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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

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

For the fiscal year endedOctober 31, 2001Commission File Number0-26670

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

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)

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
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.    / /

As
of January 16, 2002, approximately 10,187,203 shares of the Registrant's Common Stock, $.01 par value, were outstanding. The aggregate market value of voting stock held by
non-affiliates of the Registrant was approximately $141,092,762 (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).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of Stockholders to be held on or about March 29, 2002, are incorporated by
reference into Part III of this Form 10-K.

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

|         |  |                                                                                       |  | Page
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I   |  |                                                                                      
|Item 1   |  | Business                                                                              |  | 1   
|Item 2.  |  | Properties                                                                            |  | 24  
|Item 3.  |  | Legal Proceedings                                                                     |  | 24  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 24  
|PART II  |  |                                                                                      
|Item 5.  |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 25  
|Item 6.  |  | Selected Consolidated Financial Data                                                  |  | 26  
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 26  
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk.                           |  | 31  
|Item 8.  |  | Consolidated Financial Statements and Supplementary Data                              |  | 31  
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 31  
|PART III |  |                                                                                      
|Item 10. |  | Directors and Executive Officers of the Registrant                                    |  | 31  
|Item 11. |  | Executive Compensation                                                                |  | 31  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 32  
|Item 13. |  | Certain Relationships and Related Transactions                                        |  | 32  
|PART IV  |  |                                                                                      
|Item 14. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 33  
|         |  | Signatures                                                                            |  | 54  

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Item 1. BUSINESS

INTRODUCTION

Certain statements contained in this Annual Report on Form 10-K, including, without limitation, statements containing
the words "believes," "anticipates," "estimates," "expects," "projections," and words of similar import, 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, including the "Risk Factors" section contained in
this Item 1, or detailed from time to time in our other filings with the Securities and Exchange Commission, or SEC, including our most recent reports on Form 10-Q and
Form 8-K, and amendments thereto. We are not undertaking any obligation to update publicly any forward-looking statements. Readers should not place undue reliance on these
forward-looking statements.

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 ("Mentor"), 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.

Our
efforts at expanding our products to larger markets also led to the acquisition of Theseus Imaging Corporation ("Theseus") in October 2000. 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 disease or the patient's response to
treatment of disease with increased sensitivity and speed.

Apomate
is in clinical trials for several indications: determining early response to chemotherapy, assessing the location and extent of heart attack damage, and detecting
heart transplant rejection. Apomate is primarily being studied for its ability to rapidly assess early response to chemotherapy in cancer patients with lymphoma, non-small
cell lung cancer and breast cancer, and its potential to demonstrate the location and extent of irreversibly damaged heart tissue in heart attack patients.

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

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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 can result from benign symptoms
such as inflammation but can also be indicative of the presence of 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. The American Cancer Society estimates
that in 2001 more than 198,000 new cases of prostate cancer will be diagnosed in the United States and approximately 32,000 deaths will be attributable to the disease. The cost of medical treatment in
the United States for patients with prostate cancer has been estimated at 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, generally 60 to 120
rice-sized, low-level radioactive seeds, containing either Palladium-103 or Iodine-125, are permanently implanted into the prostate, usually by a
radiation oncologist or urologist, 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. Following completion of the procedure, 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 patients generally are 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. In recent years, ten-year survival data has
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 comparative data.

Published
data has shown that 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 were the first company to manufacture 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

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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 Mentor trademarks of IoGold®and PdGold® through its sales force. Although our products are primarily marketed in the United
States, Mentor also has the right to sell our products in foreign countries. In December 2000, we received a CE mark which enables Mentor to market and sell our brachytherapy seeds in Europe.



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. Data suggests that between 30% and 40% of the patients who undergo EBRT suffer problems with erectile dysfunction after treatment.

While
EBRT directs a single beam at the prostate, a new technique, known as Intensity Modulated Radiation Therapy, or IMRT, is designed to spare healthy tissue by directing multiple
beams from

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various angles to the cancerous tissue, 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 precise control of the cryoprobe, 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 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, decreased 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 and patients 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 which grants them the right 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 Iodine-125
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
Palladium-103 seeds. The term of the agreement for both seed product lines expires in 2003, however, Mentor holds a one-time option to extend the exclusive agreement for an
additional three years subject to the attainment of certain performance criteria. 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.

We
believe that Mentor did not meet its 2000 target market share with respect to sales of PdGold® and we believe that it is unlikely that Mentor has met its 2001 target. In
addition, we believe that Mentor might not meet its 2001 target with respect to sales of IoGold®. Subject to performance review by both parties, a shortfall can result in our option to
terminate Mentor's right of exclusivity subject to certain curing provisions set forth in our agreement 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 brachytherapy specialists and its urology sales force which targets
urologists, radiation oncologists and medical physicists for the brachytherapy line.

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APOMATE

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, two
forms of cell death, using standard nuclear medicine imaging procedures.

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 typically coupled with a carrier molecule that binds on a selective basis with targeted
tissues. Because of the sensitivity of gamma cameras, only tiny amounts of radioisotopes are required to produce nuclear images. Nuclear medicine imaging is unique in that it documents organ function
and structure, in contrast to diagnostic radiology, which images 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.

Apoptosis
was once of interest only in a few specialized fields of biology, but is now recognized as a central feature of cancer treatment, heart attack, and organ transplant rejection.
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. The
process of apoptosis is characterized by the maintenance of cell membrane integrity, while necrosis is accompanied by the breakdown and fragmentation of the cell membrane.

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 cell
membrane to migrate to the outer surface of the cell membrane. Annexin-V has a strong binding affinity for PS. 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 may 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 assess early response to cancer treatment, determine the location and extent of damage in heart attack and to
image heart transplant rejection. 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.

Cancer Treatment

Many cancer treatments, including radiotherapy, chemotherapy or immunotherapy, are intended to kill tumor cells. Apomate has been shown in ongoing
clinical trials to imagein vivotumors

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responding to treatment by binding to apoptosis-specific membrane markers that appear as soon as one to two hours after initial doses of effective treatment.

Normally,
it may take many weeks 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 all of the treated population. Consequently, an imaging agent with the ability to quickly measure patient response to cancer therapy should be in great demand. Such an
agent also would allow for rapid identification of ineffective treatments, thereby avoiding negative side effects in circumstances where the patient is unlikely to receive meaningful clinical benefit.

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



According
to the National Cancer Institute, approximately 1.3 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 new cancer drugs and cancer treatment regimens under development. The ability to image cell death or lack of cell death in tumors
quickly could reduce development time for new therapeutic agents.

Clinical Trials.Phase I clinical trials for this indication have been completed and included 69 Apomate imaging
studies in 35 cancer patients. Subjects in this trial with positive uptake of Apomate post-treatment showed responses to treatment as indicated by decreases in tumor size. 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 decrease in tumor size in
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. Moreover, patients who showed uptake of Apomate soon after initial treatment, suggesting early tumor cell death, had a longer time to progression of their disease and
a longer survival time compared to patients who failed to show Apomate uptake after initial 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.

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In
addition, Phase I studies in some lymphoma patients have shown significant increases in Apomate uptake 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.

Additional
Phase II studies in lung and breast cancer and in lymphoma have been initiated and are in progress. A Phase II/III study of Apomate in patients with
non-small cell lung cancer was initiated in November 2001 and is now ongoing. This multi-center, Phase II/III study is designed to enroll patients in the United States and Europe
with advanced non-small cell lung cancer, the type of cancer most commonly associated with smoking. The study is intended to assess the ability of Apomate to predict
tumor response to chemotherapy by imaging patients within seventy-two hours following the first treatment.

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 electrocardiograms, or ECGs, 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. Studies have shown
that muscle cells in the heart can begin dying within 15 minutes of oxygen deprivation and are also injured in the first 15-30 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 suggests 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
after a heart attack or after medical or surgical intervention to limit the damage associated with atherosclerosis.

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 1.1 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

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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.

Phase
II clinical trials of Apomate in patients with acute myocardial infarction began in November 2000. About 65 patients with known heart attacks were imaged in
those Phase II trials which compared Apomate imaging to standard enzyme and ECG tests as well as to Thallium Tl-201 imaging. In addition, follow-up studies were
conducted in many of those individuals which demonstrated that Apomate images appear positive for about two to four weeks after an acute injury; and that the intensity of
Apomate uptake diminishes over this time. These findings should be useful in establishing the optimal clinical use of Apomate in this setting. Phase II studies are continuing
in various subpopulations of interest. Initial results have been obtained in 68 patients with acute myocardial infarction documented by chest pain, ECG, and enzyme/troponin elevation. Each patient
received Apomate within 96 hours of onset of symptoms along with Thallium Tl-201, a perfusion imaging agent, and the distribution of both Apomate and Thallium were
imaged simultaneously using a readily available technique known as "single-spin/dual isotope' SPECT imaging. No adverse events likely to be attributable to Apomate were
observed. Approximately 85% of patients showed abnormal Apomate uptake suggesting persisting myocardial tissue injury up to 96 hours after the heart attack, even after
interventions, such as angioplasty and thrombolysis, intended to re-open closed blood vessels. The study showed that Apomate can be administered safely to patients with heart
attacks and that Apomate localizes to areas of persisting myocardial damage in most patients, even after measures taken to rapidly re-open closed blood vessels.

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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.

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.

We
have also been granted Orphan Drug status for this indication by the Food and Drug Administration, or FDA.

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. Some of this data was recently published as a peer-reviewed article in Nature
Medicine, a leading medical journal. This demonstrates the potential for non-invasive nuclear medicine imaging of early signs of rejection.

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. Patient accrual with documented transplant rejection has proceeded slower than originally anticipated for a number of reasons. The incidence of episodes of cardiac rejection
has declined in our study population, possibly due to the availability of more effective anti-rejection drugs. It has taken enrollment of ten or more patients undergoing biopsy to capture
each episode of rejection for study. It appears that, given the rate of positive biopsies in this population, the study will take at least one more year to complete; and it appears any submission for
marketing approval for this indication would be submitted after the end of calendar 2002. Although additional study sites could be recruited to accelerate this timetable, the Company believes that, in
light of the strong results in patients with heart attack and cancer, resources must continue to be directed at those larger populations.

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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.

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 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. Our radiation sources are
also sold through a select group of representatives and distributors in North America, Europe and Asia. We support our products through a full product catalog, advertising, telemarketing and trade
shows, and engage in direct selling to end users as well as to equipment manufacturers for inclusion in their product lines.

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 (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

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sales for this application, but we view it as a natural extension of our brachytherapy business and as a service to the oncology community.

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
have 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.

Theseus
has exclusively licensed Apomate technology forin vivoimaging of cell death from certain entities that have issued
and pending patents with respect to this technology. During the last year, the United States Patent Office granted full patent rights to our licensor, Stanford University, for a patent for "Imaging
Cell Death In Vivo" which we believe is a key patent providing strong protection for the Apomate 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.

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 third parties, including Prostate Services of America, Inc., Nycomed Amersham PLC, C.R. Bard, Inc. and Imagyn Medical Technologies. 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. 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 or magnetic resonance imaging, or MRI, techniques could

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be used to study patient response to anti-tumor treatment or heart tissue damage. Radiopharmaceuticals, such as Thallium Tl-201 and Bristol-Myers Squibb Medical
Imaging, Inc.'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
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 our 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.

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

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 are or 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

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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 Iodine-125 seeds. In July 1998, we received 510(k) clearance from the FDA to market
Palladium-103 seeds.

Clinical
trials of Apomate are ongoing in the United States under investigational new drug, or IND, filings with the Center for Biologics Evaluation and Research of the
United States Food and Drug Administration. Studies are also being undertaken in Europe and Canada in accordance with applicable national laws. Apomate is in 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 is also in clinical trials for imaging response to chemotherapy, specifically in lymphoma, breast cancer with metastases, and in
non-small cell lung cancer. We intend to file a biologic license application, or BLA, for these indications. We have been granted Orphan Drug status for Apomate for
imaging heart transplant rejection.

In
connection with the manufacture and distribution of brachytherapy sources, we are required to be registered as a medical device manufacturer with the FDA. As such, we are subject to
inspection by the FDA for compliance with the FDA's 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 our 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 promotional activities are regulated by the FDA and, in some
circumstances, by the Federal Trade Commission.

For
our radiopharmaceutical 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.

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Foreign Regulatory Process

In order to sell our medical device products within the European Union, 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 the European Union. In order to perform clinical studies of our radiopharmaceutical candidate agent, we have filed an IND exemption in Canada for
Apomate. Apomate is being investigated in that country as an imaging agent for early response to cancer chemotherapy and for determination of heart attack damage. We have
also filed a CTX application with the Medicines Control Agency in the United Kingdom for this product. It is being investigated in that jurisdiction as an imaging agent for early response to cancer
chemotherapy and determination of heart attack damage. Investigational studies are also under way in other European countries in accordance with applicable national laws.

Other Regulation

In addition to FDA regulation, certain of our activities are regulated by, and require approvals from, other federal and state agencies in the United States. For
example, we operate under a license issued by the California Department of Health and renewable every eight years which allows us to manufacture and process radioactive materials. Our licenses for our
North Hollywood and Chatsworth facilities expire in 2007 and 2008, respectively. We are also subject to a routine inspection by the California Department of Health Services for compliance with good
manufacturing practice, health and safety 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 that 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 and Chatsworth, California facilities. We manufacture our calibration and reference source
products in our North Hollywood 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 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. Radioisotopes are available
for purchase from a limited number of 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. 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 conduct audits of our third party manufacturers to ensure they comply
with the FDA's current Good Manufacturing Practice regulations.

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RESEARCH AND DEVELOPMENT

Research and development expenditures totaled $7,602,000 during the year ended October 31, 2001, which relate primarily to the ongoing clinical trial and
development costs related to Apomate. We expect to continue to incur additional significant clinical trial and development costs related to Apomate over the next two to three
years.

EMPLOYEES

As of October 31, 2001, we had a total of 61 full-time employees. 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 acquisition of Theseus and the resulting changes to our core business involve considerable risk and may threaten our future profitability.

On
October 13, 2000, we acquired Theseus, a developer of proprietary radiopharmaceutical products to enhance the medical management of various conditions, including cancer, heart
attack and heart transplant rejection. 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, if we are delayed or unable to determine the final Apomate product candidate we intend to take to market, 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 significantly. As a result, any delay caused by implementing the
final design of, or the 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

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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 2001 accounted for approximately 79% 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.

We
believe that Mentor did not meet its 2000 target market share with respect to sales of PdGold® and we believe that it is unlikely that Mentor has met its 2001 target. In
addition, we believe that Mentor might not meet its 2001 target with respect to sales of IoGold®. Subject to performance review by both parties, a shortfall can result in our option to
terminate Mentor's right of exclusivity subject to certain curing provisions set forth in our agreement 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 third
parties, including Prostate Services of America, Inc., Nycomed Amersham PLC, C.R. Bard, Inc. and Imagyn Medical Technologies. Several companies have begun to sell seeds and others have
announced their 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

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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 equivalent or superior imaging capabilities to Apomate and which may 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 response to cancer, heart attack and heart transplant rejection, 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
isotopes in sufficient quantity to meet 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

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and a laser 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 issued and 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 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 an employment agreement
with Dr. Green through October 2002.

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 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 anticipate significant expenditures related to ongoing clinical trial and development costs for Apomate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.

Operating results for a particular period may fluctuate and are difficult to predict.

The
results of operations for any quarter or fiscal year are not necessarily indicative of results to be expected in future periods. Our operating results have in the past been, and will
continue to be, subject
to quarterly and annual fluctuations as a result of a number of factors. As a consequence, operating results for a particular future period are difficult to predict. Such factors include the
following:



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

23

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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. In 2001, we extended our lease on our North Hollywood facility, which now expires in November 2003. The lease on our Chatsworth facility also expires in
November 2003, but we have a five-year renewal option. Theseus is headquartered in Boston, Massachusetts where we lease office space totaling approximately 4,165 square feet, with
our lease expiring in September 2003.

Item 3. LEGAL PROCEEDINGS

We are 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 our consolidated financial position, results of operations, or cash
flows.

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

None.

24

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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 2001

High

LowFirst Quarter

$
26.88

$
10.63Second Quarter


14.00


6.13Third Quarter


19.27


12.00Fourth Quarter


15.45


8.37


Fiscal 2000First Quarter

$
14.75

$
7.50Second Quarter


34.00


11.50Third Quarter


24.88


15.38Fourth Quarter


31.75


16.50


As
of January 16, 2002, we had approximately 83 holders of record and estimate that we had approximately 5,854 beneficial owners of our Common Stock.

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

25

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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

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

|                                                |                                               | Year Ended October 31,
|----------------------------------------------- | --------------------------------------------- | ----------------------
|
|
|Statement of Income:                            |                                               |                       
|Net sales                                       |                                               | $                     
|Cost of goods sold                              |                                               |                       
|                                                |                                               |                       
|                                                | Gross profit                                  |                       
|Operating expenses:                             |                                               |                       
|                                                | Selling, general and administrative           |                       
|                                                | Research and development                      |                       
|                                                | Purchased in-process research and development |                       
|                                                | Write-off of construction in progress         |                       
|                                                |                                               |                       
|Income (loss) from operations                   |                                               |                       
|Interest and other income, net                  |                                               |                       
|                                                |                                               |                       
|Income (loss) before provision for income taxes |                                               |                       
|Provision (benefit) for income taxes            |                                               |                       
|                                                |                                               |                       
|Net income (loss)                               |                                               | $                     
|                                                |                                               |                       
|Diluted earnings (loss) per share               |                                               | $                     
|                                                |                                               |                       
|Shares used in per share calculation            |                                               |                       
|                                                |                                               |                       

|                                                 |  | 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 statements contained in this Annual
Report on Form 10-K, including, without limitation, statements containing the words "believes," "anticipates," "estimates," "expects," "projections," and words of similar import,
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

26

---

differ materially from those in such forward looking statements as a result of various factors, including, but not limited to, any risks detailed herein, including the "Risk Factors" section, or
detailed from time to time in our other filings with the Securities and Exchange Commission, or SEC, including our most recent reports on Form 10-Q and Form 8-K,
and amendments thereto. We are not undertaking any obligation to update publicly any forward-looking statements. Readers should not place undue reliance on these 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. Sales of our brachytherapy products
represented approximately 79% of our revenue in fiscal 2001.

In
October 2000, we acquired Theseus Imaging Corporation, a developer of proprietary radiopharmaceuticals to enhance the medical management of cancer, heart attack and heart
transplant rejection. 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, pending receipt of marketing approval from the FDA.

Results of Operations

Fiscal Year Ended October 31, 2001 Compared to Fiscal Year Ended October 31, 2000

Net sales.Net sales increased $1,853,000, or 11%, to $19,343,000 for the year ended October 31, 2001 from $17,490,000
for the year ended October 31, 2000. The increase in net sales was due to the increase in revenues generated from both our brachytherapy and non-therapeutic product lines.

Gross profit.Gross profit increased $825,000 or 7% to $12,481,000 for the fiscal year ended October 31, 2001 from
$11,656,000 for the fiscal year ended October 31, 2000. Gross profit as a percent of sales decreased from 67% to 65% during this period. The decrease in gross profit as a percentage of sales
was primarily due to a change in the product mix and increased price competition in our brachytherapy products.

Selling, general and administrative expenses ("SG&A").SG&A increased $2,372,000 or 64%, to $6,097,000 for the fiscal year
ended October 31, 2001, from $3,725,000 for the fiscal year ended October 31, 2000. SG&A expenses increased primarily due to the following: (i) the inclusion of expenses incurred
by Theseus which was acquired in October 2000, (ii) amortization of goodwill and other intangible assets resulting from the acquisition of Theseus totaling $582,000 and
(iii) other general and administrative expenses were increased as a result of management's plans for the expansion of the Company.

Research and development.Research and development costs totaled $7,602,000 for the fiscal year ended October 31,
2001. Such costs were not significant for the fiscal year ended October 31, 2000. The increase primarily represents our continued investment in Apomate, which is currently in
clinical trials to assess response to cancer treatment, heart attack damage and heart transplant rejection. The increase in research and development spending reflects our belief that to maintain our
competitive position in a market characterized by rapid rates of technological advancement, we must continue to invest significant resources in new product development, as well as continue to enhance
existing products.

27

---

In-process research and development ("IPR&D").During the fiscal year ended October 31, 2000, we incurred
a one-time charge of $11,431,000 for IPR&D relating to our acquisition of Theseus completed in fiscal 2000 (see Note 2 to the Consolidated Financial Statements).

Write-off of construction in progress.Included in the results of operations for the fiscal year ended
October 31, 2001, is a charge of $3,743,000 relating to the write-off of construction in progress. Since 1998, the Company has incurred costs in the development of two linear
particle accelerators. The Company intended to use these units in the production of Palladium-103 for use in its brachytherapy products. Based on the uncertainty of the estimated costs to
complete the units coupled with an increasingly reliable commercial supply of Palladium-103, in June 2001, the Board of Directors authorized the Company's management to attempt to
identify buyers for this equipment while continuing to monitor the commercial advantages of purchasing the radioisotopes instead of manufacturing them. In August 2001, the Company concluded
that (1) the availability of commercially produced isotopes substantially diminished the economic benefits of completing the accelerators and (2) there were no immediate buyers for the
equipment. Accordingly, the Company elected to cease development efforts and to write off the value of the equipment in its entirety.

Interest and other income.Interest and other income increased $776,000 to $1,886,000 for the fiscal year ended
October 31, 2001 from $1,110,000 for the fiscal year ended October 31, 2000. This increase resulted from the investment of funds received from our follow-on offering
completed in December 2000, which was partially offset by (i) the interest expense incurred on our short-term debt and (ii) the fact that in 2000 we realized a
pre-tax gain of $119,000 related to the disposition of 7,680 shares of series A preferred stock in RadioMed, a privately held company. Our effective yield on our investment
portfolio has decreased consistent with a declining interest rate environment.

Provision (benefit) for income taxes.The Company's effective income tax rate was 35% (benefit) and 115% for the fiscal years
ended October 31, 2001 and 2000, respectively. The decrease in the effective rate is primarily due to the non-deductibility of the IPR&D charge associated with the purchase of
Theseus in the year ended October 31, 2000.

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, 2000 from
$8,173,000 for the year ended October 31, 1999. 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.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 in salaries and related costs as we added a significant number of administrative personnel throughout
fiscal 1999 and continued to do so in fiscal 2000 to support our growth and (ii) other general and administrative expenses including insurance and depreciation increased as a result of our
expansion.

28

---

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.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 attack, 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.

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 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.

Provision (benefit) for income taxes.The Company's effective tax rate increased to 115% for the fiscal year ended
October 31, 2000 from 38% for the fiscal year ended October 31, 1999. The change in effective tax rate is primarily due to the non-deductible charge for IPR&D incurred during
the fiscal year ended October 31, 2000.

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 public offerings and private placements 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. In December 2000, we completed a follow-on
public offering of 2,695,000 shares of our common stock. The net proceeds we received from the sale were approximately $44.6 million. At October 31, 2001, we had cash and investments in
marketable securities aggregating approximately $54.3 million and working capital of
$55.7 million. For the year ended October 31, 2001, net cash provided by operating activities was approximately $175,000. Net cash used in investing activities totaled approximately
$43.0 million during the year ended October 31, 2001, of which $42.1 million represented the investment of funds from the follow-on offering.

During
the year ended October 31, 2001, we received $561,000 from the exercise of stock options. We also received $137,000 from the purchase of shares related to our employee
stock purchase plan. Proceeds from the exercise of stock options, employee stock purchase plan, 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 repurchase up to $10 million of our common stock on the open market. No such shares have been repurchased as of October 31, 2001.

29

---

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.

We
believe our current cash and marketable securities and anticipated cash flow from operations will be sufficient to support our operations and 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 ongoing substantial expenses with respect to Apomate over the next two to three years for ongoing clinical trials and development costs. Milestone
payments to third parties of up to $4 million are payable throughout the life of the contracts associated with our licenses of patent rights of technology related to Apomate.
Significant additional milestone payments would be payable to third parties in the event that we file for marketing approval in the European Union or Japan.

We
anticipate that available cash will provide sufficient funds to cover the above 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 our stockholders or us.
Insufficient funds may require us to delay, scale back or eliminate some or all of our research and development programs. If additional funds are raised by issuing equity securities, dilution to
existing stockholders would result.

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the pooling-of-interest method will be prohibited. The Company has evaluated this standard and believes that
adoption will not have an impact on its consolidated financial statements.

In
June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." FAS 142, which changes the accounting for goodwill and indefinite-lived
intangible assets from an amortization method to an impairment-only approach, will be effective for fiscal years beginning after December 15, 2001. The
Company has not determined the impact, if any, that adoption of this Standard will have on its consolidated financial statements.

In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Obligations." SFAS 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period

30

---

in which it is incurred and that the associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Statement is effective for fiscal years
beginning after June 15, 2001. The Company has not determined the impact that adoption of this Standard will have on its consolidated financial statements.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets." SFAS No.144 supercedes SFAS No. 121,"Accounting for
the Impairment of Long-Lived Assets to be Disposed Of", and APB Opinion No. 30, "Reporting Extraordinary, Unusual and Infrequently Occurring Events and Transactions" and amends APB
No. 51, "Consolidated Financial Statements." This Statement was issued to address the accounting for a segment of a business accounted for as a    discontinued operation under APB
No. 30 and to establish a single accounting model based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. The Statement is
effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company has not determined the impact that adoption of this Standard will have on its
consolidated financial statements.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments include cash and marketable securities. At January 16, 2002, 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. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is presented in the consolidated 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, 2001.

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, 2001.

31

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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, 2001.

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, 2001.

32

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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

35Consolidated Balance Sheets

36Consolidated Statements of Income

37Consolidated Statements of Changes in Stockholders' Equity

38Consolidated Statements of Cash Flows

39Notes to Consolidated Financial Statements

402.

Financial Statement ScheduleSchedule IIValuation and Qualifying Accounts

53All 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.




None.



|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 (as amended through April 6, 2001), incorporated by reference to Exhibit 4.4 of the Registrant's Registration Statement on Form S-8 (Registration
No. 333-61688), filed May 25, 2001.
|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.                                        

33

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|10.4+   |  | The Theseus 1998 Employee, Director and Consultant Stock Plan, incorporated by reference to Exhibit 4.4 to Form S-8 (Registration No. 333-64892), filed July 11, 2001.                                                                                                                                                                                          
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5    |  | Rights Agreement, incorporated by reference to Exhibit 99.1 of the Registrant's Form 8-K, filed October 16, 1998.                                                                                                                                                                                                                                               
|10.6    |  | 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.
|10.7    |  | 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.    
|10.8    |  | 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 granted for certain portions thereof).                                                                                                                                 
|10.9    |  | 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 granted for certain
portions thereof).                                                                                         
|10.10   |  | 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).                                                                                                                                                   
|10.11*  |  | Underwriting Agreement, dated December 13, 2000, among the Company, L. Michael Cutrer, Alan I. Edrick, Dr. Allan M. Green, Irwin J. Gruverman, Michael C. Lee, and CIBC World Markets Corp., as representative of the several
underwriters.                                                                                                                     
|10.12*+ |  | Employment Agreement, dated October 13, 2000, by and between Dr. Allan M. Green and the Company.                                                                                                                                                                                                                                                                
|10.13*+ |  | Employment Agreement, dated April 7, 1998, by and between Alan I. Edrick and the Company, as amended on September 29, 1999.                                                                                                                                                                                                                                     
|21.1*   |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                 
|23.1*   |  | Consent of PricewaterhouseCoopers LLP, independent accountants.                                                                                                                                                                                                                                                                                                 

---

34

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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 33 present fairly, in all material respects, the financial position of
North American Scientific, Inc. and its subsidiaries at October 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period
ended October 31, 2001 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 33 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.

|                                           |  | /s/PricewaterhouseCoopers LLP
|------------------------------------------ |  | -----------------------------
|Orange County, California
December 7, 2001 |  |                              

35

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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                                                                                                                                            |                                            |          
|                                          | Income tax receivable                                                                                                                                            |                                            |          
|                                          | Prepaid expenses and other current assets                                                                                                                        |                                            |          
|                                          |                                                                                                                                                                  |                                            |          
|                                          |                                                                                                                                                                  | Total current assets                       |          
|Notes receivable                          |                                                                                                                                                                  |                                            |         
|Equipment and leasehold improvements, net |                                                                                                                                                                  |                                            | 3,262,000
|Construction in progress                  |                                                                                                                                                                  |                                            | 344,000  
|Goodwill, net                             |                                                                                                                                                                  |                                            | 3,659,000
|Licenses, net                             |                                                                                                                                                                  |                                            | 2,691,000
|Deferred income taxes                     |                                                                                                                                                                  |                                            | 3,899,000
|Other assets                              |                                                                                                                                                                  |                                            | 351,000  
|                                          |                                                                                                                                                                  |                                            |          
|                                          |                                                                                                                                                                  | Total assets                               |          
|                                          |                                                                                                                                                                  |                                            |          
|Liabilities and Stockholders' Equity      |                                                                                                                                                                 
|Current liabilities                       |                                                                                                                                                                  |                                            |          
|                                          | Accounts payable                                                                                                                                                 |                                            | $        
|                                          | Accrued expenses                                                                                                                                                 |                                            |          
|                                          | Short-term debt                                                                                                                                                  |                                            |          
|                                          | Income taxes payable                                                                                                                                             |                                            |          
|                                          |                                                                                                                                                                  |                                            |          
|                                          |                                                                                                                                                                  | Total current liabilities                  |          
|Commitments and contingencies (Note 12)   |                                                                                                                                                                  |                                            |          
|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; 10,163,470 and 7,301,702 shares issued and outstanding as of October 31, 2001 and 2000, respectively |                                            |          
|                                          | Additional paid-in capital                                                                                                                                       |                                            |          
|                                          | Accumulated other comprehensive income                                                                                                                           |                                            |          
|                                          | Accumulated deficit                                                                                                                                              |                                            |          
|                                          |                                                                                                                                                                  |                                            |          
|                                          |                                                                                                                                                                  | Total stockholders' equity                 |          
|                                          |                                                                                                                                                                  |                                            |          
|                                          |                                                                                                                                                                  | Total liabilities and stockholders' equity |          
|                                          |                                                                                                                                                                  |                                            |          

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

36

---



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   |                                   |                                                 
|Write-off of construction in progress           |                                   |                                                 
|                                                |                                   |                                                 
|Income (loss) from operations                   |                                   |                                                 
|Interest and other income, net                  |                                   |                                                 
|                                                |                                   |                                                 
|Income (loss) before provision for income taxes |                                   |                                                 
|Provision (benefit) for income taxes            |                                   |                                                 
|                                                |                                   |                                                 
|Net income (loss)                               |                                   | $                                               
|                                                |                                   |                                                 
|Earnings (loss) per share:                      |                                   |                                                 
|                                                | Basic                             |                                                 
|                                                |                                   |                                                 
|                                                | Diluted                           |                                                 
|                                                |                                   |                                                 
|Weighted average number of shares outstanding:  |                                   |                                                 
|                                                | Basic                             |                                                 
|                                                |                                   |                                                 
|                                                | Diluted                           |                                                 
|                                                |                                   |                                                 
|Comprehensive income (loss):                    |                                   |                                                 
|                                                | Net income (loss)                 |                                                 
|                                                | Other comprehensive income:       |                                                 
|                                                |                                   | Unrealized gain on securities available for sale
|                                                |                                   |                                                 
|                                                | Total comprehensive income (loss) |                                                 
|                                                |                                   |                                                 

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

37

---



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

|                                                       |  | Common Stock |  |   |         | Retained
Earnings
(Accumulated
Deficit) |   | Accumulated
Other
Comprehensive
Income |  |   |           
|------------------------------------------------------ |  | ------------ |  | - | ------- | --------------------------------------- | - | -------------------------------------- |  | - | ----------
|
|
|Balance at October 31, 1998                            |  | 6,787,975    |  | $ | 68,000  |                                         | $ | 17,162,000                             |  | $ | 757,000   
|Common stock issued upon exercise of stock options     |  | 40,912       |  |   |        |                                         |   | 62,000                                 |  |   |          
|Tax benefit related to exercise of stock options       |  |              |  |   |         |                                         |   | 948,000                                |  |   |          
|Net income                                             |  |              |  |   |         |                                         |   |                                       |  |   | 3,369,000 
|                                                       |  |              |  |   |         |                                         |   |                                        |  |   |           
|Balance at October 31, 1999                            |  | 6,828,887    |  |   | 68,000  |                                         |   | 18,172,000                             |  |   | 4,126,000 
|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                                               |  |             |  |   |        |                                         |   |                                       |  |   | (6,028,000
|                                                       |  |              |  |   |         |                                         |   |                                        |  |   |           
|Balance at October 31, 2000                            |  | 7,301,702    |  |   | 73,000  |                                         |   | 27,550,000                             |  |   | (1,902,000
|Common stock issued upon exercise of stock options     |  | 155,454      |  |   | 2,000   |                                         |   | 559,000                                |  |   |          
|Common stock issued under employee stock purchase plan |  | 11,314       |  |   |        |                                         |   | 137,000                                |  |   |          
|Common stock issued upon follow-on offering            |  | 2,695,000    |  |   | 27,000  |                                         |   | 44,597,000                             |  |   |          
|Unrealized gain on securities available for sale       |  |             |  |   |        |                                         |   |                                       |  |   |          
|Tax benefit related to exercise of stock options       |  |             |  |   |        |                                         |   | 587,000                                |  |   |          
|Compensatory stock options                             |  |             |  |   |        |                                         |   | 138,000                                |  |   |          
|Net loss                                               |  |             |  |   |        |                                         |   |                                       |  |   | (1,985,000
|                                                       |  |              |  |   |         |                                         |   |                                        |  |   |           
|Balance at October 31, 2001                            |  | 10,163,470   |  | $ | 102,000 |                                         | $ | 73,568,000                             |  | $ | (3,887,000
|                                                       |  |              |  |   |         |                                         |   |                                        |  |   |           

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

38

---



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                         |                                  
|                                                     |                                                                                         | Write-off of construction in progress         |                                  
|                                                     |                                                                                         | Non-cash stock compensation expense           |                                  
|                                                     |                                                                                         | Tax benefit of stock option exercises         |                                  
|                                                     |                                                                                         | Purchased in-process research and development |                                  
|                                                     |                                                                                         | Gain on sale of securities                    |                                  
|                                                     |                                                                                         | Other                                         |                                  
|                                                     |                                                                                         | Changes in assets and liabilities:            |                                  
|                                                     |                                                                                         |                                               | Accounts receivable              
|                                                     |                                                                                         |                                               | Inventories                      
|                                                     |                                                                                         |                                               | Prepaid expenses and other assets
|                                                     |                                                                                         |                                               | Accounts payable                 
|                                                     |                                                                                         |                                               | Accrued expenses                 
|                                                     |                                                                                         |                                               | Income taxes                     
|                                                     |                                                                                         |                                               |                                  
|                                                     |                                                                                         |                                               |                                  
|                                                     |                                                                                         |                                               |                                  
|Cash flows from investing activities:                |                                                                                         |                                               |                                  
|                                                     | Net (purchases) sales of marketable securities                                          |                                               |                                  
|                                                     | Proceeds from sales of other assets                                                     |                                               |                                  
|                                                     | Purchase of licenses                                                                    |                                               |                                  
|                                                     | Notes receivable                                                                        |                                               |                                  
|                                                     | Acquisition of Theseus, net of cash acquired                                            |                                               |                                  
|                                                     | Capital expenditures                                                                    |                                               |                                  
|                                                     | Construction in progress                                                                |                                               |                                  
|                                                     |                                                                                         |                                               |                                  
|                                                     |                                                                                         |                                               |                                  
|                                                     |                                                                                         |                                               |                                  
|Cash flows from financing activities:                |                                                                                         |                                               |                                  
|                                                     | Net proceeds from follow-on offering                                                    |                                               |                                  
|                                                     | Net proceeds from stock options and stock purchase plan                                 |                                               |                                  
|                                                     | Repayment of short-term debt                                                            |                                               |                                  
|                                                     |                                                                                         |                                               |                                  
|                                                     |                                                                                         |                                               |                                  
|                                                     |                                                                                         |                                               |                                  
|Net increase (decrease) in cash and cash equivalents |                                                                                         |                                               | 12,000                           
|Cash and cash equivalents at beginning of period     |                                                                                         |                                               | 3,072,000                        
|                                                     |                                                                                         |                                               |                                  
|Cash and cash equivalents at end of period           |                                                                                         | $                                             | 3,084,000                        
|                                                     |                                                                                         |                                               |                                  
|Supplemental disclosure of cash flow information:    |                                                                                         |                                               |                                  
|                                                     | Income taxes paid                                                                       |                                               | $                                
|                                                     |                                                                                         |                                               |                                  
|                                                     | Interest paid                                                                           |                                               | $                                
|                                                     |                                                                                         |                                               |                                  

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

39

---



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. The Company is also engaged in the research and development of a novel, proprietary pharmaceutical imaging agent.

Principles of Consolidation

The consolidated financial statements include the accounts of North American Scientific and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.

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.

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.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, receivables, accounts payable, and accrued expenses approximate fair value because of the short maturity of
those investments. The Company derives the fair value of its marketable securities based on quoted market prices.

Marketable securities

The Company invests excess cash in short-term marketable securities consisting primarily of commercial paper, corporate notes and bonds, U.S.
Government securities and money market funds.

Marketable
securities are classified as either held to maturity or available for sale. Held to maturity securities are stated at amortized cost, which approximates fair value. Available
for sale

40

---

securities are carried at fair value, with unrealized gains and losses included in accumulated other comprehensive income in stockholders' equity. Realized gains and losses and declines in value
judged to be other than temporary on available for sale securities are included in other income.

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, 2001 and 2000, accumulated amortization was $399,000 and $32,000 respectively.

Research and development costs

Research and development costs are expensed as incurred.

License Agreements

License agreements are amortized on a straight-line basis over periods ranging up to twenty 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

During the year ended October 31, 2001, the Company reviewed its revenue recognition policies to ensure conformity with the Securities and Exchange
Commission Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." As a result, the Company changed its revenue recognition policy effective
November 1, 2000 to recognize revenue upon delivery, rather than shipment, of products. The effect of this accounting change was not material.

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."

41

---

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 31,2001

2000

1999Net income (loss)

$
(1,985,000
)
$
(6,028,000
)
$
3,369,000Weighted average shares outstandingBasic


9,782,562


6,907,291


6,800,129Dilutive effect of stock options and warrants








403,135Weighted average shares outstandingDiluted


9,782,562


6,907,291


7,203,264Basic earnings (loss) per share

$
(0.20
)
$
(0.87
)
$
0.49Diluted earnings (loss) per share

$
(0.20
)
$
(0.87
)
$
0.47


Stock
options and warrants to purchase 616,314 and 735,546 common shares for the years ended October 31, 2001 and 2000, respectively, were not included in the computation of
diluted earnings (loss) per share for those years because the Company reported a loss, and therefore, the effect of exercise would have been anti-dilutive.

In
addition, stock options to purchase 349,212, 96,393, and 90,000 common shares for the years ended October 31, 2001, 2000 and 1999, respectively, were not included in the
computation of diluted earnings
(loss) per share because the exercise prices of the options were greater than the average market price of the common shares.

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.

Diversification of Credit Risk

The Company's financial instruments that are subject to concentrations of credit risk consist primarily of cash equivalents 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 amount of credit exposure. The Company's customers are considered to be
financially sound corporations operating in a variety of industries.

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

Significant Concentrations

The Company has an exclusive agreement with a distributor for its brachytherapy products. This customer represented 79%, 81% and 77% of total revenues for the
years ended October 31, 2001, 2000

42

---

and 1999, respectively. As of October 31, 2001, amounts due from this customer accounted for 64% of gross trade receivables.

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 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the pooling-of-interest method will be prohibited. The Company has evaluated this standard and believes that
adoption will not have an impact on its consolidated financial statements.

In
June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." FAS 142, which changes the accounting for goodwill and indefinite-lived
intangible assets from an amortization method to an impairment-only approach, will be effective for fiscal years beginning after December 15, 2001. The Company has not determined
the impact, if any, that adoption of this Standard will have on its consolidated financial statements.

In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Obligations." SFAS 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred and that the associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The
Statement is effective for fiscal years beginning after June 15, 2001. The Company has not determined the impact that adoption of this Standard will have on its consolidated financial
statements.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets." SFAS No.144 supercedes SFAS No. 121,"Accounting for
the Impairment of Long-Lived Assets to be Disposed Of", and APB Opinion No. 30, "Reporting Extraordinary, Unusual and Infrequently Occurring Events and Transactions" and amends APB
No. 51, "Consolidated Financial Statements." This Statement was issued to address the accounting for a segment of a business accounted for as a    discontinued operation under APB
No. 30 and to establish a single accounting model based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. The Statement is
effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company has not determined the impact that adoption of this Standard will have on its
consolidated financial statements.

43

---

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 cancer, heart attack and organ transplantation. 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.

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


3,958,000Deferred tax asset arising from NOL carryforwards


2,449,000Licenses and other assets


2,810,000Cash


78,000$
20,726,000


The
above purchase price allocation reflects certain changes made in 2001 to estimated fair values used in the initial accounting for the acquisition of Theseus. The net effect of these
changes resulted in approximately $251,000 of deferred tax assets being reclassified to goodwill based upon the actual tax return filed for Theseus in 2001.

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%.

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, 2000 and November 1, 1999, 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

44

---

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.

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

|                                  |  | Fiscal year ended
October 31, 2000 |        | Fiscal year ended
October 31, 1999 |  
|--------------------------------- |  | ---------------------------------- | ------ | ---------------------------------- | -
|
|
|Net sales                         |  | $                                  | 17,490 |                                    | $
|Net income (loss)                 |  | $                                  | (6,028 | )                                  | $
|Basic earnings (loss) per share   |  | $                                  | (0.87  | )                                  | $
|Diluted earnings (loss) per share |  | $                                  | (0.87  | )                                  | $
|Basic shares outstanding          |  |                                    | 6,907  |                                    |  
|Diluted shares outstanding        |  |                                    | 6,907  |                                    |  

---

NOTE 3MARKETABLE SECURITIES:

Marketable securities consists of the following:

October 31,2001

2000Securities held to maturity:Corporate bonds and notes

$
43,792,000

$
Annuity contract


506,000


Commercial paper


5,368,000


49,666,000Securities available for sale


1,592,000


9,100,000$
51,258,000

$
9,100,000


At
October 31, 2001, the company recognized an unrealized gain on equity securities available for sale of $90,000. The amortized cost of all held to maturity securities
approximates fair value. At October 31, 2001, investments in debt securities with scheduled maturities within one year were $30,063,000 and for one to three years were $19,603,000.

45

---

NOTE 4INVENTORIES:

Inventories are shown net of applicable reserves and allowances:

October 31,2001

2000Raw materials

$
420,000

$
472,000Work in process


87,000


55,000Finished goods


102,000


202,000$
609,000

$
729,000


NOTE 5NOTES RECEIVABLE:

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.

NOTE 6EQUIPMENT AND LEASEHOLD IMPROVEMENTS:

Equipment and leasehold improvements consist of the following:

October 31,2001

2000Furniture, fixtures and equipment

$
3,736,000

$
3,389,000Leasehold improvements


1,774,000


1,645,0005,510,000


5,034,000Less: Accumulated depreciation and amortization


(2,248,000
)

(1,507,000
)$
3,262,000

$
3,527,000


NOTE 7CONSTRUCTION IN PROGRESS:

Construction in progress included the costs related to two linear particle accelerators, which had been under development since 1998. The Company intended to use
these units in the production of Palladium-103 in its brachytherapy products. Based on the uncertainty of the estimated costs to complete the units coupled with an increasingly reliable
commercial supply of Palladium-103, the Company ceased the development efforts. Accordingly, the results of operations for the year ended October 31, 2001 include a charge of
approximately $3.7 million to reflect the total write-off of the equipment.

NOTE 8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 and $2.5 million of which was paid in
August 2001. 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

46

---

designated events over the life of the agreements, as well as royalties on net sales of products covered by the agreements.

NOTE 9STOCKHOLDERS' EQUITY:

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.

Follow-on Offering

In December 2000, the Company completed a follow-on offering of 2,320,000 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 $44.6 million.

Stock Options

The Company's 1996 Stock Option Plan, as amended through April 6, 2001, 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 price
|--------------------------- |  | ------------------- | - | ----------------------------
|Balance at October 31, 1998 |  | 546,764             |   | $                           
|Granted                     |  | 421,500             |   |                             
|Canceled or expired         |  | (17,702             | ) |                             
|Exercised                   |  | (40,912             | ) |                             
|                            |  |                     |   |                             
|Balance at October 31, 1999 |  | 909,650             |   |                             
|Granted                     |  | 556,000             |   |                             
|Canceled or expired         |  | (19,167             | ) |                             
|Exercised                   |  | (162,150            | ) |                             
|                            |  |                     |   |                             
|Balance at October 31, 2000 |  | 1,284,333           |   |                             
|Granted                     |  | 816,000             |   |                             
|Canceled or expired         |  | (66,184             | ) |                             
|Exercised                   |  | (155,454            | ) |                             
|                            |  |                     |   |                             
|Balance at October 31, 2001 |  | 1,878,695           |   | $                           
|                            |  |                     |   |                             

There
were 740,756 and 565,705 options exercisable with weighted average exercise prices of $7.95 and $6.55 at October 31, 2001, and 2000, respectively.

47

---

The
following table summarizes significant option groups outstanding at October 31, 2001 and related weighted average exercise price and remaining contractual life information:

Options Outstanding

Options ExercisableRange of
Exercise
Prices

Shares

Weighted Avg.
Remaining
Contractual
Life (Years)

Weighted
Avg.
Exercise
Price

Shares

Weighted
Avg.
Exercise
Price$0.03$6.25

514,444

6.52

$
3.85

453,693

$
3.54$7.00$7.94

373,500

8.59


7.60

98,625


7.86$8.94$10.80

383,500

9.65


10.52

14,000


8.94$11.81$16.75

502,251

8.99


14.20

99,438


15.92$23.50$24.54

105,000

7.27


23.96

75,000


23.991,878,695

8.30

$
9.84

740,756

$
7.95


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 31,2001

2000

1999Dividend yield

0
%
0
%
0
%Expected volatility

50
%
45
%
40
%Risk-free interest rate

4.3
%
6.0
%
5.2
%Expected life

4 years

4 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 31,2001

2000

1999Net income (loss):As reported

$
(1,985,000
)
$
(6,028,000
)
$
3,369,000Pro forma

$
(3,874,000
)
$
(7,591,000
)
$
2,584,000Earnings (loss) per share:As reported basic

$
(0.20
)
$
(.87
)
$
.49As reported diluted

$
(0.20
)
$
(.87
)
$
.47Pro forma basic

$
(0.40
)
$
(1.10
)
$
.38Pro forma diluted

$
(0.40
)
$
(1.10
)
$
.36


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 the year ended October 31, 2001, 2000 and 1999 were $4.04, $5.87 and $3.74 per share, respectively.

48

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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.

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, 2001, 11,314 common shares were purchased under the ESPP.

Common Stock Warrants

In fiscal 1998, the Company granted 96,000 warrants to a 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.

Common Stock Repurchase Program

In October 2001, the Board of Directors authorized a new stock repurchase program to acquire up to 10 million shares in the open market at any time.
The number of shares of common stock actually acquired by the Company will depend on subsequent developments and corporate needs, and the repurchase of shares may be interrupted or discontinued at any
time. As of October 31, 2001, no shares had been repurchased by the Company.

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NOTE 10INCOME TAXES:

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

|          |         | Year Ended October 31, |           
|--------- | ------- | ---------------------- | ----------
|
|Current:  |         |                        |           
|          | Federal |                        | $         
|          | State   |                        |           
|          |         |                        |           
|          |         |                        | 2,000     
|          |         |                        |           
|Deferred: |         |                        |           
|          | Federal |                        |           
|          | State   |                        |           
|          |         |                        |           
|          |         |                        | (1,092,000
|          |         |                        |           
|          |         | $                      | (1,090,000
|          |         |                        |           

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 assets are as follows:

|                        |                                             | October 31, |          
|----------------------- | ------------------------------------------- | ----------- | ---------
|
|Net current assets:     |                                             |             |          
|                        | Accrued liabilities                         |             | $        
|                        | Allowance for doubtful accounts             |             |          
|                        | Inventory reserve and capitalized inventory |             |          
|                        | Deferred revenue                            |             |          
|                        | State income taxes                          |             |          
|                        |                                             |             |          
|                        |                                             | $           | 316,000  
|                        |                                             |             |          
|Net non-current assets: |                                             |             |          
|                        | Net operating loss carryforwards            |             |          
|                        | Depreciation and amortization               |             |          
|                        | Tax credits                                 |             |          
|                        | Other                                       |             |          
|                        |                                             |             |          
|                        |                                             | $           | 3,899,000
|                        |                                             |             |          

At
October 31, 2001, the Company had federal net operating loss carryforwards of $10 million beginning to expire in 2018. The use of such net operating loss carryforwards
is subject to statutory limitations.

50

---

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

|                                               |  | Year Ended October 31, |   
|---------------------------------------------- |  | ---------------------- | --
|
|Federal tax provision at U.S. statutory rate   |  | (34                    | )%
|State income taxes, net of federal tax benefit |  | (3                     | ) 
|Acquired in-process R&D                        |  |                       |   
|Tax-exempt interest income                     |  | (2                     | ) 
|Amortization of goodwill                       |  | 4                      |   
|Tax credits                                    |  |                       |   
|Other, net                                     |  |                       |   
|                                               |  |                        |   
|                                               |  | 35                     | % 
|                                               |  |                        |   

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 $587,000, $37,000, and
$948,000 in fiscal 2001, 2000 and 1999, respectively, and were credited to stockholders' equity.

NOTE 11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 $135,000, $132,000, and $87,000, for the years ended October 31, 2001, 2000, and 1999, respectively.

NOTE 12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 2002 to 2006 are $386,000, $277,000, $23,000, $0 and $0,
respectively. Total rent expense for the years ended October 31, 2001, 2000 and 1999 was $389,000, $302,000, and $265,000, respectively.

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.

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NOTE 13SELECTED QUARTERLY FINANCIAL DATA:

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

|Fiscal 2001                       |  | First
Quarter |       | Second
Quarter |   | Third
Quarter |   | Fourth
Quarter
|--------------------------------- |  | ------------- | ----- | -------------- | - | ------------- | - | --------------
|Net sales                         |  | $             | 4,316 |                | $ | 5,060         |   | $             
|Gross profit                      |  |               | 2,810 |                |   | 3,290         |   |               
|Net income (loss)                 |  |               | (237  | )              |   | (9            | ) |               
|Diluted earnings (loss) per share |  | $             | (0.03 | )              | $ |              |   | $             

|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 |  | $             | 0.17  |                | $ | 0.20          |  | $              | 0. 20

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

|                            |                                 |  |   | Additions |  |   |     | 
|--------------------------- | ------------------------------- |  | - | --------- |  | - | --- | 
|
|Year ended October 31, 2001 |                                 |  |   |           |  |   |     | 
|                            | Allowance for doubtful accounts |  | $ | 27        |  | $ | 80  | 
|                            | Inventory reserves              |  |   | 65        |  |   | 117 | 
|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 | 

53

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                 |  | NORTH AMERICAN SCIENTIFIC, INC.
|---------------- |  | -------------------------------
|                 |  |                                
|January 16, 2002 |  | 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 16, 2002
|/s/L. MICHAEL CUTRERL. Michael Cutrer     |  | President, Chief Executive Officer and Director (Principal Executive Officer) |  | January 16, 2002
|/s/ALAN I. EDRICKAlan I. Edrick           |  | Chief Financial Officer (Principal Financial and Accounting Officer)          |  | January 16, 2002
|/s/ALLAN M. GREENDr. Allan M. Green       |  | President, Theseus Imaging and Director                                       |  | January 16, 2002
|/s/LARRY BERKINLarry Berkin               |  | Director                                                                      |  | January 16, 2002
|/s/MITCHELL H. SARANOWMitchell H. Saranow |  | Director                                                                      |  | January 16, 2002

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