10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2007

Commission File Number 0-26670

NORTH AMERICAN SCIENTIFIC, INC.

(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 51-0366422 (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:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	The NASDAQ Stock Market LLC

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No

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

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. x Yes o 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 Form10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Securities Exchange Act of 1934. Large Accelerated Filer o Accelerated Filer o  Non-Accelerated Filer x

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

The aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $33.8 million (based upon the price at which the common stock was last sold, as of April 30, 2007, the last business day of the Registrant’s most recently completed second fiscal quarter).

As of January 28, 2008, approximately 92,403,471shares of the Registrant's Common Stock, $.01 par value per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2008 Annual Meeting of Stockholders to be held on or about April 30, 2008, are incorporated by reference into Part III of this Form 10-K.

NORTH AMERICAN SCIENTIFIC, INC.

Table of Contents

Form 10-K

		Page
PART I
Item 1.	Business	3
Item 1A	Risk Factors	18
Item 1B	Unresolved Staff Comments	32
Item 2.	Properties	32
Item 3.	Legal Proceedings	32
Item 4.	Submission of Matters to a Vote of Security Holders	34
Item 4a.	Executive Officers of the Registrant	34
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	35
Item 6.	Selected Consolidated Financial Data	37
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	56
Item 8.	Consolidated Financial Statements and Supplementary Data	57
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	57
Item 9A.	Controls and Procedures	57
Item 9B.	Other Information	57
PART III
Item 10.	Directors, Executive Officers and Corporate Governance of the Registrant	58
Item 11.	Executive Compensation	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	58
Item 13.	Certain Relationships and Related Transactions and Director Independence	58
Item 14.	Principal Accounting Fees and Services	58
PART IV
Item 15.	Exhibits, Financial Statement Schedules	59
	Signatures	106

2

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 the Private Securities Litigation Reform Act of 1995, or 1995 Act, and releases issued by the Securities and Exchange Commission, or 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 1A, or detailed in our most recent reports on Form 10-Q and Form 8-K and from time to time in our other filings with the SEC 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 are a Delaware corporation, incorporated in 1990, that designs, develops, produces and sells innovative products for radiation therapy treatment, including Prospera® brachytherapy seeds and SurTRAK™ needles and strands used primarily in the treatment of prostate cancer. In 2006 we introduced our ClearPath™ brachytherapy device to be used in the treatment of breast cancer. In addition, we develop and market products for other medical, environmental, research and industrial applications.

In 1996, we began to focus our research and product development activities primarily on medical products that are useful in the diagnosis, management and treatment of diseases such as cancer. 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. We began manufacturing our Iodine-125 seed for commercial use in 1998, and introduced our Palladium-103 seed the following year, thus becoming the first company to manufacture both iodine and palladium brachytherapy seeds. We market and sell our Iodine-125 seeds under the trade name Prospera® I-125, and our Palladium-103 seeds under the trade name Prospera® Pd-103.

In October 2000, we acquired Theseus Imaging Corporation (“Theseus”), a company engaged in the research and development of a proprietary radiopharmaceutical imaging agent (referred to as “Hynic-Annexin V”). Over the following four years, we made substantial investments in Theseus for clinical trials and additional research. We shut down the operation of Theseus in September 2004 after determining that the cost to achieve successful development and regulatory approval would be substantial.

In August 2003, we acquired substantially all of the assets of Radiation Therapy Products (“RTP”), a manufacturer and distributor of equipment, including steppers and stabilizers, used in prostate brachytherapy procedures. We added RTP to our brachytherapy product portfolio to provide a more complete product offering to customers and prospects.

On May 4, 2004, we acquired NOMOS Corporation (“NOMOS”), a developer, manufacturer and marketer of products and services for Intensity Modulated Radiation Therapy (“IMRT”) and Image Guided Radiation Therapy (“IGRT”). NOMOS was recognized as the pioneer of the IMRT and IGRT fields and its products are used to treat a variety of cancers at hospitals and free-standing radiation oncology centers. In July 2007, we announced our plan to divest the NOMOS Radiation Oncology business in order to renew our focus on the marketing and development of innovative brachytherapy products for the treatment of prostate and breast cancer. We completed the sale of all significant assets, including licenses, trademarks and brand-names, and selected liabilities of NOMOS to Best Medical, Inc. for $500,000 in September, 2007. We will continue to wind down the remaining operations of NOMOS until such time that all accounts become settled. (See Note 2 of the Notes to Consolidated Financial Statements).

3

On November 7, 2006, we announced the introduction of ClearPath™, our unique multicatheter breast brachytherapy device for Accelerated Partial Breast Irradiation (APBI), at the American Society for Therapeutic Radiology and Oncology (ASTRO) Annual Meeting in Philadelphia. The ClearPath device is placed through a single incision and is designed to conform to the resection cavity, allowing for more conformal therapeutic radiation dose distribution following lumpectomy compared to other methods of APBI. ClearPath is designed to accommodate either high-dose, ClearPath-HDR, or low-dose rate, ClearPath-CR, treatment methods. We received 510(k) approval from the United States Food and Drug Administration for a low-dose rate, or continuous release, treatment utilizing the Company’s Prospera® brachytherapy seeds in April 2006 and approval for the high-dose rate treatment in November 2006. We have been gaining clinical experience with the first generation ClearPath-HDR in 2007, and we intend to launch the second generation devices in 2008, to be followed by the general commercial release of our ClearPath-CR.

BRACHYTHERAPY TREATMENT OF CANCER

Derived from ancient Greek words for short distance (brachy) and treatment (therapy), brachytherapy, sometimes called seed implantation, is an outpatient procedure used in the treatment of different kinds of cancer. Radioactive “seeds” are carefully placed inside of the cancerous tissue and positioned in a manner that permits the most efficient dispersion of radiation into the cancer. Brachytherapy has now been used for over a century. Conditions currently treated with brachytherapy include prostate cancer, cervical cancer, endometrial cancer, coronary artery disease, and recently breast cancer. Brachytherapy is a minimally invasive medical procedure in which high-dose-rate (HDR) or low-dose-rate (LDR) 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. Brachytherapy has been proven to be very effective and safe, providing a good alternative to surgical removal of the malignant tissue, while reducing the risk of certain long-term side effects.

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 its early stages. 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 approximately 230,000 new cases of prostate cancer are diagnosed in the United States annually, and approximately 30,000 deaths of men in the United States are attributable to the disease each year.

The definitive test for identifying prostate cancer is a prostate biopsy, which typically involves a physician obtaining transrectally a number of small prostate tissue specimens using a specialized needle biopsy device. A digital rectal examination which looks for abnormally shaped prostate glands and the prostate specific antigen (“PSA”) blood test are the two most commonly used methods to identify candidates for a prostate biopsy. When localized prostate cancer is identified through a prostate biopsy, physicians have several therapies available for the treatment of prostate cancer.

4

The most widely used methods for treating prostate cancer are radical prostatectomy (“RP”), the surgical removal of the prostate; external beam radiation therapy (“EBRT”), which involves directing a beam of radiation from outside the body at the prostate gland in order to destroy cancerous tissue; cryosurgery, a procedure in which tissue is frozen to destroy tumors; and brachytherapy.

Prostate Brachytherapy

Overview

Prostate Brachytherapy involves the use of LDR seeds permanently implanted into cancerous tissue in the prostate, delivering a therapeutically prescribed dose of radiation that is lethal to the cancerous tissue. In the LDR seeding procedure, generally 60 to 120 rice-sized, low-level radioactive seeds, containing either Iodine-125 or Palladium-103, are permanently implanted into the prostate 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 for proper seed implantation. A template, or grid, is positioned in front of the perineum and is fixed to the stabilization unit along with the ultrasound probe to facilitate correct needle placement. Implant needles loaded with seeds are assigned to the appropriate template holes as indicated in a computer generated 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.

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

LDR brachytherapy usually results in lower incidences of impotence and incontinence compared to other therapies, and faster recovery times than RP. Moreover, some studies have shown that the disease free survival rates ten years after brachytherapy treatment is comparable to those after 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.

The use of LDR brachytherapy has grown significantly over the past several years due to its advantages over the other primary therapies, which include RP and EBRT. We believe that the increasing use of this technique reflects the growing acceptance in the medical community and among patients.

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 intensity at which the radiation dose is delivered to the patient. Because some physicians may prefer iodine seeds and others prefer palladium seeds, we believe that it is advantageous to offer both in order to address the entire brachytherapy seed market.

5

Prospera® I-125. In January 1998, we launched our first United States Food and Drug Administration or FDA-approved brachytherapy source, an Iodine-125 based seed, used primarily for the treatment of prostate cancer. Each seed consists of a laser welded biocompatible titanium capsule approximately the size of a grain of rice, containing Iodine-125 absorbed onto four resin beads. The capsule also contains two inactive gold beads that serve as markers for x-ray or CT imaging to identify the source location within the prostate. I-125 seeds have a half-life of 59 days; therefore, they utilize lower activity levels to deliver a therapeutic dose over a longer period of time compared to the Palladium-103 seeds.

Prospera® Pd-103. In April 1999, we introduced our second FDA-approved brachytherapy source, a Palladium-103 based seed, also used primarily for the treatment of prostate cancer. Each palladium seed consists of a laser welded biocompatible titanium capsule containing Palladium-103 absorbed onto four resin beads. The capsule also contains two inactive gold beads that serve as markers for x-ray or CT imaging to identify the source location within the prostate. Pd-103 seeds have a half-life of 17 days; therefore, they utilize higher activity levels to deliver a therapeutic dose over a shorter period of time compared to the Iodine-125 seeds.

SurTRAK™. The SurTRAK family of products includes the SurTRAK pre-plugged needle with a unique synthetic, micro-angled insert for improved seed delivery and precise placement, and the SurTRAK strand which, used in conjunction with the needle, is bio-resorbable and designed to hold the seeds at predetermined distances adding speed and precision to the prostate brachytherapy procedure.  The SurTRAK needle is also available pre-loaded with seeds and spacers per the physician’s prescription.  The entire Prospera SurTRAK family of products is available packed, sterile and ready for use.

The STP-110 Precision Stepper and RTP-6000 Precision Stabilizer equipment precisely positions and holds the trans-rectal ultrasound probe during the LDR brachytherapy procedure.  The Stepper also provides a stable platform for the Template Guide which is used to precisely position the needles during seed implantation.  Additional products that we offer include radiation shielding and needle loading accessories such as the Horizontal Needle Box, Needle Loading Shield, Needle Loading Box and Needle Loading Carousel.  These products offer a natural complement to the brachytherapy seeds. 

Other Prostate Cancer Treatment Modalities in addition to Brachytherapy

Radical Prostatectomy

Currently, the most common treatment option for prostate cancer, 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 involves a hospital stay of several days for patient observation and recovery.

This procedure is associated with relatively high rates of impotence and incontinence. 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.

6

External Beam Radiation Therapy (“EBRT”)

EBRT allows patients to receive treatment on an outpatient basis and at a lower cost than RP. EBRT involves directing a beam of radiation from outside the body at the prostate gland in order to destroy cancerous tissue. The course of treatment usually takes seven to eight weeks to deliver the total dose of radiation prescribed to kill the tumor.

However, some studies have shown that the ten-year disease free survival rates with treatment through EBRT are not comparable to the disease free survival rates after RP or brachytherapy treatment. In addition, because the radiation beam travels through the body, affecting both 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.

Cryosurgery

Cryosurgery, a procedure in which tissue is frozen to destroy tumors, is another treatment option for prostate cancer. Currently, this procedure is less widely used, although promising treatment outcomes have been reported. Cryosurgery typically requires a one to two day hospital stay and is associated with higher rates of impotence than brachytherapy.

Other Treatments.

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 may choose more active treatments at a later date.

Prospera® for Ocular Melanoma

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

Our line of high activity brachytherapy seeds is also marketed and sold under the trademark Prospera® for use in the treatment of ocular melanoma and other solid tumor applications. Our Prospera® ocular melanoma seed is used with the ultimate goal of destroying the tumor while preserving the eye. We directly market this product line to ophthalmologists and medical physicists. The number of cases occurring annually will limit Prospera® ocular melanoma sales for this application, but we view it as a natural extension of our brachytherapy business and as a service to the oncology community.

7

Breast Cancer

Breast cancer is an invasive tumor, or abnormal growth, that has developed in the cells of the breast tissue. Breast cancer rates continue to increase in the U.S. The American Cancer Society estimates one in eight women in the U.S. will develop breast cancer in her lifetime. Furthermore, one in thirty-three women will die from the disease. However, it is possible to detect most breast cancers at early stages. In situ or early stage cancers have not spread to surrounding tissue or other organs. They are confined to the immediate area where the cancer began. Today, with early detection and improved treatments, more women are surviving breast cancer.

In addition to various forms of surgery, breast cancer patients often receive other forms of therapy including radiation, hormone and/or immunotherapy. Increasingly patients and their physicians are opting for breast conservation therapy (BCT). BCT is considered for women with early-stages of breast cancer and is used in situations where physicians believe their patients have an opportunity to preserve breast tissue. BCT has traditionally been followed by a rigorous daily regime of whole breast radiation. The surgical transition from radical mastectomy to lumpectomy is now being followed, for similar tissue sparing and cosmetic consequence by the acceptance of and often preference for accelerated partial breast irradiation in place of whole breast irradiation.

Accelerated partial breast irradiation (APBI) treats only the tissue surrounding the lumpectomy cavity and offers patients less invasive and more convenient treatment options than with whole breast external beam radiation. With localized treatment, the remainder of the breast and surrounding organs are spared from unnecessary radiation exposure inherent with whole breast irradiation. APBI delivery techniques are catheter based, either through single or multiple insertion sites, utilizing both high and low dose sources, delivered either from external sources or imbedded seeds.

Breast Brachytherapy

Approximately 270,000 new cases of breast cancer are diagnosed in the U.S. each year. Only 75% of breast cancers are discovered in early-stages, and are therefore suitable for BCT. Therefore, we estimate the total market for postlumpectomy brachytherapy is approximately 200,000 patients annually. With typical average selling prices of approximately $2,700, we estimate the U.S. brachytherapy market potential at approximately $540 million, excluding the cost of radiation sources and brachytherapy seeds, used in the treatment. Including the revenues from radiation sources and brachytherapy seeds, we estimate the U.S. brachytherapy market potential at over $700 million.

Breast brachytherapy may utilize either high-dose-rate (HDR) or low-dose-rate (LDR) sources. Unlike prostate brachytherapy treatment which is administered by the permanent implantation of LDR souces in the prostate, breast brachytherapy is administered by temporarily placing the radiation source in the post-lumpectomy site. With HDR breast brachytherapy, the placement of the HDR radiation source (Iridium-192) directly into the post-lumpectomy site reduces the treatment time to approximately 5 days compared to 30-35 days for whole breast radiation therapy. HDR therapy can be used at the time of the lumpectomy or in the months after the procedure as with whole breast radiation therapy (WBRT). The HDR source can be placed and removed in a physician's office under local anesthesia in contrast to WBRT, which must be performed in a radiation-safe heavily shielded room. Clinical outcomes, including recurrence rates, for HDR radiation therapy are similar to those obtained with the more invasive, longer treatment time, WBRT. HDR therapy can also be used as an adjunct therapy in patients who have received WBRT previously. In this application, patients generally receive treatments over one to two days.

8

In the past, LDR therapy utilizing multi-catheter systems and seed implants have been associated with negative cosmetic results. These systems typically use 10-15 injection sites to deliver local radiation therapy or exposed radiation too close to the surface of the skin, causing aesthetic defects including spider veins.

Both HDR and LDR patients may leave the hospital and perform most normal daily activities once the therapy has been initiated. Patients receiving LDR therapy are required to wear a small breast shield while the radiation source is in place. LDR therapy may offer an attractive alternative for patients in rural communities without easy access to shielded rooms. Additionally, LDR capability may be a significant benefit in international markets where LDR is more prevalent and the availability of shielded rooms is significantly less.

ClearPath™. On November 7, 2006, we announced the introduction of ClearPath, our unique multicatheter breast brachytherapy device for Accelerated Partial Breast Irradiation (APBI), at the American Society for Therapeutic Radiology and Oncology (ASTRO) Annual Meeting in Philadelphia. The ClearPath systems are placed through a single incision and are designed to conform to the resection cavity, allowing for more conformal therapeutic radiation dose distribution following lumpectomy compared to other methods of APBI. ClearPath is designed to accommodate either high-dose, ClearPath-HDR, or low-dose rate, ClearPath-CR, treatment methods. We received 510(k) approval from the United States Food and Drug Administration for a low-dose rate, or continuous release, treatment utilizing the Company’s Prospera® brachytherapy seeds in April 2006 and approval for the high-dose rate treatment in November 2006. We have been gaining clinical experience with the first generation ClearPath-HDR in 2007, and we intend to launch the second generation devices in 2008, to be followed by release of our ClearPath-CR.

The unique design of ClearPath offers new treatment alternatives to women electing APBI as part of their breast conserving therapy (BCT). ClearPath offers the advantages of multicatheter sourcing through a single insertion site. ClearPath’s unique multi-channel catheter system accommodates both LDR therapy, using our existing Prospera I-125 seeds, or HDR treatments. The ClearPath systems are designed to offer physicians greater flexibility in treatment planning and dose optimization to the target region while minimizing exposure to nearby healthy tissue. The channels on the ClearPath catheter can be positioned and controlled independently to change their location (size of the arc) and dose of radiation.

The ClearPath-HDR system consists of 12 individually adjustable catheters, 6 of which are partially deployed in the HDR application. This feature potentially allows radiation oncologists to offer brachytherapy to patients who have not been appropriate for other available brachytherapy products because their cavities have been considered too close to the skin. Traditional breast brachytherapy has been associated with negative cosmetic outcomes largely due to the proximity of the radiation source to the skin. Recommendations are that the radiation source be 7 mm or more from the skin. The unique ability of ClearPath to partially deploy 6 source catheters could negate this proximity problem. The deployed catheters in ClearPath, unlike a balloon, are more conformal, neither compressing nor altering the shape of the surrounding tissue.

The combination of conformal channels and independent dosing may improve treatment planning for these patients and address some physician concerns with the balloon product. The ClearPath catheter integrates with existing HDR afterloaders and treatment planning software sold by Varian Medical and Nucleton and does not require additional capital investment by facilities with shielded rooms and afterloaders.

9

The second ClearPath design, ClearPath-CR or continuous release, utilizes a similar array of deployable catheters placed through a single incision. However, rather than undergoing 10 treatments over 5 days, the radiation oncologist will place a series of stranded low dose rate Prospera I-125 brachytherapy seeds into the device which will deliver a continuous low level radiation dose over a 4 to 5 day period. ClearPath-CR would not require patients to return to the hospital or clinic daily for treatment. Ease of placement, dose conformality, and patient friendliness are a few of the differentiating features of the ClearPath design.

NON-THERAPEUTIC 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 of certain chemical elements. Radioisotopes are radioactive elements which emit energy characteristics specific to that isotope. At sites possessing or storing radioactive materials, radiation detection instruments are typically used to monitor the emitted radiation from a given sample (i.e., soil, air, water, etc.) to identify and quantify the radioisotopes present in that sample to help ensure safety to workers and the surrounding environment. 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 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 United States 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 Control

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 also sell radiation standards 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 and Europe. 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.

10

INTELLECTUAL PROPERTY

Patents

We believe that patents and other proprietary rights are important 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. The following chart shows our outstanding patents and their respective expiration dates.

Name with Patent Number	Subject	Date of Issuance and Expiration Date
Needle for Imaging and Sampling (5,647,374)	An instrument and method for the biopsy of tumors, such as breast lesions, are disclosed. A stylus comprises a tube having radioactive material in the tip capable of being imaged, the stylus contained within a needle. An image of the tip of the needle can be traced as it penetrates a human body, is guided toward an imaged tissue mass, and is placed within the tumor.	July 15, 1997 until December 30, 2014
Stepper apparatus for use in the imaging/treatment of internal organs using an ultrasound probe (5,871,448)	The stepper apparatus for use in imaging/treatment of prostate cancer with radioactive seeds includes a body portion, a support element for holding the ultrasound probe, a slide portion for moving the support element relative to the body portion, and a support element for holding a template which has a plurality of openings therethrough, through which radiation seed insertion needles may be positioned.	February 16, 1999 until October 14, 2017
Laser Welded Brachytherapy Source and Method of Making the Same (5,997,463)	A brachytherapy source for use in radiation treatment of the body includes radioactive material, and a housing. The housing is used to contain the radioactive materials, and is formed by at least one tube having two ends. The two ends of the tube are sealed by welding such that a radiation distribution of the brachytherapy source approximates a point source that is free of cold zones to minimize underexposure or overexposure of the body to radiation and to simplify the placement of the brachytherapy source in the body.	December 7, 1999 until March 26, 2018
Stabilizer assembly for stepper apparatus and ultrasound probe (6,179,262)	The stabilizer assembly is used to position a stepper assembly for an ultrasound probe. The stabilizer includes two spaced apart swivel assemblies, each swivel assembly including clamps at one end thereof locking the stabilizer to a table.	January 30, 2001 until October 23, 2018
Radioactive Seeds and Method for Using Same (6,440,058)	A system and method of treating an affected region of diseased tissue in a patient is described. A plurality of first radioactive seeds and a plurality of second radioactive seeds are implanted in the affected region.	August 27, 2002 until August 25, 2019

11

Radioactive Seed with Multiple Markers and Method for Using Same (6,503,186)	A radioactive seed which discloses the orientation and the location of the seed when the seed is exposed to X-ray photography is provided. The seed contains multiple X-ray detectable markers which will disclose the orientation and the location of the seed when the seed is exposed to X-ray photography. The seed can also have a single marker which wraps around the external surface of the seed or wraps around a carrier body within the seed. The single marker will also disclose the orientation as well as the location of the seed.	January 7, 2003 until March 29, 2020
Apparatus for loading radioactive seeds and spacing elements into a brachytherapy needle (6,582,354)	The loading apparatus includes a tray assembly which receives radioactive seeds and spacer elements from containers thereof.	June 24, 2003 until July 23, 2020
Radioactive Seed with Multiple Markers and Method for Using Same (6,638,207)	A radioactive seed which discloses the orientation and the location of the seed when the seed is exposed to X-ray photography is provided. The seed contains multiple X-ray detectable markers which will disclose the orientation and the location of the seed when the seed is exposed to X-ray photography. The seed can also have a single marker which wraps around the external surface of the seed or wraps around a carrier body within the seed. The single marker will also disclose the orientation as well as the location of the seed.	October 28, 2003 until October 15, 2020
Thin Radiation Source and Method of Making the Same (6,787,786)	Radiation sources and a method for producing radiation sources. Embodiments of the present invention are directed to radiation sources that can be used to calibrate nuclear imaging equipment, such as flood sources. According to embodiments of the invention, the radiation source includes a outer housing that contains a substrate upon which a radioactive pattern is deposited. The radioactive deposit may be placed on the surface of the substrate in the form of a deposited solution and may be fixed to the surface of the substrate by, for example, a binding agent and/or a sealing layer. The deposited solution may also include a colorant to visually indicate the activity distribution of the radioactive deposit.	September 7, 2004 until June 12, 2021
Radioactive seed with multiple markers and method for using same (6,881,183)	A radioactive seed which discloses the orientation and the location of the seed when the seed is exposed to X-ray photography is provided. The seed contains multiple X-ray detectable markers which will disclose the orientation and the location of the seed when the seed is exposed to X-ray photography. The single marker will also disclose the orientation as well as the location of the seed.	October 23, 2003 until October 23, 2023
Apparatus and Method for Loading a Brachytherapy Seed Cartridge (6,755,775)	An apparatus and method for loading radioactive brachytherapy seeds into a seed cartridge for use with an applicator.	June 29, 2004 until June 29, 2021

12

In addition, as of December 31, 2007, we had 8 additional United States pending patent applications. We have also been issued 5 foreign patents and have 9 foreign patent applications still pending.

Third-Party License Agreements

We license from third parties some of the technologies used in our core products. The following is a summary of our material third-party licenses.

· IdeaMatrix, Inc. We have an exclusive license from IdeaMatrix, Inc. (a company wholly owned by our former Vice President of New Product Development - Brachytherapy, Richard Terwilliger) for certain brachytherapy technology pertaining to needles and strands used in the brachytherapy manufacturing process. This technology is critical to our SurTRAK line of products sold in connection with our brachytherapy seeds. Under this exclusive license agreement, we paid $125,000 upon execution of the license agreement on February 17, 2006, and we are required to pay $125,000 per year over five years. There is no annual renewal fee or royalty arising out of this license. The term of this license expires upon the last expiring patent included in the license. As part of this license agreement, we have agreed to indemnify Mr. Terwilliger and IdeaMatrix, Inc. for claims arising from the licensed property, including the claim raised in the Worldwide Medical Technology lawsuit against Mr. Terwilliger and IdeaMatrix, Inc. Please see Item 3, Legal Proceedings for more information.

· University of South Florida Research Foundation, Inc.: On February 2, 2007, we entered into an exclusive license from the University of South Florida Research Foundation, Inc. (the “Foundation”) covering certain patent processes which may be used in the manufacture and distribution of our ClearPath products. Under the license agreement, we paid $23,000 in May 2007, which included a one-time license fee of $10,000 and a reimbursement of legal fees incurred by the Foundation to draft the license agreement. The license requires us to pay a $75,000 fixed license fee upon the first commercial sale of products covered by the license, and additional $75,000 license fees upon achieving each of $10 million and $20 million in aggregate product sales. Royalty fees of 7.5% of net sales of licensed products are due annually on the anniversary of the agreement, with minimum royalty payments of $50,000 on the first and second anniversary of the agreement, increasing to $75,000 on each anniversary thereafter. The term of this license expires upon the last expiring patent included in the license The license further allows us to sublicense the covered processes for additional fees.

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.

13

COMPETITION

Our primary competitors in the brachytherapy seed business include: C.R. Bard, Inc. Oncura, Inc., and Core Oncology, Inc., all of whom manufacture and sell Iodine-125 brachytherapy seeds, as well as distribute Palladium-103 seeds manufactured by a third party (in the case of Oncura and Core Oncology, we currently manufacture a portion of their Palladium-103 seed requirements pursuant to distribution agreements reached with Oncura in July 2005 and with Core Oncology in August 2007); and Theragenics Corporation, which manufactures Palladium-103 seeds, and sells Palladium-103 and Iodine-125 brachytherapy seeds directly and its Palladium-103 brachytherapy seeds through marketing relationships with third parties. Several additional companies currently sell brachytherapy seeds as well. Our SurTRAK strands and needles are subject to competition from a number of companies, including Worldwide Medical Technologies, Inc.

Our new ClearPath-HDR device for treatment of breast cancer is, like its competitors, designed to connect to a source of high-dose-rate (HDR) radiation, which is administered in a specially shielded room in a hospital. It faces competition from Hologic, Inc., SenoRx, Inc. and Cianna Medical (previously BioLucent, Inc.). The MammoSite RTS device from Hologic, Inc., currently the market leader, uses a balloon and catheter system to place the radiation source directly into the post-lumpectomy cavity. The Contura MLB device developed by SenoRx, Inc. also uses a balloon and catheter system to deliver the radiation dose. The SAVI device manufactured by Cianna Medical does not use a balloon and is comprised of an expandable bundle of 6 catheters.

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 increased acceptance among healthcare providers, patients and payers, or if new technologies such as gene modification emerge to become leading treatment standards as alternatives to traditional therapies, we may lose market share for our brachytherapy seeds or may find that our products are rendered non-competitive or obsolete by such market shifts and technological developments.

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 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 treatments and products that are similar to our 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. Furthermore, 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.

14

SALES AND MARKETING

Since January 2003, we have developed an internal sales force to directly market and sell our brachytherapy products. At the end of fiscal year 2007, the domestic sales staff consisted of six business development managers. In addition, we had five customer service representatives. We recently have hired a Vice President of Sales, and plan to expand our sales force in our Radiation Sources business in fiscal year 2008 to market ClearPath, our new device for breast cancer treatment.

Each of our sales representatives sells products and services to customers within an assigned territory. The sales representatives promote customer satisfaction with periodic service calls in addition to scheduled follow-up visits. Our products are principally marketed directly to the end-user physicians or purchasing groups that act on their behalf. In addition to our sales efforts in the United States market, we also market our products in Europe. $0.7 million, or 4.7%, of our total revenues in fiscal year 2007 were attributable to international markets. Two customers, Oncura and Pinestar Technology, Inc., each accounted for over 10% of our revenue.

Our radiation calibration and references standards are sold directly, as well as through a select group of third party 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.

GOVERNMENT REGULATION

Our products are medical devices, and therefore, subject to regulation and oversight by the FDA, state and local government authorities and foreign government authorities. FDA and foreign regulatory requirements include registration as a manufacturer, compliance with established manufacturing practices and quality standards, conformance with applicable industry standards, product traceability, adverse event reporting and compliance with advertising and packaging standards.

Our research and development activities and marketing activities are also 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.

United States Regulatory Process

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. We are also subject to other federal and state laws and regulations, including the Occupational Safety and Health Act and the Environmental Protection Act.

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, preventing us from entering into government supply contracts, withdrawal of previously approved applications and criminal prosecution.

Approval of new medical devices is a lengthy procedure and can take a number of years and the expenditure of significant resources. There is a shorter FDA review and clearance process, the pre-market 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 achieve market clearance for some of our medical device products using the 510(k) process.

15

In the United States, medical devices are classified into three different categories over which FDA applies increasing levels of regulation: Class I, Class II and Class III. Most Class I devices are exempt from pre-market notification 510(k); most Class II devices require pre-market notification 510(k) and most Class III devices require pre-market approval. All of our radiation therapy products are Class II devices and have received 510(k) clearance.

Each of our products has its own individual indication for use statement that has been cleared by the FDA. Each of these indications specify that the products are cleared for use in prescribed radiation therapy. None of the FDA clearances for any of our products limit the scope of intended use to treating certain types of cancer.

As a registered medical device manufacturer with the FDA, we are subject to inspection to ensure compliance with their current Good Manufacturing Practices, or cGMP. 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.

As a medical device manufacturer, we are also subject to laws and regulations administered by governmental entities at the federal, state and local levels. For example, our facilities are licensed as medical product manufacturing facilities in California and are subject to periodic state regulatory inspections. Our customers are also subject to a wide variety of laws and regulations that could affect the nature and scope of their relationships with us.

Additionally, our facilities in the Los Angeles metropolitan area operate under a license issued by the California Department of Health which allows us to manufacture and process radioactive materials. The license for one of our facilities expires in 2008, and we have filed a renewal application. The license for the other facility expires in 2018. We are 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. 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.

Foreign Regulatory Process

Our products are also regulated outside the United States as medical devices by foreign governmental agencies, similar to the FDA, and are subject to regulatory requirements, similar to the FDA's, in the foreign countries in which we plan to sell our products.

16

We hold a Quality Assurance certificate to ISO/EN 13485, the European Union standard for medical product manufacturers. This certificate is a prerequisite to applying the CE Mark to our products. The CE Mark is required on all medical products sold and used in the European Union. It is also recognized by many countries outside the European Union, such as Australia. The CE Mark indicates that a product was designed, released, produced, sold and serviced using a system that complies with the EU Council Directive 93/42/ECC for medical devices and EU Council 90/385/ECC for active implantable medical devices. All of our radiation therapy products are currently eligible to bear the CE marking.

Canada has a similar device classification system to the FDA, although its system contains four classes (Class I through Class IV). Health Canada has granted us Class III licenses to distribute our PROSPERA brachytherapy products throughout Canada. The Quality System for each facility is audited annually for compliance to the Canadian Medical Device Regulations. This allows us to sell our products in Canada.

We rely exclusively on our foreign distributors to obtain the foreign regulatory approvals necessary to market our products outside of the United States, Canada and Europe.

MANUFACTURING

We manufacture all of our brachytherapy seed products at two facilities in the Los Angeles, California metropolitan area. We manufacture certain of our brachytherapy accessory products, including our steppers and stabilizers, and our calibration and reference source products in one of our Los Angeles facilities. 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 components in our marketed 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.

RESEARCH AND DEVELOPMENT

Research and development ("R&D”) expenses in continuing operations totaled $1.8 million, $1.2 million and $0.7 million during the years ended October 31, 2007, 2006 and 2005, respectively, primarily due to the development costs of ClearPath in fiscal years 2006 and 2007. Our R&D 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.

EMPLOYEES

As of October 31, 2007, we had a total of 88 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.

17

AVAILABLE INFORMATION

We make available without charge copies of our Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, any amendments to those reports filed by us with the SEC and any other of our reports filed with or furnished to the SEC on or through our website, www.nasmedical.com, as soon as reasonably practicable after they are filed. You may request a paper copy of materials we file with the SEC by calling us at 1-818-734-8600.

You also may read and copy materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 or (202) 551-8090. Our filings with the SEC are also available to you on the SEC’s Internet web site at www.sec.gov.

Item 1A. Risk Factors

We have experienced significant losses and expect to incur losses in the future. As a result, the amount of our cash, cash equivalents, and investments in marketable securities has materially declined. We raised additional equity financing in January, 2008 to fund our continuing operations, support the further development and launch of ClearPath and other activities. If we continue to incur significant losses and are unable to access sufficient working capital from our operations or through external financings, we will be unable to fund future operations and operate as a going concern.

We have incurred substantial net losses in each of the last six fiscal years. As reflected in our financial statements, we have experienced net losses of $21.0 million, $17.1 million and $55.5 million in our fiscal years ended October 31, 2007, 2006 and 2005, respectively. As a result, the total amount of our cash, cash equivalents, and investments in marketable securities has significantly declined from approximately$15.0 million at October 31, 2004 to $0.6 million at October 31, 2007, and our interest-bearing debt has grown to $3.3 million. In addition, our line of credit with Silicon Valley Bank will expire on February 1, 2008, and there is no assurance that it will be renewed.

The negative cash flow we have sustained has materially reduced our working capital. Although our working capital has been replenished to some extent by our January 2008 equity financing, continued negative cash flow could materially and negatively impact our ability to fund future operations and continue to operate as a going concern. Management has taken and continues to take actions intended to improve our results. These actions include reducing cash operating expenses, developing new technologies and products, improving existing technologies and products, and expanding into new geographical markets.The availability of necessary working capital, however, is subject to many factors beyond our control, including our ability to obtain additional financing, our ability to increase revenues and to reduce further our losses from operations, economic cycles, market acceptance of our products, competitors’ responses to our products, the intensity of competition in our markets, and the level of demand for our products.

The amount of working capital that we will need in the future will also depend on our efforts and many factors, including:

· Our ability to successfully develop, market and sell our products, including the successful further development and launch of our new ClearPath device for treatment of breast cancer;

· Continued scientific progress in our discovery and research programs;

· Levels of selling and marketing expenditures that will be required to launch future products and achieve and maintain a competitive position in the marketplace for both existing and new products;

18

· Structuring our businesses in alignment with their revenues to reduce operating losses;

· Levels of inventory and accounts receivable that we maintain;

· Level of capital expenditures;

· Acquisition or development of other businesses, technologies or products;

· The time and costs involved in obtaining regulatory approvals;

· The costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; and

· The potential need to develop, acquire or license new technologies and products.

We completed a private placement of $15.5 million of our common stock in January, 2008; however, we may need to raise additional equity financing, reduce operations and take other steps to achieve positive cash flow. We also may be required to curtail our expenses or to take steps that could hurt our future performance, including but not limited to, the termination of major portions of our research and development activities, the premature sale of some or all of our assets or product lines on undesirable terms, merger with or acquisition by another company on unsatisfactory terms or the cessation of operations. We cannot assure you that we will be successful in these efforts or that any or some of the above factors will not negatively impact us. We believe that we will have sufficient cash to sustain us at least through the next twelve months.

Future financing transactions will likely have dilutive and other negative effects on our existing shareholders.

In January 2008, we completed a private placement of 63,008,140 shares of our common stock that also included 3,150,407 shares of common stock issuable upon exercise of warrants. This financing resulted in significant dilution of the Company’s current shareholders. If we raise additional equity financing in the future, the percentage ownership held by existing shareholders would be further reduced, and existing shareholders may experience further significant dilution. In addition, new investors may demand rights, preferences or privileges that differ from, or are senior to, those of our existing shareholders, such as warrants in addition to the securities purchased and other protections against future dilutive transactions.

We currently do not meet the continued listing requirements of the Nasdaq Global Market. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if we are delisted from The Nasdaq Global Market or if we are unable to transfer our listing to the Nasdaq Capital Market.

As of July 31, 2007, we did not meet the $10 million stockholders’ equity requirement under Maintenance Standard 1 for continued listing on the Nasdaq Global Market set forth in Marketplace Rule 4450(a)(3). As a result of our non-compliance, The Nasdaq Stock Market sent us a notice that our stock was subject to delisting from the The Nasdaq Global Market. We appealed the delisting to the Nasdaq Listing Qualifications Panel, and on December 11, 2007, we received formal notice that the Nasdaq Listing Qualifications Panel had granted our request for a transfer from the Nasdaq Global Market to the Nasdaq Capital Market, and continued listing on the Nasdaq Capital Market, subject to the following exceptions:

19

§ On or before January 17, 2008, we were required to inform the Panel that we had received funds sufficient to put us in compliance with the Capital Market shareholders’ equity requirement of $2.5 million. Within four business days of the receipt of the funds, we were required to make a public disclosure of receipt of the funds and file a Form 8-K with pro forma financial information indicating that we planned to report proforma shareholders’ equity of $2.5 million or greater for the fiscal year ended October 31, 2007. We informed the Panel of receipt of sufficient funds on January 18, 2008. We publicly disclosed receipt of such funds in a press release dated January 22, 2008 and filed a Form 8-K with respect to this matter on January 25, 2008.

§ On or before January 31, 2008, we were required to file our Annual Report on Form 10-K for the fiscal year ended October 31, 2007, which shall demonstrate proforma shareholder’s equity of $2.5 million or greater. This information is set forth below in this Report under “Subsequent Events – Nasdaq Delisting.”

On October 5, 2007, we received a notice from Nasdaq indicating that, for the preceding 30 consecutive days, the bid price of our common stock had closed below the minimum $1.00 per share requirement for continued listing. In accordance with the Nasdaq rules, we have until April 2, 2008, to regain compliance. In order to regain compliance, the bid price of our common stock must close at $1.00 per share or more for a minimum of 10 consecutive business days. If we do not regain compliance with the rule by April 2, 2008, we understand that the Nasdaq Staff will provide written notification to us that our common stock will be delisted. At that time, we may appeal the Staff’s determination to a Nasdaq Listing Qualifications Panel, but no assurance can be given that any such appeal would be successful.

Alternatively, if our common stock is delisted by Nasdaq, our common stock may be eligible to trade on the American Stock Exchange, the OTC Bulletin Board maintained by Nasdaq, another over-the-counter quotation system, or on the pink sheets where an investor may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock, although there can be no assurance that our common stock will be eligible for trading on any alternative exchanges or markets. In addition, we would be subject to Rule 15c2-11 promulgated by the SEC. If we fail to meet criteria set forth in the rule (for example, by failing to file periodic reports as required by the Exchange Act), various practice requirements are imposed on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transactions prior to sale. Consequently, such rule may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity and price of our common stock.

Delisting from Nasdaq could adversely affect our ability to raise additional financing through the public or private sale of equity securities. We may need to raise additional financing in fiscal 2008 to fund our continuing operations, support the launch and further development of ClearPath, and other activities. Delisting from Nasdaq also would make trading our common stock more difficult for investors, potentially leading to further declines in our share price. It would also make it more difficult for us to raise additional capital.

Success of our ClearPath breast brachytherapy device will be dependent upon a variety of factors.

We previously have announced the introduction of ClearPath, a new brachytherapy device for the treatment of breast cancer. Because we believe that our ClearPath device has certain technical and market advantages, we expect that this device may generate significant revenues in the future. There are a number of factors which could affect our ability to achieve this goal, including:

20

· The successful further development of a commercially marketable device;

· The successful launch of a marketing and sales program for this device;

· Our ability to protect our intellectual property through patents and licenses and avoid infringement of intellectual property of others;

· The successful completion of technical improvements to the device;

· Our ability to successfully manufacture production quantities of the device;

· The acceptance of the device by physicians and health professionals as an alternative to other approaches to delivering radiation to a cancer patient’s breast tissue or to other products using a similar approach but employing different competitive technologies; and

· Our ability to hire and train a direct sales force to sell the device;

We may encounter insurmountable obstacles or incur substantially greater costs and delays than anticipated in the development process.

From time to time, we have experienced setbacks and delays in our research and development efforts and may encounter further obstacles in the course of the development of additional technologies, products and services. We may not be able to overcome these obstacles or may have to expend significant additional funds and time. Technical obstacles and challenges we encounter in our research and development process may result in delays in or abandonment of product commercialization, may substantially increase the costs of development, and may negatively affect our results of operations.

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

·   failure to prove feasibility;

·   time required from proof of feasibility to routine production;

·   timing and cost of regulatory approvals and clearances;

·   competitors' responses to new product developments;

·   manufacturing cost overruns;

·   failure to obtain customer acceptance and payment; and

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

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

All of our product lines are subject to intense competition. Our most significant competitors have greater resources than we do. As a result, we cannot be certain that our competitors will not develop superior technologies, larger more experienced sales forces or otherwise be able to compete against us more effectively. If we fail to maintain our competitive position in key product areas, we may lose or be unable to develop significant sources of revenue.

We believe that our Prospera brachytherapy seeds, our SurTRAK strands and needles and our new ClearPath device can generate substantial revenues in the future. We will need to continue to develop enhancements to these products and improvements on our core technologies in order to compete effectively. Rapid change and technological innovation characterize the marketplace for medical products, and our competitors could develop technologies that are superior to our products or that render such products obsolete. We anticipate that expenditures for research and development will continue to be significant. The domestic and foreign markets for radiation therapy are highly competitive. Many of our competitors and potential competitors have substantial installed bases of products and significantly greater financial, research and development, marketing and other resources than we do. Competition may increase as emerging and established companies enter the field. In addition, the marketplace could conclude that the tasks our products were designed to perform are no longer elements of a generally accepted treatment regimen. This could result in us having to reduce production volumes or discontinue production of one or more of our products.       

21

Our primary competitors in the brachytherapy seed business include: C.R. Bard, Inc. Oncura, and Core Oncology, all of whom manufacture and sell Iodine-125 brachytherapy seeds, as well as distribute Palladium-103 seeds manufactured by a third party (in the case of Oncura and Core Oncology, we currently manufacture a portion of their Palladium-103 seed requirements pursuant to distribution agreements reached with Oncura in July 2005 and with Core Oncology in August 2007); and Theragenics Corporation, which manufacturers Palladium-103 seeds, and sells Palladium-103 and Iodine-125 brachytherapy seeds directly and its Palladium-103 brachytherapy seeds through marketing relationships with third parties. Several additional companies currently sell brachytherapy seeds as well. Our SurTRAK strands and needles are subject to competition from a number of companies, including Worldwide Medical Technologies, Inc.

Our new ClearPath-HDR device for treatment of breast cancer is, like its competitors, designed to connect to a source of high-dose-rate (HDR) radiation, which is administered in a specially shielded room in a hospital. It faces competition from Hologic, Inc., SenoRx, Inc. and Cianna Medical (previously BioLucent, Inc.). The MammoSite RTS device from Hologic, Inc., currently the market leader, uses a balloon and catheter system to place the radiation source directly into the post-lumpectomy cavity. The Contura MLB device developed by SenoRx, Inc. also uses a balloon and catheter system to deliver the radiation dose. The SAVI device manufactured by Cianna Medical does not use a balloon and is comprised of an expandable bundle of 6 catheters.

Our radiation reference source business also is subject to intense competition. 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.

Because we are a relatively small company, there is a risk that potential customers will purchase products from larger manufacturers, even if our products are technically superior, based on the perception that a larger, more established manufacturer may offer greater certainty of continued product improvements, support and service, which could cause our revenues to decline. 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, as well as more extensive experience in research and development, the regulatory approval process, manufacturing and marketing, may be in a better position to seize market opportunities created by technological advances in our industry.

We are highly dependent on our direct sales organization, which is small compared to many of our competitors. Also, we will need to hire and train additional sales representatives to sell our ClearPath device. Any failure to build, manage and maintain our direct sales organization could negatively affect our revenues.

Our current domestic direct sales force is small relative to many of our competitors. There is intense competition for skilled sales and marketing employees, particularly for people who have experience in the radiation oncology market. Accordingly, we could find it difficult to hire or retain skilled individuals to sell our products. Any failure to build our direct sales force could adversely affect our growth and our ability to meet our revenue goals.

22

As a result of our relatively small sales force the need to hire and train additional sales representatives to sell our ClearPath device, and the intense competition for skilled sales and marketing employees, there can be no assurance that our direct sales and marketing efforts will be successful. If we are not successful in our direct sales and marketing, our sales revenue and results of operations are likely to be materially adversely affected.

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

Our 2005 agreement with Oncura, Inc. and our 2007 agreement with Core Oncology, Inc. for distribution of our Palladium-103 brachytherapy seeds are important components of that business. In addition, we do not have a direct sales force for our non-therapeutic radiation source products, and rely entirely on the efforts of agents and distributors for sales of those non-brachytherapy products. We cannot assure you that we will be able to maintain our existing relationships with our agents and distributors for the sale of our Palladium-103 brachytherapy seeds and our non-therapeutic radiation source products.      

We depend partially on our relationships with two large customers that each comprise more than 10% of our revenue. If these relationships are discontinued or if we are unable to develop new relationships, our revenues could decline.

Our sales to Oncura, Inc. and Pinestar Technology, Inc. each comprised more than 10% of our revenue for 2007. We cannot assure you that we will be able to maintain our existing relationships with our large customers for the sale of our Palladium-103 brachytherapy seeds and our non-therapeutic radiation source products.      

If we are sued for product-related liabilities, the cost could be prohibitive to us.

The testing, marketing and sale of human healthcare products entail an inherent exposure to product liability claims. Third parties may successfully assert product liability claims against us. Although we currently have insurance covering claims against our products, we may not be able to maintain this insurance at acceptable cost in the future, if at all. In addition, our insurance may not be sufficient to cover particularly large claims. Significant product liability claims could result in large and unexpected expenses as well as a costly distraction of management resources and potential negative publicity and reduced demand for our products.

Currently, our revenues are primarily derived from products predominantly used in the treatment of tumors of the prostate. If we do not obtain wider acceptance of our products to treat other types of cancer, our sales could fail to increase and we could fail to achieve our desired growth rate.

Currently, our brachytherapy products are used almost exclusively for the treatment of prostate cancer. Further research, clinical data and years of experience will likely be required before there can be broad acceptance for the use of our brachytherapy products for additional types of cancer. If our products do not become more widely accepted in treating other types of cancer, our sales could fail to increase or could decrease.

We rely on several sole source suppliers and a limited number of other suppliers to provide raw materials and significant components used in our products. A material interruption in supply could prevent or limit our ability to accept and fill orders for our products.

23

We depend upon a limited number of outside unaffiliated suppliers for our radioisotopes. Our principal suppliers are Nordion International, Inc. and Eckert & Ziegler AG. 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 lose any of these suppliers (including any single-source supplier), we would be required to find and enter into supply arrangements with one or more replacement suppliers. Obtaining alternative sources of supply could involve significant delays and other costs and these supply sources may not be available to us on reasonable terms or at all. Any disruption of supplies could delay delivery of our products that use radioisotopes, which could adversely affect our business and financial results and could result in lost or deferred sales.

If we are unable to attract and retain qualified employees, we may be unable to meet our growth and revenue needs.

Our success is materially dependent on a limited number of key employees, and, in particular, the continued services of John B. Rush, our president and chief executive officer, L. Michael Cutrer, our executive vice president and chief technology officer, Troy A. Barring, our chief operating officer, and James W. Klingler, our chief financial officer. Our future business and financial results could be adversely affected if the services of Messrs. Rush, Cutrer, Barring or Klingler or other key employees cease to be available. To our knowledge, none of our key employees have any plans to retire or leave in the near future.

Our future success and ability to grow our business will depend in part on the continued service of our skilled personnel and our ability to identify, hire and retain additional qualified personnel. Although some employees are bound by a limited non-competition agreement that they sign upon employment, few of our employees are bound by employment contracts, and it is difficult to find qualified personnel, particularly medical physicists and customer service personnel, who are willing to travel extensively. We compete for qualified personnel with medical equipment manufacturers, universities and research institutions. Because the competition for these personnel is intense, costs related to compensation may increase significantly.

Even when we are able to hire a qualified medical physicist, engineer or other technical person, there is a significant training period of up to several months before that person is fully capable of performing the functions we need. This could limit our ability to expand our business.

The medical device industry is characterized by competing intellectual property, and we could be sued for violating the intellectual property rights of others, which may require us to withdraw certain products from the market.

The medical device industry is characterized by a substantial amount of litigation over patent and other intellectual property rights. Our competitors, like companies in many high technology businesses, continually review other companies' products for possible conflicts with their own intellectual property rights. Determining whether a product infringes a patent involves complex legal and factual issues, and the outcome of patent litigation actions is often uncertain. Our competitors could assert that our products and the methods we employ in the use of our products are covered by United States or foreign patent rights held by them. In addition, because patent applications can take many years to issue, there could be applications now pending of which we are unaware, which could later result in issued patents that our products infringe. There could also be existing patents that one or more of our products could inadvertently be infringing of which we are unaware.

24

While we do not believe that any of our products, services or technologies infringe any valid intellectual property rights of third parties, we may be unaware of third-party intellectual property rights that relate to our products, services or technologies. As the number of competitors in the radiation oncology market grows, and as the number of patents issued in this area grows, the possibility of a patent infringement claim against us going forward increases. We could incur substantial costs and diversion of management resources if we have to assert our patent rights against others. An unfavorable outcome to any litigation could harm us. In addition, we may not be able to detect infringement or may lose competitive position in the market before we do so.

To address patent infringement or other intellectual property claims, we may have to enter into license agreements and technology cross-licenses or agree to pay royalties at a substantial cost to us. We may be unable to obtain necessary licenses. A valid claim against us and our failure to obtain a license for the technology at issue could prevent us from selling our products and materially adversely affect our business, financial results and future prospects.

If we fail to protect our intellectual property rights or if our intellectual property rights do not adequately cover the technologies we employ, or if such rights are declared to be invalid, other companies may take advantage of our technology ideas and more effectively compete directly against us, or we might be forced to discontinue selling certain products.

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 rely on U.S. and foreign patents to protect our intellectual property. We also rely significantly on trade secrets and know-how that we seek to protect. We attempt to protect our intellectual property rights by filing patent applications for new features and products we develop. We enter into confidentiality or license agreements with our employees, consultants, independent contractors and corporate partners, and we seek to control access to our intellectual property and the distribution of our products, documentation and other proprietary information. We plan to continue these methods to protect our intellectual property and our products. These measures may afford only limited protection. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States.

If a competitor infringes upon our patent or other intellectual property rights, enforcing those rights could be difficult, expensive and time-consuming, making the outcome uncertain. Competitors could also bring actions or counterclaims attempting to invalidate our patents. Even if we are successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be costly and could divert our management's attention.

In 2006, we licensed intellectual property which was later the subject of litigation brought by WorldWide Medical Technologies in U.S. District Court against both us and our former employee, Richard Terwilliger, who was previously our Vice-President of New Product Development. This intellectual property relates to our brachytherapy business, specifically, certain needle-loading and stranding technologies. While we do not believe that we have any liability in this matter, and are vigorously defending ourself in the litigation, we cannot predict what effect an adverse result from this litigation would have on our future sales of the products at issue.

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

25

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 licenses for our North Hollywood and Chatsworth facilities in 2007. 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 believe we carry reasonably adequate insurance to cover us in the event of any damages resulting from the use of hazardous materials.

Healthcare reforms, changes in health-care policies and unfavorable changes to third-party reimbursements for use of our products could cause declines in the revenues of our products, and could hamper the introduction of new products.

Hospitals and freestanding clinics may be less likely to purchase our products if they cannot be assured of receiving favorable reimbursement for treatments using our products from third-party payors, such as Medicare, Medicaid and private health insurance plans. Generally speaking, Medicare pays hospitals, freestanding clinics and physicians a fixed amount for services using our products, regardless of the costs incurred by those providers in furnishing the services. Such providers may perceive the set reimbursement amounts as inadequate to compensate for the costs incurred and thus may be reluctant to furnish the services for which our products are designed. Moreover, third-party payors are increasingly challenging the pricing of medical procedures or limiting or prohibiting reimbursement for some services or devices, and we cannot be sure that they will reimburse our customers at levels sufficient to enable us to achieve or maintain sales and price levels for our products. There is no uniform policy on reimbursement among third-party payors, and we can provide no assurance that procedures using our products will qualify for reimbursement from third-party payors or that reimbursement rates will not be reduced or eliminated. A reduction in or elimination of third-party payor reimbursement for treatments using our products would likely have a material adverse effect on our revenues.

Furthermore, any federal and state efforts to reform government and private healthcare insurance programs could significantly affect the purchase of healthcare services and products in general and demand for our products in particular. We are unable to predict whether potential reforms will be enacted, whether other healthcare legislation or regulation affecting the business may be proposed or enacted in the future or what effect any such legislation or regulation would have on our business, financial condition or results of operations.

The federal Medicare program currently reimburses hospitals and freestanding clinics for brachytherapy treatments. Medicare reimbursement amounts typically are reviewed and adjusted at least annually. Medicare reimbursement policies are reviewed and revised on an ad hoc basis. Adjustments could be made to these reimbursement policies or amounts, which could result in reduced or no reimbursement for brachytherapy services. Changes in Medicare reimbursement policies or amounts affecting hospitals and freestanding clinics could negatively affect market demand for our products.

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.

26

Private third-party payors often adopt Medicare reimbursement policies and payment amounts. As such, Medicare reimbursement policy and payment amount changes concerning our products also could be extended to private third-party payor reimbursement policies and amounts and could affect demand for our products in those markets as well.

Acceptance of our products in foreign markets could be affected by the availability of adequate reimbursement or funding, as the case may be, within prevailing healthcare payment systems. Reimbursement, funding and healthcare payment systems vary significantly by country and include both government-sponsored healthcare and private insurance. We can provide no assurance that third-party reimbursement will be made available with respect to treatments using our products under any foreign reimbursement system.

Problems with any of these reimbursement systems that adversely affect demand for our products could cause our revenues from our products to decline and our business to suffer.

Also, we, our distributors and healthcare providers performing radiation therapy 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.

We are subject to extensive government regulation applicable to the manufacture and distribution of our products. Complying with the Food And Drug Administration and other domestic and foreign regulatory bodies is an expensive and time-consuming process, whose outcome can be difficult to predict. If we fail or are delayed in obtaining regulatory approvals or fail to comply with applicable regulations, we may be unable to market and distribute our products or may be subject to civil or criminal penalties.

We and some of our suppliers and distributors are subject to extensive and rigorous government regulation of the manufacture and distribution of our products, both in the United States and in foreign countries. Compliance with these laws and regulations is expensive and time-consuming, and changes to or failure to comply with these laws and regulations, or adoption of new laws and regulations, could adversely affect our business.

In the United States, as a manufacturer and seller of medical devices and devices utilizing radioactive by-product material, we and some of our suppliers and distributors are subject to extensive regulation by federal governmental authorities, such as the United States Food and Drug Administration, or FDA, and state and local regulatory agencies, such as the State of California, to ensure such devices are safe and effective. Such regulations, which include the U.S. Food, Drug and Cosmetic Act, or the FDC Act, and regulations promulgated by the FDA, govern the design, development, testing, manufacturing, packaging, labeling, distribution, import/export, possession, marketing, disposal, clinical investigations involving humans, sale and marketing of medical devices, post-market surveillance, repairs, replacements, recalls and other matters relating to medical devices, radiation producing devices and devices utilizing radioactive by-product material. State regulations are extensive and vary from state to state. Our brachytherapy seeds constitute medical devices subject to these regulations. Future products in any of our business segments may constitute medical devices and be subject to regulation as such. These laws require that manufacturers adhere to certain standards designed to ensure that the medical devices are safe and effective. Under the FDC Act, each medical device manufacturer must comply with requirements applicable to manufacturing practices.

27

In the United States, medical devices are classified into three different categories, over which the FDA applies increasing levels of regulation: Class I, Class II and Class III. The FDA has classified all of our brachytherapy products as Class I devices. Before a new device can be introduced into the United States market, the manufacturer must obtain FDA clearance or approval through either a 510(k) premarket notification or a premarket approval, unless the product is otherwise exempt from the requirements. Class I devices are statutorily exempt from the 510(k) process, unless the device is intended for a use which is of substantial importance in preventing impairment of human health or it presents a potential unreasonable risk of illness or injury.

A 510(k) premarket notification clearance will typically be granted for a device that is substantially equivalent to a legally marketed Class I or Class II medical device or a Class III medical device for which the FDA has not yet required submission of a premarket approval. A 510(k) premarket notification must contain information supporting the claim of substantial equivalence, which may include laboratory results or the results of clinical studies. Following submission of a 510(k) premarket notification, a company may not market the device for clinical use until the FDA finds the product is substantially equivalent for a specific or general intended use. FDA clearance generally takes from four to twelve months, but it may take longer, and there is no assurance that the FDA will ultimately grant a clearance. The FDA may determine that a device is not substantially equivalent and require submission and approval of a premarket approval or require further information before it is able to make a determination regarding substantial equivalence.

Most of the products that we are currently marketing have received clearances from the FDA through the 510(k) premarket notification process. For any devices already cleared through the 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness, or constitute a major change in intended use require a new 510(k) submission and a separate FDA determination of substantial equivalence. We have made minor modifications to our products and, using the guidelines established by the FDA, have determined that these modifications do not require us to file new 510(k) submissions. If the FDA disagrees with our determinations, we may not be able to sell one or more of our products until the FDA has cleared new 510(k) submissions for these modifications, and there is no assurance that the FDA will ultimately grant a clearance. In addition, the FDA may determine that future products require the more costly, lengthy and uncertain premarket approval process under Section 515 of the FDC. The approval process under Section 515 generally takes from one to three years, but in many cases can take even longer, and there can be no assurance that any approval will be granted on a timely basis, if at all. Under the premarket approval process, an applicant must generally conduct at least one clinical investigation and submit extensive supporting data and clinical information establishing the safety and effectiveness of the device, as well as extensive manufacturing information. Clinical investigations themselves are typically lengthy and expensive, closely regulated and frequently require prior FDA clearance. Even if clinical investigations are conducted, there is no assurance that they will support the claims for the product. If the FDA requires us to submit a new pre-market notification under Section 510(k) for modifications to our existing products, or if the FDA requires us to go through the lengthier, more rigorous Section 515 pre-market approval process, our product introductions or modifications could be delayed or cancelled, which could cause our revenues to be below expectations.

In addition to FDA-required market clearances and approvals, our manufacturing operations are required to comply with the FDA's Quality System Regulation, or QSR, which addresses the quality program requirements, such as a company's management responsibility for the company's quality systems, and good manufacturing practices, product design, controls, methods, facilities and quality assurance controls used in manufacturing, assembly, packing, storing and installing medical devices. Compliance with the QSR is necessary to receive FDA clearance or approval to market new products and is necessary for us to be able to continue to market cleared or approved product offerings. There can be no assurance that we will not incur significant costs to comply with these regulations in the future or that the regulations will not have a material adverse effect on our business, financial condition and results of operations. Our compliance and the compliance by some of our suppliers with applicable regulatory requirements are and will continue to be monitored through periodic inspections by the FDA. The FDA makes announced and unannounced inspections to determine compliance with the QSR's and may issue us 483 reports listing instances where we have failed to comply with applicable regulations and/or procedures or Warning Letters which, if not adequately responded to, could lead to enforcement actions against us, including fines, the total shutdown of our production facilities and criminal prosecution.

28

If we or any of our suppliers fail to comply with FDA requirements, the FDA can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as:

• fines, injunctions and civil penalties;

• the recall or seizure of our products;

• the imposition of operating restrictions, partial suspension or total shutdown of production;

• the refusal of our requests for 510(k) clearance or pre-market approval of new products;

• the withdrawal of 510(k) clearance or pre-market approvals already granted; and

• criminal prosecution.

Similar consequences could arise from our failure, or the failure by any of our suppliers, to comply with applicable foreign laws and regulations. Foreign regulatory requirements vary by country. In general, our products are regulated outside the United States as medical devices by foreign governmental agencies similar to the FDA. However, the time and cost required to obtain regulatory approvals from foreign countries could be longer than that required for FDA clearance and the requirements for licensing a product in another country may differ significantly from the FDA requirements. We rely, in part, on our foreign distributors to assist us in complying with foreign regulatory requirements. We may not be able to obtain these approvals without incurring significant expenses or at all, and the failure to obtain these approvals would prevent us from selling our products in the applicable countries. This could limit our sales and growth.

Our future growth depends, in part, on our ability to penetrate foreign markets, particularly in Asia and Europe. However, we have encountered difficulties in gaining acceptance of our products in foreign markets, where we have limited experience marketing, servicing and distributing our products, and where we will be subject to additional regulatory burdens and other risks.

 Our future profitability will depend in part on our ability to establish, grow and ultimately maintain our product sales in foreign markets, particularly in Asia and Europe. However, we have limited experience in marketing, servicing and distributing our products in other countries. In 2007, less than 5% of our product revenues and less than 5% of our total revenues were derived from sales to customers outside the United States and Canada. Our foreign operations subject us to additional risks and uncertainties, including:

• our customers' ability to obtain reimbursement for procedures using our products in foreign markets;

• the burden of complying with complex and changing foreign regulatory requirements;

• language barriers and other difficulties in providing long-range customer support and service;

• longer accounts receivable collection times;

• significant currency fluctuations, which could cause our distributors to reduce the number of products they purchase from us because the cost of our products to them could fluctuate relative to the price they can charge their customers;

• reduced protection of intellectual property rights in some foreign countries; and

• the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

29

Our foreign sales of our products could also be adversely affected by export license requirements, the imposition of governmental controls, political and economic instability, trade restrictions, changes in tariffs and difficulties in staffing and managing foreign operations. In addition, we are subject to the Foreign Corrupt Practices Act, any violation of which could create a substantial liability for us and also cause a loss of reputation in the market.

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 Imaging Corporation in October 2000 and the acquisition of NOMOS, in May 2004, are examples of such transactions. In the future, if we have sufficient available capital, we may choose to enter into such transactions. We may not be able to successfully integrate newly acquired organizations, products or technologies into our business and the process could be expensive and time consuming and may strain our resources. Depending upon the nature of any transaction, we may experience a charge to earnings which could be material.

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

The results of operations for any fiscal 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:

· Our net sales may grow at a slower rate than experienced in previous periods and, in particular periods, may decline;

· Our future sales growth is highly dependent on the successful introduction of our ClearPath device;

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

· Estimates with respect to the useful life and ultimate recoverability of our carrying basis of assets, including goodwill and purchased intangible assets, could change as a result of such assessments and decisions;

· As a result of our growth in past periods, our fixed costs have increased. With increased levels of spending and the impact of long-term commitments, we may not be able to quickly reduce these fixed expenses in response to short-term business changes;

· Acquisitions that result in in-process research and development expenses may be charged fully in an individual quarter;

· Changes or anticipated change in third-party reimbursement amounts or policies applicable to treatments using our products;

· Timing of the announcement, introduction and delivery of new products or product enhancements by us and by our competitors;

· The possibility that unexpected levels of cancellations of orders or backlog may affect certain assumptions upon which we base our forecasts and predictions of future performance;

· Changes in the general economic conditions in the regions in which we do business;

· Unfavorable outcome of any litigation; and

· Accounting adjustments such as those relating to reserves for product recalls, stock option expensing as required under SFAS No. 123R and changes in interpretation of accounting pronouncements

30

Being a public company significantly increases our administrative costs.

The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and listing requirements subsequently adopted by NASDAQ in response to Sarbanes-Oxley, have required changes in corporate governance practices, internal control policies and audit committee practices of public companies. These rules, regulations and requirements have significantly increased our legal, financial, compliance and administrative costs, and have made certain other activities more time consuming and costly, as well as requiring substantial time and attention of our senior management. We expect our continued compliance with these and future rules and regulations to continue to require significant resources. These new rules and regulations also may make it more difficult and more expensive for us to obtain director and officer liability insurance in the future, and could make it more difficult for us to attract and retain qualified members for our Board of Directors, particularly to serve on our audit committee.

Our publicly-filed SEC reports are reviewed by the SEC from time to time and any significant changes required as a result of any such review may result in material liability to us and have a material adverse impact on the trading price of our common stock.

The reports of publicly-traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements and to enhance the overall effectiveness of companies public filings, and comprehensive reviews of such reports are now required at least every three years under the Sarbanes-Oxley Act of 2002. While we believe that our previously filed SEC reports comply, and we intend that all future reports will comply in all material respects with the published rules and regulations of the SEC, we could be required to modify or reformulate information contained in prior filings as a result of an SEC review.  Any modification or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of our common stock.

Market volatility and fluctuations in our stock price and trading volume may cause sudden decreases in the value of an investment in our common stock.

The market price of our common stock has historically been, and we expect it to continue to be, volatile. The price of our common stock has ranged between $0.28 and $1.75 per share in the fifty-two week period ended October 31, 2007, and through the date prior to this filing has been as low as $0.20 per share. The stock market has from time to time experienced extreme price and volume fluctuations, particularly in the medical device sector, which have often been unrelated to the operating performance of particular companies. Factors such as announcements of technological innovations or new products by our competitors or disappointing results by third parties, as well as market conditions in our industry, may significantly influence the market price of our common stock. Our stock price has also been affected by our own public announcements regarding such things as quarterly sales and earnings. Consequently, events both within and beyond our control may cause shares of our stock to lose their value rapidly.

In addition, sales of a substantial number of shares of our common stock by stockholders could adversely affect the market price of our shares. In connection with our January 2008 sale of common stock and accompanying warrants, we intend to file resale registration statements covering an aggregate of up to 63,008,140 shares of common stock and 3,150,407 shares of common stock issuable upon exercise of warrants for the benefit of the selling security holders. The actual or anticipated resale by such investors under these registration statements may depress the market price of our common stock. Bulk sales of shares of our common stock in a short period of time could also cause the market price for our shares to decline.

31

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PROPERTIES

We are headquartered in the Los Angeles, California metropolitan area where we occupy two properties totaling approximately 40,000 square feet used for manufacturing and administration. Our leases for each of these facilities expire in November 2008, with renewal options. We believe that our facilities are adequate, suitable and of sufficient capacity to support our current operations.

Item 3. LEGAL PROCEEDINGS

In November 2005, we were served with a complaint filed in U.S. District Court in Hartford, Connecticut by World Wide Medical Technologies (WWMT). WWMT’s six count complaint alleges breach of a confidentiality agreement, fraud, patent infringement, wrongful interference with contractual relations, violation of the Connecticut Uniform Trade Secrets Act, and violation of the Connecticut Unfair Practices Act. WWMT alleges that we fraudulently obtained WWMT’s confidential information during negotiations to purchase WWMT in 2004 and that once we acquired that information, we allegedly learned that Richard Terwilliger, (our former Vice President of New Product Development) owned certain patent rights and that we began trying to inappropriately gain property rights by hiring him away from WWMT. We were served with this matter at approximately the same time Mr. Terwilliger was served with a lawsuit in state court and with an application seeking a preliminary injunction declaring plaintiffs to be the sole owners of the intellectual property at issue and preventing Mr. Terwilliger from effectively serving as our Vice President of New Product Development. We have agreed to defend Mr. Terwilliger. We have removed the state court claim against Mr. Terwilliger to federal court and the cases have been consolidated. The defendants have answered both complaints and discovery has commenced in each matter. In April 2006, WWMT had its hearing for a preliminary injunction against Mr. Terwilliger heard in U.S. District Court. Plaintiffs abandoned that portion of their application for preliminary injunction that was based on an alleged misappropriation of trade secrets shortly before the hearing. On August 30, 2006, Magistrate Judge Donna Martinez issued a ruling ordering that what remained of plaintiffs' motion be denied.  Specifically, the Magistrate Judge found that plaintiffs do not have a reasonable likelihood of success on the merits of their claim for declaratory judgment that some or all of plaintiffs are the sole owners of the intellectual property at issues, and she further found that there do not exist sufficiently serious questions going to the merits of that claim to make them a fair ground for litigation.  We deny liability and intend to vigorously defend ourself in this litigation as it progresses. No trial date has yet been set.

On April 20, 2006, a lawsuit captionedJ.P. Morgan Trust Company, N.A. v. John Alan Friede, et al. was filed in the U.S. District Court for the Southern District of New York against John Friede, a stockholder of the Company who was then also a director of the Company, Mr. Friede’s wife, and NOMOS Corporation, a subsidiary of the Company. With respect to NOMOS, the complaint sought repayment of at least approximately $5,250,000 principal amount of loans allegedly made to and still outstanding and owed by NOMOS, and other related equitable remedies plus interest, costs and expenses.

In accordance with the indemnification provisions of the merger agreement under which we acquired NOMOS on May 4, 2004, and the related indemnity escrow agreement, we made a claim for indemnification against the escrow to preserve our right of indemnity. The indemnity escrow account recently held approximately $1,225,000 of cash and 526,810 shares of our common stock.

32

As of October 23, 2007, a stipulation was entered into by all parties to dismiss the lawsuit, with prejudice, which stipulation was filed and certified by the Court on November 6, 2007. The plaintiff has issued a general release and discharge of claims against NOMOS and its affiliates, including the Company. Therefore, on November 15, 2007, we notified the escrow agent that we were withdrawing our claim of indemnification against the escrow, and authorized the escrow agent to distribute amounts held in the escrow fund in accordance with the terms of the escrow agreement.

In October 2007, we were served with a demand for arbitration by AnazaoHealth Corporation (“AnazaoHealth”). AnazaoHealth provides needle loading services for our Prospera brachytherapy products pursuant to a Services Agreement dated as of June 1, 2005, as amended (the “Services Agreement”). In its demand for arbitration, AnazaoHealth is seeking indemnification from us under the Services Agreement for damages arising out of a litigation filed against AnazaoHealth in the U.S. District Court for the District of Connecticut (the “Connecticut Litigation”) by Richard Terwilliger, Gary Lamoureux, World Wide Medical Technologies, LLC, IdeaMatrix, Inc., Advanced Care Pharmacy, LLC, Advanced Care Pharmacy, Inc., and Advanced Care Medical, Inc. The plaintiffs in the Connecticut Litigation claim that AnazaoHealth’s provision of services in the brachytherapy field infringes their patent rights, and certain of the plaintiffs claim that our Prospera products infringes their patent rights. We deny liability and intend to vigorously defend ourselves in this arbitration.

We are subject to other 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.

33

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

None.

Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

John B. Rush 48, joined North American Scientific, Inc. in April, 2007 as President and Chief Executive Officer. Previously, Mr. Rush has served since 2002 as President and Chief Executive Officer of Sanarus Medical, a leading developer of minimally invasive medical devices for diagnosing and treating breast disease. Prior to joining Sanarus, Mr. Rush was President and Chief Executive Officer of Micro Therapeutics, Inc. (now owned by ev3, Inc.), a publicly traded medical device company focused on the treatment of cerebral and peripheral vascular disorders worldwide. Mr. Rush has over twenty-four years of experience in the medical device sector, with a background in sales, marketing and management at such companies as Scimed Life Systems/Boston Scientific and Cilco/CooperVision/Alcon Surgical.

Troy A. Barring 44, joined North American Scientific, Inc. as Senior Vice-President and Chief Operating Officer in September 2007. Previously, Mr. Barring has served since 2001 in a number of positions with Biosense Webster, a Division of Johnson and Johnson, including Vice President, World Wide Services, Vice President of Operations, and Senior Vice President of Research and Development and Operations. Mr. Barring has over 13 years of management experience in the medical device sector, with a background in manufacturing, operations, and research and development at such companies as Scimed Life Systems, a Division of Boston Scientific, and Sorin Biomedical.

L. Michael Cutrer 51, transitioned from the position of President and Chief Executive Officer, a position he held with the Company since 1990, to become the Company’s Executive Vice President and Chief Technology Officer upon the appointment of Mr. Rush in April 2007. Previously, Mr. Cutrer was a Manager of Isotope Products Laboratory, Inc., a radioisotope manufacturing company, where he was responsible for industrial product manufacturing, research and development. In November 2006, the Company announced that Mr. Cutrer planned to transition from the position of president and chief executive officer to become the Company’s executive vice president and chief technology officer. As chief technology officer, we expect that Mr. Cutrer would, in addition to other responsibilities, continue to play an active leadership role in the Company’s breast brachytherapy program.

James W. Klingler 60, joined North American Scientific, Inc. in July 2004 as Senior Vice President and Chief Financial Officer. Previously, he was Vice President-Finance and Chief Financial Officer of Troy Group, Inc., a provider of secure check printing products and wireless connectivity solutions, from January 2002 to July 2004. From February 2001 to November 2001, he served as Senior Vice President, Business Operations and Chief Financial Officer of Trinagy, Inc., a software company that was merged into Hewlett-Packard Company. In prior positions, Mr. Klingler was Vice President, Finance and Administration of Triconex Corporation, a supplier of products, systems and services for safety, critical control and turbomachinery applications and a subsidiary of Invensys plc, from February 1999 to February 2001, and Vice President and Chief Financial Officer of Wilshire Technologies Inc., a company that manufactures polyurethane products, from October 1994 to February 1999.

34

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the Nasdaq Global Market under the ticker symbol "NASI". On December 11, 2007, we were notified by Nasdaq that it had granted our request to transfer our listing to the Nasdaq Capital Market and continue our listing on that market, subject to certain conditions described in “Management’s Discussion and Analysis - Nasdaq Delisting.”We anticipate that our common stock will be transferred to the Nasdaq Capital Market in the near future.The following table sets forth, for the periods indicated, the high and low sales prices for our common stock, as reported on the Nasdaq Global Market.

	High		Low
Fiscal 2007
First Quarter		1.25		0.85
Second Quarter		1.29		0.88
Third Quarter		1.75		0.92
Fourth Quarter		1.13		0.28
Fiscal 2006
First Quarter		2.58		1.89
Second Quarter		2.49		1.96
Third Quarter		2.16		1.57
Fourth Quarter		1.85		1.03

As of December 31, 2007, we had approximately 478 shareholders of record.

We have never paid cash dividends on our common stock and have no plans to do so.

35

The following performance graph compares the cumulative total stockholder return on our common stock, assuming the reinvestment of dividends, with the cumulative total return on the published Nasdaq Composite and the Nasdaq Medical Equipment Index, over the five year period ending October 31, 2007.

STOCK PERFORMANCE GRAPH

	2002		2003		2004		2005		2006		2007
North American Scientific, Inc.		100.00		80.19		57.27		28.52		11.52		6.27
NASDAQ Composite		100.00		145.24		150.62		162.33		184.27		223.53
NASDAQ Medical Equipment		100.00		149.19		165.33		203.52		220.00		301.08

36

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,
	2007(5)			2006(5)			2005(4)(5)			2004(1),(3), (5)			2003(2)
	(In thousands, except for per share amounts)
Statement of Operations:
Net sales	$	15,317		$	12,594		$	12,032		$	12,978		$	14,683
Cost of goods sold		10,690			8,998			8,137			7,447			6,944
Gross profit		4,627			3,596			3,895			5,531			7,739
Operating expenses		14,637			12,923			11,224			16,193			10,086
Income (loss) from operations		(10,010	)		(9,326	)		(7,329	)		(10,662	)		(2,347	)
Interest and other income, net		(535	)		(119	)		120			580			1,749
Income (loss) before provision (benefit) for income taxes		(10,545	)		(9,445	)		(7,209	)		(10,082	)		(598	)
Provision (benefit) for income taxes		—			—			—			257			—
Income (loss) from continuing operations		(10,545	)		(9,445	)		(7,209	)		(9,825	)		(598	)
Income (loss) from discontinued operations (3)		(10,453	)		(7,685	)		(48,304	)		(26,482	)		(8,536	)
Cumulative effect of change in accounting principle		—			—			—			—			(306	)
Net loss	$	(20,998	)	$	(17,130	)	$	(55,513	)	$	(36,307	)	$	(9,440	)
Basic and diluted earnings (loss) per share:
Income (loss) from continuing operations	$	(0.36	)	$	(0.43	)	$	(0.44	)	$	(0.75	)	$	(0.06	)
Income (loss) from discontinued operations(3)		(0.36	)		(0.35	)		(2.92	)		(2.01	)		(0.83	)
Cumulative effect of change in accounting principle		—			—			—			—			(0.03	)
Net loss	$	(0.72	)	$	(0.78	)	$	(3.36	)	$	(2.76	)	$	(0.92	)
Shares used in per share calculation
Basic		29,344			21,956			16,502			13,139			10,258

37

	As of October 31,
	2007(4)			2006(4)		2005(4)		2004(1),(3)(4)		2003(2)
				(In thousands)
Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	609		$	903	$	3,623	$	14,980	$	49,115
Assets held for sale(4)		—			11,377		14,115		60,441		—
Total assets		6,175			27,198		8,218		20,098		62,532
Total debt		3,323			—		—		—		—
Total stockholders' (deficit) equity	$	(2,912	)	$	17,188	$	10,801	$	65,377	$	55,746

(1) In May 2004, the Company acquired NOMOS Corporation, which has a significant impact on the 2004 selected financial data. The 2004 results include a $9.2 million charge for in-process research and development and $1.1 million charge for merger and integration costs in connection with the Company’s purchase of NOMOS. These items had a $(0.78) impact on basic and diluted loss per share. See Note 4 to the Consolidated Financial Statements.

(2) The 2003 results include a $0.3 million charge for the cumulative effect of a change in accounting principle to recognize future decommissioning costs of leased manufacturing facilities. This item had a $(0.03) impact on basic and diluted loss per share.

(3) In September 2004, the Company’s Theseus operation was shut down. The Statement of Operations data include Theseus as a discontinued operation. The 2004 results include a loss on discontinued operations of $5.2 million and loss from operations of $7.3 million. Loss from operations consisted primarily of research and development expenses.

(4) At October 31, 2005, the Company recorded a $40.2 million impairment loss of NOMOS goodwill and intangible assets as a result of its evaluation of the fair value of its long-lived assets under SFAS 142 and SFAS 144. The impairment loss is included in the Loss from Discontinued Operations in the Consolidated Statements of Operations for the year ended October 31, 2005.

(5) In September 2007, the Company shut down the operations of its NOMOS segment and sold substantially all of its NOMOS assets to a third party. The Statement of Operations data for 2004 through 2006 have been revised to include NOMOS as a discontinued operation. The effects of revising these years resulted in a $16.4 million, $20.2 million, and $11.8 million decrease in revenue, a $6.3 million, $8.3 million and $3.4 million decrease in gross profit, and a $14.2 million, $56.9 million and $17.3 million decrease in operating expenses for 2006, 2005 and 2004, respectively. Loss from discontinued operations increased by $7.9 million, $48.7 million and $13.9 million, or $0.36, $2.95 and $1.06 per share in 2006, 2005 and 2004, respectively as a result of this change. Assets held for sale represent primarily all the assets of the NOMOS operation sold as a result of this transaction at the respective Balance Sheet date.

38

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

The following discussion and analysis provides information which we believe 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," "intends," "projects," and words of similar import, are forward looking as that term is defined by the Private Securities Litigation Reform Act of 1995, or 1995 Act, and releases issued by the Securities and Exchange Commission, or 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 Item 1A of this Form 10-K, or detailed in our most recent reports on Form 10-Q and Form 8-K and from time to time in our other filings with the SEC 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 manufacture, market and sell products for the radiation oncology community, including Prospera® brachytherapy seeds and SurTRAK™ needles and strands used primarily in the treatment of prostate cancer. We also develop and market brachytherapy accessories used in the treatment of disease and calibration sources used in medical, environmental, research and industrial applications.

In November 2006, we announced the introduction of ClearPath™, our unique multicatheter breast brachytherapy device for Accelerated Partial Breast Irradiation (APBI). Our ClearPath systems are placed through a single incision and are designed to conform to the resection cavity, allowing physicians to deliver a more conformal therapeutic radiation dose distribution following lumpectomy compared to other methods of APBI. The placement of the radiation source directly into the post-lumpectomy site reduces the treatment time to approximately 5 days compared to 30-35 days for whole breast radiation therapy, and reduces the risks associated with external beam radiation treatment. ClearPath is designed to accommodate either high-dose, ClearPath-HDR™, or low-dose rate, ClearPath-CR™, treatment methods. We received 510(k) approval from the United States Food and Drug Administration for a low-dose rate, or continuous release treatment utilizing our Prospera® brachytherapy seeds in April 2006 and approval for the high-dose rate treatment in November 2006. We have been gaining clinical experience with the first generation ClearPath-HDR in 2007, and we intend to launch the second generation devices in 2008, to be followed by the general commercial release of our ClearPath-CR.

On September 17, 2007, we completed the sale of all significant assets, including licenses, trademarks and brand-names, and selected liabilities of NOMOS Corporation to Best Medical, Inc. for $500,000. We expect that the divestiture of NOMOS will allow us to better utilize financial resources to benefit the marketing and development of innovative brachytherapy products for the treatment of cancer. The financial results of NOMOS are reported as a discontinued operation in accompanying financial statements.

39

We have incurred substantial net losses since fiscal year 2000. We expect the losses to continue for at least the next fiscal year as we continue to develop our ClearPath product, and obtaining adequate financing is an important part of our business strategy.

Subsequent Events

Debt arrangements

John Friede Note

On October 30, 2007, we entered into a Loan Agreement (the “Friede Loan Agreement”) with Mr. John Friede (the “Lender”), a stockholder and former director of the Company. Subject to the terms of the Friede Loan Agreement, the Lender agreed to loan us $500,000 in two installments of $250,000 each. The loan was unsecured and subordinated to the loan agreements with Silicon Valley Bank and Agility Capital. In connection with the Friede Loan Agreement, we agreed to issue to the Lender a warrant to purchase that number of shares of our common stock as shall be equal to $200,000 divided by the Exercise Price, which is the per share closing price of our common stock on the trading day before the issuance of the warrant. On November 1, 2007, we executed the promissory note underlying the loan and we received the first $250,000 installment. We and the Lender amended the Friede Loan Agreement on November 20, 2007, prior to funding of the second $250,000 installment, to extend the maturity date of the Friede Loan Agreement from November 20, 2007 to December 20, 2007, and to reduce the borrowing capacity to $250,000 from $500,000. The loan and accrued interest were paid in full on December 20, 2007.

Silicon Valley Bank

On November 20, 2007, we entered into a Seventh Amendment and Forbearance to the Loan Agreement (the “Seventh Amendment”) with Silicon Valley Bank (the “Bank”). The Seventh Amendment included: (i) an extension of the maturity date of the Loan Agreement to December 20, 2007, and an extension of the maturity date of the Bridge Loan Sub-limit to the earlier of December 20, 2007 or the date we close a private investment public equity transaction, and (ii) a forbearance by the Bank from exercising its rights and remedies against us, until such time as the Bank determines in its discretion to cease such forbearance, due to the defaults under the Loan Agreement resulting from our failing to comply with the tangible net worth covenant in the Loan Agreement as of July 31, 2007, August 31, 2007 and September 30, 2007. In connection with the Seventh Amendment, we granted a warrant to the Bank to purchase 90,909 shares of our common stock, at a warrant price of $0.55 per share, subject to adjustment as provided in such warrant. The warrant will expire in five years unless previously exercised.

On December 18, 2007, we entered into an Eighth Amendment and Forbearance to the Loan Agreement (the “Eighth Amendment”) with the Bank. The Eighth Amendment includes: (i) an extension of the maturity date of the Loan Agreement to the earlier of February 1, 2008 or the date we complete our private placement (See Securities Purchase Agreement below), (ii) a forbearance by the Bank from exercising its rights and remedies against us, until such time as the Bank determines in its discretion to cease such forbearance, due to the defaults under the Loan Agreement resulting from our failing to comply with the tangible net worth covenant in the Loan Agreement as of July 31, 2007, August 31, 2007, September 30, 2007 and October 31, 2007 and (iii) a consent from the Bank to allow us to repay our outstanding loan from Mr. John A. Friede in the amount of $250,000. In connection with the Eighth Amendment, we granted a warrant to the Bank to purchase that number of shares of our common stock as shall be equal to $50,000 divided by the warrant price, which is equal to the lower of (i) the closing price of our common stock on the date our Board of Directors approves the issuance of this warrant or (ii) the closing price of our common stock on date the warrant is issued, subject to adjustment as provided in such warrant. The warrant will expire in five years unless previously exercised.

40

Agility Capital, LLC

On November 20, 2007, we executed a Second Amendment to the Agility Loan Agreement (the “Second Amendment”) with Agility Capital, LLC (“Agility”) to extend the maturity date of the Agility Loan Agreement from November 20, 2007 to December 21, 2007. In connection with the Second Amendment, we granted a warrant to Agility to purchase that number of shares of our common stock as shall be equal to $231,250 divided by the warrant price, which is equal to the lowest of (i) the closing price of our common stock the day before the issue date of the warrant, as published in The Wall Street Journal on the issue date, or (ii) the average closing price of our common stock for the 30 days before the issue date, or (iii) the price at which we next issue our common stock or other equity-linked securities, other than issuances of our common stock to officers and employees pursuant to our 2006 Stock Plan, 2000 Employee Stock Purchase Plan and 2003 Non-Employee Directors’ Equity Compensation Plan and any other employee incentive plan approved by our stockholders, subject to adjustment as provided in the warrant. The warrant will expire in seven years unless previously exercised.  

On December 20, 2007, we executed a Third Amendment to the Agility Loan Agreement (the “Third Amendment”) with Agility. The Third Amendment includes (i) an extension of the maturity date of the Loan Agreement to February 1, 2008, (ii) a loan modification and extension fee of $20,000, paid upon the execution of the amendment, and (iii) a consent from Agility to allow us to repay its outstanding loan from Mr. John A. Friede in the amount of $250,000. In connection with this amendment, we granted a warrant to Agility to purchase that number of shares of our common stock as shall be equal to $200,000 divided by the warrant price, which is equal to the lowest of (i) the closing price of our common stock the day before the issue date of the warrant, as published in The Wall Street Journal on the issue date, or (ii) the average closing price of our common stock for the 30 days before the issue date, or (iii) the price at which we next issue our common stock, subject to adjustment as provided in the warrant. The warrant will expire in seven years unless previously exercised.  The loan and accrued interest were paid in full on January 23, 2008.

Three Arch Capital (et al)

On December 7, 2007, we entered into a Loan Agreement (the “Three Arch Loan Agreement”) with Three Arch Capital, L.P., TAC Associates, L.P., Three Arch Partners IV, L.P. and Three Arch Associates IV, L.P. (the “Lenders”). The Lenders are, collectively, our largest stockholder, and Dr. Wilfred Jaeger and Roderick Young, two of our directors, are affiliates of the Lenders. The transaction contemplated by the Three Arch Loan Agreement was approved by a committee of our Board of Directors consisting only of disinterested directors.

Under the Three Arch Loan Agreement, the Lenders loaned us $1.0 million and we issued notes to the Lenders (the “Notes”). The Notes bear interest at an annual rate equal to the prime rate plus six percent (6%) and are subordinated to our indebtedness to Silicon Valley Bank and Agility Capital LLC. The Notes are due and payable on December 20, 2007, provided that if prior to December 20, 2007, Silicon Valley Bank shall have extended the maturity date under its Loan and Security Agreement with us (the “SVB Loan Agreement”) until after December 20, 2007, then the Notes shall be due and payable on the earliest of (i) February 4, 2008, (ii) the close of our pending private investment public equity financing transaction (See Securities Purchase Agreement below), or (iii) the maturity date under the SVB Loan Agreement. In connection with the Loan Agreement, we have agreed to pay an aggregate of $20,000 as a loan fee to the Lenders and have granted the Lenders warrants to purchase, in the aggregate, 1,025,641 shares of our common stock at a purchase price of $0.39 per share. The loan and accrued interest were paid in full on January 24, 2008.

41

Securities Purchase Agreement

On December 12, 2007, we entered into a Securities Purchase Agreement with Three Arch Partners IV, L.P. and affiliated funds (“Three Arch Partners”), SF Capital Partners Ltd. (“SF Capital”) and CHL Medical Partners III, L.P. and an affiliated fund (“CHL,” and together with Three Arch Partners and SF Capital, the “Investors”) providing for the private placement (the “Private Placement”) of 63,008,140 shares (the “Shares”) of our common stock, par value $0.01 per share (the “Common Stock”), and warrants to purchase 3,150,407 shares of Common Stock (the “Warrants,” and, together with the Shares, the “Securities”) for a total purchase price of $15.5 million. As described above, Three Arch Parners is our largest stockholder. SF Capital also is one of our significant stockholders. This transaction was approved by a committee of our Board of Directors consisting only of disinterested directors.

The purchase price is equal to $0.246 per Security, of which $0.01 is allocated to the Warrants. The purchase price represents a 40% discount to the volume weighted average price of the Common Stock on the Nasdaq Global Market, as reported by Bloomberg Financial Markets, for the 20 trading day period ending on the trading day immediately preceding the date of the Securities Purchase Agreement. The Warrants have an exercise price of $0.246 per share, subject to certain adjustments. The Warrants may be exercised no earlier than 180 days from the closing date of the transaction and will expire seven years from the date of issuance.

In order to close the Private Placement, we were required to obtain stockholder approval of the Private Placement and the amendment of our Certificate of Incorporation to increase the number of shares of Common Stock we are authorized to issue. We received the approval of a majority of the stockholders on January 17, 2008 and closed the transaction on January 18, 2008.

The Investors purchased the following amounts of Securities in the offering:

Investor	Shares		Warrants (Shares issuable upon exercise)
Three Arch Partners		40,650,420		2,032,521
SF Capital		10,162,600		508,130
CHL		12,195,120		609,756

Prior to the closing of the transaction, Three Arch Partners owned 5,121,638 shares of Common Stock. After the transaction was consummated, Three Arch Partners’ percentage ownership of the outstanding Common Stock increased from approximately 17.3% to 49.5% (and 43.9% of the Common Stock on a fully diluted basis).

The net proceeds to us of the Private Placement after payment of fees and expenses were approximately $14,115,000. The terms of the Private Placement were approved by a committee of our Board of Directors consisting only of disinterested directors. Our directors and executive officers have executed lock-up agreements restricting their ability to sell shares of the Common Stock for 180 days following the closing of the transaction. The Investors entered into such lock-up agreements prior to the closing of the transaction.

42

Oppenheimer & Company acted as sole placement agent in connection with the Private Placement. The placement agent received aggregate fees of $1,085,000 plus reimbursement for reasonable out-of-pocket fees and expenses.

Holders of the Shares and the shares of Common Stock issuable upon the exercise of the Warrants (the “Warrant Shares” and collectively, with the Shares, the “Registrable Securities”) are entitled to certain registration rights as set forth in the Securities Purchase Agreement. Under the Securities Purchase Agreement, we have agreed to use our reasonable best efforts to prepare and file a registration statement on Form S-3 or other applicable form available to us to register the resale of the Registrable Securities. If we fail to file a registration statement or such registration statement is not declared effective between the time we file our next Annual Report on Form 10-K and the 180th date after the closing of the Private Placement, or, if additional registration statements are required to be filed to register such shares because of limitations imposed by the staff of the Commission on the number of shares that may be registered on behalf of selling stockholders on Form S-3, within 45 days of filing each such additional registration statement (or 90 days if such filing is reviewed by the Commission), we will be liable for certain specified liquidated damages as set forth in the Securities Purchase Agreement. We have agreed to maintain the effectiveness of the registration statement until the earliest of (i) the second anniversary of the closing of the Private Placement, (ii) such time as all Registrable Securities have been sold pursuant to the registration statement or (iii) the date on which all of the Registrable Securities may be resold by each of the Investors without registration pursuant to Rule 144(k). We will pay all expenses incurred in connection with the registration, other than fees and expenses, if any, of counsel or other advisors to the Investors or underwriting discounts, brokerage fees and commissions incurred by the Investors, if any, in connection with an underwritten offering of the Registrable Securities .

The Securities Purchase Agreement contains certain customary closing conditions, as well as the requirement that we decrease the number of members of our Board of Directors (the “Board”) from nine members to seven members at or by the time of its next annual meeting of stockholders. Under the Securities Purchase Agreement, Three Arch Partners has the right to name one member to the Board so long as Three Arch Partners beneficially owns greater than 5,000,000 shares of Common Stock (including shares of Common Stock issuable upon exercise of the Warrants, and as appropriately adjusted for stock splits, stock dividends and recapitalizations). Two of the current members of the Board, Dr. Wilfred E. Jaeger and Roderick A. Young, have been previously designated by Three Arch Partners. Under the Securities Purchase Agreement, we have agreed to add two new independent members to the Board at or before our next annual meeting.

In connection with the issuance of the Warrants and upon closing of the transaction, we entered into Warrant Agreements with our transfer agent relating to the Warrants. The Warrant Agreement relating to the Warrants issued to SF Capital contains a non-waivable provision that provides that the number of shares issuable upon exercise of the Warrants will be limited to the extent necessary to assure that, following such exercise, the total number of shares of Common Stock then beneficially owned by such holder and its affiliates does not exceed 14.9% of the total number of issued and outstanding shares of our Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise of Warrants). The Warrant Agreement relating to the Warrants issued to the other Investors does not contain this provision.  

The sale of the Shares, the Warrants and the Warrant Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws. We are relying upon the exemptions from registration provided by Section 4(2) of the Securities Act and Regulation D promulgated under that section. Each Investor has represented that it is an accredited investor, as such term is defined in Regulation D under the Securities Act, and that it was acquiring the Shares and Warrants for its own account and not with a view to or for sale in connection with any distribution thereof, and appropriate legends will be affixed to the Shares and Warrants.

43

Amendment to Bylaws

On December 5, 2007, our Board of Directors amended our bylaws (the “Bylaws”), effective immediately. Section 6 of the Bylaws now enables the Board of Directors to authorize the issuance of uncertificated shares of our capital stock. The purpose of the amendments to Section 6 are to satisfy the requirement of The Nasdaq Stock Market, Inc. that shares of our capital stock be eligible by January 1, 2008 for a Direct Registration Program operated by a clearing agency registered under Section 17A of the Securities Exchange Act of 1934.

Nasdaq Delisting

On December 11, 2007, we received formal notice that the Nasdaq Listing Qualifications Panel had granted our request for a transfer from the Nasdaq Global Market to the Nasdaq Capital Market, and continued listing on the Nasdaq Capital Market, subject to the following exception:

§ On or before January 17, 2008, we were required to inform the Panel that we have received funds sufficient to put it in compliance with the Capital Market shareholders’ equity requirement of $2.5 million. Within four business days of the receipt of the funds, we were required to make a public disclosure of receipt of the funds and file a Form 8-K with pro forma financial information indicating that we planned to report proforma shareholders’ equity of $2.5 million or greater for the fiscal year ended October 31, 2007. We informed the Panel of receipt of sufficient funds on January 18, 2008. We publicly disclosed receipt of such funds in a press release dated January 22, 2008 and filed a Form 8-K with respect to this matter on January 25, 2008.

§ On or before January 31, 2008, we were required to file our Annual Report on Form 10-K for the fiscal year ended October 31, 2007, which shall demonstrate proforma shareholder’s equity of $2.5 million or greater. This information is set forth below in this Report under “Subsequent Events – Nasdaq Delisting.”

On October 5, 2007, we received a notice from Nasdaq indicating that, for the preceding 30 consecutive days, the bid price of our common stock had closed below the minimum $1.00 per share requirement for continued listing. In accordance with the Nasdaq rules, we have until April 2, 2008, to regain compliance. In order to regain compliance, the bid price of our common stock must close at $1.00 per share or more for a minimum of 10 consecutive business days. If we do not regain compliance with the rule by April 2, 2008, we understand that the Nasdaq Staff will provide written notification to us that our common stock will be delisted. At that time, we may appeal the Staff’s determination to a Nasdaq Listing Qualifications Panel, but no assurance can be given that any such appeal would be successful.

The following shows our reported stockholders’ equity at October 31, 2007 and proforma stockholders’ equity assuming the private placement transaction had been completed on October 31, 2007.

44

	At October 31, 2007
	As Reported			Proforma
Stockholders' (deficit) equity
Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares issued		—			—
Common stock, $.01 par value, 100,000,000 (Reported) and 150,000,000 (Proforma) shares authorized; 29,601,352 (Reported) and 92,609,492 (Proforma) shares issued; and 29,395,331 (Reported) and 92,403,471 (Proforma) shares outstanding		300,000			930,000
Additional paid-in capital		145,533,000			159,018,000
Treasury stock, at cost - 206,021 Reported and Proforma common shares		(227,000	)		(227,000	)
Accumulated deficit		(148,518,000	)		(148,518,000	)
Total stockholders' (deficit) equity	$	(2,912,000	)	$	11,203,000

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the consolidated financial statements describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Estimates are used for, but not limited to, the accounting for revenue recognition, allowance for doubtful accounts, goodwill and long-lived asset impairments, loss contingencies, and taxes. Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on these policies.

Use of Estimates

In the normal course of preparing the financial statements in conformity with generally accepted accounting principles in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those amounts.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original or remaining 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.

45

The Company's Radiation Sources 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 their short maturities. The Company determines the fair value of its marketable securities based on quoted market prices.

Marketable Securities

The Company invests excess cash in marketable securities consisting primarily of commercial paper, corporate notes and bonds, U.S. Government securities and money market funds. Investments with maturities of less than one year are considered to be short term and are classified as current assets.

Debt securities that the Company has the positive intent and ability to hold to maturity are classified as "held-to-maturity" and reported at amortized cost. Debt securities not classified as held-to-maturity and marketable equity securities are classified as either "trading" or "available-for-sale," and are recorded at fair value with unrealized gains and losses included in earnings or stockholders' equity, respectively. All other equity securities are accounted for using either the cost method or the equity method.

The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in the Consolidated Statements of Operations.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in our existing accounts receivable. The Company determines the allowance based on historical write-off experience and customer economic data. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 60 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance when the Company believes that it is probable the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure related to our customers.

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 and amortization are computed using the straight-line method over the estimated useful lives as follows:

Furniture, fixtures and equipment	3-7 years
Leasehold improvements	Lesser of the useful life or term of lease

46

Intangible Assets

License agreements are amortized on a straight-line basis over periods ranging up to fifteen years. The amortization periods of patents are based on the lives of the license agreements to which they are associated or the approximate remaining lives of the patents, whichever is shorter. Purchased intangible assets with finite lives are carried at cost less accumulated amortization and are amortized on a straight-line basis over periods ranging from three to twelve years.

The Company reviews for impairment whenever events and changes in circumstances indicate that such assets might be impaired. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down is recorded to reduce the related asset to its estimated fair value.

Long-Lived Assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized equal to the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

Revenue Recognition

The Company sells products for radiation therapy treatment, primarily brachytherapy seeds used in the treatment of cancer and non-therapeutic sources used in calibration. The Company applies the provisions of SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” for the sale of non-software products.  SAB No. 104, which supersedes SAB No. 101, “Revenue Recognition in Financial Statements,” provides guidance on the recognition, presentation and disclosure of revenue in financial statements.  SAB No. 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for the disclosure of revenue recognition policies.  In general, the Company recognizes revenue related to product sales when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectibility is reasonably assured.

Research and Development Costs

Research and development ("R&D") expenses are comprised primarily of the following types of costs incurred in performing R&D activities: salaries and benefits, allocated overhead, occupancy costs, clinical trial and related clinical manufacturing costs, contract services and other outside costs, and costs to acquire in-process research and development projects and technologies which have no alternative future use. Research and development costs are expensed as incurred.

47

Stock-based Compensation

Effective November 1, 2005, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options and employee stock purchases related to the Company’s Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”), based on their fair values. SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), which the Company previously followed in accounting for stock-based awards. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) to provide guidance on SFAS 123(R). The Company has applied SAB 107 in its adoption of SFAS 123(R).

The Company adopted SFAS 123(R) using the modified prospective transition method as of and for the fiscal year ended October 31, 2006. In accordance with the modified prospective transition method, the Company’s financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Share-based compensation expense recognized is based on the value of the portion of share-based payment awards that is ultimately expected to vest. Share-based compensation expense recognized in the Company’s Condensed Consolidated Statement of Operations during the fiscal year ended October 31, 2006 includes compensation expense for share-based payment awards granted prior to, but not yet vested as of, October 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123 and new stock option grants made during the fiscal year ended October 31, 2006. A total of.2,349,470 and 1,303,000 stock option grants were awarded to employees for the years ended October 31, 2007 and 2006, respectively, and a total of 115,000 and 150,000 stock option grants were awarded to directors for the years ended October 31, 2007 and 2006.

Results of Operations

Fiscal 2007 vs. Fiscal 2006

Total Revenue	Year Ended October 31,
	2007		2006		% Change
($ millions)
Radiation Sources	$	15.3	$	12.6		21.6	%

Total revenue increased 21.6% to $15.3 million for the year ended October 31, 2007 from $12.6 million for the year ended October 31, 2006. The increase in revenue is due to a 23.6% increase in sales of our brachytherapy seeds and accessories, with increased product sales partially offset by a decline in average selling prices, and a 16.4% increase in sales of our non-therapeutic products, primarily due to growth in flood source products and industrial products.

Gross profit

	Year Ended October 31,
	2007			2006			% Change
($ millions)
Radiation Sources	$	4.6		$	3.6			28.7	%
As a percent of total revenue		30.2	%		28.6	%		1.6	%

48

Gross profit increased $1.0 million, or 28.7%, to $4.6 million for the year ended October 31, 2007 from $3.6 million for the year ended October 31, 2006. Gross profit as a percent of sales increased 1.6% points from the year ended October 31, 2006 to the year ended October 31, 2007. The increase in our gross profit is primarily due to the increase in sales, and the increase in gross profit as a percent of sales is primarily due to reduced material usage costs in therapeutic products, partially offset by a decline in average selling prices.

Selling and marketing expenses

	Year Ended October 31,
	2007			2006			% Change
($ millions)
Selling and marketing expenses	$	3.8		$	2.8			37.7	%
As a percent of total revenue		24.9	%		22.0	%		2.9	%

Selling and marketing expenses, comprised primarily of salaries, commissions and marketing costs, increased $1.0 million, or 37.7%, to $3.8 million for the year ended October 31, 2007, from $2.8 million for the year ended October 31, 2006. The increase in selling and marketing expenses is primarily attributed to higher sales commissions related to the increased sales of brachytherapy products, and increased marketing spending on our ClearPath device.

General and administrative expenses ("G&A")

	Year Ended October 31,
	2007			2006			% Change
($ millions)
General and administrative expenses	$	9.0		$	9.0			0.5	%
As a percent of total revenue		58.8	%		71.2	%		(12.4	)%

G&A increased 0.5%, to $9.0 million for the year ended October 31, 2007, from $9.0 million for the year ended October 31, 2006. The increase in G&A is primarily attributed to an increase in personnel expenses, partially offset by a decrease in the stock compensation expense as a result of the implementation of SFAS 123(R), which requires the expensing of stock options, and reduced bad debt expense resulting from improved collections.

Research and development (“R&D”)

	Year Ended October 31,
	2007			2006			% Change
($ millions)
Research and development expenses	$	1.8		$	1.2			53.4	%
As a percent of total revenue		11.6	%		9.2	%

49

R&D increased $0.6 million or 53.4%, to $1.8 million for the year ended October 31, 2007, from $1.2 million for the year ended October 31, 2006. The increase in R&D spending is primarily due to increased spending on product development for our ClearPath™ breast brachytherapy device.

Interest and other income, net. Interest expense was $0.5 million for the fiscal year ended October 31, 2007, compared to $0.1 million for the fiscal year ended October 31, 2006. The interest expense in both fiscal years resulted from the interest on short-term and long-term debt and amortization of warrants. The increase was attributable to an increase in the outstanding balance of the short-term and long-term debt and the number of warrants.

Loss from discontinued operations. The loss from discontinued operations of $10.5 million for the fiscal year ended October 31, 2007 resulted from the divestiture of NOMOS in September, 2007, and includes a loss on disposal of $7.1 million and a loss from operations of $3.4 million (See Note 2 to the financial statements). The loss from discontinued operations of $7.7 million for the fiscal year ended October 31, 2006 includes a loss from operations of $8.0 million from NOMOS and a gain of $0.3 million from the discontinued Theseus operation.

Fiscal 2006 vs. Fiscal 2005

Total Revenue	Year Ended October 31,
	2006		2005		% Change
($ millions)
Radiation Sources	$	12.6	$	12.0		4.7	%

Total revenue increased 4.7% to $12.6 million for the year ended October 31, 2006 from $12.0 million for the year ended October 31, 2005. The increase in our Radiation Sources business reflects a 4.8% increase in sales of our brachytherapy seeds and accessories, with increased product sales partially offset by a decline in average selling prices, and a 4.4% increase in sales of our non-therapeutic products.

Gross profit

	Year Ended October 31,
	2006			2005			% Change
($ millions)
Radiation Sources	$	3.6		$	3.9			(7.7)	%
As a percent of total revenue		28.6	%		32.4	%		(3.8)	%

50

Gross profit decreased $0.3 million, or 7.7%, to $3.6 million for the year ended October 31, 2006 from $3.9 million for the year ended October 31, 2005. Gross profit as a percent of sales decreased from 32.4% in the year ended October 31, 2005 to 28.6% in year ended October 31, 2006. The decrease in our gross profit and our gross profit as a percent of sales is primarily due to start-up costs of in-house stranding in our brachytherapy business.

Selling and marketing expenses

	Year Ended October 31,
	2006			2005			% Change
($ millions)
Selling and marketing expenses	$	2.8		$	2.2			28.2	%
As a percent of total revenue		22.0	%		18.0	%		4.0	%

Selling and marketing expenses, comprised primarily of salaries, commissions and marketing costs, increased $0.6 million, or 28.2%, to $2.8 million for the year ended October 31, 2006, from $2.2 million for the year ended October 31, 2005. The increase in selling and marketing expenses is primarily attributed to increased marketing expenses related to our ClearPath device and trade show expenses.

General and administrative expenses ("G&A")

	Year Ended October 31,
	2006			2005			% Change
($ millions)
General and administrative expenses	$	9.0		$	8.0			11.6	%
As a percent of total revenue		71.2	%		66.8	%		4.4	%

G&A increased $1.0 million, or 11.6%, to $9.0 million for the year ended October 31, 2006, from $8.0 million for the year ended October 31, 2005. The increase in G&A is primarily attributed to $0.9 million of stock compensation expense as a result of the implementation of SFAS 123(R) which requires the expensing of stock options.

Research and development (“R&D”)

	Year Ended October 31,
	2006			2005			% Change
($ millions)
Research and development expenses	$	1.2		$	0.7			77.1	%
As a percent of total revenue		9.2	%		5.4	%		3.8	%

51

R&D increased $0.5 million, or 77.1%, to $1.2 million for the year ended October 31, 2006, from $0.7 million for the year ended October 31, 2005. The increase in R&D spending is primarily due to increased spending on product development for our ClearPath™ breast brachytherapy device.

Interest and other income, net. Interest expense was $0.1 million for the fiscal year ended October 31, 2006, compared to interest income of $0.1 million for the fiscal year ended October 31, 2005. The interest expense in fiscal 2006 resulted from the short-term and long-term debt and amortization of warrants, and the interest income in fiscal 2005 was due to a portfolio of marketable securities.

Loss from discontinued operations. The loss from discontinued operations of $7.7 million for the fiscal year ended October 31, 2006 includes a loss from operations of $8.0 million from NOMOS and a gain of $0.3 million from the discontinued Theseus operation. The loss from discontinued operations of $48.3 million for the fiscal year ended October 31, 2005 includes: (i) a $40.2 million impairment charge recorded in our fiscal fourth quarter ended October 31, 2005 to write-down the goodwill and intangible assets acquired in the NOMOS acquisition in May, 2004 ($40.0 million), and the RTP acquisition in August, 2003 ($0.2 million), (ii) a loss from operations of $8.0 million from NOMOS and (iii) a gain of $0.4 million from the discontinued Theseus operation.

Liquidity and Capital Resources

To date, our short-term liquidity needs have generally consisted of working capital to fund our ongoing operations and to finance growth in inventories, trade accounts receivable, new product research and development, capital expenditures, acquisitions and strategic investments in related businesses.  We have satisfied these needs primarily through a combination of cash generated by operations, lines of credit, public offerings and from private placements of our common stock.  We expect that we will be able to satisfy our longer term liquidity needs for research and development, capital expenditures, and acquisitions through a combination of cash generated by operations, issuance of our common stock, debt, and our anticipated available line of credit.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  We have incurred net losses of $21.0 million, $17.1 million and $55.5 million for the years ended October 31, 2007, 2006 and 2005, respectively, and have used cash in operations of $12.3 million, $15.9 million and $11.9 million for the years ended October 31, 2007, 2006 and 2005, respectively.  As of October 31, 2007, we had an accumulated deficit of $148.5 million; cash, cash equivalents and marketable securities of $0.6 million, and $3.3 million of interest-bearing debt.

Based on the Company’s current operating plans, management believes that the Company’s existing cash resources and cash forecasted by management to be generated by operations, funds to be raised by the Company through an equity financing, as well as the Company’s anticipated available lines of credit, will be sufficient to meet working capital and capital requirements through at least the next twelve months. In this regard, we raised additional equity financing in the gross amount of $15.5 million in the first quarter of fiscal 2008 to fund our continuing operations, support the further development of ClearPath and other activities. However, there is no assurance that the Company will be successful with its plans.  If events and circumstances occur such that the Company does not meet its current operating plans, the Company is unable to raise sufficient additional equity or debt financing, or the Company’s line of credit (which presently expires on February 1, 2008) are insufficient or not available, the Company may be required to further reduce expenses or take other steps which could have a material adverse effect on our future performance, including but not limited to, the premature sale of some or all of our assets or product lines on undesirable terms, merger with or acquisition by another company on unsatisfactory terms, or the cessation of operations.

52

Management also expects that in future periods new products and services will provide additional cash flow, although no assurance can be given that such cash flow will be realized, and we are presently placing an emphasis on controlling expenses.

The following sections discuss the effects of changes in our balance sheets, cash flows, and commitments on our liquidity and capital resources.

Balance Sheet and Cash Flows

Cash, cash equivalents and investments in marketable securities.  At October 31, 2007, we had cash, cash equivalents and investments in marketable securities aggregating approximately $0.6 million, a decrease of approximately $8.7 million from $9.3 million at October 31, 2006. The decrease was primarily attributed to cash used in continuing operations of $9.0 million, and cash used in discontinued operations of $3.3 million, partially offset by proceeds from lines of credit of $3.3 million and proceeds from exercise of stock options and the purchase of shares related to our employee stock purchase plan of $0.1 million.

We raised additional equity financing in the gross amount of $15.5 million in the first quarter of fiscal 2008, and received approximately $14.1 million in cash, net of offering expenses.

We expect that cash used in operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, accounts receivable collections, inventory management, research and development expenses, and the timing of payments.

During the year ended October 31, 2007, we received $0.1 million from the exercise of stock options and the purchase of shares related to our employee stock purchase plan.  Proceeds from the exercise of stock options and the employee stock purchase plan 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.

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.

Equipment and leasehold improvements.  Equipment and leasehold improvements (“Fixed Assets”) decreased approximately $0.4 million to $0.9 million at October 31, 2007, from $1.3 million at October 31, 2006.  The decrease in Fixed Assets reflects capital expenditures of $0.2 million offset by $0.6 million in depreciation expense. 

Accounts payable and accrued expenses.  Accounts payable and accrued expenses decreased approximately $0.2 million to $6.0 million as of October 31, 2007, from $6.2 million at October 31, 2006, primarily due to a reduction in accrued expenses.

53

Liquidity and Capital Resource Requirements

We have operating lease obligations for facilities and equipment under non-cancelable operating lease agreements. Future minimum lease payments are subject to annual adjustment for increases in the Consumer Price Index.  We also have purchase commitments to suppliers under blanket purchase orders.

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating leases	$	400,000	$	380,000	$	20,000	$	—	$	—
License fees		825,000		175,000		375,000		275,000		—
Purchase commitments		146,000		146,000		—		—		—
	$	1,371,000	$	701,000	$	395,000	$	275,000	$	—

Based on our current operating plans, we believe that the existing cash resources, cash forecasted by our plans to be generated by operations, and our anticipated available bank lines of credit will be sufficient to meet working capital and capital requirements through at least the next twelve months.  

However, the amount of capital that we will need in the future will depend on many factors including:

• Our future operating results;

• Levels of sales and marketing that will be required to launch future products and achieve and maintain a competitive position in the marketplace for both existing and new products; 

• Market acceptance of our products; 

• Levels of inventory and accounts receivable that we maintain; 

• Competitors’ responses to our products; 

• Level of capital expenditures; and 

• Acquisition or development of other businesses, technologies or products.

If we should require additional financing due to continued operating losses or other unanticipated developments, additional financing may not be available when needed or, if available, we may not be able to obtain this financing on favorable terms.  If additional funds are raised by issuing equity securities, dilution to existing stockholders would result. Insufficient funds may require us to further reduce expenses or take other steps which could have a material adverse effect on our future performance, including but not limited to, the premature sale of some or all of our assets or product lines on undesirable terms, merger with or acquisition by another company on unsatisfactory terms, or the cessation of operations.

54

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109 (FIN 48).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return that results in a tax benefit. Additionally, FIN 48 provides guidance on de-recognition, income statement classification of interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the effect that the application of FIN 48 will have on its results of operations and financial condition.

In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, and does not require any new fair value measurements. The application of SFAS No. 157, however, may change current practice within an organization. SFAS No. 157 is effective for all fiscal years beginning after November 15, 2007, with earlier application encouraged. The Company does not believe that SFAS No. 157 will have a material impact on the Company’s financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)”(“SFAS 158”). SFAS 158 requires us to (a) recognize a plan’s funded status in the statement of financial position, (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year and (c) recognize changes in the funded status of a defined postretirement plan in the year in which the changes occur through other comprehensive income. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. The Company does not sponsor a defined benefit pension or post-retirement plans such employee related benefits. As such, SFAS No. 158 will not have a material impact on the Company’s financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The standard requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company’s choice to use fair value on its earnings. It also requires companies to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. The new standard does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157, “Fair Value Measurements,” and SFAS 107, “Disclosures about Fair Value of Financial Instruments.” SFAS 159 is effective as of the start of fiscal years beginning after November 15, 2007. Early adoption is permitted. We are in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of SFAS 159 will have on our financial position, results of operations or cash flows.

55

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141 (R)”). The objective of SFAS 141 (R) is to improve reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable and relevant information for investors and other users of financial statements. SFAS 141 (R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS 141 (R) includes both core principles and pertinent application guidance, eliminating the need for numerous EITF issues and other interpretative guidance, thereby reducing the complexity of existing GAAP. SFAS 141 (R) is effective as of the start of fiscal years beginning after December 15, 2008. Early adoption is not allowed. The Company is in the process of evaluating this standard and therefore has not yet determined the impact that the adoption of SFAS 141 (R) will have on its financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 improves the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report non-controlling (minority) interests in subsidiaries in the same way—as equity in the consolidated financial statements. Moreover, SFAS 160 eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling interests by requiring they be treated as equity transactions. SFAS 160 is effective as of the start of fiscal years beginning after December 15, 2008. Early adoption is not allowed. The Company is in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of SFAS 160 will have on our financial position, results of operations or cash flows.

Related Party Transactions

On February 17, 2006 we entered an exclusive license agreement with IdeaMatrix, Inc. (a company wholly owned by our former Vice President of New Product Development (Brachytherapy), Richard Terwilliger), for certain brachytherapy technology pertaining to needles and strands, used in the brachytherapy manufacturing process. This technology is critical to our SurTRAK line of products, sold in connection with our brachytherapy seeds. Under this exclusive license agreement, we paid $125,000 upon execution of the license agreement on February 17, 2006, and we are required to pay $125,000 per year over five years. There is no annual renewal fee or royalty arising out of this license. The term of this license expires upon the last expiring patent included in the license. As part of this license agreement, we have agreed to indemnify Mr. Terwilliger and IdeaMatrix, Inc. for claims arising from the licensed property, including the claim raised in the Worldwide Medical Technology lawsuit against Mr. Terwilliger and IdeaMatrix, Inc. Please see Item 3, Legal Proceedings, for additional information.

The Company also has borrowed funds from, and received additional equity investments from, related parties. See, under “Subsequent Events - Debt Arrangements” each of “John Friede Note,” “Three Arch Capital (et al)” and “Securities Purchase Agreement.”

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments include cash and cash equivalents. At October 31, 2007, the carrying values of our financial instruments approximated their fair values based on current market prices and rates. These securities are subject to interest rate risk and will decline in value if interest rates increase. Due to the short duration of our investment portfolio, changes in interest rates are not expected to have a material effect on our near-term financial condition or results of operations.

56

Our policy is to not enter into derivative financial instruments. We do not have any significant foreign 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 15(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

Item 9A. CONTROLS AND PROCEDURES

(a)    Evaluation of disclosure controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and our Chief Financial Officer ("CFO"), of the effectiveness, as of the end of the period covered by this report, of the design and operation of our "disclosure controls and procedures" as defined in Rule 13a-15(e) promulgated by the SEC under the Exchange Act. Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures, as of the end of such period, were adequate and effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.

(b)Changes in internal controls.

There were no changes in our internal controls over financial reporting during the quarter ended October 31, 2007, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Item 9B. OTHER INFORMATION.

None.

57

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE OF THE REGISTRANT

Other than the information with respect to our executive officers, which is set forth in Item 4A of Part I, 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, 2007.

We have a written Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, and Corporate Controller.

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, 2007.

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, 2007.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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, 2007.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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, 2007.

58

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as a part of this Annual Report on Form 10-K:

		Page
1.	Financial Statements of the Company
	Report of Independent Registered Public Accounting Firm – Singer Lewak Greenbaum & Goldstein LLP	62
	Consolidated Balance Sheets	63
	Consolidated Statements of Operations	64
	Consolidated Statements of Changes in Stockholders' Equity	65
	Consolidated Statements of Cash Flows	66
	Notes to Consolidated Financial Statements	67
2.	Financial Statement Schedule
	Schedule II—Valuation and Qualifying Accounts	105
	All 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 15(b) of this Annual Report on Form 10-K.

(b) Exhibits

Exhibit No.	Description
3.1*	Amended and Restated Certificate of Incorporation of the Registrant.
3.2	Bylaws of the Registrant, (as amended December 5, 2007), incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on December 11, 2007.
10.1	Lease Agreement dated November 30, 1995 between Registrant and Abraham Stricks, incorporated by reference to Exhibit 10.2 of the Registrant's 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.
10.4+	The Theseus 1998 Employee, Director and Consultant Stock Plan, incorporated by reference to Exhibit 4.4 of the Registrant's Registration Statement on 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-A, 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	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), incorporated by reference to Exhibit 10.8 to the Registrant's Form 10-K filed January 29, 2001.
10.8	License Agreement, effective as of July 20, 2001, by and between AnorMED Inc. and North American Scientific, Inc. (confidential treatment granted for certain portions thereof), incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q, filed March 5, 2002.
10.9+	Employment Agreement, dated October 13, 2000, by and between Dr. Allan M. Green and the Company, incorporated by reference to Exhibit 10.12 to the Registrant's Form 10-K filed January 17, 2002.

59

10.10+	Employment Agreement, dated April 1, 2002, by and between L. Michael Cutrer and the Registrant, incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed August 28, 2002.
10.11+	Employment Agreement, dated April 7, 1998, by and between Alan I. Edrick and the Registrant, as amended on September 29, 1999, incorporated by reference to Exhibit 10.13 to the Registrant's Form 10-K filed January 17, 2002.
10.12+	Employment Agreement, dated February 20, 2003, by and between Elliot Lebowitz, Ph.D. and the Registrant, incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed March 7, 2003.
10.13+	The North American Scientific, Inc. 2003 Non-Employee Directors' Equity Compensation Plan, incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-8 (Registration No. 333-106197), filed June 17, 2003.
10.14	Agreement and Plan of Merger by and among the Registrant, AM Capital, Inc. and NOMOS Corporation, dated as of October 26, 2003, incorporated by reference to Exhibit 2 to the Registrant's Form 8-K filed October 27, 2003.
10.15	First Amendment to Agreement and Plan of Merger by and among the Registrant, AM Capital I, Inc. and NOMOS Corporation, incorporated by reference to Exhibit 2.2 to the Registrant's Registration Statement on Form S-4 (Registration No. 333-110766), filed November 26, 2003.
10.16+	Employment Agreement dated May 5, 2004, by and between John W. Manzetti. and the Registrant, incorporated by reference to the Registrant's Registration Statement on Form S-4 (Registration #333-110766), filed November  26, 2003.
10.17	Second Amendment to Agreement and Plan of Merger by and among the Registrant, AM Capital I, Inc. and NOMOS Corporation, incorporated by reference to Exhibit 2 to the Registrant's Form 8-K filed March 5, 2004.
10.18	The First Amendment dated as of April 28, 2004, to the Rights Agreement, dated as of October 12, 1998 by and between the Registrant and U.S. Stock Transfer Corporation, incorporated by reference to Exhibit 10 to the Registrant’s Form 8-K filed April 30, 2004.
10.19	Agency Agreement dated as of March 17, 2004, by and between the Registrant and NOMOS Corporation, incorporated by reference to Exhibit 10 to the Registrant’s Form 8-K filed March 22, 2004.
10.20	Lease Agreement dated August 22, 2002, by and between NOMOS Corporation and Cranberry 200 Venture, L.P., incorporated by reference to Exhibit 10.20 to the Registrant’s Form 10-K filed March 11, 2005.
10.21	Amendment to Lease Agreement dated August 22, 2002, by and between NOMOS Corporation and Cranberry 200 Venture, L.P., incorporated by reference to Exhibit 10.21 to the Registrant’s Form 10-K filed March 11, 2005
10.22	Secured Loan Agreement dated as of October 15, 2003 by and between the Registrant and Prostate Centers of America, incorporated by reference to Exhibit 10.22 to the Registrant’s Form 10-K filed March 11, 2005
10.23	Settlement Agreement dated as of August 4, 2004, by and among the Registrant, NOMOS Corporation and Parker/Hunter, Incorporated, incorporated by reference to Exhibit 10.23 to the Registrant’s Form 10-K filed March 11, 2005
10.24	Loan Agreement and Security Agreement, dated October 5, 2005, between the Registrant, the Subsidiaries and Silicon Valley Bank., incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed October 11, 2005.
10.25	Amendment to Loan Agreement and Security Agreement, dated January 12, 2006, between the Registrant, the Subsidiaries and Silicon Valley Bank, incorporated by reference to Exhibit 10.25 of Form 10-K filed on January 18, 2006.
10.26	Loan and Security Agreement, dated March 28, 2006, by and among the Registrant, certain subsidiaries and Partners for Growth II, L.P., incorporated by reference to the Registrant’s Current Report on Form 8-K filed on April 3, 2006.
10.27	North American Scientific, Inc. 2006 Stock Plan, incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement filed on April 5, 2006.
10.28	Securities Purchase Agreement dated June 6, 2006 between the Registrant and the investors, incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 7, 2006.

60

10.29	Form of Warrant Agreement between the Registrant and Three Arch Partners, incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 7, 2006.
10.30	Form of Warrant Agreement between the Registrant and certain other investors, incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 7, 2006.
10.31	Second Amendment to Rights Agreement, dated June 5, 2006 by and between the Registrant and U.S. Stock Transfer Corporation, incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 7, 2006.
10.32	Second Amendment to Loan Agreement and Security Agreement, dated October 31, 2006, between the Registrant, the Subsidiaries and Silicon Valley Bank incorporated by reference to the Registrant’s Current Report on Form 8-K filed on November 3, 2006.
10.33+	First Amended and Restated Employment Agreement between the Registrant and L. Michael Cutrer dated December 21, 2006, incorporated by reference to the Registrant’s Current Report on Form 8-K filed on December 28, 2006.
10.34+	Employment Agreement between the Registrant and John B. Rush, dated March 22, 2007, incorporated by reference to the Registrant’s Current Report on Form 8-K/A filed on December 7, 2007.
10.35	Third Amendment to Rights Agreement, dated as of April 30, 2007, by and between the Registrant and U.S. Stock Transfer Corporation, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 4, 2007.
10.36	Third Amendment to Loan Agreement and Security Agreement, dated as of August 24, 2007, between the Registrant, the Subsidiaries and Silicon Valley Bank, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on September 19, 2007.
10.37+	Summary of Employment Arrangement between the Registrant and Troy A. Barring, dated September 4, 2007, incorporated by reference to Item 5.02 of the Registrant’s Current Report on Form 8-K filed on September 10, 2007.
10.38	Agreement among North American Scientific, Inc., NOMOS Corporation, and Best Medical International, Inc., dated as of September 11, 2007, incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on September 14, 2007.
10.39	Fourth Amendment to Loan Agreement and Security Agreement, dated as of September 14, 2007, between the Registrant, the Subsidiaries and Silicon Valley Bank, incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q., filed on September 19, 2007.
10.40*	Loan Agreement and Security Agreement, dated as of September 21, 2007, between the Registrant, the Subsidiaries and Agility Capital LLC.
10.41*	Fifth Amendment to Loan Agreement and Security Agreement, dated as of October 3, 2007, between the Registrant, the Subsidiaries and Silicon Valley Bank.
10.42	First Amendment to Loan Agreement and Security Agreement, dated as of October 18, 2007, between the Registrant, the Subsidiaries and Agility Capital LLC, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 24, 2007.
10.43	Warrant Agreement, dated as of September 21, 2007, between the Registrant, the Subsidiaries and Agility Capital LLC, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on October 24, 2007.
10.44*	Sixth Amendment to Loan Agreement and Security Agreement, dated as of October 29, 2007, between the Registrant, the Subsidiaries and Silicon Valley Bank.
10.45*	Loan Agreement and Subordinated Note, dated as of October 30, 2007, between the Registrant and John A. Friede.
14	Code of Ethics incorporated by reference to Exhibit 14 to the Registrant’s Form 10-K filed January 23, 2004.
21.1*	Subsidiaries of the Registrant.
23.1*	Consent of Singer Lewak Greenbaum & Goldstein LLP.
31.1*	Certification of Chief Executive Officer.
31.2*	Certification of Chief Financial Officer.
32.1*	Certification pursuant to Rule 13a-14b under the Exchange Act and 18 U.S.C -1350.

+         Compensation plan or agreement

*         Filed herewith

61

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

North American Scientific, Inc.

Chatsworth, California

We have audited the consolidated balance sheets of North American Scientific, Inc. and subsidiaries (collectively, the “Company”) as of October 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended October 31, 2007. Our audits also included the financial statement schedule of North American Scientific, Inc. listed in Item 15(a). 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 based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of North American Scientific, Inc. and subsidiaries as of October 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California

January 25, 2008

62

NORTH AMERICAN SCIENTIFIC, INC.

Consolidated Balance Sheets

	October 31,
	2007			2006
Assets
Current assets
Cash and cash equivalents	$	609,000		$	903,000
Marketable securities, held to maturity		—			8,420,000
Accounts receivables, net of reserves		2,296,000			2,618,000
Inventories, net of reserves		1,546,000			1,284,000
Prepaid expenses and other current assets		724,000			830,000
Assets held for sale		—			11,377,000
Total current assets		5,175,000			25,432,000
Equipment and leasehold improvements, net		891,000			1,318,000
Intangible assets, net		110,000			138,000
Other assets		—			310,000
Total assets	$	6,176,000		$	27,198,000
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Lines of credit, net of discount	$	3,241,000		$	—
Warrant derivative		173,000			—
Accounts payable		2,564,000			2,406,000
Accrued expenses		3,110,000			3,790,000
Liabilities related to assets held for sale		—			3,814,000
Total liabilities		9,088,000			10,010,000
Commitments and contingencies (Note 12)
Stockholders' (deficit)equity
Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares issued		—			—
Common stock, $.01 par value, 100,000,000 (2007) and 40,000,000 (2006) shares authorized; 29,601,352 (2007) and 29,447,270 (2006) shares issued; and 29,395,331 (2007) and 29,336,144 (2006) shares outstanding		300,000			298,000
Additional paid-in capital		145,533,000			144,543,000
Treasury stock, at cost – 206,021 (2007) and 111,126 (2006) common shares		(227,000	)		(133,000	)
Accumulated deficit		(148,518,000	)		(127,520,000	)
Total stockholders' (deficit) equity		(2,912,000	)		17,188,000
Total liabilities and stockholders' (deficit) equity	$	6,176,000		$	27,198,000

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

63

NORTH AMERICAN SCIENTIFIC, INC.

Consolidated Statements of Operations

	For the Years Ended October 31,
	2007			2006			2005
Revenue -
Product	$	15,317,000		$	12,594,000		$	12,032,000
Cost of revenues -
Product		10,690,000			8,998,000			8,137,000
Gross profit		4,627,000			3,596,000			3,895,000
Selling expenses		3,819,000			2,772,000			2,162,000
General and administrative expenses		9,010,000			8,964,000			8,033,000
Research and development		1,780,000			1,160,000			655,000
Amortization of intangible assets		28,000			28,000			44,000
Write-down of goodwill and intangible assets		—			—			330,000
Total operating expenses		14,637,000			12,923,000			11,224,000
Loss from operations		(10,010,000	)		(9,326,000	)		(7,329,000	)
Interest and other (expense) income, net		(535,000	)		(119,000	)		120,000
Loss before provision (benefit) for income taxes		(10, 545,000	)		(9,445,000	)		(7,209,000	)
Provision (benefit) for income taxes		—			—			—
Loss from continuing operations		(10,545,000	)		(9,445,000	)		(7,209,000	)
Loss from discontinued operation (including a loss on disposal of $7,107,000 in 2007)		(10,453,000	)		(7,685,000	)		(48,304,000	)
Net loss	$	(20,998,000	)	$	(17,130,000	)	$	(55,513,000)	)
Basic and diluted loss per share:
Continuing operations	$	(0.36	)	$	(0.43	)	$	(0.44	)
Discontinued operations		(0.36	)		(0.35	)		(2.92	)
Net loss	$	(0.72	)	$	(0.78	)	$	(3.36	)
Weighted average number of common shares outstanding -
Basic and diluted		29,344,269			21,956,565			16,502,071

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

64

NORTH AMERICAN SCIENTIFIC, INC.

Consolidated Statements of Changes in Stockholders' (Deficit) Equity

					Additional										Total
	Common Stock				Paid-in		Treasury Stock					Accumulated			Stockholders'
	Shares		Amount		Capital		Shares		Amount			Deficit			(Deficit) Equity
Balance at October 31, 2004		16,308,487	$	163,000	$	120,220,000		108,026	$	(129,000	)	$	(54,877,000	)	$	65,377,000
Common stock issued upon exercise of stock options		687,013		9,000		755,000		—		—			—			764,000
Common stock issued under employee stock purchase plan		59,742		1,000		172,000		—		—			—			173,000
Shares issued for NOMOS acquisition		1,427		—		—		—		—			—			—
Net loss		—		—		—		—		—			(55,513,000	)		(55,513,000	)
Balance at October 31, 2005		17,056,669		173,000		121,147,000		108,026		(129,000	)		(110,390,000	)		10,801,000
Common stock issued upon exercise of stock options		2,186		—		2,000		—		—			—			2,000
Common stock issued under employee stock purchase plan		96,481		2,000		161,000		—		—			—			163,000
Common stock issued in private placement		12,291,934		123,000		21,811,000		—		—			—			21,934,000
Purchase of treasury stock		—		—		—		3,100		(4,000	)		—			(4,000	)
Issuance of warrants		—		—		526,000		—		—			—			526,000
Stock compensation expense		—		—		896,000		—		—			—			896,000
Net loss		—		—		—		—		—			(17,130,000	)		(17,130,000	)
Balance at October 31, 2006		29,447,270		298,000		144,543,000		111,126		(133,000	)		(127,520,000	)		17,188,000
Common stock issued under employee stock purchase plan		154,082		2,000		137,000		—		—			—			139,000
Purchase of treasury stock		—		—		—		94,895		(94,000	)		—			(94,000	)
Issuance of warrants		—		—		174,000		—		—			—			174,000
Stock compensation expense		—		—		679,000		—		—			—			679,000
Net loss		—		—		—		—		—			(20,998,000	)		(20,998,000	)
Balance at October 31, 2007		29,601,352	$	300,000	$	145,533,000		206,021	$	(227,000	)	$	(148,518,000	)	$	(2,912,000	)

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

65

NORTH AMERICAN SCIENTIFIC, INC.

Consolidated Statements of Cash Flows

	For the Years Ended October 31,
	2007			2006			2005
Cash flows from operating activities:
Net loss	$	(20,998,000	)	$	(17,130,000	)	$	(55,513,000	)
Loss from discontinued operations		10, 453,000			7,684,000			48,304,000
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		594,000			628,000			811,000
Amortization of warrants		606,000			236,000			—
Provision for doubtful accounts		(163,000	)		218,000			705,000
Provision for inventory reserve		191,000			(88,000	)		106,000
Share-based compensation expense		679,000			895,000			—
Write-down of intangible assets		—			—			329,000
Loss on sale of equipment		24,000			—			—
Changes in assets and liabilities, net of acquisitions and discontinued operations:
Accounts receivable		485,000			(914,000	)		(1,094,000	)
Inventories		(453,000	)		(542,000	)		69,000
Prepaid expenses and other assets		(189,000	)		(432,000	)		451,000
Accounts payable		157,000			243,000			148,000
Accrued expenses		(417,000	)		(417,000	)		(490,000	)
Net cash used in continuing operations		(9,031,000	)		(9,619,000	)		(6,174,000	)
Net cash used in discontinued operations		(3,287,000	)		(6,302,000	)		(5,785,000	)
Net cash used in operating activities		(12,318,000	)		(15,921,000	)		(11,959,000	)
Cash flows from investing activities:
Proceeds from sale of marketable securities		8,420,000			2,573,000			11,653,000
Proceeds from sale of fixed assets		15,000			—			—
Purchases of marketable securities		—			(10,000,000	)		—
Capital expenditures		(177,000	)		(380,000	)		(202,000	)
Net cash provided by (used in) continuing operations		8,258,000			(7,807,000	)		11,451,000
Net cash provided by (used in) discontinued operations		398,000			(94,000	)		(133,000	)
Net cash provided by (used in) investing activities		8,656,000			(7,901,000	)		11,318,000
Cash flows from financing activities:
Net proceeds from lines of credit		3,323,000			—			—
Net proceeds from sale of common stock		—			21,934,000			—
Net proceeds from stock options and stock purchase plan		139,000			165,000			937,000
Purchase of common stock as treasury stock		(94,000	)		(4,000	)		—
Net cash provided by financing activities		3,368,000			22,095,000			937,000
Net increase (decrease) in cash and cash equivalents		(294,000	)		(1,727,000	)		296,000
Cash and cash equivalents at beginning of period		903,000			2,630,000			2,334,000
Cash and cash equivalents at end of period	$	609,000		$	903,000		$	2,630,000

Supplemental disclosure:

In the fiscal year ended October 31, 2007 and 2006, the Company issued warrants with an estimated fair value totaling $347,000 and $526,000 to a bank and a debt provider as consideration for entering into and amending Loan and Security Agreements. See Note 12 to the Financial Statements.

There were no cash flows from investing activities from discontinued operations for all fiscal years.

In the fiscal year ended October 31, 2007 and 2006, the Company paid interest expense of $68,000 and $164,000, respectively. No interest was paid in 2005. In the fiscal years ended October 31, 2007, 2006 and 2005, the Company paid $13,000, $21,000 and $14,000 to Federal and state taxing authorities for income taxes, respectively.

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

66

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, designs, develops and manufactures and sells radioisotopic products including brachytherapy seeds and accessories used in the treatment of cancer and non-therapeutic products used in medical, environmental, research and industrial applications.  The Company’s NOMOS operations (“NOMOS”), which developed and marketed products used during external beam radiation therapy for the treatment of cancer, was discontinued in September 2007. (See Note 2).  The Company’s Theseus operation, which had been developing a radiopharmaceutical imaging agent for various medical diagnostic and monitoring functions was discontinued in 2004. (See Note 2).

Management’s Plans

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  We have incurred net losses of $21.0 million, $17.1 million and $55.5 million for the years ended October 31, 2007, 2006 and 2005, respectively, and have used cash in operations of $12.3 million, $15.9 million and $11.9 million for the years ended October 31, 2007, 2006 and 2005, respectively.  As of October 31, 2007, we had an accumulated deficit of $148.5 million, cash, cash equivalents and marketable securities of $0.6 million, and $3.3 million of interest-bearing debt.

Based on the Company’s current operating plans, management believes that the Company’s existing cash resources and cash forecasted by management to be generated by operations, funds to be raised by the Company through an equity financing, as well as the Company’s anticipated available lines of credit, will be sufficient to meet working capital and capital requirements through at least the next twelve months. In this regard, the Company raised additional financing in the first quarter of fiscal 2008 to fund our continuing operations, support the further development and launch of ClearPath and other activities. However, there is no assurance that the Company will be successful with its plans. . If events and circumstances occur such that the Company does not meet its current operating plans or the Company’s line of credit (which presently expires on February 1, 2008) is insufficient or not available, the Company may be required to further reduce expenses or take other steps which could have a material adverse effect on our future performance, including but not limited to, the premature sale of some or all of our assets or product lines on undesirable terms, merger with or acquisition by another company on unsatisfactory terms, or the cessation of operations.

67

The Company also expects that in future periods new products and services will provide additional cash flow, although no assurance can be given that such cash flow will be realized, and the Company is presently placing an emphasis on controlling expenses.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Certain other reclassifications have been made to prior year balances in order to conform to the current year presentation.

Use of Estimates

In the normal course of preparing the financial statements in conformity with generally accepted accounting principles in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those amounts.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original or remaining 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 Radiation Sources 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 their short maturities. The Company determines the fair value of its marketable securities based on quoted market prices.

Marketable Securities

The Company invests excess cash in marketable securities consisting primarily of commercial paper, corporate notes and bonds, U.S. Government securities and money market funds. Investments with maturities of less than one year are considered to be short term and are classified as current assets.

68

Debt securities that the Company has the positive intent and ability to hold to maturity are classified as "held-to-maturity" and reported at amortized cost. Debt securities not classified as held-to-maturity and marketable equity securities are classified as either "trading" or "available-for-sale," and are recorded at fair value with unrealized gains and losses included in earnings or stockholders' equity, respectively. All other equity securities are accounted for using either the cost method or the equity method.

The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in the Consolidated Statements of Operations.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in our existing accounts receivable. The Company determines the allowance based on historical write-off experience and customer economic data. We review our allowance for doubtful accounts monthly. Past due balances over 60 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance when the Company believes that it is probable the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure related to our customers.

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 and amortization are computed using the straight-line method over the estimated useful lives as follows:

Furniture, fixtures and equipment	3-7 years
Leasehold improvements	Lesser of the useful life or term of lease

Intangible Assets

License agreements are amortized on a straight-line basis over periods ranging up to fifteen years. The amortization periods of patents are based on the lives of the license agreements to which they are associated or the approximate remaining lives of the patents, whichever is shorter. Purchased intangible assets with finite lives are carried at cost less accumulated amortization and are amortized on a straight-line basis over periods ranging from three to twelve years.

The Company reviews for impairment whenever events and changes in circumstances indicate that such assets might be impaired. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down is recorded to reduce the related asset to its estimated fair value.

69

Long-Lived Assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized equal to the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

Included in the Loss from Discontinued Operations at October 31, 2007, the Company recorded a $6.7 million impairment charge and $0.5 million in closing costs relating the disposition of certain NOMOS assets and liabilities. The impairment charge includes $5.5 million charge for impairment of NOMOS long-lived assets and a $1.2 million charge for the decrease in the carrying value of NOMOS inventory.

Revenue Recognition

The Company sells products for radiation therapy treatment, primarily brachytherapy seeds used in the treatment of cancer and non-therapeutic sources used in calibration. The Company applies the provisions of SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” for the sale of non-software products.  SAB No. 104, which supersedes SAB No. 101, “Revenue Recognition in Financial Statements”, provides guidance on the recognition, presentation and disclosure of revenue in financial statements.  SAB No. 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for the disclosure of revenue recognition policies.  In general, the Company recognizes revenue related to product sales when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectibility is reasonably assured.

Research and Development Costs

Research and development ("R&D") expenses are comprised primarily of the following types of costs incurred in performing R&D activities: salaries and benefits, allocated overhead, occupancy costs, clinical trial and related clinical manufacturing costs, contract services and other outside costs, and costs to acquire in-process research and development projects and technologies which have no alternative future use. Research and development costs are expensed as incurred.

Stock-based Compensation

Effective November 1, 2005, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options and employee stock purchases related to the Company’s Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”), based on their fair values. SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), which the Company previously followed in accounting for stock-based awards. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) to provide guidance on SFAS 123(R). The Company has applied SAB 107 in its adoption of SFAS 123(R).

The Company adopted SFAS 123(R) using the modified prospective transition method as of and for the fiscal year ended October 31, 2006. In accordance with the modified prospective transition method, the Company’s financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Share-based compensation expense recognized is based on the value of the portion of share-based payment awards that is ultimately expected to vest. Share-based compensation expense recognized in the Company’s Condensed Consolidated Statement of Operations during the fiscal year ended October 31, 2006 includes compensation expense for share-based payment awards granted prior to, but not yet vested as of, October 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123 and new stock option grants made during the fiscal year ended October 31, 2006. A total of 2,349,470 and 1,303,000 stock option grants were awarded to employees for the years ended October 31, 2007 and 2006, respectively, and a total of 115,000 and 150,000 stock option grants were awarded to directors for the years ended October 31, 2007 and 2006.

70

In conjunction with the adoption of SFAS 123(R), the Company elected to attribute the value of share-based compensation to expense using the straight-line method, which was previously used for its pro forma information required under SFAS 123 and SFAS 148. Share-based compensation expense related to stock options and employee stock purchases was $679,000 and $896,000 for the fiscal year ended October 31, 2007 and 2006, respectively, and was recorded in the financial statements as a component of general and administrative expense. Note that for the fiscal year ended October 31, 2006, a total of 650,500 stock options were granted that contain certain market conditions (“2006 Premium Price Awards”) The 2006 Premium Price Awards are, to the extent provided by law, incentive stock options that have an exercise price of $3.35 per share, which is equal to 159% of the fair market value of the Company’s common stock on the grant date. The 2006 Premium Price Awards also include a condition that provides that such stock options will only vest if the closing price of the Company's common stock is equal to or greater than $3.35 on each day over any consecutive four month period beginning on any date after the date of grant and ending no later than the third anniversary of the date of grant. If the market condition is not satisfied by the third anniversary of the date of grant, the 2006 Premium Price Awards will not vest. Subject to the attainment of the market condition by the Company, the 2006 Premium Price Awards will vest, if at all, in equal annual installments over a four year period beginning on the second anniversary of the grant date of March 16, 2006. The 2006 Premium Price Awards have a term of 8 years from the date of grant. The 2006 Premium Price Awards, share-based compensation expense has been estimated using a 40% forfeiture rate.

During the fiscal year ended October 31, 2005, there was no share-based compensation expense related to stock options and employee stock purchases recognized under the intrinsic value method in accordance with APB 25. Had compensation cost for the Company’s stock options been recognized based upon the estimated fair value on the grant date under the fair value methodology prescribed by SFAS No. 123, as amended by SFAS No. 148, the Company’s net loss and loss per share would have been as follows:

	Year Ended October 31, 2005
	Continuing Operations			Discontinued Operations			Total
Net loss, as reported	$	(7,209,000	)	$	(48,304,000	)	$	(55,513,000	)
Add: stock-based compensation recognized		—			—			—
Less: total stock-based compensation (1)		(1,116,000	)		(202,000	)		(1,318,000	)
Net loss, as adjusted	$	(8,325,000	)	$	(48,506,000	)	$	(56,831,000	)
Basic and diluted loss per share, as reported	$	(0.44	)	$	(2.92	)	$	(3.36	)
Basic and diluted loss per share, as adjusted	$	(0.50	)	$	(2.94	)	$	(3.44	)

(1) As determined under the fair value method.

71

The Company uses the Black-Scholes option-pricing model for estimating the fair value of options granted. 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. For purposes of financial statement presentation and pro forma disclosures, the estimated fair values of the options are amortized over the options’ vesting periods.

Net Loss per Share

Basic loss per share is computed by dividing the 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. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on earnings per share and, accordingly, are excluded from the calculation. The following table sets forth the computation of basic and diluted loss per share:

	Year Ended October 31,
	2007			2006			2005
Net loss from continuing operations, as reported	$	(10,545,000	)	$	(9,445,000	)	$	(7,209,000	)
Net loss from discontinued operations, as reported	$	(10,453,000	)	$	(7,685,000	)	$	(48,304,000	)
Net loss, as reported	$	(20,998,000	)	$	(17,130,000	)	$	(55,513,000	)
Weighted average shares outstanding—Basic		29,344,269			21,956,565			16,502,071
Dilutive effect of stock options and warrants		—			—			—
Weighted average shares outstanding—Diluted		29,344,269			21,956,565			16,502,071
Basic and diluted loss from continuing operations, per share	$	(0.36	)	$	(0.43	)	$	(0.44	)
Basic and diluted loss from discontinued operations, per share		(0.36	)		(0.35	)		(2.92	)
Basic and diluted net loss per share	$	(0.72	)	$	(0.78	)	$	(3.36	)

72

Stock options to purchase 3,947,578, 3,073,788, and 2,862,849 common shares for the years ended October 31, 2007, 2006 and 2005, respectively, and stock warrants to purchase 2,368,299 and 594,722 common shares for the years ended October 31, 2007 and 2006 were not included in the computation of diluted loss per share for those years because their effect would have been anti-dilutive. There were no stock warrants outstanding for the year ended October 31, 2005.

Income Taxes

The Company utilizes SFAS No. 109 “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. 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, marketable securities 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. As of October 31, 2007, $1.0 million of the Company’s cash balance was in excess of the federally insured limit.

The Company extends differing levels of credit to customers, does not require collateral, and maintains reserves for potential credit losses based upon the collectibility of accounts receivable. The Company monitors the credit worthiness of its customers and makes provision whenever there are indications of potential credit losses.

Significant Concentrations

As of October 31, 2007, there were two customers that made up more than 10% of the accounts receivable and two customers which generated more than 10% of sales for the year ended October 31, 2007. There were no customers that made up more than 10% of the accounts receivable at October 31, 2006, and no customers generated more than 10% of sales for the year ended October 31, 2006. 

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 and materially impact future operating results. As of October 31, 2007 and 2006, the purchases from one of the Company’s vendors represented more than 10% of total purchases, and the balance owed to that vendor at October 31, 2007 and 2006 represented more than 10% of total accounts payable.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109 (FIN 48).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return that results in a tax benefit. Additionally, FIN 48 provides guidance on de-recognition, income statement classification of interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the effect that the application of FIN 48 will have on its results of operations and financial condition.

73

In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, and does not require any new fair value measurements. The application of SFAS No. 157, however, may change current practice within an organization. SFAS No. 157 is effective for all fiscal years beginning after November 15, 2007, with earlier application encouraged. The Company does not believe that SFAS No. 157 will have a material impact on the Company’s financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)”(“SFAS 158”). SFAS 158 requires us to (a) recognize a plan’s funded status in the statement of financial position, (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year and (c) recognize changes in the funded status of a defined postretirement plan in the year in which the changes occur through other comprehensive income. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. The Company does not sponsor a defined benefit pension or post-retirement plans such employee related benefits. As such, SFAS No. 158 will not have a material impact on the Company’s financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The standard requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company’s choice to use fair value on its earnings. It also requires companies to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. The new standard does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157, “Fair Value Measurements,” and SFAS 107, “Disclosures about Fair Value of Financial Instruments.” SFAS 159 is effective as of the start of fiscal years beginning after November 15, 2007. Early adoption is permitted. We are in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of SFAS 159 will have on our financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141 (R)”). The objective of SFAS 141 (R) is to improve reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable, and relevant information for investors and other users of financial statements. SFAS 141 (R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS 141 (R) includes both core principles and pertinent application guidance, eliminating the need for numerous EITF issues and other interpretative guidance, thereby reducing the complexity of existing GAAP. SFAS 141 (R) is effective as of the start of fiscal years beginning after December 15, 2008. Early adoption is not allowed. The Company is in the process of evaluating this standard and therefore has not yet determined the impact that the adoption of SFAS 141 (R) will have on its financial position, results of operations or cash flows.

74

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS 160”) SFAS 160 improves the relevance, comparability and transparency of financial information provided to investors by requiring all entities to report non-controlling (minority) interests in subsidiaries in the same way—as equity in the consolidated financial statements. Moreover, SFAS160 eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling interests by requiring they be treated as equity transactions. SFAS 160 is effective as of the start of fiscal years beginning after December 15, 2008. Early adoption is not allowed. The Company is in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of SFAS 160 will have on our financial position, results of operations or cash flows.

NOTE 2 - DISCONTINUED OPERATION

NOMOS

On August 3, 2007, the Company announced its intent to divest its NOMOS Radiation Oncology business (“NOMOS”), which develops and markets IMRT/IGRT products used during external beam radiation therapy for the treatment of cancer. The Company expects that the divestiture of NOMOS will allow it to better utilize financial resources to benefit the marketing and development of innovative brachytherapy products for the treatment of cancer The Company executed a purchase and sale agreement with Best Medical International, Inc. (“Best”) to purchase certain assets and to assume certain liabilities of NOMOS, with a carrying value of $0.4 million at September 17, 2007 for $0.5 million. The Company incurred $0.5 million in legal and other closing costs in connection with the sale. In connection with the divestiture of NOMOS, the Company determined that the carrying value of the NOMOS assets held for sale at July 31, 2007 exceeded their fair value, as determined by estimated future cash flows, and therefore, recorded a $6.7 million charge for the impairment of its net assets. The sale was completed on September 17, 2007. These amounts have been recorded as part of the loss from discontinued operations for the year ended October 31, 2007.

At October 31, 2007, the Company has included in its Accounts Payable and Accrued Liabilities on its Balance Sheet $1.1 million of retained obligations to its vendors, customers and former employees of the NOMOS operation, to be paid in accordance with their terms.

At October 31, 2005, the Company recorded a $40.2 million impairment loss of NOMOS and RTP goodwill and intangible assets as a result of its evaluation of the fair value of its long-lived assets under SFAS 142 and SFAS 144. The impairment loss is included in the Loss from Discontinued Operations in the Consolidated Statements of Operations for the year ended October 31, 2005.

THESEUS

In September 2004, the Company discontinued its Theseus Operation which had been engaged in the research and development of a proprietary radiopharmaceutical agent (referred to as “Hynic-Annexin V”) since its acquisition in October 2000. As a result of the shut-down, the Company has presented the Theseus operation as a discontinued operation in the accompanying financial statements. For the fiscal years ended October 31, 2006 and 2005, the Company recorded a $0.3 million and a $0.4 million income related to that discontinued operation as a result of changes in its estimated costs to shut down the operations of Theseus and the subsequent write off of the remaining accounts. There were no revenues relating to the Theseus discontinued operations for the years ended October 31, 2007, 2006 and 2005.

75

Summarized statement of earnings data for discontinued operations for the Fiscal Years ended October 31,:

	2007			2006			2005
Net revenue (NOMOS)	$	10,309,000		$	16,394,000		$	20,192,000
Loss from discontinued operations before income tax benefit (NOMOS)	$	(10,453,000	)	$	(7,938,000	)	$	(48,666,000	)
Income from discontinued operations (Theseus)		—			253,000			362,000
Income tax benefit, net of reserve		—			—			—
Loss from discontinued operations	$	(10,453,000	)	$	(7,685,000	)	$	(48,304,000	)
	$	(10,453,000	)	$	(7,685,000	)	$	(48,304,000	)
Loss from discontinued operations, per share	$	(0.36	)	$	(0.35	)	$	(2.92	)

NOTE 3—MARKETABLE SECURITIES

The Company had no investments in marketable securities at October 31, 2007. At October 31, 2006, Marketable securities consist of the following:

Securities held to maturity:
Corporate and government bonds	$	4,886,000
Commercial paper		2,947,000
Certificate of deposits and other		587,000
		8,420,000
Less: current portion		(8,420,000	)
Non-current portion	$	—

76

The amortized cost of all held to maturity securities approximates fair value. At October 31, 2006, the entire balance of investments in debt securities matures within one year.

NOTE 4—ACCOUNTS RECEIVABLE

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in our existing accounts receivable. The Company determines the allowance based on historical write-off experience and customer economic data. We review our allowance for doubtful accounts monthly. Past due balances over 60 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance when the Company believes that it is probable the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure related to our customers.

Accounts receivable consist of the following:

	October 31,
	2007			2006
Accounts receivable - trade	$	2,475,000		$	3,124,000
Less: allowance for doubtful accounts		(179,000	)		(506,000	)
	$	2,296,000		$	2,618,000

The provision for doubtful accounts was $(0.2) million, $0.2 million, and $0.7 million for the fiscal years ended October 31, 2007, 2006 and 2005, respectively.

NOTE 5—INVENTORIES

Inventories consist of the following:

	October 31,
	2007			2006
Raw materials	$	1,358,000		$	1,059,000
Work in process		144,000			140,000
Finished goods		250,000			135,000
Reserve for excess inventory		(206,000	)		(50,000	)
	$	1,546,000		$	1,284,000

77

The Company recorded $0.2 million, $(0.1) million and $0.1 million charge for obsolete inventory for the years ended October 31, 2007, 2006 and 2005, respectively.

NOTE 6—EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consist of the following:

	October 31,
	2007			2006
Furniture, fixtures and equipment	$	2,194,000		$	4,861,000
Leasehold improvements		4,913,000			2,134,000
		7,107,000			6,995,000
Less: accumulated depreciation		(6,216,000	)		(5,677,000	)
	$	891,000		$	1,318,000

Depreciation expense was $0.5 million, $0.6 million, and $0.8 million for the fiscal years ended October 31, 2007, 2006 and 2005, respectively.

NOTE 7—INTANGIBLE ASSETS

Intangible assets consist of the following:

	October 31,
	2007			2006
Amortizable intangible assets
Purchased technology	$	98,000		$	98,000
Existing customer relationships		11,000			11,000
Trademark		19,000			19,000
Patents and licenses		158,000			158,000
		286,000			286,000
Less: accumulated amortization		(176,000	)		(148,000	)
	$	110,000		$	138,000

78

Intangible assets have a remaining useful life of four years. Amortization expense was $28,000, $28,000 and $44,000 for the fiscal years ended October 31, 2007, 2006 and 2005, respectively.

The estimate of aggregate amortization expense for the subsequent years is as follows:

For the Years Ended October 31,
2008	$	28,000
2009		28,000
2010		28,000
2011		26,000
	$	110,000

NOTE 8 – BORROWINGS

Borrowings consist of the following at October 31, 2007:

	October 31, 2007
Silicon Valley Bank -
Line of credit	$	1,573,000
Bridge loan sub-limit		750,000
Subordinated short-term note -
Agility Capital, LLC		1,000,000
Total borrowings		3.323,000
Less: unamortized loan origination fees		(82,000	)
Borrowings, net	$	3,241,000

Lines of Credit

Silicon Valley Bank

On October 5, 2005, the Company entered into a Loan and Security Agreement (the “Loan Agreement”)with Silicon Valley Bank (the “Bank”), for a secured, revolving line of credit of up to $5,000,000. The line of credit has a term of one year and includes a letter of credit sub-facility. Borrowings under the line of credit are subject to a borrowing base formula. The Company will pay interest on the borrowings under the line of credit at the Bank’s prime rate, or, if certain financial tests are not satisfied, at the Bank’s prime rate plus 1.5%. The line of credit is secured by all of the assets of the Company and is subject to customary financial and other covenants, including reporting requirements.

79

On January 12, 2006, the Company entered into a First Amendment to Loan and Security Agreement (the “First Amendment”) with the Bank.  The First Amendment revised certain terms of the Loan Agreement to provide an adjustment to the borrowing base formula and to permit liens in favor of a holder of subordinated debt that are subordinated to the liens of the Bank.  In addition, the First Amendment decreased the minimum tangible net worth that must be maintained by the Company under the Asset Based Terms of the Loan Agreement from $5 million to $1.5 million and granted the Bank a warrant to purchase 39,683 shares of the Company’s common stock at an exercise price of $1.89 per share.  The warrant will expire in five years unless previously exercised. The Company calculated the fair value of the warrant on the date of grant to be $51,000 using the Black-Scholes model incorporating the following assumptions:

Stock price	$	1.89
Dividend yield		0	%
Expected volatility		63	%
Risk-free interest rate		4.9	%
Expected life		5 years

The value of the warrant is being amortized over the term of the line of credit at $5,100 per month, and is included in Interest and Other Expense on the Income Statement. No borrowings were outstanding against the Line of Credit as of October 31, 2006.

On October 31, 2006, the Company entered into a Second Amendment to the Loan Agreement (the “Second Amendment”) with the Bank.  The Second Amendment extended the term of the line of credit to October 3, 2007 and revised certain terms of the Loan Agreement. Specifically, the Second Amendment decreased the amount available under the line of credit from $5 million to $4 million, and increased the minimum tangible net worth that must be maintained by the Company from $1.5 million to $5 million. Borrowings under the line of credit were subject to a borrowing base formula. Borrowings bore interest at the prime rate until such time as the Company’s quick ratio, which is defined as the ratio of unrestricted cash plus the Company’s net accounts receivable to the Company’s current liabilities, fell below 1.00 to 1.00. At such time as the Company’s quick ratio fell below 1.00 to 1.00, borrowings bore interest at the prime rate plus 1.50%, and the Company paid a fee of 0.50% per annum on the unused portion of the line of credit, and a collateral handling fee in an amount equal to $2,000 per month during 2007. The fees are included in Interest and Other Expenses at October 31, 2007.

On August 24, 2007, the Company entered into a Third Amendment to the Loan Agreement (the “Third Amendment”) with the Bank. The Third Amendment added a Bridge Loan Sub-limit to the Loan Agreement of up to $1,500,000 at an interest rate of prime plus 4.0%, subject to a borrowing base formula, and decreased the minimum tangible net worth that must be maintained by the Company from $5 million to $2 million. The maturity date of the Bridge Loan Sub-limit shall be the earlier of October 3, 2007 or the date the Company closes a private investment public equity transaction. Concurrent with the Third Amendment, the Company issued the Bank a warrant for 300,000 shares of the Company’s common stock at an exercise price of $0.98, the closing price of the Company’s common stock on August 24, 2007. The Company calculated the fair value of the warrant on the date of grant to be $175,000 using the Black-Scholes model incorporating the following assumptions:

80

Stock price	$	0.98
Dividend yield		0	%
Expected volatility		67	%
Risk-free interest rate		4.4	%
Expected life		5 years

The value of the warrant has been amortized over the term of the line of credit, and is included in Interest and Other Expense on the Income Statement for the fiscal year ended October 31, 2007.

On September 14, 2007, the Company entered into a Fourth Amendment to the Loan Agreement (the “Fourth Amendment”) with the Bank. The Fourth Amendment included: (i) a forbearance by the Bank from exercising its rights and remedies against the Company, until such time as the Bank determines in its discretion to cease such forbearance, due to the default under the Loan Agreement resulting from the Company failing to comply with the tangible net worth covenant in the Loan Agreement as of July 31, 2007 and August 31, 2007, and (ii) a consent to a subordinated debt facility of up to $750,000 with Agility Capital LLC. In connection with the Fourth Amendment, the Bank consented to the NOMOS Transaction and released its lien on the NOMOS assets.

On October 3, 2007, the Company entered into a Fifth Amendment and Forbearance to the Loan Agreement (the “Fifth Amendment”) with the Bank. The Fifth Amendment includes: (i) an extension of the maturity date of the Loan Agreement to November 9, 2007, and an extension of the maturity date of the Bridge Loan Sub-limit to the earlier of November 9, 2007 or the date the Company closes a private investment public equity transaction, (ii) a forbearance by the Bank from exercising its rights and remedies against the Company, until such time as the Bank determines in its discretion to cease such forbearance, due to the defaults under the Loan Agreement resulting from the Company failing to comply with the tangible net worth covenant in the Loan Agreement as of July 31, 2007, August 31, 2007 and September 30, 2007, and (iii) a consent to an increase in the Company’s subordinated debt facility with Agility Capital LLC from $750,000 to up to $1,000,000.

On October 29, 2007, the Company entered into a Sixth Amendment and Forbearance to the Loan Agreement (the “Sixth Amendment”) with the Bank. The Sixth Amendment includes: (i) an extension of the maturity date of the Loan Agreement to November 20, 2007, and an extension of the maturity date of the Bridge Loan Sub-limit to the earlier of November 20, 2007 or the date the Company closes a private investment public equity transaction, (ii) a forbearance by the Bank from exercising its rights and remedies against the Company, until such time as the Bank determines in its discretion to cease such forbearance, due to the defaults under the Loan Agreement resulting from the Company failing to comply with the tangible net worth covenant in the Loan Agreement as of July 31, 2007, August 31, 2007 and September 30, 2007, and (iii) a consent to the Company’s issuing up to $500,000 in unsecured subordinated debt to Mr. John Friede, or an entity owned or controlled by Mr. Friede. Mr. Friede is a significant stockholder of the Company, and was a director of the Company at the date of the agreement. The maturity date for the Loan Agreement and the Bridge Sub-limit agreement have been extended to the earlier of February 1, 2008 or the date the Company completes its private placement by the Seventh Amendment, entered into on November 20, 2007, and by the Eighth Amendment, entered into on December 18, 2007. (See Note 15 – Subsequent Events.).

The Company was not in compliance with the tangible net worth covenant of the Loan Agreement, as amended, with the Bank as of October 31, 2007. Under the terms of the Eighth Amendment between the Company and the Bank, the Bank agreed to continue its forbearance from exercising its rights and remedies against the Company, until such time as the Bank determines in its discretion to cease such forbearance, due to the defaults under the Loan Agreement resulting from the Company failing to comply with the tangible net worth covenant in the Loan Agreement as of July 31, 2007, August 31, 2007, September 30, 2007 and October 31, 2007. (See Note 15—Subsequent Events)

81

Interest rates were 9.3% and 11.8% per annum on the Line of Credit and Bridge Sub-limit Agreement as of October 31, 2007, respectively, and 8.25% on the Line of Credit at October 31, 2006.

Subordinated Short-Term Borrowings

Partners for Growth, LLC

On March 28, 2006, the Company entered into a Loan and Security Agreement (the “PFG Loan Agreement”)with Partners for Growth, LLC (“PFG”) for a secured, revolving line of credit of up to $4,000,000, which supplemented an existing line of credit provided by Silicon Valley Bank. The line of credit had a term of eighteen months, and earned interest at prime rate as quoted in the Wall Street Journal. Borrowings under the line of credit were subject to a borrowing base formula. Amounts owing under the line of credit were secured by all of the assets of the Company and were subordinated to amounts owing under the line of credit with Silicon Valley Bank. The line of credit did not contain financial covenants; however the Company was subject to other customary covenants, including reporting requirements, and events of default. In connection with the PFG Loan Agreement, the Company also granted PFG a warrant to purchase 395,000 shares of the Company’s common stock at an exercise price of $1.89 per share. As a result of the private placement of the Company’s common stock completed on June 7, 2006 (see Note 9), and pursuant to the anti-dilution terms of the warrant issued to PFG, the warrant was amended to increase the number of shares of the Company’s common stock that PFG can purchase from 395,000 shares to 555,039 shares, and the exercise price was decreased from $1.89 per share to $1.35 per share. The warrant will expire in five years unless previously exercised. The Company calculated the fair value of the warrant on the date of grant to be $475,000 using the Black-Scholes model incorporating the following assumptions:

Stock price	$	2.05
Dividend yield		0	%
Expected volatility		63	%
Risk-free interest rate		4.9	%
Expected life		5 years

The value of the warrant was deferred and amortized over the life of the loan at $26,500 per month and is included in Interest and Other Expense on the Income Statement. As of October 31, 2007, the value of the warrant was fully amortized. On August 30, 2007 the Company terminated the PFG Loan Agreement with PFG by mutual consent. As a result of the termination, PFG released all liens on the Company’s assets. There were no outstanding borrowings under the PFG Loan Agreement at the date of termination.

Agility Capital, LLC

On September 21, 2007, the Company entered into a Loan Agreement (the “Agility Loan Agreement”) with Agility Capital, LLC (“Agility”). The Agility Loan Agreement provides for advances of up to $750,000 subject to the achievement of certain milestones. Amounts owing under the Agility Loan Agreement are secured by all of the Company's assets, and are subordinated to amounts owing under the line of credit with Silicon Valley Bank. The Agility Loan Agreement does not contain financial covenants; however, the Company is subject to other customary covenants, including reporting requirements, and events of default. The Company is obligated to pay interest on borrowings under the Agility Loan Agreement at the prime rate, as quoted in The Wall Street Journal, plus 6% . The Agility Loan Agreement term was 60 days, and all amounts outstanding thereunder were due and payable on November 20, 2007. The Company paid an origination fee of $20,000 to Agility in connection with the Agility Loan Agreement. The origination fee and legal expenses were amortized over the term of the Agility Loan Agreement at $10,000 per month, and is included in Interest and Other Expense on the Income Statement. The Company further covered $15,000 of Agility’s legal fees in connection with the Agility Loan Agreement, which are recorded as general and administrative expenses.

82

On October 18, 2007, the Company entered into a First Amendment (the “First Amendment”) to the Agility Loan Agreement. The First Amendment provides for advances of up to $1,000,000. Amounts advanced under the Agility Loan Agreement are subordinated to the existing line of credit provided by Silicon Valley Bank. The First Amendment matured on November 20, 2007. In addition, within the First Amendment, Agility consented to the Company incurring up to $500,000 of subordinated unsecured indebtedness to John Friede or an entity owned or controlled by him (“Friede”), provided that Friede executes and delivers to Agility a subordination agreement pursuant to which the debt owed by the Company to Friede will be subordinated to the debt owed to Agility. Interest rate was 13.75% on the Loan Agreement as of October 31, 2007. The Company paid an origination fee of $10,000 to Agility in connection with the Agility Loan Agreement. The maturity date for the Agility Loan Agreement and the Bridge Sub-limit agreement have been extended to the earlier of February 1, 2008 or the date the Company completes its private placement by the Second Amendment, entered into on November 20, 2007, and by the Third Amendment, entered into on December 18, 2007. (See Note 15 – Subsequent Events).

In connection with the Agility Loan Agreement, on September 21, 2007, the Company granted Agility a $262,500 warrant to purchase 345,395 shares of the Company’s common stock at an exercise price of $0.76 per share, as determined by the closing price of the Company’s common stock on September 20, 2007, the day immediately preceding the issue date of the warrant (the “Initial Warrant”). The Initial Warrant will expire in seven years unless previously exercised.

The Company calculated the fair value of the Initial Warrant on the date of grant to be $149,000 using the Black-Scholes model incorporating the following assumptions:

Stock price	$	0.65
Dividend yield		0	%
Expected volatility		69	%
Risk-free interest rate		4.4	%
Expected life		7 years

In connection with the First Amendment, and in exchange for Agility’s returning to the Company the Initial Warrant issued on September 21, 2007, the Company granted Agility a revised $362,500 warrant to purchase 476,974 shares of the Company’s common stock at an exercise price of $0.76 per share, as determined by the closing price of the Company’s common stock on September 20, 2007, the day immediately preceding the issue date of the Initial Warrant (the “Revised Warrant”). The Revised Warrant will expire in seven years unless previously exercised.

The Company calculated the fair value of the Revised Warrant on the date of grant to be $253,000 using the Black-Scholes model incorporating the following assumptions:

83

Stock price	$	0.56
Dividend yield		0	%
Expected volatility		71	%
Risk-free interest rate		4.3	%
Expected life		7 years

The warrant price per share and the number of shares to be issued under the terms of the Revised Warrant will adjust to the price at which the Company next issues its common stock or other equity-linked securities, provided that any amount is outstanding under the Agility Loan Agreement. In evaluating the terms of the Revised Warrant under EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, the Company was unable to determine the price at which it will next issue its common stock or other equity-linked securities at October 31, 2007. If the next issue price falls below a certain price point, the Company would not have sufficient authorized shares to settle the warrant after considering all other commitments that may require the issuance of its common stock during the life of the Revised Warrant. The Company concluded that the Revised Warrant is correctly classified as a liability and will be revalued to fair value each reporting period.

At October 31, 2007, the Company calculated the fair value of the Revised Warrant to be $173,000 using the Black-Scholes model incorporating the following assumptions:

Stock price	$	0.56
Dividend yield		0	%
Expected volatility		71	%
Risk-free interest rate		4.3	%
Expected life		7 years

The Initial Warrant has been fair valued and classified as a liability at the time of the grant. The fair value of $148,830 for the Initial Warrant was classified as debt discount. The debt discount is a reduction on the face of value of the note, and is being amortized over the life of the loan. As of October 31, 2007, $109,000 has been amortized as interest and other expense in the statement of operations.

The Revised Warrant has been fair valued and the increase in the fair value between the Initial Warrant and the Revised Warrant has been recorded as an adjustment to the debt discount and amortized over the remaining term of the loan, since the Revised Warrant was granted in conjunction with the increase in the loan amount pursuant to the First Amendment to the Agility Loan Agreement. As of October 31, 2007, the debt discount has been amortized as interest and other expense in the statement of operations. The Company fair valued the Revised Warrant on October 31, 2007, and has adjusted the liability and the statement of operations for an insignificant amount.

In addition, under the terms of the Revised Warrant, the Company has until July 31, 2008 (the “Filing Date”), to file a registration statement on Form S-3 or applicable form covering the resale of the warrant shares on a registration statement (the “Registration Statement”) with the Securities Exchange Commission (the “SEC”). The Shares, or the common stock into which the Shares are convertible, shall be “Registrable Securities”, and the holder shall have the rights of a “Holder” under such investor rights agreement or registration rights agreement as the Company may enter into from time to time. If the Registration Statement (i) has not been filed with the SEC by the Filing Date, (ii) has not been declared effective by the SEC within 45 days thereafter, or (iii) after the Registration Statement is declared effective by the SEC, is suspended by Company or ceases to remain continuously effective as to all Shares for which it is required to be effective (a “Registration Default”), for any 30-day period (a “Penalty Period”) during which the Registration Default remains uncured, the holder may acquire an additional number of Shares equal to 50,000 shares for each such penalty period, but not more that 600,000 shares in the aggregate. All expenses incurred in connection with any registration, qualification, exemption or compliance pursuant to these provisions shall be borne by Company.

84

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.

Authorized Shares of Common Stock

Pursuant to a consent solicitation dated April 5, 2007, a majority of the Company’s shareholders consented to amend the Company’s Certificate of Incorporation to increase the total number of authorizedshares of common stock of the Company from 40,000,000 shares to 100,000,000 shares on April 20, 2007. The Company used some of the additional authorized shares to cover the grant of stock options to the Company’s President and Chief Executive Officer and the Company intends to use some of the shares for issuance in connection with the Company’s stock-based benefit plans, as well as for future equity financings and other corporate purposes.

Sale of Common Stock and Warrants

On June 7, 2006, the Company completed a private placement of 12,291,934 shares of its common stock at a purchase price of $1.95 per share as well as warrants to purchase an additional 6,145,967 shares of the Company’s common stock at an exercise price of $2.08 per share for an aggregate consideration of approximately $24.0 million (before cash commissions and expenses of approximately $2.0 million). The warrants are exercisable beginning 180 days after the date of closing until 7 years after the date of closing. The values of the warrants and common stock in excess of par value have been classified as stockholders’ equity in additional paid-in capital in our consolidated balance sheet as of October 31, 2006. The warrants were evaluated under SFAS 133 and EITF 00-19, and the Company determined that the warrants have been correctly classified as equity.

The shares of common stock sold to the investors and the shares of common stock issuable upon the exercise of the warrants are subject to certain registration rights as set forth in the Securities Purchase Agreements. Under the Securities Purchase Agreements, we agreed to file a registration statement with the Securities and Exchange Commission within 45 days after the closing of the transaction to register the resale of the shares of common stock and the shares of common stock issuable upon the exercise of the warrants. If we failed to file a registration statement within such time period or such registration statement was not declared effective within 90 days after the closing of the transaction, we would have been liable for certain specified liquidated damages as set forth in the Securities Purchase Agreements, except that the parties have agreed that the Company will not be liable for liquidated damages with respect to the warrants or the warrant shares. We have agreed to maintain the effectiveness of this registration statement until the earlier of such time as the passage of two years from the closing date or all of the securities registered under the registration statement may be sold under Rule 144(k) of the Securities Act of 1933 or all of the securities registered under the registration statement have been sold. We will pay all expenses incurred in connection with the registration, except for underwriting discounts and commissions. Pursuant to the terms of the Securities Purchase Agreement, we filed a registration statement on Form S-3 with the Securities and Exchange Commission on July 21, 2006 to register the shares of common stock sold to the investors and the shares of common stock issuable upon the exercise of the warrants. The registration statement was declared effective by the Securities and Exchange Commission on August 4, 2006.

85

The Securities Purchase Agreements required that we increase the number of members of the Board of Directors of the Company (the “Board”) from seven members to nine members. Under the Securities Purchase Agreements, Three Arch Partners, one of the investors, has the right to designate two members to the Board so long as Three Arch Partners beneficially owns greater than 3,500,000 shares of common stock (including shares of common stock issuable upon exercise of the warrants, and as appropriately adjusted for stock splits, stock dividends and recapitalizations) and the right to designate one member to the Board so long as Three Arch Partners beneficially owns greater than 2,000,000 shares of common stock (including shares of common stock issuable upon exercise of the warrants, and as appropriately adjusted for stock splits, stock dividends and recapitalizations). In accordance with the terms of the Securities Purchase Agreements, we increased the number of members of our Board from seven members to nine members and Three Arch Partners designated Wilfred E. Jaeger, M.D. and Roderick A. Young to fill the two vacancies. Our Board elected Dr. Jaeger and Mr. Young to serve as members of the Board on June 13, 2006.

In connection with the issuance of the warrants and upon closing of the transaction, we entered into a Warrant Agreement with our transfer agent relating to the warrant of Three Arch Partners and a different Warrant Agreement with our transfer agent relating to the warrants of the investors other than Three Arch Partners. The material differences between the two Warrant Agreements are described below.

The Three Arch Partners Warrant Agreement includes a non-waivable provision that provides that the number of shares issuable upon exercise of the warrants that may be acquired by Three Arch Partners will be limited to the extent necessary to assure that, following such exercise, the total number of shares of common stock then beneficially owned by Three Arch Partners and its affiliates does not exceed 19.9% of the total number of issued and outstanding shares of common stock as of the date of such exercise (including for such purpose the shares of common stock issuable upon such exercise of warrants), unless approved by our stockholders prior to such exercise. The Warrant Agreement relating to the warrants of the other investors does not include such a provision.

The Warrant Agreement relating to the investors other than Three Arch Partners includes a waivable provision that provides that the number of shares issuable upon exercise of the warrants that may be acquired by a registered holder of warrants upon an exercise of warrants will be limited to the extent necessary to assure that, following such exercise, the total number of shares of common stock then beneficially owned by its holder and its affiliates does not exceed 4.99% of the total number of issued and outstanding shares of common stock (including for such purpose the shares of common stock issuable upon such exercise of warrants). This provision may be waived by a registered holder of warrants, at the election of such holder, upon not less than 61 days prior notice to us. This Warrant Agreement also contains a non-waivable provision that provides that the number of shares issuable upon the exercise of the warrants that may be acquired by a registered holder of warrants upon an exercise of warrants will be limited to the extent necessary to assure that, following such exercise, the total number of shares of common stock then beneficially owned by such holder and its affiliates does not exceed 9.99% of the total number of issued and outstanding shares of common stock (including for such purpose the shares of common stock issuable upon such exercise of warrants). The Warrant Agreement relating to the warrants of Three Arch Partners does not include such provisions.

86

Stock Options

The Company's 1996 Stock Option Plan ("1996 Plan"), as amended April 6, 2001, provided 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 were immediately exercisable while other options vested over periods up to four years. The options expire ten years from the date of grant. The 1996 Plan provided for the automatic increase on January 1 of each year, beginning with calendar year 2002 and continuing through calendar year 2004, by a number of shares equal to 3.5% of the total number of shares of the Company's Common Stock outstanding on the last trading day in the immediately preceding calendar year. In May 2004, the Company’s shareholders approved proposals to amend the 1996 Plan to make an additional 600,000 shares available for issuance under the plan and to permit the issuance of 1,362,589 replacement options in connection with the acquisition of NOMOS. From November 1, 2005 through March 31, 2006, stock options for 1,303,000 shares were granted to employees under the 1996 Plan. The 1996 Plan expired on April 1, 2006.

On May 3, 2006, the Company’s shareholders approved the North American Scientific, Inc. 2006 Stock Plan (“2006 Plan”). Under the 2006 Plan, the Company may issue up to 1,700,000 shares, plus any shares from the 1996 Plan that are subsequently terminated, expire unexercised or forfeited, to employees of the Company through incentive stock options, non-qualified options, stock appreciation rights, restricted stock and restricted stock units. The exercise price of an option is equal to the fair market value of the Company’s stock on the date of the grant. As of October 31, 2007, 1,401,275 shares were terminated, expired unexercised or forfeited in the 1996 Plan and were transferred to the 2006 Plan. During the fiscal year ended October 31, 2007, 1,149,470 options underlying shares of the Company’s common stock were granted under the 2006 Plan. As of October 31, 2007, 1,986,805 shares are available for grant under the 2006 Plan.

In March 2003, the Company's shareholders approved the 2003 Non-Employee Directors' Equity Compensation Plan ("Directors' Plan"). The Directors' Plan supersedes prior provisions for grants of stock options to non-employee directors contained in the 1996 Plan. Under the Directors' Plan, the Company may issue up to 500,000 shares to non-employee directors of the Company through non-qualified options or restricted stock. The exercise price of an option is equal to the fair market value of the Company's stock on the date of grant. Options and restricted stock vest equally over a three-year period. The options expire ten years from the date of grant. In the fiscal years ended October 31, 2007 and 2006, stock options for 115,000 shares and 150,000 shares, respectively, were granted to non-employee directors under the Directors’ Plan. At October 31, 2007, there were 15,000 shares available for grant under the Directors’ Plan.

87

On April 23, 2007, the Company granted stock options with respect to 1,800,000 shares of its common stock in connection with the employment by the Company of its new CEO. (See Note 10 – Commitments and Contingencies). Options with respect to 600,000 shares of the Company’s common stock were issued under the 2006 Plan. Options with respect to the remaining 1,200,000 shares of the Company’s common stock were issued as a stand-alone grant outside the 2006 Plan and approved by the written consent of a majority of shareholders on April 20, 2007. The stock options have an exercise price of $1.16, which is equal to the fair market value per share of the Company’s common stock on the grant date. All of the options have a term of ten years and vest monthly over a four-year period. The options remain exercisable until the earlier of the expiration of the term of the option or (i) three months following Mr. Rush’s date of termination in the case of termination for reasons other than cause, death or disability (as such terms are defined in his employment agreement) or (ii) 12 months following Mr. Rush’s date of termination in the case of termination on account of death or disability. In the event that Mr. Rush is terminated for cause, all outstanding options, whether vested or not, will immediately lapse.

At October 31, 2007, a total of 6,508,918 shares of the Company’s common stock were reserved for issuance under the stock option plans. The following table summarizes stock option activity for both plans:

				Options Outstanding
	Options Available for Grant			Number Outstanding			Exercise Price
Balance at October 31, 2004		1,579,742			3,253,821			$0.03 - $24.54
Granted		(275,000	)		275,000			$2.25 - $3.66
Forfeited and expired		427,699			(427,699	)		$1.11 - $16.75
Exercised		—			(687,013	)		$1.11 - $1.96
Balance at October 31, 2005		1,732,441			2,414,109			$0.03 - $24.54
Granted		(1,453,000	)		1,453,000			$1.92 - $3.35
Forfeited and expired		(194,441	)		(426,618	)		$1.11 - $16.75
Exercised		—			(2,186	)		$1.11 - $1.12
Additional shares reserved		1,700,000			—			—
Balance at October 31, 2006		1,785,000			3,438,305			$0.03 - $24.54
Granted		(2,464,470	)		2,464,470			$0.93 - $1.23
Forfeited and expired		1,481,275			(1,395,662	)		$0.70 - $24.54
Exercised		—			—			—
Additional shares reserved		1,200,000			—			—
Balance at October 31, 2007		2,001,805			4,507,113			$0.03 - $23.50

88

There were 1,669,521, 1,878,663 and 1,873,220 options exercisable with weighted average exercise prices of $6.94, $8.57 and $8.79 at October 31, 2007, 2006 and 2005, respectively.

The following table summarizes options outstanding at October 31, 2007 and the related weighted average exercise price and remaining contractual life information:

	Employee Options Outstanding						Employee Options Exercisable
Range of Exercise Prices	Shares		Weighted Avg. Remaining Contractual Life (Years)		Weighted Avg. Exercise Price		Shares		Weighted Avg. Exercise Price
$0.03 - $0.94		521,470		9.83	$	0.94		7,000	$	0.03
$0.95 - $1.16		1,800,000		9.48		1.16		225,000		1.16
$1.17 - $3.18		768,750		6.52		2.27		299,628		2.59
$3.19 - $7.31		700,968		4.66		5.52		434,468		6.85
$7.32 - $23.50		715,925		4.13		10.70		703,425		10.76
		4,507,113		7.41	$	3.52		1,669,521	$	6.94

The average fair value for accounting purposes of options granted was $1.12, $1.09 and $2.47 for the years ended October 31, 2007, 2006 and 2005, respectively.

The following table summarizes the weighted average price, weighted average remaining contractual life and intrinsic value for granted and exercisable options outstanding as of October 31, 2007 and 2006:

	Number of Shares		Weighted Average Exercise Price		Weighted Avg. Remaining Contractual Life (Years)		Intrinsic Value
As of October 31, 2006:
Employee Options Outstanding		3,438,305	$	6.06		5.81	$	56,500
Employee Options Expected to Vest		1,691,925	$	2.68		7.14	$	—
Employee Options Exercisable		1,746,380	$	8.57		4.52	$	56,500
As of October 31, 2007
Employee Options Outstanding		4,507,113	$	3.52		7.54	$	3,710
Employee Options Expected to Vest		2,837,592	$	0.56		2.82	$	—
Employee Options Exercisable		1,669,521	$	6.94		5.26	$	3,710

89

Fair Value Disclosures

The Company calculated the fair value of each option grant on the respective date of grant using the Black-Scholes option-pricing model as prescribed by SFAS 123(R) using the following assumptions:

	Year Ended October 31,
	2007			2006			2005
Dividend yield		0	%		0	%		0	%
Expected volatility		61	%		63	%		82	%
Risk-free interest rate		4.8	%		4.9	%		3.9	%
Expected life		5 years			5 years			5 years

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. On May 2, 2007, the Company entered into a Third Amendment to Rights Agreement, which amended the Rights Agreement to provide, among other things, that the Board of Directors of the Company may determine that a person who would otherwise become an Acquiring Person, as defined in the amendment, has become such inadvertently, and provided certain conditions are satisfied, that such person is not an Acquiring Person for any purposes of the Rights Agreement.

Employee Stock Purchase Plan

In March 2000, the Board of Directors authorized an Employee Stock Purchase Plan (the “ESPP") under which 300,000 shares of the Company's common stock are reserved for issuance. Eligible employees may authorize payroll deductions of up to 15% of their salary to purchase shares of the Company's common stock at a discount of up to 15% of the market value at certain plan-defined dates. For the years ended October 31, 2007, 2006 and 2005, the shares issued under the ESPP were 154,082, 96,489 and 59,742 shares, respectively. On June 5, 2007, the Board of Directors approved a 300,000 share increase to 600,000 authorized shares for the ESPP. At October 31, 2007 and 2006, 219,757 and 73,839 shares were available for issuance under the ESPP, respectively.

Common Stock Repurchase Program

In October 2001, the Board of Directors authorized a stock repurchase program to acquire up to $10 million of the Company's common stock 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, 2007 and 2006, a total of 116,995 shares and 22,100 shares had been repurchased by the Company at a cost of $227,000 and $132,000, respectively and are reflected as Treasury Stock on the Balance Sheet at the respective dates.

90

NOTE 10—INCOME TAXES

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

	Year Ended October 31,
	2007			2006			2005
Current:
Federal	$	—		$	—		$	—
State		—			—			—
		—			—			—
Deferred:
Federal		(6,037	)		(5,100	)		12,025
State		(1,567	)		(1,273	)		3,446
Valuation Allowance		7,604			6,373			(15,471	)
		—			—			—
	$	—		$	—		$	—

The Company did not recognize a benefit for the loss during the years ended October 31, 2007, 2006, and 2005. 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,
	2007			2006
Deferred tax assets :
Accrued liabilities	$	465,000		$	586,000
Accrued decommissioning		—			158,000
Allowance for doubtful accounts		192,000			614,000
Inventory reserve and capitalized inventory		163,000			1,898,000
Other		10,000			19,000
Depreciation and amortization		1,004,000			2,091,000
Tax credits		4,814,000			4,814,000
Theseus impairment		1,850,000			1,850,000
Net operating loss carryforwards		59,173,000			50,497,000
		67,671,000			62,527,000
Deferred tax liabilities:
Purchased intangible assets		—			(2,248,000	)
Other		—			(212,000	)
		—			(2,460,000	)
Net deferred tax assets		67,671,000			60,067,000
Less: valuation allowance		(67,671,000	)		(60,067,000	)
	$	—		$	—

91

Based upon the level of historical losses and projections of future taxable income over the periods in which the deferred tax assets are deductible, a valuation allowance has been recorded for tax assets as the Company believes that it is more likely than not, based upon available evidence, that such assets will not be realized.

At October 31, 2007, the Company had federal net operating loss carryforwards of approximately $144 million which begin to expire in 2013. The Company also has state NOL carryforwards of approximately $116 million which begin to expire in 2008. The Company is evaluating its state NOL carryforwards to deterimine its ability to ultimately realize the benefits of the NOL carryforwards. The Company has federal research and experimentation credits of approximately $5 million which begin to expire in 2008, of which $3 million was acquired in the NOMOS acquisition. The use of net operating loss and tax credit carryforwards are subject to statutory limitations upon a change in control during a three year rolling period.

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

	Year Ended October 31,
	2007			2006			2005
Federal tax provision at U.S. statutory rate		(34	)%		(34	)%		(34	)%
State income taxes, net of federal tax benefit		—			—			—
Impairment of Goodwill		—			—			10
Other		—			1			3
Other non-deductible expenses		2			—			—
Tax credits		—			—			—
Valuation allowance		32			33			21
		—	%		—	%		—	%

92

NOTE 11—RETIREMENT PLAN

The Company has a 401(k) retirement plan that allows eligible employees to contribute up to the statutory 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 $85,000, $78,000 and $46,000, for the years ended October 31, 2007, 2006, and 2005, respectively.

NOTE 12—COMMITMENTS AND CONTINGENCIES

Contract Commitments

The Company has entered into purchase commitments of $0.1 million to suppliers under blanket purchase orders. The blanket purchase orders expire when the designated quantities have been purchased.

Lease Commitments

The Company leases facilities and equipment under non-cancelable operating lease agreements. Future minimum lease payments are subject to annual adjustment for increases in the Consumer Price Index. Total rent expense for the years ended October 31, 2007, 2006 and 2005 was $379,000, $373,000 and $380,000, respectively.

Future minimum annual lease payments under all operating leases are as follows:

For the Years Ended October 31,
2008	$	380,000
2009		20,000
	$	400,000

Third Party License Agreements

We license from third parties some of the technologies used in our core products. The license agreements are described in Item 1. of this report under Third-Party License Agreements. The following are the minimum royalty amounts under each of the agreements:

Licensor
IdeaMatrix, Inc.	$	500,000
University of South Florida Research Foundation, Inc.		325,000
	$	825,000

93

The royalty payments for IdeaMatrix, Inc. are payable annually at $125,000 through 2011, and for the University of South Florida Research Foundation, Ind., annually at $50,000 through 2009, increasing to $75,000 in 2010 through 2012.

Employment Agreements

On March 22, 2007, the Company entered into an employment agreement (the “Agreement”) with John B. Rush in connection with his employment as the Company’s new President and Chief Executive Officer. Mr. Rush’s base salary will be $350,000. Mr. Rush will also be eligible to receive an annual bonus, if any, based upon performance goals approved by the Board or the Compensation Committee of the Board, in consultation with Mr. Rush, in an amount, not to exceed 60% of his base salary, to be determined by the Compensation Committee. For the period beginning on April 23, 2007 and ending the last day of the Company’s fiscal year, October 31, 2007, Mr. Rush will receive a guaranteed, minimum, pro-rated bonus of 30% of his base salary. The Company has accrued $115,000 for this obligation as of October 31, 2007, included in Accrued Liabilities and General and Administrative Expenses.

On April 23, 2007, the Company granted stock options to Mr. Rush with respect to 1,800,000 shares of our common stock. The stock options have an exercise price of $1.16, which was equal to the fair market value per share of our common stock on the grant date. In addition, in the event that within 24 months of April 23, 2007, the Company issues additional shares of stock in connection with raising capital in a private placement transaction, the Company is required to grant options to Mr. Rush to acquire an additional number of shares of common stock equal to 3% of the number of shares issued in connection with such transaction (the “Additional Shares”).

94

All of the options have a term of ten years and vest monthly over a four-year period. The options remain exercisable until the earlier of the expiration of the term of the option or (i) three months following Mr. Rush’s date of termination in the case of termination for reasons other than cause, death or disability (as such terms are defined in his employment agreement) or (ii) 12 months following Mr. Rush’s date of termination in the case of termination on account of death or disability. In the event that Mr. Rush is terminated for cause, all outstanding options, whether vested or not, will immediately lapse.

In the event (a) Mr. Rush’s employment is terminated by the Company at any time after April 23, 2007 for any reason other than Mr. Rush’s death, disability or cause or (b) Mr. Rush resigns for a “good reason” (as defined in the Agreement), Mr. Rush will receive his base salary in effect on the date of termination for a period ending 12 months following the date of termination.

In the event of a “Control Termination” (as defined in the Agreement), Mr. Rush will be entitled to receive his base salary in effect on the date of termination and group health benefits for a period ending 12 months following the date of termination and, in addition, Mr. Rush shall, as of the date of the Control Termination, become fully vested in any unvested options previously granted to him.

Mr. Rush’s employment agreement also provides that the Company will make a tax gross-up payment to Mr. Rush in the event that payments to Mr. Rush on account of a change in control constitute an excess parachute payment subject to an excise tax under Section 4999 of the Code. Similarly, the Company will make a tax gross-up payment to Mr. Rush for any excise tax in the event that amounts or benefits payable to Mr. Rush are determined to be subject to the excise tax on nonqualified deferred compensation under Section 409A of the Code.

In the event that any amount payable upon Mr. Rush’s termination would be determined to be “non-qualified deferred compensation” subject to Section 409A of the Code, the Company may delay payment for six months, in order to comply with Section 409A of the Code.

On November 2, 2006, the Company announced that Mr. Cutrer will transition from the position of President and Chief Executive Officer to become the Company’s Executive Vice President and Chief Technology Officer upon his successor being identified and joining the Company. As part of this transition process, on December 21, 2006, the Company and Mr. Cutrer entered into a First Amended and Restated Employment Agreement (the “Amended Agreement”), which became effective with the employment of Mr. Rush (the “Effective Date”). Under the Amended Agreement, Mr. Cutrer’s annual base salary will be $280,000. In addition, Mr. Cutrer will be eligible to receive an annual bonus, if any, based upon performance goals approved by the Compensation Committee or the Board in an amount to be determined in the sole discretion of the Compensation Committee or the Board. If Mr. Cutrer meets or exceeds the performance goals for a particular measuring year, the annual bonus may not be less than 25% of his base salary.

In the event Mr. Cutrer’s employment terminates on or before October 31, 2007 for (a) any reason other than Mr. Cutrer’s death, disability or “cause” (as defined in the Amended Agreement) or (b) Mr. Cutrer resigns for “good reason” (as defined in the Amended Agreement), Mr. Cutrer will continue to receive his base salary in effect on the termination date through October 31, 2007.

 In the event Mr. Cutrer’s employment terminates at any time after the Effective Date for any reason, except for a “Control Termination” (as defined in the Amended Agreement), and in addition to any payment that may be due if he is terminated on or before October 31, 2007 as noted above, Mr. Cutrer will be entitled to receive (a) severance pay equal to three times his highest base salary during his employment by the Company payable over a three year period in accordance with the Company’s standard payroll practices for salaried employees, and (b) any unvested stock options shall immediately vest as of the termination date. In addition, the exercise date of all stock options that, on the termination date, have an exercise price greater than the fair market value of the Company’s common stock will be extended to the later of (i) the last day of the year in which the stock option would otherwise have expired or (ii) two and a half months after the date on which the stock option would otherwise have expired (or such later date as may be permitted by final regulations issued pursuant to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), but in no event later than the date on which the stock option would have expired had Mr. Cutrer’s employment not been terminated).

95

 In the event of a Control Termination, Mr. Cutrer will be entitled to a “Control Severance Payment” in the gross amount equal to the total of: (a) three years’ base salary; (b) the highest annual bonus paid to Mr. Cutrer in the three years prior to such termination multiplied by three; (c) the Black-Scholes valuation of the stock options received by Mr. Cutrer during the one year prior to such termination multiplied by three (3); and (d) a tax gross-up payment if any severance payment constitutes an excess parachute payment subject to the excise tax imposed by Section 4999 of the Code. The Control Severance Payment will be paid as salary continuation ratably over a one year period. In addition, any unvested stock options will immediately vest as of the termination date.

The Company also maintains employment agreements with certain other key management. The agreements provide for minimum base salaries, eligibility for stock options and performance bonuses and severance payments.

Litigation

In November 2005, the Company was served with a complaint filed in U.S. District Court in Hartford, Connecticut by World Wide Medical Technologies (WWMT). WWMT’s six count complaint alleges breach of a confidentiality agreement, fraud, patent infringement, wrongful interference with contractual relations, violation of the Connecticut Uniform Trade Secrets Act, and violation of the Connecticut Unfair Practices Act. WWMT alleges that the Company fraudulently obtained WWMT’s confidential information during negotiations to purchase WWMT in 2004 and that once the Company acquired that information, it allegedly learned that Richard Terwilliger, (our former Vice President of New Product Development) owned certain patent rights and that the Company began trying to inappropriately gain property rights by hiring him away from WWMT. The Company was served with this matter at approximately the same time Mr. Terwilliger was served with a lawsuit in state court and with an application seeking a preliminary injunction declaring plaintiffs to be the sole owners of the intellectual property at issue and preventing Mr. Terwilliger from effectively serving as our Vice President of New Product Development. The Company has agreed to defend Mr. Terwilliger. The Company has removed the state court claim against Mr. Terwilliger to federal court and the cases have been consolidated. The defendants have answered both complaints and discovery has commenced in each matter. In April 2006, WWMT had its hearing for a preliminary injunction against Mr. Terwilliger heard in U.S. District Court. Plaintiffs abandoned that portion of their application for preliminary injunction that was based on an alleged misappropriation of trade secrets shortly before the hearing. On August 30, 2006, Magistrate Judge Donna Martinez issued a ruling ordering that what remained of plaintiffs' motion be denied.  Specifically, the Magistrate Judge found that plaintiffs do not have a reasonable likelihood of success on the merits of their claim for declaratory judgment that some or all of plaintiffs are the sole owners of the intellectual property at issues, and she further found that there do not exist sufficiently serious questions going to the merits of that claim to make them a fair ground for litigation.  The Company denies liability and intends to vigorously defend itself in this litigation as it progresses. No trial date has yet been set.

96

On April 20, 2006, a lawsuit captionedJ.P. Morgan Trust Company, N.A. v. John Alan Friede, et al. was filed in the U.S. District Court for the Southern District of New York against John Friede, a stockholder of the Company who was then also a director of the Company, Mr. Friede’s wife, and NOMOS Corporation, a subsidiary of the Company. With respect to NOMOS, the complaint sought repayment of at least approximately $5,250,000 principal amount of loans allegedly made to and still outstanding and owed by NOMOS, and other related equitable remedies plus interest, costs and expenses.

In accordance with the indemnification provisions of the merger agreement under which the Company acquired NOMOS on May 4, 2004, and the related indemnity escrow agreement, the Company made a claim for indemnification against the escrow to preserve our right of indemnity. The indemnity escrow account recently held approximately $1,225,000 of cash and 526,810 shares of our common stock.

As of October 23, 2007, a stipulation was entered into by all parties to dismiss the lawsuit, with prejudice, which stipulation was filed and certified by the Court on November 6, 2007. The plaintiff has issued a general release and discharge of claims against NOMOS and its affiliates, including the Company. Therefore, on November 15, 2007, the Company notified the escrow agent that the Company was withdrawing its claim of indemnification against the escrow, and authorized the escrow agent to distribute amounts held in the escrow fund in accordance with the terms of the escrow agreement.

In October 2007, the Company were served with a demand for arbitration by AnazaoHealth Corporation (“AnazaoHealth”). AnazaoHealth provides needle loading services for our Prospera brachytherapy products pursuant to a Services Agreement dated as of June 1, 2005, as amended (the “Services Agreement”). In its demand for arbitration, AnazaoHealth is seeking indemnification from the Company under the Services Agreement for damages arising out of a litigation filed against AnazaoHealth in the U.S. District Court for the District of Connecticut (the “Connecticut Litigation”) by Richard Terwilliger, Gary Lamoureux, World Wide Medical Technologies, LLC, IdeaMatrix, Inc., Advanced Care Pharmacy, LLC, Advanced Care Pharmacy, Inc., and Advanced Care Medical, Inc. The plaintiffs in the Connecticut Litigation claim that AnazaoHealth’s provision of services in the brachytherapy field infringes their patent rights, and certain of the plaintiffs claim that our Prospera products infringes their patent rights. The Company denies liability and intends to vigorously defend itself in this arbitration.

The Company is subject to other 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.

RELATED PARTIES

On February 17, 2006 the Company entered an exclusive license agreement with IdeaMatrix, Inc. (a company wholly owned by our former Vice President of New Product Development (Brachytherapy), Richard Terwilliger) for certain brachytherapy technology pertaining to needles and strands, used in the brachytherapy manufacturing process. This technology is critical to our SurTRAK line of products, sold in connection with our brachytherapy seeds. Under this exclusive license agreement, we paid $125,000 upon execution of the license agreement on February 17, 2006, and we are required to pay $125,000 per year over five years. There is no annual renewal fee or royalty arising out of this license. The term of this license expires upon the last expiring patent included in the license. As part of this license agreement, we have agreed to indemnify Mr. Terwilliger and IdeaMatrix, Inc. for claims arising from the licensed property, including the claim raised in the Worldwide Medical Technology lawsuit against Mr. Terwilliger and IdeaMatrix, Inc.

97

NOTE 13—NASDAQ LISTING

The Company received a NASDAQ Stock Market (“Nasdaq”) Staff Deficiency Letter dated September 21, 2007 indicating that, based on the Quarterly Report on Form 10-Q for the period ended July 31, 2007, Nasdaq had determined that the Company was not in compliance with the minimum $10 million stockholders’ equity requirement for continued listing on the Nasdaq Global Market set forth in Marketplace Rule 4450(a)(3). Further, on October 5, 2007, the Company received a notice from Nasdaq, dated October 5, 2007 indicating that for the last 30 consecutive business days, the bid price of the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion under Marketplace Rule 4450(a)(5), (the “Rule”). Therefore, in accordance with Marketplace Rule 4450(e)(2), the Company has 180 calendar days, or until April 2, 2008, to regain compliance. If, at anytime before April 2, 2008, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, Nasdaq’s Staff will provide written notification that the Company has achieved compliance with the Rule. If the Company does not regain compliance with the Rule by April 2, 2008, the Company’s common stock will be delisted, a decision which the Company may appeal to a Nasdaq Listing Qualifications Panel.

On December 11, 2007, the Company received formal notice that the Nasdaq Listing Qualifications Panel had granted the Company’s request for a transfer from the Nasdaq Global Market to the Nasdaq Capital Market, and continued listing on the Nasdaq Capital Market, subject to the following exception:

§ On or before January 17, 2008, the Company was required to inform the Panel that it has received funds sufficient to put it in compliance with the Capital Market shareholders’ equity requirement of $2.5 million. Within four business days of the receipt of the funds, the Company was required to make a public disclosure of receipt of the funds and file a Form 8-K with pro forma financial information indicating that it plans to report proforma shareholders’ equity of $2.5 million or greater for the fiscal year ended October 31, 2007. We informed the Panel of receipt of sufficient funds on January 18, 2008. We publicly disclosed receipt of such funds in a press release dated January 22, 2008 and filed a Form 8-K with respect to this matter on January 25, 2008.

§ On or before January 31, 2008, the Company was required to file its Annual Report on Form 10-K for the fiscal year ended October 31, 2007, which shall demonstrate proforma shareholder’s equity of $2.5 million or greater. (See NOTE 15—SUBSEQUENT EVENTS)

98

NOTE 14—SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

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

	First Quarter			Second Quarter			Third Quarter (Revised			Fourth Quarter (Revised
	(Revised)			(Revised)			for 2006)			for 2006)
Fiscal 2007
Net sales	$	3,914		$	3,788		$	3,438		$	4,177
Gross profit		1,416			1,183			750			1,279
Net loss from continuing operations		(2,274	)		(2,135	)		(2,970	)		(3,152	)
Net loss from discontinued operations		(921	)		(1,044	)		(7,718	)		(783	)
Net loss		(3,195	)		(3,179	)		(10,688	)		(3,935	)
Basic and diluted loss per share – continuing operations	$	(0.08	)	$	(0.07	)	$	(0.10	)	$	(0.11	)
Basic and diluted loss per share – discontinued operations	$	(0.03	)	$	(0.04	)	$	(0.26	)	$	(0.02	)
Basic and diluted loss per share	$	(0.11	)	$	(0.11	)	$	(0.36	)	$	(0.13	)
Fiscal 2006
Net sales	$	2,852		$	3,226		$	3,166		$	3,349
Gross profit		747			804			994			1,051
Net loss from continuing operations		(1,701	)		(2,350	)		(2,526	)		(2,830	)
Net loss from discontinued operations		(974	)		(1,345	)		(2,107	)		(3,297	)
Net loss		(2,675	)		(3,695	)		(4,633	)		(6,127	)
Basic and diluted loss per share – continuing operations	$	(0.10	)	$	(0.14	)	$	(0.10	)	$	(0.10	)
Basic and diluted loss per share – discontinued operations	$	(0.06	)	$	(0.08	)	$	(0.09	)	$	(0.11	)
Basic and diluted loss per share	$	(0.16	)	$	(0.22	)	$	(0.19	)	$	(0.21	)

NOTE 15—SUBSEQUENT EVENTS

Debt arrangements

John Friede Note

On October 30, 2007, the Company entered into a Loan Agreement (the “Friede Loan Agreement”) with Mr. John Friede (the “Lender”) a stockholder and former director of the Company. Subject to the terms of the Friede Loan Agreement, the Lender agreed to loan the Company $500,000 in two installments of $250,000 each. The loan is unsecured and subordinated to the loan agreements with Silicon Valley Bank and Agility Capital. In connection with the Friede Loan Agreement, the Company agreed to issue to the Lender a warrant to purchase that number of shares of the Company’s common stock as shall be equal to $200,000 divided by the Exercise Price, which is the per share closing price of the Company’s common stock on the trading day before the issuance of the warrant. On November 1, 2007, the Company executed the promissory note underlying the loan and received the first $250,000 installment. The Company and the Lender amended the Friede Loan Agreement on November 20, 2007, prior to funding of the second $250,000 installment, to extend the maturity date of the Friede Loan Agreement from November 20, 2007 to December 20, 2007, and to reduce the borrowing capacity to $250,000 from $500,000. The loan and accrued interest were paid in full on December 20, 2007.

99

Silicon Valley Bank

On November 20, 2007, the Company entered into a Seventh Amendment and Forbearance to its Loan Agreement (the “Seventh Amendment”) with Silicon Valley Bank (the “Bank”). The Seventh Amendment includes: (i) an extension of the maturity date of the Loan Agreement to December 20, 2007, and an extension of the maturity date of the Bridge Loan Sub-limit to the earlier of December 20, 2007 or the date the Company closes a private investment public equity transaction, and (ii) a forbearance by the Bank from exercising its rights and remedies against the Company, until such time as the Bank determines in its discretion to cease such forbearance, due to the defaults under the Loan Agreement resulting from the Company failing to comply with the tangible net worth covenant in the Loan Agreement as of July 31, 2007, August 31, 2007 and September 30, 2007. In connection with the Seventh Amendment, the Company granted a warrant to the Bank to purchase 90,909 shares of the Company’s common stock, at a warrant price of $0.55 per share, subject to adjustment as provided in such warrant. The warrant will expire in five years unless previously exercised.

On December 18, 2007, the Company, entered into an Eighth Amendment and Forbearance to the Loan Agreement (the “Eighth Amendment”) with the Bank. The Eighth Amendment includes: (i) an extension of the maturity date of the Loan Agreement to the earlier of February 1, 2008 or the date the Company completes its private placement (See Securities Purchase Agreement below), (ii) a forbearance by the Bank from exercising its rights and remedies against the Company, until such time as the Bank determines in its discretion to cease such forbearance, due to the defaults under the Loan Agreement resulting from the Company failing to comply with the tangible net worth covenant in the Loan Agreement as of July 31, 2007, August 31, 2007, September 30, 2007 and October 31, 2007 and (iii) a consent from the Bank to allow the Company to repay its outstanding loan from Mr. John A. Friede in the amount of $250,000. In connection with the Eighth Amendment, the Company granted a warrant to the Bank to purchase that number of shares of the Company’s common stock as shall be equal to $50,000 divided by the warrant price, which is equal to the lower of (i) the closing price of the Company’s common stock on the date the Company’s Board of Directors approves the issuance of this warrant or (ii) the closing price of the Company’s common stock on date the warrant is issued, subject to adjustment as provided in such warrant. The warrant will expire in five years unless previously exercised.

Agility Capital, LLC

On November 20, 2007, the Company executed a Second Amendment to the Agility Loan Agreement (the “Second Amendment”) with Agility Capital, LLC (“Agility”) to extend the maturity date of the Agility Loan Agreement from November 20, 2007 to December 21, 2007. In connection with the Second Amendment, the Company granted a warrant to Agility to purchase that number of shares of the Company’s common stock as shall be equal to $231,250 divided by the warrant price, which is equal to the lowest of (i) the closing price of Company’s common stock the day before the issue date of the warrant, as published in The Wall Street Journal on the issue date, or (ii) the average closing price of the Company’s common stock for the 30 days before the issue date, or (iii) the price at which Company next issues its common stock or other equity-linked securities, other than issuances of its common stock to officers and employees by the Company pursuant to its 2006 Stock Plan, 2000 Employee Stock Purchase Plan and 2003 Non-Employee Directors’ Equity Compensation Plan and any other employee incentive plan approved by Company’s stockholders, subject to adjustment as provided in the warrant. The warrant will expire in seven years unless previously exercised.  

100

On December 20, 2007, the Company executed a Third Amendment to the Agility Loan Agreement (the “Third Amendment”) with Agility. The Third Amendment includes (i) an extension of the maturity date of the Loan Agreement to February 1, 2008, (ii) a loan modification and extension fee of $20,000, paid by the Company upon the execution of the amendment, and (iii) a consent from Agility to allow the Company to repay its outstanding loan from Mr. John A. Friede in the amount of $250,000. In connection with this amendment, the Company granted a warrant to Agility to purchase that number of shares of the Company’s common stock as shall be equal to $200,000 divided by the warrant price, which is equal to the lowest of (i) the closing price of Company’s common stock the day before the issue date of the warrant, as published in The Wall Street Journal on the issue date, or (ii) the average closing price of the Company’s common stock for the 30 days before the issue date, or (iii) the price at which Company next issues its common stock, subject to adjustment as provided in the warrant. The warrant will expire in seven years unless previously exercised.  The loan and accrued interest were paid in full on January 23, 2008.

Three Arch Capital (et al)

On December 7, 2007, the Company entered into a Loan Agreement (the “Three Arch Loan Agreement”) with Three Arch Capital, L.P., TAC Associates, L.P., Three Arch Partners IV, L.P. and Three Arch Associates IV, L.P. (the “Lenders”). The Lenders are, collectively, the largest stockholder of the Company, and Dr. Wilfred Jaeger and Roderick Young, two of our directors, are affiliates of the Lenders. The transaction contemplated by the Three Arch Loan Agreement was approved by a committee of the Company’s Board of Directors consisting only of disinterested directors.

Under the Three Arch Loan Agreement, the Lenders loaned $1.0 million to the Company and the Company issued notes to the Lender (the “Notes”). The Notes bear interest at an annual rate equal to the prime rate plus six percent (6%) and are subordinated to the Company’s indebtedness to Silicon Valley Bank and Agility Capital LLC. The Notes are due and payable on December 20, 2007, provided that if prior to December 20, 2007, Silicon Valley Bank shall have extended the maturity date under its Loan and Security Agreement with the Company (the “SVB Loan Agreement”) until after December 20, 2007, then the Notes shall be due and payable on the earliest of (i) February 4, 2008, (ii) the close of the Company’s pending private investment public equity financing transaction (See Securities Purchase Agreement below), or (iii) the maturity date under the SVB Loan Agreement. In connection with the Loan Agreement, the Company has agreed to pay an aggregate of $20,000 as a loan fee to the Lenders and has granted the Lenders warrants to purchase, in the aggregate, 1,025,641 shares of the Company’s common stock at a purchase price of $0.39 per share. The loan and accrued interest were paid in full on January 24, 2008.

Securities Purchase Agreement

On December 12, 2007, the Company entered into a Securities Purchase Agreement with Three Arch Partners IV, L.P. and affiliated funds (“Three Arch Partners”), SF Capital Partners Ltd. (“SF Capital”) and CHL Medical Partners III, L.P. and an affiliated fund (“CHL,” and together with Three Arch Partners and SF Capital, the “Investors”) providing for the private placement (the “Private Placement”) of 63,008,140 shares (the “Shares”) of common stock of the Company, par value $0.01 per share (the “Common Stock”), and warrants to purchase 3,150,407 shares of Common Stock (the “Warrants,” and, together with the Shares, the “Securities”) for a total purchase price of $15.5 million. As described above, Three Arch Partners is the Company’s largest stockholder. SF Capital also is one of our significant stockholders. This transaction was approved by a committee of our Board of Directors consisting only of disinterested directors.

101

The purchase price is equal to $0.246 per Security, of which $0.01 is allocated to the Warrants. The purchase price represents a 40% discount to the volume weighted average price of the Common Stock on the Nasdaq Global Market, as reported by Bloomberg Financial Markets, for the 20 trading day period ending on the trading day immediately preceding the date of the Securities Purchase Agreement. The Warrants have an exercise price of $0.246 per share, subject to certain adjustments. The Warrants may be exercised no earlier than 180 days from the closing date of the transaction and will expire seven years from the date of issuance.

In order to close the Private Placement, the Company was required to obtain stockholder approval of the Private Placement and the amendment of its Certificate of Incorporation to increase the number of shares of Common Stock it is authorized to issue. The Company received the approval of a majority of the stockholders on January 17, 2008 and closed the transaction on January 18, 2008.

The Investors purchased the following amounts of Securities in the offering:

Investor	Shares		Warrants (Shares issuable upon exercise)
Three Arch Partners		40,650,420		2,032,521
SF Capital		10,162,600		508,130
CHL		12,195,120		609,756

Prior to the closing of the transaction, Three Arch Partners owned 5,121,638 shares of Common Stock. After the transaction was consummated, Three Arch Partners’ percentage ownership of the outstanding Common Stock increased from approximately 17.3% to 49.5% (and 43.9% of the Common Stock on a fully diluted basis).

The net proceeds to the Company of the Private Placement after payment of fees and expenses were approximately $14,115,000. The terms of the Private Placement were approved by a committee of the Company’s Board of Directors consisting only of disinterested directors. The Company’s directors and executive officers have executed lock-up agreements restricting their ability to sell shares of the Common Stock for 180 days following the closing of the transaction. The Investors entered into such lock-up agreements prior to the closing of the transaction.

Oppenheimer & Company acted as sole placement agent in connection with the Private Placement. The placement agent received aggregate fees of $1,085,000 plus reimbursement for reasonable out-of-pocket fees and expenses.

Holders of the Shares and the shares of Common Stock issuable upon the exercise of the Warrants (the “Warrant Shares” and collectively, with the Shares, the “Registrable Securities”) are entitled to certain registration rights as set forth in the Securities Purchase Agreement. Under the Securities Purchase Agreement, the Company has agreed to use its reasonable best efforts to prepare and file a registration statement on Form S-3 or other applicable form available to the Company to register the resale of the Registrable Securities. If the Company fails to file a registration statement or such registration statement is not declared effective between the time it files its next Annual Report on Form 10-K and the 180th date after the closing of the Private Placement, or, if additional registration statements are required to be filed to register such shares because of limitations imposed by the staff of the Commission on the number of shares that may be registered on behalf of selling stockholders on Form S-3, within 45 days of filing each such additional registration statement (or 90 days if such filing is reviewed by the Commission), the Company will be liable for certain specified liquidated damages as set forth in the Securities Purchase Agreement. The Company has agreed to maintain the effectiveness of the registration statement until the earliest of (i) the second anniversary of the closing of the Private Placement, (ii) such time as all Registrable Securities have been sold pursuant to the registration statement or (iii) the date on which all of the Registrable Securities may be resold by each of the Investors without registration pursuant to Rule 144(k). The Company will pay all expenses incurred in connection with the registration, other than fees and expenses, if any, of counsel or other advisors to the Investors or underwriting discounts, brokerage fees and commissions incurred by the Investors, if any, in connection with an underwritten offering of the Registrable Securities .

102

The Securities Purchase Agreement contains certain customary closing conditions, as well as the requirement that the Company decrease the number of members of the Board of Directors of the Company (the “Board”) from nine members to seven members at or by the time of its next annual meeting of stockholders. Under the Securities Purchase Agreement, Three Arch Partners has the right to name one member to the Board so long as Three Arch Partners beneficially owns greater than 5,000,000 shares of Common Stock (including shares of Common Stock issuable upon exercise of the Warrants, and as appropriately adjusted for stock splits, stock dividends and recapitalizations). Two of the current members of the Board, Dr. Wilfred E. Jaeger and Roderick A. Young, have been designated by Three Arch Partners. Under the Securities Purchase Agreement, the Company has agreed to add two new independent members to the Board at or before the Company’s next annual meeting.

In connection with the issuance of the Warrants and upon closing of the transaction, the Company entered into Warrant Agreements with its transfer agent relating to the Warrants. The Warrant Agreement relating to the Warrants issued to SF Capital contains a non-waivable provision that provides that the number of shares issuable upon exercise of the Warrants will be limited to the extent necessary to assure that, following such exercise, the total number of shares of Common Stock then beneficially owned by such holder and its affiliates does not exceed 14.9% of the total number of issued and outstanding shares of Common Stock of the Company (including for such purpose the shares of Common Stock issuable upon such exercise of Warrants). The Warrant Agreement relating to the Warrants issued to the other Investors does not contain this provision.  

The sale of the Shares, the Warrants and the Warrant Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws. The Company is relying upon the exemptions from registration provided by Section 4(2) of the Securities Act and Regulation D promulgated under that section. Each Investor has represented that it is an accredited investor, as such term is defined in Regulation D under the Securities Act, and that it was acquiring the Shares and Warrants for its own account and not with a view to or for sale in connection with any distribution thereof, and appropriate legends will be affixed to the Shares and Warrants.

Amendment to Bylaws

On December 5, 2007, the Board of Directors of North American Scientific, Inc. (the “Company”) amended the bylaws of the Company (the “Bylaws”), effective immediately. Section 6 of the Bylaws now enables the Board of Directors to authorize the issuance of uncertificated shares of the Company’s capital stock. The purpose of the amendments to Section 6 are to satisfy the requirement of The Nasdaq Stock Market, Inc. that shares of the Company’s capital stock be eligible by January 1, 2008 for a Direct Registration Program operated by a clearing agency registered under Section 17A of the Securities Exchange Act of 1934.

103

Nasdaq Delisting

On December 11, 2007, the Company received formal notice that the Nasdaq Listing Qualifications Panel had granted the Company’s request for a transfer from the Nasdaq Global Market to the Nasdaq Capital Market, and continued listing on the Nasdaq Capital Market, subject to the following exception:

§ On or before January 17, 2008, the Company was required to inform the Panel that it has received funds sufficient to put it in compliance with the Capital Market shareholders’ equity requirement of $2.5 million. Within four business days of the receipt of the funds, the Company was required to make a public disclosure of receipt of the funds and file a Form 8-K with pro forma financial information indicating that it plans to report proforma shareholders’ equity of $2.5 million or greater for the fiscal year ended October 31, 2007. The Company informed the Panel of receipt of sufficient funds on January 18, 2008. The Company publicly disclosed receipt of such funds in a press release dated January 22, 2008 and filed a Form 8-K with respect to this matter on January 25, 2008.

§ On or before January 31, 2008, the Company was required to file its Annual Report on Form 10-K for the fiscal year ended October 31, 2007, which shall demonstrate proforma shareholder’s equity of $2.5 million or greater. This information is set forth below in this Report under “Subsequent Events – Nasdaq Delisting.”

On October 5, 2007, the Company received a notice from Nasdaq indicating that, for the preceding 30 consecutive days, the bid price of its common stock had closed below the minimum $1.00 per share requirement for continued listing. In accordance with the Nasdaq rules, the Company has until April 2, 2008, to regain compliance. In order to regain compliance, the bid price of its common stock must close at $1.00 per share or more for a minimum of 10 consecutive business days. If the Company does not regain compliance with the rule by April 2, 2008, the Company understands that the Nasdaq Staff will provide written notification to the Company that its common stock will be delisted. At that time, the Company may appeal the Staff’s determination to a Nasdaq Listing Qualifications Panel, but no assurance can be given that any such appeal would be successful.

The following shows the reported stockholders’ equity of the Company at October 31, 2007 and proforma stockholders’ equity assuming the private placement transaction had been completed on October 31, 2007.

	At October 31, 2007
	As Reported			Proforma
Stockholders' (deficit) equity
Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares issued		—			—
Common stock, $.01 par value, 100,000,000 (Reported) and 150,000,000 (Proforma) shares authorized; 29,601,352 (Reported) and 92,609,492 (Proforma) shares issued; and 29,395,331 (Reported) and 92,403,471 (Proforma) shares outstanding		300,000			930,000
Additional paid-in capital		145,533,000			159,018,000
Treasury stock, at cost - 206,021 (Reported) and (Proforma) common shares		(227,000	)		(227,000	)
Accumulated deficit		(148,518,000	)		(148,518,000	)
Total stockholders' (deficit) equity	$	(2,912,000	)	$	11,203,000

104

SCHEDULE II

NORTH AMERICAN SCIENTIFIC, INC.

VALUATION AND QUALIFYING ACCOUNTS

Revised for 2005 and 2006			Additions
Description	Balance at beginning of period		Charged to cost and expenses			Charged to other accounts		Deductions		Balance at end of Period
Fiscal 2007
Allowance for doubtful accounts	$	506,000	$	(163,000	)	$	—	$	402,000	$	179,000
Deferred tax asset valuation allowance	$	60,067,000	$	—		$	7,604,000	$	—	$	67,671,000
Fiscal 2006
Allowance for doubtful accounts	$	1,030,000	$	218,000		$	—	$	742,000	$	506,000
Deferred tax asset valuation allowance	$	53,694,000	$	—		$	6,373,000	$	—	$	60,067,000
Fiscal 2005
Allowance for doubtful accounts and returns	$	744,000	$	705,000		$	—	$	419,000	$	1,030,000
Deferred tax asset valuation allowance	$	38,203,000	$	—		$	15,491,000	$	—	$	53,694,000

105

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.
	By:	/s/JOHN B. RUSH
January 29, 2008		John B. Rush President and Chief Executive Officer

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/GARY N. WILNER
Dr. Gary N. Wilner	Chairman of the Board of Directors	January 29, 2008
/s/JOHN B. RUSH
John B. Rush	President, Chief Executive Officer and Director (Principal Executive Officer)	January 29, 2008
/s/JAMES W. KLINGLER
James W. Klingler	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	January 29, 2008
/s/L. MICHAEL CUTRER
L. Michael Cutrer	Executive Vice President and Chief Technology Officer and Director	January 29, 2008
/s/WILFRED E. JAEGER, M.D.
Wilfred E. Jaeger	Director	January 29, 2008
/s/JOHN M. SABIN
John M. Sabin	Director	January 29, 2008
/s/RICHARD A. SANDBERG
Richard A. Sandberg	Director	January 29, 2008
/s/NANCY W. WYSENSKI
Nancy W. Wysenski	Director	January 29, 2008
/s/RODERICK A. YOUNG
Roderick A. Young	Director	January 29, 2008

106

EX-10.40

Exhibit 10.40

LOAN AGREEMENT

Dated as of September 21, 2007

by and between

AGILITY CAPITAL, LLC

as Agility

and

NORTH AMERICAN SCIENTIFIC, INC., a Delaware corporation and

NORTH AMERICAN SCIENTIFIC, INC., a California corporation

collectively, as Borrower

TOTAL CREDIT AMOUNT: Up to $750,000

Maturity Date:	November 20, 2007
Formula:	None
Facility Origination Fee:	$20,000
Interest:	Prime plus 6%, variable
Warrants:	Described in the Warrant Document

The information set forth above is subject to the terms and conditions set forth in the balance of this Agreement. The parties agree as follows:

1.Advances and Payments.

(a)Advances. Borrower may request one or more advances (each, an “Advance” and collectively, the “Advances”), up to the following maximum outstanding amounts:

(i) Advance in the principal amount of up to $500,000 upon the execution of all loan documents.

(ii) Advance of up to $250,000 upon receipt of a term sheet acceptable to Agility from a lead investor acceptable to Agility, in each case in its sole discretion in respect of a PIPE financing arranged by CIBC World Markets (“CIBC”).

Agility’s obligation to make any Advance or Advances under this Agreement is subject to (i) Agility’s reasonable determination, in its sole discretion, that there has not occurred a circumstance or circumstances that have a Material Adverse Effect, and (ii) receipt of a subordination agreement and account control agreement from Silicon Valley Bank reasonably acceptable to Agility, (iii) receipt of Borrower’s engagement letter from CIBC and copies of the documents effecting the sale of Nomos Radiation Oncology, (iv) receipt of evidence of the termination of the financing statement of Partners for Growth, and (v) the execution, delivery and filing of such instruments and agreements, as Agility reasonably deems appropriate.

(b)Interest. Borrower shall pay interest on the outstanding principal balance of the Advance and other monetary Obligations at a floating rate per annum equal to Six Percent (6.0%) above the Prime Rate quoted in The Wall Street Journal, to be adjusted from time to time as such rate changes. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed, and shall be payable in arrears on the first day of each month. Any partial month shall be prorated on the basis of a 30-day month based on the actual number of days outstanding.

(c)Fees. Borrower shall pay Agility an origination fee of $20,000 on the date of this Agreement, which may be net-funded from the first Advance.

(d)Warrants. Borrower is concurrently issuing to Agility a Warrant to Purchase Stock on the terms and conditions set forth therein (the “Warrant”).

(e)Maturity Date. All amounts outstanding hereunder are due and payable on November 20, 2007 (the “Maturity Date”). Borrower may prepay all or any part of the Advance without penalty or premium.

(f)Late Payment. Prior to the Maturity Date, if any payment of interest or any other amount owing to Agility is not made within ten (10) days after the due date, Borrower shall pay Agility a late payment fee equal to $1,000. If any amount is outstanding under this Agreement on the day after the Maturity Date, Borrower shall pay Agility a fee of $5,000. After the occurrence and during the continuance of an Event of Default, the Obligations shall bear interest at a rate equal to 18% per annum. The terms of this paragraph shall not be construed as Agility’s consent to Borrower’s failure to pay any amounts in strict accordance with this Agreement, and Agility’s charging any such fees and/or acceptance of any such payments shall not restrict Agility’s exercise of any remedies arising out of any such failure.

2.Security Interest. As security for all present and future indebtedness, guarantees, liabilities, and other obligations of Borrower to Agility under this Agreement, including all fees specified in Section 1 (collectively, the “Obligations”), Borrower grants Agility a security interest in all of Borrower’s personal property, whether now owned or hereafter acquired, including without limitation the property described on Exhibit A attached hereto, and all products, proceeds and insurance proceeds of the foregoing (collectively, the “Collateral”). Borrower authorizes Agility to execute such documents and take such actions as Agility reasonably deems appropriate from time to time to perfect or continue the security interest granted hereunder.

2.

3.Representations and Warranties. Borrower represents to Agility as follows (which shall be deemed continuing throughout the term of this Agreement):

(a)Authorization. Borrower is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which it is required to do so; the execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby have been duly and validly authorized by all necessary corporate action, and do not violate Borrower’s Articles of Incorporation or by-laws, or any law or any material agreement or instrument which is binding upon Borrower or its property. Borrower has no wholly owned or partially owned subsidiaries and is not a partner or joint venturer in any partnership or joint venture.

(b)State of Incorporation; Places of Business; Locations of Collateral. Borrower is a corporation incorporated and in good standing under the laws of the state of its incorporation, as corporation number _________. The address set forth in this Agreement under Borrower’s signature is Borrower’s chief executive office. Other than the chief executive office, the Collateral is located at the address(es) set forth on Exhibit B.

(c)Title to Collateral; Permitted Liens. Borrower is now, and will at all times in the future be, the sole owner of all the Collateral. The Collateral now is and will remain free and clear of any and all liens, security interests, encumbrances and adverse claims, except for (i) purchase money security interests in specific items of Equipment; (ii) leases of specific items of Equipment; (iii) liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Agility’s security interests; (iv) liens of materialmen, mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations that are not delinquent; (v) the first priority security interest of Silicon Valley Bank; and (vi) those liens set forth Exhibit B.

(d)Financial Condition, Statements and Reports. The financial statements provided to Agility by Borrower have been prepared in accordance with generally accepted accounting principles, consistently applied (“GAAP”). All financial statements now or in the future delivered to Agility will fairly reflect the financial condition of Borrower, at the times and for the periods therein stated. Between the last date covered by any such statement provided to Agility and the date hereof, there has been no circumstance that could constitute or give rise to a Material Adverse Effect. Borrower has timely filed, and will timely file, all tax returns and reports required by applicable law, and Borrower has timely paid, and will timely pay, all applicable taxes, assessments, deposits and contributions now or in the future owed by Borrower.

(e)Compliance with Law. Borrower has complied, and will comply, in all material respects, with all provisions of all applicable laws and regulations.

(f)Information. All information provided to Agility by or on behalf of Borrower on or prior to the date of this Agreement is true and correct in all material respects, and no representation or other statement made by Borrower to Agility contains any untrue statement of a material fact or omits to state a material fact necessary to make any statements made to Agility not misleading at the time made.

3.

(g)Litigation. Except as disclosed on Exhibit B, there is no claim or litigation pending or (to best of Borrower’s knowledge) threatened against Borrower. Borrower will promptly inform Agility in writing of any claim or litigation in the future which, either separately or in the aggregate.

(h)Subsidiaries. Except as disclosed on Exhibit B, Borrower has no wholly-owned or partially owned subsidiaries and Exhibit B sets forth all loans by Borrower to, and all investments by Borrower in, any person, entity, corporation partnership or joint venture.

(i)Deposit and Investment Accounts. Borrower maintains only the operating, savings, deposit, securities and investment accounts listed on Exhibit B.

4.Covenants.

(a)Reports. Borrower will provide to Agility in form and substance acceptable to Agility (i)  monthly unaudited financial statements, prepared in accordance with GAAP, consistently applied, within thirty (30) days after the last day of each month; (ii) within fifteen (15) days after the last day of each month, copies of all reports and statements received by Borrower from any of its banks or other financial institutions (in lieu of such requirement, Borrower may grant Agility on-line “view only” access to all of its accounts on terms acceptable to Agility); (iii) annual audited financial statements prepared in accordance with GAAP, consistently applied, together with an unqualified upon thereon of an independent certified public accountant, and copies of Borrower’s tax returns for such year, within one hundred twenty (120) days of the last day of such year; (iv) copies of borrowing base and compliance certificates and financial statements that Borrower delivers to Silicon Valley Bank, when delivered to Silicon Valley Bank; and (v) upon request, such other information relating to Borrower’s operations and condition, including information on the status of any acquisitions or equity investments or sales of Borrower’s securities, as Agility may reasonably request from time to time. Agility shall have the right to audit and inspect the Collateral, from time to time, upon reasonable notice to Borrower. Agility or its officers, employees, or agents shall have a right to visit Borrower’s premises and interview Borrower’s officers at Borrower’s expense, such expense to be approved in advance by Borrower.

(b)Insurance. Borrower will maintain insurance on the Collateral and Borrower’s business, in amounts and of a type that are customary to businesses similar to Borrower’s, and Agility will be named in a Agility’s loss payable endorsement in favor of Agility, in form reasonably acceptable to Agility.

(c)Negative Covenants. Without Agility’s prior written consent, Borrower shall not do any of the following: (i) permit or suffer a merger, change of control, or acquisition of all or substantially all of Borrower’s assets other than in a transaction, the terms of which provide for immediate payment of all amounts outstanding under this Agreement; (ii) acquire any assets outside the ordinary course of business; (iii)  sell, lease, license, encumber or transfer any Collateral except for sales in the ordinary course of business and for sales of assets publicly announced prior to the date hereof (in which case Agility shall release its security interest in the part of the Collateral that is sold, effective immediately prior to such sale, but retains its security interest in the proceeds of such disposition); (iv) pay or declare any dividends on Borrower’s stock; (v) redeem, purchase or otherwise acquire, any of Borrower’s stock, except for stock from terminated employees or contractors, to the extent required or permitted under any employment or contractor agreements; (vi) make any investments in, or loans or advances to, any person, including without limitation any investments in, or downstreaming of funds to, any subsidiary or affiliate of Borrower; (vii)  incur any indebtedness, other than trade debt and capital lease obligations incurred in the ordinary course of business, and indebtedness of up to $3,000,000 to Silicon Valley Bank; (viii) make any payment on any of Borrower’s indebtedness that is subordinate to the Obligations, other than in accordance with the subordination agreement, if any, in favor of Agility relating thereto; (ix) make any deposits or investments into any investment or depository accounts unless they are subject to an account control agreement acceptable to Agility, or (x) agree to do any of the foregoing.

4.

5.Events of Default. Any one or more of the following shall constitute an Event of Default under this Agreement:

(a)Borrower shall fail to pay any principal of or interest on any Loans or any other monetary Obligations within ten days after the date due; or

(b)Borrower shall fail to comply with any other provision of this Agreement, which failure is not cured within ten days after the sooner of (i) the date that Borrower has knowledge of that failure or (ii) Borrower’s receipt of notice from Agility; or

(c)Any warranty, representation, statement, report or certificate made or delivered to Agility by Borrower or on Borrower’s behalf shall be untrue or misleading in a material respect as of the date given or made, or shall become untrue or misleading in a material respect after the date hereof which cannot be corrected after notice to the satisfaction of Agility, acting reasonably; or

(d)A default or event of default shall occur under any agreement to which Borrower is a party or by which it is bound (i) resulting in a right by the other party or parties, whether or not exercised, to accelerate the maturity of any indebtedness or (ii) that could have a Material Adverse Effect, as defined below; or

(e)Any portion of Borrower’s assets is attached, seized or levied upon, or a judgment for more than $50,000 is awarded against Borrower and is not stayed within ten days; or

(f)Dissolution or termination of existence of Borrower; or appointment of a receiver, trustee or custodian, for all or any material part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by or against Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect (except that, in the case of a proceeding commenced against Borrower, Borrower shall have 60 days after the date such proceeding was commenced to have it dismissed, provided Agility shall have no obligation to make any Loans during such period); or

(g)The occurrence of a “Material Adverse Effect”, which shall mean (i) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or financial or other condition of Borrower, (ii) the material impairment of Borrower’s ability to perform its Obligations or of Agility’s ability to enforce the Obligations or realize upon the Collateral, or (iii) a material adverse change in the value of the Collateral.

5.

6.Remedies.

(a)Remedies. Upon the occurrence and during the continuance of any Event of Default, Agility, at its option, may do any one or more of the following: (a) Accelerate and declare the Obligations to be immediately due, payable, and performable; (b) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Agility to enter Borrower’s premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge by Borrower for so long as Agility reasonably deems it necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Agility seek to take possession of any of the Collateral by Court process, Borrower hereby waives: (i) any bond and any surety or security relating thereto; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Agility retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (c) Require Borrower to assemble any or all of the Collateral and make it available to Agility at places designated by Agility; (d) Complete the processing of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Agility shall have the right to use Borrower’s premises, equipment and all other property without charge by Borrower; (e) Collect and dispose of and realize upon any investment property, including withdrawal of any and all funds from any deposit or securities accounts; (f) Dispose of any of the Collateral, at one or more public or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale; and (g) Demand payment of, and collect any accounts, general intangibles or other Collateral and, in connection therewith, Borrower irrevocably authorizes Agility to endorse or sign Borrower’s name on all collections, receipts, instruments and other documents, and, in Agility’s good faith business judgment, to grant extensions of time to pay, compromise claims and settle accounts, general intangibles and the like for less than face value; Borrower grants Agility a license, exercisable from and after an Event of Default has occurred, to use and copy any trademarks, service marks and other intellectual property in which Borrower has an interest to effect any of the foregoing remedies. All reasonable attorneys’ fees, expenses, costs, liabilities and obligations incurred by Agility with respect to the foregoing shall be added to and become part of the Obligations, and shall be due on demand.

(b)Application of Proceeds. All proceeds realized as the result of any sale or other disposition of the Collateral shall be applied by Agility first to the reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Agility in the exercise of its rights under this Agreement, second to any fees and Obligations other than interest and principal, third to the interest due upon any of the Obligations, and fourth to the principal of the Obligations, in such order as Agility shall determine in its sole discretion. Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Agility for any deficiency.

(c)Remedies Cumulative. In addition to the rights and remedies set forth in this Agreement, Agility shall have all the other rights and remedies accorded a secured party under the California Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Agility and Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise by Agility of one or more of its rights or remedies shall not be deemed an election, nor bar Agility from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of Agility to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed.

(d)Power of Attorney. After the occurrence and during the continuance of an Event of Default, Borrower irrevocably appoints Agility (and any of Agility’s designated employees or agents) as Borrower’s true and lawful attorney in fact to: endorse Borrower’s name on any checks or other forms of payment; make, settle and adjust all claims under and decisions with respect to Borrower’s policies of insurance; settle and adjust disputes and claims respecting accounts, general intangibles and other Collateral; execute and deliver all notices, instruments and agreements in connection with the perfection of the security interest granted in this Agreement; sell, lease or otherwise dispose of all or any part of the Collateral; and take any other action or sign any other documents required to be taken or signed by Borrower, or reasonably necessary to enforce Agility’s rights or remedies or otherwise carry out the purposes of this Agreement. The appointment of Agility as Borrower’s attorney in fact, and each of Agility’s rights and powers, being coupled with an interest, are irrevocable until all Obligations owing to Agility have been paid and performed in full.

6.

7.Exit Fee. If Borrower ceases to do business, or is dissolved, or liquidated, in each case before payment in full of the Obligations, Agility may require that Borrower pay Agility a fee equal to the greater of (i) $250,000 or (ii) the amount that Agility would have been entitled to receive in connection with such transaction had Agility exercised the Warrant immediately before the consummation of such transaction.

8.Waivers. The failure of Agility at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other present or future agreement between Borrower and Agility shall not waive or diminish any right of Agility later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other agreement shall be deemed to have been waived except by a specific written waiver signed by an authorized officer of Agility. Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, general intangible, document or guaranty at any time held by Agility on which Borrower is or may in any way be liable, and notice of any action taken by Agility, unless expressly required by this Agreement.

9.Indemnity. Borrower shall indemnify Agility for any costs or liabilities, including reasonable attorneys’ fees, incurred by Agility in connection with this Agreement.

10.Confidentiality. In handling any confidential non-public information provided to Agility by Borrower, Agility shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of the same, except that disclosure of such information may be made (i) to subsidiaries or affiliates of Agility in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Obligations, provided that they have entered into a comparable confidentiality agreement with respect thereto, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Agility, and (v) as Agility may deem appropriate in connection with the exercise of any remedies hereunder. Confidential information shall not include information that either: (a) is in the public domain, or becomes part of the public domain, after disclosure to Agility through no fault of Agility; or (b) is disclosed to Agility by a third party, provided Agility does not have actual knowledge that such third party is prohibited from disclosing such information.

11.Governing Law; Jurisdiction; Venue. This Agreement and all acts and transactions hereunder and all rights and obligations of Agility and Borrower shall be governed by the internal laws (and not the conflict of laws rules) of the State of California. As a material part of the consideration to Agility to enter into this Agreement, Borrower (i) agrees that all actions and proceedings relating directly or indirectly to this Agreement shall, at Agility’s option, be litigated in courts located within California, and that the exclusive venue therefor shall be Santa Barbara County; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding.

7.

12.MUTUAL WAIVER OF JURY TRIAL BORROWER AND AGILITY EACH WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN AGILITY AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF AGILITY OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH AGILITY OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. IF THIS JURY WAIVER IS FOR ANY REASON UNENFORCEABLE, THE PARTIES AGREE TO RESOLVE ALL CLAIMS, CAUSES AND DISPUTES THROUGH JUDICIAL REFERENCE PURSUANT TO CODE OF CIVIL PROCEDURE SECTION 638 ET SEQ BEFORE A MUTUALLY ACCEPTABLE REFEREE SITTING WITHOUT A JURY OR, IF NO AGREEMENT ON THE REFEREE IS REACHED, BEFORE A REFEREE SELECTED BY THE PRESIDING JUDGE OF THE CALIFORNIA SUPERIOR COURT FOR SANTA BARBARA COUNTY. THIS PROVISION SHALL NOT RESTRICT A PARTY FROM EXERCISING NONJUDICIAL REMEDIES UNDER THE CODE.

13.Co-Borrowers. Solely for purposes of this Section 13, NORTH AMERICAN SCIENTIFIC, INC., a Delaware corporation and NORTH AMERICAN SCIENTIFIC, INC., a California corporation are each referred to individually, as a “Borrower” and, collectively, the “Borrowers”.

(a)Co-Borrowers. Borrowers are jointly and severally liable for the Obligations and Agility may proceed against one Borrower to enforce the Obligations without waiving its right to proceed against the other Borrower. This Agreement and the Loan Documents are a primary and original obligation of each Borrower and shall remain in effect notwithstanding future changes in conditions, including any change of law or any invalidity or irregularity in the creation or acquisition of any Obligations or in the execution or delivery of any agreement between Agility and any Borrower. Each Borrower shall be liable for existing and future Obligations as fully as if all of the Advance was advanced to such Borrower. Agility may rely on any certificate or representation made by any Borrower as made on behalf of, and binding on, all Borrowers. Each Borrower appoints each other Borrower as its agent with all necessary power and authority to give and receive notices, certificates or demands for and on behalf of both Borrowers, to act as disbursing agent for receipt of any loans on behalf of each Borrower and to apply to Agility on behalf of each Borrower for the Advance, any waivers and any consents. This authorization cannot be revoked, and Agility need not inquire as to one Borrower’s authority to act for or on behalf of another Borrower.

(b)Subrogation and Similar Rights. Each Borrower irrevocably waives, until all Obligations are satisfied, all rights that it may have at law or in equity (including, without limitation, any law subrogating the Borrower to the rights of Agility under the Loan Documents) to seek contribution, indemnification, or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by the Borrower with respect to the Obligations in connection with the Loan Documents or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by the Borrower with respect to the Obligations in connection with the Loan Documents or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Agility and such payment shall be promptly delivered to Agility for application to the Obligations, whether matured or unmatured.

8.

(c)Waivers of Notice. Each Borrower waives, to the extent permitted by law, notice of acceptance hereof; notice of the existence, creation or acquisition of any of the Obligations; notice of an Event of Default except as set forth herein; notice of the amount of the Obligations outstanding at any time; notice of any adverse change in the financial condition of any other Borrower or of any other fact that might increase the Borrower’s risk; presentment for payment; demand; protest and notice thereof as to any instrument; and all other notices and demands to which the Borrower would otherwise be entitled by virtue of being a co-borrower or a surety. Each Borrower waives any defense arising from any defense of any other Borrower, or by reason of the cessation from any cause whatsoever of the liability of any other Borrower. Agility’s failure at any time to require strict performance by any Borrower of any provision of the Loan Documents shall not waive, alter or diminish any right of Agility thereafter to demand strict compliance and performance therewith. Each Borrower also waives any defense arising from any act or omission of Agility that changes the scope of the Borrower’s risks hereunder. Each Borrower hereby waives any right to assert against Agility any defense (legal or equitable), setoff, counterclaim, or claims that such Borrower individually may now or hereafter have against another Borrower or any other Person liable to Agility with respect to the Obligations in any manner or whatsoever.

(d)Subrogation Defenses. Until all Obligations are paid in full and Agility has no further obligation to make Credit Extensions to Borrowers, each Borrower hereby waives any defense based on impairment or destruction of its subrogation or other rights against any other Borrower and waives all benefits which might otherwise be available to it under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and 3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726, as those statutory provisions are now in effect and hereafter amended, and under any other similar statutes now and hereafter in effect.

(e)Right to Settle, Release.

(i)The liability of Borrowers hereunder shall not be diminished by (i) any agreement, understanding or representation that any of the Obligations is or was to be guaranteed by another Person or secured by other property, or (ii) any release or unenforceability, whether partial or total, of rights, if any, which Agility may now or hereafter have against any other Person, including another Borrower, or property with respect to any of the Obligations.

(ii)Without notice to any given Borrower and without affecting the liability of any given Borrower hereunder, Agility may (i) compromise, settle, renew, extend the time for payment, change the manner or terms of payment, discharge the performance of, decline to enforce, or release all or any of the Obligations with respect to any other Borrower by written agreement with such other Borrower, (ii) grant other indulgences to another Borrower in respect of the Obligations, (iii) modify in any manner any documents relating to the Obligations with respect to any other Borrower by written agreement with such other Borrower, (iv) release, surrender or exchange any deposits or other property securing the Obligations, whether pledged by a Borrower or any other Person, or (v) compromise, settle, renew, or extend the time for payment, discharge the performance of, decline to enforce, or release all or any obligations of any guarantor, endorser or other Person who is now or may hereafter be liable with respect to any of the Obligations.

(f)Subordination. All indebtedness of a Borrower now or hereafter arising held by another Borrower is subordinated to the Obligations and the Borrower holding the indebtedness shall take all actions reasonably requested by Agility to effect, to enforce and to give notice of such subordination.

9.

14.General. This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and Agility and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. There are no oral understandings, representations or agreements between the parties which are not set forth in this Agreement or in other written agreements signed by the parties in connection herewith. The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of Agility. Agility may assign all or any part of its interest in this Agreement and the Obligations to any person or entity, or grant a participation in, or security interest in, any interest in this Agreement, with notice to, but without consent of, Borrower. Borrower may not assign any rights under or interest in this Agreement without Agility’s prior written consent. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one agreement.

15.Publicity. Borrower authorizes Agility to use Borrower’s tradenames and logos in Agility’s marketing materials in respect of the transactions evidenced by this Agreement.

AGILITY CAPITAL, LLC		NORTH AMERICAN SCIENTIFIC, INC.		NORTH AMERICAN SCIENTIFIC, INC.
By:	/s/Jeffrey Carmody	By:	/s/James W. Klingler	By:	/s/James W. Klingler
Title:	Chief Operating Officer	Title:	Sr.VP & CFO	Title:	Sr.VP & CFO

Address for notices:	Address for notices:	Address for notices:
Agility Capital, LLC 226 E. Canon Perdido Street, Suite F Santa Barbara, CA 93101 Attn: Jeff Carmody Fax: 805-568-0427	North American Scientific, Inc. 20200 Sunburst Street Chatsworth, CA 91311 Attn: James Klingler Fax: (818) 734-5223	North American Scientific, Inc. 20200 Sunburst Street Chatsworth, CA 91311 Attn: James Klingler Fax: (818) 734-5223

10.

Exhibit A

COLLATERAL DESCRIPTION ATTACHMENT

TO LOAN AND SECURITY AGREEMENT

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:

(a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), general intangibles (including copyrights, patents, trademarks, goodwill and all intellectual property, payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records; and

(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time.

The property sold pursuant to a sale announced before the date of this Agreement will be released from the security interest granted under this Agreement immediately before consummation of that sale, provided Collateral will include all proceeds of that sale.

11.

Exhibit B

Places of Business and Locations of Collateral (Section 3(b)):

Permitted Liens (Section 3(c))

Litigation (Section 3(h)):

Subsidiaries and partnerships and joint ventures (Section 3(i)):

Accounts (Section 3(j))

12.

EX-10.41

Exhibit 10.41

FIFTH AMENDMENT AND FORBEARANCE

TO

LOAN AND SECURITY AGREEMENT

THIS FIFTH AMENDMENT AND FORBEARANCE to Loan and Security Agreement (this“Amendment and Forbearance”) is entered into on October 3, 2007, by and between

SILICON VALLEY BANK (“Bank”)

and the following (collectively, jointly and severally, the "Borrower") whose address is 20200 Sunburst Street, Chatsworth, California 91311:

NORTH AMERICAN SCIENTIFIC, INC., a Delaware corporation (“NASI”); and

NORTH AMERICAN SCIENTIFIC, INC., a California corporation (“NASI-CA”).

Recitals

A.Bank and Borrower have entered into that certain Loan and Security Agreement, with an Effective Date of October 5, 2005 (as the same has been, and may hereafter from time to time be amended, modified, supplemented or restated, the “Loan Agreement”).

B.Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

C.Borrower is currently in default of the Loan Agreement for failing to comply with the Minimum Tangible Net Worth Financial Covenant set forth in Section 5 of the Amended and Restated Schedule 2 to Loan and Security Agreement for each of the months ending July 31, 2007, August 31, 2007 and September 30, 2007 (the “Existing Defaults”).

D.Borrower has requested that Bank forbear from exercising its rights and remedies against Borrower from the date hereof until such time as Bank determines in its discretion to cease such forbearance (the “Forbearance Period”). Although Bank is under no obligation to do so, Bank is willing to forbear from exercising its rights and remedies against Borrower through the Forbearance Period on the terms and conditions set forth in this Amendment and Forbearance, so long as Borrower complies with the terms, covenants and conditions set forth in this Amendment and Forbearance in a timely manner. Moreover, the parties desire to amend the Loan Agreement as herein set forth.

Agreement

Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1.Definitions. Capitalized terms used but not defined in this Amendment and Forbearance shall have the meanings given to them in the Loan Agreement.

2.Amendments and Forbearance to Loan Agreement. The Loan Agreement is hereby amended as follows, effective as of the date hereof:

2.1Forbearance Period. So long as no Event of Default, other than the Existing Defaults, occurs, subject to the terms and conditions set forth herein, Bank shall forbear from filing any legal action or instituting or enforcing any rights and remedies it may have against Borrower through the Forbearance Period. Except as expressly provided herein, this Amendment and Forbearance does not constitute a waiver or release by Bank of any Obligations or of any existing Event of Default or of any Event of Default which may arise in the future after the date of execution of this Amendment and Forbearance. If Borrower does not comply with the terms of this Amendment and Forbearance, Bank shall have no further obligations under this Amendment and Forbearance and shall be permitted to exercise at such time any rights and remedies against Borrower as it deems appropriate in its sole and absolute discretion. Borrower understands that Bank has made no commitment and is under no obligation whatsoever to grant any additional extensions of time at the end of the Forbearance Period.

2.2Forbearance Terms. Repayment and performance of all Obligations of Borrower to Bank under the Loan Agreement and this Amendment and Forbearance shall be secured by the Collateral.

2.3Limited Waiver Regarding Delayed Financial Reporting.Borrower has failed to provide to Bank the Borrower’s monthly financial statements and compliance certificate for the reporting period ending August 31, 2007 by the September 30, 2007 deadline for submission of such reports (the “Reporting Default”). Bank and Borrower agree that, provided Borrower submits such reports to Bank by October 5, 2007, then the Borrower's Reporting Default is hereby waived. It is understood by the parties hereto, however, that such waiver does not constitute a waiver of any other provision or term of the Loan Agreement or any related document, nor an agreement to waive in the future this covenant or any other provision or term of the Loan Agreement or any related document. Bank hereby acknowledges that Borrower has submitted such reports to Bank as of the date of this Amendment and Forbearance.

2.4Modified Maturity Date. The Maturity Date set forth in Section 4 of the Amended and Restated Schedule 2 to Loan and Security Agreement is hereby amended to read as follows:

4. MATURITY DATE

(Section 13.1): November 9, 2007.

Notwithstanding the foregoing, the Maturity Date with respect to the Bridge Loan Sublimit shall be the earlier of (i) November 9, 2007 or (ii) the date Borrower closes the private investment public equity transaction of which Silicon has been advised by Borrower (which Borrower has informed Silicon would result in the receipt of more than $15,000,000 net cash proceeds to Borrower)(the “PIPE”).

2

2.5Consent to Agility Capital, LLC Subordinated Debt. Notwithstanding anything to the contrary in the Loan Agreement, Bank hereby consents to the Borrower issuing up to an additional $250,000 in subordinated debt to Agility Capital, LLC (“Agility”), which debt may be secured by a lien on any or all of Borrower’s assets, provided that Agility execute and deliver to Bank, on Bank’s standard form with such changes thereto as are acceptable to Bank in its good faith business judgment, a subordination agreement pursuant to which the debt owed by Borrower to Agility will be fully subordinated to the Obligations and the lien, if any, granted to Agility will be fully subordinated to the lien granted in favor of Bank. This $250,000 in subordinated debt is in addition to the up to $750,000 in subordinated debt to Agility that Bank consented to pursuant to the terms of that certain Fourth Amendment and Forbearance to Loan and Security Agreement dated September 14, 2007.

3.Limitation of Amendments and Forbearance.

3.1The amendments and forbearance set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

3.2This Amendment and Forbearance shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

4.Representations and Warranties. To induce Bank to enter into this Amendment and Forbearance, Borrower hereby represents and warrants to Bank as follows:

4.1Immediately after giving effect to this Amendment and Forbearance (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing (other than the Existing Defaults);

4.2Borrower has the corporate power and authority to execute and deliver this Amendment and Forbearance and to perform its obligations under the Loan Agreement, as amended by this Amendment and Forbearance;

3

4.3The organizational documents of Borrower delivered to Bank on the Effective Date remain accurate and complete and have not been amended, supplemented or restated since the Effective Date and are, and continue to be, in full force and effect;

4.4The execution and delivery by Borrower of this Amendment and Forbearance and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment and Forbearance, have been duly authorized;

4.5The execution and delivery by Borrower of this Amendment and Forbearance and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment and Forbearance, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any material agreement by which Borrower or its property is bound, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

4.6The execution and delivery by Borrower of this Amendment and Forbearance and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment and Forbearance, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

4.7This Amendment and Forbearance has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

5.Prior Agreement. The Loan Documents are hereby ratified and reaffirmed and shall remain in full force and effect. This Amendment and Forbearance is not a novation and the terms and conditions of this Amendment and Forbearance shall be in addition to and supplemental to all terms and conditions set forth in the Loan Documents. In the event of any conflict or inconsistency between this Amendment and Forbearance and the terms of such documents, the terms of this Amendment and Forbearance shall be controlling, but such document shall not otherwise be affected or the rights therein impaired.

6.Release by Borrower.

6.1FOR GOOD AND VALUABLE CONSIDERATION, Borrower hereby forever relieves, releases, and discharges Bank and its present or former employees, officers, directors, agents, representatives, attorneys, and each of them, from any and all claims, debts, liabilities, demands, obligations, promises, acts, agreements, costs and expenses, actions and causes of action, of every type, kind, nature, description or character whatsoever, whether known or unknown, suspected or unsuspected, absolute or contingent, arising out of or in any manner whatsoever connected with or related to facts, circumstances, issues, controversies or claims existing or arising from the beginning of time through and including the date of execution of this Amendment and Forbearance (collectively “Released Claims”). Without limiting the foregoing, the Released Claims shall include any and all liabilities or claims arising out of or in any manner whatsoever connected with or related to the Loan Documents, the Recitals hereto, any instruments, agreements or documents executed in connection with any of the foregoing or the origination, negotiation, administration, servicing and/or enforcement of any of the foregoing.

4

6.2In furtherance of this release, Borrower expressly acknowledges and waives any and all rights under Section 1542 of the California Civil Code, which provides as follows:

“A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” (Emphasis added.)

6.3By entering into this release, Borrower recognizes that no facts or representations are ever absolutely certain and it may hereafter discover facts in addition to or different from those which it presently knows or believes to be true, but that it is the intention of Borrower hereby to fully, finally and forever settle and release all matters, disputes and differences, known or unknown, suspected or unsuspected; accordingly, if Borrower should subsequently discover that any fact that it relied upon in entering into this release was untrue, or that any understanding of the facts was incorrect, Borrower shall not be entitled to set aside this release by reason thereof, regardless of any claim of mistake of fact or law or any other circumstances whatsoever. Borrower acknowledges that it is not relying upon and has not relied upon any representation or statement made by Bank with respect to the facts underlying this release or with regard to any of such party’s rights or asserted rights.

6.4This release may be pleaded as a full and complete defense and/or as a cross-complaint or counterclaim against any action, suit, or other proceeding that may be instituted, prosecuted or attempted in breach of this release. Borrower acknowledges that the release contained herein constitutes a material inducement to Bank to enter into this Amendment and Forbearance, and that Bank would not have done so but for Bank’s expectation that such release is valid and enforceable in all events.

6.5Borrower hereby represents and warrants to Bank, and Bank is relying thereon, as follows:

(a)Except as expressly stated in this Amendment and Forbearance, neither Bank nor any agent, employee or representative of Bank has made any statement or representation to Borrower regarding any fact relied upon by Borrower in entering into this Amendment and Forbearance.

(b)Borrower has made such investigation of the facts pertaining to this Amendment and Forbearance and all of the matters appertaining thereto, as it deems necessary.

(c)The terms of this Amendment and Forbearance are contractual and not a mere recital.

5

(d)This Amendment and Forbearance has been carefully read by Borrower, the contents hereof are known and understood by Borrower, and this Amendment and Forbearance is signed freely, and without duress, by Borrower.

(e)Borrower represents and warrants that it is the sole and lawful owner of all right, title and interest in and to every claim and every other matter which it releases herein, and that it has not heretofore assigned or transferred, or purported to assign or transfer, to any person, firm or entity any claims or other matters herein released. Borrower shall indemnify Bank, defend and hold it harmless from and against all claims based upon or arising in connection with prior assignments or purported assignments or transfers of any claims or matters released herein.

7.Counterparts. This Amendment and Forbearance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

8.Effectiveness. This Amendment and Forbearance shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment and Forbearance by each party hereto and (b) Borrower’s payment of an extension fee (with respect to the Revolving Line Credit Amount) in an amount equal to $1,500.

9.Covenant Regarding Payment of Fee for Extension of Bridge Loan Sublimit and Continued Forbearance. In consideration for Bank extending the Maturity Date of the Bridge Loan Sublimit and for Bank continuing to forbear from exercising its right and remedies as set forth herein, Borrower covenants and agrees that it shall pay to Bank an extension fee in an amount equal to $250 per day from the date of this Amendment until (and such amount shall be payable on) the earlier of (i) November 9, 2007 or (ii) the date Borrower closes the PIPE.

10.Governing Law. This Amendment and Forbearance and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the laws of the State of California.

[Signature page follows.]

6

In Witness Whereof,the parties hereto have caused this Amendment and Forbearance to be duly executed and delivered as of the date first written above.

“Borrower”:		“Bank”:
NORTH AMERICAN SCIENTIFIC, INC.		SILICON VALLEY BANK
A Delaware corporation
		By	/s/Derek R. Brunelle
By	/s/James W. Klingler	Title	Vice President
	President or Vice President
“Borrower”:
NORTH AMERICAN SCIENTIFIC, INC.
A California corporation
By	/s/James W. Klingler
	President or Vice President

7

EX-10.44

Exhibit 10.44

SIXTH AMENDMENT AND FORBEARANCE

TO

LOAN AND SECURITY AGREEMENT

THIS SIXTH AMENDMENT AND FORBEARANCE to Loan and Security Agreement (this“Amendment and Forbearance”) is entered into on October 29, 2007, by and between

SILICON VALLEY BANK (“Bank”)

and the following (collectively, jointly and severally, the "Borrower") whose address is 20200 Sunburst Street, Chatsworth, California 91311:

NORTH AMERICAN SCIENTIFIC, INC., a Delaware corporation (“NASI”); and

NORTH AMERICAN SCIENTIFIC, INC., a California corporation (“NASI-CA”).

Recitals

A.Bank and Borrower have entered into that certain Loan and Security Agreement, with an Effective Date of October 5, 2005 (as the same has been, and may hereafter from time to time be amended, modified, supplemented or restated, the “Loan Agreement”).

B.Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

C.Borrower is currently in default of the Loan Agreement for failing to comply with the Minimum Tangible Net Worth Financial Covenant set forth in Section 5 of the Amended and Restated Schedule 2 to Loan and Security Agreement for each of the months ending July 31, 2007, August 31, 2007 and September 30, 2007 (the “Existing Defaults”).

D.Borrower has requested that Bank forbear from exercising its rights and remedies against Borrower from the date hereof until such time as Bank determines in its discretion to cease such forbearance (the “Forbearance Period”). Although Bank is under no obligation to do so, Bank is willing to forbear from exercising its rights and remedies against Borrower through the Forbearance Period on the terms and conditions set forth in this Amendment and Forbearance, so long as Borrower complies with the terms, covenants and conditions set forth in this Amendment and Forbearance in a timely manner. Moreover, the parties desire to amend the Loan Agreement as herein set forth.

Agreement

Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1.Definitions. Capitalized terms used but not defined in this Amendment and Forbearance shall have the meanings given to them in the Loan Agreement.

2.Amendments and Forbearance to Loan Agreement. The Loan Agreement is hereby amended as follows, effective as of the date hereof:

2.1Forbearance Period. So long as no Event of Default, other than the Existing Defaults, occurs, subject to the terms and conditions set forth herein, Bank shall forbear from filing any legal action or instituting or enforcing any rights and remedies it may have against Borrower through the Forbearance Period. Except as expressly provided herein, this Amendment and Forbearance does not constitute a waiver or release by Bank of any Obligations or of any existing Event of Default or of any Event of Default which may arise in the future after the date of execution of this Amendment and Forbearance. If Borrower does not comply with the terms of this Amendment and Forbearance, Bank shall have no further obligations under this Amendment and Forbearance and shall be permitted to exercise at such time any rights and remedies against Borrower as it deems appropriate in its sole and absolute discretion. Borrower understands that Bank has made no commitment and is under no obligation whatsoever to grant any additional extensions of time at the end of the Forbearance Period.

2.2Forbearance Terms. Repayment and performance of all Obligations of Borrower to Bank under the Loan Agreement and this Amendment and Forbearance shall be secured by the Collateral.

2.3Modified Maturity Date. The Maturity Date set forth in Section 4 of the Amended and Restated Schedule 2 to Loan and Security Agreement is hereby amended to read as follows:

4. MATURITY DATE

(Section 13.1): November 20, 2007.

Notwithstanding the foregoing, the Maturity Date with respect to the Bridge Loan Sublimit shall be the earlier of (i) November 20, 2007 or (ii) the date Borrower closes the private investment public equity transaction of which Silicon has been advised by Borrower (which Borrower has informed Silicon would result in the receipt of more than $15,000,000 net cash proceeds to Borrower) (the “PIPE”).

2

2.4Consent to Friede Subordinated Debt. Notwithstanding anything to the contrary in the Loan Agreement, Bank hereby consents to the Borrower issuing up to $500,000 in subordinated debt to Mr. John Friede (or an entity owned or controlled by Mr. Friede) (“Friede”), which debt shall be unsecured, provided that Friede execute and deliver to Bank, on Bank’s standard form with such changes thereto as are acceptable to Bank in its good faith business judgment, a subordination agreement pursuant to which the debt owed by Borrower to Friede will be fully subordinated to the Obligations.

3.Limitation of Amendments and Forbearance.

3.1The amendments and forbearance set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

3.2This Amendment and Forbearance shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

4.Representations and Warranties. To induce Bank to enter into this Amendment and Forbearance, Borrower hereby represents and warrants to Bank as follows:

4.1Immediately after giving effect to this Amendment and Forbearance (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing (other than the Existing Defaults);

4.2Borrower has the corporate power and authority to execute and deliver this Amendment and Forbearance and to perform its obligations under the Loan Agreement, as amended by this Amendment and Forbearance;

4.3The organizational documents of Borrower delivered to Bank on the Effective Date remain accurate and complete and have not been amended, supplemented or restated since the Effective Date and are, and continue to be, in full force and effect;

4.4The execution and delivery by Borrower of this Amendment and Forbearance and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment and Forbearance, have been duly authorized;

4.5The execution and delivery by Borrower of this Amendment and Forbearance and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment and Forbearance, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any material agreement by which Borrower or its property is bound, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

3

4.6The execution and delivery by Borrower of this Amendment and Forbearance and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment and Forbearance, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

4.7This Amendment and Forbearance has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

5.Prior Agreement. The Loan Documents are hereby ratified and reaffirmed and shall remain in full force and effect. This Amendment and Forbearance is not a novation and the terms and conditions of this Amendment and Forbearance shall be in addition to and supplemental to all terms and conditions set forth in the Loan Documents. In the event of any conflict or inconsistency between this Amendment and Forbearance and the terms of such documents, the terms of this Amendment and Forbearance shall be controlling, but such document shall not otherwise be affected or the rights therein impaired.

6.Release by Borrower.

6.1FOR GOOD AND VALUABLE CONSIDERATION, Borrower hereby forever relieves, releases, and discharges Bank and its present or former employees, officers, directors, agents, representatives, attorneys, and each of them, from any and all claims, debts, liabilities, demands, obligations, promises, acts, agreements, costs and expenses, actions and causes of action, of every type, kind, nature, description or character whatsoever, whether known or unknown, suspected or unsuspected, absolute or contingent, arising out of or in any manner whatsoever connected with or related to facts, circumstances, issues, controversies or claims existing or arising from the beginning of time through and including the date of execution of this Amendment and Forbearance (collectively “Released Claims”). Without limiting the foregoing, the Released Claims shall include any and all liabilities or claims arising out of or in any manner whatsoever connected with or related to the Loan Documents, the Recitals hereto, any instruments, agreements or documents executed in connection with any of the foregoing or the origination, negotiation, administration, servicing and/or enforcement of any of the foregoing.

6.2In furtherance of this release, Borrower expressly acknowledges and waives any and all rights under Section 1542 of the California Civil Code, which provides as follows:

“A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” (Emphasis added.)

4

6.3By entering into this release, Borrower recognizes that no facts or representations are ever absolutely certain and it may hereafter discover facts in addition to or different from those which it presently knows or believes to be true, but that it is the intention of Borrower hereby to fully, finally and forever settle and release all matters, disputes and differences, known or unknown, suspected or unsuspected; accordingly, if Borrower should subsequently discover that any fact that it relied upon in entering into this release was untrue, or that any understanding of the facts was incorrect, Borrower shall not be entitled to set aside this release by reason thereof, regardless of any claim of mistake of fact or law or any other circumstances whatsoever. Borrower acknowledges that it is not relying upon and has not relied upon any representation or statement made by Bank with respect to the facts underlying this release or with regard to any of such party’s rights or asserted rights.

6.4This release may be pleaded as a full and complete defense and/or as a cross-complaint or counterclaim against any action, suit, or other proceeding that may be instituted, prosecuted or attempted in breach of this release. Borrower acknowledges that the release contained herein constitutes a material inducement to Bank to enter into this Amendment and Forbearance, and that Bank would not have done so but for Bank’s expectation that such release is valid and enforceable in all events.

6.5Borrower hereby represents and warrants to Bank, and Bank is relying thereon, as follows:

(a)Except as expressly stated in this Amendment and Forbearance, neither Bank nor any agent, employee or representative of Bank has made any statement or representation to Borrower regarding any fact relied upon by Borrower in entering into this Amendment and Forbearance.

(b)Borrower has made such investigation of the facts pertaining to this Amendment and Forbearance and all of the matters appertaining thereto, as it deems necessary.

(c)The terms of this Amendment and Forbearance are contractual and not a mere recital.

(d)This Amendment and Forbearance has been carefully read by Borrower, the contents hereof are known and understood by Borrower, and this Amendment and Forbearance is signed freely, and without duress, by Borrower.

(e)Borrower represents and warrants that it is the sole and lawful owner of all right, title and interest in and to every claim and every other matter which it releases herein, and that it has not heretofore assigned or transferred, or purported to assign or transfer, to any person, firm or entity any claims or other matters herein released. Borrower shall indemnify Bank, defend and hold it harmless from and against all claims based upon or arising in connection with prior assignments or purported assignments or transfers of any claims or matters released herein.

5

7.Counterparts. This Amendment and Forbearance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

8.Effectiveness. This Amendment and Forbearance shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment and Forbearance by each party hereto and (b) Borrower’s payment of an extension fee (with respect to the Revolving Line Credit Amount) in an amount equal to $450.

9.Covenant Regarding Payment of Fee for Extension of Bridge Loan Sublimit and Continued Forbearance. In consideration for Bank extending the Maturity Date of the Bridge Loan Sublimit and for Bank continuing to forbear from exercising its right and remedies as set forth herein, Borrower covenants and agrees that it shall pay to Bank an extension fee in an amount equal to $250 per day from November 9, 2007 until (and such amount shall be payable on) the earlier of (i) November 20, 2007 or (ii) the date Borrower closes the PIPE. The foregoing is in addition to the $250 per day fee Borrower has agreed to pay Bank pursuant to that certain Fifth Amendment and Forbearance to Loan and Security Agreement.

10.Governing Law. This Amendment and Forbearance and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the laws of the State of California.

[Signature page follows.]

6

In Witness Whereof,the parties hereto have caused this Amendment and Forbearance to be duly executed and delivered as of the date first written above.

“Borrower”:		“Bank”:
NORTH AMERICAN SCIENTIFIC, INC.		SILICON VALLEY BANK
A Delaware corporation
By	/s/James W. Klingler	By	/s/Derek Brunelle
	President or Vice President	Title	Vice President
“Borrower”:
NORTH AMERICAN SCIENTIFIC, INC.
A California corporation
By	/s/James W. Klingler
	President or Vice President

7

EX-10.45

Exhibit 10.45

LOAN AGREEMENT

This Loan Agreement (this “Agreement”) is entered into as of October 30, 2007 by and between North American Scientific, Inc., a Delaware corporation (the “Company”), and John A. Friede, a resident of the State of New York (the “Lender”).

RECITAL

The Company and the Lender are entering into this Agreement to evidence the agreement of the Lender to loan $500,000 to the Company (the “Loan”), in two installments of $250,000 each, and the Company’s agreement to issue promissory notes (the “Notes”) to the Lender in the form attached hereto as Exhibit A to evidence the Loan.

WHEREFORE, the parties hereto mutually agree as follows:

1.Recital. The parties hereby agree to the matters set forth in the above-stated Recital.

2.Loan and Note Issuance. Subject to the terms of this Agreement, the Lender hereby agrees to advance to the Company installments of the Loan in the principal amount of (a) $250,000 on or before October 31, 2007 and (b) $250,000 on or before November 14, 2007. Such amounts shall be paid by the Lender by wire transfer of immediately available funds to such account or accounts as may be designated by the Company. At the time of each such advance, the Company will issue to the Lender a Note in a principal amount equal to the amount of such advance.

3.Loan Fee. At the time of each advance pursuant to Section 2 above, the Company shall pay $10,000 to the Lender as a loan fee, which payment shall be made by reducing the amount of funds then being advanced by the Lender by the amount of such fee.

4.Warrants. At the time of the first advance by the Lender to the Company pursuant to Section 2 above, the Company shall issue to the Lender a warrant (the “Warrant”) to purchase shares of Common Stock of the Company (the “Warrant Shares”) in the form set forth as Exhibit B hereto. The purchase price per share for the Warrant Shares (the “Exercise Price”) shall be equal to the per share closing price of the Common Stock on the trading day before the issuance of the Warrant as reported in the Wall Street Journal. The number of Warrant Shares which may be purchased upon exercise of the Warrant shall be equal to $200,000, divided by the per share Exercise Price, provided that the Exercise Price and the number of Warrant Shares shall be subject to subsequent adjustment in accordance with the terms of the Warrant.

5.The Lender’s Representations and Covenants. The Lender represents and warrants to the Company as follows:

(a)The Lender is acquiring the Notes, the Warrant and the Warrant Shares for investment for the Lender’s own account, not with a view to the public resale or distribution thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). The Lender has no present intention of selling, granting any participation in, or otherwise distributing the Notes, the Warrant or the Warrant Shares. No other person has a direct or indirect beneficial interest in the Notes, the Warrant or the Warrant Shares, in whole or in part. The Lender understands that the Notes, the Warrant and the Warrant Shares have not been registered under the Securities Act with the Securities and Exchange Commission.

(b)The Lender is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

(c)By reason of the Lender’s business or financial experience, the Lender has the ability to evaluate the merits and risks of the Loan and to make an informed investment decision with respect to the Loan. The Lender is aware that the Loan is a high risk and speculative investment, and that there can be no assurance as to the ultimate success of the Company. The Lender acknowledges and represents that he is able to bear the risks of investing in the Company.

(d)The Lender acknowledges and agrees that the Lender has had an opportunity to discuss with the Company’s executives the business and financial affairs of the Company, and the Lender has had an opportunity to inspect and review the Company’s facilities, financial statements, business plan and related materials. The Lender acknowledges that the Lender has reviewed such information concerning the Company as the Lender deems necessary in order for the Lender to make the investment decision to acquire the Notes, the Warrant and the Warrant Shares.

(e)The Lender acknowledges that there is no public market for the resale of the Notes or the Warrant. The Lender acknowledges and agrees that any resales of the Notes, the Warrant and the Warrant Shares are subject to restrictions under applicable securities laws, and the Lender agrees to comply with said restrictions; and the Lender understands that a legend referencing said restrictions will be placed on the Notes, the Warrant, and certificates relating to the Warrant Shares.

6.General Provisions.

6.1Governing Law. This Agreement (irrespective of where it is executed, delivered and/or performed) shall be governed by and construed in accordance with the laws of the state of California, without giving effect to principles of conflicts of law.

6.2Waiver of Jury Trial. The parties hereby knowingly, voluntarily and intentionally waive the right any of them may have to a trial by jury in respect to any litigation based hereon, arising out of, or under or in connection with this Agreement or any course of conduct or course of dealing, statements (whether verbal or written), or actions of the parties. This provision is a material inducement for the parties to enter into this Agreement.

2

6.3Survival. All of the representations, warranties, covenants and agreements of the parties contained in this Agreement shall survive the closing and shall survive until they have been performed in full or until the applicable statute of limitation has expired.

6.4Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction only, be ineffective only to the extent of such prohibition or unenforceability, without invalidating the remaining provisions hereof or affecting the validity or enforceability of all other provisions in such jurisdiction, and without affecting the validity or enforceability of this Agreement and all other jurisdictions.

6.5Entirety. This Agreement constitutes the full and entire understanding and agreement between the parties with respect to the subject matters hereof.

6.6Amendment and Waiver. The terms of this Agreement may be amended and the performance or observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with a written consent of both parties.

6.7Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties. A party shall not be entitled to assign any of its rights or obligations under this Agreement without the other party’s prior written consent. Notwithstanding the foregoing, in the event that a party is acquired by another entity (by merger, purchase of assets, or other change of control), then this Agreement may be assigned to the acquiring entity, so long as the acquiring entity agrees in writing to be bound by the terms of this Agreement.

6.8Notices. All notices or communications required or permitted in this Agreement shall be in writing and may be given by any means (e.g. mail, telecopier, electronic mail, hand delivery, messenger, overnight courier service, etc.) addressed as set forth on the signature page of this Agreement, or at such other address a party may designate in the future. All such notices and other communications will be deemed given upon delivery at the party’s proper address.

6.9Counterparts. This Agreement may be executed in counterparts, each of which shall be enforceable against the signing party, all of which together shall constitute one instrument and agreement. A party may evidence its execution and delivery of this Agreement by signing this Agreement and sending it to the other party by telecopier/facsimile.

6.10Attorneys’ Fees. In the event a party breaches its or his obligations under this Agreement, and the other party incurs attorneys’ fees to enforce the terms of this Agreement through legal proceedings (litigation, arbitration, mediation), the party which is determined in such legal proceedings to be the most prevailing party shall be entitled to recover from the other party the prevailing party’s reasonable attorneys’ fees and costs incurred in said legal proceedings.

*      *      *      *      *

3

IN WITNESS WHEREOF, the parties have executed and delivered this Loan Agreement as of the date first set forth above.

COMPANY:
NORTH AMERICAN SCIENTIFIC, INC.
By:	/s/James W. Klingler
	James W. Klingler
	Sr. Vice President and CFO

Address:	20200 Sunburst Street
	Chatsworth, CA 91311
Fax:	(818) 734-5223

LENDER:
	/s/John A. Friede
Name:	John A. Friede

Address:	One Shore Road
	Rye, NY 10580
Fax:	(914) 698-1034

4

Exhibit A

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THIS NOTE MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.

THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATED TO THE “SENIOR INDEBTEDNESS” AS DEFINED IN AND PURSUANT TO SUBORDINATION PROVISIONS CONTAINED HEREIN.

SUBORDINATED PROMISSORY NOTE

$250,000 October 30, 2007

FOR VALUE RECEIVED, NORTH AMERICAN SCIENTIFIC, INC., a Delaware corporation (“Maker”), hereby promises to pay to John A. Friede, an individual resident of New York, New York (the “Holder”), in lawful money of the United States of America, the principal sum of Two Hundred Fifty Thousand and No/100 Dollars ($250,000) together with interest in arrears on the unpaid principal balance at an annual rate equal to the prime rate in effect from time to time (as set forth in the Wall Street Journal), plus six percent (6%), in the manner provided below. Interest shall be calculated on the basis of a year of 365 or 366 days, as applicable, and charged for the actual number of days elapsed.

1.Payments.

(a)Principal and Interest. The principal amount of this Note shall be due and payable on November 20, 2007 (the “Payment Date”). Interest on the unpaid principal balance of this Note shall be due and payable on the Payment Date.

(b)Usurious Interest. Notwithstanding any other provision of this Note, the Holder does not intend to charge, and the Maker shall not be required to pay, any interest or other fees or charges in excess of the maximum permitted by applicable law; any payments in excess of such maximum shall be refunded to the Maker or credited to reduce the principal hereunder. All payments received by the Holder will be applied first to costs of collection, if any, then to interest and the balance to principal.

2.Manner of Payment. All payments of principal and interest on this Note shall be made by Maker’s check to Holder at Holder’s residential address at One Shore Road, Rye, NY 10580 or at such other place in the United States of America as Holder shall designate to Maker in writing or by wire transfer of immediately available funds to an account designated by Holder in writing. If any payment of principal or interest on this Note is due on a day which is not a business day, such payment shall be due on the next succeeding business day, and such extension of time shall be taken into account in calculating the amount of interest payable under this Note.

3.Prepayment. Maker may, without premium or penalty, at any time and from time to time, prepay all or any portion of the outstanding principal balance due under this Note, provided that each such prepayment is accompanied by accrued interest on the amount of principal prepaid calculated to the date of such prepayment. Any partial prepayments shall be applied to installments of principal in inverse order of their maturity.

4.Subordination. By acceptance hereof, the Holder agrees that the payment of the principal of and interest on this Note shall be subordinated to the prior payment of the principal of and interest on all obligations of Maker for money borrowed from any bank, trust company, venture capital entity, insurance company, or other financial institution engaged in the business of lending money (hereinafter called “Senior Indebtedness”). Upon any default or event of default under any Senior Indebtedness, (a) no amount shall be paid by the Maker in respect of the principal of or interest on this Note at the time outstanding, unless and until such default or event of default under such Senior Indebtedness shall have been cured (i) by payment in full of the then outstanding principal thereof and interest accrued thereon; or (ii) otherwise, and (b) no claim or proof of claim shall be filed by or on behalf of the Holder of this Note which shall assert any right to receive any payment in respect of the principal of and interest on this Note except subject to payment in full of the principal of and interest on all Senior Indebtedness then outstanding. Without limitation of the foregoing, the payment of the principal of and interest on this Note is subordinated to the obligations of the Maker to Silicon Valley Bank and Agility Capital LLC in accordance with subordination agreements between each of such entities and the Holder.

5.Events of Default.

(a)The following shall constitute “Events of Default” under this Note:

(i)failure to pay any principal or any interest within five (5) business days following its due date hereunder;

(ii)default in the performance by the Maker of any material obligation to the Holder under this Note, which default is not cured within thirty (30) days after written notice of such default from the Holder;

(iii)the filing of any petition or the commencement of any proceeding against the Maker or any endorser or guarantor of this Note for any relief under any bankruptcy or insolvency laws, or any laws relating to the relief of debtors, readjustment of indebtedness, reorganizations, compositions, or extensions, which proceeding is not dismissed within one hundred twenty (120) days.

(b)Acceleration Upon Default; Default Rate. Subject to the subordination of this Note in accordance with Paragraph 4 above, if an Event of Default has occurred and is continuing under this Note, the entire principal balance, interest then accrued, and all other sums due hereunder, whether or not otherwise then due, shall, at the at option of the Holder, become immediately due and payable without demand or notice. Upon any Event of Default hereunder, and during the continuation thereof, the interest rate on this Note will increase to one percent (1%) per annum above the interest rate otherwise being charged hereunder.

2

6.Expenses of Collection. The Maker agrees to pay the Holder’s reasonable costs in collecting and enforcing this Note, including reasonable attorney’s fees.

7.Waiver by Holder. No waiver of any obligation of the Maker under this Note shall be effective unless it is in a writing signed by the Holder. A waiver by the Holder of any right or remedy under this Note on any occasion shall not be a bar to exercise of the same right or remedy on any subsequent occasion or of any other right or remedy at any time.

8.Notice. Any notice required or permitted under this Note shall be in writing and shall be deemed to have been given on the date of delivery, if personally delivered to the party to whom notice is to be given, or on the fifth business day after mailing, if mailed to the party to whom notice is to be given, by certified mail, return receipt requested, postage prepaid, or overnight courier service with proof of receipt, and addressed as follows:

(a)	If to the Maker:	North American Scientific, Inc.
		Attn: Mr. James W. Klingler
		20200 Sunburst Street
		Chatsworth, CA 91311
		Phone: (818) 734-8600
	with a copy to:	Seyfarth Shaw LLP
		Attn: Alan J. Reich
		131 S. Dearborn Street
		Suite 2400
		Chicago, IL 60603
		Phone: (312) 460-5650
(b)	If to the Holder:	Mr. John A. Friede
		One Shore Road
		Rye, NY 10580
		Phone: (914) 698-2015

9.Waiver by Maker. The Maker hereby expressly waives presentment, demand and protest, notice of demand, dishonor and nonpayment of this Note, and all other notices or demands of any kind in connection with the delivery, acceptance, performance, default or enforcement hereof, and hereby consents to any delays, extensions of time, renewals, waivers or modifications that may be granted or consented to by the Holder hereof with respect to the time of payment or any other provision hereof.

10.Severability. In the event any one or more of the provisions of this Note shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event that any one or more of the provisions of this Note operate or would prospectively operate to invalidate this Note, then and in any such event, such provision(s) only shall be deemed null and void and shall not affect any other provision of this Note and the remaining provisions of this Note shall remain operative and in full force and effect and in no way shall be affected, prejudiced, or disturbed thereby.

3

11.Governing Law. This Note shall be governed by and construed and enforced in accordance with the laws of the State of California without giving effect to the conflict of laws principles thereof.

12.Parties in Interest. This Note shall bind Maker and its successors and assigns. This Note shall not be assigned or transferred by Holder without the express prior written consent of Maker, except by will or, in default thereof, by operation of law.

IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above.

NORTH AMERICAN SCIENTIFIC, INC.
a Delaware corporation
By:	/s/James W. Klingler
	Name: James W. Klingler
	Title: Sr. VP & CFO

4

EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant

North American Scientific, Inc., a California corporation

Theseus Imaging Corporation, a Delaware corporation

Disc Ops Corporation (formerly NOMOS Corporation), a Delaware corporation

ROCS Acquisition, Inc., a California corporation

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement (Nos. 333-116691, 333-14373, 333-25973, 333-62631, 333-34200, 333-61688, 333-64892, 333-102444, and 333-106197) on Form S-8 and (No. 333-135945) on Form S-3 of North American Scientific, Inc. of our report dated January 25, 2008, relating to our audits of the consolidated financial statements and the financial statement schedules which appear in this Annual Report on Form 10-K of North American Scientific, Inc. for the year ended October 31, 2007.

/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California

January 25, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, John B. Rush, certify that:

1.I have reviewed this annual report on Form 10-K of North American Scientific, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure control procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: January 29, 2008

/s/JOHN B. RUSH

John B. Rush

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, James W. Klingler, certify that:

1.I have reviewed this annual report on Form 10-K of North American Scientific, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure control procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report  our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period  covered by this report based on such evaluation; and

c) Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred  during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an  annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s  internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial  reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize  and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role  in the registrant's internal control over financial reporting.

Date: January 29, 2008

/s/JAMES W. KLINGLER

James W. Klingler

Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

RULE 13a-14(b) UNDER THE EXCHANGE ACT AND 18 U.S.C. SECTION 1350

In connection with the Annual Report of North American Scientific, Inc. ("Company") on Form 10-K for the year ended October 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), John B. Rush, President and Chief Executive Officer of the Company, and James W. Klingler, Senior Vice President and Chief Financial Officer of the Company, certify, to the best of our knowledge, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 29, 2008	By:	/s/JOHN B. RUSH John B. Rush Chief Executive Officer
Date: January 29, 2008	By:	/s/JAMES W. KLINGLER James W. Klingler Chief Financial Officer