**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 3, 2005
 
 or
 
 (  )     
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
        EXCHANGE ACT OF 1934
 
 For
        the
        transition period from __________ to __________
  Commission
        File No. 0-15443
 
 
 **THERAGENICS
        CORPORATION** **®**
 (Exact
        name of registrant as specified in its charter)
 
 
  Delaware
              58-1528626(State
                  or other jurisdiction of
              (I.R.S.
                  Employerincorporation
                  or organization)
              Identification
                  Number)
 
  5203
                  Bristol Industrial WayBuford,
                  Georgia
              30518(Address
                  of principal executive offices)
              (Zip
                  Code)
 
 
 Registrant's
        telephone number, including area code: (770) 271-0233
 
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. YES X NO    ___
 
 Indicate
        by check mark whether the registrant is an accelerated filer (as defined
        in Rule
        12b-2 of the Exchange Act). YES X NO    ___
 
 As
        of July 31, 2005
        the number of shares of $0.01 par value common stock outstanding was
        31,958,917.
 
 
 Table
            of Contents












THERAGENICS
      CORPORATION ®





TABLEOF
      CONTENTS











Page
                No.PART
                I. FINANCIAL INFORMATION
            3ITEM
                1. FINANCIAL STATEMENTS (UNAUDITED)
            3Consolidated
                Balance Sheets - July 3, 2005 and December
                31, 2004
            3Consolidated
                Statements of Operations for the three and six
                months ended July 3, 2005 and July 4, 2004
            5Consolidated
                Statements of Cash Flows for the six months
                ended July 3, 2005 and July 4, 2004
            6Consolidated
                Statement of Shareholders’ Equity for the six
                months ended July 3, 2005
            7Notes
                to Consolidated Financial
                Statements
            8ITEM
                2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS
            19ITEM
                3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET
                RISK
            30ITEM
                4. CONTROLS AND PROCEDURES
            31PART
                II. OTHER INFORMATION
            31ITEM
                1. LEGAL PROCEEDINGS
            31ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                HOLDERS
            31ITEM 5. 
              OTHER EVENTS
            32ITEM
                6. EXHIBITS
            34SIGNATURES
            35













-2-
 Table
          of Contents








**PART
                I. FINANCIALINFORMATION**
              
              **Item
                1.****FinancialStatements
                (Unaudited)**
              
              **THERAGENICS
                CORPORATION****®****AND SUBSIDIARY****CONSOLIDATEDBALANCE
                SHEETS****(Amounts
                in thousands, except per share data)**ASSETSJuly
                3,
            
            December
                31,2005
              (unaudited)
            
            2004CURRENT
                ASSETSCash
                and short-term investments
            
            $
            9,682
            
            $
            26,150Marketable
                securities
            
            
            32,803
            
            
            36,111Trade
                accounts receivable, less allowance of $250 in2005 and $177 in
                2004
            
            
            8,186
            
            
            5,787Inventories
            
            
            6,595
            
            
            2,996Deferred
                income tax asset
            
            
            675
            
            
            410Prepaid
                expenses and other current assets
            
            
            4,088
            
            
            4,221TOTAL
                CURRENT ASSETS
            
            
            62,029
            
            
            75,675PROPERTY
                AND EQUIPMENTBuildings
                and improvements
            
            
            44,133
            
            
            43,618Machinery
                and equipment
            
            
            64,310
            
            
            61,560Office
                furniture and equipment
            
            
            818
            
            
            810109,261
            
            
            105,988Less
                  accumulated depreciation and amortization
            
            
            (44,699
            )
            
            (41,226
            )64,562
            
            
            64,762Land
            
            
            822
            
            
            822Construction
                in progress
            
            
            1,883
            
            
            4,631TOTAL
                PROPERTY AND EQUIPMENT
            
            
            67,267
            
            
            70,215Goodwill
            
            
            17,728
            
            
            2,578Other
                intangible assets, net
            
            
            6,847
            
            
            124Other
                assets
            
            
            72
            
            
            86TOTAL
                ASSETS
            
            $
            153,943
            
            $
            148,678










-3-
 Table
          of Contents








**THERAGENICS
                CORPORATION****®****AND SUBSIDIARY****CONSOLIDATED
                BALANCE SHEETS - Continued****(Amounts
                in thousands, except per share data)**LIABILITIES
                & SHAREHOLDERS’ EQUITY





July
                3,
              2005
              (unaudited)
            
            December
                31,
              2004CURRENT
                LIABILITIESTrade
                accounts payable
            
            $
            2,072
            
            $
            1,871Accrued
                salaries, wages and payroll taxes
            
            
            931
            
            
            608Other
                current liabilities
            
            
            1,083
            
            
            607TOTAL
                CURRENT LIABILITIES
            
            
            4,086
            
            
            3,086LONG-TERM
                LIABILITIESDeferred
                income taxes
            
            
            6,187
            
            
            6,920Asset
                retirement obligation
            
            
            611
            
            
            549Other
                liabilities
            
            
            72
            
            
            63TOTAL
                LONG-TERM LIABILITIES
            
            
            6,870
            
            
            7,532SHAREHOLDERS’
                EQUITYCommon
                    stock, $0.01 par value, 100,000
                shares
                  authorized; issued and outstanding,
              31,951
                in 2005 and 29,989 in 2004
            
            
            320
            
            
            300Additional
                paid-in capital
            
            
            68,505
            
            
            61,987Deferred
                compensation
            
            
            (123
            )
            
            (23
            )Retained
                earnings
            
            
            74,397
            
            
            75,930Accumulated
                other comprehensive loss
            
            
            (112
            )
            
            (134
            )TOTAL
                SHAREHOLDERS' EQUITY
            
            
            142,987
            
            
            138,060TOTAL
                LIABILITIES ANDSHAREHOLDERS'
                EQUITY
            
            $
            153,943
            
            $
            148,678











The
      accompanying notes are an integral part of these statements.





-4-
 Table
          of Contents




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




Three
                Months Ended
            
            Six
                Months EndedJuly
                3,
            
            July
                4,
            
            July
                3,
            
            July
                4,2005
            
            2004
            
            2005
            
            2004REVENUEProduct
                sales
            
            $
            11,182
            
            $
            8,576
            
            $
            20,644
            
            $
            16,458Licensing
                fees
            
            
            190
            
            
            70
            
            
            267
            
            
            14011,372
            
            
            8,646
            
            
            20,911
            
            
            16,598COST
                OF SALES
            
            
            6,244
            
            
            3,467
            
            
            11,038
            
            
            6,864GROSS
                PROFIT
            
            
            5,128
            
            
            5,179
            
            
            9,873
            
            
            9,734OPERATING
                EXPENSESSelling,
                general & administrative
            
            
            5,913
            
            
            4,470
            
            
            10,414
            
            
            8,541Research
                & development
            
            
            1,143
            
            
            2,308
            
            
            2,550
            
            
            4,5877,056
            
            
            6,778
            
            
            12,964
            
            
            13,128LOSS
                FROM OPERATIONS
            
            
            (1,928
            )
            
            (1,599
            )
            
            (3,091
            )
            
            (3,394
            )OTHER
                INCOME/(EXPENSE)Interest
                income
            
            
            339
            
            
            273
            
            
            722
            
            
            525Interest
                and financing costs
            
            
            (45
            )
            
            (45
            )
            
            (100
            )
            
            (90
            )Other
            
            
            (2
            )
            
            29
            
            
            0
            
            
            (4
            )292
            
            
            257
            
            
            622
            
            
            431Loss
                before income tax
            
            
            (1,636
            )
            
            (1,342
            )
            
            (2,469
            )
            
            (2,963
            )Income
                tax benefit
            
            
            (600
            )
            
            (408
            )
            
            (936
            )
            
            (1,063
            )NET
                LOSS
            
            $
            (1,036
            )
            $
            (934
            )
            $
            (1,533
            )
            $
            (1,900
            )NET
                LOSS PER COMMON SHARE:Basic
            
            $
            (0.03
            )
            $
            (0.03
            )
            $
            (0.05
            )
            $
            (0.06
            )Diluted
            
            $
            (0.03
            )
            $
            (0.03
            )
            $
            (0.05
            )
            $
            (0.06
            )WEIGHTED
                AVERAGE SHARESBasic
            
            
            31,213
            
            
            29,969
            
            
            30,589
            
            
            29,963Diluted
            
            
            31,213
            
            
            29,969
            
            
            30,589
            
            
            29,963Comprehensive
                loss:Net
                loss
            
            $
            (1,036
            )
            $
            (934
            )
            $
            (1,533
            )
            $
            (1,900
            )Other
                comprehensive income/(loss):
              Unrealized
                gain/(loss) on securities
              available
                for sale, net of taxes
            
            
            85
            
            
            (158
            )
            
            22
            
            
            (155
            )Total
                comprehensive loss
            
            $
            (951
            )
            $
            (1,092
            )
            $
            (1,511
            )
            $
            (2,055
            )




The accompanying notes are an integral part of these
      statements.





-5-
 Table
          of Contents





**THERAGENICS
        CORPORATION** **®** **AND SUBSIDIARY**
 **CONSOLIDATEDSTATEMENTS
        OF CASH FLOWS**
 **(UNAUDITED)**
 **(Amounts
        in thousands)**





Six
                Months EndedJuly
                3,
              2005
            
            
            July
                4,
              2004CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                Loss
            
            $
            (1,533
            )
            $
            (1,900
            )Adjustments
                to reconcile net loss to net cash
              provided
                by/(used by) operating activities:Deferred
                income taxes
            
            
            (998
            )
            
            52Depreciation
                & amortization
            
            
            3,652
            
            
            3,460Provision
                for allowances
            
            
            49
            
            
            30Stock
                based compensation
            
            
            99
            
            
            -Deferred
                rent
            
            
            9
            
            
            (1
            )Loss
                on disposal of equipment
            
            
            -
            
            
            4Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (940
            )
            
            (1,200
            )Inventories
            
            
            73
            
            
            (1,023
            )Prepaid
                expenses and other current assets
            
            
            159
            
            
            365Other
                assets
            
            
            -
            
            
            58Trade
                accounts payable
            
            
            (417
            )
            
            (989
            )Accrued
                salaries, wages and payroll taxes
            
            
            251
            
            
            120Other
                current liabilities
            
            
            354
            
            
            333Net
                cash provided by/(used by) operating activities
            
            
            758
            
            
            (691
            )CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                and construction of property and equipment
            
            
            (177
            )
            
            (1,551
            )Acquisition
                of CP Medical Corporation, net of cash acquired
            
            
            (20,468
            )
            
            -Acquisition
                of I-Seed product line
            
            
            -
            
            
            (1,000
            )Purchases
                of marketable securities
            
            
            (7,530
            )
            
            (27,146
            )Maturities
                of marketable securities
            
            
            10,860
            
            
            5,991Net
                cash used by investing activities
            
            
            (17,315
            )
            
            (23,706
            )CASH
                FLOWS FROM FINANCING ACTIVITIESExercise
                of stock options and stock purchase plan
            
            
            89
            
            
            68Net
                cash provided by financing activities
            
            
            89
            
            
            68NET
                DECREASE IN CASH AND SHORT-TERM INVESTMENTS
            
            
            (16,468
            )
            
            (24,329
            )CASH
                AND SHORT-TERM INVESTMENTS
              AT
                BEGINNING OF PERIOD
            
            
            26,150
            
            
            45,104CASH
                AND SHORT-TERM INVESTMENTS
              AT
                END OF PERIOD
            
            $
            9,682
            
            $
            20,775Supplemental
                disclosures:Non-cash
                investing activities:Common
                stock issued in acquisition of CP Medical Corporation
            
            $
            6,250
            
            $
            -





The
        accompanying notes are an integral part of these
        statements.


-6-
 Table
          of Contents








**THERAGENICS
                CORPORATION****®****AND SUBSIDIARY****CONSOLIDATEDSTATEMENT
                OF SHAREHOLDERS'
                EQUITY****FOR
                THE SIX MONTHS ENDED JULY 3, 2005****(UNAUDITED)**
              **(Amounts
                in thousands, except per share
                data)**





Common
                Stock
            
            
            
            
            
            
            
            AccumulatedNumber
              of
            
            Par
                value
            
            AdditionalPaid-in
            
            Deferred
            
            Retained
            
            OtherComprehensiveShares
            
            $0.01
            
            Capital
            
            Compensation
            
            Earnings
            
            Loss
            
            TotalBALANCE,
                December 31, 2004
            
            
            29,989
            
            $
            300
            
            $
            61,987
            
            $
            (23
            )
            $
            75,930
            
            $
            (134
            )
            $
            138,060Exercise
                of stock options
            
            
            26
            
            
            
            
            
            42
            
            
            
            
            
            
            
            
            
            
            
            42Employee
                stock purchase plan
            
            
            16
            
            
            1
            
            
            46
            
            
            
            
            
            
            
            
            
            
            
            47Issuance
                of common stock for
              acquisition
                of CP Medical
            
            
            1,885
            
            
            19
            
            
            6,231
            
            
            
            
            
            
            
            
            
            
            
            6,250Stock
                based compensation
              shares
                issued (See Note F)
            
            
            35
            
            
            
            
            
            120
            
            
            (120
            )
            
            
            
            
            
            
            
            -Amortization
                of stock based
              compensation
                (See Note F)
            
            
            
            
            
            
            
            
            79
            
            
            20
            
            
            
            
            
            
            
            
            99Unrealized
                gain on securities
              available
                for sale, net of taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            22
            
            
            22Net
                loss for the period
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,533
            )
            
            
            
            
            (1,533
            )BALANCE,
                July 3, 2005
            
            
            31,951
            
            $
            320
            
            $
            68,505
            
            $
            (123
            )
            $
            74,397
            
            $
            (112
            )
            $
            142,987


The
        accompanying notes are an integral part of these
        statements.





-7-
 Table
          of Contents




**THERAGENICS
        CORPORATION** **®** **AND SUBSIDIARY**
 
 **NOTESTO
        CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        3, 2005**
 **(Unaudited)**





**NOTE
      A - BASIS OF PRESENTATION**





The
      unaudited interim financial statements included herein reflect the operations
      of
      the Company and all of its wholly-owned subsidiaries. All intercompany accounts
      and transactions have been eliminated in consolidation. These statements reflect
      all adjustments that are, in the opinion of management, necessary to present
      fairly the consolidated financial position, consolidated results of operations,
      cash flows and changes in shareholders’ equity for the periods presented. All
      such adjustments are of a normal recurring nature. Certain information and
      footnote disclosures normally included in financial statements prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America have been condensed or omitted. The Company believes that the financial
      statements and disclosures are adequate to make the information not misleading.
      It is suggested that these financial statements and notes be read in conjunction
      with the audited financial statements and notes for the year ended December
      31,
      2004, included in the Form 10-K filed by the Company. The consolidated results
      of operations for the six months ended July 3, 2005 are not necessarily
      indicative of the results to be expected for a full year.





**NOTE
      B - DISTRIBUTION AGREEMENTS AND MAJOR CUSTOMERS**





The
      Company sells its TheraSeed ® device
      directly to health care providers and to third party distributors.
      Theragenics ® also
      manufactures and distributes I-Seed, an iodine-125 based medical device,
      directly to health care providers. Currently, the Company has non-exclusive
      distribution agreements in place with two companies for the distribution of
      the
      TheraSeed ® device,
      C. R. Bard and 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., and referred to herein as “Oncura”). The
      non-exclusive distribution agreements for the distribution of the
      TheraSeed ® device
      give each distributor the right to distribute the TheraSeed ® device
      in the U.S., Canada and Puerto Rico for the treatment of prostate cancer and
      other solid localized cancerous tumors. These non-exclusive agreements give
      the
      distributors the option to distribute the TheraSeed ® device
      internationally. The distribution agreements with Oncura will terminate
      September 8, 2005 (See Note E). C. R. Bard has exercised its option to extend
      its distribution agreement with the Company through December 2006.





Sales
      to
      the two non-exclusive distributors represented 60.1% and 82.5% of total product
      revenue for the three months ended July 3, 2005 and July 4, 2004, respectively,
      with each of the two non-exclusive distributors each exceeding 10% of total
      revenues during those periods. Sales to the two non-exclusive distributors
      represented 67.6% and 81.9% of total product revenue for the six months ended
      July 3, 2005 and July 4, 2004, respectively, with each of the two non-exclusive
      distributors each exceeding 10% of total revenues during those
      periods.





Accounts
      receivable from the two non-exclusive distributors represented approximately
      50.4% and 73.5% of gross
      accounts receivable at July 3, 2005 and December 31, 2004, respectively.
      Accounts receivable from C. R. Bard exceeded 10% of total gross receivables
      at
      July 3, 2005 and December 31, 2004 while accounts receivable from Oncura
      exceeded 10% of total gross receivables at December 31, 2004.








-8-
 Table
          of Contents






**THERAGENICS
        CORPORATION** **®** **AND SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        3, 2005**
 **(Unaudited)**


**NOTE
      C - ACQUISITION OF CP MEDICAL**





On
      May 6,
      2005, the Company completed the acquisition of CP Medical Corporation (“CP
      Medical”) by paying sellers $19,032,353 in cash and issuing 1,885,370 shares of
      common stock valued at approximately $6,250,000 as calculated over a 20-day
      period from March 28, 2005 through April 22, 2005. The Company also incurred
      $1,541,112 of direct transaction costs. The Company funded the cash portion
      of
      the purchase price and the direct transaction costs from cash on hand. At the
      closing, 904,977 shares of the Company’s common stock issued to the sellers were
      placed in escrow for the purpose of compensating the Company in the event the
      sellers must indemnify the Company pursuant to the terms of the Stock Purchase
      Agreement. The Company has agreed to make additional payments to the sellers
      in
      the event that some portion of the gain from the sale is taxable at ordinary
      federal income (instead of capital gain) tax rates. The stock portion of the
      purchase price is subject to adjustment based on the difference between the
      working capital of CP Medical on the closing and CP Medical’s working capital as
      of December 31, 2004. CP Medical is a manufacturer and supplier of innovative
      wound closures and other medical products such as sutures, cardiac pacing
      cables, and brachytherapy needles/spacers/sleeves sold in the professional
      surgical and veterinary fields. The transaction establishes a new growth
      platform for the Company within the field of medical devices and also serves
      to
      diversify the Company’s product offerings within its core brachytherapy
      business. As a result of this acquisition, the former owners of CP Medical
      hold
      approximately 6% of the outstanding common stock of the Company.





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





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





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





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







-9-
 Table
          of Contents





**THERAGENICS
        CORPORATION** **®** **AND SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        3, 2005**
 **(Unaudited)**


Pro
      Forma
      Financial Information




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





Pro
                FormaThree
                Months Ended
            
            Six
                Months EndedJuly
                3, 2005
            
            July
                4, 2004
            
            July
                3, 2005
            
            July
                4, 2004Total
                revenue
            
            $
            12,374
            
            $
            11,104
            
            $
            24,524
            
            $
            20,949Net
                loss
            
            $
            (1,030
            )
            $
            (793
            )
            $
            (1,611
            )
            $
            (1,706
            )Net
                loss per share, basic
            
            $
            (0.03
            )
            $
            (0.02
            )
            $
            (0.05
            )
            $
            (0.05
            )Net
                loss per share, diluted
            
            $
            (0.03
            )
            $
            (0.02
            )
            $
            (0.05
            )
            $
            (0.05
            )





**NOTE
      D - CONSTRUCTION IN PROGRESS AND PURCHASE COMMITMENTS**





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





In
      June
      2004 the Company entered into an asset purchase agreement with a contractor
      for
      the design and manufacture of certain equipment. The capital asset purchase
      agreement in the amount of $570,000 was completed during the first quarter
      of
      2005.





**NOTE
      E - CONTINGENCIES**





In
      January 1999, the Company and certain of its officers and directors were named
      as defendants in certain securities actions alleging violations of the federal
      securities laws, including Sections 10(b), 20(a) and Rule 10b-5 of the
      Securities and Exchange Act of 1934, as amended. These actions were consolidated
      into a single action in the U.S. District Court for the Northern District of
      Georgia. The amended complaint generally alleged that the defendants made
      certain misrepresentations and omissions in connection with the performance
      of
      the Company during the class period and sought unspecified damages. In 2004,
      the
      consolidated federal securities class action was settled for an amount within
      the limits of the Company’s directors and officers’ liability insurance. The
      Company was not required to make any financial contribution toward the
      settlement and the federal securities case was officially over as of November
      1,
      2004.





-10-
 Table
          of Contents


**THERAGENICS
        CORPORATION** **®** **AND SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        3, 2005**
 **(Unaudited)**





On
      May
      14, 1999 a stockholder of the Company filed a derivative complaint in the
      Delaware Court of Chancery purportedly on behalf of the Company, alleging that
      certain directors breached their fiduciary duties by engaging in the conduct
      that was alleged in the consolidated federal class action complaint. The
      derivative action was stayed by the agreement of the parties. Its status is
      currently being reevaluated in light of the settlement of the securities class
      action lawsuit.





The
      Company and one of its distributors, Oncura, had been arbitrating claims arising
      in connection with the Company’s non-exclusive distribution agreement with
      Oncura. 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 their distribution agreements for TheraSeed ® .
      The
      distribution agreements with Oncura will now terminate effective September
      8,
      2005. In July 2005, the Company filed an arbitration claim against Oncura
      concerning compliance with the terms of the agreement settling that
      arbitration.





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





**NOTE
      F - ACCOUNTING FOR STOCK-BASED COMPENSATION**





The
      Company provides stock-based compensation under equity incentive plans approved
      by stockholders. The plans collectively provide for the granting of stock
      options, restricted stock and other equity incentives. As of July 3, 2005 there
      were 2,540,133 options and 118,177 restricted stock rights (representing from
      64,152 to 195,355 shares depending on performance as described below)
      outstanding and 144,750 shares of Common Stock remaining available for issuance
      under the Company’s equity incentive plans (based on assumed vesting of
      outstanding rights at target performance level).





Stock
      option grants to date have been granted with an exercise price at least equal
      to
      100% of market value on the date granted. Stock options granted to date provide
      for the expiration of options ten years from the date of grant and become
      exercisable over a three to five-year vesting period.





Restricted
      Stock Issued to Non-Officer Directors





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





-11-
 Table
          of Contents




**THERAGENICS
        CORPORATION** **®** **AND SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        3, 2005**
 **(Unaudited)**





directors
      is included as selling, general and administrative expense in the accompanying
      consolidated statements of operations and totaled $13,532 and $20,374 for the
      three and six months ended July 3, 2005, respectively, and $7,685 and $15,370
      for the three and six months ended July 4, 2004, respectively.





Restricted
      Stock Rights Issued to Employees





On
      August
      10, 2004, the Board of Directors granted an aggregate of 48,000 restricted
      stock
      rights to the Company’s executive management. Each right represents one share of
      common stock to be issued upon vesting, provided that the executive remains
      in
      the Company’s employ until the vesting date of December 31, 2005.





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





3
                Year
            Vesting
            Common
                Shares issuableTSR
                period
            date
            Minimum
            Maximum2004-2006
            12/31/06
            13,052
            87,0182005-2007
            12/31/07
            10,099
            67,336





Amortization
      of share-based compensation related to restricted stock rights issued to
      employees is included as selling, general and administrative expense in the
      accompanying consolidated statements of operations and totaled $36,000 and
      $79,000 for the three and six months ended July 3, 2005, respectively. No
      share-based compensation expense was recognized for the three and six months
      ended July 4, 2004.





In
      December 2002, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure* (“SFAS
      148”). SFAS 148 amends Statement No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123”), to provide alternative methods of transition for a voluntary change to
      the fair value based method of accounting for stock-based employee compensation.
      In addition, SFAS 148 amends the disclosure requirement of SFAS 123 to require
      more prominent disclosures in both annual and interim financial statements
      about
      the method of accounting for stock-based employee compensation and the effect
      of
      the method used on reported results. The Company accounts for stock-based
      compensation for employees under Accounting Principles





-12-
 Table
          of Contents




**THERAGENICS
        CORPORATION** **®** **AND SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        3, 2005**
 **(Unaudited)**





Board
      ("APB") Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      elected the disclosure-only alternative under SFAS 123. No stock-based
      compensation cost related to options issued to employees is included in net
      earnings, as all such options granted have an exercise price equal to the market
      value of the stock on the date of grant. Stock-based compensation costs of
      approximately $8,000 and $15,000 are included in the results of operations
      for
      the three and six months ended July 4, 2004, respectively, related to the
      restricted stock issued to directors. Stock-based compensation costs of
      approximately $14,000 and $20,000 are included in the results of operations
      for
      the three and six months ended July 3, 2005, respectively, related to the
      restricted stock issued to directors. Stock-based compensation costs of $36,000
      and $79,000 are included in the results for the three and six months ended
      July
      3, 2005, respectively, related to the restricted stock rights granted to
      executive management. In accordance with SFAS 148, the following table
      presents the effect on net earnings and net earnings per share had compensation
      cost for the Company's stock plans been determined consistent with SFAS 123
      (in
      thousands, except per share data):





**Three
                Months Ended**
            
            
            **Six
                Months Ended****July
                3,2005**
            
            
            **July
                4,2004**
            
            
            **July
                3,2005**
            
            
            **July
                4,2004**Net
                loss, as reported
            
            $
            (1,036
            )
            $
            (934
            )
            $
            (1,533
            )
            $
            (1,900
            )Less:
                total stock-based compensationexpense determined under fairvalue
                method for all stock options,net of related income tax
                benefit
            
            
            (26
            )
            
            (148
            )
            
            (53
            )
            
            (244
            )Pro
                forma net loss
            
            $
            (1,062
            )
            $
            (1,082
            )
            $
            (1,586
            )
            $
            (2,144
            )*Basic
                net loss per common share:*As
                reported
            
            $
            (0.03
            )
            $
            (0.03
            )
            $
            (0.05
            )
            $
            (0.06
            )Pro
                forma
            
            $
            (0.03
            )
            $
            (0.04
            )
            $
            (0.05
            )
            $
            (0.07
            )*Diluted
                net loss per common share:*As
                reported
            
            $
            (0.03
            )
            $
            (0.03
            )
            $
            (0.05
            )
            $
            (0.06
            )Pro
                forma
            
            $
            (0.03
            )
            $
            (0.04
            )
            $
            (0.05
            )
            $
            (0.07
            )





Fair
      value was calculated on the grant dates using the Black-Scholes options-pricing
      model with the following assumptions for options issued during the six months
      ended July 3, 2005 and the three and six months ended July 4, 2004. The Company
      did not grant any options during the three months ended July 3,
      2005.




Three
                Months Ended
            
            Six
                Months EndedJuly
                4,2004
            
            July
                3,2005
            
            July
                4,2004Expected
                dividend yield
            0.0%
            
            0.0%
            
            0.0%Expected
                stock price volatility
            64.5%
            
            45.8%
            
            64.1%Risk-free
                interest rate
            3.2%
            
            3.0%
            
            3.2%Expected
                life of option (years)
            5.5
            
            3.1
            
            5.4








-13-
 Table
          of Contents




**THERAGENICS
        CORPORATION** **®** **AND SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        3, 2005**
 **(Unaudited)**


**NOTE
      G - SEGMENT REPORTING**





As
      a
      result of the acquisition of CP Medical, the Company has adopted SFAS No. 131,
      “Disclosures About Segments of an Enterprise and Related Information.” The
      Company operates in two segments, the brachytherapy seed segment and the CP
      Medical wound closure and medical products segment. The brachytherapy seed
      segment is comprised of our TheraSeed ® and
      I-Seed products as well as related products and services. CP Medical is the
      manufacturer and supplier of innovative sutures, cardiac pacing cables,
      brachytherapy needles/spacers/sleeves, and other related medical products sold
      in the professional surgical and veterinary fields. The following tables provide
      information concerning these two segments for the three and six months ended
      July 3, 2005 and July 4, 2004 and as of July 3, 2005 and December 31, 2004
      (amounts in thousands):











Three
                Months Ended
            
            Six
                Months EndedJuly
                3, 2005
            
            July
                4, 2004
            
            July
                3, 2005
            
            July
                4, 2004RevenuesBrachytherapy
                seed
            
            $
            9,274
            
            $
            8,646
            
            $
            18,813
            
            $
            16,598CP
                Medical
            
            
            2,098
            
            
            -
            
            
            2,098
            
            
            -$
            11,372
            
            $
            8,646
            
            $
            20,911
            
            $
            16,598Operating
                income/(loss)Brachytherapy
                seed
            
            $
            (2,434
            )
            $
            (1,599
            )
            $
            (3,597
            )
            $
            (3,394
            )CP
                Medical
            
            
            506
            
            
            -
            
            
            506
            
            
            -$
            (1,928
            )
            $
            (1,599
            )
            $
            (3,091
            )
            $
            (3,394
            )Capital
                expendituresBrachytherapy
                seed
            
            $
            27
            
            $
            1,069
            
            $
            157
            
            $
            1,551CP
                Medical
            
            
            20
            
            
            -
            
            
            20
            
            
            -$
            47
            
            $
            1,069
            
            $
            177
            
            $
            1,551Depreciation
                and amortizationBrachytherapy
                seed
            
            $
            1,722
            
            $
            1,750
            
            $
            3,511
            
            $
            3,460CP
                Medical
            
            
            141
            
            
            -
            
            
            141
            
            
            -$
            1,863
            
            $
            1,750
            
            $
            3,652
            
            $
            3,460











-14-
 Table
          of Contents


**THERAGENICS
        CORPORATION** **®** **AND SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        3, 2005**
 **(Unaudited)**





July
                3,
            
            December
                31,2005
            
            2004Identifiable
                assetsBrachytherapy
                seed
            
            $
            152,701
            
            $
            148,678CP
                Medical
            
            
            28,107
            
            
            -Intersegment
                eliminations
            
            
            (26,865
            )
            
            -$
            153,943
            
            $
            148,678GoodwillBrachytherapy
                seed
            
            $
            2,578
            
            $
            2,578CP
                Medical
            
            
            15,150
            
            
            -$
            17,728
            
            $
            2,578Other
                intangible assetsBrachytherapy
                seed
            
            $
            112
            
            $
            124CP
                Medical
            
            
            6,735
            
            
            -$
            6,847
            
            $
            124





All
      of
      the Company’s assets are located within the United States. Revenue outside the
      United States was not material for the three and six months ended July 3, 2005
      and July 4, 2004. Information related to major customers is discussed in Note
      B,
      Distribution Agreements and Major Customers.





**NOTE
      H - NEW ACCOUNTING PRONOUNCEMENTS**





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





In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      No.
      123 (revised 2004), *Share-based
      Payments* (“SFAS
      123R”), which replaces the prior SFAS No. 123, *Accounting
      for Stock-based Compensation* ,
      and
      supersedes APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* .
      SFAS
      123R requires compensation costs related to share-based payment transactions
      to
      be recognized in the financial statements based on the grant date fair value
      of
      the award. Compensation cost will be recognized over the period during which
      an
      employee is required to provide services in exchange for the award, usually
      the
      vesting period. SFAS 123R will also require companies to measure the cost of
      employee services received in exchange for Employee Stock Purchase Plan (“ESPP”)
      awards. SFAS 123R was scheduled to become effective for interim or annual
      periods beginning after June 15, 2005, which would have been the Company’s third
      fiscal quarter of 2005. On April 14, 2005 the Securities and Exchange Commission
      adopted a new rule amending the effective date of SFAS 123R for
      public






-15-
 Table
          of Contents




companies, allowing registrant’s to implement SFAS 123R at the
      beginning of the next fiscal year, instead of the next interim period, that
      begins after June 15, 2005. This new rule delays the required effective date
      of
      SFAS 123R for the Company until January 1, 2006. The Company has not yet
      implemented and is in the process of determining the impact SFAS 123R will
      have
      on its financial statements.




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





In
      December 2004, the FASB issued FASB Staff Position No. FAS 109-1, *Application
      of FASB Statement No. 109, "Accounting for Income Taxes," to the Tax
      Deduction on Qualified Production Activities Provided by the American Jobs
      Creation Act of 2004* ("FAS 109-1"). The American Jobs Creation Act of 2004 introduced a special
      9% tax deduction on qualified production activities. FAS 109-1 clarifies
      that this tax deduction should be accounted for as a special tax deduction
      in
      accordance with Statement 109. Pursuant to the American Jobs Creation Act of
      2004, the Company does not anticipate the ability to claim this tax benefit
      during 2005.





In
      December 2004, the FASB issued FASB Staff Position No. FAS 109-2, *Accounting
      and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
      the American Jobs Creation Act of 2004* ("FAS 109-2"). The American Jobs Creation Act of 2004 introduced a limited
      time 85% dividends received deduction on the repatriation of certain foreign
      earnings to a U.S. taxpayer (repatriation provision), provided certain criteria
      are met. The Company does not expect the adoption of these new tax provisions
      to
      have a material impact on its financial statements.





In
      March
      2005, the FASB issued Interpretation No. 47, “ *Accounting
      for Conditional Asset Retirement Obligations,* ”
      (“FIN
      47”). FIN 47 requires an entity to recognize a liability for a conditional asset
      retirement obligation when incurred if the liability can be reasonably
      estimated. FIN 47 clarifies that the term Conditional Retirement Obligation
      refers to a legal obligation to perform an asset retirement activity in which
      the timing and/or method of settlement are conditional on a future event that
      may or may not be within the control of the entity. FIN 47 also clarifies when
      an entity would have sufficient information to reasonably estimate the fair
      value of an asset retirement obligation. FIN 47 is effective no later than
      the
      end of fiscal years ending after December 15, 2005. The Company is currently
      evaluating FIN 47, but does not believe it will have a material impact on its
      financial statements.





In
      May
      2005, the FASB issued Statement of Financial Accounting Standards No. 154,
      “ *Accounting
      Changes and Error Corrections* ”
      (“SFAS
      154”). SFAS 154 requires retroactive application of a voluntary change in
      accounting principle to prior period financial statements unless it is
      impracticable. SFAS 154 also requires that a change in method of depreciation,
      amortization, or depletion for long-lived, non-financial assets be accounted
      for
      as a change in accounting estimate that is affected by a change in accounting
      principle. SFAS 154 replaces APB Opinion 20, “ *Accounting
      Changes* ,”
      and
      SFAS 3, “ *Reporting
      Accounting Changes in Interim Financial Statements* .”
      SFAS
      154 is effective for accounting changes and corrections of errors made in fiscal
      years beginning after December 15, 2005. The Company does not expect the
      adoption of SFAS 154 to have a material impact on its financial
      statements.





-16-
 Table
          of Contents





**THERAGENICS
        CORPORATION** **®** **AND SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        3, 2005**
 **(Unaudited)**





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





The
      following table summarizes intangible assets of the Company as of July 3, 2005
      and December 31, 2004 (in thousands):





July
                3, 2005
            
            December
                31, 2004Gross
                Carrying
            
            Accumulated
            
            Gross
                Carrying
            
            AccumulatedAmount
            
            Amortization
            
            Amount
            
            AmortizationGoodwill
            
            $
            17,728
            
            $
            -
            
            $
            2,578
            
            $
            -Customer
                relationships
            
            
            3,500
            
            
            65
            
            
            -
            
            
            -Non-compete
                agreements
            
            
            1,269
            
            
            52
            
            
            -
            
            
            -Trade
                names
            
            
            1,700
            
            
            -
            
            
            -
            
            
            -Developed
                technology
            
            
            360
            
            
            9
            
            
            -
            
            
            -Patents
            
            
            329
            
            
            185
            
            
            298
            
            
            174$
            24,886
            
            $
            311
            
            $
            2,876
            
            $
            174





Amortization
      expense was $131,000 and $137,000 for the three and six months ended July 3,
      2005, respectively. Amortization expense was $6,000 and $12,000 for the three
      and six months ended July 4, 2004, respectively.





**NOTE
      J - SEVERANCE**





On
      May
      26, 2005, the Company entered into severance agreements (collectively, the
      “Severance Agreements”) with two former executive officers. The Severance
      Agreements provide for severance benefits in the same amount that would have
      been payable to the former executive officers upon termination without cause
      under their respective employment agreements, under previously granted equity
      incentive awards, and pursuant to Company policy. Under the Severance
      Agreements, the Company paid $755,582 in lump sum cash payments and associated
      payroll taxes during the quarter ended July 3, 2005. These payments are included
      in selling, general and administrative expense in the accompanying statements
      of
      operations.





These
      former executive officers also hold Performance Stock Rights, which are
      accounted for as described in Note F above. The Company has agreed pursuant
      to
      the Severance Agreements to issue the former executive officers, following
      the
      respective performance cycles, the number of shares of common stock that would
      be issuable in respect of such Performance Stock Rights but prorated based
      on
      their period of employment during the performance cycle.





**NOTE
      K - REVENUE RECOGNITION**





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





-17-
 Table
          of Contents





**THERAGENICS
        CORPORATION** **®** **AND SUBSIDIARY**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **July
        3, 2005**
 **(Unaudited)**





**NOTE
      L - RECLASSIFICATIONS**





Certain
      amounts included in the 2004 financial statements have been reclassified to
      conform to the 2005 presentation.




**NOTE
        M - SUBSEQUENT EVENT**
  On
      August
      9, 2005, the Board of Directors of the Company approved a plan to restructure
      the Company to focus on its two main business sectors, brachytherapy seeds
      and
      the newly acquired product lines through its subsidiary CP Medical. As a result
      of the restructuring, the Company will close its facility in Oak Ridge,
      Tennessee and its Newton Terrace facility in Buford, Georgia. The restructuring,
      including the closure of the two facilities, will result in the termination
      of
      23 positions within the Company. The Company will also discontinue its
      radiochemical activities and its research and development activities relating
      to
      the PSP technology and the vascular, macular degeneration, and breast cancer
      areas.




As
        a
        result of the restructuring, the Company expects to record pre-tax restructuring
        charges of approximately $34.6 million to $37.8 million in 2005. These charges
        consist of pre-tax non cash impairment charges related to the PSP facility
        in
        Oak Ridge, Tennessee, the Newton Terrace facility in Buford, Georgia, six
        cyclotrons, and other related long-lived assets of approximately $29.6 million
        to $32.5 million; pre-tax non cash write down of inventory and other assets
        and
        contract termination costs related to the Oak Ridge land lease of approximately
        $3.4 million to $3.5 million; and pre-tax severance and site exit expenses
        of
        approximately $1.6 million to $1.8 million. The significant portion of the
        total
        2005 pre-tax restructuring charges are expected to be recorded in the third
        quarter of 2005. Pre-tax restructuring charges in 2006 are expected to be
        approximately $1.4 million to $1.6 million and include severance expenses
        and
        the cost of other exit and disposal activities. The pre-tax severance and
        site
        exit expenses in 2005 and 2006 represent the expected cash expenditures related
        to the restructuring.








-18-
 Table
          of Contents








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





***Overview***





Theragenics
        Corporation ® is
        a medical device company serving the cancer treatment and surgical
        markets,
        including TheraSeed ® ,
        its
        premier palladium-103 prostate cancer treatment device, and wound closure
        and
        other medical products through its CP Medical subsidiary .
        Theragenics ® is the
        world’s largest producer of palladium-103, the radioactive isotope that supplies
        the therapeutic radiation for its TheraSeed ® device.
        Physicians, hospitals and other healthcare providers, primarily located in
        the
        United States, utilize the TheraSeed ® device.
        The TheraSeed ® device
        has also been approved for marketing throughout the member countries of the
        European Union by obtaining its CE Mark. Sales of the TheraSeed ® device
        in Europe have not been significant. The majority of sales are channeled
        through
        two third-party distributors. The Company also sells its TheraSeed ® devices
        directly to physicians.


On
      May 6,
      2005, the Company completed the acquisition of CP Medical Corporation (“CP
      Medical”) by paying sellers $19,032,353 in cash and issuing 1,885,370 shares of
      common stock valued at approximately $6,250,000 as calculated over a 20-day
      period from March 28, 2005 through April 22, 2005. The Company also incurred
      $1,541,112 of direct transaction costs. The Company funded the cash portion
      of
      the purchase price and the direct transaction costs from cash on hand. At the
      closing, 904,977 shares of the Company’s common stock issued to the sellers were
      placed in escrow for the purpose of compensating the Company in the event the
      sellers must indemnify the Company pursuant to the terms of the Stock Purchase
      Agreement. The Company has agreed to make additional payments to the sellers
      in
      the event that some portion of the gain from the sale is taxable at ordinary
      federal income (instead of capital gain) tax rates. The stock portion of the
      purchase price is subject to adjustment based on the difference between the
      working capital of CP Medical on the closing and CP Medical’s working capital as
      of December 31, 2004.





CP
      Medical is a manufacturer and supplier of innovative wound closures and other
      medical products such as sutures, cardiac pacing cables, and brachytherapy
      needles/spacers/sleeves sold in the professional surgical and veterinary fields.
      Historically, CP Medical has generated the majority of its revenue in the wound
      closure market, an estimated $2.0 billion annual market worldwide and an
      estimated $1.2 billion annual market in the United States. During 2004,
      approximately 70% of CP Medical’s revenue was generated in the veterinary wound
      closure market, an estimated $50 million annual market in the United States,
      and
      approximately 15% of revenue was generated in the brachytherapy market. The
      transaction establishes a new growth platform for the Company within the field
      of medical devices and also serves to diversify the Company’s product offerings
      within its core brachytherapy business. As a result of this transaction, the
      former owners of CP Medical hold approximately 6% of the outstanding common
      stock of the Company. The results for the three and six months ended July 3,
      2005 include the results of CP Medical since May 7, 2005, the first date after
      the closing of the acquisition.





Early
      in
      2003 the Company diversified its product line with the purchase of the U.S.
      iodine-125 prostate brachytherapy business of BEBIG Isotopen-und Medizintechnik
      GmbH (“BEBIG”). The purchase gives Theragenics ® exclusive U.S. manufacturing and distribution rights to an FDA-cleared
      iodine-125-based medical device (I-Seed) for the treatment of prostate cancer.
      The Company sells the I-Seed device directly to physicians, hospitals and other
      healthcare providers. The
      non-exclusive distributors of the TheraSeed ® device have no
      distribution rights for the I-Seed device. The
      Company believes that the ability to provide both TheraSeed ® and
      I-Seed devices enhances the Company’s ability to market to
      direct customers who seek a single source for both palladium-103 and iodine-125
      brachytherapy seeds.





-19-
 Table
          of Contents









The
        U.S.
        Department of Energy (“DOE”) has granted Theragenics ® access
        to unique DOE technology, known as plasma separation process or PSP, for
        use in
        production of isotopes, including palladium-102 (the “PSP Operation”). The
        Company constructed a facility in Oak Ridge, Tennessee to house the equipment,
        infrastructure and work force necessary to support the production of isotopes,
        including palladium-102, using this DOE technology. The building and the
        PSP
        became operational during the latter half of 2002. PSP Operation activities
        have
        been discontinued as a result of the restructuring announced on August 11,
        2005
        (see “ *Subsequent
        Event - Restructuring”* below).
  In
        2003
        the Company commenced a clinical trial using a palladium-103 device, called
        the
        TheraSource ® Intravascular Brachytherapy System, designed to prevent restenosis or
        renarrowing of arteries following treatment of
        peripheral vascular disease by percutaneous transluminal angioplasty. Use
        of the
        TheraSource ® device
        was found to be clinically safe and technologically feasible. During the
        second
        quarter of 2004, the Company filed an Investigational Device Exemption (“IDE”)
        with the FDA to begin a human clinical trial for the TheraSight ® Ocular
        Brachytherapy System, a device intended to treat exudative (wet) age-related
        macular degeneration (“AMD”), a disease that leads to loss of eyesight and in
        some cases complete blindness. The IDE was approved by the FDA on July 29,
        2004,
        and enrollment commenced in the fourth quarter of 2004 to test the safety
        and
        feasibility of the TheraSight ® device.
        Activities related to these and certain other R&D programs have been
        curtailed under the Company’s restructuring plan announced on August 11, 2005
        (see “ *Subsequent
        Event - Restructuring”* below).
  ***Subsequent
        Event - Restructuring***
 
 On
        August
        9, 2005 the Company’s board of directors approved a plan to restructure the
        Company to focus
        on its two main business sectors: the primary product line of brachytherapy
        seeds and its wound closure and other medical product lines for diverse surgical
        markets serviced through its newly acquired subsidiary, CP Medical.
 
 The
        Company will restructure to focus on strengthening its positions within its
        core
        brachytherapy seed business, which has seen a 13 percent sales increase for
        the
        first six months of 2005 compared to 2004, and its CP Medical business, which
        helped Theragenics achieve an overall 26 percent increase in sales for the
        same
        six-month period versus the previous year. The restructuring will result
        in
        closure of the Company’s facility in Oak Ridge, Tennessee and its Newton Terrace
        facility in Buford, Georgia. Theragenics is seeking a buyer for its interests
        in
        the Oak Ridge facility. The Company will continue to operate from its Bristol
        facility in Buford, Georgia.
 
 The
        restructuring, including the closure of the two facilities, will result in
        the
        elimination of 23 positions within the Company. The Company will also
        discontinue its radiochemical activities, and its research and development
        activities relating to the plasma separation process technology and the
        vascular, macular degeneration, and breast cancer areas. The Company intends
        to
        offer the intellectual property and clinical data related to these R & D
        efforts to buyers or licensees that express an interest in carrying on this
        promising research. Theragenics will continue its R&D related to CP Medical
        products, with five products currently in development, including three products
        that are anticipated to be launched in the near future.
 
 As
        a
        result of the restructuring, Theragenics expects to record non-cash pre-tax
        restructuring charges of approximately $33.0 million to $36.0 million in
        the
        second half of 2005. These non-cash restructuring charges consist of impairment
        charges related to the PSP facility, six





-20-
 Table
          of Contents






cyclotrons, and other long-term
      assets of approximately $29.6 million to $32.5 million, and write down of
      inventory and other assets, and contract termination costs related to its Oak
      Ridge land lease, of approximately $3.4 million to $3.5 million. Pre-tax
      severance and site exit and disposal expenses of approximately $1.6 million
      to
      $1.8 million are also expected to be incurred in the second half of 2005. The
      significant portion of the total 2005 pre-tax restructuring charges of
      approximately $34.6 million to $37.8 million is expected to be recorded in
      the
      third quarter. Pre-tax restructuring expenses in 2006 are expected to be
      approximately $1.4 million to $1.6 million, and include severance expenses
      and
      the cost of other site exit and disposal activities. Theragenics expects
      to begin realizing savings associated with the restructuring immediately. As
      a
      result of the restructuring the Company anticipates pre-tax operating expense
      savings of approximately $1.9 million to $2.2 million in 2005, consisting
      primarily of manufacturing and R&D related expenses, including cash savings
      of approximately $1.1 million to $1.3 million. Beginning in 2006, the
      restructuring is expected to generate pre-tax operating expense savings of
      approximately $6.5 million to $7.0 million annually, including pre-tax cash
      savings of approximately $4.0 million to $4.4 million annually. Accordingly,
      the
      expected net effect of both restructuring charges and savings on pre-tax cash
      flow for 2005 is a reduction in cash of approximately $300,000 to $700,000,
      an
      increase in pre-tax cash flow for 2006 of approximately $2.4 million to $3.0
      million, and an increase in pre-tax cash flow of approximately $4.3 million
      to
      $5.0 million beginning in 2007.






***Results
      of Operations***





Revenues
      for the three months ended July 3, 2005 were $11.4 million, compared to $8.6
      million for the three months ended July 4, 2004, an increase of $2.8 million,
      or
      31.5%. Revenues for the six months ended July 3, 2005 were $20.9 million,
      compared to $16.6 million for the six months ended July 4, 2004, an increase
      of
      $4.3 million, or 26.0%. Included in revenue for the three and six months ended
      July 3, 2005 was $2.1 million of revenue from CP Medical. Revenues in the
      brachytherapy seed segment were $9.3 million and $18.8 million for the three
      and
      six months ended July 3, 2005, increases of 7.3% and 13.3%, respectively, from
      the corresponding periods of 2004. The
      increases in the brachytherapy seed segment revenue during 2005 were primarily
      due to 6.8% and 10.9% increases in unit sales of the TheraSeed ® device
      during the three and six months ended July 3, 2005, respectively, compared
      to
      the corresponding periods of 2004. The average selling price of the
      TheraSeed ® device
      was consistent during the first three and six months of 2005 as compared to
      the
      first three and six months of 2004. During the three and six months ended July
      3, 2005 ,
      the
      Company sold approximately 23.6% and 22.5%, respectively, of total unit sales
      of
      the Company’s palladium-103 (TheraSeed ® )
      device
      and iodine-125 (I-Seed) device directly
      to customers compared to 16.3% and 16.1% of total unit sales
      (TheraSeed ® and
      I- Seed) directly
      to customers during the three and six months ended July 4, 2004, respectively.
      Total revenue from sales to direct customers (TheraSeed ® and
      I-Seed) was 25.4% and 24.3% of total product revenue during the three and six
      months ended July 3, 2005, respectively, compared to 17.4% and 18.1% of total
      product revenue during the three and six months ended July 4, 2004,
      respectively. Revenue from distributors decreased approximately 5.0% during
      the
      three months ended July 3, 2005 compared to the three months ended July 4,
      2004.
      Revenue from distributors increased approximately 3.6% during the six months
      ended July 3, 2005 compared to the six months ended July 4, 2004.





Currently,
      the Company has non-exclusive distribution agreements in place with two
      companies for the distribution of the TheraSeed â device,
      C. R. Bard and 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. and referred to herein as “Oncura”). During
      December 2004, the Company was notified by Oncura that it would not be renewing
      its distribution agreements effective December 31, 2005. Sales to Oncura during
      the three and six months ended July 3, 2005 declined by 32.3% and 28.7%,
      respectively, compared to the corresponding periods of 2004. C.R. Bard has
      exercised its option to extend its distribution agreement with the Company
      through December 2006.




-21-
 Table
            of Contents
   The
      Company and Oncura had been arbitrating claims arising in connection with the
      Company’s non-exclusive distribution agreement with Oncura. 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 their
      distribution agreements for TheraSeed ® .
      The
      distribution agreements with Oncura will now terminate effective September
      8,
      2005. In July 2005, the Company filed an arbitration claim against Oncura
      concerning compliance with the terms of the agreement settling the
      arbitration.  The Company expects that its direct sales force and C.R.
      Bard, its other distributor, will aggressively market
      Theraseed® to customers of Oncura.  While the Company
      believes that a significant portion of the customers currently supplied
      through Oncura will continue to order TheraSeed®, some such of
      these customers may not and accordingly transition issues may affect
      sales.  To the extent that the Company is able to convert customers
      of
      Oncura to direct customers, margins would be improved on these particular
      sales.





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





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





Cost
      of
      sales was $6.2 million during the three months ended July 3, 2005, resulting
      in
      a gross profit margin of 45.1%, compared with cost of sales of $3.5 million
      and
      a gross profit margin of 59.9% during the three months ended July 4, 2004.
      Cost
      of sales was $11.0 million during the six months ended July 3, 2005, resulting
      in a gross profit margin of 47.2%, compared with cost of sales of $6.9 million
      and a gross profit margin of 58.6% during the six months ended July 4, 2004.
      Included in cost of sales for the three and six months ended July 3, 2005,
      was
      $1.1 million of costs associated with revenues from CP Medical. The decreased
      gross margin during 2005 was due primarily to a decrease of $799,000 and $1.3
      million in the amount of material produced and used
      to
      support research and development efforts during the three and six months ended
      July 3, 2005, respectively, compared to the corresponding periods of 2004 as
      well as $343,000 and $856,000 of production costs capitalized during the three
      and six months ended July 4, 2004, respectively, associated with the first
      production of palladium-102 material using the PSP technology at the Company’s
      Oak Ridge, Tennessee facility. As a result of the cessation of production of
      palladium-102 during the fourth quarter of 2004, no production costs were
      capitalized during the three and six months ended July 3, 2005. The gross margin
      in 2005 was favorably impacted by the
      considerable fixed cost component of Theragenics’ ® operations in combination with increased revenue during the three and six months
      ended July 3, 2005 compared to the corresponding periods of 2004.




Selling,
      general and administrative (“SG&A”)
      expense was $5.9 million during the three months ended July 3, 2005, compared
      to
      $4.5 million during the three months ended July 4, 2004, an increase of $1.4
      million or 32.3%. SG&A expense was $10.4 million during the six months ended
      July 3, 2005, compared to $8.5 million during the six months ended July 4,
      2004,
      an increase of





-22-
 Table
          of Contents








$1.9
      million or 21.9%. Included in SG&A expense for the three and six months
      ended July 3, 2005 was $530,000 of SG&A expense associated with CP Medical.
      Also included in the results for the three and six months ended July 3, 2005
      was
      expense of $1.1 million related to the investigation conducted under the
      direction of an independent sub-committee of the Board of Directors (as
      disclosed in the Company’s press release furnished with the Form 8-K dated May
      10, 2005) and the separation of two executives from the Company. The results
      for
      the three months ended July 3, 2005 also included a decrease in marketing and
      advertising costs of $193,000 from the comparable 2004 period. The results
      for
      the six months ended July 3, 2005 included an increase in marketing and
      advertising costs of $258,000 and increased legal and related fees associated
      with the arbitration with Oncura discussed above from the comparable 2004
      period. The fluctuations in marketing and advertising costs reflect the timing
      of media buys in targeted markets.





Research
      and development (“R&D”) expense decreased to $1.1 million, or approximately
      10.1% of revenue, during the three months ended July 3, 2005, from $2.3 million,
      or approximately 26.7% of revenue, during the three months ended July 4, 2004.
      R&D expense decreased to $2.6 million, or approximately 12.2% of revenue,
      during the six months ended July 3, 2005, from $4.6 million, or approximately
      27.6% of revenue, during the six months ended July 4, 2004. Included in R&D
      expense for the three and six months ended July 3, 2005 was approximately $6,000
      of R&D expense associated with CP Medical. The decrease in R&D expense
      during 2005 was primarily attributable to decreases of $799,000 and $1.3 million
      in the amount of palladium-103 material produced and used in research and
      development efforts during the three and six months ended July 3, 2005,
      respectively, compared to the corresponding periods of 2004 as well as a
      reduction of other R&D costs due to the completion of the TheraP trial
      during 2004 and delays in enrolling patients in the TheraSight trial (see
“Overview” above).





Manufacturing
      and R&D expenses are expected to be reduced in connection with the Company’s
      restructuring announced on August 11, 2005. See *“Subsequent
      Event - Restructuring”* above.


Other
      income, comprising interest income and non-operating expenses, was $292,000
      during the three months ended July 3, 2005 compared to $257,000 during the
      three
      months ended July 4, 2004.
      Other income was $622,000 during the six months ended July 3, 2005 compared
      to
      $431,000 during the six months ended July 4, 2004. The increases during 2005
      are
      primarily the result of better returns on the Company’s investments as a result
      of higher interest rates in 2005 compared to 2004, partially offset by a
      decrease in the amount of invested funds during 2005 as a result of the
      acquisition of CP Medical (see “Overview” above). The Company’s investments
      consist primarily of short-term cash investments and high-credit quality
      corporate and municipal obligations, in accordance with the Company’s investment
      policies. Funds available for investment have and will continue to be utilized
      for the Company’s current and future expansion programs, R&D activities, and
      strategic opportunities for growth and diversification. As funds continue to
      be
      used for these programs and activities, and as interest rates continue to
      change, management expects other income to fluctuate accordingly.


The
        Company’s effective income tax rate was a benefit of 36.7% during the three
        months ended July 3, 2005 compared to a benefit of 30.4% during the three
        months
        ended July 4, 2004. The Company’s effective income tax rate was a benefit of
        37.9% during the six months ended July 3, 2005 compared to a benefit of 35.9%
        during the six months ended July 4, 2004. The Company’s income tax rate in each
        period differed from statutory rates primarily due to the recognition of
        tax
        credits generated by the Company’s investments in its expansion projects,
        research activities and tax-exempt interest income.





-23-
 Table
          of Contents





***Critical
      Accounting Policies*** 
 The
        financial statements of Theragenics Corporation â are
        prepared in conformity with accounting principles generally accepted in the
        United States of America. Management is required to make certain estimates,
        judgments and assumptions that we believe are reasonable based upon the
        information available. These estimates and assumptions affect the reported
        amounts of assets and liabilities at the dates of the financial statements
        and
        the reported amounts of revenues and expenses during the periods presented.
        The
        significant accounting policies which we believe are the most critical to
        aid in
        fully understanding and evaluating our reported financial results include
        the
        following:
 
 *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 3, 2005, the Company owned and operated 14 cyclotrons, the first of
        which
        entered service in 1993. Each of the Company’s cyclotrons is depreciated using
        an estimated 10-year life. Management’s estimate of the useful life of these
        cyclotrons is based on the Company’s experience to date with these cyclotrons.
        Based on experience gained relative to the operation, refurbishment, and
        maintenance of the cyclotrons, Management believes there is a substantive
        basis
        for the current depreciable lives of the cyclotrons. Although the older
        cyclotrons require increased maintenance, all the cyclotrons remain in service,
        including fully depreciated cyclotrons, because the material produced by
        each
        machine is required for ongoing operations and the Company’s current research
        and development initiatives.
 
 The
        PSP
        equipment was placed in service during the second half of 2002 and is
        depreciated using an estimated fifteen-year life. The PSP equipment utilizes
        specialized, unique technology.
 
 Management
        will continue to periodically examine estimates used for depreciation for
        reasonableness. If the Company should determine that the useful life of
        property, plant or equipment should be shortened or lengthened, depreciation
        expense would be adjusted accordingly for the remaining useful life/(lives)
        of
        the identified asset/(s).
 
 Management
        assesses the impairment of its depreciable assets whenever events or
        circumstances indicate that such assets might be impaired. In the event the
        expected undiscounted future cash flow attributable to the asset is less
        than
        the carrying value of the asset, an impairment loss equal to the excess of
        the
        asset’s carrying value over its fair value is recorded. The estimation of fair
        value, whether in conjunction with an asset to be held and used or with an
        asset
        held for sale, also involves judgment. Management believes that no impairment
        of
        depreciable assets existed as of July 3, 2005. However, impairment charges
        related to the PSP, six of the 14 cyclotrons, and other long-term assets
        will be
        recorded in the second half of 2005. See *“Subsequent
        Event - Restructuring”* above.
 
 It
        is
        possible that Management’s estimates concerning the realizability of the
        Company’s depreciable assets could change in the future.
 
 *Goodwill.*  On
        May 6,
        2005, the Company completed the acquisition of CP Medical. A total of
        approximately $26.8 million was paid in connection with the acquisition (see
        “Overview” above) and the payments were allocated between the fair value of
        tangible assets acquired, identifiable intangible assets and liabilities
        assumed. The excess of cost over the fair value of acquired net assets in
        the
        amount of $15.2 million is recorded as goodwill. Early
        in
        2003 the Company entered into an agreement to purchase the brachytherapy
        business of BEBIG Isotopen-und Medizintechnik GmbH, a subsidiary company
        of
        Eckert & Ziegler AG. A total of approximately
   -24-
 Table
            of Contents
  $6.3
        million was paid in connection with the acquisition and the payments were
        allocated between the fair value of the assets in the amount of $3.7 million
        and
        $2.6 million to goodwill. The equipment became operational during the first
        quarter of 2004. The Company has determined that the production line will
        be
        amortized over a fifteen-year life.
 
 The
        Company accounts for goodwill and other intangible assets in accordance with
        the
        provisions of Statement of Financial Accounting Standards No. 142, *Goodwill
        and Other Intangible Assets* (“SFAS
        142”). Under SFAS 142, goodwill and intangible assets with indefinite lives are
        not amortized to expense and must be reviewed for impairment annually or
        more
        frequently if events or changes in circumstances indicate that such assets
        might
        be impaired. The first step of the impairment test, used to identify potential
        impairment, compares the fair value of a reporting unit with its carrying
        amount, including goodwill and intangible assets with indefinite lives. If
        fair
        value exceeds book value, goodwill is considered not impaired, and the second
        step of the impairment test is unnecessary. If book value exceeds market
        value,
        the second step of the impairment test is preformed to measure the amount
        of
        impairment loss, if any. For this step the implied fair value of the goodwill
        is
        compared with the book value of the goodwill. If the carrying amount of the
        goodwill exceeds the implied fair value of the goodwill, an impairment loss
        would be recognized in an amount equal to that excess. Any loss recognized
        cannot exceed the carrying amount of goodwill. After an impairment loss is
        recognized, the adjusted carrying amount of goodwill is its new accounting
        basis. Subsequent reversal of a previously recognized impairment loss is
        prohibited once the measurement of that loss is completed. The Company completed
        its annual goodwill impairment assessment associated with the I-Seed business
        as
        of November 28, 2004 and determined that goodwill was not impaired and no
        impairment charge was recorded. The Company will complete an impairment
        assessment of the CP Medical and I-Seed goodwill during the fourth quarter
        of
        2005, unless events or changes in circumstances indicate that an assessment
        should be completed sooner.
 
 Intangible
        assets with definite lives are being amortized and this amortization is included
        in the accompanying consolidated statements of operations.
 
 *Allowance
        for doubtful accounts.* Management judgments and estimates are made and used in connection with
        establishing an allowance for the possibility that portions of our accounts
        receivable balances may become uncollectable. Accounts receivable are reduced
        by
        this allowance. Specifically, Management analyzes accounts receivable in
        relation to current economic trends and changes in our customer payment history
        in establishing this allowance. The accounts receivable balance, net of the
        provision for trade accounts receivables allowance of $250,000, was
        approximately $8.2 million as of July 3, 2005.
 
 *Stock-based
        compensation.* The
        Company has granted performance restricted stock rights. The number of shares
        issuable upon vesting of the performance restricted stock rights will vary
        based
        on total shareholder return or TSR over the vesting period as compared to
        an
        industry peer group, as further described in Note F of the Notes to Consolidated
        Financial Statements. Each quarter the Company estimates TSR and records
        compensation expense based on TSR experienced to date. To the extent that
        TSR
        varies significantly from period to period, the Company may record additional
        compensation expense or adjust previously recorded compensation expense to
        reflect the current estimate of TSR over the vesting period.
 
 -25-
 Table
            of Contents
  ***Liquidity
        and Capital Resources***
 
 The
        Company had cash, short-term investments and marketable securities of $42.5
        million at July 3, 2005, compared to $62.3 million at December 31, 2004.
        Cash
        and short-term investments were $9.7 million at July 3, 2005 compared to
        $26.2
        million at December 31, 2004. Marketable securities were $32.8 million at
        July
        3, 2005 compared to $36.1 million at December 31, 2004. Marketable securities
        consist primarily of short-term cash investments and high-credit quality
        corporate and municipal obligations, in accordance with the Company’s investment
        policies. The aggregate decrease in cash, short-term investments and marketable
        securities was primarily the result of the acquisition of CP Medical (see
        “Overview” above).
 
 Working
        capital was $57.9 million at July 3, 2005, compared to $72.6 million at December
        31, 2004. The Company also has a Credit Agreement with a financial institution
        that provides for revolving borrowings of up to $40.0 million, including
        a $5.0
        million sub-limit for letters of credit, through a credit facility which
        expires
        on October 29, 2006. No borrowings were outstanding under the Credit Agreement
        as of July 3, 2005. Letters of credit totaling $933,000 were outstanding
        under
        the Credit Agreement as of July 3, 2005. These letters of credit represent
        decommission funding required by the Georgia Department of Natural Resources
        and
        a utility deposit to the City of Oak Ridge, Tennessee in connection with
        the PSP
        facility. The Credit Agreement is unsecured, but provides for a “springing lien”
        to be established on substantially all of the assets of the Company (subject
        to
        certain exceptions) in the event certain events of default occur under the
        Credit Agreement. The Credit Agreement 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. On August 12, 2005, the Credit Agreement
        was
        amended to reduce the minimum Tangible Net Worth (as defined under the Credit
        Agreement) that the Company is required to maintain to $87.5 million. See
        Part
        II, Item 5 below.
 
 Cash
        provided by operations was $758,000 during the six months ended July 3, 2005
        compared to cash used by operations of $691,000 during the six months ended
        July
        4, 2004. Cash used by or generated from operations consists of net
        earnings/(loss) plus non-cash expenses such as depreciation, amortization,
        and
        changes in balance sheet items such as accounts receivable, inventories,
        prepaid
        expenses and payables. Accounts receivable increased approximately $940,000
        during the first six months of 2005 as a result of increased revenue during
        the
        second quarter of 2005 compared to the fourth quarter of 2004 and the timing
        of
        payments received from the Company’s distributors. Prepaid expenses and other
        current assets decreased $159,000 during the first six months of 2005 primarily
        as a result of the timing of prepayments under the Company’s advertising and
        group health insurance programs in the second quarter of 2005 compared to
        the
        fourth quarter of 2004. Trade accounts payable decreased $417,000 during
        the
        first six months of 2005 due primarily to the final payment made under a
        $570,000 purchase agreement of the Company with
        a
        contractor for the design and manufacture of certain equipment. Accrued
        salaries, wages and payroll taxes increased $251,000 during the first six
        months
        of 2005 due primarily to the timing of the Company’s payroll cycle and the
        accrual of incentive compensation. Other current liabilities increased $354,000
        during the first six months of 2005 due primarily to accrued property taxes
        which are generally paid during the fourth quarter of each year.
 
 Capital
        expenditures totaled $177,000 and $1.6 million during the first six months
        of
        2005 and 2004, respectively. The spending during 2004 was related to equipment
        placed in service during the first quarter of 2005 that allows the Company
        to
        provide seed loading and sterilization services. During the first six months
        of
        2004, the Company made the final payment of $1.0 million as part of the
        Company’s purchase of the U.S. iodine-125 prostate brachytherapy business of
        BEBIG (see “ *Overview* ”
        above).
        The Company procured an automated production line as part of the agreement
        that
        became operational during the first quarter of 2004.
  
 -26-
 Table
            of Contents
  On
        August
        9, 2005 the Company’s board of directors approved a plan to restructure the
        Company to focus
        on its two main business sectors: the primary product line of brachytherapy
        seeds and its wound closure and other medical product lines for diverse surgical
        markets serviced through its newly acquired subsidiary, CP Medical. As a
        result
        of this restructuring, the Company expects to incur net pre-tax cash
        expenditures of approximately $300,000 to $700,000 in the second half of
        2005,
        and expects net pre-tax cash savings of approximately $2.4 million to $3.0
        million in 2006. See *“Subsequent
        Event - Restructuring”* above.
 
 On
        May 6,
        2005, the Company completed the purchase of CP Medical (see *“Overview”* above)
        by paying $19,032,353 in cash and issuing 1,885,370 shares of common stock
        valued at approximately $6,250,000 as calculated over a 20-day period from
        March
        28, 2005 through April 22, 2005. The Company also incurred direct transaction
        costs of approximately $1,541,112. The Company funded the cash portion of
        the
        purchase price and the direct transaction costs from cash on hand. At the
        closing, 904,977 shares of the Company’s common stock issued to the sellers were
        placed in escrow for the purpose of compensating the Company in the event
        the
        sellers must indemnify the Company pursuant to the terms of the Stock Purchase
        Agreement. The Company has agreed to make additional payments to the sellers
        in
        the event that some portion of the gain from the sale is taxable at ordinary
        federal income (instead of capital gain) tax rates. The stock portion of
        the
        purchase price is subject to adjustment based on the difference between the
        working capital of CP Medical on the closing and CP Medical’s working capital as
        of December 31, 2004.
 
 Cash
        could also be used in 2005 for increased marketing and TheraSeed ® support
        activities, support for CP Medical growth and in the pursuit of additional
        diversification efforts such as the purchase of technologies, products or
        companies.
 
 In
        addition to capital expenditures and the acquisition of CP Medical, cash
        used
        for investing activities during the six months ended July 3, 2005 included
        $7.5
        million used to purchase marketable securities, offset by maturities of other
        investments amounting to $10.9 million. Marketable securities, consisting
        primarily of short-term cash investments and high-credit quality corporate
        and
        municipal obligations, are purchased in accordance with the Company’s investment
        policies. The Company expects to continue to invest cash as
        available.
 
 Cash
        provided by financing activities was $89,000 and $68,000 in the first six
        months
        of 2005 and 2004, respectively, consisting of cash proceeds from the exercise
        of
        stock options and the Company’s Employee Stock Purchase Plan.
 
 The
        Company believes that current cash and investment balances and cash from
        future
        operations and credit facilities will be sufficient to meet its current
        anticipated working capital and capital expenditure requirements. In the
        event
        additional financing becomes necessary, management may choose to raise those
        funds through other means of financing as appropriate.
 
 ***Government
        Regulation***
 
 The
        Company is required under its radioactive materials license to maintain
        radiation control and radiation safety personnel, procedures, equipment and
        processes, and to monitor its facilities and its employees and contractors.
        The
        Company is also required to provide financial assurance that adequate funding
        will exist for end-of-life radiological decommissioning of its cyclotrons
        and
        other radioactive areas of its property that contain radioactive materials.
        The
        Company has provided this financial assurance through the issuance of letters
        of
        credit. The Company is also subject to federal, state and local regulations
        relating to the discharge of materials into the environment generally. During
        2003, the Company became aware of the need for an Industrial
   -27-
 Table
            of Contents
  Process
        Water Permit from the city of Buford, Georgia. The Company has taken all
        the
        required steps to obtain this permit and expects to obtain this permit, but
        has
        also requested a determination of non-applicability. The Company has been
        authorized by the City to discharge industrial process water to the municipal
        sewage system while the City considers its final decision.
 
 ***Medicare
        Developments***
 
 On
        December 8, 2003, the President signed the Medicare Prescription Drug,
        Improvement and Modernization Act of 2003 (“MMA”) into law that provides for
        improved reimbursement and coding policies in 2004 and beyond for brachytherapy
        seeds/sources under Medicare’s hospital outpatient prospective payment system
        (“OPPS”).
 
 The
        brachytherapy provisions in the MMA, which went into effect on January 1,
        2004,
        require Medicare to unbundle the cost of the brachytherapy seeds/sources
        from
        the costs of the brachytherapy procedure, catheters and needles under the
        OPPS.
        More specifically, the MMA requires Medicare to reimburse hospitals for each
        brachytherapy seed/source furnished between January 1, 2004 to December 31,
        2006
        based on the hospital’s costs for each patient (calculated from the hospital’s
        charges adjusted by the hospital’s specific cost-to-charge ratio). This means
        that hospital reimbursement is no longer limited to or dictated by the bundled
        reimbursement amounts assigned to the brachytherapy codes that the Centers
        for
        Medicare and Medicaid Services (“CMS”) used in 2003.
 
 With
        respect to coding, the MMA requires the Medicare program to create and use
        coding that classifies brachytherapy seeds/sources separately from all the
        other
        services and items reimbursed under the OPPS. These separate codes for
        brachytherapy seeds/sources must be used in a manner that reflects the type
        of
        radioactive isotope (for example, palladium-103), the radioactive intensity
        and
        the number of brachytherapy seeds/sources used to treat each patient.
 
 Depending
        on the number of seeds needed to treat each prostate cancer patient, the
        total
        reimbursement (for the combination of the unbundled procedure codes and seeds)
        for the payment methodology in place until at least December 31, 2006 may
        be
        higher than the 2003 bundled payment amounts. The MMA also directs the U.S.
        Government Accountability Office (“GAO”, formerly the General Accounting Office)
        to conduct a study examining future payment policies for brachytherapy seeds.
        The GAO study is still pending.
 
 On
        July
        25, 2005, CMS published its proposed rule on the OPPS for calendar year 2006.
        Consistent with the MMA provisions described above, there are no proposed
        changes in policy for the reimbursement levels for brachytherapy seeds. CMS
        proposed new payment levels for the procedures that are performed when
        implanting brachytherapy seeds for prostate cancer. Specifically, CMS proposed
        a
        reimbursement level of $717.53 for APC 651 (Complex Interstitial Radiation
        Source Application) for calendar year 2006. Although this would be a reduction
        from the reimbursement level of $1,248.93 for calendar year 2005, the proposed
        level for 2006 is higher than the reimbursement amount of $558.24 from calendar
        year 2004. For another procedure commonly performed when implanting
        brachytherapy seeds for prostate cancer, CMS proposed a reimbursement of
        $1,993.13 for APC 163 (Level IV Cystourethroscopy & Other Genitourinary
        Procedures). This would be a reduction of $62.50 from the reimbursement level
        of
        $2,055.63 currently in place for calendar year 2005. CMS has solicited comments
        from the public on these and other changes, and CMS’ final rule for the OPPS is
        pending. Medicare’s OPPS reimbursement levels for the procedures performed
        during prostate brachytherapy could influence the utilization of brachytherapy
        seeds, including the Company’s products.
   -28-
 Table
            of Contents
 
 The
        Company believes its efforts in assisting policymakers in formulating and
        revising Medicare policies to recognize the unique aspects of classification
        and
        reimbursement that apply to brachytherapy devices such as TheraSeed â were
        pivotal to the enactment of the improved 2003 Medicare legislation for
        brachytherapy seeds/sources. The Company plans to continue working to assist
        policymakers regarding these important issues in the future.
 
 Due
        to
        the fact that the Medicare rules governing coding of brachytherapy seeds/sources
        have undergone significant change during the past few years, the Company
        believes that Medicare reimbursement may continue to create confusion for
        hospitals and doctors going forward. In that regard, Management continues
        to
        closely monitor any effects of the reimbursement structure on the brachytherapy
        market as it continues to evaluate pricing, marketing and distribution
        strategies. The Company continues to engage a consulting firm specializing
        in
        reimbursement practices to help communicate brachytherapy reimbursement
        guidelines to customers.
 
 ***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, estimated
        impairment and other restructuring expenses, operating expense savings and
        associated cash expenditures and savings, Theragenics’ ® plans
        and strategies for diversification, and the sufficiency of the Company’s
        liquidity and capital resources. From time to time, the Company may also
        make
        other forward-looking statements relating to such matters as well as statements
        relating to anticipated financial performance, business prospects, technological
        developments, other research and development activities and similar matters.
        These forward-looking statements are subject to certain risks, uncertainties
        and
        other factors which could cause actual results to differ materially from
        those
        anticipated, including risks associated with research and development
        activities, including risks associated with new product development cycles,
        including changes in the competitive landscape, effectiveness and execution
        of
        marketing and sales programs of Theragenics ® and its
        non-exclusive distributors, risks associated with customer distribution
        concentration and consolidation among non-exclusive distributors and potential
        changes in distributor relationships, potential costs and delays in capacity
        expansion and start-up, the iodine-125 product line, actual or potential
        changes
        in product pricing, competitive conditions and selling tactics of the Company’s
        competitors, continued acceptance of TheraSeed ® or the
        I-Seed devices by the market, management of growth, government regulation
        of the
        therapeutic radiological pharmaceutical and device business, potential changes
        in third-party reimbursement, risks associated with market development
        activities, risks associated with governmental regulations, related export
        controls and security requirements for PSP technology and products, changes
        in
        assumptions used in estimating restructuring charges and operating expense
        savings, and unforeseen costs and cash expenditures associated with the
        restructuring plan. All forward looking statements and cautionary statements
        included in this document are made as of the date hereby based on information
        available to the Company as of the date hereof, and the Company assumes no
        obligation to update any forward looking statement or cautionary
        statement.
 
 An
        important element of our strategy is to seek acquisition prospects and
        diversification opportunities that we believe will complement or diversify
        our
        existing product offerings, augment our market coverage and customer base,
        enhance our technological capabilities or offer revenue and profit growth
        opportunities. We acquired CP Medical in May 2005. Further
   -29-
 Table
            of Contents
  transactions
        of this nature could result in potentially dilutive issuance of equity
        securities, use of cash and/or the incurring of debt and the assumption of
        contingent liabilities.
 
 Acquisitions
        entail numerous costs, challenges and risks, including difficulties in the
        assimilation of acquired operations, technologies, personnel and products
        and
        the retention of existing customers and strategic partners, diversion of
        management’s attention from other business concerns, risks of entering markets
        in which we have limited or no prior experience and potential loss of key
        employees of acquired organizations. Other risks include the potential strain
        on
        the combined companies’ financial and managerial controls and reporting systems
        and procedures, greater than anticipated costs and expenses related to
        integration, and potential unknown liabilities associated with the acquired
        entities. No assurance can be given as to our ability to successfully integrate
        the businesses, products, technologies or personnel acquired in past
        acquisitions or those of other entities that may be acquired in the future
        or to
        successfully develop any products or technologies that might be contemplated
        by
        any future joint venture or similar arrangement. A failure to integrate CP
        Medical or to integrate future potential acquisitions could result in our
        failure to achieve our revenue growth or other objectives associated with
        acquisitions, or recover costs associated with these acquisitions, which
        could
        affect our profitability or cause the market price of our common stock to
        fall.
 
 The
        integration of CP Medical may be complex, time consuming and expensive and
        may
        disrupt our businesses. The combined company will need to overcome significant
        challenges in order to realize benefits or synergies from the acquisition.
        These
        challenges include the timely, efficient and successful execution of a number
        of
        post-acquisition events, including:
 
 ·
              integrating
                  the operations and technologies of the two
                  companies;
 ·
              retaining
                  and assimilating the key personnel of each
                  company;
 ·
              retaining
                  existing customers of both companies and attracting additional
                  customers;
 ·
              retaining
                  strategic partners of each company and attracting new strategic
                  partners; and
 ·
              creating
                  uniform standards, controls, procedures, policies and information
                  systems.
 
 The
        execution of these post-acquisition events will involve considerable risks
        and
        may not be successful. These risks include:
 
 ·
              the
                  potential disruption of the combined companies ongoing businesses
                  and
                  distraction of management;
 ·
              the
                  potential strain on the combined companies financial and managerial
                  controls and reporting systems and
                  procedures;
 ·
              potential
                  unknown liabilities associated with the acquisition and the combined
                  operations.
 
 The
        Company may not succeed in addressing these risks or any other problems
        encountered in connection with the acquisition. The inability to successfully
        integrate the operations, technology and personnel of the two companies,
        or any
        significant delay in achieving integration, could have a material adverse
        effect
        on the Company.




**Item
      3.** **Quantitativeand
      Qualitative Disclosures About Market
      Risk**





The
      Company's market risk exposure related to market risk sensitive financial
      instruments is not material. Letters of credit totaling approximately $933,000
      were outstanding under the terms of the Credit Agreement as of July 3, 2005.
      No
      borrowings were outstanding under the Credit Agreement as of July 3, 2005.






-30-
 Table
          of Contents





**Item
      4.**  **Controlsand
      Procedures**





The
      Company’s Chief Executive Officer and its Chief Financial Officer are
      responsible for establishing and maintaining disclosure controls and procedures
      as defined in the rules promulgated under the Securities Exchange Act of 1934,
      as amended.





The
      Company acquired CP Medical on May 6, 2005. Since the date of acquisition,
      the
      Company has been focusing on analyzing, evaluating, and implementing changes
      in
      CP Medical’s internal control over financial reporting to determine their
      effectiveness and to integrate them into the Company’s controls and procedures.
      The Company continues to analyze the procedures and controls at CP Medical
      and
      expects to make additional changes in those procedures and controls in the
      future. The Company performed additional procedures to review accounting records
      and substantiate the financial information of CP Medical included in this
      report. CP Medical’s total revenues for the eight weeks following the
      acquisition accounted for 10% of the Company’s total revenues for the six months
      ended July 3, 2005.





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





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






**PART
      II. OTHERINFORMATION**





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





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





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





(a)
            The
                Company’s annual meeting of stockholders was held on May 10,
                2005.


(b)
            Patrick
                L. Flinn, John V. Herndon and Peter A.A. Saunders, F.R.S.A. were
                elected
                to the board of directors, each to serve for a three-year term. Otis
                W.
                Brawley, M.D., Orwin L. Carter, Ph.D., Earnest W. Deavenport, Jr.,
                Philip
                A. Incarnati and M. Christine Jacobs continue to serve as directors
                of the
                Company.


(c)
            In
                connection with the election of directors at the annual meeting,
                Mr. Flinn
                received 26,058,563 votes for his election with 735,103 withholding
                authority, Mr. Herndon received 24,964,265 votes for his election
                with
                1,829,401 withholding authority, and Mr. Saunders received 25,843,838
                votes for his election with 949,828 withholding
                authority.


(d)
            The
                appointment of Grant Thornton LLP was ratified as the Company’s
                independent registered public accounting firm for the year ending
                December
                31, 2005 with 26,429,323 votes for ratification, 318,962 votes against
                ratification and 45,381 abstaining.






-31-
 Table
          of Contents


**Item
        5.** **OtherEvents**
 
 The
        following events that would otherwise be reportable on Form 8-K occurred
        following the end of the period covered by this report.
 
 *Restructuring
        Charges*
 
 On
        August
        9, 2005, the Board of Directors of the Company approved a plan to restructure
        the Company to focus on its two main business sectors, brachytherapy seeds
        and
        CP Medical’s products. This restructuring plan will involve impairment costs and
        restructuring charges to be recorded in 2005 and 2006, as more fully
        described in Part I, Item 2 of this report, “Management’s Discussion and
        Analysis of Financial Condition and Results of Operations, Subsequent Event
        -
        Restructuring”, which is herby incorporated by reference.
 
 *Amendment
        of Credit Agreement*
 
 The
        Company and Wachovia Bank, National Association, successor by merger to
        SouthTrust Bank, entered into a Second Amendment to Credit Agreement dated
        August 12, 2005 that reduced the minimum required Tangible Net Worth (as
        defined) that the Company is required to maintain as of the end of each fiscal
        quarter to $87.5 million, and sets forth additional covenants relating to
        capital expenditures and acquisitions by the Company.  The above
        description is a summary of the material terms of the amendment. 
        The
        description is qualified by reference to the full text of the amendment,
        which
        is attached as Exhibit 10.6 to this Form 10-Q.
 
 *Appointment
        of Chief Financial Officer*
 
 On
        July
        20, 2005, the Company issued a release announcing the appointment of Frank
        J.
        Tarallo as Chief Financial Officer and Treasurer of the Company effective
        as of
        August 8, 2005. The effective date of Mr. Tarallo’s appointment as Chief
        Financial Officer has been revised to the day following the filing of a
        registration statement under the Securities Act of 1933 covering the resale
        of
        the shares issued to the sellers of CP Medical, which is expected to be filed
        shortly.
 
 The
        Company entered into an employment agreement with Mr. Tarallo dated as of
        August
        10, 2005 which provides for Mr. Tarallo to serve as the Chief Financial Officer
        of the Company from the effective date of his appointment until August 10,
        2007.
        Automatic extensions begin August 10, 2006 and each year thereafter for an
        additional year, subject to either party giving notice of non-renewal at
        least
        ninety (90) days before the term would otherwise renew. Mr. Tarallo’s base
        salary is set at $200,000 per year and Mr. Tarallo became eligible to
        participate in the Company’s short-term and long-term incentive compensation
        programs. The employment agreement also contains customary non-competition,
        non-solicitation and confidentiality provisions.
 
 The
        employment agreement may be immediately terminated upon the occurrence of
        any of
        the following events (capitalized terms as defined in the employment
        agreement):
  ·
              the
                  Company and Mr. Tarallo reach a mutual agreement in writing asto
                  termination;
 ·
              by
                  Mr. Tarallo with Good Reason;
 ·
              by
                  Mr. Tarallo without Good Reason upon not less than thirty (30)
                  days prior
                  written notice to the Company;
 ·
              by
                  the Company without Cause;
 ·
              by
                  the Company for Cause; and
 ·
              by
                  the Company or Mr. Tarallo due to the Disability of Mr.
                  Tarallo.
  If
        Mr.
        Tarallo is terminated for Cause, Mr. Tarallo will not be entitled to any
        compensation or other benefits of employment from and after the effective
        date
        of the termination. If termination is by the Company without Cause or by
        Mr.
        Tarallo for Good Reason, he will be entitled to salary continuation for two
        (2)
        years; provided , however ,
        if such
        termination is within ninety (90) days preceding or within one year following
        a
        Change in Control (as defined in the employment agreement), Mr. Tarallo will
        be
        entitled to salary continuation for three (3) years (or if less, the maximum
        amount that can be paid without causing a parachute payment under the Internal
        Revenue Code).
   -32-
 Table
            of Contents
 
 The
        above
        description of the employment agreement is a summary of the material terms
        of
        the employment agreement and does not purport to be complete. The description
        is
        qualified in its entirety by reference to the full text of the employment
        agreement, which is attached
        as Exhibit 10.5 to this Form 10-Q and is incorporated herein by
        reference.
 
 The
        compensation committee of the board of directors of the Company recommended,
        and
        the board of directors approved, incentive compensation for Mr. Tarallo,
        as set
        forth below.
 
 *Short-Term
        Incentives* *for
        2005*
 
 Mr.
        Tarallo will have a cash bonus opportunity based on both financial and
        individual performance in 2005. His targeted short-term incentive opportunity
        is
        35% of his base salary actually paid in 2005. One
        hundred percent (100%) of the target bonus opportunity is tied to Mr. Tarallo’s
        individual performance objectives and achievement of strategic objectives
        established for the Company, which have been determined by the Chief Executive
        Officer of the Company, and reviewed by the compensation committee and the
        board
        of directors.
  *Long
        Term Incentive and Stock Awards*
 
 The
        compensation committee of the board of directors of the Company recommended,
        and
        the board of directors approved, an award of 10,000 performance restricted
        stock
        rights to Mr. Tarallo. The number of shares of common stock actually issued
        to
        Mr. Tarallo will be determined based on the Company’s common stock price
        appreciation plus dividends paid (total stockholder return) relative to an
        industry peer group (as determined by the Board of Directors) over a performance
        cycle beginning January 1, 2005 and ending December 31, 2007:
 
 
 **Theragenics
                  Total Stockholder**
                **Return
                  Peer Percentile Ranking**
              **Number
                  of Shares of Common Stock to be**
                **Issued
                  for Each Performance Right****>****85****th**
                **> 75****th****to < 85****th**
                **> 50****th****to < 75****th**
                **<****30****th****to < 50****th******
              2.0
                1.5*
                1.0*
                0.30*
 
 *
              Mr.
                  Tarallo will receive a number of shares as shown in the chart above
                  plus a
                  number of shares of common stock for each performance restricted
                  stock
                  right determined by interpolation for the total stockholder return
                  peer
                  percentile ranking that falls between 30thand 50th,
                  50thand 75th,
                  or 75thand 85th.
 
 If
        Mr.
        Tarallo ceases to perform services as an employee of the Company or an affiliate
        of the Company before December 31, 2007 due to death, Disability (as defined
        in
        the employment agreement), retirement upon or after reaching age 65, or
        termination of employment by the Company or an affiliate of the Company without
        “Cause” (as defined in the employment
   -33-
 Table
            of Contents
  agreement),
        Mr. Tarallo would be entitled to a prorated portion of the shares of common
        stock determined pursuant to the preceding schedule. If Mr. Tarallo’s employment
        is terminated for any other reason before December 31, 2007, the performance
        restricted stock rights will be forfeited. If a Change in Control occurs
        before
        December 31, 2007, one share of common stock will be issuable as of the date
        of
        a Change of Control for each performance restricted stock right if Mr. Tarallo
        is still employed by the Company or an affiliate of the Company on the date
        of
        the Change in Control and the performance restricted stock rights will
        terminate. The Company’s standard form of Performance Restricted Stock Rights
        agreement is attached
        as Exhibit 10.2 to this Form 10-Q and is incorporated herein by
        reference.
 
 The
        compensation committee of the board of directors of the Company recommended,
        and
        the Board of Directors approved, an award of 10,000 restricted stock rights
        to
        Mr. Tarallo, which will become vested on December 31, 2006 subject to continued
        employment through that date and subject to the other vesting provisions
        in the
        Company’s standard form of Restricted Stock Rights agreement, which is attached
        as Exhibit 10.3 to this Form 10-Q and is incorporated herein by
        reference.






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





Exhibit
                No.
            Title10.1
            Form
                of Restricted Stock Agreement as of May 200510.2
            Form
                of Performance Restricted Stock Rights Agreement10.3
            Form
                of Restricted Stock Rights Agreement10.4
            Borrower
                Party Joinder Agreement dated May 6, 2005 among CP Medical Corporation,
                the Company, and Wachovia Bank, National Association, successor by
                merger to SouthTrust Bank, amending the Credit Agreement dated
                as of
                October 29, 2003 between the Company and SouthTrust Bank.10.5
            Employment
                Agreement between the Company and Frank Tarallo dated August 10,
                200510.6
            Second
                Amendment to Credit Agreement dated August 12, 2005among
                CP Medical Corporation, the Company, and Wachovia Bank, National
                Association, successor by merger to SouthTrust Bank,
                amending
                the Credit Agreement dated as of October 29, 2003 between the Company
                and
                SouthTrust Bank.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.








-34-
 Table
          of Contents





SIGNATURES








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







REGISTRANT:
                  
                  THERAGENICS
                      CORPORATION®/s/ 
                  M.
                  Christine JacobsM.
                    Christine Jacobs
                  Chief
                    Executive Officer/s/ Bruce W. SmithBruce
                    W. Smith
                  Acting
                    Chief Financial Officer


Dated:
      August 12, 2005

















-35-