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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

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

|For the fiscal year ended:
October 31, 2000 | Commission File Number:
0-26670
|------------------------------------------- | -------------------------------

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NORTH AMERICAN SCIENTIFIC, INC.(Exact name of Registrant as specified in its charter)

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)

(Zip code)


Registrant's telephone number, including area code:(818) 734-8600

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

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

Common
Stock, par value $0.01 per share
(Title of class)

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

Indicate
by check mark 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/

The
aggregate market value of the voting stock held by non-affiliates of the Registrant, as of January 26, 2001, was approximately $137,403,002 (based upon the closing price
for shares of the Registrant's Common Stock as reported by the Nasdaq National Market for the last trading date prior to that date).

On
January 26, 2001, approximately 10,084,624 shares of the Registrant's Common Stock, $.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2001 Annual Meeting of Stockholders to be held on or about April 6, 2001, are incorporated by reference
into Part III.

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NORTH AMERICAN SCIENTIFIC, INC.        Table of Contents        Form 10-K

|           |  |                                                                                       |  | Page
|---------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I     |  |                                                                                       |  |     
|Item 1     |  | Business                                                                              |  | 1   
|Item 2.    |  | Properties                                                                            |  | 22  
|Item 3.    |  | Legal Proceedings                                                                     |  | 22  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 22  
|PART II    |  |                                                                                       |  |     
|Item 5.    |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 23  
|Item 6.    |  | Selected Financial Data                                                               |  | 23  
|Item 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 24  
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 28  
|Item 8.    |  | Financial Statements and Supplementary Data                                           |  | 28  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 28  
|PART III   |  |                                                                                       |  |     
|Item 10.   |  | Directors and Executive Officers of the Registrant                                    |  | 28  
|Item 11.   |  | Executive Compensation                                                                |  | 28  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 28  
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 28  
|PART IV    |  |                                                                                       |  |     
|Item 14.   |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 29  
|Signatures |  | 49                                                                                   

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Item 1.  BUSINESS

INTRODUCTION

We design, develop and produce innovative radioisotopic products, including brachytherapy seeds and radiopharmaceuticals, for the treatment and diagnosis of
disease. Since 1990, we have applied our expertise in radioisotopes to develop and market products for medical, environmental, research and industrial applications.

In
1996, we began to focus our research and product development activities primarily on high value, high growth medical products which are useful in the diagnosis, management and
treatment of diseases such as cancer and heart disease. This initiative resulted in the development of our first two therapeutic products, iodine-based and palladium-based implantable brachytherapy
seeds for the treatment of prostate cancer. These products are marketed under the trademarks IoGold and PdGold, respectively, by Mentor Corporation, our distributor for these
products. Since the commercial introduction of IoGold in January 1998, our brachytherapy business has grown substantially. We believe that we are the third largest manufacturer in
the world of brachytherapy seeds for the treatment of prostate cancer.

In
addition to our internal development activities, we actively evaluate products and technologies for in-licensing or acquisition. On October 13, 2000, we acquired
Theseus Imaging Corporation ("Theseus"), a developer of proprietary radiopharmaceuticals to enhance the medical management of heart attack, organ transplantation and cancer. Theseus' primary product
candidate is Apomate, anin vivonuclear medicine imaging agent that targets cells undergoing apoptosis or necrosis, two forms of
cell death. We intend for Apomate to provide information that will allow clinicians to make better therapeutic decisions for individual patients by monitoring the patient's response to
treatment or disease with increased sensitivity and speed.

Apomate
is in Phase II trials for two indications: assessing the location and extent of heart attack damage and detecting heart transplant rejection. We have completed
Phase I trials for use of Apomate in determining early response to chemotherapy. We believe that if Apomate is approved for the detection of heart transplant rejection, it
would represent the only non-invasive diagnostic procedure that can assess the adequacy of immunosuppression medication in this population. Apomate is also being studied for
its potential to demonstrate the location and extent of irreversibly damaged heart
tissue in heart attack patients and its ability to rapidly assess early response to chemotherapy in cancer patients with lymphoma, non-small cell lung cancer and breast cancer.

BRACHYTHERAPY SEEDS FOR PROSTATE CANCER

Prostate Cancer.The prostate gland, found only in men, is a small walnut-sized gland surrounding the urethra, located
under the bladder and in front of the rectum. According to the American Cancer Society, prostate cancer is considered a slow growing cancer relative to other types of cancer. Symptoms of prostate
cancer are often not noticed until the cancer has progressed past early stages of the disease. A digital rectal examination during a routine physical examination is the most commonly used test for
identifying prostate cancer. Additionally, a blood test to detect a prostate specific antigen, or PSA, has rapidly become an accepted means of detecting early-stage prostate cancer. The PSA test,
which is recommended for men over the age of 50, determines the amount of prostate specific antigen contained in an examinee's blood. Elevated levels of PSA are indicative of inflammation or cancerous
cells in the prostate. The emergence of PSA blood testing has greatly improved physicians' ability to diagnose and treat early stage prostate cancer.

Prostate
cancer is the second most prevalent form of cancer in men in the United States and is the second most common cause of cancer death in men of all ages. The American Cancer
Society estimates that in 2000 more than 180,000 new cases of prostate cancer will be diagnosed in the United States and

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approximately 32,000 deaths will be attributable to the disease. The cost of medical treatment in the United States for patients with prostate cancer is approximately $5 billion annually.

There
are several therapies available for the treatment of prostate cancer.

BRACHYTHERAPY

Overview.Brachytherapy is a minimally invasive medical procedure in which sealed radioactive sources are temporarily
or permanently implanted into cancerous tissue, delivering a therapeutically prescribed
dose of radiation that is lethal to the cancerous tissue. In the seeding procedure, 60 to 120 rice-sized, low-dose radioactive seeds, containing either
Palladium-103 or Iodine-125, are permanently implanted, usually by a radiation oncologist or urologist, into the prostate to irradiate and destroy cancerous prostatic tissue.
Insertion of the seeds is performed under ultrasound guidance that allows the physicians to view the prostate to ensure proper seed implantation. A template, or grid, covers the perineum and is
attached to the ultrasound probe to facilitate correct needle placement. Implant needles loaded with seeds are assigned to the appropriate template holes as indicated in the treatment plan. Each
needle is guided through the template and then through the perineum to its predetermined position within the prostate under direct ultrasound visualization. The seeds are implanted as the needle is
withdrawn from the prostate. When all seeds have been inserted, an x-ray or CT image is viewed to verify seed placement.

Brachytherapy
patients are typically treated on an outpatient basis, as the entire procedure typically takes less than two hours and the patient generally is permitted to go home the
same day. Most patients are able to return to their normal activities within two or three days following the procedure.

The
use of brachytherapy to treat prostate cancer has grown significantly over the past several years due to its advantages over other therapies, including radical prostatectomy, or
RP, and external beam radiation therapy, or EBRT. Brachytherapy is the newest of the three primary techniques for the treatment of prostate cancer. Only recently has ten-year survival data
become available which demonstrates the comparability of brachytherapy treatment with surgery. We believe that the increasing use of this technique reflects the growing acceptance in the medical
community and among patients of this recently available comparative data.

Brachytherapy
usually results in lower incidences of impotence and incontinence compared to other therapies, and faster recovery times than RP. Moreover, studies show that the disease
free survival rates ten-years after brachytherapy treatment are comparable to RP. Brachytherapy is most effective for localized tumors treated in the early stages of the disease.
Therefore, we believe that the growing use of PSA tests will help detect prostate cancer at an earlier stage and enhance the attractiveness of brachytherapy as a treatment alternative.

Our Brachytherapy Products.We believe that we are the only manufacturer of both iodine and palladium based
brachytherapy seeds, the two most commonly used seeds for the treatment of prostate cancer. These two products differ in the time each takes to decay, and, consequently in the rate and intensity at
which the radiation dose is delivered. Because physicians may prefer either iodine or palladium seeds, we believe that it is advantageous to offer both in order to address the entire market. Both
types of seeds are marketed under the trademarks IoGold and PdGold by Mentor through its approximately 35-person urology sales force. Although our products are
primarily marketed in the United States, Mentor is also selling our products in foreign countries. We received a CE mark in December 2000 which enables Mentor to market and sell our
brachytherapy seeds in Europe.



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Other Treatment Modalities

Radical Prostatectomy.Currently the most common treatment option, radical prostatectomy, or RP, is an invasive
surgical procedure in which the entire prostate gland is removed. RP is performed under general anesthesia and typically includes a hospital stay of several days for patient observation and recovery.

This
procedure is often associated with high rates of impotence, incontinence and operative morbidity. For instance, a study published in the Journal of the American Medical
Association in January 2000 reported that approximately 60% of men who had received RP reported erectile dysfunction as a result of surgery. The same report found that approximately 40% of the
patients studied reported at least occasional incontinence. New bilateral nerve-sparing techniques are currently being used more frequently in order to address these side effects, but these techniques
require a high degree of surgical skill. RP is typically more expensive than other common treatment modalities.

External Beam Radiation Therapy.External beam radiation therapy, or EBRT, one of the first minimally invasive
alternatives to RP, allows patients to receive treatment on an outpatient basis at a significantly lower cost than RP. EBRT involves directing a beam of radiation from outside the body at the prostate
gland to destroy cancerous tissue. The course of treatment takes anywhere from seven to eight weeks for the tumor to receive the total dose of radiation prescribed to kill the tumor.

Studies
have shown, however, that the ten-year disease free survival rates with treatment through EBRT are not comparable to the disease free survival rates of RP or
brachytherapy. In addition, because the radiation beam travels through the body, affecting healthy and cancerous tissue alike, other side effects are associated with EBRT. For instance, rectal wall
damage caused by the radiation beam is a noted negative side effect. Recent data suggests that between 30% and 40% of the patients who undergo EBRT suffer problems with erectile dysfunction after
treatment.

While
EBRT directs one single large beam at the prostate, a new technique, known as Intensity Modulated Radiation Therapy, or IMRT, is designed to spare healthy tissue by directing
many very small beams to the cancerous tissue, all with varying levels of intensity. IMRT has not yet gained widespread use and does not yet have long-term clinical data supporting better
efficacy rates or lower incidences of side effects.

Other Treatments.Cryosurgery, a procedure in which tissue is frozen to destroy tumors, is another treatment option for
prostate cancer. Currently, this procedure is not widely used, although promising treatment outcomes have been reported. Without temperature sensing probes that direct precisely where the tumor has
formed, tissue freezing may be non-selective. Consequently, diseased and healthy tissue may be destroyed at the same rate. Cryosurgery typically requires a one to two day hospital stay and
is associated with higher rates of impotence than brachytherapy.

Other
treatments include hormone therapy and chemotherapy, which may be used to reduce the size of cancerous tumors. However, these treatments are not intended to ultimately cure a
patient of prostate

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cancer. Instead, such treatment choices are made by physicians in an attempt to extend patients' lives if the cancer has reached an advanced stage or as ancillary treatment methods used in conjunction
with other treatment mechanisms. Common side effects of hormone therapy are impotence, decrease libido and development of breasts, and common side effects of chemotherapy are nausea, hair loss and
fatigue.

"Watchful
waiting," 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 upon the age and
life expectancy of the patient. Physicians who choose watchful waiting are frequently seeking to avoid the negative side effects associated with RP or other treatment modalities. Through careful
monitoring of PSA levels and close examination for advancing symptoms of prostate cancer, physicians are able to choose more active treatments at a later date.

Mentor Relationship

We have an exclusive worldwide distribution agreement with Mentor to market and sell IoGold and PdGold brachytherapy seeds for the
treatment of prostate cancer. We originally entered into a five-year agreement with Mentor, effective January 1998, covering IoGold brachytherapy seeds. Subsequently,
in February 1999, we amended the agreement to establish provisions providing for Mentor's exclusive worldwide marketing and distribution rights with regard to PdGold seeds. The
term of the agreement for both IoGold and PdGold seeds expires in 2003, subject to a one-time option held by Mentor to extend the exclusive agreement for an
additional three years. Under the agreement Mentor is responsible for all sales and marketing activities, including the education and support of urologists, radiation oncologists, medical physicists
and other personnel involved in the use of brachytherapy seeds. The agreement also provides us the right to terminate Mentor's exclusivity with respect to any product for which Mentor fails to achieve
target market share requirements in certain designated geographic areas, subject to certain curing provisions whereby Mentor can maintain exclusivity. Mentor may terminate the agreement if we
terminate Mentor's exclusive marketing and distribution rights, or if we commit a material breach and fail to cure. Furthermore, Mentor is entitled to stop marketing PdGold if its gross
margin on the product falls below a certain threshold set forth in the contract. We do not believe that Mentor has cause to terminate the agreement, nor do we believe that Mentor's gross margin on the
product is below the minimum expressed in the agreement.

Mentor
did not meet its 1999 performance target with respect to sales of PdGold and we also believe that it is unlikely that Mentor met its 2000 target. However, Mentor's
shortfall for PdGold has been decreasing over the life of the contract, and we believe that Mentor is making efforts to meet the target market share described in the contract with respect
to PdGold. If at any time we become dissatisfied with Mentor's efforts to remedy any contractual shortfall, or if the shortfall worsens or does not improve, we may elect
to terminate Mentor's right of exclusivity subject to certain curing provisions set forth in our contact with Mentor.

This
alliance with Mentor has provided us with the ability to leverage Mentor's sales and marketing capability as an established leader in urology while allowing us to focus on our
plans for diversification into other areas. Mentor currently distributes IoGold and PdGold through its approximately 35-person urology sales force which targets
urologists, radiation oncologists and medical physicists for the brachytherapy line.

RADIATION CALIBRATION AND REFERENCE SOURCE PRODUCTS

Radioactivity is a natural physical property. Each radioisotope radiates energy characteristic to that specific isotope. Radiation detection instruments
monitor the emitted radiation from a given sample (i.e., soil, air, water, etc.) to identify and quantify the radioisotopes present in that sample. In order to determine a particular instrument's
efficiency, an accurately measured and contained amount of a radioactive isotope is required to serve as a calibration reference standard. Each type of sample being

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monitored by an instrument typically requires a radiation source standard of identical form and geometry to the sample.

Our
principal products in this category are radiation sources and standards, which are used in a variety of areas for calibration, measurement, analysis and control.

Standards for Nuclear Medicine

Nuclear medicine is practiced at over 5,000 U.S. hospitals. Consistent performance of imaging and calibration instrumentation is crucial to successful
diagnostic and patient management and cannot be maintained without extensive calibration programs. We supply many of the required types of calibration standards.

Standards for Calibration and Reference

We manufacture both catalog and customized products for commercial laboratories serving the environmental sector. Calibration standards are critical for
accurate environmental analysis of unknown samples collected in the field. Moreover, our products have a variety of industrial uses, ranging from measuring the thickness of materials and gauging fluid
levels to electronics stabilization and calibration.

We
make standards available to various organizations, including certain government agency contractors and laboratories. These standards are often designed to meet special
requirements, customized configurations or special processing services.

Our
commercial customers include federal and state governmental agencies, leading medical equipment manufacturers, nuclear utilities and private organizations. In addition, our
radiation sources are sold through a select group of representatives and distributors in North America, Europe and the Far East. We support our products through a full product catalog, advertising,
telemarketing and trade shows, and engage in direct selling to end users and also sell to equipment manufacturers for inclusion in their product lines.

Radioisotopes
are purchased from government or commercial facilities around the world or are manufactured by irradiation of target materials at commercially available sites. We also
often process and purify these isotopes in our laboratories. Once purified, we further process, contain and calibrate these materials.

THESEUS ACQUISITION

On October 13, 2000, we acquired Theseus by means of a merger, and Theseus now operates as our wholly-owned subsidiary.

Theseus'
stockholders and option holders received a total of 345,665 shares of, or options to purchase for nominal consideration, our common stock in exchange for 100% of Theseus'
outstanding common stock and options. In connection with the Theseus acquisition, we recorded a one-time charge for in-process research and development of $11.4 million.

Apomate

Nuclear medicine imaging involves injecting a radioisotope into the patient's body, detecting the signal emitted by the radioisotope with a gamma camera and
then creating an image of the target area, usually through the use of a computer. A radioisotope, such as Technetium Tc-99m, is sometimes coupled with a carrier molecule that binds on a
selective basis with targeted tissues. Nuclear medicine imaging is unique in that it documents organ function and structure, in contrast to diagnostic radiology, which is based upon anatomy. Nuclear
medicine imaging procedures often identify abnormalities very early in the progression of a disease, long before some medical problems are detected using other
diagnostic tests. The Society of Nuclear Medicine estimates that 10 to 12 million nuclear medicine imaging examinations or therapeutic procedures are performed in the United States each year.

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Apomate is a kit consisting of multiple components for the preparation of Technetium Tc-99m labeled Annexin-V, a human protein produced by
recombinant techniques. It is administered intravenously and is intended for thein vivoimaging of apoptosis and necrosis, using standard nuclear
medicine imaging procedures.

Apoptosis
was once of interest only in a few specialized fields of biology, but is now recognized as a central feature of heart attack, organ transplant rejection and cancer
treatment. During apoptosis, several physiologic stimuli may trigger a cellular set of processes that result in an orderly self-destruction and disposal of the cell without breaking open
the cell membrane. This process can be induced by disease, such as in transplant rejection or heart attack, or can be purposely induced as the result of certain forms of cancer therapy, including
chemotherapy and radiotherapy. Unlike apoptosis, necrosis is a disorganized nonphysiologic process characterized by physical disruption of the cell membrane. Necrosis can be caused by mechanical,
thermal, electrical or noxious chemical injury and by profound hypoxia (a deficiency in the amount of oxygen reaching body tissues), ischemia (a decrease in the blood supply to a bodily organ, tissue,
or part caused by constriction or obstruction of the blood vessels), or respiratory poisons. In a normal healthy cell, membrane integrity is maintained by a series of controlled biochemical processes.
Initial stages of apoptosis and necrosis show the maintenance of the cell membrane in apoptosis and the breakdown of cell membrane integrity in necrosis.

During
apoptosis the inactivation of a particular enzyme, translocase, allows a molecule known as phosphatidylserine, or PS, which is normally only found on the inside of the membrane
to migrate to the outer surface of the cell membrane. As soon as PS is expressed on the surface of the cell it becomes accessible as a binding target site for Apomate.

Cells
dying from necrosis have membrane disruption typically with cell swelling. Although PS does not migrate to the outer surface of the cell membrane during necrosis, the loss of
membrane integrity allows Apomate to bind to PS on the inner leaflet of the cell membrane.

Once
Apomate binds to PS, standard nuclear medicine imaging techniques are used to produce an image of cell death associated with either apoptosis or necrosis.
Apomate is currently in clinical trials for imaging apoptosis and necrosis to determine the location and extent of damage in heart attack, to image heart transplant rejection and to
assess early response to cancer treatment. We believe that Apomate will allow clinicians to make better therapeutic decisions for individual patients by monitoring the patient's condition
or response to treatment with greater sensitivity and speed.

Heart Attack and Coronary Artery Disease

Coronary artery disease, or CAD, is one of the most common medical problems, affecting approximately 25% of all Americans. CAD is characterized by the buildup
of cholesterol-laden deposits called plaque in the interior of blood vessels supplying blood to the heart. The heart requires a constant supply of oxygen-rich blood to function normally.
As plaque in the coronary arteries increases in size, it can reduce blood flow to a region of the heart causing pain, known as angina. If the cholesterol deposits in the coronary arteries totally
block the flow of blood, part of the heart muscle can infarct, or die. Infarctions are more commonly known as a heart attack. While ECG, and clinical laboratory tests for damage to the heart muscle
have been enormously helpful, there is still much ambiguity in distinguishing a new infarction from old heart damage in patients with known coronary artery disease. ECG changes may be due to
pre-existing damage and enzymes may not be sensitive enough to make a definitive diagnosis. Also, it is sometimes difficult to distinguish cardiac causes of chest pain or shortness of
breath from gastrointestinal or musculoskeletal problems.

Apomate
imaging in patients with known heart attacks has shown positive images with definite areas of increased uptake of the imaging agent in the areas of the heart
known to have had a blockage of blood flow. When a blockage occurs in a coronary blood vessel, a region of the heart normally supplied with blood by this vessel is injured and may die. Recent studies
have shown that muscle cells in the heart can

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begin dying within 15 minutes of oxygen deprivation and may also be injured in the first few minutes after the return of blood flow in patients whose clots are dissolved by drugs or who undergo
emergency angioplasty. Apomate's ability to localize in areas of apoptosis and necrosis suggest that this imaging procedure may be useful in demonstrating the total volume of irreversibly
damaged heart muscle. The Apomate studies should allow a definitive diagnosis of the location and extent of the heart damage to be made.

Moreover,
we believe that Apomate may distinguish previously damaged heart tissue from freshly injured tissue in patients with known cardiovascular disease. Current
regional perfusion imaging agents such as Thallium Tl-201 and Cardiolite cannot always distinguish past heart tissue damage from fresh injury.

There
are approximately five million hospital or emergency room admissions annually in the United States for the purpose of ruling out a heart attack. ECG and clinical laboratory
studies are definitive in diagnosing approximately 1.5 million heart attack cases. We believe that Apomate imaging of these patients following intervention will provide valuable
information as to the extent of damaged tissue. The remaining 3.5 million patients are not definitively diagnosed with a heart attack but, nevertheless,
are often required to stay overnight in the hospital for observation. We believe that Apomate imaging could be useful in making a definitive diagnosis of or ruling out heart attack or
ischemic heart damage due to temporary reduction of blood flow to the heart in these patients if nuclear imaging becomes a routine procedure in the emergency room. Consequently, we believe the use of
Apomate may reduce hospital costs by permitting some patients to be discharged earlier.

Clinical Trials.A preliminary peer-reviewed publication demonstrating the localization of Technetium
Tc-99m-labeled Annexin V in patients with heart attacks was published in the Lancet, a leading British medical journal. In this study, which used an experimental laboratory preparation
similar to Apomate, six of seven patients with heart attacks had images demonstrating areas of heart uptake consistent with known heart tissue damage. Subsequently, these researchers
using Apomate in seven additional patients with heart attacks have shown localization of Apomate in ECG-indicated areas of heart tissue damage in each case.

Based
on those positive results, we filed an IND application with the FDA to conduct multi-center clinical trials of Apomate imaging as an adjunct in the diagnosis of
heart attack. These trials began in November 2000. We expect to study 50 to 100 patients with known heart attacks in Phase II trials which will compare Apomate imaging to standard
enzyme and ECG tests as well as to Thallium Tl-201 imaging. We expect these trials to be carried out at five to ten U.S. centers specializing in the management of heart disease. We expect
Phase II trials for heart attack to be concluded in the middle of calendar 2001; we expect Phase III trials to begin in the third quarter of 2001, end in the first calendar quarter of 2002 and enroll
200 to 300 subjects.

Heart Transplant Rejection

A serious concern following a heart transplant is rejection of the donor heart. The body's immune system is designed to protect the body from infection.
Without medical intervention, the immune system recognizes the transplanted organ as a foreign body and attempts to destroy it through a process known as rejection. If no medication is given to a
transplant recipient, the host white blood cells attack the donor heart, thereby causing apoptotic cell death in the transplanted organ. To prevent rejection of the new heart, patients receive
medication that suppresses the body's immune system. Physicians must carefully administer the dose of immunosuppressive drugs, such as cyclosporin, to allow the immune system to fight infection and
still protect the new heart from being rejected. Patients must take these immunosuppressant drugs for the rest of their lives.

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Transplant patients are monitored for signs of rejection by repeated heart catheterization during which a small piece of heart tissue is biopsied and examined in the laboratory under
a microscope for signs of rejection, a procedure known as histopathological examination. This biopsy procedure is invasive and can be painful, involving advancement of a catheter through a vein to the
heart and the "snipping off" of a piece of tissue for microscopic examination. Based on the results of the biopsy, a physician may adjust the prescribed level of immunosuppressive drugs.

In
initial human trials, Apomate has been found to concentrate in areas of cell death, thus providing an early warning of this rejection.

There
are approximately 2,300 heart transplants performed annually in the United States. Each heart transplant recipient may undergo up to 15 biopsy procedures in the first year after
the transplant in order to assess the adequacy of immunosuppression medication required to prevent rejection of the new heart. After the first year, biopsies are typically performed one to four times
annually.

Clinical Trials.In patients experiencing heart transplant rejection, the cells of the new heart are dying as a result
of the apoptotic process. Preclinical results have demonstrated the ability of Apomate to bind to dying heart cells in rejecting heart transplant recipients. Nuclear medicine images
obtained using standard instrumentation available in U.S. hospitals clearly demonstrated localization of Apomate in patients with biopsy-confirmed transplant rejection in Phase I clinical
trials. This demonstrates the potential for non-invasive nuclear medicine imaging of early signs of rejection. Thus, Apomate is anticipated to provide equivalent information
to a biopsy through a non-invasive imaging procedure. We believe that the ability to replace an invasive surgical procedure with a non-invasive imaging procedure at a lower
cost represents a significant market opportunity.

In
June 2000, we presented peer-reviewed data to the Society of Nuclear Medicine from our Phase I trial of Apomate in heart transplant rejection
which was conducted in 27 patients who were undergoing routine surveillance heart biopsies, the standard diagnostic test for post-transplant patients. Based on these results, we initiated
expanded Phase II clinical trials in August 2000.

As
of October 31, 2000, 49 patients had received Apomate for the evaluation of heart transplant rejection. Seven patients showed rejection when biopsied and
Apomate imaging was positive in six of those patients. The other 42 subjects did not show transplant rejection when biopsied. Importantly, the results of the Apomate study
were negative in these patients, indicating that Apomate may be an effective non-invasive alternative to biopsy. We prepared an extensive summary of safety data related to
this application which supports the safety of Apomate and submitted it to the FDA. The FDA has approved a "readministration" protocol allowing all previous subjects to continue to be
imaged in future trials and all future study subjects to receive multiple doses of Apomate to follow the adequacy
of their immunosuppressive medication on an ongoing basis. We have also been granted Orphan Drug status for this indication by the FDA.

Clinical
trials are currently continuing or in the planning phase in ten of the leading U.S. heart transplant centers to optimize Apomate imaging and to correlate imaging
results with biopsy findings. We expect Phase II trials for heart transplant rejection to be completed by the end of the second quarter of 2001. We expect Phase III trials to begin by the third
calendar quarter of 2001, to end by the end of the first quarter of 2002 and enroll about 200 subjects.

Cancer Treatment

Many cancer treatments including, radiotherapy, chemotherapy or immunotherapy, are intended to kill tumor cells. Apomate has been shown in early
clinical trials to imagein vivotumors responding to treatment by binding to apoptosis-specific membrane markers that appear as soon as one to two
hours after effective treatment.

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Normally, it takes weeks or months of repeated dosing with cancer drugs until response to treatment is evaluated by observation of tumor size changes. This long evaluation period can
be particularly troublesome because, for example, although approximately 25% to 40% of breast cancer patients with recurrent disease respond to the first-line treatment, the side effects
of the drug are felt in nearly 100% of the treated population. Consequently, an imaging agent with the ability to quickly measure patient response to cancer therapy should be in great demand. This
would allow for rapid identification of ineffective treatments thereby avoiding negative side effects in circumstances where the patient receives no benefit.

We
believe that Apomate, as a prognostic tool for cancer, provides several potential benefits to patients, physicians and pharmaceutical and biotechnology companies by:



According
to the National Cancer Institute, approximately 1.2 million individuals in the United States are diagnosed with cancer each year, of which approximately 400,000 will
undergo chemotherapy. Many additional patients with recurrent disease enter chemotherapy programs each year. We believe that Apomate imaging will dramatically enhance the choice of
particular therapies, since no diagnostic tool in use today gives clinicians such rapid, direct and detailed evidence as to whether a particular treatment is effective.

Another
potential market for Apomate is in human clinical trials for new cancer drugs and cancer treatment regimens under development. Because the evaluation endpoint of
tumor stabilization or shrinkage may take many weeks or months to evaluate, the patients are typically given their maximum tolerated dose for the period of time required to see physical evidence of
tumor shrinkage. We believe that Apomate may shorten this period significantly, and thus reduce development time for new therapeutic agents.

Clinical Trials.As of October 31, 2000, we completed Phase I clinical trials for this indication, in which we
conducted 69 Apomate imaging studies in 35 cancer patients. Subjects in this trial with positive uptake of Apomate post-treatment showed clinically meaningful
responses to treatment. In the subjects with lung cancer in this initial trial, those who did not show Apomate uptake post-treatment, suggesting no tumor cell death, showed no
clinical response to treatment. Thus, Apomate appeared to predict clinical response to treatment in non-small cell lung cancer when administered 24 hours after the
first course of cancer treatment. Some of the breast cancer patients who did not show increased Apomate uptake 24 hours after their first chemotherapy dose did show a partial
response to treatment; further studies are planned to optimize use of the agent in that population.

In
addition, Phase I studies in some lymphoma patients have shown significant increases in Apomate shortly after treatment. We believe that Apomate uptake
post-treatment in this population may be useful as a prognostic sign of good treatment response. Conversely, lack of post-treatment Apomate uptake may indicate a
poor prognosis and suggest the need for more aggressive intervention, such as bone marrow transplant in conjunction with high dose chemotherapy.

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We expect Phase II trials for lymphoma to begin in the first calendar quarter of 2001 and to continue through the third quarter of 2001. We expect Phase III trials for the use of
Apomate to determine prognosis and response to treatment in lymphoma patients to begin in the fourth quarter of 2001, to end by the end of 2002 and enroll about 200 subjects.

Other Products

By utilizing our expertise in the design, development and manufacturing of radioisotopic products, we have developed or jointly developed the following
additional products.

Prospera

Intraocular melanoma, or a tumor occurring inside the eye, is a relatively rare malignancy which accounts for approximately 1,500 new cases each year in the
United States. The two most common means of treating this condition are brachytherapy or enucleation, or the removal of the eye.

In
April 2000, we introduced a line of high activity brachytherapy seeds under the trademark Prospera for use in the treatment of ocular melanoma and other solid tumor
applications. Prospera is used with the ultimate goal of destroying the tumor while saving the eye. Prospera seeds are available in both Iodine-125 seeds and Palladium-103
seeds. We directly market Prospera to ophthalmologists and medical physicists. The number of cases presenting annually will limit Prospera sales for this application, but we view it as a natural
extension of our brachytherapy business and as a service to the oncology community.

Coronary Restenosis Project

In January 2000, we announced a collaboration with EndoSonics Corporation to develop a beta radiation catheter for treatment of coronary restenosis.
EndoSonics was subsequently acquired by JoMed N.V., a European developer and manufacturer of cardiology products, in September 2000. On January 25, 2001, we were notified by JoMed N.V.
that they have decided not to continue with the project.

Intellectual Property

We believe that patents and other proprietary rights are vital to our business. It is our policy to seek appropriate patent protection both in the United
States and abroad for our proprietary technology and to enter into license agreements with various companies to obtain patent rights from them to develop and potentially sell products which use the
compounds and technologies protected by those patents.

We
currently hold one U.S. patent relating to brachytherapy. In December 1999, we received a patent for a laser welded closure device which will expire in 2018. Additionally,
we recently applied to extend our patent protection internationally with the European Patent Office. We also filed an application for patent protection in August 1997 on our radioactive
brachytherapy source design. This application is still pending. No patent protection is afforded while the application is pending before the United States Patent Office, however, the application is
maintained in secrecy so that trade secret status is maintained.

Our
Theseus subsidiary has exclusively licensed Apomate technology forin vivoimaging of cell death from certain entities
that have pending patents with respect to this technology.

The
Apomate technology is licensed to Theseus under the following arrangements:



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In
addition, we have in-licensed additional technology governing composition of matter and use of Apomate.

In
July 1997, we were granted a patent on a radioisotope-based device for site localization during biopsy procedures, which expires in 2014.

We
also rely upon unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation to develop and maintain our competitive position.
Our policy is to enter into confidentiality agreements with our employees, consultants and vendors, and we generally control access to our proprietary information.

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Competition

Our brachytherapy business is subject to intense competition. Our primary competitors in the brachytherapy seed business include Nycomed Amersham PLC, which
manufactures and sells Iodine-125 brachytherapy seeds, and Theragenics Corporation, which manufacturers and sells Palladium-103 brachytherapy seeds directly and through
marketing relationships with Prostate Services of America, Inc., Nycomed Amersham PLC, C.R. Bard, Inc., Imagyn Medical Technologies and Indigo Medical, Inc, a subsidiary of
Johnson & Johnson. Several additional companies have begun to sell seeds and a number of others have announced their intention to market brachytherapy products.

For
the indications currently being evaluated in clinical trials for Apomate, established methods of patient evaluation exist and must be considered "gold standards" of
treatment. To our knowledge, no radiopharmaceutical product comparable to Apomate currently exists, nor, to our knowledge, is any substantially similar product currently in development.
The competition which Apomate could potentially encounter will be physician acceptance and adoption of a new diagnostic and management tool designed to replace
well-established procedures. It is also possible that Positron Emission Tomography, or PET, techniques could be used to study patient response to anti-tumor treatment or heart
tissue damage. Radiopharmaceuticals, such as Thallium Tl-201 and DuPont Corporation's Cardiolite, are used to show abnormalities of blood flow to heart tissue. However, such agents do not
directly image damage to heart tissue.

The
competition in the intravascular brachytherapy market is intense. Novoste Corporation, Guidant Corporation and Cordis, a division of Johnson & Johnson, are leaders in the
field and we believe that at least one of our competitors will have a commercialized product to market well ahead of us. We also believe that other companies such as Boston Scientific, Radiance
Medical Systems and U.S. Surgical are developing similar products. The delivery methods and the type of radiation vary among the different companies.

The
radiation reference source business is also subject to intense competition. Our competitors in this industry include AEA Technology PLC and Eckert & Ziegler AG. We believe
that these companies have a dominant position in the market for radiation reference source products.

We
believe that we compete favorably in our targeted markets with these and our other competitors on the basis of price, diversity of product line, customer service, quality and
delivery time.

Many
of the companies named above against whom we compete are substantially larger than us and have greater technical, sales, marketing and financial resources. Developments by any of
these or other companies or advances by medical researchers at universities, government research facilities or private research laboratories could render our products obsolete. Therefore, additional
companies with substantially greater financial resources than we have, as well as more extensive experience in research and development, the regulatory approval process and manufacturing and
marketing, may develop seeding treatments and products that are similar to our brachytherapy products.

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Government Regulation

Our research and development activities and the manufacturing and marketing of our radioisotope products are subject to the laws, regulations, guidelines and
regulatory clearances and approvals of governmental authorities in the United States and other countries in which our products will be marketed. Specifically, in the United States, the FDA regulates,
among other things, new product clearances and approvals to establish the safety and efficacy of these products. Governments in other countries have similar requirements for testing and marketing. In
the United States, in addition to FDA regulations, we are also subject to other federal laws, including, the Occupational Safety and Health Act and the Environmental Protection Act, and we are also
subject to certain state laws.

U.S. Regulatory Process

Approval of new medical devices and biological products is a lengthy procedure leading from development of a new product through preclinical and clinical
testing. This process takes a number of years and the expenditure of significant resources. There is a shorter FDA review and clearance process, the premarket notification process, or the 510(k)
process, whereby a company can market
certain medical devices that can be shown to be substantially equivalent to other legally marketed devices. We have been able to market some of our products through the 510(k) process.

Regardless
of how our product candidates are regulated, the Federal Food, Drug, and Cosmetic Act and other federal statutes and regulations govern or influence the research, testing,
manufacture, safety, labeling, storage, record keeping, approval, distribution, use, reporting, advertising and promotion of such products. Noncompliance with applicable requirements can result in
civil penalties, recall, injunction or seizure of products, refusal of the government to approve or clear product approval applications, disqualification from sponsoring, or conducting clinical
investigations, prevent us from entering into government supply contracts, withdrawal of previously approved applications and criminal prosecution.

In
October 1997, we received 510(k) clearance from the FDA to market IoGold. In July 1998, we received 510(k) clearance from the FDA to
market PdGold.

Clinical
trials of Apomate are ongoing in the United States under three IND exemptions. Apomate is in Phase II clinical trials as a possible diagnostic
adjunctive tool for imaging heart tissue damage, specifically to identify the location and extent of heart attack damage, as well as an adjunct in the diagnosis of a heart attack and in imaging heart
transplant rejection. Apomate Phase I clinical trials for imaging response to chemotherapy, specifically in lymphoma, breast cancer with metastases, and in non-small cell lung
cancer have been completed. We intend to file a biologic license application, or BLA, for these indications and have been granted Orphan Drug status for Apomate for imaging heart
transplant rejection.

We
are required to be registered as a medical device manufacturer with the FDA. As such, we will be inspected on a routine basis by the FDA for compliance with the FDA's quality
system regulations and current Good Manufacturing Practice regulations, among other things. These regulations require that we and any of our contract manufacturers design, manufacture and service
products and maintain documents in a prescribed manner with respect to manufacturing, testing, distribution, storage, design control and service activities. Modifications or enhancements that could
significantly affect the safety or effectiveness of a device or that constitute a major change to the intended use of the device require a new 510(k) notice for any product modification. We may be
prohibited from marketing the modified product until the 510(k) notice is cleared by the FDA.

The
Medical Device Reporting regulation requires that we provide information to the FDA on deaths or serious injuries alleged to be associated with the use of its devices, as well as
product malfunctions that are likely to cause or contribute to death or serious injury if the malfunction were to recur. Labeling and

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promotional activities are regulated by the FDA and, in some circumstances, by the Federal Trade Commission.

For
certain of our products under development which may be regulated as biologics, the FDA requires:



The
FDA's IND and post-approval report regulations require that we provide information to the FDA on deaths or serious injuries alleged to be associated with the use of
our products, as well as increases in the frequency or severity of the occurrence of adverse effects. Labeling and promotional activities are regulated by the FDA and, in some circumstances, by the
Federal Trade Commission.

Foreign Regulatory Process

In order to sell our products within the European community, we must comply with the European Commission's medical device directive. We received a CE mark on
our brachytherapy products for prostate cancer in December 2000. The CE mark is recognized worldwide as an essential European
regulatory approval and will enable us to expand our sales and distribution of the products throughout Europe. We have filed an IND exemption in Canada for Apomate. It is
being investigated as an imaging agent for early response to cancer chemotherapy. We have also filed a CTX application with the Medicines Control Agency in the United Kingdom for this product. It is
being investigated as an imaging agent for early response to cancer chemotherapy and determination of heart attack damage.

Other Regulation

In addition to FDA regulation, certain of our activities are regulated by, and require approvals from, other federal and state agencies. For example, we
operate under a license issued by the California Department of Health which is renewable every eight years. We received a renewal of our license for our North Hollywood facility in 1996 and were
issued a license for our Chatsworth facility in March 1999. We are also subject to a routine inspection by the California Department of Health Services, for compliance with good manufacturing
practice requirements and other applicable regulations. Violation or alleged violation of these regulations may result in government action ranging from warning letters to criminal prosecution.
Companies who violate these regulations are also subject to large civil penalties. Moreover, our use, management and disposal of certain radioactive substances and wastes are subject to regulation by
several federal and state agencies depending on the nature of the substance or waste material. We believe that we are in compliance with all federal and state regulations for this purpose.

Manufacturing

We manufacture all of our brachytherapy products at our North Hollywood, California and Chatsworth, California facilities. We manufacture our calibration and
reference source products in our North Hollywood, California facility. The equipment used to manufacture our products is purchased from a variety of suppliers. Additionally, we have developed an
in-house capability to both build and repair

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certain equipment used in the manufacturing of our products. We consider our manufacturing equipment to be in good condition.

The
principal component in our products are radioisotopes. Additionally we use a variety of materials for encapsulation or containment of the radioisotopes. Radioactive materials are
available from a limited number of government and private suppliers. Encapsulation and containment materials are available from commercial suppliers in the United States and internationally.

The
components of the Apomate kit are manufactured by third parties under contract with Theseus. We believe current manufacturing arrangements will provide sufficient
kits to allow completion of clinical trials and to satisfy demand for first year commercial distribution of the product. We conduct audits of our third party manufacturers to ensure they comply with
the FDA's current Good Manufacturing Practice regulations.

RESEARCH AND DEVELOPMENT

Research and development expenditures totaled $417,000 during the year ended October 31, 2000 compared to $287,000 for the year ended October 31,
1999. The increase was due primarily to development efforts associated with new product lines. In connection with the acquisition of Theseus, we expect to incur ongoing clinical trial and development
costs related to Apomate, totaling an estimated $20 million over the next two to three years.

EMPLOYEES

As of October 31, 2000, we had a total of 51 full-time employees and 1 part-time employee. None of our employees are represented
by a labor union. We have not experienced a work stoppage in our history, and we believe that our employee relations are good.

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Risk Factors

Our recent acquisition of Theseus and the resulting changes to our core business involve considerable risk and may threaten our future profitability and viability.

On
October 13, 2000, we acquired Theseus, a developer of proprietary radiopharmaceutical products to enhance the medical management of various conditions, including heart
attack, heart transplant rejection and cancer, pursuant to an amended and restated merger agreement dated September 22, 2000. Under the merger agreement, a newly formed, wholly-owned subsidiary
was merged into Theseus, with the result that Theseus is now one of our wholly-owned subsidiaries.

Through
Theseus, we have acquired product candidates which we plan to develop and expand into a core focus of our future business. Such an expansion and shift in our business involves
considerable risk. Our ability to integrate Theseus into our business and succeed in developing and marketing these new product candidates will be affected by the following factors:



Our ability to commercialize product candidates is subject to uncertainty related to clinical trials.

Before obtaining regulatory approval for the commercial sale of Apomate or any other product candidates, we must demonstrate through preclinical
studies and clinical trials that such product candidates are safe and efficacious for use in each indication. The results from preclinical testing and early clinical trials may not predict results
that will be obtained in large-scale clinical trials, and there can be no assurance that our clinical trials will demonstrate the safety and effectiveness of any of our product candidates or will lead
to marketable products. A number of companies have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. We, the FDA or other regulatory
authorities may suspend or terminate clinical trials at any time. In addition, there can be no assurance that any of our product candidates will obtain FDA or other regulatory approval for any
indication or that an approved product will be capable of being produced in commercial quantities at reasonable cost and successfully marketed.

In
particular, although we anticipate finalizing the composition of and suppliers for our Apomate kit within the first half of 2001, if we are delayed or unable to
determine the final Apomate product candidate we intend to take to market within such time period, we may be unable to proceed on schedule with further clinical trials for any
indications. In addition, the FDA has indicated that clinical trial data we present from an adequate and well-controlled study suitable for supporting a marketing application, often
referred to as a pivotal study, for any indication may not be accepted if Apomate's composition changes

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significantly. As a result, any delay caused by implementing the final manufacturing process for the Apomate kit may delay the commercialization of Apomate.

In
addition, the rate at which we complete clinical trials depends upon, among other things, the rate of patient enrollment. Patient enrollment is a function of many factors,
including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites and the eligibility criteria for the study. Delays in planned patient enrollment
may result in increased costs, program delays, or both.

There
can be no assurance that any of our clinical trials will be completed successfully within any specified time period, or at all. There also can be no assurance that the results
from any of these clinical trials will warrant commencing further clinical trials or taking a product candidate to market.

If we fail to maintain existing marketing alliances or are unable to enter into new alliances when necessary, commercialization of certain of our products may be delayed or
prevented.

We do not have a dedicated sales and marketing force and currently do not have the ability to market and sell any of our products in commercial quantities
without entering into marketing relationships with others. We have limited experience marketing and selling our brachytherapy products, which in fiscal 2000 accounted for approximately 81% of our
revenue, and do not have experience marketing and selling those products in commercial quantities. On June 16, 1997, we entered into a five-year marketing and exclusive distribution
agreement with Mentor, whereby Mentor agreed to market and distribute our Iodine-125 and Palladium-103 brachytherapy seeds for prostate cancer. As a result, sales of those
products depend on the marketing efforts of Mentor. Through its sales force, Mentor markets the products to urologists, radiation oncologists and medical physicists and is involved in educating and
training physicians in the procedures for using the products.

Mentor
did not meet its 1999 performance target with respect to sales of PdGold and we also believe that it is unlikely that Mentor met its 2000 target. However, Mentor's
shortfall has been decreasing over the life of the contract, and we believe that Mentor is making efforts to meet the target market share described in the contract with respect to
PdGold. If at any time, we become dissatisfied with Mentor's efforts to remedy any contractual shortfall, or if the shortfall worsens or does not improve, we may elect to
terminate Mentor's right of exclusivity subject to certain curing provisions set forth in our contract with Mentor. If Mentor's right of exclusivity is terminated, we may be unable to develop other
distribution relationships or establish an internal sales and marketing force.

If
we terminate our relationship with Mentor because Mentor fails to meet its performance targets, we may be unable to market certain of our products under Mentor's proprietary
trademarks.

Additionally,
we may rely on marketing alliances to commercialize other products we develop, including Apomate and other nuclear medicine products. As a result, we will
need to develop third-party distribution relationships and/or create our own direct sales force in order to market our products in the future. We may not be successful in developing other distribution
relationships when necessary and we may be unable to develop our own sales force because of the significant costs and dedication of resources involved.

If we fail to maintain our competitive position in key product areas, we may lose significant sources of revenue.

Our brachytherapy business is subject to intense competition. Our primary competitors in the brachytherapy seed business include Nycomed Amersham PLC, which
manufactures and sells Iodine-125 brachytherapy seeds, and Theragenics Corporation, which manufacturers and sells Palladium-103 brachytherapy seeds directly and through
relationships with Prostate Services of America, Inc., Nycomed Amersham PLC, C.R. Bard, Inc., Imagyn Medical Technologies and Indigo Medical, Inc., a subsidiary of
Johnson & Johnson. Several companies have begun to sell seeds and others have announced their

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intention to market brachytherapy products, which would result in increased competition. In addition, other products using alternative technologies may be developed which would compete with our
brachytherapy products. For example, if treatment methods such as cryosurgery or hormone therapy gain acceptance among healthcare providers, patients and payors, or if new technologies such as gene
modification emerge to become leading treatment standards as alternatives to traditional therapies, we may lose market share for our brachytherapy seeds or may find that our products are rendered
non-competitive or obsolete by such market shifts and technological developments.

Our
radiation reference source business also is subject to intense competition. Our competitors in this industry include AEA Technology PLC and Eckert & Ziegler AG. We believe
that these companies have a dominant position in the market for radiation reference source products.

Currently,
the leading imaging technologies include computer tomography, or CT, scanning and magnetic resonance imaging, or MRI, both of which image changes in the anatomy of organs
and other tissue. Our Apomate product candidate images apoptosis and necrosis at the cellular level; however, there can be no assurance that alternative technologies will not be developed
which have superior imaging capabilities to Apomate or which become more widely accepted as imaging standards.

In
addition, many of our competitors are substantially larger and have greater sales, marketing and financial resources than we do. Developments by any of these or other companies or
advances by medical researchers at universities, government facilities or private laboratories could render our products obsolete. Moreover, companies with substantially greater financial resources
than us, as well as more extensive experience in research and development, the regulatory approval process, manufacturing and marketing, may be in a better position than we are to seize market
opportunities created by technological advances in our industry.

The innovative nature of Apomate and other products under development raises questions as to whether the market will accept such products.

The success of our products will depend on our ability to foster and maintain favorable perceptions among patients, doctors, healthcare payors and medical
researchers regarding the safety, efficacy and cost effectiveness of these products. This is particularly true with respect to Apomate. Healthcare providers and payors may
not accept gamma imaging of cell death through the use of Apomate as a viable alternative to traditional methods for assessing heart attack, heart transplant rejection, response to cancer
treatment or the effects of other diseases involving cellular death. If our products do not receive acceptance among physicians, patients and healthcare payors in the United States or elsewhere, we
may be unable to market and sell these products.

If we are unable to acquire sufficient supplies from key suppliers that in some cases may be the only source of raw materials, our ability to deliver our products to the market
may be impeded.

We depend upon a limited number of outside unaffiliated suppliers for our radioisotopes. Our principal suppliers are Nordion International, Inc. and
certain companies in Russia. We also utilize other commercial isotope manufacturers located in the United States and overseas. To date, we have been able to obtain the required radioisotopes for our
products without any significant delays or interruptions. Currently, we rely exclusively upon Nordion International for our supply of the Palladium-103 isotope; if Nordion International
ceases to supply our needs, there may not be adequate alternative sources of supply.

If we are unable to adequately protect our technology or enforce our patents we may lose a significant advantage over our competitors.

Our success depends in part on our ability to obtain and enforce patent protections for our products and operate without infringing on the proprietary rights
of third parties. We hold rights to issued U.S. patents on a radioisotope-based device for site localization during breast biopsy procedures and a laser

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welded closure method for our brachytherapy seeds. The patents expire in 2014 and 2018, respectively. We have also filed for patent protection on our radioactive brachytherapy seed design. Our Theseus
subsidiary has also in-licensed patents and technology for which patents are pending related to Apomate. The scope and extent of patent protection for our
products is uncertain and frequently involves
complex legal and factual questions. The breadth of the claims allowed in patents relating to biotechnology applications or their enforceability cannot be predicted, and patent litigation can be
expensive and time consuming. No assurance can be given that pending patent applications will be approved or that any issued patents will provide competitive advantages for our products. Costly
litigation might be necessary to protect our patents or to determine the scope and validity of third-party proprietary rights, and it is possible that we will not have the required resources to pursue
such litigation or to protect our patent rights. An adverse outcome in litigation with respect to the validity of any of our patents could subject us to significant liabilities to third parties,
require disputed rights to be licensed from third parties or require us to cease using a product or technology.

In
addition, 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 licensors' patent applications or the invalidation of patents. Furthermore, 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, or at all. If we do not obtain such licenses, we could
encounter delays or find that we are unable to develop, manufacture or sell products requiring such licenses.

We
also rely on trade secrets and proprietary know-how that we seek to protect, in part, through confidentiality agreements with our collaborators, customers, employees
and consultants. It is possible that these agreements will be breached or that they will not be enforceable in every instance, and that we will not have adequate remedies for any such breach.
Furthermore, enforcing a claim alleging the infringement of trade secrets would be expensive and time consuming, making the outcome uncertain. It is also possible that our trade secrets will become
known or independently developed by competitors. If we are unsuccessful in protecting our proprietary technology, we may lose a fundamental component of our competitive advantage.

We depend on several key licenses for our Apomate product candidate. If we lose our rights under any of these licenses, our ability to market and sell
Apomate may be jeopardized.

We license certain technology rights related to Apomate from several entities. We are obligated to pay such entities royalties, milestone payments
and other payments in exchange for such licenses and we rely on such parties' intellectual property rights to protect our proprietary interests in Apomate. Currently, we
owe one of our licensors approximately $2.5 million, which is due in August 2001. If we or our licensors breach any of the terms of these license agreements, or if we are unable to pay
amounts owed to our licensors when they become due, we may lose the right to use such technology. If such an event occurs, we may be unable to market and sell Apomate.

In
addition, we are aware of other third party rights relating to Apomate. We believe we have good and sufficient defenses against any possible
infringement claims. Nevertheless, should a court rule against us, we may be prohibited from marketing Apomate unless we obtain a license from such third party which, if available at all,
may require us to make substantial royalty or other payments.

If
we are unable to obtain a license from such third party or if we lose rights to use technology related to Apomate under any of our current license agreements, we may
be unable to market and sell Apomate.

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Extensive government regulation of our industry has had, and will continue to have, a significant impact on our business.

The manufacture and sale of our brachytherapy and other products are subject to stringent government regulation in the United States and other countries. Our
products are subject to FDA and other governmental approval and continual review, and future discovery of previously unknown problems may result in restrictions on a product's marketing or withdrawal
of the product from the market. The commercial distribution in the United States of any new products we develop will depend upon obtaining the prior approval or clearance of the FDA, which can take
many years and entail significant costs, and we have limited experience in filing or pursuing applications necessary to gain regulatory approvals. In countries where our products are not currently
approved, the use or sale of our products may require approval by local government agencies with missions comparable to the FDA's. The process of obtaining any such approval may be lengthy, expensive
and uncertain. We are also required to adhere to applicable FDA regulations for current Good Manufacturing Practices, including extensive record keeping and reporting and periodic inspections of our
manufacturing facilities. Similar requirements are imposed by foreign governmental agencies.

Reimbursement policies by Medicare and other third-party payors have a significant impact on our business.

A substantial percentage of the patients treated for prostate cancer in the United States are covered by Medicare and, consequently, the costs of prostate
cancer treatment are subject to Medicare's prescribed rates of reimbursement. Medicare reimbursement amounts for seeding are currently significantly less than for radical prostatectomy, or RP.
Although seeding generally requires less physician time than RP,
lower reimbursement amounts, when combined with physician familiarity with RP, may create disincentives for urologists to perform seeding. There can be no assurance that:



Also,
we, our distributors and healthcare providers performing brachytherapy seeding procedures are subject to state and federal fraud and abuse laws prohibiting kickbacks and, in the
case of physicians, patient self-referrals. We may be subjected to civil and criminal penalties if we or our agents violate any of these prohibitions.

In
addition, from time to time, significant attention is placed on reforming the healthcare system in the United States. Any future changes in Medicare and other third-party payor
reimbursement which may result from healthcare reform or deficit reduction legislation would likely place downward pressure on prices. Future reimbursement policies may also affect the commercial
acceptance of products we develop, including Apomate. A number of legislative proposals have been introduced in Congress and state legislatures in recent years that would
effect major reforms of the healthcare system and otherwise reduce healthcare spending. Because of the uncertainties surrounding the nature, timing and extent of any such reimbursement changes, audits
and reform initiatives, we are unable to predict the effects of any such matters on our business.

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We use radioactive materials which are subject to stringent regulation and which may subject us to liability if accidents occur.

We manufacture and process radioactive materials which are subject to stringent regulation. We operate under licenses issued by the California Department of
Health which are renewable every eight years.
We received a renewal of our license for our North Hollywood facility in 1998 and we were issued a license for our Chatsworth facility in March 1999. California is one of the "Agreement
States," which are so named because the Nuclear Regulatory Commission, or NRC, has granted such states regulatory authority over radioactive materials, provided such states have regulatory standards
meeting or exceeding the standards imposed by the NRC. Most users of our products must obtain licenses issued by the state in which they reside (if they are Agreement States) or the NRC. Use licenses
are also required by some of the foreign jurisdictions in which we may seek to market our products.

Although
we believe that our safety procedures for handling and disposing of these radioactive materials comply with the standards prescribed by state and federal regulations, the
risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result.

We depend upon key personnel for our continued growth and development. Loss of such key personnel could have material adverse effect on us.

Our success is largely dependent on the personal efforts of key technical and senior management personnel, including L. Michael Cutrer, our Chief Executive
Officer and President, and Dr. Allan M. Green, President of Theseus. We do not have an employment agreement with Mr. Cutrer. We believe that our future success will depend in large part
upon our ability to attract and retain highly-skilled technical, managerial and marketing personnel and is likely to require the expansion of our management level personnel. Competition for
radioisotopic industry personnel can be intense, and the availability of capable personnel may be limited; thus, their services could be difficult to obtain or replace. There can be no assurance that
we will be successful in attracting and retaining the personnel we require to develop and market new and enhanced products and to conduct our operations successfully.

In
addition, we have limited knowledge and experience with respect to the development of Apomate and other related product candidates of our subsidiary, Theseus. To date,
we have relied and expect to rely heavily on the skill, knowledge and expertise of Dr. Green in developing and commercializing our Apomate product candidate. As the President of
Theseus, Dr. Green will continue to have significant responsibility for Apomate and potentially other radiopharmaceuticals we develop. We currently have only a two-year
employment agreement with Dr. Green.

We may experience fluctuations in quarterly operating results due to limited seasonality.

Our brachytherapy product lines may experience some variability in revenue due to seasonality. This is primarily due to three major holidays occurring in our
first fiscal quarter and the apparent reduction in the number of procedures performed during summer months, which could affect our third fiscal quarter results.

As part of our business strategy, we intend to pursue transactions that may cause us to experience significant charges to earnings that may adversely affect our stock price and
financial condition.

We regularly review potential transactions related to technologies, product candidates or product rights and businesses complementary to our business. Such
transactions could include mergers, acquisitions, strategic alliances, licensing agreements or co-promotion agreements. Our recent acquisition of Theseus is an example of such a
transaction. In the future, we may choose to enter into such transactions at any time. Depending upon the nature of any transaction, we may experience a charge to earnings which could be material.

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

Our capital requirements have been and are expected to continue to be significant. We expect our existing capital resources and future operating cash flows to
be sufficient for the foreseeable future. We expect that ongoing clinical trial and development costs related to Apomate may total approximately $20 million over the next two to
three years. However, we may require further capital for the purchase of complementary 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 obtaining required regulatory approvals for new
products we may develop or acquire.

The testing, marketing and sale of our products involve the risk of product liability claims by consumers and other third parties, and insurance against such potential claims
is expensive.

Our business is subject to product liability risks inherent in the testing, manufacturing and marketing of products containing radioisotopes. To date, no
product liability claims have been asserted against us. However, there can be no assurance that such claims will not arise in the future based on past, present or future services or products we offer.
We maintain product liability and general liability insurance with a limit in the aggregate amount of $2 million with additional umbrella insurance coverage of $10 million; however,
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, operating results and financial condition.

Item 2.  PROPERTIES

We are headquartered in the Los Angeles, California metropolitan area where we occupy two properties totaling approximately 40,000 square feet. These
facilities are used for office, manufacturing, engineering, warehouse and research and development. We believe our manufacturing and distribution facilities are adequate, suitable and of sufficient
capacity to support our current operations. The lease on our North Hollywood facility expires in December 2001. The lease on our Chatsworth facility expires in November 2003, but we have
a five-year renewal option. In addition, we have a six-month lease on a facility in Los Alamos, New Mexico, expiring in May 2001.

Item 3.  LEGAL PROCEEDINGS

On February 6, 1998, we contracted with PracSys Corporation ("PracSys") to build two linear particle accelerators intended to produce Pd-103
isotopes to be incorporated in our Pd-103 brachytherapy seed products. PracSys did not complete the manufacturing of the accelerators, and we demanded that PracSys turn over the
uncompleted accelerators. On August 11, 1999 PracSys initiated an arbitration proceeding against us claiming breach of contract, breach of fiduciary duty and unfair and deceptive trade
practices. We denied PracSys' claims, and asserted counterclaims against PracSys for breach of contract and fraud and misrepresentation in connection with PracSys' failure to complete the
accelerators. On June 2, 2000, the arbitrator denied all damage claims by either party in their entirety. Additionally, the arbitrator denied PracSys' claims attempting to cancel the our
ownership interest in PracSys and certain other exclusivity and option rights previously granted to us. Although we were not found liable, the arbitrator did direct us to pay certain of PracSys' legal
and administrative expenses related to the arbitration.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

22

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PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Since February 12, 1998, our common stock has been traded on the Nasdaq National Market under the symbol "NASI". The following table sets forth, for the
periods indicated, the high and low sales prices for our common stock, as reported on the Nasdaq National Market.

Fiscal 2000

High

LowFirst Quarter

$
14.75

$
7.50Second Quarter


34.00


11.50Third Quarter


24.88


15.38Fourth Quarter


31.75


16.50Fiscal 1999First Quarter

$
13.25

$
6.25Second Quarter


9.38


5.28Third Quarter


11.50


5.75Fourth Quarter


10.00


6.88


As
of January 26, 2001, we had approximately 80 holders of record and estimate that we had approximately 6,292 beneficial owners of our Common Stock.

We
have never paid cash dividends on our Common Stock and have no plans to do so.

Item 6.  SELECTED FINANCIAL DATA

The following data should be read in conjunction with the annual financial statements, related notes and other financial information appearing elsewhere
herein.

|                                                |                          | Year Ended October 31,
|----------------------------------------------- | ------------------------ | ----------------------
|
|
|STATEMENT OF OPERATIONS:                        |                          |                       
|Net sales                                       |                          | $                     
|Cost of goods sold                              |                          |                       
|                                                |                          |                       
|                                                | Gross profit             |                       
|Operating expenses:                             |                          |                       
|Research and development                        |                          |                       
|Selling, general and administrative             |                          |                       
|In-process research and development             |                          |                       
|                                                |                          |                       
|                                                | Total operating expenses |                       
|                                                |                          |                       
|Income (loss) from operations                   |                          |                       
|Interest and other income, net                  |                          |                       
|                                                |                          |                       
|Income (loss) before provision for income taxes |                          |                       
|Provision for income taxes                      |                          |                       
|                                                |                          |                       
|Net income (loss)                               |                          | $                     
|                                                |                          |                       
|Diluted earnings (loss) per share               |                          | $                     
|                                                |                          |                       
|Shares used in per share calculation            |                          |                       
|                                                |                          |                       

23

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|                                                 |  | As of October 31,
|------------------------------------------------ |  | -----------------
|
|BALANCE SHEET DATA:                              |  |                  
|Cash, cash equivalents and marketable securities |  | $                
|Working capital                                  |  |                  
|Total assets                                     |  |                  
|Total debt                                       |  |                  
|Total stockholders' equity                       |  |                  

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our financial
condition and results of operations. The discussion should be read in conjunction with the Consolidated Financial Statements contained herein and the notes thereto. Certain matters discussed in this
Form 10-K are forward looking as that term is defined
by: (i) the Private Securities Litigation Reform Act of 1995 (the "1995 Act") and (ii) releases issued by the SEC. These statements are being made pursuant to the provisions of the 1995
Act and with the intention of obtaining the benefits of the"Safe Harbor" provisions of the 1995 Act. We caution that any forward looking statements made herein are not guarantees of future performance
and that actual results may differ materially from those in such forward looking statements as a result of various factors, including, but not limited to, any risks detailed herein or detailed from
time to time our filings with the SEC, specifically our Registration Statement on Form S-3 dated December 14, 2000 and our most recent reports on
Form 10-K, Form 8-K and Form 10-Q, and amendments thereto. We are not undertaking any obligation to update publicly any forward-looking
statements

Overview

We design, develop and produce innovative radioisotopic products, including brachytherapy seeds and radiopharmaceuticals, for the treatment and diagnosis of
disease. Since 1990, we have applied our expertise in radioisotopes to develop and market products for medical, environmental, research and industrial applications.

In
1997, we received approval from the FDA for commercial distribution for our first brachytherapy seed for use in any solid localized tumor. In January 1998, we launched
IoGold, our first seed for the treatment of prostate cancer, through a distribution relationship with Mentor. In April 1999, we launched our second seed, PdGold, also
for the treatment of prostate cancer thereby making us the first company to manufacture both seeds using the two most commonly used isotopes. In fiscal 2000, we recognized approximately 81% of our
consolidated revenues from these two product lines.

On
October 13, 2000, we acquired Theseus, a developer of proprietary radiopharmaceuticals to enhance the medical management of heart attack, heart transplantation and cancer.
In connection with the acquisition, we issued 345,665 shares of, or options to purchase for nominal consideration, our common stock to the Theseus' shareholders. In connection with the Theseus
acquisition, we recorded in the fourth fiscal quarter ended October 31, 2000 a one-time charge for in-process research and development of $11.4 million. We expect
to incur significant ongoing clinical trial and development costs related to Theseus' principal product candidate, Apomate. In addition, we expect to incur substantial
expenses associated with the launch of Apomate if we in fact receive marketing approval from the FDA.

24

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Results of Operations

Fiscal Year Ended October 31, 2000 Compared to Fiscal Year Ended October 31, 1999

Net sales.Net sales increased $4,723,000, or 37%, to $17,490,000 for the year ended October 31, 2000 from
$12,767,000 for the year ended October 31, 1999. The increase in net sales was primarily due to the increase in revenues generated from our brachytherapy product lines. Sales of the
non-therapeutic lines also increased by approximately $446,000.

Gross profit.Gross profit increased $3,483,000 or 43% to $11,656,000 for the year ended October 31, 1999 from
$8,173,000 for the year ended October 31, 1998. Gross profit as a percent of sales increased from 64% to 67% during this period. The increase in gross profit as a percentage of sales was
primarily attributable to the significant proportionate increase in revenues from our brachytherapy product lines in fiscal 2000, which yielded greater gross margins than our
non-therapeutic product lines.

Selling, general and administrative expenses.Selling, general and administrative ("SG&A") expenses increased $665,000,
or 22%, to $3,725,000 for the year ended October 31, 2000 from $3,060,000 for the year ended October 31, 1999. SG&A as a percent of net sales decreased to 21% for the year ended
October 31, 2000 from 24% for the same period in 1999. SG&A expenses increased primarily due to the following: (i) an increase of $190,000 in salaries and related costs as we added a
significant number of administrative personnel throughout fiscal 1999 and have continued to do so in fiscal 2000 to support our growth and (ii) other general and administrative expenses
including insurance ($117,000) and depreciation ($247,000) increased as a result of our expansion.

Research and development.Research and development expenditures totaled $417,000 during the year ended
October 31, 2000 compared to $287,000 for the year ended October 31, 1999. The increase was due primarily to development efforts associated with new product lines.

In-process research and development ("IPR&D").The amount expensed to IPR&D arose from the purchase
acquisition of Theseus completed in fiscal 2000 (see Note 2 to the Consolidated Financial Statements).

The
fair value of the technology currently under development was determined using the income approach, which discounts expected future cash flows to present value. Elements of the
projected
income stream included revenues, cost of goods sold and SG&A expenses. The discount rates used in the present value calculations are generally derived from the cost of equity, taking into account the
additional risks inherent in incomplete projects. We do not expect to achieve a material amount of expense reductions or synergies as a result of integrating the acquired IPR&D. Therefore, the
valuation assumptions do not include significant anticipated cost savings.

At
the date of acquisition, Apomate was in Phase I-II clinical trials for heart attacks, cancer treatment and heart transplant rejection. Upon successful
completion of clinical trials, submission of a new biologics license application, and final approval by the FDA, this technology will be considered complete.

The
development of this technology remains a significant risk due to the remaining effort to achieve technical viability, rapidly changing customer markets, uncertain standards for
new products and competition. The nature of the efforts to develop the acquired technology into commercially viable products consists principally of planning, designing and testing activities
necessary to determine that the products can meet market expectations, including safety and efficacy requirements. Failure to bring these products to market in a timely manner could result in a loss
of market share or a lost opportunity to capitalize on emerging markets and could have a material adverse impact on our business and operating results.

Interest and other income.Interest and other income increased $499,000 to $1,110,000 for the year ended
October 31, 2000 from $611,000 for the year ended October 31, 1999 due to the following: (i) we

25

---

realized a pre-tax gain of $119,000 related to the disposition of 7,680 shares of RadioMed, a privately held company, and (ii) a change in the composition of our investment
portfolio.

Fiscal Year Ended October 31, 1999 Compared to Fiscal Year Ended October 31, 1998

Net sales.Net sales increased $6,928,000, or 119%, to $12,767,000 for the year ended October 31, 1999 from
$5,839,000 for the year ended October 31, 1998. The increase in net sales was due primarily to the increase in revenues generated from the Iodine-125 brachytherapy product line and
sales of the Palladium-103 brachytherapy product line which was introduced in April 1999. Sales of the non-therapeutic lines decreased approximately $304,000.

Gross profit.Gross profit increased $5,014,000, or 159%, to $8,173,000 for the year ended October 31, 1999 from
$3,159,000 for the year ended October 31, 1998. Gross profit as a percent of sales increased from 54% to 64% during this period despite an increase of $105,000 in inventory reserves
attributable to obsolescence. The increase in gross profit as a percentage of sales was primarily attributable to the significant proportionate increase in revenues from the Iodine-125
brachytherapy product line in fiscal 1999 which yielded greater gross margins than our non-therapeutic product lines.

Selling, general and administrative expenses.Selling, general and administrative expenses increased $1,201,000, or
65%, to $3,060,000 for the year ended October 31, 1999 from $1,859,000 for the year ended October 31, 1998. SG&A as a percent of net sales decreased to 24% for the year ended
October 31, 1999 from 32% for the same period in 1998. SG&A expenses increased primarily due to the following: (i) an increase of $672,000 in salaries and related costs as we added a
significant number of administrative personnel throughout fiscal 1998 and continuing into the year ended October 31, 1999 to support our growth, (ii) an increase of $88,000 in rent as we
leased a new facility in September 1998 that houses new product development and corporate offices and (iii) other general and administrative expenses including insurance ($70,000) and
depreciation ($131,000) increased as a result of our expansion.

Research and development.Research and development expenditures totaled $287,000 during the year ended
October 31, 1999 compared to $196,000 for the year ended October 31, 1998. The increase was due primarily to development efforts associated with new product lines.

Interest and other income.Interest and other income remained relatively consistent between periods decreasing $24,000
to $611,000 for the year ended October 31, 1999 from $635,000 for the year ended October 31, 1998.

Liquidity and Capital Resources

To date, our short-term liquidity needs have generally consisted of operating capital to finance growth in inventories, trade accounts receivable,
new product development, capital expenditures and strategic investments in related businesses. We have satisfied these needs primarily through a combination of private placement of our common stock
and from cash generated by operations. We do not currently have a line of credit or similar arrangements with a bank. At October 31, 2000, we had cash and investments in marketable securities
aggregating approximately $12.2 million and working capital of $8.7 million. For the fiscal year ended October 31, 2000, net cash provided by operating activities was
approximately $6.9 million. Net cash used in investing activities totaled approximately $5.9 million during the year ended October 31, 2000.

We
receive cash from the exercise of stock options. Proceeds from the exercise of stock options and their related tax benefits will vary from period to period based upon, among other
factors, fluctuations in the market value of our stock relative to the exercise price of such options.

We
are authorized to purchase up to $1.5 million of our common stock on the open market. No such shares have been repurchased as of October 31, 2000.

26

---

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

On
October 19, 2000, we filed a registration statement with the Securities and Exchange Commission for the sale of 2,500,000 shares of common stock. In December 2000, we
completed this follow-on public offering, including the exercise of the underwriters' overallotment option of 375,000 shares, at $17.875 per share. The net proceeds we received from the
sale were approximately $44.7 million.

We
believe our current cash and marketable securities and anticipated cash flow from operations will be sufficient to support our planned expansion for the foreseeable future.
However, the amount of capital that we will need in the future will depend on many factors including:



We
anticipate incurring approximately $20 million of expenses with respect to Apomate over the next two to three years for ongoing clinical trials and development
costs. An additional $2.5 million is payable to NeoRx Corporation in August of 2001 pursuant to our license of patent rights and technology related to Apomate, with additional
milestone payments of up to $4 million throughout the life of the contract.

The
manufacture of our linear accelerators has not been completed. We are currently investigating what the costs will be to complete the accelerators and anticipate that such costs
will approximate $3 million.

We
anticipate that the available cash will provide sufficient funds to cover these costs. In addition, the costs related to Apomate may be reduced if we enter into any
strategic partnerships related to Apomate.

Future
capital requirements will also depend on the extent to which we acquire or invest in businesses, products and technologies. If we should require additional financing due to
unanticipated developments, additional financing may not be available when needed or, if available, we may not be able to obtain this financing on terms favorable to us or our stockholders.
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 issuing equity securities, dilution to
existing stockholders would result.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. It requires an entity to recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.

27

---

We do not expect the adoption of this pronouncement to have a material effect on our operations or financial position. We are required to adopt SFAS 133 for our fiscal year ending
October 31, 2001.

In
December 1999, the Securities and Exchange Commission, or SEC, issued Staff Accounting Bulletin No. 101, SAB 101, "Revenue Recognition in Financial Statements." We do
not expect the adoption of this pronouncement to have a material effect on our operations or financial position. We are required to adopt SAB 101 for our fiscal year ending October 31, 2001.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments include cash, marketable securities, and notes receivable. At January 16, 2001, the carrying values of our financial
instruments approximated their fair values based on current market prices and rates.

Our
policy is not to enter into derivative financial instruments. We do not have any significant foreign currency exposure since we do not transact business in foreign currencies.
Therefore, we do not have significant overall currency exposure. In addition, we do not enter into any futures or forward contracts and therefore do not have significant market risk exposure with
respect to commodity prices.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is presented in the financial statements listed in Item 14(a) of Part IV of this Form 10-K
Annual Report and are incorporated herein by reference.

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required under this Item is incorporated by reference to our definitive proxy statement pursuant to Regulation 14A to be filed with the
Commission no later than 120 days after the close of our fiscal year ended October 31, 2000.

Item 11.  EXECUTIVE COMPENSATION

The information required under this Item is incorporated by reference to our definitive proxy statement pursuant to Regulation 14A to be filed with the
Commission no later than 120 days after the close of our fiscal year ended October 31, 2000.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required under this Item is incorporated by reference to our definitive proxy statement pursuant to Regulation 14A to be filed with the
Commission no later than 120 days after the close of our fiscal year ended October 31, 2000.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this Item is incorporated by reference to our definitive proxy statement pursuant to Regulation 14A to be filed with the
Commission no later than 120 days after the close of our fiscal year ended October 31, 2000.

28

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PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



Page1.

Financial Statements of the CompanyReport of Independent Accountants

31Consolidated Balance Sheets

32Consolidated Statements of Income

33Consolidated Statement of Changes in Stockholders' Equity

34Consolidated Statements of Cash Flows

35Notes to Consolidated Financial Statements

362.

Financial Statement ScheduleSchedule IIValuation and Qualifying Accounts

48All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.3.

Exhibits.Reference is made to Item 14(c) of this Annual Report on Form 10-K.






|Exhibit No. |  | Description                                                                                                                                                                                                                      
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                  
|3.1         |  | Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3(i) of the Registrant's Registration Statement on Form 10-SB, filed August 22, 1995.                                                       
|3.2         |  | Certificate of Amendment of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended July 31, 1998.                                           
|3.3         |  | Certificate of Domestication of the Registrant, incorporated by reference to Exhibit 3(i)(a) of the Registrant's Registration Statement on Form 10-SB, filed August 22, 1995.                                                    
|3.4         |  | Bylaws of the Registrant, incorporated by reference to Exhibit 3(ii) of the Registrant's Registration Statement on Form 10-SB, filed August 22, 1995.                                                                            
|10.1        |  | Lease Agreement dated November 30, 1995 between Registrant and Abraham Stricks, incorporated by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-KSB, filed January 29, 1998.                              
|10.2        |  | North American Scientific, Inc. Amended and Restated 1996 Stock Option Plan, incorporated by reference to Exhibit 4.4 of the Registrant's Registration Statement on Form S-8 (Registration No. 333-62631), filed August 31, 1998.
|10.3        |  | The North American Scientific, Inc. 2000 Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.4 of the Registrant's Registration Statement on Form S-8 (Registration No. 333-34200), filed April 6, 2000.        
|            |  |                                                                                                                                                                                                                                  

29

---

|10.4 |  | Rights Agreement, incorporated by reference to Exhibit 99.1 of the Registrant's Form 8-K, filed October 16, 1998.                                                                                                                                                                                                                                               
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5 |  | Restated Agreement and Plan of Merger, dated as of September 22, 2000, among the Registrant, NASI Acquisition Corp., a wholly-owned subsidiary of the Registrant, Theseus Imaging Corporation, Dr. Allan M.Green, Robert Bender, Sally Hansen and Irwin
Gruverman, incorporated by reference to Exhibit 2.1 of the Registrant's Form 8-K filed October 19, 2000.
|10.6 |  | First Amendment to Exclusive Marketing and Distribution Agreement dated February 24, 1999, by and between Mentor Corporation and the Registrant (Confidential treatment granted for certain portions thereof), incorporated by reference to Exhibit
10.1 to Amendment No. 2 to the Registrant's Registration Statement on Form S-3, filed December 13, 2000.    
|10.7 |  | License Agreement, effective as of August 7, 1998, by and between NeoRx Corporation and Theseus Imaging Corporation, a wholly-owned subsidiary of the Registrant (Confidential treatment requested).                                                                                                                                                            
|10.8 |  | License Agreement, effective as of April 1, 1998, by and between The Board of Trustees of Leland Stanford Junior University and Theseus Imaging Corporation, a wholly-owned subsidiary of the Registrant (Confidential treatment requested).                                                                                                                    
|10.9 |  | License Agreement, effective as of June 8, 1999, by and between The University of Washington and Theseus Imaging Corporation, a wholly-owned subsidiary of the Registrant (Confidential treatment requested).                                                                                                                                                   
|21.1 |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                 
|23.1 |  | Consent of PricewaterhouseCoopers LLP, independent accountants.                                                                                                                                                                                                                                                                                                 

30

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REPORT OF INDEPENDENT ACCOUNTANTS

To
the Board of Directors
and Stockholders of
North American Scientific, Inc.

In
our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 29 present fairly, in all material respects, the financial
position of North American Scientific, Inc. and its subsidiaries at October 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the
period ended October 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed
in the index appearing under Item 14(a)(2) on page 29 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.



Orange
County, California
December 19, 2000, except as to Note 4,
  which is as of January 9, 2001

31

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NORTH AMERICAN SCIENTIFIC, INC.        Consolidated Balance Sheets

|                                          |                                                                                                                                                                 | October 31,                               
|----------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------
|
|Assets                                   
|Current assets                            |                                                                                                                                                                 |                                           
|                                          | Cash and cash equivalents                                                                                                                                       |                                           
|                                          | Marketable securities                                                                                                                                           |                                           
|                                          | Accounts receivable, net                                                                                                                                        |                                           
|                                          | Inventories                                                                                                                                                     |                                           
|                                          | Deferred income taxes                                                                                                                                           |                                           
|                                          | Prepaid expenses and other current assets                                                                                                                       |                                           
|                                          |                                                                                                                                                                 |                                           
|                                          |                                                                                                                                                                 | Total current assets                      
|Notes receivable                          |                                                                                                                                                                 |                                           
|Equipment and leasehold improvements, net |                                                                                                                                                                 |                                           
|Construction in progress                  |                                                                                                                                                                 |                                           
|Goodwill, net                             |                                                                                                                                                                 |                                           
|Licenses, net                             |                                                                                                                                                                 |                                           
|Deferred income taxes                     |                                                                                                                                                                 |                                           
|Other assets                              |                                                                                                                                                                 |                                           
|                                          |                                                                                                                                                                 |                                           
|                                          |                                                                                                                                                                 | Total assets                              
|                                          |                                                                                                                                                                 |                                           
|Liabilities and Stockholders' Equity     
|Current liabilities                       |                                                                                                                                                                 |                                           
|                                          | Accounts payable                                                                                                                                                |                                           
|                                          | Accrued expenses                                                                                                                                                |                                           
|                                          | Short term debt                                                                                                                                                 |                                           
|                                          | Income taxes payable                                                                                                                                            |                                           
|                                          |                                                                                                                                                                 |                                           
|                                          |                                                                                                                                                                 | Total current liabilities                 
|Deferred income taxes                     |                                                                                                                                                                 |                                           
|                                          |                                                                                                                                                                 |                                           
|                                          |                                                                                                                                                                 | Total liabilities                         
|                                          |                                                                                                                                                                 |                                           
|Commitments and contingencies (Note 11)   |                                                                                                                                                                 |                                           
|Stockholders' equity                      |                                                                                                                                                                 |                                           
|                                          | Preferred stock, $.01 par value, 2,000,000 shares authorized;
no shares issued                                                                                  |                                           
|                                          | Common stock, $.01 par value, 40,000,000 shares authorized; 7,301,702 and 6,828,887 shares issued and outstanding as of October 31, 2000 and 1999, respectively |                                           
|                                          | Additional paid-in capital                                                                                                                                      |                                           
|                                          | Retained earnings (deficit)                                                                                                                                     |                                           
|                                          |                                                                                                                                                                 |                                           
|                                          |                                                                                                                                                                 | Total stockholders' equity                
|                                          |                                                                                                                                                                 |                                           
|                                          |                                                                                                                                                                 | Total liabilities and stockholders' equity
|                                          |                                                                                                                                                                 |                                           

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

32

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NORTH AMERICAN SCIENTIFIC, INC.        Consolidated Statements of Income

|                                                |         | Year Ended October 31,
|----------------------------------------------- | ------- | ----------------------
|
|Net sales                                       |         | $                     
|Cost of goods sold                              |         |                       
|                                                |         |                       
|                                                |         | Gross profit          
|                                                |         |                       
|Selling, general and administrative expenses    |         |                       
|Research and development                        |         |                       
|Purchased in-process research and development   |         |                       
|                                                |         |                       
|Income (loss) from operations                   |         |                       
|Interest and other income, net                  |         |                       
|                                                |         |                       
|Income (loss) before provision for income taxes |         |                       
|Provision for income taxes                      |         |                       
|                                                |         |                       
|Net income (loss)                               |         | $                     
|                                                |         |                       
|Earnings (loss) per share:                      |         |                       
|                                                | Basic   |                       
|                                                |         |                       
|                                                | Diluted |                       
|                                                |         |                       
|Weighted average number of shares outstanding:  |         |                       
|                                                | Basic   |                       
|                                                |         |                       
|                                                | Diluted |                       
|                                                |         |                       

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

33

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NORTH AMERICAN SCIENTIFIC, INC.        Consolidated Statements of Changes in Stockholders' Equity

|                                                   |  | Common Stock |  | Additional |        |  |   |            | 
|-------------------------------------------------- |  | ------------ |  | ---------- | ------ |  | - | ---------- | 
|
|
|Balance at October 31, 1997                        |  | 5,176,051    |  | $          | 34,000 |  | $ | 3,515,000  | 
|Issuance of common stock under private placement   |  | 1,200,000    |  |            | 8,000  |  |   | 13,186,000 | 
|Common stock issued upon exercise of stock options |  | 336,924      |  |            | 4,000  |  |   | 265,000    | 
|Common stock issued upon exercise of warrants      |  | 75,000       |  |            | 1,000  |  |   | 80,000     | 
|Effect of common stock dividend                    |  |             |  |            | 21,000 |  |   |           | 
|Tax benefit related to exercise of stock options   |  |             |  |            |       |  |   | 116,000    | 
|Net income                                         |  |             |  |            |       |  |   |           | 
|                                                   |  |              |  |            |        |  |   |            | 
|Balance at October 31, 1998                        |  | 6,787,975    |  |            | 68,000 |  |   | 17,162,000 | 
|Common stock issued upon exercise of stock options |  | 40,912       |  |            |       |  |   | 62,000     | 
|Tax benefit related to exercise of stock options   |  |             |  |            |       |  |   | 948,000    | 
|Net income                                         |  |             |  |            |       |  |   |           | 
|                                                   |  |              |  |            |        |  |   |            | 
|Balance at October 31, 1999                        |  | 6,828,887    |  |            | 68,000 |  |   | 18,172,000 | 
|Common stock issued upon exercise of stock options |  | 162,150      |  |            | 2,000  |  |   | 580,000    | 
|Common stock issued upon acquisition of subsidiary |  | 310,665      |  |            | 3,000  |  |   | 8,761,000  | 
|Tax benefit related to exercise of stock options   |  |             |  |            |       |  |   | 37,000     | 
|Net loss                                           |  |             |  |            |       |  |   |           | 
|                                                   |  |              |  |            |        |  |   |            | 
|Balance at October 31, 2000                        |  | 7,301,702    |  | $          | 73,000 |  | $ | 27,550,000 | 
|                                                   |  |              |  |            |        |  |   |            | 

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

34

---



NORTH AMERICAN SCIENTIFIC, INC.        Consolidated Statements of Cash Flows

|                                                     |                                                                                         | Year Ended October 31, |                                                      
|---------------------------------------------------- | --------------------------------------------------------------------------------------- | ---------------------- | -----------------------------------------------------
|
|Cash flows from operating activities:                |                                                                                         |                        |                                                      
|                                                     | Net income (loss)                                                                       |                        | $                                                    
|                                                     | Adjustments to reconcile net income (loss) to net cash provided by operating activities |                        |                                                      
|                                                     |                                                                                         |                        | Depreciation and amortization                        
|                                                     |                                                                                         |                        | Deferred income taxes                                
|                                                     |                                                                                         |                        | Tax benefit of stock option exercises                
|                                                     |                                                                                         |                        | Purchased in-process research and development        
|                                                     |                                                                                         |                        | Gain on sale of securities                           
|                                                     |                                                                                         |                        | Other                                                
|                                                     |                                                                                         |                        | Changes in assets and liabilities, net of acquisition
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|Cash flows from investing activities:                |                                                                                         |                        |                                                      
|                                                     | Net (purchases) sales of marketable securities                                          |                        |                                                      
|                                                     | Proceeds from sales of other assets                                                     |                        |                                                      
|                                                     | Notes receivable                                                                        |                        |                                                      
|                                                     | Acquisition, net of cash acquired                                                       |                        |                                                      
|                                                     | Capital expenditures                                                                    |                        |                                                      
|                                                     | Construction in progress                                                                |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|Cash flows from financing activities:                |                                                                                         |                        |                                                      
|                                                     | Net proceeds from issuance of common stock                                              |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|                                                     |                                                                                         |                        |                                                      
|Net increase (decrease) in cash and cash equivalents |                                                                                         |                        | 1,629,000                                            
|Cash and cash equivalents at beginning of period     |                                                                                         |                        | 1,443,000                                            
|                                                     |                                                                                         |                        |                                                      
|Cash and cash equivalents at end of period           |                                                                                         | $                      | 3,072,000                                            
|                                                     |                                                                                         |                        |                                                      
|Supplemental disclosure of cash flow information:    |                                                                                         |                        |                                                      
|                                                     |                                                                                         | Income taxes paid      |                                                      
|                                                     |                                                                                         |                        |                                                      

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

35

---



NORTH AMERICAN SCIENTIFIC, INC.        Notes to Consolidated Financial Statements

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Business

North American Scientific, Inc. (the "Company"), a Delaware corporation, manufactures and markets a line of radioisotopic products for medical,
scientific and industrial uses. The Company operates in a single business segment with its primary products being (i) brachytherapy seeds for the treatment of prostate cancer and
(ii) radioactive reference sources used to calibrate a variety of medical and commercial equipment.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, North American Scientific, Inc., a
California corporation, and Theseus Imaging Corporation (since October 13, 2000). All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the reporting period. Actual results could differ from those estimates.

Stock Split

Effective April 20, 1998, the Company effected a 3-for-2 stock split in the form of a common stock dividend. The par value of
the Company's common stock was unchanged. All common stock information set forth in the consolidated financial statements and notes thereto has been retroactively adjusted to reflect the stock split.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

Inventories

Inventories are valued at the lower of cost or market as determined under the first-in, first-out method. Costs include materials,
labor and manufacturing overhead.

The
Company's products are subject to shelf-life expiration periods which are carefully monitored by the Company. Provision is made for inventory items which may not be
sold because of expiring dates. The Company routinely reviews other inventories for evidence of impairment of value and makes provision as such impairments are identified.

Investments

The Company considers its marketable securities "available-for-sale" as defined in Statement of Financial Accounting Standards ("SFAS")
No. 115. There were no material realized or unrealized gains or losses nor any material differences between cost and estimated fair values. Fair value is determined to be par plus accrued
interest or based on asking prices as quoted by independent brokers.

36

---

The Company also has a minority investment in a private company. This investment is included in other assets in the Company's balance sheet and is carried at cost. The Company
monitors this investment for impairment and makes appropriate reductions in carrying value when necessary.

Notes Receivable

The Company accounts for its notes receivable in accordance with SFAS No. 115 and considers these notes as "available-for-sale".
As of October 31, 2000, there were no material realized or unrealized gains or losses recorded with respect to the remaining note outstanding.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost. Maintenance and repair costs are expensed as incurred, while improvements are capitalized. Gains or
losses resulting from the disposition of assets are included in income. Depreciation is computed using the straight-line method over the estimated useful lives as follows:

Furniture, fixtures and equipment

3-15 yearsLeasehold improvements

Lesser of the useful life or term of lease


The
Company assesses potential impairments to its long-lived assets, including goodwill, on an exception basis, when there is evidence that events or changes in
circumstances have made recovery of an asset's carrying value unlikely. If the sum of the expected future undiscounted cash flows, without interest charges, is less than the carrying value of the
asset, an impairment loss is recognized as the excess of the carrying value of the asset over its fair value.

Goodwill

Goodwill represents the excess of cost over the value of net assets of businesses acquired. Goodwill is amortized on a straight-line basis over a
period of 10 years. As of October 31, 2000, accumulated amortization was $32,000.

License Agreements

License agreements are amortized on a straight-line basis over periods ranging up to fifteen years. The amortization periods are based on the lives
of the license agreements or the approximate remaining lives of the related patents, whichever is shorter.

Revenue Recognition

Revenue from product sales is recognized upon shipment and the Company provides currently for estimated discounts, rebates and product returns and the cost to
repair or replace products under the warranty provisions in effect at the time of sale.

37

---

Stock Option Plan

The Company measures compensation expense for employees and directors for its stock option plan using the intrinsic value method and provides pro forma
disclosures of net income and earnings per share as if the fair value method had been applied in measuring compensation expense. When options are issued to consultants or other third parties, expense
is determined under the fair value method required by SFAS 123, "Accounting for Stock-Based Compensation."

Net Income (Loss) per Share

Basic earnings (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares outstanding for the period.

Diluted
earnings (loss) per share is computed by dividing the net income (loss) by the sum of the weighted average number of common shares outstanding for the period plus the assumed
exercise of all dilutive securities by applying the treasury stock method unless such assumed exercises are anti-dilutive. The following table sets forth the computation of basic and
diluted earnings (loss) per share:

Year Ended October 31,2000

1999

1998Net income (loss)

$
(6,028,000
)
$
3,369,000

$
1,099,000Weighted average shares outstandingBasic


6,907,291


6,800,129


6,435,588Dilutive effect of stock options and warrants





403,135


588,062Weighted average shares outstandingDiluted


6,907,291


7,203,264


7,023,650Basic earnings (loss) per share

$
(.87
)
$
.49

$
.17Diluted earnings (loss) per share

$
(.87
)
$
.47

$
.16


Income Taxes

The Company accounts for income taxes under the liability method. Under this method, deferred income taxes are recognized by applying enacted statutory tax
rates applicable to future years to differences between the tax bases and financial reporting amounts of existing assets and liabilities. A
valuation allowance is provided when it is more likely than not that all or some portion of deferred tax assets will not be realized.

Reclassifications

Certain reclassifications of previously reported amounts have been made to conform to the current period's presentation.

Diversification of Credit Risk

The Company's financial instruments that are subject to concentrations of credit risk consist primarily of cash equivalents, collateralized notes receivable
and accounts receivable which are not collateralized. The Company's policy is to invest its cash with highly rated financial institutions in order to limit the

38

---

amount of credit exposure. The Company's customers are financially sound corporations operating in a variety of industries.

Significant Concentrations

The Company's sales (and therefore accounts receivable) have been concentrated in a small number of customers. In fiscal 2000, two customers represented 81%
and 6% of total revenues, respectively. In fiscal 1999, these two customers represented 77% and 7% of total revenues, respectively. In fiscal 1998, these two customers represented 45% and 17% of total
revenues, respectively. As of October 31, 2000, amounts from the two customers accounted for 75% of gross trade receivables.

The
Company closely monitors the credit worthiness of its customers and makes provision whenever there are indications of potential credit losses.

The
Company relies on certain companies as the sole source of various materials in its manufacturing process. Any extended interruption in the supply of these materials could result
in the failure to meet customer demand.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. It requires an entity to recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value. Management does not expect the adoption of this pronouncement to have a material effect on the Company's operations or
financial position. The Company is required to adopt SFAS 133 for its fiscal year ending October 31, 2001.

In
December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, SAB 101, "Revenue Recognition in Financial Statements." Management
does not expect the adoption of this pronouncement to have a material effect on the Company's operations or financial position. The Company is required to adopt SAB 101 for its fiscal year ending
October 31, 2001.

NOTE 2ACQUISITION OF THESEUS IMAGING CORPORATION

On October 13, 2000, the Company acquired Theseus Imaging Corporation ("Theseus"), a developer of proprietary radiopharmaceuticals to enhance the
medical management of heart attacks, organ transplantation and cancer. Theseus' stockholders and option holders received a total of 345,665 shares of, or options to purchase for nominal consideration,
the Company's common stock in exchange for 100% of Theseus' outstanding common stock and options.

39

---

The acquisition was accounted for using the purchase method of accounting. Accordingly, the results of operations of Theseus have been included in the consolidated financial statements since the date
of acquisition. The purchase price was determined as follows:

Common stock and stock options issued

$
8,764,000Note receivable converted to investment, including accrued interest ($3,837,000 paid in fiscal year 2000)


7,996,000Accounts payable and accrued liabilities assumed


909,000Note payable and accrued interest assumed


2,545,000Acquisition costs


512,000$
20,726,000


The
purchase price was allocated as follows:

In-process research and development ("IPR&D")

$
11,431,000Goodwill


3,707,000Deferred tax asset arising from NOL carryforwards


2,700,000Licenses and other assets


2,810,000Cash


78,000$
20,726,000


In
connection with the purchase transaction, the Company recorded a charge for acquired IPR&D of $11,431,000. The in-process research and development
projects were valued through the use of a discounted cash flow analysis, taking into account the projected future cash flows associated with these projects once they achieve technological feasibility,
their stage of completion at the acquisition date and the expected return requirements for present valuing the projected cash flow. Since there were no completed products at the date of acquisition, a
comparison with historical pricing, margins and expense levels cannot be made.

The
cash flow projections for revenues were based on estimates of relevant market sizes and growth factors, expected industry trends, anticipated nature and timing of new product
introductions by the Company, individual product life cycles and estimated life of each product's underlying technology. Estimated cost of goods sold, royalties, general and administrative expenses,
distribution costs, licensing fees and income taxes were deducted from estimated revenue projections to arrive at estimated after-tax cash flows. The cash flow projection used a
risk-adjusted discount rate of 35%. Net cash inflows from significant projects are expected to commence in 2003.

The
unaudited pro forma summaries for the fiscal years ended October 31, 2000 and 1999 reflect combined results of operations of the Company and Theseus as if the acquisition
had occurred on November 1, 1999 and November 1, 1998, respectively. Since prior to the current fiscal period, the fiscal year ends of the Company and Theseus differed, for pro forma purposes,
the Theseus results of operations have been adjusted to conform to North American Scientific, Inc.'s reporting periods. The following pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the results of operations that would have occurred if the acquisition had been consummated as of the beginning of the periods
presented, nor is it necessarily indicative of the future operating results of the Company.

40

---

The pro forma financial information is as follows (in thousands, except per share data):

|                                  |  | Fiscal year ended
October 31, 2000 |        |   |   |        |     
|--------------------------------- |  | ---------------------------------- | ------ | - | - | ------ | ----
|
|
|
|
|Net sales                         |  | $                                  | 17,490 |   | $ | 17,490 |     
|Net income (loss)                 |  | $                                  | (6,028 | ) | $ | (9,645 | )(a)
|Basic earnings (loss) per share   |  | $                                  | (0.87  | ) | $ | (1.34  | )   
|Diluted earnings (loss) per share |  | $                                  | (0.87  | ) | $ | (1.34  | )   
|Basic shares outstanding          |  |                                    | 6,907  |   |   | 7,174  |     
|Diluted shares outstanding        |  |                                    | 6,907  |   |   | 7,174  |     

---

NOTE 3INVENTORIES:

Inventories are shown net of applicable reserves and allowances:

October 31,1999

2000Raw materials

$
472,000

$
285,000Work in process


55,000


166,000Finished goods


202,000


101,000$
729,000

$
552,000


NOTE 4NOTES RECEIVABLE:

During fiscal 1997, the Company advanced $500,000 to RadioMed Corporation, or RadioMed, in exchange for a secured subordinated convertible note (the "Note").
The Note bore interest at 10% per annum and had an original maturity date of October 7, 2007. The Note was convertible at the Company's election at any time prior to the maturity date into
Series A Preferred Stock of RadioMed at a price of $500 per share, subject to adjustment.

On
December 4, 1999, the Company and RadioMed signed an agreement which provided for the repayment of the principal amount of the Note on or prior to March 31, 2000, and
payment of the accrued interest on the Note in the form of 20,000 shares of RadioMed Series A Preferred Stock, $0.01 par value. Each of these provisions was satisfied in accordance with the
agreement in the second quarter of fiscal year 2000.

Prior
to the acquisition, the Company agreed to provide financing to Theseus. This financing was in the form of convertible notes bearing interest at the prime rate plus 1%. As of
October 31, 1999, the Company had convertible notes outstanding of $3.5 million. As of the date of acquisition, the convertible note balance including accrued interest totaled
approximately $8.0 million and was accounted for as part of the purchase price.

During
fiscal 1998, the Company advanced $200,000 to a manufacturing company in exchange for a secured convertible note bearing interest at prime rate plus 2% per annum. The note,
including accrued interest, was repaid in January 2001.

41

---

NOTE 5EQUIPMENT AND LEASEHOLD IMPROVEMENTS:

Equipment and leasehold improvements consist of the following:

October 31,2000

1999Furniture, fixtures and equipment

$
3,389,000

$
2,952,000Leasehold improvements


1,645,000


1,588,0005,034,000


4,540,000Less: Accumulated depreciation and amortization


(1,507,000
)

(797,000
)$
3,527,000

$
3,743,000


NOTE 6CONSTRUCTION IN PROGRESS:

In
February 1998, the Company entered into agreements with PracSys Corp., a Massachusetts corporation, or PracSys, pursuant to which PracSys would (i) manufacture and
sell to the Company two particle accelerators to be used in the production of certain isotopes related to the Company's brachytherapy product line and (ii) operate the machines to produce the
isotopes for an initial two-year period. During fiscal year 1999, a dispute arose between the Company and PracSys and construction of the machines was halted (See Note 11). In
December 1999, the Company took possession of the machines and moved them to another location pending conclusion of the project. As of October 31, 2000 and 1999, costs related to the
construction of the machines totaled $3,709,000 and $2,826,000, respectively, and are reported as construction in progress in the consolidated balance sheets.

NOTE 7LICENSE AGREEMENTS:

The Company, through its Theseus subsidiary, has licensed certain technology from various commercial entities and universities. In August 1998, the
Company licensed certain patent rights and technology from NeoRx Corporation. Under the terms of the license agreement, the Company agreed to pay NeoRx $3 million, $500,000 of which was paid in
1998, with the remaining $2.5 million due in August 2001. Interest on the unpaid balance accrues at the rate of ten percent annually with interest payments due semiannually. Accrued
interest totaled $58,000 at October 31, 2000. The Company has agreed to pay NeoRx certain royalties based upon the amount of licensed products sold. The Company is also obligated to make
additional milestone payments upon the occurrence of certain events. The license expires upon the date of the expiration of the last patent covered in the agreement.

The
Company has also acquired licenses, patents and technology from certain other entities. The related agreements include certain up-front license payments and additional
milestone payments upon designated events over the life of the agreements, as well as royalties on net sales of products covered by the agreements.

NOTE 8STOCKHOLDERS' EQUITY:

Private Placement

In November 1997, the Company completed a private placement of 1,200,000 shares of its common stock to certain institutional investors. The net proceeds
to the Company from the sale were approximately $13.2 million.

42

---

Stockholders' Rights Plan

In October 1998, the Board of Directors of the Company implemented a rights agreement to protect stockholders' rights in the event of a proposed
takeover of the Company. In the case of a triggering event, each right entitles the Company's stockholders to buy, for $80, $160 worth of common stock for each share of common stock held. The rights
will become exercisable only if a person or group acquires, or commences a tender offer to acquire, 15% or more of the Company's common stock. The rights, which expire in October 2008, are
redeemable at the Company's option for $0.001 per right. The Company also has the ability to amend the rights, subject to certain limitations.

Preferred Stock

The Company has authorized the issuance of 2,000,000 shares of preferred stock; however, no shares have been issued. The designations, rights and preferences
of any preferred stock that may be issued will be established by the Board of Directors at or before the time of such issuance.

Stock Options

The Company's 1996 Stock Option Plan provides for the issuance of incentive stock options to employees of the Company and non-qualified options to
employees, directors and consultants of the Company with exercise prices equal to the fair market value of the Company's stock on the date of grant. Certain options are immediately exercisable while
other options vest over periods ranging from two to four years. The options expire ten years from the date of grant. Certain options are subject to cancellation in the event of termination of
employment.

The
following table summarizes stock option activity:

Options
Outstanding

Weighted Avg.
Exercise priceBalance at October 31, 1997

750,750

$
0.92Granted

191,125


14.42Canceled or expired

(58,187
)

11.87Exercised

(336,924
)

0.80Balance at October 31, 1998

546,764


5.00Granted

421,500


6.25Canceled or expired

(17,702
)

4.62Exercised

(40,912
)

1.52Balance at October 31, 1999

909,650


5.74Granted

521,000


13.85Canceled or expired

(19,167
)

8.47Exercised

(162,150
)

3.62Balance at October 31, 2000

1,249,333

$
9.28


There were 565,705 and 415,744 options exercisable with weighted average exercise prices of $6.55 and $3.99 at October 31, 2000, and
1999, respectively.

43

---

The following table summarizes significant option groups outstanding at October 31, 2000 and related weighted average exercise price and remaining contractual life information
as follows:

Options Outstanding

Options ExercisableRange of
Exercise
Prices

Shares

Weighted Avg. Remaining Contractual Life (Years)

Weighted Avg. Exercise Price

Shares

Weighted Avg. Exercise Price$0.67$1.96

247,100

6.09

$
1.05

240,750

$
1.03$3.94$7.00

422,733

8.36


5.94

191,330


5.76$7.94$15.67

222,500

8.97


8.35

56,750


9.03$16.75$24.54

357,000

9.09


19.50

76,875


23.951,249,333

8.23

$
9.28

565,705

$
6.55


The
fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants:

Year Ended October 31,2000

1999

1998Dividend yield

0
%
0
%
0
%Expected volatility

45
%
40
%
35
%Risk-free interest rate

6.0
%
5.2
%
5.7
%Expected life

4 years

5 years

5 years


Had
compensation cost for the Company's option plans been determined based on the fair value at the grant dates, as prescribed by SFAS No. 123, net income (loss) and earnings
(loss) per share would have been as follows:

Year Ended October 31,2000

1999

1998Net income (loss):As reported

$
(6,028,000
)
$
3,369,000

$
1,099,000Pro forma

$
(7,591,000
)

2,584,000

$
532,000Earnings (loss) per share:As reported basic

$
(.87
)
$
.49

$
.17As reported diluted

$
(.87
)
$
.47

$
.16Pro forma basic

$
(1.10
)
$
.38

$
.08Pro forma diluted

$
(1.10
)
$
.36

$
.08


The
Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The Company uses projected volatility rates which are based upon historical
volatility rates trended into future years. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the
Company's options. The weighted average estimated fair value of stock options granted during fiscal 2000, 1999 and 1998 were $5.87, $3.74 and $5.83 per share, respectively.

44

---

Employee Stock Purchase Plan

In fiscal 2000, the Company adopted a non-compensatory Employee Stock Purchase Plan ("the ESPP"). Eligible employees may authorize payroll
deductions of up to 15% of their salary to purchase shares of the Company's common stock at the lower of 85% of the fair market value of common stock on the first or last day of the offering period. A
total of 300,000 shares of common stock are authorized for issuance. As of October 31, 2000, no shares were purchased under the ESPP as the first offering period ends on December 31,
2000.

Common Stock Warrants

In fiscal 1997, the Company granted 225,000 warrants to a third party in connection with a contract to provide investment banking services on behalf of the
Company over a five-year term. The warrants permitted the holder to purchase a total of 225,000 shares of the Company's common stock at $1.09 per share (the fair market value of the
Company's common stock at the date of the agreement). The holder exercised 150,000 of such warrants in fiscal 1997 and the remaining 75,000 in fiscal 1998. The fair value of the warrants of $135,000
at the grant date is reflected as other assets and additional paid-in capital and is being amortized over the term of the agreement.

In
fiscal 1998, the Company granted 96,000 warrants to another third party in connection with a private placement of the Company's common stock at an exercise price of $14.41 per
share. The fair value of the warrants was recorded at the grant date as an offset to the proceeds received from the private placement. These warrants have not been exercised.

NOTE 9INCOME TAXES:

The provision (benefit) for income taxes is comprised as follows:

2000

1999

1998Current:Federal

$
2,825,000

$
1,727,000

$
526,000State


737,000


288,000


53,0003,562,000


2,015,000


579,000Deferred:Federal


(291,000
)

69,000


(20,000
)State


(50,000
)

(16,000
)

81,000(341,000
)

53,000


61,000$
3,221,000

$
2,068,000

$
640,000


45

---

Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's net deferred tax asset (liability) are as follows:

October 31,2000

1999Net current assets:Accrued liabilities

$
34,000

$
37,000Allowance for doubtful accounts


11,000


22,000Inventory reserve and capitalized inventory


53,000


70,000State income taxes


239,000


21,000$
337,000

$
150,000Net non-current assets (liabilities):Net operating loss carryforwards


2,700,000


Depreciation and amortization


(196,000
)

(264,000
)Tax credits


48,000


Other


38,000


$
2,590,000

$
(264,000
)


At
October 31, 2000, the Company had federal net operating loss carryforwards of $8 million beginning to expire in 2018. The use of such net operating loss carryforwards
is subject to statutory limitations.

A
reconciliation of tax expense computed at the U.S. federal statutory rate is as follows:

Year Ended October 31,2000

1999

1998Federal tax provision at U.S. statutory rate

(34
)%
34
%
34
%State income taxes, net of federal tax benefit

(6
)
3

5Acquired in-process R&D

162



Tax-exempt interest income

(4
)
(1
)
Tax credits

(2
)


Other, net

(1
)
2

(2
)115
%
38
%
37
%


The
Company's federal and state provisions do not reflect the tax savings from deductions associated with the Company's stock option plan. These savings were $37,000, $948,000 and
$116,000 in fiscal 2000, 1999 and 1998, respectively, and were credited to stockholders' equity.

NOTE 10RETIREMENT PLAN:

The Company has a 401(k) retirement plan that allows eligible employees to contribute up to 15% of their salary, subject to annual limits. Under this plan, the
Company makes certain contributions based
upon the compensation of eligible employees and makes additional matching contributions for those employees who elect to contribute to the plan. The Company's expense for its plan totaled $132,000,
$87,000, and $7,000 for the years ended October 31, 2000, 1999, and 1998, respectively.

46

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NOTE 11COMMITMENTS AND CONTINGENCIES:

The
Company leases office and manufacturing facilities under non-cancelable operating lease agreements. Future minimum lease payments are subject to annual adjustment for
increases in the Consumer Price Index. Future minimum lease payments under all operating leases in each of the next five years from fiscal 2001 to 2006 are $314,000, $208,000, $192,000, $16,000 and
$0, respectively. Total rent expense for the years ended October 31, 2000, 1999 and 1998 was $302,000, $265,000 and $113,000, respectively.

On
August 11, 1999, PracSys (see Note 6) initiated an arbitration proceeding against the Company claiming breach of contract, breach of fiduciary duty and unfair and
deceptive trade practices. The Company denied PracSys' claims, and asserted counterclaims against PracSys for breach of contract and fraud and misrepresentation in connection with PracSys' failure to
complete the accelerators. On June 2, 2000, the arbitrator denied all damage claims by either party in their entirety. Additionally, the arbitrator denied PracSys' claims attempting to cancel
the Company's ownership interest in PracSys and certain other exclusivity and option rights granted to the Company. Although no liability was found against the Company, the arbitrator did direct the
Company to pay certain of PracSys' legal and administrative expenses related to the arbitration.

The
Company is subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable,
management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

NOTE 12SELECTED QUARTERLY FINANCIAL DATA:

The following table presents summarized unaudited quarterly financial data (in thousands, except per share data):

|Fiscal 2000                       |  | First
Quarter |       | Second
Quarter |   | Third
Quarter |  | Fourth
Quarter |      
|--------------------------------- |  | ------------- | ----- | -------------- | - | ------------- |  | -------------- | -----
|Net sales                         |  | $             | 4,001 |                | $ | 4,440         |  | $              | 4,450
|Gross profit                      |  |               | 2,658 |                |   | 2,965         |  |                | 2,972
|Net income (loss)                 |  |               | 1,234 |                |   | 1,397         |  |                | 1,480
|Diluted earnings (loss) per share |  | $             | .17   |                | $ | .19           |  | $              | .20  

|Fiscal 1999                |  | First
Quarter |       | Second
Quarter |   | Third
Quarter |  | Fourth
Quarter
|-------------------------- |  | ------------- | ----- | -------------- | - | ------------- |  | --------------
|Net sales                  |  | $             | 2,427 |                | $ | 3,007         |  | $             
|Gross profit               |  |               | 1,518 |                |   | 1,912         |  |               
|Net income                 |  |               | 510   |                |   | 717           |  |               
|Diluted earnings per share |  | $             | .07   |                | $ | .10           |  | $             

NOTE 13SUBSEQUENT EVENT:

In
December 2000, the Company completed a follow-on offering of 2,500,000 shares of its common stock. The Company's underwriters also exercised their option to
purchase an additional 375,000 shares
to cover over-allotments. The net proceeds to the Company from the sale were approximately $44.7 million.

47

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SCHEDULE II        NORTH AMERICAN SCIENTIFIC, INC.        VALUATION AND QUALIFYING ACCOUNTS        (In thousands)

|                            |                                 |  |   | Additions |  |   |     | 
|--------------------------- | ------------------------------- |  | - | --------- |  | - | --- | 
|
|
|Year ended October 31, 2000 |                                 |  |   |           |  |   |     | 
|                            | Allowance for doubtful accounts |  | $ | 51        |  | $ |    | 
|                            | Inventory reserves              |  |   | 105       |  |   |    | 
|Year ended October 31, 1999 |                                 |  |   |           |  |   |     | 
|                            | Allowance for doubtful accounts |  | $ | 19        |  | $ | 32  | 
|                            | Inventory reserves              |  |   |          |  |   | 105 | 
|Year ended October 31, 1998 |                                 |  |   |           |  |   |     | 
|                            | Allowance for doubtful accounts |  | $ | 9         |  | $ | 10  | 

48

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SIGNATURES

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

|                 |  | NORTH AMERICAN SCIENTIFIC, INC.
|---------------- |  | -------------------------------
|                 |  |                                
|January 26, 2001 |  | By:                            

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

|Signature                               |  | Title                                                                         |  | Date            
|--------------------------------------- |  | ----------------------------------------------------------------------------- |  | ----------------
|                                        |  |                                                                               |  |                 
|/s/IRWIN J. GRUVERMANIrwin J. Gruverman |  | Chairman of the Board of Directors                                            |  | January 26, 2001
|/s/L. MICHAEL CUTRERL. Michael Cutrer   |  | President, Chief Executive Officer and Director (Principal Executive Officer) |  | January 26, 2001
|/s/ALAN I. EDRICKAlan I. Edrick         |  | Chief Financial Officer (Principal Financial and Accounting Officer)          |  | January 26, 2001
|/s/ALLAN M. GREENDr. Allan M. Green     |  | President, Theseus Imaging and Director                                       |  | January 26, 2001
|/s/LARRY BERKINLarry Berkin             |  | Director                                                                      |  | January 26, 2001
|/s/MICHAEL C. LEEMichael C. Lee         |  | Director                                                                      |  | January 26, 2001

49

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