#### ** **

#### **UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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#### **FORM 10-Q**

 

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

 

**Forthe quarterly period ended July 31, 2003**

 

**CommissionFile Number 0-26670**

 

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#### **NORTHAMERICAN SCIENTIFIC, INC.**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                     |   | **51-0366422     ** |
|------------------------------------------------------------------|--------|----------------------------------------------|
| (State or  other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.)        |
|                                                             |   |                                         |
| **20200 Sunburst Street, Chatsworth, CA 91311**                  |
| (Address of principal executive offices)                         |
|                                                             |   |                                         |
| **(818) 734-8600**                                               |
| (Registrant’s telephone number, including area code)        |

 

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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 preceding12 months (or for such shorter period that the Registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes ý No o

 

Indicate by check mark whether the Registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).Yes o No ý

 

The number of shares of Registrant’s CommonStock, $.01 par value, outstanding as of August 29, 2003 was 10,257,741shares.

 

 

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**NORTH AMERICAN SCIENTIFIC, INC.**

 

**Index**

 
| **Part I – Financial Information** |
|-----------------------------------------|
|                                    |   |
| **Item 1.**                             | **Financial Statements** |
|                                    |   |
|                                    | Consolidated Balance Sheets as of July 31, 2003 and October 31, 2002 |
|                                    |   |
|                                    | Consolidated Statements of Operations for  the three and nine months ended July 31, 2003 and 2002 |
|                                    |   |
|                                    | Consolidated Statements of Cash Flows for  the nine months ended July 31, 2003 and 2002 |
|                                    |   |
|                                    | Condensed Notes to the Consolidated  Financial Statements |
|                                    |   |
| **Item 2.**                             | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations** |
|                                    |   |
| **Item 3.**                             | **Quantitative and Qualitative  Disclosures About Market Risk** |
|                                    |   |
| **Item 4.**                             | **Controls and Procedures** |
|                                    |   |
| **Part II – Other Information**    |
|                                    |   |
| **Item 1.**                             | **Legal Proceedings** |
|                                    |   |
| **Item 6.**                             | **Exhibits and Reports on Form 8-K** |
|                                    |   |
| **Signatures**                          |
|                                    |   |
| **Exhibits**                            |
|                                         |  |  |  |

 

2

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**NORTH AMERICAN SCIENTIFIC, INC.**

 

**ConsolidatedBalance Sheets**

 
|                                                                                                                                                                                                   |   | **July 31,2003** |       | **October  31,2002** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|------------|----------------------|--------|
|                                                                                                                                                                                                   |   | **(Unaudited)**  |       |                 |   |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| **Assets**                                                                                                                                                                                             |   |             |       |                 |   |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| Current assets                                                                                                                                                                                         |   |             |       |                 |   |
| Cash and cash equivalents                                                                                                                                                                              |   | $                | 2,035,000  |                 | $      | 2,708,000 |   |
| Marketable securities                                                                                                                                                                                  |   | 31,683,000       |       | 36,144,000           |   |
| Accounts receivable                                                                                                                                                                                    |   | 2,024,000        |       | 2,416,000            |   |
| Inventories                                                                                                                                                                                            |   | 723,000          |       | 596,000              |   |
| Income taxes receivable                                                                                                                                                                                |   | —           |       | 1,006,000            |   |
| Prepaid expenses and other current assets                                                                                                                                                              |   | 1,460,000        |       | 833,000              |   |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| Total current  assets                                                                                                                                                                                  |   | 37,925,000       |       | 43,703,000           |   |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| Non-current marketable securities                                                                                                                                                                      |   | 17,886,000       |       | 17,093,000           |   |
| Equipment and leasehold improvements                                                                                                                                                                   |   | 2,935,000        |       | 3,264,000            |   |
| Goodwill                                                                                                                                                                                               |   | 3,659,000        |       | 3,659,000            |   |
| Licenses and patents                                                                                                                                                                                   |   | 381,000          |       | 469,000              |   |
| Deferred income taxes                                                                                                                                                                                  |   | 844,000          |       | 844,000              |   |
| Other assets                                                                                                                                                                                           |   | 109,000          |       | 103,000              |   |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| Total assets                                                                                                                                                                                           |   | $                | 63,739,000 |                 | $      | 69,135,000 |   |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                          |   |             |       |                 |   |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| Current liabilities                                                                                                                                                                                    |   |             |       |                 |   |
| Accounts payable                                                                                                                                                                                       |   | $                | 1,052,000  |                 | $      | 1,109,000 |   |
| Accrued expenses                                                                                                                                                                                       |   | 3,986,000        |       | 3,125,000            |   |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| Total current liabilities                                                                                                                                                                              |   | 5,038,000        |       | 4,234,000            |   |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| Commitments and contingencies                                                                                                                                                                          |   |             |       |                 |   |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| Stockholders’ equity                                                                                                                                                                              |   |             |       |                 |   |
| Preferred stock, $.01 par value, 2,000,000  shares authorized; no shares issued or outstanding                                                                                                         |   | —           |       | —               |   |
| Common stock, $.01 par value, 40,000,000  shares authorized; 10,276,741 and 10,250,136 shares issued and 10,257,741 and  10,250,136 outstanding as of July 31, 2003 and October 31, 2002, respectively |   | 103,000          |       | 103,000              |   |
| Additional paid-in capital                                                                                                                                                                             |   | 74,147,000       |       | 73,929,000           |   |
| Treasury stock, at cost – 19,000 common  shares                                                                                                                                                   |   | (129,000         | )          | —               |   |
| Accumulated deficit                                                                                                                                                                                    |   | (15,420,000      | )          | (9,131,000           | )      |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| Total stockholders’ equity                                                                                                                                                                        |   | 58,701,000       |       | 64,901,000           |   |
|                                                                                                                                                                                                   |   |             |       |                 |   |
| Total liabilities and stockholders’ equity                                                                                                                                                        |   | $                | 63,739,000 |                 | $      | 69,135,000 |   |

 

See condensed notes to the consolidatedfinancial statements.

 

3

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**NORTH AMERICAN SCIENTIFIC, INC.**

** **

**Consolidated Statements of Operations**

**(Unaudited)**

 
|                                                                       |   | **Three Months Ended  July 31,** |       | **Nine Months Ended  July 31,** |   |
|----------------------------------------------------------------------------|--------|----------------------------------|------------|---------------------------------|--------|
|                                                                       |   | **2003**                         |       | **2002**                        |   | **2003** |   | **2002** |   |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Net sales                                                                  |   | $                                | 3,011,000  |                            | $      | 5,267,000 |   | $ | 11,056,000 |   | $ | 15,160,000 |   |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Cost of goods sold                                                         |   | 1,733,000                        |       | 1,912,000                       |   | 4,988,000 |   | 5,554,000 |   |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Gross profit                                                               |   | 1,278,000                        |       | 3,355,000                       |   | 6,068,000 |   | 9,606,000 |   |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Selling, general and administrative  expenses                              |   | 2,704,000                        |       | 1,569,000                       |   | 8,149,000 |   | 4,433,000 |   |
| Research and development                                                   |   | 1,661,000                        |       | 2,624,000                       |   | 5,431,000 |   | 6,993,000 |   |
| Write-off of licenses and equipment                                        |   | —                           |       | —                          |   | — |   | 2,714,000 |   |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Loss from operations                                                       |   | (3,087,000                       | )          | (838,000                        | )      | (7,512,000 | ) | (4,534,000 | ) |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Interest and other income, net                                             |   | 250,000                          |       | 488,000                         |   | 1,534,000 |   | 1,444,000 |   |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Loss before provision for income taxes                                     |   | (2,837,000                       | )          | (350,000                        | )      | (5,978,000 | ) | (3,090,000 | ) |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Provision for income taxes                                                 |   | —                           |       | —                          |   | — |   | 2,013,000 |   |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Loss before cumulative effect of change in  accounting principle           |   | (2,837,000                       | )          | (350,000                        | )      | (5,978,000 | ) | (5,103,000 | ) |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Cumulative effect of change in accounting  principle (Note 4)         |   | —                           |       | —                          |   | (311,000 | ) | — |   |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Net loss                                                                   |   | $                                | (2,837,000 | )                               | $      | (350,000 | ) | $ | (6,289,000 | ) | $ | (5,103,000 | ) |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Basic and diluted loss per share:                                          |   |                             |       |                            |   |   |   |   |   |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Loss per share before cumulative effect of  change in accounting principle |   | $                                | (.28       | )                               | $      | (.03 | ) | $ | (.58 | ) | $ | (.50 | ) |
| Cumulative effect of change in accounting  principle                       |   | —                           |       | —                          |   | (.03 | ) | — |   |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Net loss                                                                   |   | $                                | (.28       | )                               | $      | (.03 | ) | $ | (.61 | ) | $ | (.50 | ) |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Shares used in per share calculations:                                     |   |                             |       |                            |   |   |   |   |   |
|                                                                       |   |                             |       |                            |   |   |   |   |   |
| Basic and diluted                                                          |   | 10,259,002                       |       | 10,222,751                      |   | 10,252,661 |   | 10,195,970 |   |

 

See condensed notes to the consolidatedfinancial statements.

 

4

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**NORTH AMERICAN SCIENTIFIC, INC.**

 

**Consolidated Statements of Cash Flows**

**(Unaudited)**

 
|                                                                                       |   | **Nine  months Ended  July 31,** |       |
|--------------------------------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                                                       |   | **2003**                         |       | **2002** |   |
|                                                                                       |   |                             |       |   |   |
| Cash flows from operating activities:                                                      |   |                             |       |   |   |
| Net loss                                                                                   |   | $                                | (6,289,000 | ) | $ | (5,103,000 | ) |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities: |   |                             |       |   |   |
| Cumulative effect of change in accounting  principle                                       |   | 311,000                          |       | — |   |
| Depreciation and amortization                                                              |   | 698,000                          |       | 678,000 |   |
| Non-cash stock compensation expense                                                        |   | 47,000                           |       | — |   |
| Provision for doubtful accounts                                                            |   | 17,000                           |       | — |   |
| Gain on sale of non-marketable securities                                                  |   | (600,000                         | )          | — |   |
| Write-off of licenses and equipment                                                        |   | 217,000                          |       | 2,714,000 |   |
| Deferred income taxes                                                                      |   | —                           |       | 2,013,000 |   |
| Changes in assets and liabilities:                                                         |   |                             |       |   |   |
| Accounts receivable                                                                        |   | 375,000                          |       | (256,000 | ) |
| Inventories                                                                                |   | (127,000                         | )          | (190,000 | ) |
| Prepaid expenses and other assets                                                          |   | (440,000                         | )          | 220,000 |   |
| Accounts payable                                                                           |   | (57,000                          | )          | 535,000 |   |
| Accrued expenses                                                                           |   | 462,000                          |       | 636,000 |   |
| Income taxes receivable                                                                    |   | 1,006,000                        |       | 307,000 |   |
|                                                                                       |   |                             |       |   |   |
| Net cash provided by (used in) operating  activities                                       |   | (4,380,000                       | )          | 1,554,000 |   |
|                                                                                       |   |                             |       |   |   |
| Cash flows from investing activities:                                                      |   |                             |       |   |   |
| Proceeds from sales of marketable  securities                                              |   | 28,434,000                       |       | 19,973,000 |   |
| Purchases of marketable securities                                                         |   | (24,766,000                      | )          | (21,453,000 | ) |
| Proceeds from sale of non-marketable  securities                                           |   | 408,000                          |       | — |   |
| Purchases of licenses                                                                      |   | (35,000                          | )          | (137,000 | ) |
| Capital expenditures                                                                       |   | (376,000                         | )          | (273,000 | ) |
|                                                                                       |   |                             |       |   |   |
| Net cash provided by (used in) investing  activities                                       |   | 3,665,000                        |       | (1,890,000 | ) |
|                                                                                       |   |                             |       |   |   |
| Cash flows from financing activities:                                                      |   |                             |       |   |   |
| Purchases of common stock as treasury stock                                                |   | (129,000                         | )          | — |   |
| Proceeds from exercise of stock options and  stock purchase plan                           |   | 171,000                          |       | 359,000 |   |
|                                                                                       |   |                             |       |   |   |
| Net cash provided by financing activities                                                  |   | 42,000                           |       | 359,000 |   |
|                                                                                       |   |                             |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                      |   | (673,000                         | )          | 23,000 |   |
|                                                                                       |   |                             |       |   |   |
| Cash and cash equivalents at beginning of  period                                          |   | 2,708,000                        |       | 3,084,000 |   |
|                                                                                       |   |                             |       |   |   |
| Cash and cash equivalents at end of period                                                 |   | $                                | 2,035,000  |   | $ | 3,107,000 |   |

 

See condensed notes to the consolidated financial statements.

 

5

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**NORTH AMERICAN SCIENTIFIC, INC.**

 

**Condensed Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

**Note1 – Consolidated Financial Statements**

 

*Basis of Presentation*

 

The accompanying consolidatedfinancial statements of North American Scientific, Inc. (the “Company”) areunaudited, other than the consolidated balance sheet at October 31, 2002, andreflect all material adjustments, consisting only of normal recurringadjustments, which management considers necessary for a fair statement of theCompany’s financial position, results of operations and cash flows for theinterim periods.  The results ofoperations for the current interim period are not necessarily indicative of theresults to be expected for the entire fiscal year.

 

These consolidated financialstatements have been prepared in accordance with the rules and regulations ofthe Securities and Exchange Commission. Certain information and footnotes normally included in financialstatements prepared in accordance with generally accepted accounting principlesin the United States of America have been condensed or omitted pursuant tothese rules and regulations.  Theseconsolidated financial statements should be read in conjunction with theconsolidated financial statements and the notes thereto included in theCompany’s Form 10-K, as filed with the Securities and Exchange Commission forthe year ended October 31, 2002.

 

Certain reclassifications havebeen made to prior period balances in order to conform to the current periodpresentation.

 

*Use of Estimates*

 

In the normal course ofpreparing the financial statements in conformity with generally acceptedaccounting principles in the United States of America, management is requiredto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and reported amounts of revenue and expenses duringthe reporting period.  Actual resultscould differ from those amounts.

 

*Accounting for Stock-based Compensation*

 

The Company accounts for itsstock option awards to employees and directors using the intrinsic value methodof accounting in accordance with Accounting Principles Board (“APB”) OpinionNo. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations.  The Company hasprovided additional disclosures required by Statement of Financial AccountingStandards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.”

 

On December 31, 2002, theFinancial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accountingfor Stock Based Compensation – Transition and Disclosure,” which amends SFASNo. 123.  SFAS No. 148 requires moreprominent and frequent disclosures about the effects of stock-basedcompensation, which the Company has adopted as of November 1, 2002.  The Company has elected to continue toaccount for its stock-based compensation using the intrinsic value method ofaccounting according to the provisions of APB Opinion No. 25.

 

6

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Had compensation cost for theCompany’s stock options been recognized based upon the estimated fair value onthe grant date under the fair value methodology prescribed by SFAS No. 123, asamended by SFAS No. 148, the Company’s net loss and loss per share would havebeen as follows:

 
|                                           |   | **Three Months Ended  July 31,** |       | **Nine Months Ended  July 31,** |   |
|------------------------------------------------|--------|----------------------------------|------------|---------------------------------|--------|
|                                           |   | **2003**                         |       | **2002**                        |   | **2003** |   | **2002** |   |
|                                           |   |                             |       |                            |   |   |   |   |   |
| Net loss, as reported                          |   | $                                | (2,837,000 | )                               | $      | (350,000 | ) | $ | (6,289,000 | ) | $ | (5,103,000 | ) |
| Less: total stock-based compensation (1)       |   | (539,000                         | )          | (566,000                        | )      | (1,666,000 | ) | (1,666,000 | ) |
|                                           |   |                             |       |                            |   |   |   |   |   |
| Net loss, as adjusted                          |   | $                                | (3,376,000 | )                               | $      | (916,000 | ) | $ | (7,955,000 | ) | $ | (6,769,000 | ) |
|                                           |   |                             |       |                            |   |   |   |   |   |
| Basic and diluted loss per share, as  reported |   | $                                | (.28       | )                               | $      | (.03 | ) | $ | (.61 | ) | $ | (.50 | ) |
| Basic and diluted loss per share, as  adjusted |   | $                                | (.33       | )                               | $      | (.09 | ) | $ | (.78 | ) | $ | (.66 | ) |

 

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(1) As determined under thefair value method.

 

The Company uses the Black-Scholes option-pricingmodel for estimating the fair value of options granted. The Black-Scholesoption-pricing model was developed for use in estimating the fair value oftraded options that have no vesting restrictions and are fully transferable.  In addition, option valuation models requirethe input of highly subjective assumptions, including the expected stock pricevolatility.  The Company uses projectedvolatility rates, which are based upon historical volatility rates, trendedinto future years. Because the Company’s employee stock options havecharacteristics significantly different from those of traded options, andbecause changes in the subjective input assumptions can materially affect thefair value estimate, in management’s opinion, the existing models do notnecessarily provide a reliable single measure of the fair value of theCompany’s options. For purposes of pro forma disclosures, the estimated fairvalues of the options are amortized over the options’ vesting periods.

 

**Note2 – Inventories**

 

Inventories are valued at the lower of costor market as determined under the first-in, first-out method. Costs includematerials, labor and manufacturing overhead. Inventories are shown net ofapplicable reserves and allowances. Inventories consist of the following:

 

|            |   | **July 31,2003** |    | **October  31,2002** |   |
|-----------------|--------|------------------|---------|----------------------|--------|
|            |   |             |    |                 |   |
| Raw materials   |   | $                | 598,000 |                 | $      | 459,000 |   |
| Work in process |   | 56,000           |    | 42,000               |   |
| Finished goods  |   | 69,000           |    | 95,000               |   |
|            |   |             |    |                 |   |
|            |   | $                | 723,000 |                 | $      | 596,000 |   |

 

7

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**Note3 – Net Loss per Share**

 

Basic earnings (loss) per shareis computed by dividing the net income (loss) by the weighted average number ofshares outstanding for the period. Diluted earnings (loss) per share iscomputed by dividing the net income (loss) by the sum of the weighted averagenumber of common shares outstanding for the period plus the assumed exercise ofall dilutive securities by applying the treasury stock method unless suchassumed exercises are anti-dilutive. The following table sets forth the computationof basic and diluted earnings (loss) per share:

 
|                                           |   | **Three Months Ended  July 31,** |       | **Nine Months Ended  July 31,** |   |
|------------------------------------------------|--------|----------------------------------|------------|---------------------------------|--------|
|                                           |   | **2003**                         |       | **2002**                        |   | **2003** |   | **2002** |   |
|                                           |   |                             |       |                            |   |   |   |   |   |
| Net loss                                       |   | $                                | (2,837,000 | )                               | $      | (350,000 | ) | $ | (6,289,000 | ) | $ | (5,103,000 | ) |
|                                           |   |                             |       |                            |   |   |   |   |   |
| Weighted average shares outstanding - Basic    |   | 10,259,002                       |       | 10,222,751                      |   | 10,252,661 |   | 10,195,970 |   |
| Dilutive effect of stock options and  warrants |   | —                           |       | —                          |   | — |   | — |   |
|                                           |   |                             |       |                            |   |   |   |   |   |
| Weighted average shares outstanding -  Diluted |   | 10,259,002                       |       | 10,222,751                      |   | 10,252,661 |   | 10,195,970 |   |
|                                           |   |                             |       |                            |   |   |   |   |   |
| Basic loss per share                           |   | $                                | (.28       | )                               | $      | (.03 | ) | $ | (.61 | ) | $ | (.50 | ) |
| Diluted loss per share                         |   | $                                | (.28       | )                               | $      | (.03 | ) | $ | (.61 | ) | $ | (.50 | ) |

 

Stock options to purchase2,317,897 and 2,043,424 common shares for the three months ended July 31, 2003,and 2002, respectively, and 2,313,487 and 1,956,991 common shares for the ninemonths ended July 31, 2003 and 2002, respectively, were not included in thecomputation of diluted earnings per share because their effect would have beenanti-dilutive.

 

**Note 4 –Asset Retirement Obligations**

 

During 2003, the Companyadopted SFAS No. 143, “Accounting for Asset Retirement Obligations” forrecording future decommissioning costs related to its leased manufacturing andresearch facilities.  Under SFAS No. 143,a future retirement obligation is recorded at present value by discounting theCompany’s estimated future asset retirement obligation using the Company’sestimated credit-adjusted borrowing rate. The resultant capitalized costs are recorded as part of equipment and leaseholdimprovements and are amortized ratably over the term of the leasedfacilities.  The asset retirementobligation has been recorded in accrued expenses and will be adjusted to fairvalue over the lease term as an accretion expense.  On November 1, 2002, the Company adopted SFAS No. 143 andrecorded a liability for asset retirement obligations of $383,000, increasednet equipment and leasehold improvements by $72,000 and recognized a charge of$311,000 which is reported in the caption “Cumulative effect of change inaccounting principle.”

 

8

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Had the asset retirementobligations been recognized in previous periods as presented by SFAS No. 143,the Company’s net and loss per share would have been as follows:

 
|                                           |   | **Three Months Ended  July 31,** |       | **Nine months Ended  July 31,** |   |
|------------------------------------------------|--------|----------------------------------|------------|---------------------------------|--------|
|                                           |   | **2003**                         |       | **2002**                        |   | **2003** |   | **2002** |   |
|                                           |   |                             |       |                            |   |   |   |   |   |
| Net loss, as reported                          |   | $                                | (2,837,000 | )                               | $      | (350,000 | ) | $ | (6,289,000 | ) | $ | (5,103,000 | ) |
| Amortization and accretion expense             |   | —                           |       | (8,000                          | )      | — |   | (25,000 | ) |
|                                           |   |                             |       |                            |   |   |   |   |   |
| Net loss, as adjusted                          |   | $                                | (2,837,000 | )                               | $      | (358,000 | ) | $ | (6,289,000 | ) | $ | (5,128,000 | ) |
|                                           |   |                             |       |                            |   |   |   |   |   |
| Basic and diluted loss per share, as  reported |   | $                                | (.28       | )                               | $      | (.03 | ) | $ | (.61 | ) | $ | (.50 | ) |
| Basic and diluted loss per share, as  adjusted |   | $                                | (.28       | )                               | $      | (.04 | ) | $ | (.61 | ) | $ | (.50 | ) |

 

**Note 5 –Write-off of Licenses and Equipment**

 

Results of operations for thenine months ended July 31, 2002 include a charge of $2,714,000 to reflect thetotal write-off of abandoned licenses and related equipment associated withtechnology licensed from third parties for the development of the Company’sApomateTMtechnology platform. In 2001, the Company licensed alternative technology andpatent rights from a third party for the development of an improved version ofits Hynic-Annexin V kit. During the nine months ended July 31, 2002, theCompany decided to exclusively pursue the development of its Hynic-Annexin Vtechnology and to write-off the prior technology.

 

**Note 6 –Deferred Income Taxes**

 

The Company continually reviewsthe adequacy of the valuation allowance of its net deferred tax assets inaccordance with the provisions of SFAS No. 109.  The Company’s net deferred tax assets include substantial amountsof net operating loss and tax credit carryforwards. Failure to achieve forecastedtaxable income would affect the ultimate realization of the net deferred taxassets.  There can be no assurance thatin the future there would not be increased competition or other factors thatmay result in a decline in margins, loss of market share or technologicalobsolescence. In addition, the Company expects to incur significant expensesfor the next several years for ongoing clinical trials and development ofHynic-Annexin V.  Due to theseuncertainties, the Company recorded an additional valuation allowance ofapproximately $1.9 million during the nine months ended July 31, 2002.

 

**Note 7 –Commitments and Contingencies**

 

In October 2002, MentorCorporation (“Mentor”) filed suit in Los Angeles Superior Court against theCompany alleging breach of the exclusive marketing and distribution agreementarising out of the Company’s newly initiated direct sales efforts for Prospera®Pd-103.  Mentor also alleged that theCompany breached the agreement by marketing its Prospera® I-125 seeds whilestill subject to the agreement, for sales after the expiration of theagreement.  Mentor’s suit furtheralleged that the Company had misappropriated purported trade secrets and thatthe Company engaged in unfair competition. Mentor sought unspecified monetary damages and injunctive relief.  In October 2002, Mentor was denied atemporary restraining order.  InNovember 2002, Mentor was denied a preliminary injunction, and in December2002, Mentor lost a Motion for Reconsideration on the preliminaryinjunction.  In January 2003, theCompany filed a responsive pleading, as well as counterclaims against Mentorthat sought monetary damages for breach of contract, misappropriation ofconfidential information and trade secrets, trade libel, intentional andnegligent misrepresentation, unfair competition, and violation of the LanhamAct.

 

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In June 2003, the Company agreed to asettlement arrangement to resolve all claims and counterclaims in the lawsuitinvolving Mentor.  Under the arrangement, the parties mutually agreed todismiss all claims and counterclaims against each other without admitting anywrongdoing.

 

The Company is also subject to other legalproceedings, claims and litigation arising in the ordinary course of business.  While the outcome of these matters iscurrently not determinable, management does not expect that the ultimate coststo resolve these matters will have a material adverse effect on the Company’sconsolidated financial position, results of operations, or cash flows.

 

**Note 8 –Subsequent Event**

 

In August 2003, the Company acquiredsubstantially all of the assets of Radiation Therapy Products, a manufacturerand distributor of equipment, including steppers and stabilizers, used inprostate brachytherapy procedures, for total cash and stock consideration ofapproximately $700,000.

 

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

 

The following discussion andanalysis provides information, which our management believes is relevant to anassessment and understanding of our financial condition and results ofoperations. The discussion should be read in conjunction with the ConsolidatedFinancial Statements contained herein and the notes thereto. Certain statementscontained in this Form 10-Q, including, without limitation, statementscontaining the words “believes”, “anticipates”, “estimates”, “expects”,“projections”, and words of similar import are forward looking as that term isdefined by: (i) the Private Securities Litigation Reform Act of 1995 (the“1995 Act”) and (ii) releases issued by the Securities Exchange Commissionor SEC. These statements are being made pursuant to the provisions of the 1995Act and with the intention of obtaining the benefits of the “Safe Harbor”provisions of the 1995 Act. We caution that any forward looking statements madeherein are not guarantees of future performance and that actual results maydiffer materially from those in such forward looking statements as a result ofvarious factors, including, but not limited to, risks detailed herein ordetailed from time to time in our other filings with the SEC including our mostrecent report on Form 10-K. We are not undertaking any obligation toupdate publicly any forward-looking statements. Readers should not place unduereliance on these forward-looking statements.

 

**Overview**

 

We develop, produce, and sellinnovative radioisotopic products, including brachytherapy seeds andradiopharmaceuticals, principally for the treatment and diagnosis ofdisease.  Since 1990, we have appliedour expertise in radioisotopes to develop and market products for medical,environmental, research and industrial applications.

 

From 1998 to January 2003, ourbrachytherapy seeds were distributed under an exclusive agreement with MentorCorporation (“Mentor”).  In January2003, the agreement with Mentor terminated and we began to market and sell ourbrachytherapy products directly to health care providers.  Future revenues and gross profit relating toour brachytherapy products will depend on several factors, including ourability to successfully directly market and distribute our brachytherapyproducts and to successfully withstand pricing pressure from competition andprice containment pressure from Medicare reimbursement limits for brachytherapyprocedures.

 

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In October 2000, we acquiredTheseus Imaging Corporation, a developer of proprietary radiopharmaceuticals toenhance the medical management of patients with cancer, heart disease or othermedical conditions.  We expect tocontinue to incur significant clinical trial and development costs over thenext several years related to Hynic-Annexin V, our principal radiopharmaceuticalproduct candidate, especially as we expand our clinical trials in Europe andinitiate our clinical trials in the U.S. In addition, upon receipt ofapplicable approvals from regulatory agencies, we expect to incur substantialexpenses in connection with the commercial launch of this product.

 

**Results of Operations**

 

**ThreeMonths Ended July 31, 2003 Compared to Three Months Ended July 31, 2002**

 

**Net sales.**  Net sales decreased $2,256,000, or 43%, to$3,011,000 for the three months ended July 31, 2003 from $5,267,000 for thethree months ended July 31, 2002.  Salesduring the quarter ended July 31, 2003 were affected by the following:  (i) a decline in unit sales associated withthe transition to the direct marketing and sale of our brachytherapy productsupon the conclusion in January 2003 of our previous distribution agreement withMentor, and (ii) although our average selling prices increased as a result ofeliminating our primary distributor, the industry witnessed a significantreduction in average selling prices to end users of brachytherapy seeds as aresult of a highly competitive pricing environment and price containmentpressure arising from Medicare reimbursement limits.  Thus, although we captured the distributor margin, overallaverage selling prices to end users of our brachytherapy products decreasedsignificantly. Revenues from our non-therapeutic lines also declined during theperiod.

 

**Gross profit**.  Gross profit decreased $2,077,000, or 62%,to $1,278,000 for the three months ended July 31, 2003 from $3,355,000 for thethree months ended July 31, 2002.  Grossprofit as a percent of sales decreased from 64% to 42% during this period.  The decrease in gross profit as a percentageof sales was primarily due to negative economies of scale associated withbrachytherapy revenues due to a reduction in the volume of unit salesexperienced as we transitioned to a direct sales initiative in January 2003,the addition of certain low margin brachytherapy accessories, and a change inour product mix.

 

**Selling, general and administrative expenses**.  Selling, general and administrative(“SG&A”) expenses increased $1,135,000, or 72%, to $2,704,000 for the threemonths ended July 31, 2003 from $1,569,000 for the three months ended July 31,2002. The increase in SG&A is primarily due to the development of a directsales and marketing force for our brachytherapy products ($830,000), and legalexpenses associated with the Mentor litigation ($286,000).

 

**Research and development**.  Research and development (“R&D”)expenses decreased $963,000, or 37%, to $1,661,000 for the three months endedJuly 31, 2003 from $2,624,000 for the three months ended July 31, 2002.  These costs primarily represent ourcontinued investment in our Hynic-Annexin V product candidate. The decrease inR&D spending is primarily due to a decrease in manufacturing costs ofmaterials used in clinical trials, partially offset by increased R&Dpersonnel and facility costs. All of our research and development costs areexpensed as incurred. We anticipate incurring significant costs in the futureas we initiate our clinical trials in the United States and expand our clinicaltrials in Europe.  Our R&D spendingreflects our belief that to maintain our competitive position in a marketcharacterized by rapid rates of technological advancement, we must continue toinvest significant resources in new product development, as well as continue toenhance existing products.

 

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**Interest and other income, net**.  Interest and other income decreased $238,000,or 49%, to $250,000 for the three months ended July 31, 2003 from $488,000 forthe three months ended July 31, 2002. This decrease reflects a general declinein the effective yield of our portfolio of marketable securities consistentwith the general decline in interest rates during the period.

 

**Nine MonthsEnded July 31, 2003 Compared to Nine Months Ended July 31, 2002**

 

**Net sales**.  Net sales decreased $4,104,000, or 27%, to$11,056,000 for the nine months ended July 31, 2003 from $15,160,000 for the ninemonths ended July 31, 2002.  Thedecrease in net sales was due to the following:  (i) a decline in unit sales associated with the transition to thedirect marketing and sale of our brachytherapy products upon the conclusion inJanuary 2003 of our previous distribution agreement with Mentor, and (ii)although our average selling prices increased as a result of eliminating ourprimary distributor, the industry witnessed a significant reduction in averageselling prices to end users of brachytherapy seeds as a result of a highlycompetitive pricing environment and price containment pressure arising fromMedicare reimbursement limits.  Thus,although we captured the distributor margin, overall average selling prices toend users of our brachytherapy products decreased significantly. Ourbrachytherapy product sales accounted for approximately 73% of our revenues forthe nine months ended July 31, 2003.

 

**Gross profit**.  Gross profit decreased $3,538,000, or 37%,to $6,068,000 for the nine months ended July 31, 2003 from $9,606,000 for thenine months ended July 31, 2002.  Grossprofit as a percent of sales decreased from 63% to 55% during this period.  The decrease in gross profit as a percentageof sales was primarily due to reduced economies of scale beginning in ourfiscal second quarter associated with brachytherapy revenues due to a reductionin unit volume as we transitioned to a direct sales initiative in January 2003,the addition of certain low margin brachytherapy accessories, and a change inour product mix.

 

**Selling, general and administrative expenses**.  SG&A expenses increased $3,716,000, or84%, to $8,149,000 for the nine months ended July 31, 2003 from $4,433,000 forthe nine months ended July 31, 2002. The increase in SG&A is primarilyattributed to the following: (i) the development of a direct sales andmarketing force for our brachytherapy products ($2,114,000), (ii) legalexpenses associated with the Mentor litigation ($558,000), (iii) increasedTheseus facility and personnel costs ($495,000), and (iv) an increase in othergeneral and administrative expenses.

 

**Research and development**.  R&D costs decreased $1,562,000, or 22%to $5,431,000 for the nine months ended July 31, 2003 from $6,993,000 for thenine months ended July 31, 2002. These costs primarily represent our continuedinvestment in our Hynic-Annexin V product candidate. The decrease in researchand development spending is primarily due to a decrease in manufacturing costs,partially offset by increased R&D personnel and facility costs. All of ourresearch and development costs are expensed as incurred. We anticipateincurring significant costs in the future as we initiate our clinical trials inthe United States and expand our clinical trials in Europe.  Our R&D spending reflects our beliefthat to maintain our competitive position in a market characterized by rapidrates of technological advancement, we must continue to invest significantresources in new product development, as well as continue to enhance existingproducts.

 

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**Write-off of licenses and equipment**.  Results of operations for the nine monthsended July 31, 2002 include a charge of $2,714,000 to reflect the totalwrite-off of abandoned licenses and related equipment associated withtechnology licensed from third parties for the development of our initialApomateTM technologyplatform. In 2001 we licensed alternative technology and patent rights from athird party for the development of an improved version of our Hynic-Annexin Vkit.  During the second quarter of 2002,we decided to exclusively pursue the development of our Hynic-Annexin Vtechnology and to write-off the prior technology.

 

**Interest and other income**.  Interest and other income increased $90,000,or 6%, to $1,534,000 for the nine months ended July 31, 2003 from $1,444,000for the nine months ended July 31, 2002. This increase reflects a gain ofapproximately $600,000 resulting from the sale of our remaining shares ofRadioMed Corporation, a privately held company, which was partially offset bylower interest income as a result of a general decline in the effective yieldof our portfolio of marketable securities consistent with the general declinein interest rates in the period.

 

**Provision for income taxes**.   Results of operations for the nine monthsended July 31, 2002 included a provision for income taxes of $2,013,000,whereas we did not recognize a benefit for the loss during the nine monthsended July 31, 2003.  Due to theuncertainty of our ability to recognize the future benefit of additionaldeferred tax assets, we recorded a valuation allowance of approximately $2.0million in the quarter ended April 30, 2002 and have not recorded anyadditional income tax benefits for losses incurred since April 30, 2002.

 

**Critical Accounting Policies**

 

The preparation of financialstatements and related disclosures in conformity with generally acceptedaccounting principles in the United States of America requires management tomake judgments, assumptions and estimates that affect the amounts reported inthe Consolidated Financial Statements and accompanying notes. Note 1 to theConsolidated Financial Statements in our Annual Report on Form 10-K forthe year ended October 31, 2002, describes the significant accounting policiesand methods used in the preparation of the Consolidated Financial Statements.Estimates are used for, but not limited to, the accounting for revenuerecognition, allowance for doubtful accounts, goodwill and long-lived assetimpairments, loss contingencies, and taxes. Actual results could differsubstantially from these estimates. The following critical accounting policiesare impacted significantly by judgments, assumptions and estimates used in thepreparation of the Consolidated Financial Statements.

 

*Revenue Recognition*

 

We apply the provisions of SECStaff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in FinancialStatements,” which provides guidance on the recognition, presentation anddisclosure of revenue in financial statements. SAB No. 101 outlines the basic criteria that must be met to recognizerevenue and provides guidance for the disclosure of revenue recognitionpolicies.  In general, we recognizerevenue related to our product sales when (i) persuasive evidence of anarrangement exists, (ii) delivery has occurred, (iii) the price is fixed ordeterminable, and (iv) collectibility is reasonably assured.

 

*Allowance for Doubtful Accounts*

 

The allowance for doubtfulaccounts is based on our assessment of the collectibility of specific customeraccounts and the aging of the accounts receivable. If there was a deteriorationof a major customer’s credit worthiness or actual defaults are higher than ourhistorical experience, our estimates of the recoverability of amounts due uscould be overstated which could have an adverse impact on our financialresults.

 

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*Goodwill*

 

We perform goodwill impairmenttests on an annual basis and between annual tests in certain circumstances. Inresponse to changes in industry and market conditions, we may strategicallyrealign our resources and consider restructuring, disposing of, or otherwiseexiting businesses, which could result in an impairment of goodwill.

 

*Impairment of Long-lived Assets*

 

We assess the impairment oflong-lived assets, which include equipment and leasehold improvements andidentifiable intangible assets, whenever events and circumstances indicate thatsuch assets might be impaired.  In theevent the expected undiscounted future cash flow attributable to the asset isless than the carrying amount of the asset, an impairment loss equal to theexcess of the asset’s carrying value over its fair value is recorded.

 

*Legal Contingencies*

 

We record liabilities relatedto pending litigation when an unfavorable outcome is probable and we canreasonably estimate the amount of the loss.

 

*Deferred Taxes*

 

We account for income taxesusing the liability method. Deferred taxes are determined based on thedifferences between the financial statement and tax bases of assets andliabilities, using enacted tax rates in effect for the year in which thedifferences are expected to reverse. Valuation allowances are established whennecessary to reduce deferred tax assets to the amounts expected to be realized.

 

**Liquidity and CapitalResources**

 

To date, our short-termliquidity needs have generally consisted of operating capital to finance growthin inventories, trade accounts receivable, new product research anddevelopment, capital expenditures and strategic investments in relatedbusinesses.  We have satisfied theseneeds primarily through a combination of cash generated by operations, publicofferings and from private placements of our common stock.  We do not currently have a line of credit orsimilar arrangement with a bank.

 

At July 31, 2003, we had cashand investments in marketable securities aggregating approximately $51.6million and working capital of $32.9 million. Working capital does not include$17.9 million of our marketable securities that are classified as non-currentassets since the maturities of these marketable debt instruments are beyond aone year period.

 

For the nine months ended July31, 2003, net cash used in operating activities was approximately $4.4 millioncompared to net cash provided by operating activities of $1.6 million for theprior year period. The decrease in cash provided by operating activities duringthe nine months ended July 31, 2003, resulted primarily from lower earningsassociated with the transition to a direct sales force for our brachytherapyproducts.  Net cash provided byinvesting activities totaled approximately $3.7 million during the nine monthsended July 31, 2003, compared to net cash used in investing activities of $1.9million for the prior year period.

 

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During the nine months endedJuly 31, 2003, we received approximately $0.2 million from the exercise ofstock options and the sale of shares under our employee stock purchase plancompared to $0.4 million for the same period in 2002.  Proceeds from the exercise of stock options, employee stockpurchase plan, and their related tax benefits will vary from period to periodbased upon, among other factors, fluctuations in the market value of our stockrelative to the exercise price of such options.

 

We are authorized to purchaseup to $10 million of our common stock on the open market under our sharerepurchase program.  During the ninemonths ended July 31, 2003, we purchased 19,000 shares of our common stock at atotal cost of $129,000.

 

The primary objectives for ourinvestment portfolio are liquidity and safety of principal.  Investments are made to achieve the highestrate of return, consistent with these two objectives.  We invest excess cash in securities with varying maturities tomeet projected cash needs.

 

We believe our current cash andmarketable securities and anticipated cash flow from operations will besufficient to support our operations and planned expansion for the foreseeablefuture.  However, the amount of capitalthat we will need in the future will depend on many factors including:

 

•                                          costsrelated to research, development, clinical trials, license fees, royaltyobligations, regulatory approvals and commercialization relating to ourHynic-Annexin V product candidate and other product candidates

 

•                                          levelsof sales and marketing that will be required to launch new products and achieveand maintain a competitive position in the marketplace for both existing andnew products

 

•                                          marketacceptance of our products

 

•                                          levelsof inventory and accounts receivable that we maintain

 

•                                          competitors’responses to our products

 

•                                          levelof capital expenditures

 

•                                          acquisitionand/or development of complementary businesses, technologies or products

 

We anticipate incurringsignificant expenses with respect to our Hynic-Annexin V product candidate overthe next several years for clinical trials and development costs. Significantmilestone payments to third parties are payable throughout the life of thecontracts associated with our licenses of patent rights of technology relatedto our Hynic-Annexin V product candidate. We anticipate that available cashwill provide sufficient funds to cover the above costs.  In addition, the costs related toHynic-Annexin V may be reduced if we enter into strategic partnerships relatedto Hynic-Annexin V.

 

We lease facilities andequipment under non-cancelable operating lease agreements. Future minimum leasepayments are subject to annual adjustment for increases in the Consumer PriceIndex. Future minimum lease payments under all operating leases in each of thenext three years are $754,000, $410,000 and $8,000, respectively.

 

In addition we have minimumcommitments for various contract services with unrelated parties that areprovided over a one to three year period, totaling approximately $1.3 million.We have contractual rights to terminate our payment obligations onapproximately $0.6 million of such agreements with 30 to 90 daynotification.

 

Future capital requirementswill also depend on the extent to which we acquire or invest in businesses,

 

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products and technologies.  If we should require additional financing,such financing may not be available when needed or, if available, we may not beable to obtain the financing on terms favorable to us.  Insufficient funds may require us to delay,scale back or eliminate some or all of our research and development programs.  If additional funds are raised by issuingequity securities, dilution to existing stockholders would result.

 

**Recent Accounting Pronouncements**

 

In January 2003, FASB issuedInterpretation No. 46, Consolidation of Variable Interest Entities - anInterpretation of ARB No. 51.  The Interpretation clarified the applicationof Accounting Research Bulletin No. 51,  Consolidated FinancialStatements,  to certain entities in which equity investors do not have thecharacteristics of a controlling financial interest or do not have sufficientequity at risk for the entity to finance its activities without additionalsubordinated financial support from other parties. The provisions of thisInterpretation are effective for all enterprises with variable interestentities created after January 31, 2003 and are required to be fully implementedno later than the third quarter of 2003. We do not expect this interpretationto have a material impact on our financial position or results of operations.

 

In February 2003, FASB issuedEITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITFIssue No. 00-21 requires revenue arrangements with multiple deliverables to bedivided into separate units of accounting. If the deliverables in thearrangement meet certain criteria, arrangement consideration should beallocated among the separate units of accounting based on their relative fairvalues. Applicable revenue recognition criteria should be considered separatelyfor separate units of accounting. The guidance in EITF Issue No. 00-21 iseffective for revenue arrangements entered into in fiscal periods beginningafter June 15, 2003.  We are currentlyin the process of reviewing EITF Issue No. 00-21.

 

In April 2003, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 149, “Amendment ofStatement 133 on Derivative Instruments and Hedging Activities.”  SFAS No.149 amends and clarifies the accounting guidance on derivative instruments(including certain derivative instruments embedded in other contracts) andhedging activities that fall within the scope of SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities.”  SFAS No. 149 is effectivefor all contracts entered into or modified after June 30, 2003, with certainexceptions, and for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively.   If we elect to enterinto structured stock repurchase transactions after June 30, 2003 in the sameform as those entered into on June 30, 2003 or prior, in accordance with SFASNo. 149, those transactions will be required to be marked to market withrelated gains and losses being recorded in the statement of operations. The impact of such transactions on our financial position and results ofoperations would be dependent upon whether we chose to enter into such transactions,the size of the transactions, as well as changes in the market value of ourcommon stock.

 

In May 2003, the FASB issuedSFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.”  SFAS No. 150 changes theaccounting guidance for certain financial instruments that, under previousguidance, could be classified as equity or “mezzanine” equity by now requiringthose instruments to be classified as liabilities (or assets in somecircumstances) in the statement of financial position.  Further, SFAS No.150 requires disclosure regarding the terms of those instruments and settlementalternatives.  SFAS No. 150 is generally effective for all financialinstruments entered into or modified after May 31, 2003, and is otherwiseeffective at the beginning of the first interim period beginning after June 15,2003.  The adoption of SFAS No. 150 is not expected to have a materialimpact on our financial position or results of operations.

 

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

 

Information about market risksfor the three months ended July 31, 2003 does not differ materially from thatdiscussed under Item 7A of our Annual Report on Form 10-K for the fiscal yearended October 31, 2002.

 

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

 

(a)          Evaluation of Disclosure Controls andProcedures

 

As required by Rule 13a-15(b) under the Exchange Act, we havecarried out an evaluation, under the supervision and with the participation ofour management, including our Chief Executive Officer (“CEO”) and our ChiefFinancial Officer (“CFO”), of the effectiveness, as of the end of the fiscalquarter covered by this report, of the design and operation of our “disclosure controlsand procedures” as defined in Rule 13a-14 promulgated by the SEC under theExchange Act. Based upon that evaluation, our CEO and our CFO concluded thatour disclosure controls and procedures, as of the end of such fiscal quarter,were adequate and effective to ensure that information required to be disclosedby us in the reports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in theCommission’s rules and forms.

 

(b)         Changes in Internal Controls

 

There have been no significant changes in our internal controls overfinancial reporting or in other factors that could significantly affect ourinternal controls over financial reporting subsequent to the date of theevaluation referred to above.

 

**PART II – OTHER INFORMATION**

 

We were not required to reportthe information pursuant to Items 1 through 6 of Part II of Form 10-Qexcept as follows:

 

## **Item 1.**                         LegalProceedings

 

Certain of the Company’s legal proceedingsare reported in the Company’s Annual Report on Form 10-K for the year endedOctober 31, 2002, with material developments since that report described in theCompany’s Form 10-Q for the quarterly period ended July 31, 2003.

 

In June 2003, the Company agreed to asettlement arrangement to resolve all claims and counterclaims in a lawsuitinvolving Mentor.  Under the arrangement, the parties mutually agreed todismiss all claims and counterclaims against each other without admitting anywrongdoing.

 

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## **Item 6.**                          Exhibitsand Reports on Form 8-K

 

(a)                                  Exhibits.

 
| **Exhibit No.** |   | **Title**                                                                                                                                                                                                                                                  |
|-----------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                                                       |
| 31.1            |   | Certification of Chief Executive Officer of the Company pursuant to  Rule 13a-14(a) under the Exchange Act, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                               |
|            |   |                                                                                                                                                                                                                                                       |
| 31.2            |   | Certification of Chief Financial Officer of the Company pursuant to  Rule 13a-14(a) under the Exchange Act, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                               |
|            |   |                                                                                                                                                                                                                                                       |
| 32.1            |   | Certifications of Chief Executive Officer and Chief Financial Officer  of the Company pursuant to Rule 13a-14(b) under the Exchange Act and 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

(b)                                 Reports on Form 8-K.

 

The Company filed a reporton Form 8-K on July 2, 2003, to disclose the Company’s settlement of all claimsin its litigation with Mentor Corporation.

 

The Company filed a reporton Form 8-K on May 22, 2003 to announce our second quarter 2003 financialresults.

 

**SIGNATURES**

 

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

 

 
|            |   | NORTH  AMERICAN SCIENTIFIC, INC. |
|-----------------|--------|----------------------------------|
|            |   |
|            |   |
| August 29, 2003 | By:    | /s/ L. Michael Cutrer            |
|            |   | Name:                            | L. Michael Cutrer |
|            |   | Title:                           | President and  Chief Executive Officer |
|            |   |                             | (Principal Executive  Officer) |
|            |   |
|            |   |
| August 29, 2003 | By:    | /s/ Alan I. Edrick               |
|            |   | Name:                            | Alan I. Edrick |
|            |   | Title:                           | Senior Vice President and  Chief  Financial Officer |
|            |   |                             | (Principal Financial and  Accounting  Officer) |

 

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