t75238_10k.htm

10-K 1 t75238_10k.htm FORM 10-K t75238_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012

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

SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _________ TO ________

COMMISSION FILE NO. 001-14339

THERAGENICS CORPORATION®

(Exact name of registrant as specified in its charter)

Delaware		58-1528626
(State of incorporation)		(I.R.S. Employer 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

Securities registered pursuant to Section 12(b) of the Act:

				Name of each exchange on
	Title of each class			which registered

	Common stock, $.01 par value,			New York Stock Exchange
	Together with associated
	Common Stock Purchase Rights

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x

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 has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

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

The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant, as determined by reference to the closing price of the Common Stock as reported on the New York Stock Exchange on June 30, 2012, the last business day of the registrant’s most recently completed second fiscal quarter, was $65,269,647.

As of February 28, 2013, the number of shares of Common Stock, $.01 par value, outstanding was 31,050,020.

Documents incorporated by reference: Proxy Statement for the registrant’s 2013 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2012 is incorporated by reference in Part III herein.

THERAGENICS CORPORATION® AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	I-1
Item 1A.	Risk Factors	I-14
Item 1B.	Unresolved Staff Comments	I-23
Item 2.	Properties	I-23
Item 3.	Legal Proceedings	I-23
Item 4.	Mine Safety Disclosures	I-23

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	II-1
Item 6.	Selected Financial Data	II-2
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	II-3
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	II-18
Item 8.	Financial Statements and Supplementary Data	II-18
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	II-19
Item 9A.	Controls and Procedures	II-19
Item 9B.	Other Information	II-19

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	III-1
Item 11.	Executive Compensation	III-1
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	III-1
Item 13.	Certain Relationships and Related Transactions, Director Independence	III-1
Item 14.	Principal Accounting Fees and Services	III-1

	PART IV
Item 15.	Exhibits and Financial Statement Schedules	IV-1

	Signatures	IV-5

Part I

Item 1. BUSINESS

Overview and Business Strategy

Theragenics Corporation®, a Delaware corporation formed in 1981, is a medical device company serving the surgical products and cancer treatment markets, operating in two business segments. The terms “Company”, “we”, “us”, or “our” mean Theragenics Corporation and all entities included in our consolidated financial statements.

Our surgical products business manufactures, markets and sells disposable devices primarily utilized in certain surgical procedures. Our brachytherapy seed business manufactures, performs custom loading, markets, and sells radioactive “seeds” primarily utilized in the treatment of early stage prostate cancer. “Custom loading” refers to loading and packaging the seeds into custom needles, strands or other packaged configurations as prescribed by the healthcare provider administering the treatment. We have performed custom loading of seeds since 1999. At the present time, both of our segments do business primarily in the United States. Our surgical products business is the faster growing of our businesses and has been supported by the cash flows generated by our market leading brachytherapy seed business. In our surgical products business we plan to grow and diversify revenues by adding product offerings and manufacturing capabilities, expanding the applications and markets in which we compete, and gaining scale to improve profitability.

Our surgical products business was built through the acquisitions of CP Medical Corp. in May 2005, Galt Medical Corporation in August 2006, and NeedleTech Products, Inc. in July 2008. We currently manufacture almost 3,500 products in this business as part of three broad product platforms; wound closure, vascular access and specialty needles. To date we have maintained the names and brands under which each of these companies previously manufactured, marketed and sold their products. We serve a number of markets and applications, including, among other areas, interventional cardiology, interventional radiology, vascular surgery, orthopedics, plastic surgery, dental surgery, urology, veterinary medicine (sutures), pain management, endoscopy, and spinal surgery. With the exception of veterinary sutures, our surgical products hold relatively small market shares. Our products include both finished goods and components. Our products are sold primarily to original equipment manufacturers (“OEMs”) and to a network of distributors. On a pro forma basis, our surgical products business has achieved a compound annual revenue growth rate of 7.0% from 2006 through 2012 (pro forma, assuming all acquisitions had been made at the beginning of 2006). We have accomplished this primarily by increasing sales to existing customers and, to a lesser extent, adding new customers. Further, we achieved this revenue growth during a period which included severe economic difficulties. Our strategy for increasing sales and scale going forward includes: becoming more integral within the supply chain of our customers both for existing products and for our customers’ development programs (which may allow us to increase sales to existing and new customers from all product platforms); developing new products internally; acquiring products, licenses, and other intellectual property; acquiring businesses: and entering certain markets outside the United States.

Research and development (“R&D”) is an integral part of our growth plan in our surgical products business. Our R&D is intended to focus on product extensions, next generation products, and new products that are complementary to our current product lines and that support our customers’ product lines. Our R&D program is directed toward 510(k) products that have an established market and not on products that require lengthy and expensive clinical trials. During 2012 we launched three new vascular access products: our Galt Microslide™ Pediatric Introducer line (“Galt Microslide”), our Galt VTI™ Valved Tearaway Introducer (“Galt VTI”) and our Galt Centeze™ centesis drainage catheter. While sales of these new products were not material in 2012, each of these new products is expected to provide our surgical products business with access to new markets and new customers. These new products are also expected to carry a higher gross profit margin than we are currently realizing in our surgical products business. Looking forward, our quarterly results are expected to be affected by the timing of these R&D investments.

We have been investigating the outsource manufacturing of certain components and legacy products offshore for our surgical products business and have identified independent suppliers in Costa Rica and other Latin American countries as locations for outsource manufacturing. We do not expect to acquire or lease real estate or establish a Theragenics operation offshore in the near term. However, we do expect to incur capital expenditures for any outsourcing program we initiate. This equipment would be physically located at the independent supplier’s facilities in Latin America. We may also consider other areas outside the United States for outsourcing. We believe outsourcing of certain legacy products to manufacturers located outside of the United States could reduce our operating expenses in the future. To date, our activities related to outsourcing with manufacturers located outside the United States have not been material.

I-1

We have operated our brachytherapy seed business since 1987, emerging from the development stage in 1990. Historically our brachytherapy seed segment has generated strong cash flows, which have enabled us to diversify our business substantially. Positive cash flows from our brachytherapy seed business continue despite an industry-wide decline in brachytherapy procedures in the United States which began about seven years ago. The overall brachytherapy industry in the United States has experienced difficulties over the last several years, with a decline in procedure rates accelerating during 2012. In May 2012, the U.S. Preventive Services Task Force recommended against routine PSA screenings for healthy men without symptoms. We believe this recommendation has led to a decline in PSA screening. In addition, we believe there has been an increase in “active surveillance”, a practice where no immediate medical treatment is provided; but the physician and patient closely monitor the patient’s cancer for signs that the cancer is growing. We believe that declines in PSA screenings has led to a decline in the number of men diagnosed with prostate cancer. A decline in the number of PSA screenings would in turn lead to a decline in the number of procedures of all treatment types to treat prostate cancer, including brachytherapy procedures. An increase in the proportion of men diagnosed with prostate cancer but not seeking immediate medical treatment would also lead to a decline in the number of procedures to treat prostate cancer.

In addition, some alternative and competing forms of treatment enjoy favorable Medicare reimbursement rates relative to brachytherapy reimbursement rates. We believe this disparity results in a non-level playing field for brachytherapy device manufacturers, providers, and patients. One of the primary competitive treatments is Intensity Modulated Radiation Therapy, or “IMRT”. IMRT enjoys more favorable reimbursement rates than brachytherapy, yet clinical studies do not indicate that IMRT delivers improved outcomes. In fact, a study to evaluate cost-effectiveness and outcomes of low-dose rate and high-dose rate brachytherapy compared to IMRT found that patients treated for low- and intermediate-risk prostate cancer with brachytherapy or IMRT had comparable outcomes, but IMRT cost more (C Shah et al. /Brachytherapy 11 (2012) 441-445). We believe the market positioning and heavy promotion of robotic surgery for prostate cancer treatment has also adversely affected the number of brachytherapy procedures performed. Despite these industry-wide difficulties we have maintained positive cash flows in our brachytherapy business for a variety of reasons including, among other things, our ability to anticipate changes in market conditions; our ability to respond to government controlled pricing policies surrounding reimbursement of our products; and, more recently, our increasing overall market share.

At the present time we believe that we have additional opportunities to increase our brachytherapy market share through additional strategic agreements, diversification of our product offerings, and potential opportunities in markets outside of the United States. Two such opportunities were the acquisition of Core Oncology, Inc’s prostate brachytherapy customer base and the new Oncura custom loading agreement (see below). We believe we have these opportunities to expand and broaden our distribution channels because of, among other things, the reliability of our supply, the quality of our products, the quality of our direct sales force, and our long-term commitment to the brachytherapy industry including patient education, direct to consumer advertising, and congressional lobbying for fair reimbursement.

Acquisition of Core Oncology’s Prostate Brachytherapy Customers

On February 17, 2012, we acquired Core Oncology’s prostate brachytherapy customer base. This transaction has substantially increased our share of the iodine-125 segment of the prostate brachytherapy market. In addition to the customer base, we also acquired certain packaging technologies, equipment related to the packaging technologies, and certain existing component inventory. We did not acquire Core’s facilities, manufacturing equipment or processes, or Core’s employees. We accounted for this transaction as an asset acquisition. Incremental revenue from this acquired customer base totaled $3.6 million in 2012.

The total purchase price for the acquired assets is equal to one times the actual revenue generated from the acquired customers over the twelve-month period from September 2012 to August 2013 (the “Earn-Out Period”), in excess of a $2.5 million Threshold Amount. Through December 31, 2012 we have paid $5.3 million in cash for this transaction, primarily consisting of prepayment of a portion of the earn-out at closing in February 2012 plus subsequent earn-out payments. We have three quarterly earn-out payments remaining through September 2013. Each quarterly earn-out payment is based upon that quarter’s revenue from the acquired customers, reduced by a portion of the Threshold Amount and by a portion of the prepayment made at closing. The final earn-out payment is calculated as one times the revenue actually recognized from the acquired customer base over the twelve-month period from September 2012 to August 2013 in excess of the total Threshold Amount, reduced by the prepayment and the cumulative amount of all previous earn-out payments made. Based on our current estimates, we do not expect to make additional earn-out payments. However, we may make additional earn-out payments, which could be material, depending upon the actual amount of revenue generated from the acquired customers during the Earn-Out Period.

I-2

Brachytherapy Custom Loading Agreement with Oncura, a unit of GE Healthcare

In the fourth quarter of 2012 we signed a value-added custom loading agreement with Oncura, a unit of GE Healthcare, to perform worldwide brachytherapy custom loading for Oncura manufactured seeds. Under this three year agreement, we will provide custom loading of Oncura manufactured seeds into custom needles, strands and other packaged configurations. While we have been performing custom loading since 1999, this agreement was our first significant effort to provide custom loading for seeds manufactured by other suppliers. Oncura’s iodine-125 brachytherapy seeds are utilized primarily in the treatment of early stage prostate cancer. This agreement provides for custom loading for most of Oncura sales of prescription and custom loaded brachytherapy seeds worldwide, which currently includes North America, Europe, Australia and portions of Asia. At full ramp-up during 2013, we expect this agreement to generate annual revenue of over $1 million.

Modified Dutch Auction Tender Offer

On June 12, 2012, we announced a modified “Dutch Auction” tender offer to repurchase up to $10.0 million of our common stock. The offer period expired on July 11, 2012. On July 17, 2012, we repurchased 4,761,904 shares of our common stock for a total cost of $10.0 million, or $2.10 per share, excluding transaction costs. The purchase price was funded from cash on hand, and the shares repurchased represented approximately 14% of our issued and outstanding common stock at that time. We did not acquire any stated or unstated rights or privileges in connection with the repurchase of this common stock and, accordingly, the entire purchase price of $10.4 million, including transaction costs, was accounted for as treasury stock.

Medical Device Tax

Significant reforms to the healthcare system were adopted in the form of the Patient Protection and Affordable Care Act (the “PPACA”). The PPACA includes provisions that, among other things, require the medical device industry to subsidize healthcare reform in the form of a 2.3% excise tax (the “Medical Device Tax”) on the U.S. sales of most medical devices beginning in 2013. The Internal Revenue Service (“IRS”) has only recently issued the final regulations for the Medical Device Tax, and many questions remain regarding the applicability of this tax to varying points in the supply chain. While we continue to evaluate the impact of the Medical Device Tax on our overall business, we currently believe this tax will be applicable to between 50% and 75% of our product sales. Our estimate is subject to change due to, among other things, future IRS guidance and interpretations of the Medical Device Tax regulations, and changes in our product mix. If the Medical Device Tax was applicable to all of our product sales, this would have equated to an excise tax of approximately $1.8 million in 2012. This revenue-based tax will have a material impact on our consolidated results of operations, cash flows, and financial condition. See “Other Regulatory Developments” below.

Operating Segments

We operate in two business segments; the surgical products segment and the brachytherapy seed segment. Information related to revenue from external customers, measure of profit and loss by segment, total assets by segment, and revenue by geographic areas, is contained in Note N to the consolidated financial statements included in Part IV of this report.

Surgical Products Business

Overview

Our surgical products segment manufactures and distributes wound closure, vascular access, and specialty needle products, all of which are considered medical devices. Sales are primarily to OEMs and to a network of distributors.

Wound closure products include sutures and other surgical products with applications in veterinary, urology, cardiology, orthopedics, plastic surgery, and other fields. We believe the wound closure market to be a $2.0 billion annual worldwide market, and a $1.2 billion annual market in the United States. We believe sutures represent approximately $700 million of the worldwide wound closure market. Our wound closure products are used to hold skin, internal organs, blood vessels and other tissue together after they have been severed by injury or surgery. Wound closure products, such as sutures, are produced with various dimensions, configurations, and types of materials, depending on the application. We produce and distribute approximately 800 wound closure line items, including sterile and non-sterile products. Sutures represent the majority of wound closure products we sell. In 2012, approximately 87% of our suture product sales were in veterinary applications and 13% in human applications. During 2011, approximately 82% of our suture product sales were in veterinary applications and 18% in human applications.

I-3

Vascular access products include a variety of introducer sheaths, guidewires and accessories used in interventional radiology, interventional cardiology and vascular surgery. We believe the interventional radiology and interventional cardiology markets to be in excess of $12.0 billion. The market for access devices is estimated to be over $1.6 billion by 2015. Our introducers are used to create a conduit through which a physician can insert a device, such as a catheter, into a blood vessel. Such a device is introduced into the vasculature by first using a needle to access the vein. A guidewire is then inserted through the needle, and the needle is removed. The introducer, consisting of a hollow sheath and a dilator, is then inserted over the guidewire to expand the opening. The guidewire and dilator are then removed, leaving only the hollow sheath through which the catheter or other device is inserted. Once the device is in place, the introducer sheath is removed. This is typically done by splitting the introducer in half when the “tear away” version of the product is utilized. Introducers and guidewires are produced with various dimensions, configurations and types of material, depending upon the application. We produce and distribute approximately 2,000 products and components in this product line, some of which are procedure kits that, in addition to introducers and guidewires, may include needles, scalpels and other components. These products are sold sterile to distributors and in sterile and bulk, non-sterile configurations to OEMs.

Specialty needle products include coaxial needles, biopsy needles, access trocars, brachytherapy needles, guidewire introducer needles, spinal needles, disposable Veress needles, and other needle-based products. End markets served include the cardiology, orthopedic, pain management, endoscopy, spine, urology, and veterinary markets. The United States is the largest market for specialty purpose needles, which we believe to be approximately $800 million, with our specialty needle products addressing approximately 10% of this market. Our specialty needle products are used for a number of purposes including: retrieval of samples of tissue or bone (biopsies) that will be examined for disease; delivery of therapeutic materials such as drugs, radioactive sources, and bone cement and; providing access to a specific area of the body to allow passage for other instruments. Our specialty needles are typically constructed of stainless steel wire and tubing with special cutting edges which are ground to specification. We produce specialty needles in various forms depending upon the application, and we manufacture over 600 line items for sale primarily to OEMs in sterile private label, and bulk, non-sterile configurations.

Major product lines in our surgical products business include:

Sutures:

Sutures are classified as absorbable or non-absorbable; monofilament, multifilament or braided; and natural or synthetic. Absorbable or non-absorbable describes the suture’s effective life within tissue. Absorbable sutures lose the majority of their tensile strength within 60 days after use. Non-absorbable sutures are resistant to living tissue and do not break down. Monofilament, multifilament and braided describes the structure or configuration of the suture and is based on the number of strands used to manufacture the product. Natural or synthetic describes the origin of the suture. Natural suture materials include surgical gut, chromic gut, and silk. Synthetic suture materials include nylon, polyester, stainless steel, polypropylene, polyglycolic acid, polyglycolide-cocaprolactone, and polydioxanone.

Needles and Brachytherapy Accessories:

Needles used in general surgery, including a line of needles and related products used in brachytherapy surgical procedures. Smooth and echogenic introducer needles are also available as sterile products.

Guidewires:

Guidewires function as a mechanical assist for the percutaneous introduction and exchange of various types of plastic catheters or introducer systems into the vasculature. Once the catheter is in place, the guidewire is removed and serves no other function. Materials commonly used in the production of guidewires are stainless steel, Nitinol, precoated Teflon (polytetrafluoroethylene, or “PTFE”), and gold and platinum alloys. Guidewires are sold to OEMs on a bulk, non-sterile basis as well as packaged sterile. We have the technological and manufacturing capability to produce diagnostic and interventional guidewires and currently offer a sterile product line with approximately 40 line items.

Micro-Introducer Kits:

Micro-Introducers are commonly called coaxial dilators and are utilized when a small entry site (21-gauge needle) is desirable. Micro-Introducers are introduced over a guidewire. These introducers are typically packaged in a sterile kit that includes a Micro-Introducer set, a 21-gauge needle and a .018” diameter guidewire. The standard product offerings consist of standard and stiffened variations. Various iterations are accomplished by using three different needle types and four different mandrel type guidewires. The current sterile product line consists of approximately 60 line items including the Fluent™ transitionless Micro-Introducer and non-vascular GaltStick® introducer.

I-4

Tearaway Introducer Sets and Kits:

This product consists of a Teflon sheath and a High Density Polyethylene (“HDPE”) dilator set that is introduced over a guidewire. Once that introduction is made, the guidewire and the dilator are removed leaving the sheath in place as a vascular access. Once the definitive device (catheter) is introduced through the sheath, the sheath is easily split and removed leaving the desired catheter in place. These products are offered sterile as an introducer sheath/dilator set or as a complete introducer kit that includes a needle and a guidewire. The sterile product line consists of approximately 150 line items with lengths from 3cm to 50cm. Additionally, the components are sold on a bulk, non-sterile basis to OEMs.

Elite HV™ Introducer Kits:

This product consists of a sheath that incorporates a hemostasis valve and an HDPE dilator for arterial access. It is introduced into the vasculature as a set over a guidewire. The guidewire and dilator are removed leaving a “closed” vascular access system. The product line consists of standard .035” compatible sheaths; as well as .018” Micro-access kits, which allows for a less invasive entry. The product line consists of 45 line items and is sold sterile and bulk, non-sterile.

ReDial™ 4cm High Flow Introducer Sheath:

This product consists of a sheath that incorporates a hemostasis valve, HDPE dilator, larger bore tubing, side holes, and color coded clamps for use in de-clotting dialysis shunts. The larger bore tubing and side holes allow for high flow procedures. The ReDial™ is available with or without a radiopaque band, and consists of 24 line items. The product line is sold sterile and bulk, non- sterile.

Radial Artery Access Kits:

This product consists of a sheath that incorporates a hemostasis valve and an HDPE dilator for arterial access via the radial artery. Radial artery access reduces trauma and recovery time. The radial artery access kits are available in 24 line items to meet the preference of the physician and include a needle and guidewire. These introducer sheaths are typically used during coronary angioplasty procedures.

Biopsy Needles:

These needles consist of a stainless steel stylet and cannula combination sharpened in such a way as to facilitate entry into the body to cut and retrieve a sample of tissue for examination or testing. This family of needles contains three major types: Core Biopsy Needles used to obtain a soft tissue sample for histology in areas such as the breast or prostate; Aspiration Biopsy Needles used to obtain a sample of cells for cytology in areas such as the lung or liver and; Bone Biopsy Needles that core and retrieve a sample of marrow, generally from the pelvic area. They are sold sterile private label and bulk non-sterile to OEMs.

Orthopedic Needles:

These needles are large diameter (up to 8-gauge) stainless steel stylet and cannula combinations attached to a large handle that provides the significant leverage needed to gain access to the vertebral body of the spine. This family of devices provides a system for harvesting bone marrow, collecting biopsy samples and delivering bone cement or any other Food and Drug Administration (“FDA”) cleared materials. These devices are primarily sold bulk non-sterile or sterile with private labeling.

Pain Management Needles:

These needles are also referred to as “denervation needles”. These devices are manufactured from 18 to 21-gauge stainless steel tubing that have a sharpened distal end and are insulated along the entire length of the needle except for the most distal end. The distal tip of the device is placed into contact with the nerve responsible for patient pain and then energized, usually with radio frequency energy, causing the needle distal end to heat. Heat applied to the target nerve reduces the pain signal to the brain providing patient relief. These products are generally sold sterile with private labeling.

Access Needles:

Access needles are a broad term used to describe devices that are used for less invasive entry during Laparoscopic type procedures, vascular access for delivery of guidewires into the circulatory system and to create a channel by which any other instrument can pass.

Drainage Products:

Drainage catheters are used to drain and aspirate fluid from the body. This product line consists of the Outflow™ general purpose drainage catheter and the Centeze™ centesis drainage catheter. Both products are sold sterile through independent distributors.

I-5

Production - Surgical Products Business

We design, manufacture, assemble, package and distribute our surgical products in three primary production facilities, each of which manufactures different products. Component raw materials primarily include natural and synthetic sutures, plastic and stainless steel tubing, wire, plastic resins and other components, which are generally readily available from third party suppliers. Suppliers are located in the United States, as well as in Latin America, Europe, and Asia. A significant portion of our products in the surgical products segment is produced for OEMs as private labeled products or in a bulk, non-sterile configuration.

Marketing and Major Customers - Surgical Products Business

Our surgical products are primarily sold to OEMs and through a network of distributors in the United States and Europe. A small direct sales force is maintained for direct sales to healthcare providers (human use and veterinary) and group purchasing organizations, as well as to service the needs of distributors.

Competition - Surgical Products Business

Our surgical products business operates primarily in the wound closure, interventional radiology, interventional cardiology, vascular surgery, and specialty needle markets. These markets are dominated by a few large suppliers and a number of smaller suppliers, potentially limiting the growth opportunities available to smaller participants. The primary suppliers include AngioDynamics, Angiotech Pharmaceuticals, Argon, Covidien Ltd., Boston Scientific, Cook Medical, Inc., C.R. Bard, Inc., Greatbatch, Inc., Hart Enterprises, Cordis and Ethicon, Inc. (subsidiaries of Johnson and Johnson), Merit Medical, Needle Specialty Products, Teleflex, Terumo Medical and Tegra Medical. Many of our competitors have substantially greater financial, technical and marketing resources than we do. Our surgical products business competes in these markets by providing custom labeled products, high quality, timely and cost effective products, and a high level of customer service in niche markets underserved by the larger suppliers or where customers lack the expertise or resources to manufacture the products that they need. Our surgical products business also has extensive experience and knowledge of the markets as well as many established relationships with distributors and providers.

The current environment of managed care is characterized by economically motivated buyers, consolidation among healthcare providers, increased competition and declining reimbursement rates. In addition, healthcare providers may attempt to simplify the procurement process which may affect, among other things, the number of suppliers in the supply chain. As a supplier to OEMs and distributors, we do not sell directly to the end user and may be affected by these and other changes in the structure of the business relationships between the healthcare provider and the OEM or distributor. We believe our future competitive success will depend on our ability to integrate ourselves into the supply chain by providing outstanding value to our customers. This may include, among other things, developing new products (including extensions of current products), offering competitive pricing, and providing value added services to our customers that will contribute to their efficiencies and profitability. Also critical to our continued competitive success is our ability to attract and retain skilled product development personnel, obtain patents or other protection for our products, obtain required regulatory and reimbursement approvals, successfully market and manufacture our products and maintain sufficient inventory to meet demand.

Patents and Licenses; Trade Secrets - Surgical Products Business

Our surgical products business holds several U.S. patents related to suture dispensing systems, suture and needle design, vascular introducer system design, and bone biopsy and vertebroplasty needles. Our policy is to file patent applications in the United States and foreign countries where rights are available and when we believe it is commercially advantageous to do so. We consider the ownership of patents important, but not necessarily essential, to our surgical products business. A strategy of confidentiality agreements and trade secret treatment is also utilized to protect non-patented proprietary information.

I-6

Brachytherapy Seed Business

Overview

We produce, market and sell TheraSeed® and AgX100®, FDA-cleared devices for treatment of all solid localized tumors and currently used principally for the treatment of localized prostate cancer. TheraSeed® is based on the radioactive isotope palladium-103, and AgX100® is based on the radioactive isotope iodine-125. These devices are commonly referred to as “seeds” and are utilized in a procedure referred to as “brachytherapy”. Our seed devices can be custom loaded and packaged in a number of different configurations. We provide custom loading and packaging to independent seed manufacturers (see “Brachytherapy Custom Loading Agreement with Oncura”, below). Our TheraSeed® and AgX100® products each have CE Marking. To date, the significant portion of our seed product sales have been in the United States. While we believe we may have opportunities for sales outside the U.S., we do not expect sales of our seeds outside of the United States to be material in the near future.

In February 2012 we acquired Core Oncology’s prostate brachytherapy customer base (see “Acquisition of Core Oncology’s Prostate Brachytherapy Customers” below).

Excluding skin cancer, prostate cancer is the most common form of cancer, and the second leading cause of cancer deaths, in men. The American Cancer Society estimates that there will be 238,590 new cases of prostate cancer diagnosed and an estimated 29,720 deaths associated with the disease in the United States during 2013. According to the American Cancer Society, more than 90% of all prostate cancers are found in the local and regional stages (local means it is still confined to the prostate; regional means it has spread from the prostate to nearby areas, but not to distant sites such as other organs).

In a prostate brachytherapy application, the seeds are implanted throughout the prostate gland in a minimally invasive surgical technique, assisted by transrectal ultrasound guidance. The radiation emitted by the seeds is contained within the immediate prostate area for the purpose of killing the tumor while attempting to spare surrounding organs of significant radiation exposure. The seeds remain permanently in the prostate after delivering their radiation dose. The number of seeds implanted normally ranges from 50 to 150. The procedure is usually performed under local anesthesia in an outpatient setting. An experienced practitioner typically performs the procedure in approximately 45 minutes with the patient often returning home the same day.

These radioactive “seeds” are roughly the size of a grain of rice. Each seed consists of biocompatible titanium that encapsulates a radioactive isotope. TheraSeed®, which we have produced since 1987, utilizes the radioactive isotope palladium-103 (“Pd-103”). The half-life of Pd-103, or the time required to reduce the emitted radiation to one-half of its initial level, is 17 days, resulting in the loss of almost all radioactivity in less than six months. Our AgX100® seed device utilizes the radioactive isotope iodine-125 (“I-125”). The half-life of I-125 is approximately 60 days resulting in the loss of almost all radioactivity in approximately 20 months.

We believe brachytherapy offers significant advantages over other options for the treatment of early stage prostate cancer, including reduced incidence of side effects, such as impotence and incontinence. Recent multi-year clinical studies indicate that brachytherapy offers success rates for early-stage prostate cancer that are comparable to or better than alternative treatment options and is associated with reduced complication rates. In addition, brachytherapy is a one-time outpatient procedure with a typical two to three day recovery period. By comparison, certain other treatment modalities typically require lengthy treatment periods, extended hospital stays and long recovery periods. In addition, the total cost of a brachytherapy treatment is typically lower than other treatment options for early stage prostate cancer.

We believe the number of brachytherapy procedures performed in the United States has declined in recent years, and that this decline accelerated during 2012. In May 2012 the U.S. Preventive Services Task Force recommended against routine PSA screenings for healthy men without symptoms. We believe this recommendation has led to a decline in PSA screening. In addition, we believe there has been an increase in “active surveillance”, a practice where no immediate medical treatment is provided; but the physician and patient closely monitor the patient’s cancer for signs that the cancer is growing. We believe that declines in PSA screenings has led to a decline in the number of men diagnosed with prostate cancer. A decline in the number of PSA screenings would in turn lead to a decline in the number of procedures to treat prostate cancer, including brachytherapy procedures. An increase in the proportion of men diagnosed with prostate cancer but not seeking immediate medical treatment would also lead to a decline in the number of procedures to treat prostate cancer.

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In addition, some alternative and competing forms of treatment have increased their market share, especially those with Medicare reimbursement levels that are more favorable than reimbursement levels for brachytherapy. These alternative forms of treatments include Intensity Modulated Radiation Therapy (“IMRT”) and robotic surgery. A number of media stories and publications have speculated that physician establishment of IMRT centers has led to IMRT popularity, including a December 7, 2010 article in the Wall Street Journal and an article published in the International Journal of Radiation Oncology by physicians at the Yale University School of Medicine (Falit, Gross and Roberts, Int. J. Radiation Oncology Biol. Phys., Vol 76, No. 5). Despite the favorable reimbursement and potential physician financial incentive enjoyed by IMRT relative to seeding, brachytherapy outcomes continue to be equal to or better than IMRT at a lower overall cost. However, we believe that brachytherapy will continue to lose market share to IMRT (and other technologies that enjoy favorable reimbursement) as long as the current Medicare reimbursement policies provide favorable reimbursement levels for competing therapies.

Acquisition of Core Oncology’s Prostate Brachytherapy Customers

Brachytherapy Custom Loading Agreement with Oncura, a unit of GE Healthcare

Treatment Options - Brachytherapy Seed Business

In addition to brachytherapy, there are many treatment options for localized prostate cancer. Some therapies may be combined to address a specific cancer stage or patient need. Treatment options for prostate cancer other than seeding include, among other treatments:

Radical Prostatectomy is the most common surgical procedure. Radical Prostatectomy (“RP”) involves the complete surgical removal of the prostate gland. RP typically requires a three-day average hospital stay and a lengthy recovery period (generally three to five weeks). Possible side effects include impotence and incontinence. Alternative forms of radical prostatectomy include laparoscopic radical prostatectomy (“LRP”) and robotic radical prostatectomy (“RRP”). These forms of radical prostatectomy are intended to be less invasive than a traditional radical prostatectomy and are more complex to perform.

External Beam Radiation Therapy (“EBRT”) involves directing a beam of radiation at the prostate gland from outside the body to destroy tumorous tissue. Patients are usually treated five days per week in an outpatient center over a period of eight to nine weeks. Possible side effects include impotence, incontinence and rectal complications.

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Certain forms of external beam radiation include Intensity Modulated Radiation Therapy (“IMRT”), Image Guided Radiation Therapy (“IGRT”), stereotactic radiotherapy and proton therapy. These treatments generally utilize high-energy and computerized mapping. We believe these forms of external beam radiation, including IMRT and IGRT, are gaining market share in the treatment of early stage prostate cancer. We are not aware of long-term data documenting outcomes for these treatments, but we believe they enjoy favorable reimbursement rates relative to brachytherapy.

Active Surveillance, while not a treatment, is recommended by some physicians in certain circumstances based on the severity and growth rate of the disease, as well as on the age and life expectancy of the patient. The aim of active surveillance is to monitor the patient, treat some of the attendant symptoms and determine when more active intervention is required. We believe active surveillance has become more popular in recent years.

In addition to the treatment options described above, other forms of treatment and prevention, including drugs, vaccines, focal cryotherapy, high-intensity focused ultrasound (HIFU) and other forms of radiation are also in use in the United States and other areas of the world. Additionally, newer treatment alternatives may be undergoing development and testing in clinical settings.

Clinical Results - Brachytherapy Seed Business

Strong Efficacy Results. Clinical data indicates that seeding offers success rates for men of all ages with low-, intermediate- and high-risk early-stage prostate cancer that are comparable to or better than those of RP or EBRT. Such clinical studies include:

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“Comparative Analysis of Prostate-Specific Antigen Free Survival Outcomes for Patients with Low, Intermediate and High Risk Prostate Cancer Treatment by Radical Therapy”. Results from the Prostate Cancer Results Study Group: Grimm et al, British Journal of Urology, volume 109, supplement 1, 2012. A detailed comparison of peer reviewed literature showing therapy outcomes for surgery, EBRT, proton therapy, cryotherapy, HIFU and brachytherapy. In all risk groups, brachytherapy exhibited equal or better outcomes than the other therapies compared.

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“Long Term Outcomes for Patients with Prostate Cancer Having Intermediate and High Risk Disease, Treated with External Beam Irradiation and Brachytherapy”, (Dattoli, et al, Journal of Oncology, December 2010). Results of combination treatment (brachytherapy and external beam radiation) for intermediate and high risk patients were 81% successful at 17 years.

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Brachytherapy in Men Aged <= 54 Years with Clinically Localized Prostate Cancer”, (Merrick, et al, British Journal of Urology, Vol. 98, 2006). Results of brachytherapy for men aged 54 years and younger 8 years after treatment. 96% of the 108 men showed biochemical progression free survival.

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“103-Pd Brachytherapy versus radical Prostatectomy in Patients with Clinically Localized Prostate Cancer: a 12 Year Experience from a Single Group Practice”, (Sharkey, et al, Brachytherapy, Vol. 4, Issue 1, 2005). Brachytherapy compared favorably to RP for low-, intermediate- and high-risk patients.

Production - Brachytherapy Seed Business

With the exception of rhodium-103 (“Rh-103”), all raw materials used in the production of our seed devices are relatively inexpensive and readily available from third party suppliers. Rh-103 is relatively expensive but readily available on the open market. Our brachytherapy seed production does not require significant amounts of Rh-103. In addition, for reasons of quality assurance, sole source availability or cost effectiveness, certain components and raw materials are available only from sole suppliers.

We produce our Pd-103 by proton bombardment of Rh-103 in cyclotrons (accelerators). There are other methods of producing Pd-103. We currently have eight cyclotrons in operation.

We do not produce the I-125 isotope. This isotope is relatively inexpensive and is readily available from multiple suppliers.

Since 1997, our quality control system related to our medical device manufacturing has been certified as meeting all the requirements of the International Organization for Standards (ISO) Quality System Standard, and is currently certified to ISO 13485:2003.

Marketing and Major Customers - Brachytherapy Seed Business

We sell our TheraSeed® palladium-103 device, our AgX100® iodine-125 device , and other brachytherapy seed products directly to healthcare providers and to third-party distributors. We also custom load brachytherapy seeds in prescription loaded needles, custom strands and other configurations.

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Under our third party TheraSeed® distribution agreements, we are the exclusive palladium-103 seed supplier for the treatment of prostate cancer for each distributor, and each distributor has the non-exclusive right to sell TheraSeed® in the U.S. and Canada. Certain agreements also provide distributors with the right to distribute TheraSeed® for the treatment of solid localized tumors other than in the prostate, and with rights to distribute to certain locations outside of North America. Such applications (non-prostate and outside of North America) have not been material and are not expected to become material in the near future. Our principal non-exclusive distribution agreement is with C.R. Bard (“Bard”). Our agreement with Bard provides for automatic one year extensions of the term, unless either party gives notice of its intent not to renew at least twelve months prior to the end of the current term. The current term expires December 31, 2014 and will be automatically extended for one additional year unless either party gives notice of its intent not to extend by December 31, 2013. Sales to Bard by our brachytherapy segment represented 25% and 28% of brachytherapy seed segment revenue in 2012 and 2011, respectively. Our surgical products segment also sells to Bard. Total consolidated sales to Bard, including sales in our brachytherapy seed segment and our surgical products segment, were less than 10% of consolidated revenue in 2012 and were 10% of consolidated revenue in 2011.

Core became an additional non-exclusive distributor of TheraSeed® in January 2010. In February 2011, we terminated our agreement with Core due to Core’s failure to satisfy its financial obligation to us in accordance with the contractual terms of the agreement. Core had been attempting to become current with amounts due to us. However, litigation filed against Core by a third party in January 2011 created what we viewed as an unacceptable level of uncertainty surrounding Core’s ability to satisfy their financial obligations to us for both current and ongoing sales. Subsequent to termination of the agreement we continued to supply TheraSeed® to Core on a prepaid basis. Sales to Core in our brachytherapy segment totaled approximately 8% of total brachytherapy seed segment revenue in 2011. In the latter half of 2011, certain customers who previously purchased TheraSeed® through Core began purchasing either from us on a direct basis or through one of our other TheraSeed distributors. In February 2012 we acquired Core’s prostate brachytherapy customers (see “Acquisition of Core Oncology’s Prostate Brachytherapy Customers” above).

We also currently have other non-exclusive distributors (other than Bard) for our TheraSeed® and AgX100® devices. We may pursue additional distribution agreements in an effort to increase market share. We may also have opportunities to enter certain markets outside of the United States with our AgX100® iodine-125 device.

We maintain an internal brachytherapy sales force that sells the TheraSeed® and I-Seed devices directly to hospitals, doctors, and clinics. We expect to continue direct to consumer advertising and other activities to support demand for brachytherapy, including direct to consumer print advertising, support for clinical studies aimed at showing the advantages of brachytherapy in the treatment of prostate cancer, technical field support to customers and health care providers that utilize our brachytherapy products, and other customer service and patient information activities.

Patents and Licenses; Trade Secrets - Brachytherapy Seed Business

We hold a number of United States patents pertaining to radiation delivery devices for therapeutic uses, as well as certain corresponding international patents. Our policy is to file patent applications in the United States and foreign countries where rights are available and when we believe it is commercially advantageous to do so. We consider the ownership of patents important, but not necessarily essential, to our brachytherapy seed business. We also use a strategy of confidentiality agreements and trade secret treatment to provide primary protection to a number of proprietary design modifications in the cyclotrons, as well as various production processes.

We also hold a worldwide exclusive license from the University of Missouri for the use of technology required for producing the TheraSphere® device; the underlying patents for this technology have since expired. We continue to hold the rights to all improvements developed by the University of Missouri on this technology. In turn, we sublicense exclusive worldwide rights to this technology and all improvements, along with trademarks and other intellectual property owned by us, to Nordion Inc. (“Nordion”). Pursuant to our licensing agreement with the University of Missouri, we are obligated to pay the University a small fixed annual amount for these rights.

We have an exclusive license agreement under which we license the rights to certain intellectual property related to an expandable brachytherapy delivery system that we developed. The term of the agreement is through the expiration of the last of the patents licensed under the agreement, which is currently July 2025. The term may be altered if such patents are found to be invalid. The agreement provides for a minimal non-refundable initial license fee and non-refundable continuing royalties based upon sales subject to certain minimums. The minimum annual royalty based upon the contract year of the agreement, which ends each May, is $1 million.

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Competition - Brachytherapy Seed Business

Our brachytherapy business competes in a market characterized by technological innovation, extensive research efforts and significant competition. In general, our seed devices compete with conventional methods of treating localized cancer, including, but not limited to, radical prostatectomy, which includes laparoscopic radical prostatectomy and robot-assisted radical prostatectomy, and external beam radiation therapy, which includes IMRT, as well as competing permanently and temporarily implanted devices. We believe that the industry-wide decline in prostate brachytherapy procedure volume continued in 2012, at an accelerated rate. In May 2012 the U.S. Preventive Services Task Force recommended against routine PSA screenings for healthy men without symptoms. We believe this recommendation has led to a decline in PSA screenings. In addition, we believe there has been an increase in “active surveillance”, a practice where no immediate medical treatment is provided; but the physician and patient closely monitor the patient’s cancer for signs that the cancer is growing. We believe that declines in PSA screenings has led to a decline in the number of men diagnosed with prostate cancer. A decline in the number of PSA screenings would in turn lead to a decline in the number of procedures to treat prostate cancer, including brachytherapy procedures. An increase in the proportion of men diagnosed with prostate cancer but not seeking immediate medical treatment would also lead to a decline in the number of procedures to treat prostate cancer. In addition, some newer forms of treatment have increased their market share, especially those with Medicare reimbursement levels that are higher than reimbursement levels for brachytherapy. These alternative treatment forms include IMRT and robotic surgery. We believe that the industry-wide decline in brachytherapy procedures is likely to continue as long as other treatment options, especially IMRT, continue to enjoy favorable Medicare reimbursement rates.

Several companies produce and distribute Pd-103 and I-125 seeds, which compete directly with our seed devices. C.R. Bard, Inc., Best Medical, Oncura (a unit of GE Healthcare) and others manufacture and/or sell brachytherapy seeds. Other forms of brachytherapy seeds that utilize other isotopes, including both low dose radiation and high dose radiation, also compete directly with our devices. We believe that we have competitive advantages over these companies including, but not limited to: (i) our proprietary production processes that have been developed and patented; (ii) our 25 year history of manufacturing radioactive medical devices with a record of reliability and safety in our manufacturing operations; (iii) vertical integration of production and related services; (iv) the time and resources required for competitors’ production capabilities to ramp up to commercial production on a scale comparable to ours; (v) maintenance of our cancer information center; (vi) our direct sales force; (vii) our direct to consumer advertising programs and (viii) the non-exclusive distribution agreements that we currently have in place.

In early 2010, we reduced the transfer price to our non-exclusive distributors in recognition of the competitive environment and new distributor strategies. At any point in time, we and/or our non-exclusive distributors may continue to change their respective pricing policies for the TheraSeed® device, and we may change our pricing policies for our AgX100® device to take advantage of market opportunities or respond to competitive situations. Responding to market opportunities and competitive situations, including but not limited to competitor selling tactics, could have an adverse effect on the prices of the TheraSeed® or our AgX100® device. Responding to market opportunities and competitive situations may also have a favorable effect on market share and volumes, while failure to do so could adversely affect market share and volumes although per unit pricing could possibly be maintained.

In addition to the competition from the procedures and companies noted above, many companies, both public and private, are researching new and innovative methods of preventing and treating cancer. In addition, many companies, including many large, well-known pharmaceutical, medical device and chemical companies that have significant resources available to them, are engaged in radiological pharmaceutical and device research. These companies are located in the United States, Europe and throughout the world. Significant developments by any of these companies either in refining existing treatment protocols (such as enhancements in surgical techniques) or developing new treatment protocols could have a material adverse effect on the demand for our products.

Seasonality

Although we have not identified seasonal effects in relation to a specific quarter or quarters for either business segment, we believe that holidays, major medical conventions and vacations taken by physicians, patients and patients’ families, may have a seasonal impact on sales, particularly in the brachytherapy seed segment.

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Research and Development

Research and development (“R&D”) expenses were $1.1 million, $1.6 million and $1.9 million in 2012, 2011 and 2010, respectively. Our R&D investments are primarily focused on opportunities in our surgical products business. Substantially all R&D expenses have been related to our surgical products segment in the 2010 to 2012 period. Our R&D program is intended to focus on product extensions, next generation products, and new products that are complementary to our current product lines and that support our customers’ product lines. Our R&D program is directed toward 510(k) products that have an established market and not on products that require lengthy and expensive clinical trials. Looking forward, we expect our R&D expenses in 2013 to increase somewhat over our 2012 levels. However, the rate of R&D spending going forward could change based on the opportunities identified. The amounts invested will be dependent upon a number of factors, including our ability to obtain qualified personnel and the types of activities required for our product development. We expect that our R&D investments will accelerate our entrance into new markets, expand our offerings to new and existing customers, and support growth in our surgical products business. The FDA has recently announced that it is reviewing the 510(k) process, and many commentators expect the 510(k) rules to become more stringent. Any such changes in the 510(k) rules may increase the cost and time to market of our product development activities.

Government Regulation

Our present and future intended activities in the development, manufacture and sale of wound closure, vascular access, specialty needle, and cancer therapy products, are subject to extensive laws, regulations, regulatory approvals and guidelines. Within the United States, our medical devices must comply with the U.S. Federal Food, Drug and Cosmetic Act, which are enforced by the FDA. We are also subject to regulation by other governmental agencies, including the Occupational Safety and Health Administration (“OSHA”), the Environmental Protection Agency (“EPA”), the Nuclear Regulatory Commission (“NRC”), and other federal and state agencies. We must also comply with the regulations of the Competent Authorities of the European Union for our products that have been CE Marked and are sold in the member nations of the European Union.

Medicare covers a substantial percentage of the patients treated for prostate cancer in the United States, and consequently, the costs for prostate cancer treatment are subject to Medicare’s prescribed rates of reimbursement. The utilization of TheraSeed®, AgX100® and many of the products in our surgical products business may be influenced by Medicare’s reimbursement levels, and the policies of other third party payors, which can change periodically. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Medicare Developments.

We are also required to adhere to applicable FDA regulations for Quality System Regulation (previously known as Good Manufacturing Practices), including extensive record keeping and periodic inspections of manufacturing facilities.

We have obtained FDA 510(k) clearances to the extent required for our medical devices in our surgical products and brachytherapy seed businesses. New FDA clearances would be required for any modifications in such products or its labeling that could significantly affect the safety or effectiveness of the original product. However, not all of our products require FDA 510(k) clearances.

Our manufacturing, distribution and security of radioactive materials are governed by the State of Georgia in agreement with the NRC. The users of our TheraSeed® and AgX100® devices are also required to possess licenses issued either by the states in which they reside or the NRC depending upon the state involved and the production process used.

Our facilities and operations are subject to extensive environmental, nuclear, regulatory and occupational health and safety laws at the federal, state and local levels (which we refer to as “Environmental Laws and Regulation” in this section under the heading of “Government Regulation”). We are also subject to similar foreign laws and regulations under certain circumstances when our products are distributed outside of the United States. These Environmental Laws and Regulations govern, among other things, air emissions; wastewater discharges; the generation, storage, handling, use and transportation of hazardous materials; the handling and disposal of hazardous wastes; the cleanup of contamination; and the health and safety of our employees. In our brachytherapy seed business, we are required to maintain radiation control and to properly dispose of radioactive waste. We are required to maintain radiation safety personnel, procedures, equipment and processes and to monitor our facilities and our employees and contractors. We are also required to provide financial assurance that adequate funding will exist for end-of-life radiological decommissioning of our cyclotrons and other areas of our property where radioactive materials are handled. We transfer low-level radioactive waste to licensed commercial radioactive waste treatment or disposal facilities for incineration or land disposal. We provide training and monitoring of our personnel to facilitate the proper handling of all materials. Under these Environmental Laws and Regulations, we are required to obtain certain permits from governmental authorities for some portions of our operations.

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We continue to make capital and operational expenditures relating to compliance with existing Environmental Laws and Regulations in the normal course of business. We budget for these expenditures and believe that our compliance with the Environmental Laws and Regulations will not have a material effect on our business, results of operations, financial condition and/or liquidity, relative to the effect such expenditures have had in recent years. However, Environmental Laws and Regulations tend to become more stringent over time, and we could incur additional material costs and expenses in the future relating to compliance with such future laws and regulations. In addition, if we violate or fail to comply with applicable Environmental Laws and Regulations, we could be fined or otherwise sanctioned by regulators. Such fines, sanctions or other related costs could have a material adverse effect on our business, results of operations and/or liquidity. We cannot completely eliminate the risk of violation of Environmental Laws and Regulations, and we may incur additional material liabilities as a result of any such violations.

For more information on the effect of environmental, nuclear, regulatory and occupational health and safety laws and regulations on our business, please read the information included elsewhere in this Form 10-K, including Risk Factors, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies, and other information contained herein.

Third-Party Reimbursement and Healthcare Cost Containment

Reimbursement remains an important strategic consideration in the development and marketing of medical devices and procedures. Difficulty in obtaining coverage, coding and payment can be a significant barrier to the commercial success of a new product or procedure. The consequences can include slow adoption in the marketplace and inadequate payment levels that can continue for months or even years.

Our products designed for human use are ultimately purchased principally by hospitals or physicians, which typically bill various third-party payors, such as governmental programs (e.g., Medicare and Medicaid), private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of customers to obtain appropriate reimbursement for products and services from third-party payors is critical to the success of medical device companies because it can affect the products customers purchase and the prices they are willing to pay. Manufacturers, such as Theragenics, rely on insurance reimbursement to create favorable markets for their products while providers depend on this reimbursement to incorporate new products into their medical practices. As the largest single insurer in the United States, Medicare has a profound influence on the healthcare market. The Center for Medicare and Medicaid Services (“CMS”) formulates national and local coverage policy and sets payment rates for facilities and physician providers. Additionally, most private payors will follow the lead of CMS when developing their policies and payment rates. Technology assessment organizations, including the one run by the Blue Cross Blue Shield Association, are consulted by public and private payors to evaluate the relative merits of new technologies and their impact on net health outcomes in an effort to get as much value for the healthcare dollar as possible.

The processes necessary for a manufacturer to obtain appropriate levels of reimbursement are complex and usually vary from payor to payor. Third-party reimbursements to hospitals and ambulatory care facilities are typically made for procedures or episodes of care, which include the costs of devices, supplies and equipment, and provide an incentive for efficient care and careful use of more expensive technologies. Third-party payors for hospital services in the United States and abroad are increasingly focused on strategies to control spending on healthcare and reward improvements in quality and patient outcomes.

The uncertainty and complexity of future legislation seeking to reform the health insurance market and the healthcare delivery system make it difficult to ultimately predict the impact on our business.

For more information, see Item 1A. “Risk Factors.”

Employees

As of December 31, 2012, we had 534 employees. We also utilize temporary and contract employees to manage fluctuations in headcount requirements. None of our employees are represented by a union or a collective bargaining agreement, and we consider employee relations to be good.

Available Information

Our website address is http://www.theragenics.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed pursuant to Section 13(a) or 15(c) of the Securities and Exchange Act of 1934 are available free of charge through our website by clicking on the “Investor Relations” page and selecting “SEC Filings.” These reports will be available as soon as reasonably practicable after such material has been electronically filed with, or furnished to, the SEC. These reports are also available through the SEC’s website at http://www.sec.gov. The information on these websites and the information contained therein or connected thereto are not intended to be incorporated by reference into this Form 10-K. In addition, we will provide paper copies of these filings (without exhibits) free of charge to our shareholders upon request.

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Item 1A. Risk Factors

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

We operate multiple businesses. When we refer to “surgical products” or the “surgical products business”, we are referring to the business that produces, markets and sells wound closure products, disposable medical devices used for vascular access, specialty needles, and other surgical related products. When we refer to “brachytherapy” or the “brachytherapy business”, we are referring to the business manufactures, performs custom loading, markets and sells medical devices used primarily in the treatment of early stage prostate cancer and related products and services.

Risks Related to our Business

Our future operating results are difficult to predict and may vary significantly from quarter-to-quarter.

Comparisons of our quarterly operating results are an unreliable indication of our future performance because they are likely to vary significantly based on many factors, including:

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ordering patterns of our larger OEM and distributor customers;

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costs created by unpredictability of customers’ ordering patterns;

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continued investments in infrastructure, R&D, products, and companies as we make investments to support anticipated future growth and to develop products to address growth opportunities;

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changes in product mix and sales channels, with sales through OEM channels generally carrying a relatively lower gross profit margin and sales through distributor channels generally carrying a somewhat higher gross profit margin;

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continued pricing pressure from customers;

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availability and pricing of raw material supplies;

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any changes in the demand for medical devices and growth in our markets;

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the increasing scale of our surgical products business;

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the 2.3% excise tax on medical devices effective January 2013;

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potential changes in the 510(k) approval process and other changes in FDA and governmental regulations;

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the demand for and acceptance of our products;

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competition;

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the expansion and rate of success of our sales channels;

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actions relating to ongoing FDA compliance;

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the effect of intellectual property disputes;

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the attraction and retention of key personnel;

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an inability to control costs; and

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general economic conditions as well as those specific to our customers and markets.

We face production risks.

We operate four primary production facilities, each of which manufactures unique products. Each facility also utilizes unique equipment that can be expensive and time consuming to replace. If an event occurred that resulted in damage to one or more of our production facilities or certain equipment, we may be unable to produce the relevant products at previous levels or at all. In addition, for reasons of quality assurance, sole source availability or cost effectiveness, certain components and raw materials are available only from a sole supplier. Due to the FDA’s and other stringent regulations regarding the manufacture of our products, we may not be able to quickly establish replacement sources for certain component materials. Any interruption in manufacturing, or in the ability to obtain raw materials and component supplies, could have a material adverse effect on our business, financial condition, and results of operations.

Manufacturing or quality control problems may arise in any of our businesses as we increase production or as additional manufacturing capacity is required in the future. These factors may have an adverse impact on our business, financial condition and results of operations.

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

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We are subject to a comprehensive system of federal, state and international laws and regulations, and we could be the subject of an enforcement action or face lawsuits and monetary or equitable judgments.

Our operations are affected by various state, federal and international healthcare, environmental, antitrust, anti-corruption and employment laws, including for example various FDA regulations, the federal Anti-Kickback Statute, False Claims Acts, and the Foreign Corrupt Practices Act (“FCPA”). We are subject to periodic inspections to determine compliance with the FDA’s Quality System Regulation requirements, current medical device adverse event reporting regulations and foreign rules and regulations. Product approvals by the FDA and other foreign regulators can be withdrawn due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial approval. The failure to comply with regulatory standards or the discovery of previously unknown problems with a product or manufacturer could result in FDA Form-483 notices and/or Warning Letters, fines, delays or suspensions of regulatory clearances, detainment, seizures or recalls of products (with the attendant expenses), the banning of a particular device, an order to replace or refund the cost of any device previously manufactured or distributed, operating restrictions and civil or criminal prosecution, as well as decreased sales as a result of negative publicity and product liability claims, and could have a material adverse effect on our business, financial condition and results of operations.

In addition, the healthcare industry is under scrutiny from state governments and the federal government with respect to industry practices in the area of sales and marketing. If our marketing or sales activities fail to comply with the FDA’s regulations or guidelines, or other applicable laws, we may be subject to warnings from the FDA or enforcement actions from the FDA or other enforcement bodies. In the recent past, medical device manufacturers have been the subject of investigations from state and federal prosecutors related to their relationships with doctors, among other activities or practices. If an enforcement action involving us were to occur, it could result in penalties, fines, exclusion of our products from reimbursement under federally-funded programs and/or prohibitions on our ability to sell our products, and could have a material adverse effect on our business and results of operations.

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

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

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

We face risks related to our dependence on the medical device business, and specifically the brachytherapy and surgical products markets.

All of our revenues are generated from the medical device business, specifically the surgical products and brachytherapy seed markets. A lack of diversification or over reliance on any one of our businesses can be a risk.

I-15

We are dependent on new technological development.

We compete in markets characterized by technological innovation, extensive research efforts and significant competition. New developments in technology may have a material adverse effect on the development or sale of our products and may render such products noncompetitive or obsolete. Other companies, many of which have substantially greater capital resources, marketing experience, and research and development staffs and facilities than us, are currently engaged in the development of products and innovative methods for treating cancer, and for competing with our wound closure, vascular access and specialty needle products. Significant developments by any of these companies or advances by medical researchers at universities, government research facilities or private research laboratories could reduce or eliminate the entire market for any or all of our products.

We face intense competition.

Our surgical products business competes with other suppliers of wound closure, vascular access and specialty needle products. Many of our competitors have substantially greater financial, technical, sales, marketing and other resources, as well as greater name recognition and a larger customer base, than we do. In our brachytherapy seed business, competing treatments such as IMRT and robotic surgery have been gaining market share, which we believe is due primarily to favorable reimbursement rates set by Medicare and pervasive advertising promotion of robotic surgery. Additionally, many companies located outside of the United States, in particular in Asia, produce and supply similar surgical products. These companies may have access to substantially lower costs of production. Accordingly, such competitors or future competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of their products than us. As a result, we may be at a disadvantage when competing with these companies. If we fail to compete effectively, our business, financial condition and results of operations may be adversely affected.

We face pricing pressures.

Our businesses are subject to intense pressure to lower pricing as our customers are leveraging current economic conditions to demand reduced pricing or more favorable payment discounts or to resist price increases. Accordingly, we could find it difficult to offset discounts with in-house cost savings measures. Failure to offer satisfactory savings to our customers or to successfully reduce our costs may adversely affect our revenue and results of operations.

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

We are highly dependent on our direct sales organization comprised of brachytherapy specialists who promote and support our brachytherapy products. There is intense competition for skilled sales and marketing employees, particularly for people who have experience in the radiation oncology market. Accordingly, we could find it difficult to hire or retain skilled individuals to sell our products. Failure to retain our direct sales force could adversely affect our growth and our ability to meet our revenue goals. There can be no assurance that our direct sales and marketing efforts will be successful. If we are not successful in our direct sales and marketing, our sales revenue and results of operations are likely to be materially adversely affected.

We depend partially on our relationships with distributors and other industry participants to market our surgical and brachytherapy products, and if these relationships are discontinued or if we are unable to develop new relationships, our revenues could decline.

A significant portion of our surgical products revenue is derived from our relationships with OEMs, dealers and distributors. There is no assurance that we will be able to maintain or develop these relationships with OEMs, agents and distributors and other industry participants or that these relationships will continue to be successful. If any of these relationships is terminated, not renewed or otherwise unsuccessful, and we do not retain the ultimate customers or develop additional relationships, our product sales could decline, and our ability to grow our product lines could be adversely affected.

We rely, and will continue to rely, upon collaborative relationships with agents and distributors and other industry participants to maintain market access to potential customers. Some of the entities, with which we have relationships to help market and distribute our products, also produce or distribute products that directly compete with our products. In particular, Bard is one of our competitors in the brachytherapy seed market, and also a competitor for certain of our surgical products segment applications. Yet Bard is also a non-exclusive distributor of our TheraSeed® product and a customer of our surgical products business. Sales to Bard under the Bard Agreement represented 25% of our brachytherapy seed segment revenue in 2012. Our surgical products segment also sells to Bard. Total sales to Bard, including sales in our brachytherapy seed segment and our surgical products segment, were less than 10% of consolidated revenues in 2012. The term of our brachytherapy related distribution agreement with Bard is currently less than two years. There is no assurance that any of our distribution agreements will be extended and if they are not extended, or they are otherwise terminated, how much unit volume being sold through them will be able to be captured by our direct sales force or other distributors that we may utilize.

I-16

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

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

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

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the real or perceived effectiveness and safety of our products;

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

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

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

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

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

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Iran Threat Reduction and Syria Human Rights Act of 2012, new rules related to conflict minerals and new SEC regulations and NYSE rules are creating uncertainty for public companies, and are particularly burdensome for smaller public companies such as ours. We cannot predict or estimate the amount of the additional costs we may incur relating to regulatory developments or the timing of such costs. These new or changed laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

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

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

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

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

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

Domestic and foreign legislative or administrative reforms resulting in restrictive reimbursement practices of third-party payors and cost containment measures could decrease the demand for products purchased by our customers, the prices that our customers are willing to pay for those products and the number of procedures using our devices.

Our products are purchased principally by hospitals or physicians, which typically bill various third-party payors, such as governmental programs (e.g., Medicare and Medicaid), private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of our customers to obtain appropriate reimbursement for products and services from third-party payors is critical to the success of medical device companies because it affects which products customers purchase and the prices they are willing to pay. Reimbursement can significantly impact the acceptance of new technology. Implementation of healthcare reforms in the United States may limit, reduce or eliminate reimbursement for our products and adversely affect both our pricing flexibility and the demand for our products. Even when we develop a promising new product, we may find limited demand for the product unless reimbursement approval is obtained from private and governmental third-party payors.

Major third-party payors for hospital services in the United States and abroad continue to work to contain healthcare costs through, among other things, the introduction of cost containment incentives and closer scrutiny of healthcare expenditures by both private health insurers and employers. For example, in an effort to decrease costs, certain hospitals and other customers sometimes re-sterilize products otherwise intended for a single use or purchase reprocessed products from third-party reprocessors.

Further legislative or administrative reforms to the U.S. reimbursement systems in a manner that significantly reduces reimbursement for procedures using our medical devices or denies coverage for these procedures, or adverse decisions relating to our products by administrators of these systems on coverage or reimbursement issues, would have an adverse impact on the acceptance of our products and the prices that our customers are willing to pay for them. These outcomes, along with cost containment measures, could have a material adverse effect on our business and results of operations.

In addition, Medicare covers a substantial percentage of the patients treated for prostate cancer in the United States, and consequently, the costs for prostate cancer treatment are subject to Medicare’s prescribed rates of reimbursement. The utilization of our brachytherapy products and many of the products in our surgical products business may be influenced by Medicare’s reimbursement levels, and the policies of other third party payors, which can change periodically. Unfavorable reimbursement levels and confusion regarding potential changes in Medicare have adversely affected sales of our brachytherapy products in the past and could do so in the future.

We believe that Medicare reimbursement policies have affected the brachytherapy market and will continue to affect the brachytherapy market. Since 2010, Medicare has provided reimbursement for brachytherapy seeds under a hospital outpatient prospective payment system (“OPPS”) with fixed prospective payment rates for brachytherapy seeds. This fixed OPPS, which we sometimes refer to as “fixed reimbursement”, fixes the per seed rate at which Medicare reimburses hospitals for the purchase of seeds. Under the fixed OPPS, CMS establishes the fixed per seed rate on an annual basis. Fixed reimbursement policies at CMS have led to pricing pressure from hospitals and other healthcare providers and have had an adverse effect on our brachytherapy revenue. In November 2012, CMS published its final reimbursement rates for 2013, which include a 6% decline in the reimbursement rate for palladium-103 based devices and a small increase for iodine-125 based devices. From time to time, we expect to continue to support fair reimbursement for brachytherapy seeds. We believe our brachytherapy revenue may continue to be adversely affected by 1) CMS’ “fixed reimbursement” policies for brachytherapy seeds and 2) favorable CMS reimbursement rates enjoyed by alternative, less proven technologies for early stage prostate cancer treatment.

See “Medicare Developments” included in “Management’s Discussion and Analysis” below for additional information regarding CMS reimbursement policies for brachytherapy seeds.

Responding to market opportunities and competitive situations could have an adverse effect on average selling prices. Responding to market opportunities and competitive situations could also have a favorable effect or prevent an unfavorable effect on market share and volumes. Conversely, we or our 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.

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

We may be unable to maintain sufficient liability insurance.

Our business is subject to product liability risks inherent in the testing, manufacturing and marketing of medical devices. We maintain product liability and general liability coverage. These coverages are subject to annual renewal. There can be no assurance that liability claims will not exceed the scope of coverage or limits of such policies or that such insurance will continue to be available on commercially reasonable terms or at all. If we do not or cannot maintain sufficient liability insurance, our ability to market our products may be significantly impaired. In addition, product liability claims, as well as negative publicity arising out of such claims, could have a material adverse effect on our business, financial condition and results of operations.

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

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

Litigation may harm our business or otherwise distract our management.

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

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

Our brachytherapy seed products deliver a highly concentrated and confined dose of radiation directly to the prostate from within the patient’s body. Surrounding tissues and organs are typically spared excessive radiation exposure. Our wound closure, vascular access and specialty needle products are also utilized directly on patients. It is an inherent risk of the industries in which we operate that we might be sued in a situation where one of our products results in, or is alleged to result in, a personal injury to a patient, health care provider, or other user. Although we believe that as of the current date we have adequate insurance to address anticipated potential liabilities associated with product liability, any unforeseen product liability exposure in excess of, or outside the scope of, such insurance coverage could adversely affect our financial condition and operating results. Any such claim brought against us, with or without merit, could result in significant damage to our business.

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

I-19

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

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

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

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

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

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

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

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failure to prove feasibility;

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time required from proof of feasibility to routine production;

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timing and cost of product development and regulatory approvals and clearances;

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competitors’ response to new product developments;

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development, launch, manufacturing, installation, warranty and maintenance cost overruns;

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failure to obtain customer acceptance and payment;

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customer demands for retrofits of both old and new products; and

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excess inventory caused by phase-in of new products and phase-out of old products.

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

I-20

Our cash balances and marketable securities are subject to risks, which may cause losses and affect the liquidity of these investments.

Our cash and cash equivalents represent cash deposits, money market funds, and commercial paper and are invested with a limited number of financial institutions. Investments in marketable securities are made in accordance with our investment policies, which generally allow investments in high-credit quality corporate and municipal obligations. All of these cash, cash equivalents and marketable securities investments are subject to general credit, liquidity, market, interest rate and counterparty risks. These risks may be exacerbated by the disruptions and volatility in the economic climate, lack of liquidity in the credit and investment markets, economic difficulties encountered by many financial institutions and other economic uncertainties that have in the past, and may in the future, affect various sectors of the financial markets causing credit and liquidity issues. These market risks associated with our investment portfolio may have a negative adverse effect on our results of operations, liquidity and financial condition.

We can continue to be adversely affected by economic instability.

Financial markets and the economies in the United States and internationally may continue to experience disruption and volatility as they have in recent years and conditions could worsen. As a result, the economic environment may, among other things:

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create downward pressure on the pricing of our products;

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affect the collection of accounts receivable;

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increase the sales cycle for certain of our products;

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slow the adoption of new products and technologies;

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adversely affect our customers, causing them to reduce or defer spending and/or decrease utilization of our products;

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adversely affect our suppliers, which could disrupt our ability to produce our products; and

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limit our access to capital on terms acceptable to us.

These conditions may continue in the future. Any of these conditions could have a material adverse effect on our business, financial position, liquidity and results of operations.

Changes in FDA requirements for obtaining 510(k) approval to market and sell medical device products in the U.S. may adversely affect our business, financial condition and results of operations.

The FDA has been considering legislative, regulatory and/or administrative changes to the FDA’s 510(k) program. Various committees of the U.S. Congress have also indicated that they may consider investigating the FDA’s 510(k) process. Under the current 510(k) rules, certain types of medical devices can obtain FDA approval without lengthy and expensive clinical trials. Among our product offerings, those products that require FDA approval have received such approval under the 510(k) rules. Our R&D programs and new product programs contemplate obtaining any required FDA approvals under the current 510(k) rules. Any changes to the current 510(k) or related FDA rules that make such rules more stringent or require more clinical data can significantly increase the time and costs associated with bringing new products to market. This may have a material adverse effect on our business, financial condition and results of operations.

The adoption of healthcare reform in the United States may adversely affect our business, results of operations and/or financial condition.

CMS has published final regulations that would implement provisions in PPACA related to disclosure of payments made by manufacturers to physicians and teaching hospitals, effective April 2013. Because we manufacture a number of devices that are covered by the regulations, all payments that we make to physicians and teaching hospitals would be subject to this reporting requirement even if the payment relates to a device that is not considered a covered device. The tracking and reporting of these payments could have an adverse impact on our business and/or consolidated results of operations and financial condition and on our relationships with customers and potential customers.

I-21

In addition to the PPACA, various healthcare reform proposals have also emerged at the state level. Like the PPACA, these proposals could reduce medical procedure volumes and impact the demand for our products or the prices at which we sell our products. The impact of these proposals could have a material adverse effect on our business and/or consolidated results of operations and financial condition.

The American Taxpayer Relief Act (ATRA) of 2012, known as the fiscal cliff deal, was enacted on January 2, 2013. This Act delayed until March 1, 2013 the automatic spending cuts of nearly $1 trillion over the next 10 years that were included under the Budget Control Act of 2011. These spending cuts include a 2% cut to Medicare providers and suppliers. Medicaid is exempt from these cuts. To date, Congress has not taken any action to avoid these sequestration cuts which will impact domestic and defense spending along with Medicare. Any cuts to Medicare reimbursement which affect our products could have a material adverse effect on our business and/or our consolidated results of operations and financial condition.

We are dependent on key personnel.

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

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

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

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

An important element of our strategy is to seek acquisition prospects and diversification opportunities (including companies, product lines and intellectual property) 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 Corp. in May 2005, Galt Medical Corporation in August 2006 and NeedleTech Products, Inc. in July 2008. We acquired Core Oncology’s prostate brachytherapy customers in February 2012. Further transactions of this nature could result in potentially dilutive issuance of equity securities, use of cash and/or the incurrence 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 potential acquisitions could result in our failure to achieve our revenue growth or other objectives associated with acquisitions, or recover costs associated with these acquisitions, which could affect our profitability or cause the market price of our common stock to fall.

We may not realize the benefits of acquisitions.

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

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integrating the operations and technologies of the acquired companies;

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retaining and assimilating the key personnel of each company;

I-22

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retaining existing customers of each company and attracting additional customers;

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

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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;

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

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

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

The cost of acquisitions could harm our financial results.

If the benefits of acquisitions do not exceed the associated costs, including costs related to integrating the companies acquired and dilution to our stockholders resulting from the issuance of shares in connection with the acquisitions, our financial results, including earnings per share, could be materially harmed.

Disruption of critical information systems or material breaches in the security of our systems may adversely affect our business and customer relationships.

We rely on information technology systems to process, transmit, and store electronic information in our day-to-day operations. We also rely on our technology infrastructure, among other functions, to interact with suppliers, sell our products, fulfill orders and bill, collect and make payments, ship products, provide support to customers, track customer purchases, fulfill contractual obligations and otherwise conduct business. Our internal information technology systems, as well as those systems maintained by third-party providers, may be subjected to computer viruses or other malicious codes, unauthorized access attempts, and cyber-attacks, including infiltration of data centers, any of which, if successful, could result in data leaks or otherwise compromise our confidential or proprietary information and disrupt our operations. Cyber-attacks are becoming more sophisticated and frequent, and there can be no assurances that our protective measures will prevent future security breaches that could have a significant impact on our business, reputation, and financial results. If we fail to maintain or protect our information technology systems and data integrity effectively or fail to anticipate, plan for or manage significant disruptions to these systems, we could lose existing customers, have difficulty preventing, detecting, and controlling fraud, have disputes with customers, physicians, and other health care professionals, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach, or suffer other adverse consequences, any of which could have a material adverse effect on our business, results of operations or financial condition.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties

Our executive offices are located in Buford, Georgia. Our manufacturing and development operations are carried out at four principal plants. We own our brachytherapy seed manufacturing facility, located in Buford, Georgia. In our surgical products segment, we own a manufacturing facility located in Massachusetts and lease facilities located in Oregon and Texas. All of our owned and leased spaces are well maintained and suitable for the operations conducted within.

Item 3. Legal Proceedings

From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. We currently are not aware of any such legal proceedings or claims that we believe will have, individually or in aggregate, a material adverse effect on our business, financial condition, or operating results.

Item 4. Mine Safety Disclosures.

Not applicable.

I-23

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Common Stock, $.01 par value, (“Common Stock”) is traded on the New York Stock Exchange (NYSE) under the symbol “TGX”. The high and low prices for our Common Stock for each fiscal quarterly period in 2012 and 2011 are as follows:

	High		Low
2012
First Quarter	$	1.85	1.33
Second Quarter		2.10	1.53
Third Quarter		2.08	1.65
Fourth Quarter		1.73	1.32

2011
First Quarter	$	2.19	1.50
Second Quarter		2.29	1.75
Third Quarter		1.85	1.23
Fourth Quarter		1.73	1.18

As of February 28, 2013, the closing price of our Common Stock was $1.62 per share. Also, as of that date, there were approximately 346 holders of record of our Common Stock. The number of record holders does not reflect the number of beneficial owners of our Common Stock for whom shares are held by depositary trust companies, brokerage firms and others.

We have a Shareholder Rights Plan (the “Rights Plan”), which contains provisions designed to protect our stockholders. Pursuant to the Rights Plan, each share of our Common Stock contains a share purchase right (a “Right”). The Rights expire in February 2017 and do not become exercisable unless certain events occur including the acquisition of, or commencement of a tender offer for, 20% or more of the outstanding Common Stock. In the event certain triggering events occur, including the acquisition of 20% or more of the outstanding Common Stock, each Right that is not held by the 20% or more stockholders will entitle its holder to purchase additional shares of Common Stock at a substantial discount to the then current market prices. The Rights Plan and the terms of the Rights, which are set forth in a Rights Agreement between us and Computershare Investor Services LLC, as Rights Agent, could add substantially to the cost of acquiring us and consequently could delay or prevent a change in control of us.

We have not previously declared or paid a cash dividend on our Common Stock. In July 2012 we repurchased approximately 4.8 million shares of our common stock for a total repurchase price of $10.4 million, including transaction costs, in a Modified Dutch Auction. We have no current plans for additional share repurchases, and it is the present policy of our Board of Directors to retain all earnings to support operations and our strategy of continued diversification and expansion.

II-1

Item 6. Selected Financial Data

The following selected financial data are derived from our consolidated financial statements. The selected financial data set forth below should be read in conjunction with our consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.

(Amounts in thousands, except per share data)	Year ended December 31,
	2012			2011			2010			2009			2008
Statement of Operations Data:
Product sales	$	80,008		$	80,454		$	80,683		$	77,151		$	66,447
License and fee income		2,551			2,276			1,501			1,175			911
Total revenue		82,559			82,730			82,184			78,326			67,358

Cost of sales		52,017			50,073			49,155			44,953			36,264
Gross profit		30,542			32,657			33,029			33,373			31,094

Selling, general and administrative		22,258			22,685			24,013			22,020			20,500
Amortization of purchased intangibles		3,374			2,793			3,077			3,441			2,410
Research and development		1,133			1,649			1,942			2,160			1,300
Impairment of goodwill and tradenames		—			—			—			—			70,376
Other operating items		10			34			111			3			(147	)
Total operating expenses		26,775			27,161			29,143			27,624			94,439

Earnings (loss) from operations		3,767			5,496			3,886			5,749			(63,345	)

Other income (expense), net		(493	)		(530	)		(583	)		(837	)		277

Earnings (loss) before income taxes		3,274			4,966			3,303			4,912			(63,068	)

Income tax expense (benefit)		1,135			1,902			1,233			1,837			(4,528	)

Net earnings (loss)	$	2,139		$	3,064		$	2,070		$	3,075		$	(58,540	)

Net earnings (loss) per share
Basic and Diluted	$	0.07		$	0.09		$	0.06		$	0.09		$	(1.77	)

	December 31,
(Amounts in thousands)	2012		2011		2010		2009		2008
Balance Sheet Data:
Cash and cash equivalents	$	23,589	$	29,553	$	29,674	$	45,326		$	39,088
Marketable securities		11,319		11,625		10,949		—			1,507
Intangible assets, net		11,020		9,459		12,319		15,464			18,720
Total assets		105,725		115,818		115,187		116,108			114,419
Long-term borrowings		22,000		—		23,667		27,000			—
Total debt		22,000		23,667		27,000		30,333			32,000
Shareholders’ equity	$	76,927	$	84,122	$	80,279	$	77,653		$	74,110

Comparability of the selected financial data above is affected by certain material changes in our business, including:

●

the acquisition of NeedleTech in July 2008. The results of operations of an acquired company are included in our consolidated results for periods subsequent to each respective acquisition date,

●

impairment charges related to the write off of goodwill and tradenames in 2008,

●

the Core asset acquisition consisting principally of customer relationship intangible assets in February 2012,

●

the $10.4 million Modified Dutch Auction share repurchase in July 2012, and

●

the refinancing of our credit agreement in 2009 and 2012.

The above list is not intended to identify all material changes in our business in the periods presented. Rather, we believe the above information is useful in understanding the period-to-period comparability of the above selected financial data. Please read the information included elsewhere in this Form 10-K, including Business, Risk Factors, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and Supplementary Data, as well as other information contained herein for a more complete discussion of our business, financial condition, and results of operations.

II-2

THERAGENICS CORPORATION®

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview and Business Strategy

Our surgical products business manufactures, markets and sells disposable devices primarily utilized in certain surgical procedures. Our brachytherapy seed business manufactures, performs custom loading, markets and sells radioactive “seeds” primarily utilized in the treatment of early stage prostate cancer. “Custom loading” refers to loading the seeds into custom needles, strands or other packaged configurations as prescribed by the healthcare provider administering the treatment. We have performed custom loading of seeds since 1999. At the present time, both of our segments do business primarily in the United States. Our surgical products business is the faster growing of our businesses and has been supported by the cash flows generated by our market leading brachytherapy seed business. In our surgical products business, we plan to grow and diversify revenues by adding product offerings and manufacturing capabilities, expanding the applications and markets in which we compete, and gaining scale to improve profitability.

Our surgical products business was built through the acquisitions of CP Medical Corp. in May 2005, Galt Medical Corporation in August 2006, and NeedleTech Products, Inc. in July 2008. We currently manufacture almost 3,500 products in this business as part of three broad product platforms; wound closure, vascular access and specialty needles. To date we have maintained the names and brands under which each of these companies previously manufactured, marketed and sold their products. We serve a number of markets and applications, including, among other areas, interventional cardiology, interventional radiology, vascular surgery, orthopedics, plastic surgery, dental surgery, urology, veterinary medicine (sutures), pain management, endoscopy, and spinal surgery. With the exception of veterinary sutures, our surgical products hold relatively small market shares. Our products include both finished goods and components. Our products are sold primarily to original equipment manufacturers (“OEMs”) and to a network of distributors. On a pro forma basis, our surgical products business has achieved a compound annual revenue growth rate of 7.0% from 2006 through 2012 (pro forma, assuming all acquisitions had been made at the beginning of 2006). We have accomplished this primarily by increasing sales to existing customers and, to a lesser extent, adding new customers. Further, we achieved this revenue growth during a period which included severe economic difficulties. Our strategy for increasing sales and scale going forward includes: becoming more integral within the supply chain of our customers both for existing products and for our customers’ development programs (which may allow us to increase sales to existing and new customers from all product platforms); developing new products internally; acquiring products, licenses, and other intellectual property; acquiring businesses and; entering certain markets outside the United States.

II-3

We have operated our brachytherapy seed business since 1987, emerging from the development stage in 1990. Historically our brachytherapy seed segment has generated strong cash flows, which have enabled us to diversify our business substantially. Positive cash flows from our brachytherapy seed business continue despite an industry-wide decline in brachytherapy procedures in the United States which began about seven years ago. The overall brachytherapy industry in the United States has experienced difficulties over the last several years, with a decline in procedure rates accelerating during 2012. In May 2012 the U.S. Preventive Services Task Force recommended against routine PSA screenings for healthy men without symptoms. We believe this recommendation has led to a decline in PSA screening. In addition, we believe there has been an increase in “active surveillance”, a practice where no immediate medical treatment is provided; but the physician and patient closely monitor the patient’s cancer for signs that the cancer is growing. We believe that declines in PSA screenings has led to a decline in the number of men diagnosed with prostate cancer. A decline in the number of PSA screenings would in turn lead to a decline in the number of procedures of all treatment types to treat prostate cancer, including brachytherapy procedures. An increase in the proportion of men diagnosed with prostate cancer but not seeking immediate medical treatment would also lead to a decline in the number of procedures to treat prostate cancer.

In addition, some newer and competing forms of treatment enjoy favorable Medicare reimbursement rates relative to brachytherapy reimbursement rates. We believe this disparity results in a non-level playing field for brachytherapy device manufacturers, providers, and patients. One of the primary competitive treatments is Intensity Modulated Radiation Therapy, or “IMRT”. IMRT enjoys substantially higher reimbursement rates than brachytherapy, yet clinical studies do not indicate that IMRT delivers improved outcomes. In fact, a study to evaluate cost-effectiveness and outcomes of low-dose rate and high-dose rate brachytherapy compared to IMRT found that patients treated for low- and intermediate-risk prostate cancer with brachytherapy or IMRT had comparable outcomes, but IMRT costs more (C Shah et al. /Brachytherapy 11 (2012) 441-445). We believe the market positioning and heavy promotion of robotic surgery for prostate cancer treatment has also adversely affected the number of brachytherapy procedures performed. Despite these industry-wide difficulties, we have maintained positive cash flows in our brachytherapy business for a variety of reasons including, among other things, our ability to anticipate changes in market conditions; our ability to respond to government controlled pricing policies surrounding reimbursement of our products and, more recently, our increasing overall market share.

Acquisition of Core Oncology’s Prostate Brachytherapy Customers

The total purchase price for the acquired assets is equal to one times the actual revenue generated from the acquired customers over the twelve-month period from September 2012 to August 2013 (the “Earn-Out Period”), in excess of a $2.5 million Threshold Amount. Through December 31, 2012, we have paid $5.3 million in cash for this transaction, primarily consisting of prepayment of a portion of the earn-out at closing in February 2012 plus subsequent earn-out payments. We have three quarterly earn-out payments remaining through September 2013. Each quarterly earn-out payment is based upon that quarter’s revenue from the acquired customers, reduced by a portion of the Threshold Amount and by a portion of the prepayment made at closing. The final earn-out payment is calculated as one times the revenue actually recognized from the acquired customer base over the twelve-month period from September 2012 to August 2013 in excess of the total Threshold Amount, reduced by the prepayment and the cumulative amount of all previous earn-out payments made. Based on our current estimates, we do not expect to make additional earn-out payments. However, we may make additional earn-out payments, which could be material, depending upon the actual amount of revenue generated from the acquired customers during the Earn-Out Period.

II-4

Brachytherapy Custom Loading Agreement with Oncura, a unit of GE Healthcare

In the fourth quarter of 2012, we signed a value-added custom loading agreement with Oncura, a unit of GE Healthcare, to perform worldwide brachytherapy custom loading for Oncura manufactured seeds. Under this three year agreement, we will provide custom loading of Oncura manufactured seeds into custom needles, strands and other packaged configurations. While we have been performing custom loading since 1999, this was our first significant effort to provide custom loading for seeds manufactured by other suppliers. Oncura’s iodine-125 brachytherapy seeds are utilized primarily in the treatment of early stage prostate cancer. This agreement provides for custom loading for most of Oncura sales of prescription and custom loaded brachytherapy seeds worldwide, which currently includes North America, Europe, Australia and portions of Asia. At full ramp-up during 2013, we expect this agreement to generate annual revenue of over $1 million.

Modified Dutch Auction Tender Offer

Medical Device Tax

Results of Operations

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Revenue

Following is a summary of revenue by segment for each of the three years in the period ended December 31, 2012 (in thousands):

Revenue by segment	Year ended December 31,
	2012			2011			2010
Surgical products
Product sales	$	59,798		$	59,258		$	58,991
License and fee income		135			151			36
Total surgical products		59,933			59,409			59,027

Brachytherapy seed
Product sales		21,181			21,952			22,287
License and fee income		2,416			2,125			1,465
Total brachytherapy seed		23,597			24,077			23,752

Intersegment eliminations		(971	)		(756	)		(595	)

Consolidated
Product sales		80,008			80,454			80,683
License and fee income		2,551			2,276			1,501
Total consolidated	$	82,559		$	82,730		$	82,184

II-5

Surgical Products Segment

Revenue in our surgical products business increased 1% in 2012 over 2011. Our customers’ ordering patterns continue to be variable and unpredictable. Dampening growth in 2012 was having to overcome the loss of a customer program which had generated annual revenue of approximately $1 million in prior years. Customer behavior and ordering patterns also continue to be erratic due to significant macroeconomic uncertainties, such as healthcare reform, the medical device tax, changing tax policies and other concerns. We expect variable and unpredictable customer behavior to continue into 2013. Fundamental demand for our surgical products remains; yet industry-wide sluggish demand and unpredictable behavior have a direct effect on our revenue and results.

Open orders in our surgical products segment were $12.5 million at December 31, 2012 compared to $13.9 million at December 31, 2011. Open orders represent orders from customers for future delivery that we believe to be firm. Open orders are not guaranteed shipments, and they are subject to cancellation or delay. At December 31, 2011, open orders included certain orders for which we missed promised delivery dates due to implementation of our new ERP systems at one location. However, our customers agreed to later delivery dates and these orders were not considered as “late”. Backlog in our surgical products business was $411,000 at December 31, 2012 and $379,000 at December 31, 2011. Backlog represents orders included in open orders, but for which we have missed promised shipment dates. At December 31, 2012, backlog was comprised primarily of late orders due to a shortage of supply of certain animal-based materials utilized in some of our wound closure products (see Operating income and costs and expenses, Surgical Products segment, below). We expect our open orders and backlog to continue to vary based on changes in ordering patterns of our larger customers, changes in customer behavior and changes in availability of raw materials.

We announced the launch of three new vascular access products in 2012. We launched our Galt Microslide™ Pediatric Introducer line (“Galt Microslide”) in the first quarter of 2012; our Galt VTI™ Valved Tearaway Introducer (“Galt VTI”) in the third quarter of 2012; and our Galt Centeze™ centesis drainage catheter in October. While sales of these new products have not been material in 2012, each of these new products is expected to provide our surgical products business with access to new markets and new customers. These new products are also expected to carry a higher gross profit margin than we are currently realizing in our surgical products business.

A significant portion of the products in our surgical business continue to be sold to OEMs and a network of distributors. Ordering patterns of these customers vary and are difficult to predict. Accordingly, surgical products revenue is subject to fluctuation, especially on a quarter-to-quarter basis. In addition, revenue has been and will continue to be affected by our customers’ response to efforts by hospitals to reduce inventories and to conserve cash due to the difficult economic climate and macroeconomic uncertainties. All of these factors may cause the fluctuations in our results to be even more volatile from period to period.

Brachytherapy Seed Segment

We sell our TheraSeed® palladium-103 device, our AgX100® iodine-125 device, and other brachytherapy related products and services directly to healthcare providers and to third-party distributors. We also custom load brachytherapy seeds in prescription loaded needles, custom strands and other configurations.

Our brachytherapy product sales decreased 4% in 2012 from 2011. Incremental revenues from the acquisition of the Core Oncology customer base totaled $3.6 million for the year ended December 31, 2012. See “Acquisition of Core Oncology’s Prostate Brachytherapy Customer Base” above. Excluding the incremental sales to the acquired customers, 2012 brachytherapy product revenue, primarily from our TheraSeed® product, declined 20% from 2011.

In May 2012 the U.S. Preventive Services Task Force recommended against routine PSA screenings for healthy men without symptoms. We believe this recommendation has led to a decline in PSA screening. In addition, we believe there has been an increase in “active surveillance”, a practice where no immediate medical treatment is provided; but the physician and patient closely monitor the patient’s cancer for signs that the cancer is growing. We believe that declines in PSA screenings has led to a decline in the number of men diagnosed with prostate cancer. A decline in the number of PSA screenings would in turn lead to a decline in the number of procedures to treat prostate cancer, including brachytherapy procedures. An increase in the proportion of men diagnosed with prostate cancer but not seeking immediate medical treatment would also lead to a decline in the number of procedures to treat prostate cancer.

The prostate brachytherapy industry in the United States continues to experience pressure from newer forms of treatment. Some newer forms of treatment have increased their market share, especially those with Medicare reimbursement levels that are higher than reimbursement levels for brachytherapy. These newer forms of alternative treatments include Intensity Modulated Radiation Therapy (“IMRT”) and robotic surgery. In addition to treatment options that enjoy favorable reimbursement rates, we believe brachytherapy seed volume and revenue are also affected by disruptive pricing from other brachytherapy providers and uncertainties surrounding reimbursement.

II-6

We have non-exclusive distribution agreements in place for our seed devices. Under our third party TheraSeed® distribution agreements, we are the exclusive palladium-103 seed supplier for the treatment of prostate cancer for each distributor, and each distributor has the non-exclusive right to sell TheraSeed® in the U.S. and Canada. Certain agreements also provide distributors with the right to distribute TheraSeed® for the treatment of solid localized tumors other than in the prostate and with rights to distribute to certain locations outside of North America. Such applications (non-prostate and outside of North America) have not been material and are not expected to become material in the near future. Our principal non-exclusive distribution agreement is with C.R. Bard (“Bard”). Our agreement with Bard provides for automatic one year extensions of the term, unless either party gives notice of its intent not to renew at least twelve months prior to the end of the current term. The current term expires December 31, 2014 and will be automatically extended for one additional year unless either party gives notice of its intent not to extend by December 31, 2013. Sales to Bard by our brachytherapy segment represented 25% and 28% of brachytherapy seed segment revenue in 2012 and 2011, respectively. Our surgical products segment also sells to Bard. Total consolidated sales to Bard, including sales in our brachytherapy seed segment and our surgical products segment, did not equal or exceed 10% of our consolidated revenue in 2012. In 2011 consolidated sales to Bard totaled 10% of consolidated revenue.

Core became a non-exclusive distributor of TheraSeed® in January 2010. In February 2011, we terminated our agreement with Core due to Core’s failure to satisfy its financial obligation to us in accordance with the contractual terms of the agreement. Core had been attempting to become current with amounts due to us. However, litigation filed against Core by a third party in January 2011 created what we viewed as an unacceptable level of uncertainty surrounding Core’s ability to satisfy their financial obligations to us for both current and ongoing sales. In the latter half of 2011, certain customers who previously purchased TheraSeed® through Core began purchasing either from us on a direct basis or through one of our other TheraSeed® distributors. In February 2012, we acquired Core’s prostate brachytherapy customer base. See above under “Acquisition of Core Oncology’s Prostate Brachytherapy Customer Base”. Sales to Core in our brachytherapy segment totaled approximately 8% total brachytherapy seed segment revenue in 2011.

We believe that Medicare reimbursement policies have affected the brachytherapy market and will continue to affect the brachytherapy market. See “Medicare Developments” below.

License fees in our brachytherapy segment increased $291,000 or 14%, in 2012 over 2011. License fees include fees from the licensing of our TheraSphere® product, a medical device used for the treatment of liver cancer. Licensing fees also include fees related to the licensing of certain intellectual property related to a brachytherapy catheter-based delivery system that we developed. This delivery system is primarily utilized in the treatment of breast cancer. This May 2008 licensing agreement provides for a minimal non-refundable initial license fee and non-refundable continuing royalties based upon sales subject to certain minimums. Costs and expenses associated with our license agreements are not material.

Operating income and costs and expenses

Following is a summary of operating income by segment for each of the three years in the period ended December 31, 2012 (in thousands):

	Year ended December 31,
	2012			2011			2010

Surgical products	$	696		$	607		$	215
Brachytherapy seed		3,122			4,923			3,685
Intersegment eliminations		(51	)		(34	)		(14	)

Consolidated	$	3,767		$	5,496		$	3,886

Surgical Products Segment

Operating income in our surgical products segment increased to $696,000 in 2012 from $607,000 in 2011. Our gross profit margins on sales were approximately 34% in 2012 compared to 35% in 2011. Gross margins continue to be affected by our sales channel mix. We sell our surgical products primarily to OEM’s and to a network of distributors. Sales to OEM’s, which typically carry a lower gross profit margin than sales to dealers, were 89% and 88% in 2012 and 2011, respectively, relative to our total surgical products sales. Over time, we plan to increase margins by integrating manufacturing processes, improving efficiencies and introducing newer and higher margin products, such as the Galt VTI, Galt Microslide and Galt Centeze discussed above.

II-7

Selling, general and administrative (“SG&A”) costs were 26% of revenue for both the years ended December 31, 2012 and 2011.

Research and development (“R&D”) expenses decreased $499,000, or 31%, in 2012 from 2011. Our R&D program is intended to focus on product extensions, next generation products, and new products that are complementary to our current product lines and that support our customers’ product lines. Though our R&D expenses declined in 2012, we have not reduced the amount of R&D activity. Rather, in late 2011 we began to centralize our R&D efforts and are now better organized and more focused. Our R&D program is directed toward 510(k) products that have an established market and not on products that require lengthy and expensive clinical trials. Looking forward, our results are expected to be affected by the timing of these investments. We recently introduced three new vascular access products. See our discussion under “Revenue - Surgical Products Segment” above.

Recently there have been worldwide shortages of certain animal-based materials utilized in some of our wound closure products. To date, these shortages have not had a materially adverse effect on our operations or results. Currently we believe such shortages are being addressed by suppliers and will be short-term in nature. However, if such shortages worsen or endure for an extended period of time, we may experience increased costs for raw materials or delays in production, which could have a material adverse effect on our results of operations.

We have been investigating the outsource manufacturing of certain components and legacy products offshore for our surgical products business and have identified independent suppliers in Costa Rica and other Latin American countries as locations for outsource manufacturing. We do not expect to acquire or lease facilities or establish a Theragenics operation offshore in the near term. However, we do expect to incur capital expenditures for any outsourcing program we initiate. This equipment would be physically located at the independent supplier’s facilities in Latin America. We may also consider other areas outside the United States for outsourcing. We believe outsourcing of certain legacy products to manufacturers located outside of the United States could reduce our operating expenses in the future. To date, our activities related to outsourcing with manufacturers located outside the United States have not been material.

Looking forward, we expect a number of items to continue to affect the profitability in our surgical products business including, among other things:

●

ordering patterns of our larger OEM and distributor customers,

●

costs incurred to address significant changes in demand,

●

continued investments in infrastructure, R&D, products, and companies as we make investments to support anticipated future growth and to develop products to address growth opportunities,

●

continued pricing pressure from customers,

●

the medical device tax, which is effective January 2013,

●

potential changes in the 510(k) application process and other changes in FDA and governmental regulations,

●

the implementation and efficiencies to be gained from our new, corporate-wide ERP system,

●

manufacturing outsourcing activities,

●

the increasing scale of our surgical products business, and

●

trends of consumers making fewer visits to doctors’ offices and the effect on demand for medical devices.

Brachytherapy Seed Segment

Operating income in our brachytherapy business decreased to $3.1 million in 2012 from $4.9 million in 2011. Manufacturing expenses related to our TheraSeed® palladium-103 based device tend to be fixed in nature and, accordingly, declines in TheraSeed® revenue had a significant effect on operating income in the 2012 periods. Operating income in our brachytherapy seed business is expected to continue to be highly dependent on TheraSeed® sales levels due to the high fixed cost component of our manufacturing operations. Revenue from the acquired Core customers partially offset the decline in TheraSeed® sales and contributed to operating income in 2012, though margins on iodine-125 based devices are lower than our TheraSeed® devices. Initially, we supplied the acquired customer base with iodine-125 based devices under a temporary supply agreement with Core as we transitioned the new customers. Effective July 1, 2012, we began to supply these acquired customers with our internally produced AgX100® device, which lowered our cost of sales for these customers. The improved profitability from our internally produced AgX100 ® partially offset the decline in operating income resulting from our lower TheraSeed® sales. Also affecting comparability between periods was $215,000 of bad debt expense in 2011 related to amounts due under our prior distribution agreement with Core that were considered uncollectible. No such bad debt expense was incurred in 2012.

II-8

Non-operating income/expense

A summary of our interest expense is as follows:

	Year Ended December 31,
	2012			2011			2010

Interest paid or accrued, including loan fees	$	706		$	866			$	982
Fair value adjustments		(57	)		(130	)			107
Interest capitalized		(20	)		(39	)			(113	)

Total interest expense	$	629		$	697			$	976

Interest expense paid or accrued, including loan fees, is related to our effective interest rates and the level of our outstanding borrowings under our credit agreement. Fair value adjustments are related to our interest rate swaps, which matured in June 2012. Such fair value adjustments are unrealized (gains) and losses and reflect the period to period changes in the estimated fair value of our swaps. Interest capitalized primarily relates to the development of our ERP system. The effective interest rate under our Credit Agreement was 1.96% at December 31, 2012.

Income tax expense

Our effective income tax rate, which includes federal and state income taxes, was approximately 35% and 38% in 2012 and 2011, respectively. Our tax rates were affected by the domestic production deduction, other tax credits and non-deductible compensation expense. Future tax rates can be affected by, among other things, tax credits, tax expense for items unrelated to actual taxable income (such as the write-off of deferred tax assets associated with share-based compensation), changes in tax regulations, changes in statutory tax rates, changes in the tax jurisdictions in which we must file income tax returns, and many other items that affect the taxability and deductibility of our revenue and expenses and for which we cannot currently predict.

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Revenue

Surgical Products Segment

Revenue in our surgical products business increased 1% in 2011 over 2010. We believed this reflected the variable and unpredictable ordering patterns of our larger customers, especially on a quarter to quarter basis. It was also widely reported that consumers were making fewer visits to doctors’ offices, which in turn reduced demand for medical devices.

Brachytherapy Seed Segment

Our brachytherapy product sales decreased 2% in 2011 from 2010. We believe that the prostate brachytherapy industry in the United States continued to experience pressure from newer forms of treatment. Some competitive forms of treatment have increased their market share, especially those with Medicare reimbursement levels that are higher than reimbursement levels for brachytherapy. These competitive forms of alternative treatments include IMRT and robotic surgery. In addition to competing treatment options that enjoy favorable reimbursement rates, we believed brachytherapy seed volume and revenue were also affected by disruptive pricing from other brachytherapy providers and uncertainties surrounding reimbursement.

License fees in our brachytherapy segment increased $660,000 or 45%, in 2011 over 2010.

Operating income and costs and expenses

Surgical Products Segment

Operating income in our surgical products segment increased to $607,000 in 2011 from $215,000 in 2010. Our gross profit margins on sales were approximately 35% in 2011 compared to 36% in 2010. Gross margins continued to be affected by changes in product and customer mix. During 2011 we were also impacted by changes in customer ordering patterns, ERP implementation and severe winter storms causing the closure of our Dallas, Texas plant for several days in the first quarter. As a result of these and other items, our backlog fluctuated and we incurred higher overtime, utilized more temporary workers and experienced operating inefficiencies. Gross margins were also affected in 2011 by increased material costs; some of which were not passed on to our customers.

II-9

Items affecting comparability between the 2011 and 2010 periods include certain expenses that were only incurred in either 2011 or 2010, including the following (in thousands):

	Year Ended December 31,
	2011		2010

Acquisition proposal expenses (a)	$	218	$	—
Professional fees (b)		—		629
Moving related expenses (c)		—		570
Core receivables (d)		—		380

(a)

Acquisition proposal expenses related to expenses to consider, address, and respond to an unsolicited acquisition proposal.

(b)

Professional fees related to our legal action against the former owner of CP Medical to enforce certain non-compete agreements and to protect the trade secrets and other assets of that business.

(c)

Moving related expenses associated with the move into our new specialty needle manufacturing facility.

(d)

Core receivables represent amounts due from Core Oncology for which we believed collectability was doubtful.

In addition, corporate overhead allocated to our surgical products segment increased in 2011 primarily due to higher professional fees, compensation, and depreciation associated with our new ERP system. These increases were partially offset by a decline in amortization of purchased intangibles in the 2011 periods as certain intangible assets have become fully amortized.

R&D expenses decreased $128,000, or 7%, in 2011 from 2010.

Brachytherapy Seed Segment

Operating income in our brachytherapy business increased to $4.9 million in 2011 from $3.7 million in 2010. Manufacturing related expenses in our brachytherapy business tend to be relatively fixed in nature. Accordingly, even modest changes in revenue can have a significant impact on operating income. The increase in license and fee income in 2011 offset the decline in product sales. The primary expense item affecting comparability between the periods was bad debt expense related to Core Oncology. In 2011 we recorded $215,000 as bad debt expense related to amounts due from Core for which we believed collectability was doubtful. In 2010 we recorded $1.6 million of bad debt expense related to Core. Corporate overhead costs allocated to our brachytherapy segment increased from 2010 due to increases in professional fees, compensation, and depreciation associated with our new ERP system. We were able to reduce some operating expenses during 2011 including advertising and personnel related costs.

Non-operating income/expense

Other income in 2010 includes $200,000 received in the settlement of the lawsuit with the former owner of CP Medical. Interest income was not material in 2011 or 2010.

Income tax expense

Our effective income tax rate, which includes federal and state income taxes, was approximately 38% and 37% in 2011 and 2010, respectively.

Critical Accounting Policies and Estimates

The preparation of financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The SEC defines “critical accounting policies” as those that require application of our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. The following is not intended to be a comprehensive list of our accounting policies. Our significant accounting policies are more fully described in the notes to our consolidated financial statements. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for our judgment in their application. The accounting policies described below are those which we believe are most critical to aid in fully understanding and evaluating our reported financial results, and are areas in which our judgment in selecting an available alternative might produce a materially different result.

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Marketable securities. We review our investments in marketable securities for impairment based on both quantitative and qualitative criteria that include the extent to which cost exceeds market value, the duration of any market decline, our intent and ability to hold to maturity or expected recovery, and the creditworthiness of the issuer. We perform research and analysis, and monitor market conditions to identify potential impairments.

Due to the volatile nature of the U.S. and global investment and credit markets, we are exposed to the risk of changes in fair value of our marketable securities in future periods, which may cause us to take impairment charges that we do not currently anticipate. While we will continue to research, analyze and monitor our investments, we cannot predict what effect the current investment and credit market circumstances might have on our portfolio going forward. You can find more information related to the valuation of our marketable securities in Note E in the accompanying consolidated financial statements, Liquidity and Capital Resources in Management’s Discussion and Analysis, and Item 7A, Quantitative and Qualitative Disclosures About Market Risk, all of which are included in this report.

Estimates related to the acquisition of Core Oncology Customer Base. On February 17, 2012, we acquired Core Oncology’s prostate brachytherapy customer base. This transaction has substantially increased our share of the iodine-125 segment of the prostate brachytherapy market. In addition to the customer base, we also acquired certain packaging technologies, equipment related to the packaging technologies, and certain existing component inventory. We did not acquire Core’s facilities, manufacturing equipment or processes, or Core’s employees.

We accounted for this transaction as an asset acquisition and, accordingly, have recorded the assets acquired at estimated total cost, including transaction costs. Current assets were recorded at fair value. The remaining total cost was allocated to non-current assets based on their relative fair values. The assets acquired are recorded at the total estimated cost of $5.3 million, of which $4.9 million was allocated to long-term intangible assets with a weighted average life of 6.7 years. These estimates were based upon our forecast of the expected total purchase price. Our estimates of the expected total purchase price of these assets may continue to change based on, among other things, changes in forecasted revenues to be recognized from the acquired customers. Any changes in these estimates will cause changes in the carrying values of the non-current acquired assets and the resulting expenses charged to our earnings from these assets (primarily amortization of intangible assets). Any changes in estimates may also affect the recorded amount of our estimated earn-out payment liabilities. Such changes may be material to our results of operations, cash flows, and financial position.

Property and equipment. Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of such assets. Our estimates can result in differences from the actual useful lives of certain assets. The significant portion of property and equipment includes cyclotrons, which are utilized in our brachytherapy business, and manufacturing buildings. As of December 31, 2012, we owned and operated eight cyclotrons, the first of which entered service in 1998. The estimated service life of our cyclotron equipment is 15 years. At December 31, 2012, the net book value of our cyclotrons was $748,000, which is expected to be recognized over a weighted average remaining period of approximately two years. The estimated service life of our buildings is 30 years.

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

We assess the impairment of our depreciable assets (including property and equipment,) whenever events or circumstances indicate that such assets might be impaired. In the event the expected undiscounted future cash flows attributable to the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. The estimation of fair value, whether in conjunction with an asset to be held and used or with an asset held for sale, also involves judgment. It is possible that our estimates of fair value may change and impact our financial condition and results of operations.

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Intangible assets. Our intangible assets are determined to have finite lives and are amortized over their useful lives using a method that is expected to reflect the pattern of its economic benefit. When a pattern of economic benefit cannot be determined, or if the straight-line method results in greater amortization, then the straight-line method is used. To date, all finite lived intangible assets have been amortized using the straight-line method. We also review finite lived intangible assets for impairment to ensure they are appropriately valued if conditions exist that indicate the carrying value may not be recoverable.

Allowance for doubtful accounts and returns. We make estimates and use our judgments in connection with establishing an allowance for the possibility that portions of our accounts receivable balances may become uncollectible or subject to return. Accounts receivable are reduced by this allowance. Specifically, we analyze accounts receivable in relation to customer creditworthiness, current economic trends, changes in our customer payment history, and changes in sales returns history in establishing this allowance. It is possible that these or other underlying factors could change and impact our financial position and results of operations.

Allowance for obsolete inventory. We review inventory periodically and record an estimated allowance for inventory that has become obsolete, that has a cost basis in excess of its expected net realizable value, or that is in excess of expected requirements. Specifically, we analyze inventory in relation to sales history, inventory turnover and days supply on hand, competing products, current economic trends, changes in our customers’ ordering histories, and historical write-offs. Our estimate is subjective and dependent on our estimates of future demand for a particular product. If our estimate of future demand exceeds actual demand, we may have to increase the allowance for obsolete inventory for that product and record a charge to cost of sales.

Asset retirement obligations. Our asset retirement obligations consist of decommissioning obligations related to our brachytherapy seed manufacturing equipment and facilities. We estimate the future cost of asset retirement obligations, discount that cost to its present value, and record a corresponding asset and liability in our consolidated balance sheet. The values ultimately derived are based on many significant estimates, including future decommissioning costs, the sale of equipment at the end of the decommissioning period, inflation, cost of capital, and market risk premiums. The nature of these estimates requires us to make judgments based on historical experience and future expectations. Revisions to the estimates may be required based on such things as changes to cost estimates or the timing of future cash outlays. Any such changes that result in upward or downward revisions in the estimated obligation will result in an adjustment to the related capitalized asset and corresponding liability on a prospective basis.

Share-based compensation. We account for share-based compensation in accordance with the fair value recognition provisions of guidance issued by FASB. Under this method, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. In order to determine the fair value of stock options on the date of grant, we utilize the Black-Scholes model. Inherent in this model are assumptions related to expected stock-price volatility, option life, risk-free interest rate and dividend yield. The risk-free interest rate and dividend yield are based on factual data derived from public sources. The expected stock-price volatility and option life assumptions require significant judgment, which makes them critical accounting estimates. Our expected volatility is based upon weightings of the historical volatility of our stock. With respect to the weighted-average option life assumption, we consider the exercise behavior of past grants and model the pattern of aggregate exercises.

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

We periodically evaluate the recoverability of our deferred tax assets and recognize the tax benefit only as reassessment demonstrates that they are realizable. We evaluate the realizability of the deferred tax assets and assess the need for the valuation allowance each reporting period. At such time, if it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance is adjusted. In the future if, based on the facts and circumstances surrounding our ability to generate adequate future taxable income, it becomes more likely than not that some or all of the deferred tax asset will not be realized, the valuation allowance may be required to be increased.

We review all of our tax positions. The tax benefits of uncertain tax positions are recognized only if it is more likely than not that we will be able to sustain a position taken on an income tax return. We have concluded that there were no significant uncertain tax positions as of December 31, 2012 and 2011. Our policy is to recognize accrued interest expense and penalties associated with uncertain tax positions as a component of income tax expense.

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Contingencies. From time to time we may be subject to various legal proceedings and claims, including, for example, disputes on agreements, employment disputes and other commercial disputes, the outcomes of which are not within our complete control and may not be known for extended periods of time. In some cases, the claimants seek damages, as well as other relief, which, if granted, could require significant expenditures. We record a liability in our consolidated financial statements for damages and/or costs related to claims, settlements and judgments where we have assessed that a loss is probable and an amount can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range. Legal costs associated with these matters are expensed as incurred.

Commitments and Other Contractual Obligations

Contractual Obligations

We lease equipment and production, warehouse, office and other space under non-cancelable leases that expire at various dates through August 2016. We also have $22.0 million of borrowings outstanding under our credit agreement. Our contractual obligations as of December 31, 2012 are as follows (amounts in thousands):

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Obligation
Operating lease obligations (1)
Rental space and equipment	$	1,435	$	462	$	895	$	78	$	—

Borrowings under credit agreement		22,000		—		22,000		—		—
Interest payable on borrowings (2)		1,196		431		765		—		—
Total borrowings		23,196		431		22,765		—		—

Other obligations		388		—		388		—		—

Total	$	25,019	$	893	$	24,048	$	78	$	—

(1)	Represents minimum rental payments for operating leases, one of which is subject to adjustment based on the Consumer Price Index.

(2)	Interest on outstanding borrowings under credit agreement at December 31, 2012 is based on the effective interest rate at December 31, 2012.

Letter of Credit

We have a letter of credit outstanding under the credit facility as of December 31, 2012 totaling $946,000. This letter of credit is related to asset retirement obligations of long-lived assets.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting the management of liquidity are: cash flows generated from operating activities, capital expenditures, operational investments to support growth (such as R&D programs), and acquisitions of businesses, products and technologies.

We had cash, cash equivalents and marketable securities of $34.9 million and $41.2 million at December 31, 2012 and 2011, respectively. Marketable securities consisted primarily of high-credit quality corporate and municipal obligations in accordance with our investment policies. See Cash, Cash Equivalents and Marketable Securities below for more information. The $13.2 million in cash generated by our operations in 2012 was offset primarily by our $10.4 million share repurchase and the $5.3 Core asset acquisition in 2012.

Working capital was $56.0 million and $42.3 million at December 31, 2012 and 2011, respectively. The increase in working capital is primarily due to the classification of $22.0 million of borrowings under our revolving credit facility as a long-term liability at December 31, 2012. We refinanced our credit agreement in October 2012 and, accordingly, our borrowings were not a reduction of working capital in 2012. This was partially offset by the reduction in our cash and cash equivalent balances.

Cash provided by operations was $13.2 million in 2012 compared to $6.1 million in 2011. Cash provided by operations consists of net earnings plus non-cash expenses such as depreciation, amortization, deferred income taxes, and changes in balance sheet items such as accounts receivable, inventories, prepaid expenses and payables and income tax payables. The increase in 2012 was primarily due to a decline in accounts receivable and inventories in the 2012 period, compared to increases in accounts receivable and inventories in 2011.

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Cash used by investing activities was $7.0 million in 2012 compared to $2.9 million in 2011. We used $5.3 million for the acquisition of the Core customer base in 2012, including transaction costs. See “Acquisition of Core Oncology’s Prostate Brachytherapy Customer Base” above. Capital expenditures not related to the acquisition of the Core customer base totaled $1.9 million and $2.0 million during 2012 and 2011, respectively. Capital expenditures in 2012 of $393,000 related to our new ERP system. In August 2012, we completed the implementation of our new ERP system at our remaining location.

For 2013, we expect our capital expenditures to be $3.0 million to $3.5 million. A portion of the anticipated 2013 capital expenditures is expected to be attributable to our outsourcing efforts in our surgical products business with independent manufacturers located in Latin America. We believe outsourcing of certain legacy products to manufacturers located outside of the United States could reduce our operating expenses in the future. To date, our activities related to outsourcing with manufacturers located outside the United States have not been material. Expected capital expenditures in 2013 are also to support growth in the surgical products segment and maintain the brachytherapy segment. However, the timing and amounts of capital expenditures are subject to fluctuation depending upon opportunities we may identify.

Cash used by financing activities was $12.2 million in 2012 compared to $3.3 million in 2011. In July 2012, we repurchased 4,761,904 shares of our common stock at $2.10 per share in a modified Dutch Auction tender offer. Total cash utilized for this share repurchase, including transaction costs, was $10.4 million. We also used $1.7 million and $3.3 million for principal repayments on our outstanding borrowings in accordance with the terms of our prior credit facility in 2012 and 2011, respectively. No additional monthly principal payments are due under the terms of our current credit agreement.

R&D expenses were $1.1 million in 2012 and $1.6 million in 2011. We expect to continue to use cash in 2013 to support growth in the surgical products segment, especially for R&D. Looking forward, we expect to increase our R&D expense levels somewhat in 2013 over our 2012 levels. However, R&D activities can be complex, and expense levels are also dependent upon the discovery of opportunities of which we are not currently aware. Accordingly, R&D expenses are subject to significant variability form period to period.

We may also continue to use cash for increased marketing and support activities in our brachytherapy seed business and in the pursuit of additional diversification efforts such as product development, the purchase of technologies, products, companies, and other strategic initiatives. We believe that current cash, cash equivalents, and investment balances and cash from future operations will be sufficient to meet our current short-term anticipated working capital and capital expenditure requirements. However, any disruption or instability in the U.S. and global financial markets and worldwide economies may hinder our ability to take advantage of opportunities for long-term growth in our businesses. In the event additional financing becomes necessary, we may choose to raise those funds through other means of financing as appropriate.

Credit Agreement

On October 10, 2012, we executed a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with a financial institution. The Credit Agreement provides for up to $40 million of borrowings under a revolving credit facility (the “Revolver”). The Revolver matures on October 10, 2015 with interest on outstanding borrowings payable at the London Interbank Offered Rate (“LIBOR”) plus 1.75%. Our interest rate as of December 31, 2012 was 1.96%. The Revolver also provides for a $5 million sub-limit for trade and stand-by letters of credit. As of December 31, 2012, borrowings of $22.0 million were outstanding under the Revolver, and letters of credit totaling $946,000, representing decommission funding required by the Georgia Department of Natural Resources, were outstanding under the Credit Agreement.

The Credit Agreement is unsecured, but provides for a lien to be established on substantially all of our assets upon certain events of default. The Credit Agreement contains representations and warranties, as well as affirmative, reporting and negative covenants customary for financings of this type. Among other things, the Credit Agreement restricts the incurrence of certain additional debt and certain capital expenditures, and requires the maintenance of certain financial ratios, including a minimum fixed charge coverage ratio, a maximum senior liabilities to tangible net worth ratio, and the maintenance of minimum liquid assets of $10 million, as all such ratios and terms are defined in the Credit Agreement. We were in compliance with all covenants as of December 31, 2012.

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Cash, Cash Equivalents and Marketable Securities

Our cash and cash equivalents include bank deposits, money market funds, U.S. Treasury securities, and commercial paper held at a limited number of financial institutions. We review our investments in marketable securities and cash equivalents for impairment based on both quantitative and qualitative criteria that include the extent to which cost exceeds market value, the duration of any market decline, our intent and ability to hold to maturity or expected recovery, and the creditworthiness of the issuer. We perform research and analysis, and monitor market conditions to identify potential impairments. Looking forward, we may invest our funds in higher yielding investments if those investments meet the conservative criteria established by our investment policies and the macroeconomic outlook becomes clearer. Funds available for investment have and will continue to be utilized for our current and future expansion programs, and for strategic opportunities for growth and diversification. As funds continue to be used for these purposes, and as interest rates continue to change, we expect interest income to fluctuate accordingly. Any disruptions, volatility or uncertainties related to the U.S. and global investment and credit markets may expose us to the risk of further changes in fair value of our cash equivalents and marketable securities in future periods, which may cause us to take impairment charges that are not currently anticipated. While we will continue to research, analyze and monitor our investments, we cannot predict what the effect of changes to the current investment and credit markets might have on our portfolio going forward.

Medicare Developments

Since 2010, Medicare has provided reimbursement for brachytherapy seeds under a hospital outpatient prospective payment system (“OPPS”) with fixed prospective payment rates for brachytherapy seeds. This fixed OPPS, which we sometimes refer to as “fixed reimbursement”, fixes the per seed rate at which Medicare reimburses hospitals for the purchase of seeds. Under the fixed OPPS, CMS establishes the fixed per seed rate on an annual basis. Fixed reimbursement policies at CMS have led to pricing pressure from hospitals and other healthcare providers and have had an adverse effect on our brachytherapy revenue. In November 2012, CMS published its final reimbursement rates for 2013, which include a 6% decline in the reimbursement rate for palladium-103 based devices and a small increase for iodine-125 based devices. From time to time, we expect to continue to support fair reimbursement for brachytherapy seeds. We believe our brachytherapy revenue may continue to be adversely affected by CMS’ “fixed reimbursement” policies for brachytherapy seeds and favorable CMS reimbursement rates enjoyed by alternative, less proven technologies for early stage prostate cancer treatment.

Other Regulatory Developments

Significant reforms to the healthcare system were adopted in the form of the Patient Protection and Affordable Care Act (the “PPACA”). The PPACA includes provisions that, among other things, reduce and/or limit Medicare reimbursement to certain providers, require all individuals to have health insurance (with limited exceptions) and impose new and/or increased taxes. Specifically, the law requires the medical device industry to subsidize healthcare reform in the form of a 2.3% excise tax on the U.S. sales of most medical devices beginning in 2013. While we continue to evaluate the impact of the Medical Device Tax on our overall business, we currently believe this tax will be applicable to between 50% and 75% of our product sales. Our estimate is subject to change due to, among other things, future IRS guidance and interpretations of the Medical Device Tax regulations, and changes in our product mix. If the Medical Device Tax was applicable to all of our product sales, this would have equated to an excise tax of approximately $1.8 million in 2012. This revenue-based tax will have a material impact on our consolidated results of operations, cash flows, and financial condition. Other provisions of the PPACA, such as requirements relating to employee health insurance, can be expected to increase our operating costs.

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Forward Looking and Cautionary Statements

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding sales, marketing and distribution efforts, ordering patterns of customers, our expectation regarding changes in product mix and sales channels, with sales through OEM channels generally carrying a relatively lower gross profit margin and sales through distributor channels generally carrying a somewhat higher gross profit margin, effects of healthcare reform, third-party reimbursement, CMS policy, sales mix, effectiveness and continuation of non-exclusive distribution agreements, anticipated growth in the surgical products business segment, the increasing scale of our surgical products business, future cost of sales and gross margins, R&D efforts and expenses, investment in additional personnel, infrastructure and capital assets, implementation of and efficiencies expected from our new ERP system, future SG&A expenses, potential new products and opportunities, future results in general, plans and strategies for continuing diversification, valuation of marketable securities and cash equivalents we may hold, and the sufficiency of our liquidity and capital resources.

In addition, there are substantial risks inherent in the medical device business. Our business involves the design, development, manufacture, packaging, distribution and sale of life-sustaining medical devices. These devices are often used on, or permanently or temporarily implanted in, patients in clinically demanding circumstances, such as operating rooms, emergency units, intensive care and critical care settings, among others. These circumstances, among other factors, can cause the products to become associated with adverse clinical events, including patient mortality and injury, and could lead to product liability claims and other litigation, product withdrawals, warning letters, recalls, field corrections or regulatory enforcement actions relating to one or more of our products, any of which could have a material adverse effect on our business, results of operations, financial condition and/or liquidity.

Because actual results are affected by these and other risks and uncertainties, we caution investors that actual results may differ materially from those expressed or implied. It is not possible to predict or identify all risks and uncertainties, but the most significant factors, in addition to those addressed above and those under Item 1A.“Risk Factors,” that could adversely affect our business or cause the actual results to differ materially from those expressed or implied include, but are not limited to:

●

the ability to achieve manufacturing or administrative efficiencies, including gross margin benefits from our manufacturing processes and supply chain programs or in connection with the integration of acquired businesses;

●

the effects of negative publicity concerning our products, which could result in product withdrawals or decreased product demand and which could reduce market or governmental acceptance of our products;

●

the reduction in the number of procedures using our devices caused by customers’ cost-containment pressures or preferences for alternate therapies;

●

the ability to implement, and realize the benefits of, our plans to invest in our business, including our plans for new product development;

●

internal factors, such as retention of key employees;

●

damage to a facility where our products are manufactured or from which they are distributed, which could render us unable to manufacture or distribute one or more products and may require us to reduce the output of products at the damaged facility thereby making it difficult to meet product shipping targets;

●

the potential impairment of our intangible assets resulting from insufficient cash flow generated from such assets specifically, or our business more broadly, so as to not allow us to justify the carrying value of the assets;

●

the ability to obtain appropriate levels of product liability insurance on reasonable terms;

●

the trend of consolidation in the medical device industry as well as among our customers, resulting in potentially greater pricing pressures and more significant and complex contracts than in the past;

●

development of new products or technologies by competitors having superior performance compared to our current products or products under development which could negatively impact sales of our products or render one or more of our products obsolete;

●

technological advances, patents and registrations obtained by competitors that would have the effect of excluding us from new market segments or preventing us from selling a product or including key features in our products;

●

attempts by competitors to gain market share through aggressive marketing programs;

●

reprocessing by third-party reprocessors of our products designed and labeled for single use;

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●

the ability to obtain regulatory approval for products on a timely basis and to launch products on a timely basis within cost estimates;

●

lengthy and costly regulatory approval processes, which may result in lost market opportunities and/or delayed product launches;

●

the suspension or revocation of authority to manufacture, market or distribute existing products;

●

the imposition of additional or different regulatory requirements, such as those affecting manufacturing and labeling;

	●	performance, efficacy, quality or safety concerns for existing products, whether scientifically justified or not, that may lead to product discontinuations, product withdrawals, recalls, field corrections, regulatory enforcement actions, litigation or declining sales;
	●	FDA inspections resulting in Form-483 notices and/or warning letters identifying deficiencies in our manufacturing practices and/or quality systems; warning letters identifying violations of FDA regulations that could result in product holds, recalls, restrictions on future clearances by the FDA and/or civil penalties;

●

the failure to obtain, limitations on the use of, or the loss of, patent and other intellectual property rights, and the failure of efforts to protect our intellectual property rights against infringement and legal challenges that can increase our costs;

●

difficulties obtaining necessary components or raw materials used in our products and/or price increases from our suppliers of critical components or raw materials;

	●	customers that may limit the number of manufacturers or vendors from which they will purchase products, which can result in our inability to sell products to or contract with large hospital systems, integrated delivery networks or group purchasing organizations;
	●	the impact of continued healthcare cost containment;

●

new laws and judicial decisions related to healthcare availability, healthcare reform, payment for healthcare products and services or the marketing and distribution of products, including legislative or administrative reforms to the United States Medicare and Medicaid systems or other United States or international reimbursement systems in a manner that would significantly reduce or eliminate reimbursements for procedures that use our products;

●

changes in the FDA and/or foreign regulatory approval processes that may delay or prevent the approval of new products and result in lost market opportunity;

●

the impact of more vigorous compliance and enforcement activities affecting the healthcare industry in general or the company in particular;

●

changes in the tax laws affecting our business, such as the medical device tax;

●

changes in the environmental laws or standards affecting our business;

●

changes in laws that could require facility upgrades or process changes and could affect production rates and output;

	●	compliance costs and potential penalties and remediation obligations in connection with environmental laws, including regulations regarding air emissions, waste water discharges and solid waste;
	●	disputes over legal proceedings;

●

product liability claims;

●

claims asserting securities law violations;

●

claims asserting, and/or subpoenas seeking information regarding, violations of law in connection with federal and/or state healthcare programs;

●

derivative shareholder actions;

	●	claims and subpoenas asserting antitrust violations;
	●	environmental claims, including risks relating to accidental contamination or injury from the use of hazardous materials in our manufacturing, sterilization and research activities and the potential for us to be held liable for any resulting damages;

	●	commercial disputes, including disputes over distribution agreements, license agreements, manufacturing/supply agreements, development/research agreements, acquisition or sale agreements, and insurance policies;
	●	domestic and international business conditions;

●

political or economic instability in foreign countries;

●

interest rates;

●

changes in the rate of inflation;

	●	instability of global financial markets and economies; and
	●	other factors beyond our control, including catastrophes, both natural and man-made, earthquakes, floods, fires, explosions, acts of terrorism or war.

These and other risks and uncertainties are described herein and in other information contained in our publicly available SEC filings and press releases. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements were first made. Except to the extent required by federal securities laws, we undertake no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

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Quarterly Results

The following table sets forth certain statement of earnings data for each of the last eight quarters. This unaudited quarterly information has been prepared on the same basis as the annual audited information presented elsewhere in this Form 10-K, reflects all adjustments (consisting only of normal, recurring adjustments) which are, in our opinion, necessary for a fair presentation of the information for the periods covered and should be read in conjunction with the consolidated financial statements and notes thereto. The operating results for any quarter are not necessarily indicative of results for any future period. Quarterly data presented may not reconcile to totals for full year results due to rounding.

	2012												2011
	First Qtr			Second Qtr			Third Qtr			Fourth Qtr			First Qtr			Second Qtr			Third Qtr			Fourth Qtr
	(Amounts in thousands, except per share data)

Total revenue	$	21,583		$	21,956		$	19,916		$	19,104		$	20,253		$	21,536		$	21,062		$	19,879
Cost of sales		12,974			13,942			12,472			12,629			12,286			12,828			12,293			12,666
Gross profit		8,609			8,014			7,444			6,475			7,967			8,708			8,769			7,213
Selling, general and administrative		5,901			5,378			5,338			5,641			5,847			5,546			5,651			5,641
Amortization of purchased intangibles		855			1,006			665			848			698			698			698			699
Research and development		277			312			281			263			535			460			380			274
Loss on sale of assets		—			3			—			7			1			1			2			30
Other expense		(125	)		(118	)		(129	)		(121	)		(136	)		(141	)		(126	)		(127	)
Earnings (loss) before income taxes		1,451			1,197			1,031			(405	)		750			1,862			1,912			442
Income tax expense (benefit)		517			359			341			(82	)		292			677			771			162
Net earnings (loss)	$	934		$	838		$	690		$	(323	)	$	458		$	1,185		$	1,141		$	280

Earnings (loss) per share:
Basic	$	0.03		$	0.02		$	0.02		$	(0.01	)	$	0.01		$	0.04		$	0.03		$	0.01
Diluted	$	0.03		$	0.02		$	0.02		$	(0.01	)	$	0.01		$	0.04		$	0.03		$	0.01
Weighted average shares outstanding:
Basic		33,533			33,655			29,752			28,937			33,338			33,418			33,442			33,455
Diluted		33,941			34,204			30,383			28,937			33,645			33,753			33,727			33,793

Inflation

We do not believe that the relatively moderate levels of inflation, which have been experienced in the United States in recent years, have had a significant effect on our results of operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We have exposure to market risk as a result of changing interest rates on our borrowings under our Credit Agreement. We have outstanding borrowings of $22 million under our Revolver. The Revolver matures in October 2015. Interest on outstanding borrowings under the Revolver is payable at LIBOR plus 1.75%. A hypothetical 1% change in the interest rate would result in an increase or decrease in interest expense of $220,000 per year before income taxes, assuming the same level of borrowings.

We review our investments in marketable securities and cash equivalents for impairment based on both quantitative and qualitative criteria that include the extent to which cost exceeds market value, the duration of any market decline, our intent and ability to hold to maturity or expected recovery, and the creditworthiness of the issuer. We perform research and analysis, and monitor market conditions to identify potential impairments. Due to the uncertainties related to the U.S. and global investment and credit markets we are exposed to the risk of further changes in fair value of our cash equivalents and marketable securities in future periods, which may cause us to take impairment charges that are not currently anticipated. While we will continue to research, analyze and monitor our investments, we cannot predict what the effect of current investment and credit market circumstances might have on our portfolio going forward.

Item 8. Financial Statements and Supplementary Data

See index to Financial Statements (Page F-1) and following pages.

II-18

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2012, the end of the period covered by this annual report.

Management’s Report on Internal Control over Financial Reporting

We are responsible for preparing our annual consolidated financial statements and for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

●

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

●

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

●

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making our assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on that assessment, we believe that, as of December 31, 2012, our internal control over financial reporting is effective based on those criteria.

Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting were identified as having occurred during the quarter ended December 31, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

II-19

PART III

Item 10. Directors, Executive Officers and Corporate Governance*

We have adopted a Code of Ethics for the Chief Executive Officer and Senior Financial Officers and a Code of Conduct for all employees, including Directors. These codes are available on our website at http://www.theragenics.com. These codes are also available without charge upon request directed to Investor Relations, Theragenics Corporation, 5203 Bristol Industrial Way, Buford, Georgia 30518. We intend to disclose amendments or waivers of these codes with respect to the Chief Executive Officer, Senior Financial Officers or Directors required to be disclosed by posting such information on our website.

Our Chief Executive Officer is required to certify to the New York Stock Exchange each year that she was not aware of any violation by us of the Exchange’s corporate governance listing standards. Our Chief Executive Officer made her annual certification to that effect to the New York Stock Exchange on June 12, 2012. This report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 and Section 302 of the Sarbanes-Oxley Act of 2002.

Item 11. Executive Compensation*

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

Item 13. Certain Relationships and Related Transactions, Director Independence*

Item 14. Principal Accounting Fees and Services*

* Except as set forth above, the information called for by Items 10, 11, 12, 13 and 14 is omitted from this Report and is incorporated by reference to the definitive Proxy Statement to be filed by us not later than 120 days after December 31, 2012, the close of our fiscal year.

III-1

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Report.

Financial Statements.

See index to financial statements on page F-1.

Financial Schedules.

See financial statement schedule on page S-2.

IV-1

Exhibits

2.1	Asset Purchase Agreement by and Between Theragenics Corporation and Core Oncology, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s report on Form 10-Q for the quarterly period ended March 31, 2012) (confidential treatment has been requested for certain portions of this document)

3.1	Certificate of Incorporation as amended through July 29, 1998 (incorporated by reference to Exhibit 3.1 of the Company’s report on Form 10-Q for the quarterly period ended June 30, 1998)

3.2	Amended and Restated By-Laws (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed September 14, 2011)

4.1	See Exhibits 3.1 - 3.2 for provisions in the Company’s Certificate of Incorporation and By-Laws defining the rights of holders of the Company’s Common Stock

4.2	See Exhibit 10.19

10.1	License Agreement with University of Missouri, as amended (incorporated by reference to Exhibit 10.3 of the Company’s registration statement on Form S-1, File No. 33-7097, and post-effective amendments thereto)

10.2	Reassignment and Release Agreement among the Company, John L. Russell, Jr., and Georgia Tech Research Institute (incorporated by reference to Exhibit 10.8 of the Company’s registration statement on Form S-1, File No. 33-7097, and post-effective amendments thereto)

10.3	Agreement with Nordion International Inc. (incorporated by reference to the Company’s report on Form 8-K dated March 23, 1995)

10.4

Second Amended and Restated Credit Agreement dated as of October 10, 2012 among the Company, C.P. Medical Corporation, Galt Medical Corp., NeedleTech Products, Inc. and Wells Fargo, together with related Second Amended and Restated and Consolidated Line of Credit Note (incorporated by reference to Exhibit 10.1 of the Company’s report on Form 8-K filed on October 16, 2012)

10.5	Theragenics Corporation 1995 Stock Option Plan* (incorporated by reference to Exhibit 10.1 of the Company’s common stock registration statement on Form S-8, file no. 333-15313)

10.6	1997 Stock Incentive Plan* (incorporated by reference to Appendix B of the Company’s Proxy Statement for its 1997 Annual Meeting of Stockholders filed on Schedule 14A)

10.7	Theragenics Corporation 2000 Stock Incentive Plan* (incorporated by reference to Exhibit 10.16 of the Company’s report on Form 10-K for the year ended December 31, 1999)

10.8	Employment Agreement dated April 13, 2000 of M. Christine Jacobs* (incorporated by reference to Exhibit 10.1 of the Company’s report on Form 10-Q for the quarterly period ended March 31, 2000)

10.8A

First Amendment dated July 8, 2003 to Executive Employment Agreement for M. Christine Jacobs* (incorporated by reference to Exhibit 10.1 of the Company’s report on Form 10-Q for the quarterly period ended June 30, 2003)

10.8B

Amendment to Employment Agreement dated August 8, 2006, between Theragenics Corporation and M. Christine Jacobs* (incorporated by reference to Exhibit 10.3 of the Company’s report on Form 10-Q for the quarterly period ended July 2, 2006)

10.8C

Amendment to Employment Agreement dated December 31, 2008, between Theragenics Corporation and M. Christine Jacobs* (incorporated by reference to Exhibit 10.11C of the Company’s report on Form 10-K for the year ended December 31, 2008)

10.9	Employment Agreement dated January 1, 1999 of Bruce W. Smith* (incorporated by reference to Exhibit 10.22 of the Company’s report on Form 10-K for the year ended December 31, 1998)

10.9A

Amendment to Executive Employment Agreement dated June 29, 1999 for Bruce W. Smith* (incorporated by reference to Exhibit 10.18 of the Company’s report on Form 10-K for year ended December 31, 2002)

10.9B

Second Amendment dated June 15, 2001 to Executive Employment Agreement for Bruce W. Smith* (incorporated by reference to Exhibit 10.19 of the Company’s report on Form 10-K for year ended December 31, 2002)

10.9C

Third Amendment dated September 3, 2002 to Executive Employment Agreement for Bruce W. Smith* (incorporated by reference to Exhibit 10.20 of the Company’s report on Form 10-K for year ended December 31, 2002)

IV-2

10.9D

Fourth Amendment dated May 28, 2003 to Executive Employment Agreement for Bruce W. Smith* (incorporated by reference to Exhibit 10.2 of the Company’s report on Form 10-Q for the quarterly period ended June 30, 2003)

10.9E

Fifth Amendment to Executive Employment Agreement for Bruce W. Smith* (incorporated by reference to Exhibit 10.15E of the Company’s report on Form 10-K for the year ended December 31, 2005)

10.9F

Amendment to Employment Agreement dated December 31, 2008, between Theragenics Corporation and Bruce W. Smith* (incorporated by reference to Exhibit 10.12F of the Company’s report on Form 10-K for the year ended December 31, 2008)

10.10

Forms of Option Award for grants prior to 2007* (incorporated by reference to Exhibit 10.22 of the Company’s report on Form 10-K for the year ended December 31, 2004)

10.11

Advisor to the Chief Executive Officer Agreement dated September 5, 2012 between the Company and John Herndon* (incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q for the quarterly period ended September 30, 2012)

10.12

Form of Directors and Officers Indemnification Agreement* (incorporated by reference to Exhibit 10.28 of the Company’s report on Form 10-K for the year ended December 31, 2003)

10.13

Form of Restricted Stock Agreement for directors as of May 2005* (incorporated by reference to Exhibit 10.1 of the Company’s report on Form 10-Q for the quarterly period ended July 3, 2005)

10.14

Employment Agreement between the Company and Francis J. Tarallo dated August 10, 2005* (incorporated by reference to Exhibit 10.5 of the Company’s report on Form 10-Q for the quarterly period ended July 3, 2005)

10.14A

Amendment to Employment Agreement dated December 31, 2008, between Theragenics Corporation and Francis J. Tarallo*(incorporated by reference to Exhibit 10.20A of the Company’s Form 10-K for the year ended December 31, 2008)

10.15

Theragenics Corporation Incentive Stock Option Award for 2007 grants* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated February 20, 2007)

10.16

Restricted Stock Award Pursuant to the Theragenics Corporation 2006 Stock Incentive Plan for 2007 grants* (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated February 20, 2007)

10.17

Theragenics Corporation Amended and Restated 2007 Long-Term Cash Incentive Plan* (incorporated by reference to Exhibit 10.24 of the Company’s Form 10-K for the year ended December 31, 2007)

10.18

Employment Agreement dated May 6, 2005 by and between the Company and Patrick Ferguson* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 12, 2005)

10.19

Theragenics Corporation 2006 Stock Incentive Plan* (incorporated by reference to Appendix A to the Company’s definitive proxy statement for its May 9, 2006 annual meeting of stockholders filed with the Securities and Exchange Commission on March 27, 2006).

10.19A

First Amendment to Theragenics Corporation 2006 Stock Incentive Plan* (incorporated by reference to Exhibit 18.1 on Form 8-K filed November 13, 2006)

10.20

Rights Agreement dated February 14, 2007 between the Company and Computershare Investor Services LLC (incorporated by reference to Exhibit 99.1 of the Company’s registration statement on Form 8-A/A filed February 16, 2007)

10.21

Theragenics Corporation Incentive Stock Option Award for 2008-2011 grants* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated February 25, 2008)

10.22

Restricted Stock Award for 2008-2011 grants, pursuant to the Theragenics Corporation 2006 Stock Incentive Plan* (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated February 25, 2008)

10.23

Theragenics Corporation 2008 Long-Term Cash Incentive Plan* (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated February 25, 2008)

10.24

Employment Agreement between NeedleTech Products, Inc. and Russell Small, dated as of July 28, 2008* (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on July 31, 2008)

IV-3

10.24A

Amendment to Employment Agreement dated December 31, 2008, between NeedleTech Products, Inc. and Russell Small*(incorporated by reference to Exhibit 10.37A of the Company’s Form 10-K for the year ended December 31, 2008)

10.25

Employment Agreement between CP Medical Corporation and Janet Zeman dated August 6, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed on November 6, 2008)

10.25A

Amendment to Employment Agreement dated December 31, 2008, between CP Medical Corporation and Janet Zeman* (incorporated by reference to Exhibit 10.38A of the Company’s Form 10-K for the year ended December 31, 2008)

10.26

Theragenics Corporation 2009 Long-Term Cash Incentive Plan* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated March 4, 2009)

10.27

Employment Agreement between Theragenics Corporation and Joseph Plante, dated as of January 6, 2011* (incorporated by reference to Exhibit 10.31 of the Company’s Form 10-K for the year ended December 31, 2010)

10.28

Theragenics Corporation Cash Incentive Plan* (incorporated by reference to Exhibit 10.31 of the Company’s Form 10-K for the year ended December 31, 2009)

10.29

Theragenics Corporation 2012 Omnibus Incentive Plan* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated March 1, 2012)

10.30

Form of Non-Competition, Non-Solicitation and Confidentiality Agreement for Executive Officers* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on May 7, 2012)

10.31

Form of Restricted Stock Award under the Theragenics Corporation 2012 Omnibus Incentive Plan*

23.1	Consent of Dixon Hughes Goodman LLP

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 pursuant 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 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XRL Taxonomy Extension Presentation Linkbase Document

* Management contract or compensatory plan.

IV-4

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	THERAGENICS CORPORATION
	(Registrant)

	By:	/s/ M. Christine Jacobs
		M. Christine Jacobs
		Chief Executive Officer
Dated: March 8, 2013
Buford, Georgia

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date

/s/ M. Christine Jacobs	Chief Executive Officer	3/8/13
M. Christine Jacobs	(Principal Executive Officer)
	President and Chairman

/s/ Francis J. Tarallo	Chief Financial Officer (Principal Financial	3/8/13
Francis J. Tarallo	and Accounting Officer) and Treasurer

/s/ Kathleen A. Dahlberg	Director	3/8/13
Kathleen A. Dahlberg

/s/ K. Wyatt Engwall	Director	3/8/13
K. Wyatt Engwall

/s/ John V. Herndon	Director	3/8/13
John V. Herndon

/s/ C. David Moody, Jr.	Director	3/8/13
C. David Moody, Jr.

/s/ Peter A.A. Saunders	Director	3/8/13
Peter A. A. Saunders

IV-5

THERAGENICS CORPORATION®

TABLE OF CONTENTS

		Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-2

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Comprehensive Earnings for each of the three years in the period ended December 31, 2012		F-3

Consolidated Balance Sheets as of December 31, 2012 and 2011		F-4

Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2012		F-5

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2012		F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE		S-1

Schedule II - Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 2012		S-2

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Shareholders of Theragenics Corporation

We have audited the accompanying consolidated balance sheets of Theragenics Corporation and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive earnings, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

/s/ DIXON HUGHES GOODMAN LLP

Atlanta, Georgia

March 8, 2013

F-2

Theragenics Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE EARNINGS

Year ended December 31,

(Amounts in thousands, except per share data)

	2012			2011			2010
Revenue
Product sales	$	80,008		$	80,454		$	80,683
License and fee income		2,551			2,276			1,501
		82,559			82,730			82,184
Cost of sales		52,017			50,073			49,155
Gross profit		30,542			32,657			33,029

Operating expenses
Selling, general and administrative		22,258			22,685			24,013
Amortization of purchased intangibles		3,374			2,793			3,077
Research and development		1,133			1,649			1,942
Loss on disposal of equipment		10			34			111
		26,775			27,161			29,143

Earnings from operations		3,767			5,496			3,886

Other income (expense)
Interest income		127			162			99
Interest expense		(629	)		(697	)		(976	)
Other, net		9			5			294
		(493	)		(530	)		(583	)

Earnings before income taxes		3,274			4,966			3,303

Income tax expense		1,135			1,902			1,233

NET EARNINGS	$	2,139		$	3,064		$	2,070

NET EARNINGS PER SHARE
Basic	$	0.07		$	0.09		$	0.06
Diluted	$	0.07		$	0.09		$	0.06

WEIGHTED AVERAGE SHARES
Basic		31,458			33,414			33,259
Diluted		32,173			33,820			33,485

COMPREHENSIVE EARNINGS
Net earnings	$	2,139		$	3,064		$	2,070
Other comprehensive earnings (loss), net of taxes
Reclassification adjustment for (gain) loss included in net earnings		(8	)		(2	)		1
Unrealized gain (loss) on securities arising during the year		45			(26	)		11
Total other comprehensive earnings (loss)		37			(28	)		12
Total comprehensive earnings	$	2,176		$	3,036		$	2,082

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Theragenics Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

December 31,

(Amounts in thousands, except per share data)

	2012		2011

ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	23,589	$	29,553
Marketable securities		11,319		11,625
Accounts receivable, less allowance of $592 in 2012 and $2,757 in 2011		8,946		11,375
Inventories		15,382		15,771
Deferred income tax asset		1,008		2,028
Refundable income taxes		290		401
Prepaid expenses and other current assets		1,014		985
Total current assets		61,548		71,738

Property and equipment, net		32,370		34,519
Intangible assets, net		11,020		9,459
Deferred income tax asset		717		—
Other assets		70		102

Total assets	$	105,725	$	115,818

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	1,622		$	1,816
Accrued salaries, wages and payroll taxes		2,929			2,861
Short-term borrowings		—			23,667
Other current liabilities		1,020			1,104
Total current liabilities		5,571			29,448

Long-term borrowings		22,000			—
Deferred income tax		—			1,043
Asset retirement obligations		871			807
Other long-term liabilities		356			398
Total liabilities		28,798			31,696

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY
Common stock - authorized 100,000 shares of $.01 par value; issued 34,829 in 2012 and 33,991 in 2011		348			340
Additional paid-in capital		75,708			74,705
Retained earnings		11,232			9,093
Accumulated other comprehensive gain (loss)		21			(16	)
Common stock in treasury, at cost – 4,762 shares in 2012		(10,382	)		—
Total shareholders’ equity		76,927			84,122

Total liabilities and shareholders’ equity	$	105,725		$	115,818

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Theragenics Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the three years ended December 31, 2012

(Amounts in thousands, except per share data)

	Common Stock
	Number of Shares			Par value $0.01		Additional paid-in capital			Retained earnings		Treasury stock			Accumulated other comprehensive income (loss)			Total
Balance, December 31, 2009		33,435		$	334	$	73,360		$	3,959	$	—		$	—		$	77,653

Issuance of restricted shares		205			2		(2	)		—		—			—			—

Employee stock purchase plan		11			—		11			—		—			—			11

Share-based compensation		—			—		533			—		—			—			533

Other comprehensive income		—			—		—			—		—			12			12

Net earnings for the year		—			—		—			2,070		—			—			2,070

Balance, December 31, 2010		33,651		$	336	$	73,902		$	6,029	$	—		$	12		$	80,279

Issuance of restricted shares		298			3		(3	)		—		—			—			—

Restricted shares retired		(8	)		—		(14	)		—		—			—			(14	)

Employee stock purchase plan		50			1		61			—		—			—			62

Share-based compensation		—			—		759			—		—			—			759

Other comprehensive loss		—			—		—			—		—			(28	)		(28	)

Net earnings for the year		—			—		—			3,064		—			—			3,064

Balance, December 31, 2011		33,991		$	340	$	74,705		$	9,093	$	—		$	(16	)	$	84,122

Repurchase of common stock		—			—		—			—		(10,382	)		—			(10,382	)

Issuance of restricted shares		785			7		(7	)		—		—			—			—

Employee stock purchase plan		53			1		71			—		—			—			72

Share-based compensation		—			—		939			—		—			—			939

Other comprehensive income		—			—		—			—		—			37			37

Net earnings for the year		—			—		—			2,139		—			—			2,139

Balance, December 31, 2012		34,829		$	348	$	75,708		$	11,232	$	(10,382	)	$	21		$	76,927

The accompanying notes are an integral part of these consolidated statements.

F-5

Theragenics Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31,

(Amounts in thousands)

	2012			2011			2010
Cash flows from operating activities:
Net earnings	$	2,139		$	3,064		$	2,070
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		7,892			7,225			7,207
Deferred income taxes		(763	)		(338	)		(907	)
Share-based compensation		939			759			533
Provision for allowances		211			396			1,959
(Gain) loss on marketable securities		(8	)		(2	)		1
Decommissioning retirement liability		64			58			53
Loss on sale of equipment		10			34			111
Changes in assets and liabilities:
Accounts receivable		2,349			(2,156	)		(2,628	)
Inventories		516			(2,703	)		(1,379	)
Refundable income taxes net of income taxes payable		111			(409	)		653
Prepaid expenses and other current assets		(29	)		(68	)		(60	)
Other assets		32			(22	)		6
Accounts payable		(194	)		(28	)		(1	)
Accrued salaries, wages and payroll taxes		68			521			37
Other current liabilities		(43	)		(328	)		342
Other		(99	)		87			(111	)

Net cash provided by operating activities		13,195			6,090			7,886

Cash flows from investing activities:
Purchases and construction of property and equipment		(1,922	)		(2,026	)		(9,065	)
Cash paid for acquisition of Core Oncology customer base		(5,275	)		—			—
Proceeds from sale of property and equipment		—			36			7
Purchases of marketable securities		(6,564	)		(10,879	)		(14,927	)
Maturities of marketable securities		5,980			9,575			3,095
Proceeds from sales of marketable securities		785			368			674

Net cash used in investing activities		(6,996	)		(2,926	)		(20,216	)

F-6

Theragenics Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

Year ended December 31,

(Amounts in thousands)

	2012			2011			2010
Cash flows from financing activities:
Cash paid for shares repurchased in tender offer, including transaction costs		(10,382	)		—			—
Repayment of borrowings		(1,667	)		(3,333	)		(3,333	)
Proceeds from stock purchase plan		72			62			11
Other		(186	)		(14	)		—

Net cash used by financing activities		(12,163	)		(3,285	)		(3,322	)

Net decrease in cash and cash equivalents		(5,964	)		(121	)		(15,652	)

Cash and cash equivalents at beginning of year		29,553			29,674			45,326

Cash and cash equivalents at end of year	$	23,589		$	29,553		$	29,674

Supplementary Cash Flow Disclosure

Interest paid	$	611		$	806		$	920
Income taxes paid	$	1,787		$	2,650		$	1,486

Non-cash investing and financing activities:

Liability for property and equipment acquired	$	—		$	32		$	43
Assets acquired from the Core transaction	$	48		$	—		$	—

The accompanying notes are an integral part of these consolidated statements.

F-7

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

The terms “Company”, “we”, “us”, or “our” mean Theragenics Corporation® and all entities included in our consolidated financial statements.

We are a medical device company serving the surgical products and cancer treatment markets, operating in two business segments. Our surgical products business consists of wound closure, vascular access, and specialty needle products. Wound closure includes sutures, needles, and other surgical products. Vascular access includes introducers, guidewires, and related products. Specialty needles include coaxial, biopsy, spinal and disposable Veress needles, access trocars, implanters, introducer products and other needle based products. Our surgical products segment serves a number of markets and applications, including among other areas, interventional cardiology, interventional radiology, vascular surgery, orthopedics, plastic surgery, dental surgery, urology, veterinary medicine, pain management, endoscopy, and spinal surgery. Our brachytherapy seed business manufactures, performs custom loading, markets, and distributes “seeds” used primarily in the minimally invasive treatment of localized prostate cancer. “Custom loading” refers to loading the seeds into custom needles, strands or other packaged configurations as prescribed by the healthcare provider administering the treatment. Our brachytherapy product line includes our palladium-103 TheraSeed® device, our iodine-125 based AgX100® device, and other related products.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:

1. Consolidation

These consolidated financial statements include the accounts of Theragenics Corporation® and our wholly owned subsidiaries. We have no unconsolidated entities and no special purpose entities. All significant intercompany accounts and transactions have been eliminated in consolidation.

2. Use of Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of the financial statements. We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions.

3. Revenue Recognition and Cost of Sales

We recognize revenue when persuasive evidence of a sales arrangement exists, title and risk of loss have transferred, the selling price is fixed or determinable, contractual obligations have been satisfied, and collectability is reasonably assured. Revenue for product sales is recognized upon shipment. License fees are recognized in the periods to which they relate.

Charges for returns and allowances are recognized as a deduction from revenue on an accrual basis in the period in which the related revenue is recorded. The accrual for product returns and allowances is based on our history. We allow customers to return defective products. In our brachytherapy segment, we also allow customers to return products in cases where the attending physician or hospital has certified that the brachytherapy procedure was unable to be performed as scheduled due to the patient’s health or other valid reason. Historically, product returns and allowances have not been material.

Shipping and handling costs are included in cost of sales. Billings to customers to recover such costs are included in product sales. Any sales taxes charged to customers are excluded from both net sales and expenses.

4. Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash in banks, variable rate demand notes, treasury investments and U.S. obligations and commercial paper with original maturities equal to or less than 90 days from purchase.

F-8

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

5. Marketable Securities

Marketable securities are classified as available-for-sale and are reported at fair value with unrealized gains or losses reported net of tax in accumulated other comprehensive income (loss).

6. Interest Rate Swaps

As of December 31, 2011, we recognized our interest rate swaps at fair value as liabilities in our consolidated balance sheet. Changes in the fair value of interest rate swaps were recorded in current earnings as interest expense. Our interest rate swaps matured in June 2012, and we held no such derivative instruments at December 31, 2012.

7. Accounts Receivable and Allowance for Doubtful Accounts and Returns

Trade accounts receivable arise from sales in our various markets, are stated at the amount expected to be collected and do not bear interest. We maintain an allowance for doubtful accounts based upon reviewing our accounts receivable aging and our estimate of the expected collectability of the amounts. Outstanding receivables are considered past due based upon invoice due dates. The collectability of trade receivable balances is regularly evaluated based on a combination of factors such as customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If we determine that a customer will be unable to fully meet its financial obligation, such as in the case of a bankruptcy filing or other material events impacting its business, we record a specific reserve for bad debt to reduce the related receivable to the amount expected to be recovered.

8. Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Market is replacement cost or net realizable value. We estimate reserves for inventory obsolescence based on our judgment of future realization. Inventories consist of the following (in thousands):

	December 31,
	2012			2011

Raw materials	$	6,806		$	7,756
Work in progress		4,024			3,724
Finished goods		4,344			3,988
Spare parts and supplies		956			920
		16,130			16,388
Allowance for obsolete inventory		(748	)		(617	)
Inventories, net	$	15,382		$	15,771

9. Property, Equipment, and Depreciation

Property and equipment are recorded at historical cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives on a straight-line basis. Leasehold improvements are amortized over the useful life of the asset or the lease term, whichever is shorter. Estimated service lives are 30 years for buildings and improvements, and 3 to 15 years for machinery, equipment, furniture, and land improvements. Expenditures for repairs and maintenance not considered to substantially lengthen the life of the asset or increase capacity or efficiency are charged to expense as incurred.

10. Impairment of Long-Lived Assets

We evaluate long-lived assets, including property and equipment and finite-lived intangible assets, whenever events or changes in conditions may indicate that the carrying value may not be recoverable. Factors that we consider important that could initiate an impairment review include, among other things, the following:

●

Significant or recurring operating losses;

●

Significant adverse change in legal factors or in the business climate;

●

Significant declines in demand for a product produced by an asset capable of producing only that product;

●

Assets that are idled or held for sale; and

●

Assets that are likely to be divested.

F-9

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The impairment review requires us to estimate future undiscounted cash flows associated with an asset or group of assets. If the future undiscounted cash flows are less than the carrying amount of the asset, we must estimate the fair value of the asset. If the fair value of the asset is below the carrying value, then the asset carrying value will be adjusted to its fair value. Estimating future cash flows requires us to make judgments regarding future economic conditions, product demand and pricing. Although we believe our estimates are appropriate, significant differences in the actual performance of the asset or group of assets may materially affect the values of our asset and our results of operations.

No impairment charges related to long-lived assets subject to depreciation and amortization were recorded in any of the three years in the period ended December 31, 2012.

11. Intangible Assets

Our intangible assets are determined to have finite lives and are amortized over their useful lives using a method that is expected to reflect the pattern of its economic benefit. When a pattern of economic benefit cannot be determined, or if the straight-line method results in greater amortization, then the straight-line method is used. To date, all finite-lived intangible assets have been amortized using the straight-line method.

12. Income Taxes

We account for income taxes using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets when it is more likely than not that the asset will not be realized.

We review all of our tax positions, and the tax benefits of uncertain tax positions are recognized only if it is more likely than not that we will be able to sustain a position taken on an income tax return. We have concluded that there were no significant uncertain tax positions as of December 31, 2012 and 2011. Our policy is to recognize accrued interest expense and penalties associated with uncertain tax positions as a component of income tax expense.

13. Contingencies

From time to time we may be subject to various legal proceedings and claims, including, for example, disputes on agreements, employment disputes and other commercial disputes, the outcomes of which are not within our complete control and may not be known for extended periods of time. In some cases, the claimants seek damages, as well as other relief, which, if granted, could require significant expenditures. We record a liability for damages and/or costs related to claims, settlements and judgments where we have assessed that a loss is probable, and an amount can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range. Legal costs associated with these matters are expensed as incurred.

14. Earnings Per Share

Basic net earnings per common share is based upon the weighted average number of common shares outstanding during the period. Diluted net earnings per common share is based upon the weighted average number of common shares outstanding plus dilutive potential common shares, including options and awards outstanding during the period.

F-10

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

15. Share-Based Compensation

Compensation costs related to share-based payments, including stock options and other equity awards, are measured at the grant date fair value of the award. To estimate the fair value of stock options, we use the Black-Scholes options-pricing model. Inherent in this model are assumptions related to expected stock price volatility, option life, risk-free interest rate and dividend yield. Expected stock price volatility is primarily based on the historical volatility of our stock price over the most recent period commensurate with the expected option life. When determining the expected life of stock options, we classify options into groups for employees where relatively homogeneous exercise behavior is expected. The vesting period of the options, the length of time similar grants have remained outstanding in the past, and the expected volatility of the stock are also considered. These factors may cause the expected volatility and expected life of options granted to differ from period to period. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the grant date with a term equal to the expected term of the stock option. Fair value of restricted shares is based on the fair value of the underlying common stock at the grant date. The fair value of the restricted shares granted to non-employees is remeasured each period until they are vested based on the fair value of the underlying common stock. Share-based compensation costs are recognized as expense over the requisite service period of each award, which is generally equal to the vesting period.

16. Research and Development Costs

Research and development (R&D) costs are expensed as incurred.

17. Advertising

Advertising costs are expensed as incurred and totaled approximately $365,000, $504,000, and $799,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

18. Software Capitalization

Internally used software, whether purchased or developed, is capitalized and amortized using the straight-line method over an estimated useful life of five to seven years. Capitalized software costs are included in machinery and equipment. We capitalize certain costs associated with internal-use software, such as the payroll costs of employees devoting time to the projects and external direct costs for materials and services. Costs associated with internal-use software are expensed during the design phase until the point at which the project has reached the application development stage. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred. Capitalized costs related to internally used software, including payroll costs and external direct costs, totaled approximately $393,000, $1,300,000, and $1,500,000 for the years ended December 31, 2012, 2011, and 2010, respectively.

NOTE C – ACQUISITION OF CORE ONCOLOGY’S PROSTATE BRACHYTHERAPY CUSTOMER BASE

The total purchase price for the acquired assets is equal to one times the actual revenue generated from the acquired customers over the twelve-month period from September 2012 to August 2013 (the “Earn-Out Period”), in excess of a $2.5 million Threshold Amount. Through December 31, 2012 we have paid $5.3 million in cash for this transaction, primarily consisting of prepayment of a portion of the earn-out at closing in February 2012 plus subsequent earn-out payments. We have three quarterly earn-out payments remaining through September 2013. Each quarterly earn-out payment is based upon that quarter’s revenue from the acquired customers, reduced by a portion of the Threshold Amount and by a portion of the prepayment made at closing. The final earn-out payment is calculated as one times the revenue actually recognized from the acquired customer base over the twelve-month period from September 2012 to August 2013 in excess of the total Threshold Amount, reduced by the prepayment and the cumulative amount of all previous earn-out payments made. Based on our current estimates, we do not expect to make additional earn-out payments. The total purchase price of $5.3 million includes transaction costs.

F-11

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

	Amount		Estimated Life
Inventories	$	258
Developed technology equipment		181	7 years
Intangibles
Customer relationships		4,404	7 years
Non-compete agreements		373	5 years
Developed technology		107	1.5 years
		4,884	6.7 years

Total cost of assets acquired	$	5,323

We used the income approach to determine the fair value of the customer relationships acquired. This approach evaluates the present worth of the future economic benefits accruing from this asset over its estimated useful life, discounted to the present at a rate of return commensurate with the asset’s inherent risk. This approach requires significant judgments including the projected net cash flows and the weighted average cost of capital (“WACC”) used to discount the cash flows. We derive the assumptions related to cash flows primarily from our internal budgets and forecasts. These budgets and forecasts include information related to revenues, capacity, operating costs, and other information. The WACC and terminal value assumptions are based on our capital structure, cost of capital, inherent risk profiles, and industry outlook. The estimated fair value of all other assets acquired (other than the customer relationships) was based on commonly accepted valuation techniques that we believed to be appropriate in the circumstances.

Our estimates of the expected total purchase price of these assets may change based on, among other things, changes in forecasted revenues to be recognized from the acquired customers. Any changes in these estimates will cause changes in the carrying values of the non-current acquired assets and the resulting expenses charged to our earnings from these assets (primarily amortization of intangible assets). Such changes may be material to our results of operations and financial position.

At December 31, 2011, we had accounts receivable due from Core totaling $2.2 million (the “Core Accounts Receivable”), for which an allowance had been established (see Note O), and a related current deferred tax asset of approximately $800,000 was recorded. In connection with the acquisition of the Core customer base, we released Core from any claims related to the Core Accounts Receivable. However, for income tax purposes this amount is currently accounted for as an increase in the tax basis of the acquired assets, which are primarily long-term intangible assets. Accordingly, the deferred tax asset associated with the acquired intangible assets has been recorded as a long-term deferred tax asset at December 31, 2012. In addition, we considered the fair value of the Core Accounts Receivable as of the date of acquisition and, based on our understanding of Core’s financial condition, concluded that such fair value was immaterial.

NOTE D – PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows (in thousands):

	December 31,
	2012		2011
Buildings and improvements	$	29,314	$	29,251
Machinery and equipment		50,452		48,170
Office furniture and equipment		1,251		1,251
Land improvements		992		992
		82,009		79,664
Less accumulated depreciation		51,824		47,837
		30,185		31,827
Land		1,368		1,368
Construction in progress		817		1,324
Property and equipment, net	$	32,370	$	34,519

F-12

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Depreciation expense related to property and equipment charged to operations was approximately $4,210,000, $4,148,000, and $3,834,000 for 2012, 2011 and 2010, respectively. We capitalized $20,000, $39,000, and $113,000 of interest expense in 2012, 2011, and 2010, respectively, primarily related to the development of our enterprise resource planning software.

NOTE E – FINANCIAL INSTRUMENTS

Interest Rate Swaps

We are exposed to certain risks relating to our ongoing business operations. Prior to June 1, 2012 when our interest rate swaps expired, we managed our interest rate risk using interest rate swaps associated with outstanding borrowings under our credit agreement as our interest rates are floating rates based on LIBOR. Our interest rate swaps were intended to convert a portion of our floating rate debt to a fixed rate. We do not use interest rate swaps for speculative or trading purposes. At December 31, 2012, we held no interest rate swaps or other derivative financial instruments. Our interest rate swaps were recorded as either assets or liabilities at fair value on our consolidated balance sheets. We entered into interest rate swaps that were designed to hedge our interest rate risk but are not designated as “hedging instruments”, as defined under guidance issued by the Financial Accounting Standards Board (“FASB”). Changes in the fair value of these instruments were recognized as adjustments to interest expense in our consolidated statements of comprehensive earnings.

A roll forward of the notional value of our interest rate swaps for the two years ended December 31, 2012 is as follows (in thousands):

Balance, December 31, 2010	$	11,000
Matured contracts		(3,333	)
Balance, December 31, 2011	$	7,667
Matured contracts		(7,667	)
Balance, December 31, 2012	$	—

The location and fair value of our interest rate swaps in our consolidated balance sheets were as follows (in thousands):

			December 31,
Type	Maturity	Balance Sheet Location	2012		2011
Interest rate swaps	June 2012	Other current liabilities	$	—	$	57

The following table includes information about gains and losses recognized on our interest rate swaps in our consolidated statements of comprehensive earnings (in thousands):

									Location of
	Year Ended December 31,								(Gain) Loss
	2012			2011				2010	Recognized in Income
Periodic settlements	$	60		$	145		$	192	Interest expense
Change in fair value	$	(57	)	$	(130	)	$	107	Interest expense

Cash, Cash Equivalents and Marketable Securities

The carrying value of our cash and cash equivalents approximates fair value due to the relatively short period to maturity of the instruments. Marketable securities, which consisted primarily of high-credit quality corporate and municipal obligations, were classified as available-for-sale and were reported at fair value based upon quoted market prices with unrealized gains or losses excluded from earnings and included in other comprehensive earnings (loss), net of applicable taxes. The cost of marketable securities sold is determined using the specific identification method. We evaluate individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. We consider, among other factors, the length of the time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. Declines in value that are other-than-temporary are charged to earnings.

F-13

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Available-for-sale securities consisted of the following (in thousands):

	December 31,
	2012									2011
	Amortized Cost			Gross Unrealized Gain			Estimated Fair Value			Amortized Cost			Gross Unrealized Gain (Loss)				Estimated Fair Value
U.S. Treasury and other U.S. government securities		$	4,577		$	4		$	4,581		$	4,308		$	6			$	4,314
State and municipal securities			218			1			219			689			4				693
Corporate and other securities			6,489			30			6,519			6,654			(36	)			6,618
Total		$	11,284		$	35		$	11,319		$	11,651		$	(26	)		$	11,625

The estimated fair value of marketable securities by contractual maturity at December 31, 2012 is as follows (in thousands):

Due in one year or less	$	4,436
Due after one year through five years		6,883
Total	$	11,319

Financial Instruments Measured at Fair Value on a Recurring Basis

We measure fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. In accordance with guidance issued by the FASB, we use a three-level fair value hierarchy to prioritize the inputs used to measure fair value. The hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•

Level 1 — Quoted prices in active markets for identical assets or liabilities.

•

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

We had the following assets (liabilities) measured at fair value on a recurring basis:

	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
December 31, 2012
Money market funds	$	477	$	—		$	—	$	477
Marketable securities		11,319		—			—		11,319
Total assets	$	11,796	$	—		$	—	$	11,796

December 31, 2011
Money market funds	$	8,483	$	—		$	—	$	8,483
Marketable securities		11,625		—			—		11,625
Total assets	$	20,108	$	—		$	—	$	20,108

Interest rate swaps liability	$	—	$	(57	)	$	—	$	(57	)

F-14

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Our interest rate swaps were contracts with our financial institution and were not contracts that could be traded in a ready market. We estimated the fair value of our interest rate swaps based on, among other things, discounted cash flows based upon current market expectations about future amounts, yield curves, and mid-market pricing. Accordingly, we classified our interest rate swap agreements as Level 2.

Financial Instruments Not Measured at Fair Value

Our financial instruments not measured at fair value consist of cash and cash equivalents, accounts receivable, and accounts payable, the carrying value of each approximating fair value due to the nature of these accounts. Our financial instruments not measured at fair value also include borrowings under our Credit Agreement. We estimate the fair value of outstanding borrowings under our Credit Agreement based on the current market rates applicable to borrowers with credit profiles similar to us. We estimate that the carrying value of our borrowings approximates fair value at December 31, 2012.

Other Fair Value Measurements

There were no nonfinancial assets or nonfinancial liabilities measured at fair value at December 31, 2012 or 2011.

Concentrations

We are potentially subject to financial instrument concentration of credit risk through our cash and cash equivalents, marketable securities and trade accounts receivable. To mitigate these risks, we have policies, which require minimum credit ratings, and restrict the amount of credit exposure with any one counterparty for short-term investments and marketable securities. We maintain our cash and cash equivalents with a limited number of financial institutions. We periodically evaluate the credit standing of these financial institutions. Trade accounts receivable are subject to risks related to the medical device industry generally, and the wound closure, vascular access, specialty needle and prostate cancer treatment markets specifically. These industries are in turn largely dependent upon the health care market generally, which can be affected by, among other things, innovation and advances in treatments and procedures, insurance and government reimbursement policies, preferences of physicians and other health care providers, demographics and patient requirements, and government regulation. The significant portion of our trade accounts receivable is with customers based in the United States. We have certain customers which comprise ten percent or more of our trade accounts receivable and net revenue. See Note O.

NOTE F - INTANGIBLE ASSETS

Intangible assets include the following (in thousands):

	December 31, 2012						December 31, 2011

	Gross Carrying Amount		Accum Amort		Net Book Value		Gross Carrying Amount		Accum Amort		Net Book Value		Weighted Average Life (in years)

Customer relationships	$	20,672	$	12,734	$	7,938	$	16,268	$	10,019	$	6,249		7
Tradenames		3,240		1,296		1,944		3,240		972		2,268		10
Non-compete agreements		1,316		898		418		943		644		299		5
Developed technology		1,367		835		532		1,260		691		569		11
Loan fees and other		221		33		188		260		186		74		5
	$	26,816	$	15,796	$	11,020	$	21,971	$	12,512	$	9,459

At December 31, 2012, the weighted average life of intangible assets subject to amortization was 8 years.

F-15

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

As of December 31, 2012, future approximate aggregate amortization expense for intangible assets subject to amortization is as follows (in thousands):

Year Ending December 31,
2013	$	3,475
2014		2,438
2015		1,779
2016		1,094
2017		1,029
Beyond		1,205
	$	11,020

NOTE G - ASSET RETIREMENT OBLIGATIONS

We provide for retirement obligations relating to future decommissioning costs associated with certain of our equipment and buildings in our brachytherapy segment. The liability is recorded at present value by discounting our estimated future cash flows associated with future decommissioning activities using our estimated credit-adjusted borrowing rate. The asset retirement obligation has been recorded in the accompanying consolidated balance sheets and will be adjusted to fair value over the estimated useful lives of the assets as an accretion expense. Changes in estimated future cash flows are adjusted in the period of change.

The following summarizes activity in our asset retirement obligation liability (in thousands):

	Year ended
	2012		2011
Asset retirement obligation at beginning of period	$	807	$	749
Accretion expense		64		58
Asset retirement obligation at end of period	$	871	$	807

NOTE H - CREDIT AGREEMENT

On October 10, 2012, we executed a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with a financial institution. The Credit Agreement provides for up to $40 million of borrowings under a revolving credit facility (the “Revolver”). The Revolver matures on October 10, 2015 with interest on outstanding borrowings payable at the London Interbank Offered Rate (“LIBOR”) plus 1.75%. Our interest rate as of December 31, 2012 was 1.96%. The Revolver also provides for a $5 million sub-limit for trade and stand-by letters of credit. As of December 31, 2012, borrowings of $22 million were outstanding under the Revolver, and letters of credit totaling $946,000, representing decommission funding required by the Georgia Department of Natural Resources, were outstanding under the Credit Agreement.

F-16

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE I - INCOME TAXES

The income tax provision consisted of the following (in thousands):

	Year ended December 31,
	2012			2011			2010
Current
Federal	$	1,782		$	1,965		$	1,901
State		116			275			239
		1,898			2,240			2,140
Deferred
Federal		(761	)		(299	)		(691	)
State		2			(213	)		(234	)
Change in allowance		(4	)		174			18
		(763	)		(338	)		(907	)
Income tax expense	$	1,135		$	1,902		$	1,233

Our temporary differences are summarized as follows (in thousands):

	December 31,
	2012			2011
Deferred tax assets:
Goodwill and intangible assets	$	2,928		$	1,669
Inventories		436			451
Non-deductible accruals and allowances		482			1,428
Net operating loss carryforwards		192			180
Asset retirement obligation		321			299
Share-based compensation		358			207
Tax credit carryforwards		139			205
Capital loss carryforwards		117			121
Other		38			76
Gross deferred tax assets		5,011			4,636
Deferred tax liabilities:
Property and equipment		(2,937	)		(3,311	)
Other		(13	)		—
Gross deferred tax liabilities		(2,950	)		(3,311	)

Valuation allowance		(336	)		(340	)

Net deferred tax asset	$	1,725		$	985

The net deferred tax asset is classified in our accompanying consolidated balance sheets as follows (in thousands):

	December 31,
	2012			2011
Current deferred tax asset		$	1,008		$	2,028
Long-term deferred tax asset (liability)			717			(1,043	)
Net deferred tax asset		$	1,725		$	985

F-17

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Activity in the valuation allowance for deferred tax assets is as follows (in thousands):

	Year ended December 31,
	2012			2011		2010
Valuation allowance, beginning of period	$	340		$	166	$	148
Increase in allowance		—			174		18
Release of allowance		(4	)		—		—
Valuation allowance, end of period	$	336		$	340	$	166

We periodically evaluate the recoverability of the deferred tax assets and recognize the tax benefit only if reassessment demonstrates that they are realizable. At such time, if it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance is adjusted. The remaining allowance at December 31, 2012 relates primarily to certain capital loss carryforwards and certain state net operating loss carryforwards for which we believe it is more likely than not that the benefit will not be realized.

A reconciliation of the statutory federal income tax rate and our effective tax rate follows:

	Year ended December 31,
	2012			2011			2010
Tax expense at applicable federal rates		34.0	%		34.0	%		34.0	%
State tax, net of federal tax effect		3.6			2.6			2.8
Non-deductible share-based compensation		1.4			2.2			3.0
Non-deductible lobbying expenses		.7			.3			1.1
Non-deductible compensation (162m)		—			2.3			2.4
Valuation allowance		—			3.5			—
Domestic production deduction		(5.7	)		(4.2	)		(5.0	)
Federal tax credits		—			(1.1	)		(2.0	)
State investment tax credit		—			(2.0	)		(1.4	)
Other		.7			.7			2.4
Effective tax expense		34.7	%		38.3	%		37.3	%

Substantially all of our state net operating loss carryforwards expire in 2025.

We account for investment tax credits under the flow-through method, which results in the recognition of the credit as a reduction of income taxes in the year in which the credit arises. We have state investment tax credit carryforwards of $139,000 which expire in 2020.

We have evaluated our tax positions for the tax year ended December 31, 2012, and for the tax years ended December 31, 2009, 2010 and 2011, the tax years that remain subject to examination by major tax jurisdictions as of December 31, 2012. With few exceptions, we are no longer subject to U.S. federal, state and local, or income tax examinations by tax authorities for years prior to 2009. We have concluded that there are no significant uncertain tax positions requiring recognition in our consolidated financial statements.

NOTE J - COMMITMENTS AND CONTINGENCIES

Licensing Agreements

We hold a worldwide exclusive license from the University of Missouri for the use of technology patented by the University used in our TheraSphere® product. Royalties to the University of Missouri are no longer due from us under this licensing agreement. We do reimburse the University for certain administrative fees associated with the patents related to the technology.

We have granted certain of our geographical rights under the licensing agreement with the University of Missouri to Nordion Inc., a Canadian company that is a producer, marketer and supplier of radioisotope products and related equipment. Under the Nordion agreement, we are entitled to licensing fees for each geographic area in which Nordion receives new drug approval. We are also entitled to a percentage of revenues earned by Nordion as royalties under the agreement. Royalties from this agreement are recorded as license and fee income in the accompanying consolidated statements of comprehensive earnings.

F-18

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In May 2008, we entered into an exclusive license agreement for the rights to certain intellectual property related to an expandable brachytherapy delivery system developed by us. The term of the agreement is through the expiration of the last of the patents licensed under the agreement, which is currently July 2025. The term may be altered if such patents are found to be invalid. The agreement provides for a minimal non-refundable initial license fee and non-refundable continuing royalties based upon sales subject to certain minimums. Royalties from this agreement are recorded as license and fee income in the accompanying consolidated statements of comprehensive earnings. Minimum annual royalties are based on the contract year, which ends each May, and are $1 million for the contract year ended May 31, 2013 and for each year thereafter through July 2025.

The minimum royalties are subject to increase under certain circumstances. The licensee can terminate the agreement for any reason upon payment of the minimum annual royalties due for that contract year, plus a termination fee of $1 million. In the event the licensee terminates the agreement for any reason, the initial license fee and all royalties previously paid are non-refundable and all rights granted by the license terminate. The licensee can assign its rights to the agreement upon payment of an assignment fee.

Commitments and Obligations

We lease equipment and production, warehouse, office and other space under non-cancelable leases that expire at various dates through August 2016. Approximate minimum lease payments under the leases are as follows: 2013, $462,000; 2014, $453,000; 2015, $442,000; and 2016, $78,000.

Rent expense was approximately $556,000, $578,000, and $819,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Litigation and Claims

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

NOTE K – SHARE-BASED COMPENSATION AND SHAREHOLDERS’ EQUITY

We provide share-based compensation under equity incentive plans approved by shareholders, which provide for the granting of stock options, restricted stock and other equity incentives. As of December 31, 2012 there were 3,266,032 shares remaining available for issuance under our equity incentive plan. We issue new shares from our authorized but unissued share pool.

Stock Options

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

The following is a summary of activity in stock options outstanding during the year ended December 31, 2012 (shares and intrinsic value in thousands):

	Shares			Weighted average exercise price		Weighted average remaining contractual life (yrs)		Aggregate intrinsic value
Outstanding, beginning of period		1,670		$	2.86
Granted		—			—
Exercised		—			—
Forfeited		(5	)		3.95
Expired		(341	)		5.83
Outstanding, end of period		1,324		$	2.09		6.8	$	269
Exercisable at end of period		782		$	2.47		6.1	$	153

F-19

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

	Year ended December 31,
	2012		2011		2010
Weighted average grant date fair value of options granted	$	N/A	$	1.15	$	0.96
Total intrinsic value of options exercised	$	N/A	$	N/A	$	N/A
Total fair value of options vested	$	312	$	282	$	196

The fair values were estimated using the Black-Scholes options-pricing model with the following weighted average assumptions:

	2011			2010
Expected dividend yield		0.0	%		0.0	%
Expected stock price volatility		62.8	%		63.4	%
Risk-free interest rate		3.0	%		3.3	%
Expected life of option (years)		8.0			8.0

No stock options were granted during the year ended December 31, 2012.

We recognize compensation expense for awards with graded vesting on a straight-line basis over the requisite service period for each separately vesting portion of the award. Compensation cost related to stock options totaled $212,000, $368,000, and $272,000 for the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012, there was approximately $145,000 of unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted average period of approximately two years.

We may issue restricted stock to employees, directors and others. Non-vested restricted stock is included in our outstanding common shares. Restrictions limit the sale or transfer of the shares until vested. Vesting of restricted stock is time-based over a three to four-year period. A summary of activity in non-vested restricted stock awards for the year ended December 31, 2012 follows (shares in thousands):

Non-vested Restricted Stock	Shares			Weighted average grant date fair value
Non-vested at January 1, 2012		531		$	1.65
Granted		785			1.56
Vested		(190	)		1.74
Forfeited		—			—
Non-vested at December 31, 2012		1,126		$	1.57

Fair value of restricted shares granted to employees and directors is based on the fair value of the underlying common stock at the grant date. Compensation cost related to the restricted shares is based on the grant date fair value of the common stock granted and is recorded over the requisite service period of three to four years. The weighted average per share grant date fair value of restricted shares issued was $1.56, $1.76, and $1.43 in 2012, 2011, and 2010, respectively. Compensation expense related to the restricted stock totaled approximately $714,000, $379,000, and $257,000 in 2012, 2011 and 2010, respectively. As of December 31, 2012, there was approximately $880,000 of unrecognized compensation cost related to the restricted shares, which is expected to be recognized over a weighted average period of approximately two years.

Modified Dutch Auction Tender Offer

On June 12, 2012, we announced a modified “Dutch Auction” tender offer to repurchase up to $10 million of our common stock. The offer period expired on July 11, 2012. On July 17, 2012 we repurchased 4,761,904 shares of our common stock for a total cost of $10 million, or $2.10 per share, excluding transaction costs. The purchase price was funded from cash on hand, and the shares repurchased represented approximately 14% of our issued and outstanding common stock at that time. We did not acquire any stated or unstated rights or privileges in connection with the repurchase of this common stock and, accordingly, the entire purchase price of $10.4 million, including transaction costs, was accounted for as treasury stock.

F-20

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Employee Stock Purchase Plan

The Theragenics Corporation Employee Stock Purchase Plan (the “ESPP”) allows eligible employees the right to purchase common stock on a quarterly basis at the lower of 85% of the market price at the beginning or end of each quarterly offering period. Compensation cost related to the ESPP totaled approximately $13,000, $12,000 and $4,000 in 2012, 2011 and 2010, respectively. 250,000 shares of Common Stock are authorized under our current ESPP, and 136,309 shares remained available for issuance under the ESPP at December 31, 2012.

Shareholder Rights Plan

We have a Shareholder Rights Plan (the “Rights Plan”), which contains provisions designed to protect our shareholders in the event of an unsolicited takeover attempt. It is not intended to prevent a takeover on terms that are favorable and fair to all shareholders and will not interfere with a merger approved by the Board of Directors. Pursuant to the Rights Plan each share of our Common Stock contains a share purchase right (a “Right”), which expires in February 2017 and does not become exercisable unless a group acquires or announces a tender or exchange offer for 20% or more of our outstanding Common Stock. Upon a triggering event, each Right that is not held by the 20% or more shareholders will entitle its holder to purchase additional shares of Common Stock at a substantial discount to the then current market prices.

NOTE L – 401(K) SAVINGS PLANS

We sponsor a 401(k) defined contribution retirement savings plan for our employees. Matching contributions are made in Company common stock. Prior to 2011 we sponsored several 401(k) defined contribution plans, and matching contributions were made in Company common stock and in cash depending upon the plan. All of the 401(k) plans we sponsored were consolidated into a single plan by 2011. Matching contributions are charged to operating expenses and totaled approximately $156,000, $297,000, and $222,000 in 2012, 2011, and 2010, respectively.

NOTE M – EARNINGS PER SHARE

Earnings per common share was computed as follows (in thousands, except per share data):

	Year ended December 31,
	2012		2011		2010
Net earnings	$	2,139	$	3,064	$	2,070

Weighted average common shares outstanding		31,458		33,414		33,259
Incremental common shares issuable from stock options and awards		715		406		226
Weighted average common shares outstanding assuming dilution		32,173		33,820		33,485

Basic earnings per share	$	0.07	$	0.09	$	0.06
Diluted earnings per share	$	0.07	$	0.09	$	0.06

Diluted earnings per share does not include the effect of certain stock options and awards as their impact would be anti-dilutive. Approximately 731,000, 1,077,000, and 1,011,000 stock options and awards for the years ended December 31, 2012, 2011 and 2010, respectively, were not included in the computation of diluted earnings per share for those years because their effect would be anti-dilutive.

F-21

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE N - SEGMENT REPORTING

We are a medical device company serving the surgical product and cancer treatment markets, operating in two business segments. Our surgical products segment consists of wound closure, vascular access, and specialty needle products. Our brachytherapy seed business manufactures, performs custom loading, markets, and distributes “seeds” primarily in the minimally invasive treatment of localized prostate cancer. Our brachytherapy product line includes our palladium-103 TheraSeed® device and our iodine-125 AgX100® device.

The following tables provide certain information for these segments (in thousands):

	Year ended December 31,
	2012			2011			2010
Revenue
Surgical products	$	59,933		$	59,409		$	59,027
Brachytherapy seed		23,597			24,077			23,752
Intersegment eliminations		(971	)		(756	)		(595	)
	$	82,559		$	82,730		$	82,184

Earnings from operations
Surgical products	$	696		$	607		$	215
Brachytherapy seed		3,122			4,923			3,685
Intersegment eliminations		(51	)		(34	)		(14	)
	$	3,767		$	5,496		$	3,886

Capital expenditures
Surgical products	$	1,357		$	1,780		$	8,316
Brachytherapy seed		565			246			749
	$	1,922		$	2,026		$	9,065

Depreciation and amortization
Surgical products	$	4,917		$	4,536		$	4,686
Brachytherapy seed		2,975			2,689			2,521
	$	7,892		$	7,225		$	7,207

We evaluate business segment performance based on segment revenue and segment earnings from operations. Earnings from operations by segment do not include interest expense, interest income, other income and expense, or provisions for income taxes. Intersegment eliminations are for surgical products segment sales transactions. Corporate expenses are allocated based upon the relative revenue for each segment.

Segment information related to significant assets follows (in thousands):

	December 31,
	2012			2011
Identifiable assets
Surgical products	$	70,361		$	72,475
Brachytherapy seed		62,474			60,791
Corporate investment in subsidiaries		111,439			111,439
Intersegment eliminations		(138,549	)		(128,887	)
	$	105,725		$	115,818

Intangible assets
Surgical products	$	6,644		$	9,404
Brachytherapy seed		4,376			55
	$	11,020		$	9,459

F-22

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

	Year ended December 31,
	2012		2011		2010
Product sales
United States	$	69,259	$	70,836	$	71,853
Europe		7,361		7,663		7,544
Other foreign countries		3,388		1,955		1,286
		80,008		80,454		80,683
License and fee income
United States		1,103		953		603
Canada		1,448		1,323		898
		2,551		2,276		1,501

	$	82,559	$	82,730	$	82,184

Foreign sales are attributed to countries based on location of the customer. The license fees attributed to Canada are with Nordion, a Canadian based company, for the license of our TheraSphere® product. Less than 10% of all foreign product sales are related to the brachytherapy segment. Substantially all of our long-lived assets are located within the United States.

NOTE O - DISTRIBUTION AGREEMENTS AND MAJOR CUSTOMERS

Our brachytherapy seed business sells our TheraSeed® device directly to healthcare providers and to third-party distributors. Under our third-party distribution agreements, we are the exclusive palladium-103 seed supplier for the treatment of prostate cancer for each distributor, and each distributor has the non-exclusive right to sell TheraSeed® in the U.S. and Canada. Certain agreements also provide distributors with rights to distribute TheraSeed® for the treatment of solid localized tumors other than in the prostate and with rights to distribute to certain locations outside of North America. Such applications (non-prostate and outside of North America) have not been material. Our principal non-exclusive distribution agreement is with C. R. Bard (“Bard”). Our agreement with Bard provides for automatic one year extensions of the term, unless either party gives notice of its intent not to renew at least twelve months prior to the end of the current term. The current term expires December 31, 2014 and will be automatically extended for one additional year unless either party gives notice of its intent not to extend by December 31, 2013. Sales to Bard under the Bard agreement represented approximately 25%, 28%, and 33% of brachytherapy segment revenue in 2012, 2011, and 2010, respectively. Our surgical products segment also sells to Bard. Total consolidated sales to Bard, including sales in our brachytherapy seed segment and our surgical products segment, did not equal or exceed 10% of our consolidated revenue in 2012. Consolidated sales to Bard totaled 10% and 11% of consolidated revenue in 2011 and 2010, respectively. Accounts receivable from Bard represented approximately 16% and 19% of brachytherapy accounts receivable at December 31, 2012 and 2011, respectively, and were less than 10% of consolidated accounts receivable at December 31, 2012 and 2011.

Core Oncology (“Core”) became an additional non-exclusive distributor of TheraSeed® in January 2010. In February 2011, we terminated our agreement with Core due to Core’s failure to satisfy its financial obligation to us in accordance with the contractual terms of the agreement. Core had been attempting to become current with amounts due to us. However, litigation filed against Core by a third party in January 2011 created what we viewed as an unacceptable level of uncertainty surrounding Core’s ability to satisfy their financial obligations to us for both current and ongoing sales. Subsequent to termination of the agreement, we continued to supply TheraSeed® to Core on a prepaid basis. Sales to Core in our brachytherapy segment totaled approximately 8% and 14% of total brachytherapy seed segment revenue in 2011 and 2010, respectively. In the latter half of 2011, certain customers who previously purchased TheraSeed® through Core began purchasing either from us on a direct basis or through one of our other TheraSeed® distributors. On February 17, 2012, we acquired Core’s prostate brachytherapy customer base. See Note C. Brachytherapy accounts receivable due from Core at December 31, 2011 and 2010 totaled $1.8 million and $1.7 million, respectively (consolidated accounts receivable due from Core totaled $2.2 million and $2.1 million at December 31, 2011, and 2010, respectively). An allowance for doubtful accounts was established for all unpaid amounts due from Core at December 31, 2011 and 2010. In connection with the acquisition of the Core customer base on February 17, 2012, we released Core from all claims existing at that date, including the Core Accounts Receivable. Accordingly, the $2.2 million for which an allowance had been established was written off as uncollectible for financial reporting purposes in 2012.

One surgical products customer represented 17% of surgical products accounts receivable and 11% of consolidated accounts receivable at December 31, 2012.

F-23

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE P – NON-OPERATING INCOME

Other net non-operating income consists of the following (in thousands):

	Year Ended December 31,
	2012		2011		2010
Litigation settlement	$	—	$	—	$	200
Other		9		5		94
Total other	$	9	$	5	$	294

NOTE Q - RELATED PARTY TRANSACTIONS

During 2010, we utilized the services of a real estate firm whose principal owner is related to one of our executive officers. Payments of $131,000 were made to this firm during 2010 for construction and real estate consulting services. No such payments were made in 2012 or 2011.

NOTE R - QUARTERLY FINANCIAL DATA (UNAUDITED)

The following summarizes certain quarterly results of operations (in thousands, except per share data):

Year ended December 31, 2012:	Quarter ended
	March 31		June 30		September 30		December 31
Net revenue	$	21,583	$	21,956	$	19,916	$	19,104
Gross profit		8,609		8,014		7,444		6,475
Net earnings (loss)		934		838		690		(323	)
Net earnings (loss) per common share
Basic	$	0.03	$	0.02	$	0.02	$	(0.01	)
Diluted	$	0.03	$	0.02	$	0.02	$	(0.01	)

Year ended December 31, 2011:	Quarter ended
	March 31		June 30		September 30		December 31
Net revenue	$	20,253	$	21,536	$	21,062	$	19,879
Gross profit		7,967		8,708		8,769		7,213
Net earnings		458		1,185		1,141		280
Net earnings per common share
Basic	$	0.01	$	0.04	$	0.03	$	0.01
Diluted	$	0.01	$	0.04	$	0.03	$	0.01

F-24

Report of Independent Registered Public Accounting Firm on Schedule

To the Board of Directors and

Shareholders of Theragenics Corporation

We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of Theragenics Corporation and subsidiaries for each of the three years in the period ended December 31, 2012, as referred to in our report dated March 8, 2013, which is included in the annual report to security holders and included in Part II of this form. Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Schedule II is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. The information in Schedule II has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, the information is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

/s/ DIXON HUGHES GOODMAN LLP

Atlanta, Georgia

March 8, 2013

S-1

Theragenics Corporation and Subsidiaries

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

For each of the three years in the period ended December 31, 2012

(Amounts in thousands)


Column A - Description	Column B		Column C - Additions				Column D			Column E
	Balance at beginning of period		(1) Charged to costs and expenses		(2) Charged to other accounts		Deductions			Balance at end of period

Year ended December 31, 2012
Allowance for doubtful accounts receivable	$	2,757	$	80	$	—	$	2,245	(b)	$	592

Allowance for obsolete inventory	$	617	$	323	$	—	$	192	(c)	$	748

Year ended December 31, 2011
Allowance for doubtful accounts receivable	$	2,413	$	348	$	—	$	4	(b)	$	2,757

Allowance for obsolete inventory	$	569	$	89	$	—	$	41	(c)	$	617

Year ended December 31, 2010
Allowance for doubtful accounts receivable	$	384	$	2,060	$	—	$	31	(b)	$	2,413

Allowance for obsolete inventory	$	670	$	—	$	—	$	18 83	(a) (c)	$	569

(a) - reduction in allowance for obsolete inventory amounts

(b) - write-off of uncollectible amounts

S-2