearsDeveloped
                technology
            
            
            360
            
            
            7
                yearsPatents
            
            
            31
            
            
            17
                yearsCurrent
                liabilities
            
            
            (857
            )
            
            —Net
                assets acquired
            
            $
            26,674





The
      weighted average life of intangible assets subject to amortization is 7.9 years.
      The goodwill acquired is expected to be deductible for income tax
      purposes.





9


**THERAGENICS
        CORPORATION AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        2, 2006**
 **(Unaudited)**




The
      following unaudited pro forma summary combines the Company’s results with those
      of CP Medical as if the acquisition had occurred on January 1, 2005. Certain
      adjustments have been made to reflect the impact of the purchase transaction,
      primarily consisting of amortization of certain intangible assets and a
      reduction in interest income as a result of cash used in the acquisition. These
      pro forma results have been prepared for comparative purposes only and are
      not
      necessarily indicative of what would have occurred had the acquisition been
      made
      as of January 1, 2005, nor are they necessarily indicative of results that
      may
      occur in the future (in thousands, except per share data):




****
              **Three
                  Months Ended**
                **July
                  3, 2005**
              ****
              **Six
                  Months**
                **Ended**
                **July
                  3, 2005**Revenue
              
              $
              12,374
              
              $
              24,524Net
                  loss
              
              $
              (1,030
              )
              $
              (1,611
              )Loss
                  per share, basic and diluted
              
              $
              (0.03
              )
              $
              (0.05
              )





**NOTE
      C - RESTRUCTURING**





On
      August
      11, 2005, the Company announced a restructuring of its brachytherapy seed
      segment that resulted in the closure of the Plasma Separation Process
      (“PSP”) facility in Oak Ridge, Tennessee, ended the research and
      development activities related to the vascular, macular degeneration and breast
      cancer areas, and eliminated production of radiochemical products. Curtailing
      these activities allowed the Company to shrink its asset base by shutting down
      six cyclotrons, closing its Newton Terrace facility in Buford, Georgia, and
      closing its PSP facility in Oak Ridge, Tennessee. The objective of the
      restructuring is to sharpen the Company’s focus on its two business segments;
      brachytherapy seeds and surgical products, as well as provide a more focused
      platform for continued diversification and expansion through acquisitions and
      other channels.





Restructuring
      activities were completed in the second quarter of 2006. $369,000 of
      restructuring costs was incurred in the six months ended July 2, 2006. These
      costs consisted primarily of the ongoing site exit and disposal costs associated
      with shutting down the PSP facility.




Activity
      during the six months ended July 2, 2006 related to the above-described
      restructuring is summarized as follows: (in thousands):




**Total
                  amount**
                **expected
                  to be**
                **incurred**
              ****
              **Amount**
                **incurred**
                **in
                  2006**
              ****
              **Cumulative
                  amount**
                **incurred
                  through**
                **July
                  2, 2006**Impairment
                  of long-lived assets
              
              $
              28,789
              
              $
              —
              
              $
              28,789Write
                  off of inventory and other assets
              
              
              1,757
              
              
              —
              
              
              1,757Contract
                  termination costs
              
              
              1,495
              
              
              —
              
              
              1,495Severance
                  costs
              
              
              903
              
              
              14
              
              
              903Site
                  exit and disposal costs
              
              
              712
              
              
              355
              
              
              712Other
              
              
              102
              
              
              —
              
              
              102$
              33,758
              
              $
              369
              
              $
              33,758





10




**THERAGENICS
        CORPORATION AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        2, 2006**
 **(Unaudited)**




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





**Accrual
                  at**
                **December
                  31,**
                **2005**
              
              **Charged
                  to**
                **expenses**
              
              **Payments**
              
              **Accrual
                  at**
                **July
                  2,**
                **2006**Contract
                  termination costs
              
              $
              1,560
              
              $
              —
              
              $
              12
              
              $
              1,548Severance
              
              
              530
              
              
              14
              
              
              303
              
              
              241Site
                  exit and disposal activities
              
              
              —
              
              
              355
              
              
              355
              
              
              —





Contract
      termination costs relate to the land lease at the Oak Ridge, Tennessee facility.
      This represents a liability for costs that will continue to be incurred through
      the remaining term of that lease agreement without economic benefit to the
      Company, measured at its fair value when the Company ceased using the facility
      in August 2005.  The accrual includes $23,000 classified as other current
      liabilities in the accompanying consolidated balance sheets at July 2, 2006
      and
      December 31, 2005, representing the current portion of the liability
      due.





Severance
      costs are vested in accordance with the terms of the severance agreements.
      Site
      exit and disposal activities are related to the Oak Ridge facility and are
      expensed as incurred.





Assets
      held for sale of approximately $3.4 million at July 2, 2006, represents the
      estimated fair market value of the Oak Ridge facility to be disposed as a result
      of the restructuring.




**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 on
      management’s judgment of future realization. Inventories as of July 2, 2006 and
      December 31, 2005 were comprised of the following (in thousands):




**July
                2,**
              **2006**
            
            **December
                31,**
              **2005**Raw
                materials
            
            $
            2,828
            
            $
            2,381Work
                in process
            
            
            422
            
            
            531Finished
                goods
            
            
            1,422
            
            
            1,422Spare
                parts and supplies
            
            
            860
            
            
            9215,532
            
            
            5,255Allowance
                for doubtful inventory
            
            
            (195
            )
            
            (213
            )Total
            
            $
            5,337
            
            $
            5,042





**NOTE
      E - ASSET RETIREMENT OBLIGATIONS**





Theragenics
      provides for retirement obligations relating to future decommissioning costs
      associated with the Company’s equipment and buildings in accordance with SFAS
      No. 143, *Accounting
      for Asset Retirement Obligations* .
      The
      liability is recorded at present value by discounting the Company’s estimated
      future cash flows associated with future decommissioning activities using the
      Company’s estimated credit-adjusted borrowing rate. The asset retirement
      obligation has been recorded in the accompanying consolidated balance sheets
      and
      will be adjusted to fair value over the estimated useful lives of the assets
      as
      an accretion expense. Changes in estimated future cash flows are adjusted in
      the
      period of change.




11




**THERAGENICS
        CORPORATION AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        2, 2006**
 **(Unaudited)**




The
      following summarizes activity in the Company’s asset retirement obligation
      liability (in thousands):





**Six
                Months Ended****July
                2, 2006**
            
            **July
                3, 2005**Asset
                retirement obligation at beginning of period
            
            $
            672
            
            $
            549Accretion
                expense
            
            
            22
            
            
            15Revision
                in estimated cash flows
            
            
            (157
            )
            
            47Asset
                retirement obligation at end of period
            
            $
            537
            
            $
            611





**NOTE
      F - CREDIT AGREEMENT**





On
      June
      29, 2006, the Company amended its $40 million Credit Agreement with a financial
      institution. The amendment extended the expiration date of the agreement to
      October 31, 2009. All other terms and conditions of the Credit Agreement
      remained substantially unchanged.





**NOTE
      G - CONTINGENCIES**





In
      January 1999, the Company and certain of its officers and directors were named
      as defendants in certain securities actions alleging violations of the federal
      securities laws, including Sections 10(b), 20(a) and Rule 10b-5 of the
      Securities and Exchange Act of 1934, as amended. The complaint generally alleged
      that the defendants made certain misrepresentations and omissions in connection
      with the performance of the Company during the class period and sought
      unspecified damages. In 2004, the consolidated federal securities class action
      was settled for an amount within the limits of the Company’s directors and
      officers’ liability insurance, and the federal securities case was officially
      over as of November 1, 2004.





On
      May
      14, 1999 a stockholder of the Company filed a derivative complaint in the
      Delaware Court of Chancery purportedly on behalf of the Company, alleging that
      certain directors breached their fiduciary duties by engaging in the conduct
      that was alleged in the consolidated federal class action complaint. During
      the
      second quarter of 2006, the plaintiff voluntarily dismissed the derivative
      suit
      with no financial settlement due.





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





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





**NOTE
      H - SHARE-BASED COMPENSATION**





The
      Company provides stock-based compensation under equity incentive plans approved
      by stockholders, which provide for the granting of stock options, restricted
      stock and other equity incentives. As of July 2, 2006 there were 2,547,610
      options and restricted stock rights outstanding and 1,624,404 shares of Common
      Stock remaining available for issuance under the Company’s equity incentive
      plans. The Company issues new shares from its authorized but unissued share
      pool.





The
      Company adopted Statement of Financial Accounting Standards No. 123R, *Share-Based
      Payment* (“SFAS
      123R”), effective January 1, 2006. SFAS 123R revises Statement of Financial
      Accounting Standards No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123”), and supersedes Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* (“APB
      25”). SFAS 123R requires compensation costs related to share based payments,
      including stock options and other equity awards, to be measured based on the
      grant date fair value of the award. The Company has adopted SFAS 123R using
      the
      modified prospective application, which applies to new awards and to awards
      modified, repurchased, or cancelled after January 1, 2006. Additionally,
      compensation cost for the portion of awards for which the requisite service
      has
      not been rendered that are outstanding as of January 1, 2006 will be recognized
      as the requisite service is rendered. Accordingly, financial results for prior
      periods have not been restated. Previously, the Company accounted for share
      based payments in accordance with APB 25. In accordance with APB 25,
      compensation cost was recorded for performance-based and restricted stock and
      stock unit awards and recognized over the vesting periods of the awards. No
      compensation had been recognized for stock options issued to employees and
      directors, as all options granted had an exercise price at least equal to the
      market value of the underlying common stock at the date of grant.





12




**THERAGENICS
        CORPORATION AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        2, 2006**
 **(Unaudited)**




Compensation
      cost for the portion of stock options outstanding at January 1, 2006 for which
      the requisite service period had not been rendered is recognized based on their
      grant date fair value as calculated for the pro forma disclosures under SFAS
      123. The performance-based and restricted stock and stock unit awards were
      previously recorded using fair value in a manner substantially equivalent to
      the
      accounting required under SFAS 123R. Accordingly, the adoption of SFAS 123R
      did
      not have a material effect on the Company’s results of operations, earnings per
      share or cash flows in the first half of 2006.





Stock
      Options





Stock
      options granted to date have had an exercise price at least equal to 100% of
      market value of the underlying common stock on the date granted. These options
      expire ten years from the date of grant and become exercisable over a three
      to
      five-year vesting period.





The
      following is a summary of activity in stock options outstanding during the
      six
      months ended July 2, 2006 (shares in thousands):





**Shares**
              
              **Weighted**
                **average**
                **exercise**
                **price**
              
              **Weighted**
                **average**
                **remaining
                  contractual**
                **life
                  (yrs)**
              
              **Aggregate**
                **intrinsic**
                **value**Outstanding,
                  beginning of period
              
              
              2,433
              
              $
              12.56
              
              
              5.2
              
              
              —Granted
              
              
              —
              
              
              —
              
              
              —
              
              
              —Exercised
              
              
              —
              
              
              —
              
              
              —
              
              
              —Forfeited
              
              
              1
              
              
              3.95
              
              
              8.9
              
              
              —Outstanding,
                  end of period
              
              
              2,432
              
              $
              12.56
              
              
              4.9
              
              $
              —Exercisable
                  at end of period
              
              
              2,349
              
              $
              12.69
              
              
              4.6
              
              $
              —





A
      summary
      of the status of the Company’s non-vested stock options as of July 2, 2006 and
      changes during the six months ended July 2, 2006 follows (shares in
      thousands):





**Non-vested
                shares**
            
            **Shares**
            
            **Weighted**
              **average
                grant**
              **date
                fair value**Non-vested
                at January 1, 2006
            
            
            140
            
            $
            2.03Granted
            
            
            —
            
            
            —Vested
            
            
            (55
            )
            
            2.30Forfeited
            
            
            (1
            )
            
            1.38Non-vested
                at July 2, 2006
            
            
            84
            
            $
            1.83




13




**THERAGENICS
        CORPORATION AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        2, 2006**
 **(Unaudited)**


A
      summary
      of grant date fair values and intrinsic values follows (in thousands, except
      per
      share amounts):





**Six
                Months Ended****July
                2,**
              **2006**
            
            **July
                3,**
              **2005**Grant
                date fair value of options granted
            
            
            N/A
            
            $
            1.38Intrinsic
                value of options exercised
            
            
            N/A
            
            $
            60Fair
                value of options vested
            
            $
            114
            
            
            N/A





The
      Company recognizes compensation expense for awards with graded vesting on a
      straight line basis over the requisite service period for each separately
      vesting portion of the award. Compensation cost related to stock options totaled
      $18,000 and $31,000 during the three and six months ended July 2, 2006,
      respectively. As of July 2, 2006, there was approximately $45,000 of
      unrecognized compensation cost related to nonvested stock options, which is
      expected to be recognized over a weighted average period of 1.5
      years.




Restricted
      Stock Issued to Non-Officer Directors





In
      2003
      and 2004, the Company issued 7,000 shares of restricted stock annually to
      non-officer directors as a portion of director compensation, which vested one
      year after issuance. In 2005, the Board of Directors approved a change in
      director compensation effective January 1, 2005 that eliminated the granting
      of
      stock options and increased the number of restricted shares granted annually
      to
      each non-officer director to the lesser of 5,000 restricted shares or the number
      of shares calculated by dividing $50,000 by the closing market price of the
      Company’s common stock on the last business day preceding the date of the annual
      meeting, such shares to be granted on the date of the annual meeting. On May
      10,
      2005 and May 9, 2006, the Company issued an aggregate of 35,000 and 20,000
      restricted shares, respectively, under this director compensation program.
      These
      restricted shares vest ratably over three years.





Compensation
      cost related to the restricted shares is based on the grant date fair value
      of
      the common stock granted of $3.27 and $3.45 per share for 2006 and 2005,
      respectively. Compensation expense is recorded over the requisite service period
      and totaled $65,000 and $75,000 for the three and six months ended July 2,
      2006,
      respectively. The Company recognized $7,000 and $14,000 of compensation expense
      related to these restricted shares for the three and six months ended July
      3,
      2005, respectively. As of July 2, 2006, there was approximately $84,000 of
      unrecognized compensation cost related to the restricted shares, which is
      expected to be recognized through May 2009. Approximately 12,000 restricted
      shares vested during the six months ended July 2, 2006.





Stock
      Rights Issued to Employees





In
      August
      2004, the Board of Directors granted an aggregate of 48,000 restricted stock
      rights to executive officers which vested on December 31, 2005 and in August
      2005 the Board of Directors granted 10,000 restricted stock rights to a newly
      appointed executive officer that vest on December 31, 2006. Each right
      represents one share of common stock to be issued upon vesting, provided that
      the officer remains in the Company’s employ until vesting. The rights
      immediately vest upon a change in control.





The
      Board
      of Directors has also approved the issuance of performance restricted stock
      rights to executive officers as long-term incentives (the “Performance Stock
      Rights”). Under the original terms of these long-term incentives, the number of
      shares issuable upon vesting of each Performance Stock Right will depend on
      the
      Company’s stock price appreciation plus dividends paid (total shareholder
      return, or “TSR”) relative to the TSR of an industry peer group based on a fixed
      schedule over a three year period. Each Performance Stock Right represents
      the
      right to a minimum of 0.30 of a share of common stock and a maximum of 2 shares
      of common stock, provided the employee remains in the Company’s employ as of the
      vesting date. Performance Stock Rights may, but will not necessarily, be
      prorated for executive managers who commence participation in this long-term
      incentive plan subsequent to the grant date. The Performance Stock Rights become
      fully vested at the target achievement level, which is a ratio of 1 share for
      each right, upon a change in control. If the executive terminates employment
      under certain circumstances, or dies or becomes disabled, the employee will
      be
      entitled to a pro rata number of shares measured at the end of the performance
      period.





14




**THERAGENICS
        CORPORATION AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        2, 2006**
 **(Unaudited)**




Under
      SFAS 123R, the Company’s Performance Stock Rights based on TSR would be
      considered to be based on a “market condition”, as defined in SFAS 123R. Under
      SFAS 123R, valuation of share based payments with market conditions requires
      a
      complex valuation methodology that would be unduly costly for a company the
      size
      of Theragenics. In view of this potentially significant administrative cost
      associated with valuing the Company’s outstanding Performance Stock Rights under
      SFAS No. 123R, in November 2005 the Board of Directors revised the outstanding
      Performance Stock Rights held by current executive officers. The revision
      includes termination of the performance cycle for measuring TSR under the
      outstanding Performance Stock Rights held by current executive officers as
      of
      December 31, 2005. As a result, the number of shares to be issued upon vesting
      was determined based on TSR through December 31, 2005. Vesting remains
      conditioned on continued employment through the original term of the award,
      subject to acceleration in certain events as set forth in the original award.
      Terms of Performance Stock Rights outstanding and held by former employees
      were
      not changed, and continue to be subject to a minimum of 0.30 and maximum of
      2
      shares per Performance Stock Right, based on TSR.




In
      February 2006, the Board of Directors approved the issuance of 104,000
      Performance Stock Rights to executive officers, which vest on December 31,
      2008.
      The number of common shares issuable upon vesting of each Performance
      Stock  Right
      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 Board of Directors. The grant date
      fair value of the Performance Stock Rights 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 Performance Stock Rights 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 Performance
      Stock Rights 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. In
      addition, the fair value of Performance Stock Rights subject to discretionary
      performance conditions is estimated assuming the maximum number of shares
      issuable, until such time that the actual number of shares can be
      determined.





A
      summary
      of Stock Rights outstanding at July 2, 2006 follows:




**Common
                shares issuable****Rights**
              **outstanding**
            
            **Vesting
                date**
              **December
                31,**
            
            **Minimum**
            
            **Maximum**
            
            **Weighted
                average**
              **grant
                date**
              **fair
                value**43,508
            
            2006
            
            13,052
            
            24,116
            
            $4.2153,668
            
            2007
            
            36,750
            
            39,586
            
            $3.61104,000
            
            2008
            
            31,200
            
            208,000
            
            $3.42




Compensation
      cost related to Stock Rights issued to employees totaled $78,000 and $109,000
      for the three and six months ended July 2, 2006, respectively, and $43,000
      and
      $85,000 for the three and six months ended July 3, 2005, respectively. As of
      July 2, 2006 there was approximately $431,000 of unrecognized compensation
      related to Stock Rights issued to employees, which is expected to be recognized
      over a weighted average period of 2.2 years.





Employee
      Stock Purchase Plan





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




15




**THERAGENICS
          CORPORATION AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
          2, 2006**
 **(Unaudited)**


Pro
      Forma Results





The
      following represents the effect on net earnings (loss) and earnings per share
      if
      the Company had applied the fair market value recognition provisions of SFAS
      123R for all periods presented: (in thousands, except per share data):




**Three
                  months ended**
              ****
              **Six
                  months ended**
              ********
              ****
              **July
                  2, 2006**
              
              **July
                  3, 2005**
              
              **July
                  2, 2006**
              
              **July
                  3, 2005**Net
                  earnings (loss), as reported
              
              $
              433
              
              $
              (1,036
              )
              $
              1,208
              
              $
              (1,533
              )Less:
                  total stock based compensation expense determined under fair valuemethod
                  for all stock options, net of related tax benefit
              
              
              —
              
              
              (26
              )
              
              —
              
              
              (53
              )Pro
                  forma net earnings (loss)
              
              $
              433
              
              $
              (1,062
              )
              $
              1,208
              
              $
              (1,586
              )Basic
                  and diluted earnings (loss) per share:As
                  reported
              
              $
              .01
              
              $
              (.03
              )
              $
              0.04
              
              $
              (0.05
              )Pro
                  forma
              
              $
              .01
              
              $
              (.03
              )
              $
              0.04
              
              $
              (0.05
              )





The
      weighted average fair value of the options granted during the first quarter
      of
      2005 was $1.38. The Company did not grant any options during the second quarter
      of 2005 or the first half of 2006. The fair values were estimated using the
      Black-Scholes options-pricing model with the following weighted average
      assumptions:





Expected
                dividend yield
            0.0
            %Expected
                stock price volatility
            45.8
            %Risk-free
                interest rate
            3.0
            %Expected
                life of option (years)
            3.1





Expected
      stock price volatility is primarily based on the historical volatility of the
      Company’s stock price over the most recent period commensurate with the expected
      option life. 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




**NOTE
      I - INCOME TAXES**





Income
      tax expense for the three and six months ended July 2, 2006 was $260,000 and
      $270,000, respectively. This is lower than income tax expense at the statutory
      rates, primarily due to the utilization of net operating loss carryforwards
      that
      were not recognized in previous periods. Mainly as a result of the 2005
      restructuring, the Company had operating loss carryforwards and other future
      deductible temporary differences that resulted in a net deferred tax asset
      of
      $6.8 million at December 31, 2005. Because of the recent history of operating
      losses, and the uncertainty of projecting future taxable income sufficient
      to
      recognize these deferred tax assets, a valuation allowance for the full amount
      of the net deferred tax asset was recorded. Approximately $350,000 of the
      valuation allowance was reduced in the six months ended July 2, 2006, reducing
      income tax expense by that amount and reflecting the utilization of a portion
      of
      the net operating loss carryforwards. While the Company was profitable in the
      first two quarters of 2006, management believes that the Company must first
      establish a track record of profitability before recognizing tax benefits
      associated with future taxable income. Accordingly, at July 2, 2006, a valuation
      allowance related to the $6.4 million net deferred tax asset, exclusive of
      the
      deferred tax liability related to temporary differences in goodwill that is
      not
      amortizable for financial statement purposes, has been recorded. If the Company
      is successful in establishing a basis for justifying that an allowance is not
      necessary, and in generating future taxable income, these benefits will be
      recognized in future periods. The deferred income tax liability of $260,000
      at
      July 2, 2006, relates to the portion of goodwill that is deductible for income
      tax purposes and for which the timing of the corresponding deduction for
      financial reporting purposes cannot be determined.




16




**THERAGENICS
        CORPORATION AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        2, 2006**
 **(Unaudited)**




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




*Distribution
      Agreement*




The
      Company sells its TheraSeed ® device
      directly to health care providers and to third party distributors, and sells
      its
      I-Seed device directly to health care providers. One of the
      Company's non-exclusive distribution agreements for the TheraSeed®device is with C. R. Bard (“Bard”) (the
      “Bard Agreement”). The terms of the Bard Agreement provide for automatic one
      year extensions of the term, unless either party gives notice of its intent
      not
      to renew at least twelve months prior to the end of the current term. The
      current terms expires December 31, 2007, and will be automatically extended
      for
      one additional year unless either party gives notice of its intent not to extend
      by December 31, 2006. The Bard Agreement gives Bard the non-exclusive right
      to
      distribute the TheraSeed ® device
      in the U.S., Canada, and other international locations for the treatment of
      prostate cancer and other solid localized cancerous tumors. A distribution
      agreement with Medi-Physics, Inc. (formerly d/b/a Nycomed Amersham and part
      of
      Oncura) terminated on September 8, 2005 (see Note G).




*Major
      Customers*





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. For the three and six months
      ended July 3, 2005, sales to Bard and Oncura represented approximately 60%
      and
      68% of total product revenue, respectively.




Accounts
      receivable from Bard represented approximately 56% of brachytherapy accounts
      receivable and 41% of consolidated accounts receivable at July 2, 2006. At
      December 31, 2005, accounts receivable from Bard represented approximately
      52%
      of brachytherapy accounts receivable and 39% of consolidated accounts
      receivable.




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. Two customers totaled approximately 20% of surgical products accounts
      receivable at July 2, 2006. One customer totaled 24% of surgical products
      accounts receivable at December 31, 2005.





**NOTE
      K - SEGMENT REPORTING**





*Segment
      Reporting*





The
      Company operates in two segments, the brachytherapy seed segment and the
      surgical products segment. The brachytherapy seed segment is comprised of the
      Company’s TheraSeed ® and
      I-Seed products as well as related products and services. The surgical products
      segment is comprised of sutures, cardiac pacing cables, brachytherapy needles
      and other surgical supplies at CP Medical. These products have applications in
      urology, veterinary, cardiology, orthopedics, plastic surgery, dental, and
      other
      fields. The following tables provide certain segment information for the three
      and six months ended July 2, 2006 and July 3, 2005 (amounts in
      thousands):




17




**THERAGENICS
        CORPORATION AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        2, 2006**
 **(Unaudited)**





**Three
                  Months Ended**
              ****
              **Six
                  Months Ended**
              ********
              ****
              **July
                  2,**
                **2006**
              ****
              **July
                  3,**
                **2005**
              ****
              **July
                  2,**
                **2006**
              ****
              **July
                  3,**
                **2005**RevenuesBrachytherapy
                  seed
              
              $
              8,610
              
              $
              9,274
              
              $
              17,618
              
              $
              18,813Surgical
                  products
              
              
              4,019
              
              
              2,098
              
              
              7,461
              
              
              2,098Intersegment
                  eliminations
              
              
              (39
              )
              
              —
              
              
              (95
              )
              
              —$
              12,590
              
              $
              11,372
              
              $
              24,984
              
              $
              20,911Restructuring
                  expensesBrachytherapy
                  seed
              
              $
              63
              
              $
              —
              
              $
              369
              
              $
              —Surgical
                  products
              
              
              —
              
              
              —
              
              
              —
              
              
              —$
              63
              
              $
              —
              
              $
              369
              
              $
              —Gain
                  on sale of assetsBrachytherapy
                  seed
              
              $
              —
              
              $
              —
              
              $
              199
              
              $
              —Surgical
                  products
              
              
              —
              
              
              —
              
              
              2
              
              
              —$
              —
              
              $
              —
              
              $
              201
              
              $
              —Earnings
                  (loss) from operationsBrachytherapy
                  seed
              
              $
              (233
              )
              $
              (2,434
              )
              $
              (61
              )
              $
              (3,597
              )Surgical
                  products
              
              
              528
              
              
              506
              
              
              837
              
              
              506Intersegment
                  eliminations
              
              
              8
              
              
              —
              
              
              (13
              )
              
              —$
              303
              
              $
              (1,928
              )
              $
              763
              
              $
              (3,091
              )Capital
                  expendituresBrachytherapy
                  seed
              
              $
              75
              
              $
              27
              
              $
              144
              
              $
              157Surgical
                  products
              
              
              49
              
              
              20
              
              
              102
              
              
              20$
              124
              
              $
              47
              
              $
              246
              
              $
              177Depreciation
                  and amortizationBrachytherapy
                  seed
              
              $
              1,020
              
              $
              1,722
              
              $
              2,004
              
              $
              3,511Surgical
                  products
              
              
              216
              
              
              141
              
              
              428
              
              
              141$
              1,236
              
              $
              1,863
              
              $
              2,432
              
              $
              3,652




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





**July
                  2,****2006**
            
            **December
                  31,****2005**Identifiable
                assetsBrachytherapy
                seed
            
            $
            121,075
            
            $
            120,485Surgical
                products
            
            
            30,865
            
            
            29,191Intersegment
                eliminations
            
            
            (28,724
            )
            
            (27,612
            )$
            123,216
            
            $
            122,064GoodwillBrachytherapy
                seed
            
            $
            2,578
            
            $
            2,578Surgical
                products
            
            
            15,792
            
            
            15,792$
            18,370
            
            $
            18,370Other
                intangible assetsBrachytherapy
                seed
            
            $
            12
            
            $
            29Surgical
                products
            
            
            5,984
            
            
            6,359$
            5,996
            
            $
            6,388




18




**THERAGENICS
        CORPORATION AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        2, 2006**
 **(Unaudited)**


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





**Three
                Months Ended**
            
            **Six
                Months Ended******
            **July
                2, 2006**
            ****
            **July
                3, 2005**
            
            **July
                2, 2006**
            
            **July
                3, 2005**United
                States
            
            $
            12,054
            
            $
            11,044
            
            $
            23,982
            
            $
            20,583Europe
            
            
            354
            
            
            259
            
            
            646
            
            
            259Other
                foreign countries
            
            
            182
            
            
            69
            
            
            356
            
            
            69$
            12,590
            
            $
            11,372
            
            $
            24,984
            
            $
            20,911





Foreign
      sales relate to the surgical products segment and are attributed to countries
      based on location of the customer. All of the Company’s long-lived assets are
      located within the United States.





**NOTE
      L –
      RECENTLY ISSUED ACCOUNTING STANDARD**





In
      June
      2006, the Financial Accounting Standards Board (FASB) issued Interpretation
      No.
      48, “ *Accounting
      for Uncertainty in Income Taxes,”* (“FIN
      48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in a company’s financial statements in accordance with FASB Statement No. 109, *Accounting
      for Income Taxes.* FIN
      48
      requires a company to determine whether it is more likely than not that a tax
      position will be sustained upon examination based upon the technical merits
      of
      the position. If the more-likely-than-not threshold is met, a company must
      measure the tax position to determine the amount to recognize in the financial
      statements. FIN 48 is effective for the Company beginning January 1, 2007.
      The
      Company is currently evaluating FIN 48 and the potential impact on its financial
      statements has not been determined.





**NOTE
      M – SUBSEQUENT EVENT**





On
      August
      2, 2006, the Company acquired all of the outstanding common stock of Galt
      Medical Corp. (“Galt”) for approximately $31.9 million (net of $2.1 million of
      cash acquired). The
      purchase price consisted of approximately $28.8 million in cash and the issuance
      of 978,000 common shares valued at $3.1 million. Theragenics financed $7.5
      million of the purchase price with borrowings on its $40.0 million credit
      facility. Galt develops, manufactures and markets disposable medical devices
      utilized for vascular access, primarily serving the interventional radiology
      and
      interventional cardiology markets. Galt’s current products include guidewires,
      micro-introducer kits and tear-away introducer sets and kits, and hemostasis
      valve introducer sets and kits. This transaction further diversifies
      Theragenics’ medical device and surgical businesses and leverages the Company’s
      existing strengths within these markets. The
      results of operations of Galt will be included in the Company’s consolidated
      financial statements subsequent to the date of acquisition.




19




**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 other surgical products and supplies at CP Medical
      Corporation (“CP Medical”). CP Medical produces sutures, cardiac pacing cables,
      brachytherapy needles and other surgical supplies. These products have
      applications in urology, veterinary, cardiology, orthopedics, plastic surgery,
      dental, and other fields.




The
      Company acquired CP Medical Corporation (“CP Medical”) on May 6, 2005, for
      approximately $26.7 million, including $20.6 million in cash and 1,840,458
      shares of common stock valued at approximately $6.1 million. The Company’s
      consolidated results of operations for 2006 include the results of CP Medical.
      The 2005 periods only include CP Medical operations subsequent to the May 6,
      2005 acquisition date.




***2005
      Restructuring***





The
      Company implemented a restructuring of the brachytherapy segment in August
      2005
      that resulted in the closure of the Plasma Separation Process (“PSP”) facility
      in Oak Ridge, Tennessee, ended the research and development activities related
      to the vascular, macular degeneration and breast cancer areas, and eliminated
      production of radiochemical products. Significant restructuring charges were
      recorded in the third quarter of 2005, and curtailing these activities allowed
      the Company to shrink its asset base by shutting down six cyclotrons, closing
      the Newton Terrace facility in Buford, Georgia, and closing the PSP facility.
      The objective of the restructuring was to sharpen the Company’s focus on its two
      main business segments, brachytherapy seeds and surgical products, as well
      as
      provide a more focused platform for continued diversification and expansion
      through acquisitions or other channels.





Restructuring
      activities were completed during the second quarter of 2006. The Company
      incurred restructuring costs of $63,000 and $369,000 during the three months
      and
      six months ended July 2, 2006, respectively. These restructuring costs were
      primarily a result of the ongoing site exit and disposal costs associated with
      the shutting down of the Oak Ridge facility. The Company is actively marketing
      its interest in its Oak Ridge real estate. Assets held for sale of $3.4 million
      are included in the accompanying consolidated balance sheet at July 2,
      2006.





During
      the second quarter of 2006, the restructuring generated pre-tax operating
      expense savings of approximately $2.1 million, including cash-based savings
      of
      $1.5 million. For the six month period, pre-tax operating expense saving were
      $4.1 million, including cash-based savings of $2.8 million. For the full year
      of
      2006, the Company expects pre-tax operating expense savings to slightly exceed
      its estimate of approximately $6.5 million to $7.0 million, including pre-tax
      cash savings of approximately $4.0 million to $4.4 million.





The
      Company recognized gains on the sale of assets of $201,000 in first quarter
      of
      2006. The significant portion of these gains was in the brachytherapy business,
      and represented the sale of equipment idled by the restructuring. The Company
      was not able to sell its leasehold interest in the PSP equipment due to its
      highly specialized use, its sensitive security classification, and its export
      control regulations. As a result, the PSP equipment was returned to the
      Department of Energy during 2006.




***Subsequent
      Event*–*Acquisition***





On
      August
      2, 2006, the Company acquired all of the outstanding common stock of Galt
      Medical Corp. (“Galt”) for approximately $31.9 million (net of $2.1 million of
      cash acquired). The
      purchase price consisted of approximately $28.8 million in cash and the issuance
      of 978,000 common shares valued at $3.1 million. Theragenics financed $7.5
      million of the purchase price with borrowings on its $40.0 million credit
      facility. Galt develops, manufactures and markets disposable medical devices
      utilized for vascular access, primarily serving the interventional radiology
      and
      interventional cardiology markets. Galt’s current products include guidewires,
      micro-introducer kits and tear-away introducer sets and kits, and hemostasis
      valve introducer sets and kits. This transaction further diversifies
      Theragenics’ medical device and surgical businesses and leverages the Company’s
      existing strengths within these markets. Galt, based in Garland, Texas, had
      revenue of $7.1 million for the year ended December 31, 2005, and revenue of
      $5.1 million for the first six months of 2006. The
      results of operations of Galt will be included in the Company’s consolidated
      financial statements subsequent to the acquisition date.




20




***Results
      of Operations***





***Revenue***





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




**Quarter
                Ended**
            ****
            **Six
                Months Ended**
            ********
            ****
            **July
                2,****2006**
            ****
            **July
                3, 2005**
            ****
            **Change
                (%)**
            ****
            **July
                2, 2006**
            ****
            **July
                3, 2005**
            ****
            **Change
                (%)**Brachytherapy
            
            $
            8,610
            
            $
            9,274
            
            
            (7.2
            %)
            $
            17,618
            
            $
            18,813
            
            
            (6.4
            %)Surgical
                products
            
            
            3,980
            
            
            2,098
            
            
            89.7
            %
            
            7,366
            
            
            2,098
            
            
            251.1
            %Consolidated
            
            $
            12,590
            
            $
            11,372
            
            
            10.7
            %
            $
            24,984
            
            $
            20,911
            
            
            19.5
            %


Consolidated
      revenue for the second quarter and first six months of 2006 increased 10.7%
      and
      19.5%, respectively, over the comparable 2005 periods. This increase was due
      to
      the inclusion of CP Medical and the surgical products segment only subsequent
      to
      the May 6, 2005 acquisition date in the 2005 periods, while their results were
      included for the entire 2006 periods. Sales in the brachytherapy seed segment
      decreased in the 2006 periods by 7.2% in the second quarter and 6.4% for the
      first six months of the year from the comparable 2005 periods. These declines
      reflect lower sales to our largest distributor. Decreases from the loss of
      another distributor in late 2005 were partially offset by increases in direct
      sales during the 2006 periods. The second quarter of 2006 was the tenth
      consecutive quarter of increased direct unit sales. The average selling price
      of
      the TheraSeed® device during the 2006 periods was comparable to the
      corresponding 2005 periods.





The
      Company has a non-exclusive distribution agreement in place with C. R. Bard
      (“Bard”) for the distribution of the TheraSeed ® device,
      which is effective through December 31, 2007 (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 term expires on
      December 31, 2007, and will be automatically extended for one additional year
      unless either party gives notice of its intent not to extend by December 31,
      2006. The Company also had a non exclusive distribution agreement in place
      with
      Medi-Physics, Inc., formerly d/b/a Nycomed Amersham and now part of Oncura,
      a
      company formed by a merger of the brachytherapy business of Amersham plc and
      Galil Medical Ltd. (the “Oncura Agreement”). In December 2004, Oncura notified
      the Company that it would not be renewing its distribution agreement effective
      December 31, 2005 and subsequently, the Oncura Agreement was terminated
      effective September 8, 2005. The Company’s direct sales force has aggressively
      marketed TheraSeed ® to
      customers of Oncura in an effort to retain the business.





In
      addition to the impact of the disappointing performance by our current
      distributor and the termination of the Oncura Agreement, management believes
      that the brachytherapy industry continues to be affected by competition from
      alternative therapies, changes and uncertainties regarding Medicare
      reimbursement, declining prices for iodine-125 and palladium-103 seeds,
      competitors’ selling tactics and the effects of consolidation in the industry.
      At any point in time, Theragenics and/or its non-exclusive distributor may
      change their respective pricing policies for the TheraSeed ® or
      I-Seed (in the case of Theragenics) device in order to take advantage of market
      opportunities or respond to competitive situations. Responding to market
      opportunities and competitive situations could have an adverse effect on average
      selling prices and could have a favorable effect or prevent an unfavorable
      effect on market share and volumes. Conversely, the Company and its
      non-exclusive distributor could individually and independently decide to
      maintain per unit pricing under certain competitive situations that could
      adversely affect current or potential market share and volumes.




21




***Costs
      and expenses***





In
      the
      brachytherapy segment, gross margin was 50.6% and 53.0% for the second quarter
      and first six months of 2006, respectively, compared with a gross margin of
      44.1% and 46.9% in the comparable 2005 periods. Gross margin in the
      brachytherapy segment increased during the 2006 periods primarily due to
      manufacturing related cost savings realized from the 2005 restructuring, which
      totaled $1.7 million in the second quarter of 2006 and $3.2 million during
      the
      first six months of 2006, and a reduction of expected future liabilities related
      to decommissioning costs associated with the cyclotrons and related facilities.
      These reductions in cost of sales were partially offset by fixed palladium-103
      production costs utilized to support research and development and the clinical
      trials underway in the 2005 period and accordingly classified as research and
      development expense. In 2006, these fixed palladium-103 production costs
      remained in cost of sales, decreasing gross margin. The gross profit percentage
      in the brachytherapy segment was also negatively impacted by the lower revenue
      in the 2006 periods. In the surgical products business, gross margin was 43.4%
      in the second quarter of 2006 and 41.9% for the first half of 2006 versus 49.7%
      in 2005, reflecting investments in capacity.





Selling,
      general and administrative (“SG&A”) expense for the brachytherapy segment
      decreased by $956,000 and $907,000 in the second quarter and first six months
      of
      2006, respectively, compared to the 2005 periods. The 2005 periods included
      one
      time severance and other related costs not associated with the restructuring.
      The absence of these non recurring costs in 2006 was partially offset by an
      increase in professional fees. In the surgical products segment, SG&A
      increased by $608,000 in the second quarter of 2006 over the second quarter
      of
      2005, and by $1.6 million in the first six months of 2006 over the comparable
      2005 period. This was due to the inclusion of CP Medical operations for the
      entire 2006 periods, while the 2005 periods included CP Medical operations
      only
      subsequent to the acquisition date of May 6, 2005.




Research
      and development (“R&D”) expenses declined significantly in the brachytherapy
      segment in the 2006 periods. The Company was previously conducting clinical
      trials related to the use of palladium-103 for the prevention of restenosis
      (the
“TheraP trial”) and for the treatment of exudative (wet) age related macular
      degeneration (the “TheraSight trial”). The decrease in R&D expense during
      2006 was primarily attributable to the completion of the TheraP trial during
      the
      second quarter of 2005 and curtailment of the TheraSight trial. In connection
      with the 2005 restructuring, all activities related to the TheraP trial have
      been discontinued, and activities related to the TheraSight trial have been
      curtailed. Looking forward, the only activity expected for these programs is
      the
      follow up of all patients previously treated in the TheraSight trial, in
      accordance with the FDA-approved protocol for this trial. Other R&D consists
      primarily of new product development activities. These activities are dependent
      on opportunities for product development and process improvements, as well
      as
      pursuit of other appropriate opportunities as they arise. Accordingly, R&D
      expenses may fluctuate significantly from period to period.




***Other***





Interest
      income was $454,000 and $869,000 for the three and six months ended July 2,
      2006, compared to $339,000 and $722,000 for the comparable 2005 periods.
      Interest income increased in 2006 due to higher interest rates, partially offset
      by a decrease in invested funds. 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 for the three and six months ended July 2, 2006 was $260,000 and
      $270,000, respectively. This is lower than income tax expense at the statutory
      rates, primarily due to the utilization of net operating loss carryforwards
      that
      were not recognized in previous periods. Mainly as a result of the 2005
      restructuring, the Company had operating loss carryforwards and other future
      deductible temporary differences that resulted in a net deferred tax asset
      of
      $6.8 million at December 31, 2005. Because of the recent history of operating
      losses, and the uncertainty of projecting future taxable income sufficient
      to
      recognize these deferred tax assets, a valuation allowance related to the
      $6.4 million net deferred tax asset exclusive of the deferred tax liability
      related to temporary differences in goodwill that is not amortizable for
      financial statement purposes, has been recorded. Approximately $350,000 of
      the
      valuation allowance was reduced in the six months ended July 2, 2006, reducing
      income tax expense by that amount and reflecting the utilization of a portion
      of
      the net operating loss carryforwards. While the Company was profitable in the
      first two quarters of 2006, management believes that the Company must first
      establish a track record of profitability before recognizing tax benefits
      associated with future taxable income. Accordingly, a valuation allowance for
      the full amount of the $6.4 million in net deferred tax assets at July 2, 2006
      has been recorded. If the Company is successful in establishing a basis for
      justifying that an allowance is not necessary, and in generating future taxable
      income, these benefits will be recognized in future periods. The income tax
      benefit rate in the 2005 periods was 37% in the second quarter and 38% for
      the
      six month period.




22




***Critical
      Accounting Policies***





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





*Property,
      plant and equipment.* Property,
      plant and equipment are recorded at cost and depreciated on a straight-line
      basis over the estimated useful lives of such assets. The Company’s estimates
      can result in differences from the actual useful lives of certain assets. As
      of
      July 2, 2006, 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 could
      change in the future.





*Goodwill.* The
      Company has $15.8 million of goodwill associated with its acquisition of CP
      Medical Corporation in May 2005, and $2.6 million of goodwill associated with
      the acquisition of its iodine-125 production line in 2003.





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, and the second
      step of the impairment test is unnecessary. If book value exceeds market value,
      the second step of the impairment test is preformed to measure the amount of
      impairment loss, if any. For this step the implied fair value of the goodwill
      is
      compared with the book value of the goodwill. If the carrying amount of the
      goodwill exceeds the implied fair value of the goodwill, an impairment loss
      would be recognized in an amount equal to that excess. Any loss recognized
      cannot exceed the carrying amount of goodwill. After an impairment loss is
      recognized, the adjusted carrying amount of goodwill is its new accounting
      basis. Subsequent reversal of a previously recognized impairment loss is
      prohibited once the measurement of that loss is completed. The Company performs
      an annual goodwill impairment assessment during the fourth quarter. The most
      recent assessment was performed in the fourth quarter of 2005 and the Company
      determined that goodwill was not impaired.




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




23




*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. The accounts receivable balance, net of the provision for trade
      accounts receivables allowance of $559,000, was approximately $7.4 million
      as of
      July 2, 2006.





*Share-based
      compensation.* In
      February 2006, the Company granted certain Performance Stock Rights to executive
      officers, which vest on December 31, 2008. The number of common shares issuable
      upon vesting of each Performance Stock  Right
      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 Board of Directors. The grant date
      fair value of the Performance Stock Rights 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 Performance Stock Rights containing performance
      conditions, the grant date fair value is adjusted each period for the number
      of
      shares ultimately expected to be issued. To the extent that the number of shares
      issuable vary significantly from period to period, the Company may record
      additional compensation expense or adjust previously recorded compensation
      expense to reflect current estimates. For the portion of the Performance Stock
      Rights 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. In
      addition, the fair value of Performance Stock Rights subject to discretionary
      performance conditions is estimated assuming the maximum number of shares
      issuable, until such time that the actual number of shares can be determined.
      To
      the extent that the underlying fair value of the Company’s common stock varies
      significantly, and/or the number of shares issuable is determined, the Company
      may record additional compensation expense or adjust previously recognized
      compensation expense.





*Valuation
      allowance for deferred tax assets.* A
      full
      valuation reserve related to the $6.4 million net deferred tax asset, exclusive
      of the deferred tax liability related to temporary differences in goodwill
      that
      is not amortized for financial statement purposes, has been provided as of
      July
      2, 2006. In the future, if sufficient evidence of the Company’s ability to
      generate adequate future taxable income becomes apparent, the valuation
      allowance may be required to be reduced. This would result in income tax
      benefits being recognized in the consolidated statement of operations.
      Management evaluates the realizability of the deferred tax assets and assesses
      the need for the valuation allowance each reporting period.




***Liquidity
      and Capital Resources***





The
      Company had cash, short-term investments and marketable securities of $48.2
      million at July 2, 2006, compared to $45.6 million at December 31, 2005.
      Marketable securities consist primarily of short-term cash investments and
      high-credit quality corporate and municipal obligations, in accordance with
      the
      Company’s investment policies. The aggregate increase in cash, short-term
      investments and marketable securities was primarily the result of cash generated
      from operations.





Working
      capital was $63.8 million at July 2, 2006, compared to $60.3 million at December
      31, 2005. 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. In the
      second quarter of 2006, the credit agreement was extended until October 29,
      2009. As of July 2, 2006, no borrowings were outstanding under the Credit
      Agreement and letters of credit totaling $876,000 were outstanding. The Credit
      Agreement is unsecured, but provides for a “springing lien” to be established on
      substantially all of the assets of the Company (subject to certain exceptions)
      in the event certain events of default occur under the Credit Agreement. The
      Credit Agreement, as amended, contains representations and warranties, as well
      as affirmative, reporting and negative covenants, customary for financings
      of
      this type. Among other things, certain provisions of the Credit Agreement limit
      the incurrence of additional debt and require the maintenance of certain
      financial ratios and tests. Subsequent to July 2, 2006, the Company borrowed
      $7.5 million under the Credit Agreement in connection with the acquisition
      of
      Galt Medical Corp. (see *“Subsequent
      Event***–***Acquisition”* above).





Cash
      provided by operations was $2.7 million and $758,000 during the six months
      ended
      July 2, 2006 and July 3, 2005, respectively. Cash provided by operations
      consists of net earnings/(loss) 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. Gross
      inventories increased $278,000 during the first six months of 2006 as a result
      of increased sales volume in the surgical products segment. Prepaid expenses
      and
      other current assets increased $530,000 mainly due to taxes paid that will
      be
      applied against net operating losses already incurred and prepayments to
      suppliers for inventory. Trade accounts payable, accrued salaries, wages and
      payroll taxes, and other current liabilities decreased an aggregate of $326,000
      during the first half of 2006 primarily as a result of the timing of the
      payments.





24




Capital
      expenditures totaled $246,000 and $177,000 during the first six months of 2006
      and 2005, respectively.





Cash
      provided by financing activities was $44,000 and $89,000 in the first six months
      of 2006 and 2005, respectively, consisting of cash proceeds from the Company’s
      Employee Stock Purchase Plan.





Cash
      could be used in 2006 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. Subsequent to July 2, 2006, the Company
      acquired Galt Medical Corp. (see *“Subsequent
      Event***–***Acquisition”* above).





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




***Medicare
      Developments***





The
      Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”)
      provided for improved reimbursement and coding policies beginning in 2004 and
      beyond for brachytherapy seeds/sources under Medicare’s hospital outpatient
      prospective payment system (“OPPS”).





The
      brachytherapy provisions in the MMA require Medicare to unbundle the cost of
      the
      brachytherapy seeds/sources from the costs of the brachytherapy procedure,
      catheters and needles under the OPPS. This means that hospital reimbursement
      is
      not limited to or dictated by the bundled reimbursement amounts assigned to
      the
      brachytherapy codes that the Centers for Medicare and Medicaid Services (“CMS”)
      used in 2003. In addition, the MMA requires Medicare to reimburse hospitals
      for
      each brachytherapy seed/source furnished between January 1, 2004 to December
      31,
      2006 based on the hospital’s costs for each patient (calculated from the
      hospital’s charges adjusted by the hospital’s specific cost-to-charge
      ratio).





There
      were no reimbursement changes implemented under Medicare for brachytherapy
      seeds/sources for 2006, although some reductions were implemented for hospital
      payments for outpatient procedures required to implant brachytherapy seeds.





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. The GAO concluded that CMS 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. The GAO did not recommend specific
      payment levels, and CMS is not required to follow any of the GAO’s
      recommendations.





CMS
      may
      implement changes to the reimbursement methodology for brachytherapy
      seeds/sources beginning January 1, 2007. In this regard, the Company anticipates
      that CMS may propose reimbursement rules utilizing prospective payment rates
      consistent with the GAO report. If CMS subsequently adopts a final rule that
      significantly limits reimbursement for the Company’s brachytherapy products or
      does not take into account ancillary products and services, it could have an
      adverse effect on utilization of the Company's brachytherapy
      products.




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





Due
      to
      the fact that the Medicare rules governing coding of brachytherapy seeds/sources
      and the procedures required to implant seeds have undergone significant change
      during the past few years, and are likely to continue to undergo additional
      changes, the Company believes that Medicare reimbursement may continue to create
      confusion for hospitals and doctors going forward. In that regard, Management
      continues to closely monitor any effects of the reimbursement structure on
      the
      brachytherapy market as it continues to evaluate pricing, marketing and
      distribution strategies. The Company continues to engage consulting firms
      specializing in reimbursement practices to help communicate brachytherapy
      reimbursement guidelines to customers. Medicare’s OPPS reimbursement levels for
      the procedures performed during prostate brachytherapy could influence the
      utilization of brachytherapy seeds, including the Company’s brachytherapy
      products.





25




***Forward
      Looking and Cautionary Statements***





This
      document contains certain forward-looking statements within the meaning of
      the
      Private Securities Litigation Reform Act of 1995 including, without limitation,
      statements regarding sales, marketing and distribution efforts, the Company’s
      direct sales organization, including, but not limited to, its growth and
      effectiveness, third-party reimbursement, CMS policy, sales mix, effectiveness
      and continuation of non-exclusive distribution agreements, pricing for the
      TheraSeed ® and
      I-Seed devices, future cost of sales, R&D efforts and expenses, inventory
      investment, SG&A expenses, other income, potential new products and
      opportunities, the development of new markets and technologies, execution of
      restructuring plans, estimated impairment and other restructuring expenses,
      expected operating expense savings and associated cash expenditures and savings,
      Theragenics’ plans and strategies for diversification, and the sufficiency of
      the Company’s liquidity and capital resources. From time to time, the Company
      may also make other forward-looking statements relating to such matters as
      well
      as statements relating to anticipated financial performance, business prospects,
      technological developments, other research and development activities and
      similar matters. These forward-looking statements are subject to certain risks,
      uncertainties and other factors which could cause actual results to differ
      materially from those anticipated, including risks associated with new product
      development cycles, effectiveness and execution of marketing and sales programs
      of Theragenics and its non-exclusive distributor, competitive conditions and
      selling tactics of the Company’s competitors, potential changes in third-party
      reimbursement, changes in assumptions used in estimating restructuring charges
      and operating expense savings, unforeseen costs and cash expenditures associated
      with the restructuring plan, and the risks identified in 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.





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





The
      Company's market risk exposure related to market risk sensitive financial
      instruments is not material. Letters of credit totaling $876,000 were
      outstanding under the terms of the Credit Agreement as of July 2, 2006 and,
      subsequent to July 2, 2006, the Company borrowed $7.5 million under its Credit
      Agreement in connection with the acquisition of Galt Medical Corp. (see *“Subsequent
      Event***–***Acquisition”* above).





**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 2, 2006, the end of the period covered by this
      report.





As
      more
      fully described in Item 9A of the Company’s December 31, 2005 Annual Report on
      Form 10-K (the “2005 Form 10-K”), the Company acquired CP Medical Corporation
      (“CP Medical”) on May 6, 2005. Since the date of acquisition, we have analyzed,
      evaluated, and implemented changes in CP Medical’s procedures and controls to
      determine their effectiveness and to make them consistent with our disclosure
      controls and procedures. Prior to our acquisition of CP Medical, CP Medical
      was
      not required to prepare financial statements in accordance with accounting
      principles generally accepted in the United States of America. In addition,
      CP
      Medical was not previously required to maintain disclosure controls and
      procedures or maintain, document and assess internal control over financial
      reporting, in each case as required under the rules and regulation of the
      Securities and Exchange Commission.





26




As
      noted
      under Item 9A in Management’s Report on Internal Control over Financial
      Reporting in the 2005 Form 10-K, ** CP
      Medical was excluded from the scope of our assessment over the effectiveness
      of
      internal controls over financial reporting as of December 31, 2005. During
      the
      course of integrating the operations of CP Medical in 2005, material weaknesses
      in internal control specifically related to inventory accounting at CP Medical
      were identified, with respect to physical inventory quantities being accurately
      reflected in the automated inventory records and adequate control over movement
      of inventory. This was a result of ineffective information technology systems,
      specifically the software utilized for inventory accounting, a lack of
      adequately experienced accounting personnel for inventory accounting, and a
      lack
      of established and documented controls surrounding inventory activities. In
      late
      2005 and during 2006 we have implemented corrective systems and procedures
      designed to remediate the material weaknesses in internal controls over
      inventory at CP Medical, including the following:




·
            A
                controller possessing greater knowledge and experience was
                hired;




·
            full
                physical inventory counts are performed
                quarterly;




·
            differences
                in the physical counts and the computerized inventory records are
                identified, reconciled and differences are
                recorded;




·
            new
                accounting software that is appropriate for inventory accounting
                has been
                installed and implemented;




·
            inventory
                unit costing is reviewed for accuracy;




·
            formally
                documented procedures for inventory movement have been developed
                and
                implemented; and




·
            additional
                experienced accounting personnel have been hired to improve capabilities
                in the accounting department at CP
                Medical.





We
      have
      not completed testing of the controls to determine whether or not the controls
      are operating effectively to ensure remediation of the material
      weaknesses .




No
      changes in the Company's internal control over financial reporting were
      identified as having occurred during the quarter ended July 2, 2006 that have
      materially affected, or are reasonably likely to materially affect, the
      Company's internal control over financial reporting, except as described
      above.




**PART
      II. OTHER INFORMATION**





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





In
      January 1999, the Company and certain of its officers and directors were named
      as defendants in certain securities actions alleging violations of the federal
      securities laws, including Sections 10(b), 20(a) and Rule 10b-5 of the
      Securities and Exchange Act of 1934, as amended. The complaint generally alleged
      that the defendants made certain misrepresentations and omissions in connection
      with the performance of the Company during the class period and sought
      unspecified damages. In 2004, the consolidated federal securities class action
      was settled for an amount within the limits of the Company’s directors and
      officers’ liability insurance, and the federal securities case was officially
      over as of November 1, 2004.


27
 On
        May
        14, 1999 a stockholder of the Company filed a derivative complaint in the
        Delaware Court of Chancery purportedly on behalf of the Company, alleging
        that
        certain directors breached their fiduciary duties by engaging in the conduct
        that was alleged in the consolidated federal class action complaint. During
        the
        second quarter of 2006, the plaintiff voluntarily dismissed the derivative
        suit
        with no financial settlement due.





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





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





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





We
      operate in a continually changing business environment and new risk factors
      may
      emerge from time to time. We cannot predict such new risk factors, nor can
      we
      assess the impact, if any, of such new risk factors on our business or to the
      extent to which any factor or combination of factors may cause actual results
      to
      differ materially from those expressed in any forward looking statement.
      Additional risks and uncertainties not currently known to us or that we might
      currently deem to be immaterial also may adversely affect our business,
      financial condition and/or operating results.




We
      operate multiple businesses. When we refer to “brachytherapy” or the
“brachytherapy business”, we are referring to our business that produces,
      markets and sells TheraSeed ® ,
      our
      premier palladium-103 prostate cancer treatment device, I-Seed, our iodine-125
      based prostate cancer treatment device, and related products and
      services. When we refer to “surgical products” or the “surgical products
      business”, we are referring to the wound closure and other surgical related
      products produced by CP Medical, and the guidewire and vascular access products
      produced at Galt Medical.




***There
      are risks associated with our acquisitions, potential acquisitions and joint
      ventures.***




An
      important element of our strategy is to seek acquisition prospects and
      diversification opportunities that we believe will complement or diversify
      our
      existing product offerings, augment our market coverage and customer base,
      enhance our technological capabilities or offer revenue and profit growth
      opportunities. We acquired CP Medical in May 2005 and Galt Medical
      in August 2006. Further transactions of this nature could result in
      potentially dilutive issuance of equity securities, use of cash and/or the
      incurring of debt and the assumption of contingent liabilities.





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





***We
      may not realize the benefits of acquisitions.***




The
      process of integrating CP Medical and Galt Medical may be complex, time
      consuming and expensive and may disrupt our businesses, and could affect our
      financial condition, results of operations or future prospects. The Company
      will
      need to overcome significant challenges in order to realize benefits or
      synergies from the acquisition. These challenges include the timely, efficient
      and successful execution of a number of post-acquisition events, including:




28


·
            integrating
                the operations and technologies of the acquired
                companies;


·
            retaining
                and assimilating the key personnel of each
                company;


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


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


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





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





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


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


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





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




***The
      cost of the Galt acquisition could harm our financial
      results.***




Theragenics
      invested approximately $31.9 million for the acquisition of Galt Medical. If
      the
      benefits of the acquisition do not exceed the associated costs, including costs
      related to integrating the two companies acquired and dilution to our
      stockholders resulting from the issuance of shares in connection with the
      acquisition, our financial results, including earnings per share, could be
      materially harmed.




***We
      are dependent on key personnel.***




We
      are
      highly dependent upon our ability to attract and retain qualified management,
      scientific and technical personnel. Therefore, our future success is dependent
      on our key employees. If the services of our chief executive or other key
      employees cease to be available, the loss could adversely affect our business
      and financial results. We carry key employee insurance for Ms. Jacobs in the
      amount of $1 million.




***Our
      stock price has and may continue to be subject to large
      fluctuations.***




The
      trading price of our Common Stock has been and may continue to be subject to
      wide fluctuations in response to quarter-to-quarter variations in operating
      results, announcements of technological innovations, new products or
      acquisitions by us or our competitors, developments with respect to patents
      or
      proprietary rights, general conditions in the medical device and surgical
      products industries, changes in earnings estimates by analysts, or other events
      or factors. In addition, the stock market has experienced extreme price and
      volume fluctuations, which have particularly affected the market prices of
      many
      technology companies and which have often been unrelated to the operating
      performance of such companies. Average daily trading volume in our Common Stock
      is not significant and can cause significant price fluctuations. Specific
      factors applicable to us or broad market fluctuations may materially adversely
      affect the market price of our Common Stock. We have experienced significant
      fluctuations in our stock price and share trading volume in the past and may
      continue to do so.




***We
      face production risks.***




Theragenics’
      manufacturing process in the brachytherapy business requires, among other
      things, the use of cyclotrons, which are used to manufacture Pd-103 for our
      brachytherapy seed products. Cyclotron capacity and performance directly affect
      the Company’s ability to support any increases in sales levels. Due to the
      intricate nature of cyclotrons and the Company’s exacting specifications for
      their performance, planned downtime for maintenance and repair is crucial and
      unexpected downtime may occur. Unexpected mechanical breakdowns or other
      production delays could materially adversely affect the Company’s production
      capacity and its business, financial condition and results of
      operations.




The
      Company operates eight cyclotrons. Management has no plans to purchase
      additional cyclotrons. Cyclotron operation constitutes only one component of
      our
      brachytherapy device manufacturing process. Manufacturing or quality control
      problems may arise in any of the Company’s businesses as the Company increases
      production or as additional manufacturing capacity is required in the future.
      These factors may have an adverse impact on the Company’s business, financial
      condition and results of operations.


29


Surgical
      product components are obtained from suppliers located locally in the United
      States, as well as in Latin America, Europe, and Asia. While we believe there
      is
      adequate access to alternative suppliers, any disruption in supply could have
      a
      material adverse effect on our business, financial condition and results
      operations.




***We
      are subject to stringent government regulation.***




The
      manufacture and sale of the Company’s products are subject to stringent
      government regulation in the United States and other countries. As of
      December 31, 2005, TheraSeed ® ,
      I-Seed,
      and certain surgical products have 510(k) clearance from the Food and Drug
      Administration (the “FDA”) for commercial distribution in the United States. FDA
      and other governmental approvals and clearances are subject to continual review,
      and later discovery of previously unknown problems could result in restrictions
      on a product’s marketing or withdrawal of the product from the market. The
      commercial distribution in the United States of new healthcare products
      developed by the Company often will be dependent on obtaining the prior approval
      or clearance of the FDA, which can take many years to obtain and entail
      significant costs. No assurances can be made that any such approvals or
      clearances will be obtained on a timely basis or at all. In countries in which
      the Company’s products are not approved, the use or sale of the Company’s
      brachytherapy and certain surgical products will require approvals by government
      agencies comparable to the FDA. The process of obtaining such approvals is
      lengthy, expensive and uncertain. There can be no assurance that the necessary
      approvals for the marketing of the Company’s products in other markets will be
      obtained on a timely basis or at all. The Company is also required to comply
      with applicable FDA regulations for Quality System Regulation (“QSR”), including
      extensive record keeping, reporting and periodic inspections of its
      manufacturing facilities. Similar requirements are imposed by governmental
      agencies in other countries. A new 510(k) clearance is required for any
      modifications in the TheraSeed ® ,
      I-Seed,
      or certain devices in our surgical products businesses or their labeling that
      could significantly affect the safety or effectiveness of the original products.
      Under the FDA’s regulatory scheme, the decision whether to seek 510(k) clearance
      for a modified device is left to the manufacturer in the first instance, and
      management has thus far determined that no such clearance has been required.
      The
      FDA has the right to review and revoke 510(k) clearance at any time. The FDA
      may
      determine that a pre-market approval, whereby the FDA conducts a scientific
      and
      regulatory review of a Class III scientific device for safety and effectiveness,
      may be required for future products or for future modifications to the TheraSeed ® or
      I-Seed devices or certain surgical products.




The
      TheraSeed ® and
      I-Seed devices and certain surgical products have also been approved for
      marketing throughout the member countries of the European Union by obtaining
      appropriate CE Marks. As a result of receiving CE Marks, the Company must also
      comply with the regulations of the Competent Authorities of the European Union
      for any such devices sold in the member nations of the European Union.




The
      Company’s brachytherapy manufacturing operations involve the manufacturing and
      possession of radioactive materials, which are subject to stringent regulation.
      The users of the Company’s brachytherapy seed products are required to possess
      licenses issued by the states in which they reside or the U.S. Nuclear
      Regulatory Commission (the “NRC”). User licenses are also required by some of
      the foreign jurisdictions in which the Company may seek to market its products.
      There can be no assurance that current licenses held by the Company for its
      manufacturing operations will remain in force or that additional licenses
      required for the Company’s operations will be issued. There also can be no
      assurance that the Company’s customers will receive or retain the radioactive
      materials licenses required to possess and use TheraSeed ® or
      I-Seed or that delays in the granting of such licenses will not hinder the
      Company’s ability to market its products. Furthermore, regulation of the
      Company’s radioactive materials manufacturing processes involves the imposition
      of financial requirements related to public safety and decommissioning, and
      there are costs and regulatory uncertainties associated with the disposal of
      radioactive waste generated by the Company’s manufacturing operations. There can
      be no assurance that the imposition of such requirements and the costs and
      regulatory restrictions associated with disposal of waste will not, in the
      future, adversely affect the Company’s business, financial condition and results
      of operations.




The
      Company is required under its radioactive materials license to maintain
      radiation control and radiation safety personnel, procedures, equipment and
      processes, and to monitor its facilities and its employees and contractors.
      The
      Company is also required to provide financial assurance that adequate funding
      will exist for end-of-life radiological decommissioning of its cyclotrons and
      other radioactive areas of its properties that contain radioactive materials.
      The Company has provided this financial assurance through the issuance of
      letters of credit. The Company has so far been successful in explaining to
      the
      Georgia Department of Natural Resources that it will not have to dispose of
      its
      cyclotrons, but instead will be able to sell them for re-use or use for spare
      parts if it ceases to operate them. Thus, the Company is only required to
      estimate and provide financial assurance for the end-of-life remediation and
      disposal costs associated with ancillary structures, such as plumbing,
      laboratory equipment and chemical processing facilities. However, if the Georgia
      Department of Natural Resources was to require that the Company include the
      cost
      of decommissioning its cyclotrons in its financial assurance demonstration,
      the
      amount of money required to be set aside by the Company to cover decommissioning
      costs could dramatically increase.


30
  Failure
        to obtain and maintain regulatory approvals, licenses and permits could
        significantly delay the Company’s marketing efforts. Furthermore, changes in
        existing regulations, or interpretations of existing regulations or the adoption
        of new restrictive regulations could adversely affect the Company from
        obtaining, or affect the timing of, future regulatory approvals. Failure
        to
        comply with applicable regulatory requirements could result in, among other
        things, significant fines, suspension of approvals, seizures or recalls of
        products, operating restrictions or criminal prosecution and materially
        adversely affect the Company’s business, financial condition and results of
        operations.




***We
      face risk related to lack of diversification.***




Prior
      to
      the acquisition of CP Medical, virtually all of the Company’s revenues were
      generated from the brachytherapy seed market, and the Company may continue
      to be
      substantially dependent on the brachytherapy market. As of July 31, 2006, the
      Company operates multiple businesses in the brachytherapy industry and surgical
      products industry. However, the majority of our revenues may continue to be
      generated from the brachytherapy seed market, and our lack of diversification
      should be considered a risk.




***We
      are dependent on new technological development.***




The
      Company competes in a market characterized by technological innovation,
      extensive research efforts and significant competition. New developments in
      technology may have a material adverse effect on the development or sale of
      the
      Company’s products and may render such products noncompetitive or obsolete.
      Other companies, many of which have substantially greater capital resources,
      marketing experience, research and development staffs and facilities than the
      Company, are currently engaged in the development of products and innovative
      methods for treating cancer, caring for wounds, and addressing other surgical
      procedures that are similar to, or compete with, the Company’s brachytherapy
      products, surgical products, and technologies. Significant developments by
      any
      of these companies or advances by medical researchers at universities,
      government research facilities or private research laboratories could eliminate
      the entire market for any or all of the Company’s products.




***We
      face significant competition.***




All
      of
      our products are subject to intense competition. Our brachytherapy seeds compete
      with prostate cancer treatment methods that are well established in the medical
      community, including radical prostatectomy. Although favorable clinical results
      for seeding have been released, more extensive outcome data is available for
      radical prostatectomy, and urologists continue to perform radical prostatectomy
      with considerable frequency.




Our
      brachytherapy business is also subject to intense competition within the
      brachytherapy seed market. C.R. Bard, Inc. distributes Palladium-103 (“Pd-103”)
      seeds manufactured by Theragenics and also manufactures and distributes its
      own
      Iodine-125 (“I-125”) seeds; Nycomed Amersham PLC, a subsidiary of General
      Electric (through its control of Oncura) manufactures and sells I-125
      brachytherapy seeds and distribute Pd-103 seeds produced by other manufacturers;
      and North American Scientific, Inc. and Coloplast A/S (who recently acquired
      the
      urology business of Mentor Corporation) manufacture and sell I-125 and Pd-103
      brachytherapy seeds.




Our
      surgical products businesses compete with other suppliers of sutures, cardiac
      pacing cables, brachytherapy needles, sleeves and spacers, guidewires,
      introducer kits and other related medical products. Many of these competitors,
      including Bard, Ethicon, Inc., a Johnson & Johnson company, and U.S.
      Surgical, a division of Tyco Healthcare Group LP, have substantially greater
      financial, technical, sales, marketing and other resources, as well as greater
      name recognition and a larger customer base, than Theragenics. The market for
      Galt’s vascular access surgical products has been characterized by a high level
      of standardization of product characteristics, resulting in significant price
      competition. Additionally, many companies located outside of the United States,
      in particular in Asia, produce and supply similar surgical products. These
      companies may have access to substantially lower costs of production.
      Accordingly, such competitors or future competitors may be able to respond
      more
      quickly to new or emerging technologies and changes in customer requirements
      or
      to devote greater resources to the development, promotion and sale of their
      products than us. As a result, we may be at a disadvantage when competing with
      these larger companies. If we fail to compete effectively, our business,
      financial condition and results of operations may be adversely
      affected.


31


***We
      are highly dependent on our marketing and advertising specialists and our direct
      sales organization. Any failure to build and manage our direct sales
      organization could negatively affect our revenues.***




Beginning
      in 2002, the Company engaged marketing and advertising specialists with
      experience in healthcare and direct-to-consumer marketing, and expects
      direct-to-consumer activity to continue during 2006. The Company also expects
      to
      continue other activities in an attempt to support its brand name and increase
      demand for the brachytherapy seed devices, including direct-to-consumer
      television and print advertising, clinical studies aimed at showing the
      advantages of the TheraSeed ® and
      I-Seed devices in the treatment of prostate cancer, technical field support
      to
      TheraSeed ® and
      I-Seed customers, and other customer service and patient information activities.
      We are highly dependent on our direct sales organization comprised of
      brachytherapy specialists who promote and support our brachytherapy products.
      There is intense competition for skilled sales and marketing employees,
      particularly for people who have experience in the radiation oncology market.
      Accordingly, we could find it difficult to hire or retain skilled individuals
      to
      sell our products. Any failure to build our direct sales force could adversely
      affect our growth and our ability to meet our revenue goals. There can be no
      assurance that our direct sales and marketing efforts will be successful. If
      we
      are not successful in our direct sales and marketing, our sales revenue and
      results of operations are likely to be materially adversely
      affected.




***We
      depend partially on our relationships with distributors and other industry
      participants to market*** ***TheraSeed®
      and I-Seed and certain of our surgical product*** ***s,
      and if these relationships are discontinued or if we are unable to develop
      new
      relationships, our revenues could decline.***




We
      rely,
      and will continue to rely, upon collaborative relationships with agents and
      distributors and other industry participants to maintain market access to
      potential customers. Some of the entities with whom we have relationships to
      help market and distribute our products also produce or distribute products
      that
      directly compete with our products. In particular, C.R. Bard, one of our primary
      competitors in the brachytherapy seed business, is also a distributor of our
      TheraSeed ® product.
      Sales to Bard represented 61% of brachytherapy product revenue in 2005. The
      terms of our distribution agreement with Bard provides for automatic one year
      extensions of the term, unless either party gives notice of its intent not
      to
      renew at least twelve months prior to the end of the current term. The current
      term expires on December 31, 2007, and will be automatically extended for one
      additional year unless either party gives notice of its intent not to extend
      by
      December 31, 2006. We cannot assure you that this distribution agreement will
      be
      extended and if it is not, how much unit volume being sold through Bard will
      be
      able to be retained




We
      cannot
      assure you that we will be able to maintain or develop these relationships
      with
      agents and distributors and other industry participants or that these
      relationships will continue to be successful. If any of these relationships
      is
      terminated, not renewed or otherwise unsuccessful, or if we are unable to
      develop additional relationships, our product sales could decline, and our
      ability to grow our product lines could be adversely affected.




***Doctors
      and hospitals may not adopt our products and technologies at levels sufficient
      to sustain our business or to achieve our desired growth
      rate.***




To
      date,
      we have attained only limited penetration of the total potential market for
      our
      products. Our future growth and success depends upon creating broad awareness
      and acceptance of our products by doctors, hospitals and freestanding clinics,
      as well as patients. This will require substantial marketing and educational
      efforts, which will be costly and may not be successful. The target customers
      for our products may not adopt these technologies or may adopt them at a rate
      that is slower than desired. In addition, potential customers who decide to
      utilize any of our devices, may later choose to purchase competitors’ products.
      Important factors that will affect our ability to attain broad market acceptance
      of our products include:




·
            doctor
                and/or patient awareness and acceptance of our
                products;




·
            the
                real or perceived effectiveness and safety of our
                products;




32


·
            the
                relationship between the cost of our products and the real or perceived
                medical benefits of our products;




·
            the
                relationship between the cost of our products and the financial benefits
                to our customers using our products, which will be greatly affected
                by the
                coverage of, and reimbursement for, our products by governmental
                and
                private third-party payors; and




·
            market
                perception of our ability to continue to grow our business and develop
                enhanced products.




Failure
      of our products to gain broad market acceptance could cause our revenues to
      decline and our business to suffer.




***Evolving
      regulation of corporate governance and public disclosure may result in
      additional expenses and continuing uncertainty.***




Changing
      laws, regulations and standards relating to corporate governance and public
      disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and
      NYSE rules are creating uncertainty for public companies. We continually
      evaluate and monitor developments with respect to new and proposed rules and
      cannot predict or estimate the amount of the additional costs we may incur
      or
      the timing of such costs. These new or changed laws, regulations and standards
      are subject to varying interpretations, in many cases due to their lack of
      specificity, and as a result, their application in practice may evolve over
      time
      as new guidance is provided by regulatory and governing bodies. This could
      result in continuing uncertainty regarding compliance matters and higher costs
      necessitated by ongoing revisions to disclosure and governance
      practices.




We
      are
      committed to maintaining high standards of corporate governance and public
      disclosure. As a result, we have invested resources to comply with evolving
      laws, regulations and standards, and this investment may result in increased
      general and administrative expenses and a diversion of management time and
      attention from revenue-generating activities to compliance activities. If our
      efforts to comply with new or changed laws, regulations and standards differ
      from the activities intended by regulatory or governing bodies due to
      ambiguities related to practice, regulatory authorities may initiate legal
      proceedings against us and our business, financial position and results of
      operations may be adversely affected.




***There
      are limitations on our ability to protect our intellectual property and we
      are
      dependent on trade secrets.***




The
      Company’s success will depend, in part, on its ability to obtain, assert and
      defend patent rights, protect trade secrets and operate without infringing
      the
      proprietary rights of others. The Company holds rights to issued United States
      and foreign patents. There can be no assurance that rights under patents held
      by
      or licensed to the Company will provide it with competitive advantages that
      others will not independently develop similar products or design around or
      infringe the patents or other proprietary rights owned by or licensed to the
      Company. In addition, there can be no assurance that any patent obtained or
      licensed by the Company will be held to be valid and enforceable if challenged
      by another party.




There
      can
      be no assurance that patents have not been issued or will not be issued in
      the
      future that conflict with the Company’s patent rights or prevent the Company
      from marketing its products. Such conflicts could result in a rejection of
      the
      Company’s or its licensors’ patent applications or the invalidation of patents,
      which could have a material adverse effect on the Company’s business, financial
      condition and results of operations. In the event of such conflicts, or in
      the
      event the Company believes that competitive products infringe patents to which
      the Company holds rights, the Company may pursue patent infringement litigation
      or interference proceedings against, or may be required to defend against
      litigation or proceedings involving, holders of such conflicting patents or
      competing products. There can be no assurance that the Company will be
      successful in any such litigation or proceeding, and the results and cost of
      such litigation or proceeding may materially adversely affect the Company’s
      business, financial condition and results of operations. In addition, if patents
      that contain dominating or conflicting claims have been or are subsequently
      issued to others and such claims are ultimately determined to be valid, the
      Company may be required to obtain licenses under patents or other proprietary
      rights of others. No assurance can be given that any licenses required under
      any
      such patents or proprietary rights would be made available on terms acceptable
      to the Company, if at all. If the Company does not obtain such licenses, it
      could encounter delays or could find that the development, manufacture or sale
      of products requiring such licenses is foreclosed.




The
      Company relies to a significant degree on trade secrets, proprietary know-how
      and technological advances that are either not patentable or that the Company
      chooses not to patent. The Company seeks to protect non-patented proprietary
      information, in part, by confidentiality agreements with suppliers, employees
      and consultants. There can be no assurance that these agreements will not be
      breached, that the Company would have adequate remedies for any breach, or
      that
      the Company’s trade secrets and proprietary know-how will not otherwise become
      known or be independently discovered by others. The disclosure to third parties
      of proprietary non-patented information could have a material adverse effect
      on
      the Company’s business, financial condition and results of
      operations.


33


***We
      are dependent on Medicare reimbursement policies.***




A
      substantial percentage of the patients treated for prostate cancer in the United
      States are covered by Medicare, and consequently, the costs for prostate cancer
      treatment are subject to Medicare’s prescribed rates of reimbursement. The
      utilization of TheraSeed ® ,
      I-Seed
      and many of the CP Medical products may be influenced by Medicare’s
      reimbursement levels, which can change periodically. Unfavorable reimbursement
      levels and confusion regarding potential changes in Medicare have adversely
      affected sales of our brachytherapy products in the past, and could do so in
      the
      future.





The
      Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”)
      provided for improved reimbursement and coding policies beginning in 2004 and
      beyond for brachytherapy seeds/sources under Medicare’s hospital outpatient
      prospective payment system (“OPPS”).





The
      brachytherapy provisions in the MMA require Medicare to unbundle the cost of
      the
      brachytherapy seeds/sources from the costs of the brachytherapy procedure,
      catheters and needles under the OPPS. This means that hospital reimbursement
      is
      not limited to or dictated by the bundled reimbursement amounts assigned to
      the
      brachytherapy codes that the Centers for Medicare and Medicaid Services (“CMS”)
      used in 2003. In addition, the MMA requires Medicare to reimburse hospitals
      for
      each brachytherapy seed/source furnished between January 1, 2004 to December
      31,
      2006 based on the hospital’s costs for each patient (calculated from the
      hospital’s charges adjusted by the hospital’s specific cost-to-charge
      ratio).





There
      were no reimbursement changes implemented under Medicare for brachytherapy
      seeds/sources for 2006, although some reductions were implemented for hospital
      payments for outpatient procedures required to implant brachytherapy seeds.





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. The GAO concluded that CMS 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. The GAO did not recommend specific
      payment levels, and CMS is not required to follow any of the GAO’s
      recommendations.





CMS
      may
      implement changes to the reimbursement methodology for brachytherapy
      seeds/sources beginning January 1, 2007. In this regard, the Company anticipates
      that CMS may propose reimbursement rules utilizing prospective payment rates
      consistent with the GAO report. If CMS subsequently adopts a final rule that
      significantly limits reimbursement for the Company’s brachytherapy products or
      does not take into account ancillary products and services, it could have an
      adverse effect on utilization of the Company's brachytherapy
      products.




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





Due
      to
      the fact that the Medicare rules governing coding of brachytherapy seeds/sources
      and the procedures required to implant seeds have undergone significant change
      during the past few years, and are likely to continue to undergo additional
      changes, the Company believes that Medicare reimbursement may continue to create
      confusion for hospitals and doctors going forward. In that regard, Management
      continues to closely monitor any effects of the reimbursement structure on
      the
      brachytherapy market as it continues to evaluate pricing, marketing and
      distribution strategies. The Company continues to engage consulting firms
      specializing in reimbursement practices to help communicate brachytherapy
      reimbursement guidelines to customers. Medicare’s OPPS reimbursement levels for
      the procedures performed during prostate brachytherapy could influence the
      utilization of brachytherapy seeds, including the Company’s brachytherapy
      products.


34


There
      can
      be no assurance that (i) current or future limitations or requirements for
      reimbursement by Medicare or other third party payors for prostate cancer
      treatment will not materially adversely affect the market for our brachytherapy
      or other products, (ii) that health administration authorities outside of the
      United States will provide reimbursement at acceptable levels, if at all or
      (iii) that any such reimbursement will be continued at rates that will enable
      the Company to maintain prices at levels sufficient to realize an appropriate
      return.




***We
      may be unable to maintain sufficient liability
      insurance.***




The
      Company’s business is subject to product liability risks inherent in the
      testing, manufacturing and marketing of medical devices. The Company maintains
      a
      product liability insurance policy and a general liability insurance policy,
      each with coverage of an annual aggregate maximum amount of $5 million. The
      Company also maintains umbrella liability policies with limits of $20 million
      per occurrence in the aggregate. The Company’s product liability and general
      liability policies are provided on a claims made basis and are subject to annual
      renewal. There can be no assurance that liability claims will not exceed the
      scope of coverage or limits of such policies or that such insurance will
      continue to be available on commercially reasonable terms or at all. If the
      Company does not or cannot maintain sufficient liability insurance, its ability
      to market its products may be significantly impaired. In addition, product
      liability claims, as well as negative publicity arising out of such claims,
      could have a material adverse effect on the business, financial condition and
      results of operations of the Company.




***If
      we do not comply with laws and regulations relating to our use of hazardous
      materials, we may incur substantial liabilities.***




We
      use
      hazardous materials and chemicals in our manufacturing operations. We are
      required to comply with increasingly rigorous laws and regulations governing
      environmental protection and workplace safety, including requirements governing
      the handling, storage and disposal of hazardous substances and the discharge
      of
      materials into the environment generally. Although, we believe that we handle,
      store and dispose of these materials in a manner that complies with state and
      federal regulations, the risk of accidental contamination or injury exists.
      In
      the event of an accident, we could be held liable for decontamination costs,
      other clean-up costs and related damages or liabilities. To help minimize these
      risks, we employ a full-time Environmental Health and Safety Officer and, when
      appropriate, we utilize outside professional services organizations to help
      us
      evaluate environmental regulations and monitor our compliance with such
      regulations **.**





***Litigation
      may harm our business or otherwise distract our
      management.***




Substantial,
      complex or extended litigation could cause us to incur large expenditures and
      distract our management, and could result in significant monetary or equitable
      judgments against us.  For example, lawsuits by employees, patients,
      customers, licensors, licensees, suppliers, business partners, distributors,
      stockholders, or competitors could be very costly and could substantially
      disrupt our business.  Disputes from time to time with such companies or
      individuals are not uncommon, and we cannot assure that we will always be able
      to resolve such disputes out of court or on terms favorable to us.




***Defects
      in, or misuse of, our products, or any detrimental side effects that result
      from
      the use of our products, could result in serious injury or death and could
      require costly recalls or subject us to costly and time-consuming product
      liability claims. This could harm future sales and require us to pay substantial
      damages.***




Because
      both TheraSeed ® and
      I-Seed deliver a highly concentrated and confined dose of radiation directly
      to
      the prostate, healthy surrounding tissues and organs are typically spared
      excessive radiation exposure. This typically results in fewer and less severe
      side effects and complications than may be incurred with other conventional
      prostate cancer therapies. It is an inherent risk of this industry that we
      might
      be sued in a situation where one of our products results in, or is alleged
      to
      result in, a personal injury. Although we believe that a s
      of July
      2, 2006 we have
      adequate insurance to address anticipated potential liabilities associated
      with
      product liability, any unforeseen product liability, exposure in excess of,
      or
      outside the scope of, such insurance coverage could adversely affect our
      operating results. Any such claim brought against us, with or without merit,
      could result in significant damage to our business.




The
      FDA’s
      medical device reporting regulations require us to report any incident in which
      our products may have caused or contributed to a death or serious injury, or
      in
      which our products malfunctioned in a way that would be likely to cause or
      contribute to a death or serious injury if the malfunction occurred. Any
      required filing could result in an investigation of our products and possibly
      subsequent regulatory action against us if it is found that one of our products
      caused the death or serious injury of a patient.




35


Because
      of the nature of our products, the tolerance for error in the design,
      manufacture or use of our products may be small or nonexistent. If a product
      designed or manufactured by us is defective, whether due to design or
      manufacturing defects, or improper assembly, use or servicing of the product
      or
      other reasons, the product may need to be recalled, possibly at our expense.
      Furthermore, the adverse effect of a product recall might not be limited to
      the
      cost of the recall. For example, a product recall could cause applicable
      regulatory authorities to investigate us as well as cause our customers to
      review and potentially terminate their relationships with us. Recalls,
      especially if accompanied by unfavorable publicity or termination of customer
      contracts, could cause us to suffer substantial costs, lost revenues and a
      loss
      of reputation, each of which could harm our business. Products as complex as
      our
      planning and dose calculation software systems may also contain undetected
      software errors or defects when they are first introduced or as new versions
      are
      released. Our products may not be free from errors or defects even after they
      have been tested, which could result in the rejection of our products by our
      customers and damage to our reputation, as well as lost revenue, diverted
      development resources and increased support costs. We may also be subject to
      claims for damages related to any errors in our products.




Although
      a number of the surgical products are Class II devices subject to certain
      special controls by the FDA, many of the products are Class I devices, meaning
      that the FDA considers these products to present minimal potential for harm
      to
      the user. Nonetheless, if there is an error in the design, manufacture or use
      of
      any of these products, there remains a risk of recall, rejection of our product
      by our customers, damage to our reputation, lost revenue, diverted development
      of resources and increased support costs. We may also be subject to claims
      for
      damages related to any error in such products.




As
      of
      July 2, 2006, we maintain
      product liability insurance, which has deductible amounts and per claim and
      aggregate limits. However, we cannot assure you that this insurance will
      continue to be available on terms acceptable to us or in sufficient amounts
      if
      at all, or that it will provide adequate coverage in the event that any product
      liability is actually incurred.




***We
      may require additional capital in the future and we may be unable to obtain
      capital on favorable terms or at all.***




Although
      we expect our existing capital resources and future operating cash flows to
      be
      sufficient for the foreseeable future, certain events, such as operating losses
      could significantly reduce our remaining cash, cash equivalents and investments
      in marketable securities. Furthermore, we may require additional capital for
      research and development, the purchase of other businesses, technologies or
      products. Our capital requirements will depend on numerous factors, including
      the time and cost involved in expanding production capacity, the cost involved
      in protecting our proprietary rights and the time and expense involved in
      completing product development programs.




We
      have a
      Credit Agreement with a financial institution which expires October 31,
      2009 and provides for revolving borrowings of up to $40.0 million at any time
      outstanding, including a $5.0 million sub-limit for letters of credit. The
      Credit Agreement is subject to early termination upon the occurrence of certain
      events of default. In addition, the lender may decide to not extend this Credit
      Agreement at the expiration of the term. Finally, the Credit Agreement is
      unsecured and includes a springing lien on substantially all of the assets
      of
      the Company and its subsidiaries (subject to certain limited exceptions) in
      the
      event certain events of default occur under the Credit Agreement. The Credit
      Agreement contains representations and warranties, as well as affirmative,
      reporting and negative comments, customary for financings of this type. In
      the
      event the Credit Agreement terminates early or is not extended, we will not
      have
      access to future borrowings in order to fund our capital requirements unless
      we
      can find new financing. No assurances are made regarding whether such
      refinancing can be arranged.




***If
      we are unable to develop new enhancements and new generations of brachytherapy
      products and other surgical products, we may be unable to retain our existing
      customers or attract new customers.***




Rapid
      and
      significant technological change in products offered as well as enhancements
      to
      existing products and surgical techniques coupled with evolving industry
      standards and new product introductions characterize the market for our
      brachytherapy and surgical products. Many of our brachytherapy and surgical
      products are technologically innovative and require significant planning,
      design, development and testing. These activities require significant capital
      commitments and investment. If we are unable to raise needed capital on
      favorable terms or at all, we may be unable to maintain our competitive
      advantage in the marketplace.


36
  New
        product developments in the healthcare industry are inherently risky and
        unpredictable. These risks include:




·
              failure
                  to prove feasibility;
 ·
                  time
                      required from proof of feasibility to routine
                      production;
 ·
                      timing
                          and cost of regulatory approvals and
                          clearances;


·
                competitors’
                    response to new product
                    developments;
 ·
                      manufacturing,
                          installation, warranty and maintenance cost
                          overruns;


·
                    failure
                        to obtain customer acceptance and
                        payment;
 ·
                              customer
                                  demands for retrofits of both old and new products;
                                  and
 ·
                                          excess
                                              inventory caused by phase-in of new
                                              products and phase-out of old
                                              products.


The
      high
      cost of technological innovation is coupled with rapid and significant change
      in
      the regulations governing the products that compete in both the brachytherapy
      and innovative surgical markets, by industry standards that could change on
      short notice, and by the introduction of new products and technologies that
      could render existing products and technologies uncompetitive. We cannot be
      sure
      that we will be able to successfully develop new products or enhancements to
      our
      existing brachytherapy products and innovative surgical products. Without new
      product introductions, our revenues will likely suffer. Even if customers accept
      new or enhanced products, the costs associated with making these products
      available to customers, as well as our ability to obtain capital to finance
      such
      costs, could reduce or prevent us from increasing our operating margins.





***Our
      restructuring of operations may not achieve the results we intend and may harm
      our business.***




As
      a
      result of the restructuring, we incurred significant restructuring charges
      and
      expenses, realized significant pre-tax savings associated with the
      restructuring, and idled certain assets. While we are actively marketing our
      interests in certain of the assets idled by the restructuring, we may be unable
      to realize net proceeds equal to or in excess of the recorded value of such
      assets.




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


(a)
            The
                Company’s annual meeting of stockholders was held on May 9,
                2006.


(b)
            Otis
                W. Brawley, M.D. was elected to the board of directors to serve for
                a
                three-year term. John V. Herndon, Peter A.A. Saunders, F.R.S.A, Orwin
                L.
                Carter, Ph.D., and M. Christine Jacobs continue to serve as directors
                of
                the Company. Patrick L. Flinn and Philip A. Incarnati continued to
                serve
                as directors after the annual meeting through their resignations
                on May
                18, 2006 and May 19, 2006,
                respectively.


(c)
            In
                connection with the election of directors at the annual meeting,
                Mr.
                Brawley received 24,331,402 votes for his election with 2,860,098
                withholding authority.


(d)
            The
                Theragenics 2006 Stock Incentive Plan was approved with 16,437,190
                voting
                in favor, 3,269,914 voting against, 213,483 abstentions , and 7,270,913
                broker non votes.


(e)
            The
                appointment of Grant Thornton LLP was ratified as the Company’s
                independent registered public accounting firm for the year ending
                December
                31, 2006 with 27,030,585 votes for ratification, 86,107 votes against
                ratification and 74,808 abstentions.





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




**Exhibit
                  No.**
              ****
              **Title**10.1
              
              Theragenics
                  Corporation 2006 Stock Incentive Plan (incorporated by reference
                  to
                  Appendix A to the Company’s definitive proxy statement for its May 9, 2006
                  annual meeting of stockholders filed with the Securities and Exchange
                  Commission on March 27, 2006).10.2
              
              Third
                  Amendment to Credit Agreement by and among Theragenics Corporation,
                  CP
                  Medical Corporation and Wachovia Bank, National Association, successor
                  by
                  merger to SouthTrust Bank, dated June 29, 2006 (incorporated by
                  reference
                  to Exhibit 10.1 of the Company’s Form 8-K filed July 3,
                  2006).10.3
              
              Amendment
                  to Employment Agreement dated August 8, 2006, between Theragenics
                  Corporation and M. Christine Jacobs*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.




*
      -
      Management contract or compensatory plan




37




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, 2006
            By:
            /s/ M.
                Christine JacobsM.
                Christine JacobsChief
                Executive OfficerDate: August
                8, 2006
            By:
            /s/ Francis
                J. TaralloFrancis
                J. TaralloChief
                Financial Officer






38