Theragenics 10-Q 2005 Q4 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 2, 2005

or

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File No. 0-15443

THERAGENICS CORPORATION^®

(Exact name of registrant as specified in its charter)

Delaware	58-1528626
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

5203 Bristol Industrial Way
Buford, Georgia	30518
(Address of principal executive offices)	(Zip Code)

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

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

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

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

As of October 31, 2005 the number of shares of $0.01 par value common stock outstanding was 31,959,161.

THERAGENICS CORPORATION^®

TABLE OF CONTENTS

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

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) THERAGENICS CORPORATION® AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
ASSETS
	October 2, 2005 (unaudited)			December 31, 2004
CURRENT ASSETS
Cash and short-term investments	$	9,125		$	26,150
Marketable securities		34,814			36,111
Trade accounts receivable, less allowance of $481 in 2005 and $177 in 2004		7,480			5,787
Inventories		4,953			2,996
Deferred income tax asset		-			410
Assets held for sale		3,433			-
Prepaid expenses and other current assets		3,898			4,221
TOTAL CURRENT ASSETS		63,703			75,675
PROPERTY AND EQUIPMENT
Buildings and improvements		21,793			43,618
Machinery and equipment		35,041			61,560
Office furniture and equipment		699			810
		57,533			105,988
Less accumulated depreciation and amortization		(24,955	)		(41,226	)
		32,578			64,762
Land		822			822
Construction in progress		226			4,631
TOTAL PROPERTY AND EQUIPMENT		33,626			70,215
Goodwill		17,728			2,578
Other intangible assets, net		6,653			124
Other assets		65			86
TOTAL ASSETS	$	121,775		$	148,678

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

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THERAGENICS CORPORATION^® AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(Amounts in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	October 2,			October 3,			October 2,			October 3,
	2005			2004			2005			2004
REVENUE
Product sales	$	11,845		$	8,196		$	32,489		$	24,654
Licensing fees		157			87			424			228
		12,002			8,283			32,913			24,882
COST OF SALES		6,833			3,282			17,871			10,147
GROSS PROFIT		5,169			5,001			15,042			14,735
OPERATING EXPENSES
Selling, general & administrative		4,414			4,463			14,828			13,004
Research & development		823			2,749			3,374			7,335
Restructuring expenses		32,915			-			32,915			-
		38,152			7,212			51,117			20,339
LOSS FROM OPERATIONS		(32,983	)		(2,211	)		(36,075	)		(5,604	)
OTHER INCOME/(EXPENSE)
Interest income		326			322			1,049			847
Interest and financing costs		(44	)		(42	)		(144	)		(132	)
Other		6			75			6			70
		288			355			911			785
Loss before income tax		(32,695	)		(1,856	)		(35,164	)		(4,819	)
Income tax benefit		(5,457	)		(734	)		(6,394	)		(1,797	)
NET LOSS	$	(27,238	)	$	(1,122	)	$	(28,770	)	$	(3,022	)
NET LOSS PER COMMON SHARE:
Basic	$	(0.85	)	$	(0.04	)	$	(0.93	)	$	(0.10	)
Diluted	$	(0.85	)	$	(0.04	)	$	(0.93	)	$	(0.10	)
WEIGHTED AVERAGE SHARES
Basic		31,915			29,974			31,024			29,967
Diluted		31,915			29,974			31,024			29,967
Comprehensive loss:
Net loss	$	(27,238	)	$	(1,122	)	$	(28,770	)	$	(3,022	)
Other comprehensive income/(loss): Unrealized gain/(loss) on securities available for sale, net of taxes		(64	)		44			(42	)		(111	)
Total comprehensive loss	$	(27,302	)	$	(1,078	)	$	(28,812	)	$	(3,133	)

The accompanying notes are an integral part of these statements.

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THERAGENICS CORPORATION^® AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Amounts in thousands)

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

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THERAGENICS CORPORATION^® AND SUBSIDIARY

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED OCTOBER 2, 2005

(UNAUDITED)

(Amounts in thousands, except per share data)

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

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THERAGENICS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2005

(Unaudited)

NOTE A - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

The unaudited interim consolidated financial statements included herein reflect the consolidated operations of the Company and all of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These statements reflect all adjustments that are, in the opinion of management, necessary to present fairly the consolidated financial position, consolidated results of operations, consolidated cash flows and changes in shareholders’ equity for the periods presented. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The Company believes that the financial statements and disclosures are adequate to make the information not misleading. It is suggested that these financial statements and notes be read in conjunction with the audited financial statements and notes for the year ended December 31, 2004, included in the Form 10-K filed by the Company. The consolidated results of operations for the nine months ended October 2, 2005 are not necessarily indicative of the results to be expected for a full year.

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

NOTE B - DISTRIBUTION AGREEMENTS

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

NOTE C - ACQUISITION OF CP MEDICAL

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

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THERAGENICS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2005

(Unaudited)

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

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

Purchase price in cash	$	19,032
Value of common stock issued		6,250
Direct transaction costs		1,541
Total 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			Amortization
	Allocation			Life
Tangible assets	$	5,656			Various
Goodwill		15,150			Indefinite
Customer relationships		3,500			9 years
Trade names		1,700			Indefinite
Non-compete agreements		1,269			1- 5 years
Developed technology		360			7 years
Liabilities assumed		(812	)		-
Total purchase price allocation	$	26,823

Pro Forma Financial Information

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

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THERAGENICS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2005

(Unaudited)

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

NOTE D - RESTRUCTURING

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

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

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THERAGENICS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2005

(Unaudited)

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

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

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

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

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

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

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

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

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

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THERAGENICS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2005

(Unaudited)

NOTE E - CONTINGENCIES

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

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

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

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

NOTE F - ACCOUNTING FOR STOCK-BASED COMPENSATION

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

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

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THERAGENICS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2005

(Unaudited)

Restricted Stock Issued to Non-Officer Directors

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

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

Restricted Stock Rights Issued to Employees

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

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

3 Year	Vesting	Common Shares issuable
TSR period	date	Minimum	Maximum
2004-2006	12/31/06	13,052	87,018
2005-2007	12/31/07	13,099	87,336

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THERAGENICS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2005

(Unaudited)

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

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure (“SFAS 148”). SFAS 148 amends Statement No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirement of SFAS 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company accounts for stock-based compensation for employees under Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and elected the disclosure-only alternative under SFAS 123. Compensation related to issuance of restricted stock is base on the fair value of the underlying stock at the date of grant, amortized over the vesting period. Compensation related to performance restricted stock rights is recorded on the number of shares expected to be issued based on the expected outcome of the performance criteria, and the fair value of the underlying stock at the date of grant, amortized over the vesting period. No stock-based compensation cost related to options issued to employees is included in net earnings, as all such options granted have an exercise price equal to the market value of the stock on the date of grant. In accordance with SFAS 148, the following table presents the effect on net earnings and net earnings per share had compensation cost for the Company's stock plans been determined consistent with SFAS 123 (in thousands, except per share data):

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

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THERAGENICS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2005

(Unaudited)

Fair value was calculated on the grant dates using the Black-Scholes options-pricing model with the following assumptions for options issued during the nine months ended October 2, 2005 and October 3, 2004. The Company did not grant any options during the three months ended October 2, 2005 and October 3, 2004.

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

NOTE G - SEGMENT REPORTING AND MAJOR CUSTOMERS

Segment Reporting

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

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

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THERAGENICS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2005

(Unaudited)

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

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

Major Customers

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

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

NOTE H - INCOME TAXES

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

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THERAGENICS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2005

(Unaudited)

NOTE I - NEW ACCOUNTING PRONOUNCEMENTS

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

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

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

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

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

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

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

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THERAGENICS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2005

(Unaudited)

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

NOTE J - GOODWILL AND OTHER INTANGIBLE ASSETS

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

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

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

NOTE K - REVENUE RECOGNITION

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

NOTE L - RECLASSIFICATIONS

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

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

Overview

Theragenics Corporation^® is a medical device company serving the cancer treatment and surgical markets, including TheraSeed^®, its premier palladium-103 prostate cancer treatment device, and wound closure and other medical products through its CP Medical subsidiary. The Company also manufactures and distributes I-Seed, its iodine-125 based prostate cancer treatment device. Theragenics^® is the world’s largest producer of palladium-103, the radioactive isotope that supplies the therapeutic radiation for its TheraSeed^® device. Physicians, hospitals and other healthcare providers, primarily located in the United States, utilize the TheraSeed^® device. The TheraSeed^® device has also been approved for marketing throughout the member countries of the European Union by obtaining its CE Mark, though sales in Europe have not been significant. The majority of sales are channeled through one third-party distributor. The Company also sells its TheraSeed^® devices directly to physicians.

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

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

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

Early in 2003 the Company diversified its product line with the purchase of the U.S. iodine-125 prostate brachytherapy business of BEBIG Isotopen-und Medizintechnik GmbH (“BEBIG”). The purchase gives Theragenics^® exclusive U.S. manufacturing and distribution rights to an FDA-cleared iodine-125-based medical device (I-Seed) for the treatment of prostate cancer. The Company sells the I-Seed device directly to physicians, hospitals and other healthcare providers. The Company believes that the ability to provide both TheraSeed^® and I-Seed devices enhances the Company’s ability to market to direct customers who seek a single source for both palladium-103 and iodine-125 brachytherapy seeds.

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Restructuring

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

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

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

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

-20-

Results of Operations

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

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

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

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

-21-

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

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

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

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

-22-

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

Other income, comprising interest income and non-operating expenses, was $288,000 during the three months ended October 2, 2005 compared to $355,000 during the three months ended October 3, 2004. Other income was $911,000 during the nine months ended October 2, 2005 compared to $785,000 during the nine months ended October 3, 2004. The decrease during the third quarter of 2005 is primarily the result of a decrease in the amount of invested funds during 2005 as a result of the acquisition of CP Medical partially offset by better returns on the Company’s investments as a result of higher interest rates in 2005 compared to 2004. The increase in the nine months ended October 2, 2005 is primarily the result of better returns on the Company’s investments as a result of higher interest rates in 2005 compared to 2004, partially offset by a decrease in the amount of invested funds during 2005 as a result of the acquisition of CP Medical. The Company’s investments consist primarily of short-term cash investments and high-credit quality corporate and municipal obligations, in accordance with the Company’s investment policies. Funds available for investment have and will continue to be utilized for the Company’s current and future expansion programs, R&D activities, and strategic opportunities for growth and diversification. As funds continue to be used for these programs and activities, and as interest rates continue to change, management expects other income to fluctuate accordingly.

The Company’s effective income tax rate was a benefit of 16.7% during the three months ended October 2, 2005 compared to a benefit of 39.5% during the three months ended October 3, 2004. The Company’s effective income tax rate was a benefit of 18.2% during the nine months ended October 2, 2005 compared to a benefit of 37.3% during the nine months ended October 3, 2004. Primarily as a result of the restructuring charges incurred during the third quarter of 2005, the Company generated approximately $6.6 million of net deferred tax assets at October 2, 2005. The recent history of operating losses incurred by the Company and uncertainties surrounding the projection of future taxable income sufficient to recognize these deferred tax assets has resulted in a valuation allowance recorded for the full amount of the net deferred tax assets, reducing the income tax benefit recognized in the 2005 periods. The Company’s income tax rate in each period also differed from statutory rates primarily due to the recognition of tax credits generated by the Company’s investments in its expansion projects, research activities and tax-exempt interest income.

Critical Accounting Policies

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

-23-

Property, plant and equipment. Property, plant and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of such assets. The Company’s estimates can result in differences from the actual useful lives of certain assets. As of October 2, 2005, the Company owned and operated eight cyclotrons, the first of which entered service in 1998. Each of the Company’s cyclotrons is depreciated using an estimated 10-year life. Management’s estimate of the useful life of these cyclotrons is based on the Company’s experience to date with these cyclotrons. Based on experience gained relative to the operation, refurbishment, and maintenance of the cyclotrons, Management believes there is a substantive basis for the current depreciable lives of the cyclotrons.

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

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

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

Goodwill. On May 6, 2005, the Company completed the acquisition of CP Medical. A total of approximately $26.8 million was paid in connection with the acquisition (see “Overview” above) and the payments were allocated between the fair value of tangible assets acquired, identifiable intangible assets and liabilities assumed. The excess of cost over the fair value of acquired net assets in the amount of $15.2 million is recorded as goodwill. Early in 2003 the Company entered into an agreement to purchase the brachytherapy business of BEBIG Isotopen-und Medizintechnik GmbH, a subsidiary company of Eckert & Ziegler AG. A total of approximately $6.3 million was paid in connection with the acquisition and the payments were allocated between the fair value of the assets in the amount of $3.7 million and $2.6 million to goodwill. The equipment became operational during the first quarter of 2004. The Company has determined that the production line will be amortized over a fifteen-year life.

The Company accounts for goodwill and other intangible assets in accordance with the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Under SFAS 142, goodwill and intangible assets with indefinite lives are not amortized to expense and must be reviewed for impairment annually or more frequently if events or changes in circumstances indicate that such assets might be impaired. The first step of the impairment test, used to identify potential impairment, compares the fair value of a reporting unit

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with its carrying amount, including goodwill and intangible assets with indefinite lives. If fair value exceeds book value, goodwill is considered not impaired, and the second step of the impairment test is unnecessary. If book value exceeds market value, the second step of the impairment test is preformed to measure the amount of impairment loss, if any. For this step the implied fair value of the goodwill is compared with the book value of the goodwill. If the carrying amount of the goodwill exceeds the implied fair value of the goodwill, an impairment loss would be recognized in an amount equal to that excess. Any loss recognized cannot exceed the carrying amount of goodwill. After an impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. Subsequent reversal of a previously recognized impairment loss is prohibited once the measurement of that loss is completed. The Company completed its annual goodwill impairment assessment associated with the I-Seed business as of November 28, 2004 and determined that goodwill was not impaired and no impairment charge was recorded. The Company will complete an impairment assessment of the CP Medical and I-Seed goodwill during the fourth quarter of 2005.

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

Allowance for doubtful accounts. Management judgments and estimates are made and used in connection with establishing an allowance for the possibility that portions of our accounts receivable balances may become uncollectable. Accounts receivable are reduced by this allowance. Specifically, Management analyzes accounts receivable in relation to current economic trends and changes in our customer payment history in establishing this allowance. The accounts receivable balance, net of the provision for trade accounts receivables allowance of $481,000, was approximately $7.5 million as of October 2, 2005.

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

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

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Liquidity and Capital Resources

The Company had cash, short-term investments and marketable securities of $43.9 million at October 2, 2005, compared to $62.3 million at December 31, 2004. Cash and short-term investments were $9.1 million at October 2, 2005 compared to $26.2 million at December 31, 2004. Marketable securities were $34.8 million at October 2, 2005 compared to $36.1 million at December 31, 2004. Marketable securities consist primarily of short-term cash investments and high-credit quality corporate and municipal obligations, in accordance with the Company’s investment policies. The aggregate decrease in cash, short-term investments and marketable securities was primarily the result of the acquisition of CP Medical (see “Overview” above).

Working capital was $59.9 million at October 2, 2005 (including assets held for sale of $3.4 million), compared to $72.6 million at December 31, 2004. The Company also has a Credit Agreement with a financial institution that provides for revolving borrowings of up to $40.0 million, including a $5.0 million sub-limit for letters of credit, through a credit facility which expires on October 29, 2006. No borrowings were outstanding under the Credit Agreement as of October 2, 2005. Letters of credit totaling $933,000 were outstanding under the Credit Agreement as of October 2, 2005. These letters of credit represent decommission funding required by the Georgia Department of Natural Resources and a utility deposit to the City of Oak Ridge, Tennessee in connection with the PSP facility. The Credit Agreement is unsecured, but provides for a “springing lien” to be established on substantially all of the assets of the Company (subject to certain exceptions) in the event certain events of default occur under the Credit Agreement. The Credit Agreement, as amended, contains representations and warranties, as well as affirmative, reporting and negative covenants, customary for financings of this type. Among other things, certain provisions of the Credit Agreement limit the incurrence of additional debt and require the maintenance of certain financial ratios and tests.

Cash provided by operations was $2.4 million during the nine months ended October 2, 2005 compared to cash used by operations of $793,000 during the nine months ended October 3, 2004. Cash used by or generated from operations consists of net earnings/(loss) plus non-cash expenses such as depreciation, amortization, and changes in balance sheet items such as accounts receivable, inventories, prepaid expenses and payables. Accounts receivable increased approximately $465,000 during the first nine months of 2005 as a result of increased revenue during the third quarter of 2005 compared to the fourth quarter of 2004 and the timing of payments received from the Company’s distributors. Prepaid expenses and other current assets decreased $349,000 during the first nine months of 2005 primarily as a result of the timing of prepayments under the Company’s advertising and group health insurance programs in the third quarter of 2005 compared to the fourth quarter of 2004. Trade accounts payable decreased $638,000 during the first nine months of 2005 due primarily to the final payment made under a $570,000 purchase agreement of the Company with a contractor for the design and manufacture of certain equipment. Accrued salaries, wages and payroll taxes increased $514,000 during the first nine months of 2005 due primarily to the timing of the Company’s payroll cycle and the accrual of incentive compensation.

Capital expenditures totaled $338,000 and $2.3 million during the first nine months of 2005 and 2004, respectively. The spending during 2004 was related to equipment placed in service during the first quarter of 2005 that allows the Company to provide seed loading and sterilization services. During the first nine months of 2004, the Company made the final payment of $1.0 million as part of the Company’s purchase of the U.S. iodine-125 prostate brachytherapy business of BEBIG (see “Overview” above). The Company procured an automated production line as part of the agreement that became operational during the first quarter of 2004.

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

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

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

Cash provided by financing activities was $112,000 and $88,000 in the first nine months of 2005 and 2004, respectively, consisting of cash proceeds from the exercise of stock options and the Company’s Employee Stock Purchase Plan.

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

Government Regulation

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

Medicare Developments

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

The brachytherapy provisions in the MMA, which went into effect on January 1, 2004, require Medicare to unbundle the cost of the brachytherapy seeds/sources from the costs of the brachytherapy procedure, catheters and needles under the OPPS. More specifically, the MMA requires Medicare to reimburse hospitals for each brachytherapy seed/source furnished between January 1, 2004 to December 31, 2006 based on the hospital’s costs for each patient (calculated from the hospital’s charges adjusted by the hospital’s specific cost-to-charge ratio). This means that hospital reimbursement is no longer limited to or dictated by the bundled reimbursement amounts assigned to the brachytherapy codes that the Centers for Medicare and Medicaid Services (“CMS”) used in 2003.

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

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

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

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

Forward Looking and Cautionary Statements

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

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activities, including risks associated with new product development cycles, including changes in the competitive landscape, effectiveness and execution of marketing and sales programs of Theragenics^® and its non-exclusive distributor, risks associated with customer distribution concentration and potential changes in distributor relationships, potential costs and delays in capacity expansion and start-up, the iodine-125 product line, actual or potential changes in product pricing, competitive conditions and selling tactics of the Company’s competitors, continued acceptance of TheraSeed^® or the I-Seed devices by the market, management of growth, government regulation of the therapeutic radiological pharmaceutical and device business, potential changes in third-party reimbursement, risks associated with market development activities, risks associated with governmental regulations, changes in assumptions used in estimating restructuring charges and operating expense savings, and unforeseen costs and cash expenditures associated with the restructuring plan. All forward looking statements and cautionary statements included in this document are made as of the date hereby based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward looking statement or cautionary statement.

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

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

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

· integrating the operations and technologies of the two companies;

· retaining and assimilating the key personnel of each company;

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

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

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

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

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

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

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

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The Company's market risk exposure related to market risk sensitive financial instruments is not material. Letters of credit totaling approximately $933,000 were outstanding under the terms of the Credit Agreement as of October 2, 2005. No borrowings were outstanding under the Credit Agreement as of October 2, 2005.

Item 4.   Controls and Procedures

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

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

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

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

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PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

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 6.  Exhibits

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

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SIGNATURES

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

REGISTRANT:

THERAGENICS CORPORATION^®

/s/ M. Christine Jacobs

M. Christine Jacobs

Chief Executive Officer

 /s/ Francis J. Tarallo

Francis J. Tarallo

Chief Financial Officer

Dated: November 8, 2005

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