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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-41165
NORTH AMERICAN SCIENTIFIC, INC.
864,000 SHARES OF COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
This Prospectus relates to the offer and sale by the selling
stockholders identified herein (the "Selling Stockholders") of up to 864,000
Shares (the "Shares") of the Common Stock, par value $0.01 per share ("Common
Stock") of North American Scientific, Inc., a Delaware corporation (the
"Company"). An aggregate of 800,000 shares of the Company's Common Stock was
issued to investors in a private placement on November 13, 1997 (the "Private
Placement"). Additionally, 64,000 Shares of Common Stock are issuable upon
exercise of a warrant issued by the Company to the placement agent in connection
with the Private Placement (the "Warrant"). The Warrant was issued as of
November 13, 1997 and may be exercised at $21.60 per share during the period
beginning November 14, 1998 through November 13, 2002. The Shares may be
offered by the Selling Stockholders in transactions on the Nasdaq Electronic
Bulletin Board ("EBB") or such other markets upon which the Company may list
shares of its Common Stock from time to time, in privately negotiated
transactions, or by a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. See "Plan of
Distribution." The Company will receive proceeds of up to $1,382,400 from
the exercise of the Warrant. However, the Company will receive none of the
proceeds from the sale of the Shares by the Selling Stockholders. See "Use of
Proceeds."
SEE "RISK FACTORS" ON PAGE 4 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THESE SECURITIES.
The shares of Common Stock of the issuer are reported on the Nasdaq EBB under
the symbol "NASI." The Company has agreed to pay all of the expenses in
connection with the registration and sale of the Shares offered by the Selling
Stockholders.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD
THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The 800,000 shares of Common Stock and the Warrant were issued by the
Company in the Private Placement pursuant to an exemption from registration
provided by the Securities Act of 1933, as amended.
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY
ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THE INFORMATION THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THE PROSPECTUS.
The date of this Prospectus is December 5, 1997
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AVAILABLE INFORMATION
The Company is a reporting company under Section 13 of the Securities
and Exchange Act of 1934 (the "Exchange Act").
The reports and other information filed by the small business issuer
may be inspected and copied at the public reference facilities of the Commission
at 450 Fifth Street, N.W. in Washington, D.C. 20549. Copies may be obtained at
the prescribed rates from the Public Reference Section of the SEC at its
principal office in Washington, D.C. The Commission maintains a website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the website is http://www.sec.gov. Statements contained in this Prospectus
as to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
The Company has filed with the Commission a registration statement on
Form S-3 (together with any and all amendments, the "Registration Statement")
under the Securities Act of 1933, as amended, with respect to the registration
of the Common Stock. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits thereto, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. In addition, certain documents filed by the Company, with the
Commission, have been incorporated herein by reference. See "Incorporation of
Certain Documents by Reference." For further information regarding the Company
and the Common Stock reference is made to the Registration Statement, including
the exhibits and schedules thereto and the documents incorporated herein by
reference.
The securities of the issuer are reported on the Nasdaq Electronic
Bulletin Board under the symbol "NASI."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference.
(a) Annual Report on Form 10-KSB for the fiscal year ended October
31, 1996;
(b) Proxy Statement on Schedule 14A as filed on March 28, 1997;
(c) Quarterly Report on Form 10-QSB for the quarter ended July 31,
1997;
(d) Quarterly Report on Form 10-QSB for the quarter ended April
30,1997;
(e) Quarterly Report on Form 10-QSB for the quarter ended January 31,
1997;
(f) Current Reports on Form 8-K filed on November 24, 1997 and
October 9, 1997; and
(g) The description of the Company's Common Stock as contained in the
Company's Form 10-SB dated August 21, 1995 and amended on October
20,1995 and November 21, 1995.
All reports and other documents filed by the Company pursuant to
Section 13(a),13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Securities Act"), subsequent to the date of this Prospectus and
prior to the termination of the offering made by the Prospectus shall be deemed
to be incorporated by reference herein. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is incorporate or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide without charge to each person to
whom a Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the information incorporated by reference in this
Prospectus, other than exhibits to such information. Requests for such copies
should be directed to L. Michael Cutrer, North American Scientific, Inc., 7435
Greenbush Avenue, North Hollywood, California, 91605 (telephone: 818-503-9201,
fax: 818-503-0764).
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THE COMPANY
Through its wholly-owned subsidiary North American Scientific, Inc.,
a California corporation, North American Scientific, Inc., a Delaware
corporation (the "Company"), manufactures and markets a broad line of
low-level radiation sources and standards for medical, scientific and
industrial uses. The Company currently operates in two principal business
areas: (i) interstitial radioactive brachytherapy sources, sometimes called
"seeds", which are small, implantable radioactive "pellets" used for the
treatment of cancer and certain other diseases, and (ii) radioactive
"reference" sources, which are sealed devices containing radioactive sources
used to calibrate a variety of medical and commercial equipment. The Company
has been in the business of manufacturing radioactive sources since 1990 and
recently expanded its business strategy to include the development of
brachytherapy products. The Company entered into agreements with Mentor
Corporation, a Delaware corporation ("Mentor") pursuant to which Mentor will
distribute Iodine(125) ("I(125)") brachytherapy seeds, which are used in the
treatment of prostate cancer, which will be manufactured by the Company.
Additionally, through its relationship with RadioMed Corporation
("RadioMed"), the Company is expanding its presence in the field of
radioactive medical devices by applying its expertise in radioactive source
development and RadioMed's expertise in ion implantation to identify and
commercialize other novel medical products and services. The Company was
originally incorporated under the Company Act of British Columbia, Canada, in
1987 as Triple R Resources Corp. The corporate name was changed to Uptown
Industries Corp. in 1989, and to its current name in 1990. The Company was
continued as a Canadian federal corporation under the Canadian Business
Corporation Act in 1994, and became a Delaware corporation on April 20, 1995.
PRINCIPAL EXECUTIVE OFFICES
The principal executive offices of the Company are located at
7435 Greenbush Avenue, North Hollywood, CA 91605; its telephone number is
(818) 503-9201.
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RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY AND
THIS OFFERING BEFORE MAKING AN INVESTMENT DECISION. THE FOLLOWING RISK FACTORS
SHOULD BE CONSIDERED CAREFULLY, IN ADDITION TO THE OTHER INFORMATION CONTAINED
IN THIS PROSPECTUS, IN EVALUATING THE COMPANY AND ITS BUSINESS PROSPECTS.
CERTAIN MATTERS DISCUSSED IN THIS PROSPECTUS ARE FORWARD LOOKING AS THAT TERM IS
DEFINED BY: (I) THE 1995 ACT, AND (II) RELEASES ISSUED BY THE SEC. THESE
STATEMENTS ARE BEING MADE PURSUANT TO THE PROVISIONS OF THE 1995 ACT AND WITH
THE INTENTION OF OBTAINING THE BENEFITS OF THE "SAFE HARBOR" PROVISIONS OF THE
1995 ACT. THE COMPANY CAUTIONS INVESTORS THAT ANY FORWARD LOOKING STATEMENTS
MADE BY THE COMPANY 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, THE RISKS DETAILED
HEREIN OR DETAILED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE SEC.
EARLY STAGE OF PRODUCT COMMERCIALIZATION.
Certain of the Company's products are in an early stage of development
and commercialization. The Company's core business historically has involved
the manufacture and distribution of low-level radiation sources and reference
standards for use in medical imaging, environmental measurement and
instrument calibration procedures. However, the Company has recently begun
to broaden its line of products to include products involved in medical
therapeutics. In particular, the Company expects future revenues to be
generated from sales of its Iodine(125) ("I(125)") brachytherapy sources,
which will be marketed by Mentor under Mentor's trade name IOGOLD-TM-.
IOGOLD-TM- will be marketed to physicians for the treatment of prostate
cancer. The Company received FDA approval for the I(125) brachytherapy
product on October 28, 1997, and intends to commence commercial production in
December, 1997. The success of the IOGOLD-TM- product will be dependent, to
a large extent, on the efforts of Mentor, which will be the exclusive
worldwide distributor of the product. The Company's long-term growth may be
significantly affected by whether it will be able successfully to
manufacture, market and distribute the I(125) brachytherapy product, or other
similar products the Company may develop, to a large portion of the medical
community. The time frame necessary to accomplish this objective may be long
and uncertain, and the development and production of additional medical
therapeutic products, including products utilizing Palladium(103)
("Pd(103)"), may require even longer development and clinical trial periods
than the Company has experienced with the I(125) brachytherapy product.
There can be no assurance that the Company's products in development will
prove to be safe and effective in clinical trials under applicable regulatory
guidelines, and clinical trials may identify significant technical or other
obstacles that must be overcome prior to obtaining necessary regulatory or
reimbursement approvals. There can be no assurance that the Company will be
able to manufacture the I(125) brachytherapy product at an acceptable cost
and appropriate quality, that the Company will be able to develop other new
products, obtain regulatory approval for such products in a cost-effective
manner or that the Company will be able to increase sales in its target
markets. Any failure by the Company to do so could have a material adverse
effect on the Company's business, operating results and financial condition.
DEPENDENCE ON MARKETING ALLIANCE.
The Company has only limited experience marketing and selling its products,
and does not have experience marketing and selling its products in commercial
quantities. On June 16, 1997, the Company entered into a five-year marketing
and exclusive distribution agreement with Mentor, whereby Mentor agreed to
market and distribute the Company's I(125) brachytherapy product under Mentor's
trade name IOGOLD-TM-. As a result, future sales of the I(125) brachytherapy
product will be dependent on the marketing efforts of Mentor. Mentor is
expected to market IOGOLD-TM- through its established sales force, which is
currently dedicated to sales of Mentor's existing urology product line. This
sales force will market the product to urologists and radiation oncologists on a
worldwide basis. Mentor is also expected to be actively involved in the
education and training of physicians in the procedures for the use of
IOGOLD-TM-. Currently, the Company derives no revenues from the sales of
IOGOLD-TM-, yet it expects that sales of IOGOLD-TM- could constitute a
significant percentage of its net sales in the foreseeable future. Any failure
by Mentor to successfully market IOGOLD-TM- or other products that are
manufactured by the Company and distributed by Mentor, or to successfully
educate and/or train physicians in the use of the product could have a material
adverse effect on the Company's sales of IOGOLD-TM- and consequently on the
business, operating results and financial condition of the Company. Subject to
certain limitations, Mentor also has the exclusive marketing and distribution
rights to the Company's Pd(103)-based brachytherapy seeds.
If the Company is unable to maintain its relationship with Mentor, or if
the Company introduces new products for which Mentor does not act as the
distributor, the Company may need to develop third party distribution channels
and/or its own direct sales force, which will be time consuming and require
significant resources, and there can be no assurance that the Company would
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be successful. The Company's failure to do so could have a material adverse
effect upon its business, operating results and financial condition. In the
event that Mentor fails to achieve certain performance targets in specified
territories, the Company may terminate Mentor's exclusive distribution rights
in such territory or territories, in which case Mentor may have the right to
independently manufacture and distribute the I(125) and Pd(103)-based
brachytherapy products. The loss of the Mentor relationship could also
result in the Company's inability to market its I(125) brachytherapy products
under the IOGOLD-TM- trade name. Any such inability could also have a
material adverse effect on the Company's business, operating results and
financial condition.
UNCERTAINTY OF MARKET ACCEPTANCE OF BRACHYTHERAPY SOURCES.
Ultrasound guided transperineal seeding, currently the most prevalent
seeding technique practiced by physicians, is a relatively new treatment method
for prostate cancer with a relatively low level of market penetration. There
can be no assurance that brachytherapy will gain significant market acceptance
among physicians, patients and health care payors. The success of the Company's
I(125) brachytherapy product will depend on maintaining and increasing favorable
perceptions by patients, doctors, health care payors and medical researchers
regarding the safety, efficacy and cost effectiveness of the product.
Management believes that recommendations by physicians and health care payors
will be essential to increase market acceptance of seeding, and there can be no
assurance that any such recommendations will be obtained. Physicians in the
U.S. or elsewhere will not recommend seeding unless they conclude, based on
clinical data and other factors, that it is an attractive alternative to
traditional methods of prostate cancer treatment, of which radical prostatectomy
("RP") and external beam radiation therapy ("EBRT") are the most commonly used.
RP has a long history as the treatment of choice for early-stage, localized
prostate cancer, and many physicians have been trained in this procedure. EBRT
has experienced some negative results, which could create an unfavorable public
perception of radiation treatment for prostate cancer in general, and could
adversely affect public acceptance of seeding. In addition, although Mentor has
been granted worldwide distribution rights to the Company's I(125) brachytherapy
sources to be marketed under Mentor's trade name IOGOLD-TM-, physicians in many
countries, including most European countries, do not currently aggressively
treat prostate cancer. The failure of the brachytherapy technique in general,
or of IOGOLD-TM- in particular, to gain acceptance among physicians, patients
and/or health care payors in the U.S. or elsewhere could have a material adverse
effect on the business, operating results and financial condition of the
Company.
MANAGEMENT OF GROWTH.
The Company's business has grown significantly over the past several years.
However, there can be no assurance that the Company will continue to grow. If
growth does occur, there can be no assurance the Company will be effective in
managing such future growth, in expanding its facilities and operations or in
retaining additional qualified personnel. In particular, the Company expects to
significantly increase its production capacity in order to produce IOGOLD-TM-.
This expansion of production capacity is expected to include a significant
increase in the number of employees dedicated to that production. Furthermore,
pursuant to the Company's agreements with RadioMed, the Company will establish
an ion implantation facility at the Company's North Hollywood, California
location. The Company's commitments to RadioMed are also expected to require
the hiring of additional personnel. Any failure to effectively manage growth,
expand its operations or attract and retain qualified personnel could have a
material adverse effect on the Company's business, operating results and
financial condition.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.
The Company's results of operations have historically varied from quarter
to quarter and the Company expects that further variability may continue to
occur and may be significant. In the past, operating results have varied as a
result of a number of factors, including the size and timing of customer orders,
the timing of the introduction and customer acceptance of new products or
product enhancements by the Company or its competitors, changes in pricing
policies by the Company or its competitors, research and development
expenditures, certain non-operational expenses (including litigation costs) and
changes in general economic conditions. Future variability in the Company's
results of operations may result from the changes in the Company's business
disclosed in this Prospectus, in particular due to the marketing of IOGOLD-TM-
through the Company's relationship with Mentor.
COMPETITION.
The radiation source industry is highly competitive. The Company competes
with several national and international companies which are substantially larger
and have greater technical, sales, marketing and financial resources than the
Company. The Company has no experience in human therapeutic products and will
be competing against companies with greater experience in this sector.
Developments by any of these companies or advances by medical researchers at
universities, government research facilities or private research laboratories
could render the Company's products obsolete. Furthermore, if demand for
treatment of
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prostate cancer increases, companies with substantially greater financial
resources than the Company, as well as extensive experience in research and
development, the regulatory approval process and manufacturing and marketing,
may develop seeding treatments and products that are similar to the Company's
I(125) brachytherapy product. There can be no assurance that such future
competition will not have a material adverse effect on the Company's
business, operating results and financial condition. In addition to
competition from other manufacturers of I(125) based products, products using
alternative technologies may continue to be developed which will compete with
the Company's products. In particular, if the Company does not develop and
manufacture products using Pd(103), and if Pd(103)-based products
manufactured by the Company's competitors achieve greater market acceptance,
the Company's failure to develop and manufacture such products could have a
material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON KEY CUSTOMERS.
Two of the Company's customers accounted for 65% of the Company's total
revenues in fiscal 1996 and significant customers may continue to account for a
substantial percentage of the Company's sales in the future. In particular, the
Company expects that Mentor will be a significant customer in the future through
the distribution of the IOGOLD-TM- product. There can be no assurance that any
of such customers will maintain their volume of business with the Company. A
loss of the Company's sales to such customers could have a material adverse
effect on the Company's business, operating results and financial condition.
MARKET PRICE FLUCTUATIONS.
The Company has recently experienced significant variability in the market
price and the trading volume of its Common Stock. In addition, the securities
markets from time to time experience significant price and volume fluctuations
that may be unrelated to the operating performance of particular companies.
Announcements of delays in the Company's testing and development schedules,
technological innovations or new product introductions by the Company or its
competitors, developments or disputes concerning patents or proprietary rights,
regulatory developments in the U.S. and foreign countries, public concern as to
the safety of products containing radioactive compounds and economic and other
external factors, as well as period-to-period fluctuations in the Company's
financial results, may have a significant impact on the market price of the
Common Stock and the Company may experience further volatility in the market
price and trading volume of the Common Stock.
EFFECT OF REIMBURSEMENT POLICIES.
A substantial percentage of the patients treated for prostate cancer in the
U.S. are covered by Medicare, and, consequently, the costs of prostate cancer
treatment are subject to Medicare's prescribed rates of reimbursement. Although
seeding requires less physician time than RP, reimbursement amounts, when
combined with physician familiarity with RP may provide disincentives for
urologists to perform seeding. There can be no assurance that (i) current or
future limitations or requirements for reimbursement by Medicare or other third
party payors for prostate cancer treatment will not materially adversely affect
the market for the IOGOLD-TM- product, (ii) health administration authorities
outside the U.S. will provide reimbursement at acceptable levels or at all or
(iii) any such reimbursement will continue at rates that enable the Company to
maintain prices at levels sufficient to realize an appropriate return. The
non-occurrence of any such factors could have a material adverse effect on the
business, operating results and financial condition of the Company.
GOVERNMENT REGULATION.
The manufacture and sale of the Company's products are subject to stringent
government regulation in the U.S. and other countries. FDA and other
governmental approvals and clearances are subject to continual review, and later
discovery of previously unknown problems may result in restrictions on a
product's marketing or withdrawal of the product from the market. The
commercial distribution in the U.S. of any new products developed by the Company
will be dependent upon obtaining the prior approval or clearance of the FDA,
which can take many years and entail significant costs. The Company has
received 510(k) clearance from the FDA with respect to the IOGOLD-TM- product
and has applied for 510(k) clearance for a Pd(103)-based brachytherapy seed. No
assurances can be made that such approval will be obtained on a timely basis or
at all. In countries where the Company's products are not currently approved,
the use or sale of the Company's products may require approval by government
agencies comparable to the FDA. The process of obtaining such approvals may be
lengthy, expensive and uncertain. There can be no assurance that the necessary
approvals for the marketing of the Company's products in other markets will be
obtained on a timely basis or at all. The Company is also required to adhere to
applicable FDA regulations for current Good Manufacturing Practices ("GMP"),
including extensive record keeping and reporting and periodic inspections of its
manufacturing facilities. Similar requirements are imposed by governmental
agencies in other countries.
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The Company's manufacturing operations involve the manufacturing and
processing of radioactive materials, which are subject to stringent regulation.
The Company operates under a license issued by the California Department of
Health which is renewable every eight years. The Company's license is subject
for renewal on January 31, 1998. California is one of the "Agreement States"
which are so named because the U.S. Nuclear Regulatory Commission (the "NRC")
has granted such states regulatory authority over radioactive material
manufacturers, provided such states have regulatory standards meeting or
exceeding the standards imposed by the NRC. The users of the Company's
IOGOLD-TM- product will be required to possess licenses issued by the state in
which they reside (if such states are Agreement States) or the NRC. Use
licenses are also required by some of the foreign jurisdictions in which the
Company may seek to market its products. There can be no assurance that current
licenses held by the Company for its manufacturing operations will remain in
force or that additional licenses required for the Company's operations will be
issued. There also can be no assurance that the Company's customers will
receive or retain the radioactive materials licenses required to possess and use
the Company's products, including IOGOLD-TM-, or that delays in the granting of
such licenses will not hinder the Company's ability to market its products.
Furthermore, regulation of the Company's radioactive materials manufacturing
processes involves the imposition of financial requirements related to public
safety and decommissioning, and there are high costs and regulatory
uncertainties associated with the disposal of radioactive waste generated by the
Company's manufacturing operations. There can be no assurance that the
imposition of such requirements and the costs and regulatory restrictions
associated with disposal of waste will not adversely affect the Company's
business, operating results and financial condition.
Any failure to obtain and maintain regulatory approvals, licenses and
permits could significantly delay the Company's marketing efforts. Furthermore,
changes in or interpretations of existing regulations, or the adoption of new
restrictive regulations, could adversely affect either the obtaining or timing
of future regulatory approvals. Failure to comply with applicable regulatory
requirements could result in, among other things, significant fines, suspension
of approvals, seizures or recalls of products, operating restrictions or
criminal prosecution and could materially adversely affect the Company's
business, operating results and financial condition.
NEED FOR FUTURE CAPITAL.
The Company's capital requirements have been and are expected to continue
to be significant. In particular, significant funds will be necessary to fund
expansion of the IOGOLD-TM- product and to set up a manufacturing capability for
the production of ion implantation devices pursuant to the Company's
manufacturing and supply agreement with RadioMed. Although management believes
the Company's existing capital resources, available credit and future operating
cash flows, will be sufficient to fund the Company's planned expansion over the
next 24 months, there can be no assurance that such sources will be sufficient
to fund its planned expansion. The Company may also require further capital for
the purchase of complementary businesses, technologies or products and for
additional investment in RadioMed. The Company's capital requirements will
depend on numerous factors, including the time and cost involved in expanding
production capacity, the cost involved in protecting the proprietary rights of
the Company and the time and expense involved in obtaining required regulatory
approval to market IOGOLD-TM- in new markets or similar approvals for new
products the Company may develop.
INTELLECTUAL PROPERTY RIGHTS; DEPENDENCE ON TRADE SECRETS.
The Company's success will depend, in part, on its ability to obtain,
assert and defend patent rights, protect trade secrets and operate without
infringing the proprietary rights of others. The Company holds rights to an
issued U.S. patent on a radioisotope-based device for site localization during
biopsy procedures. On August 1, 1997, the Company filed for a U.S. patent on a
radioactive brachytherapy source using multiple markers. There can be no
assurance that rights under patents held by or licensed to the Company will
provide it with competitive advantages or that others will not independently
develop similar products or design around or infringe the patents or other
proprietary rights owned by or licensed to the Company. In addition, there can
be no assurance that any patent obtained or licensed by the Company will be held
to be valid and enforceable if challenged by another party.
There can be no assurance that patents have not been issued or will not be
issued in the future that conflict with the Company's patent rights or prevent
the Company from marketing its products. Such conflicts could result in a
rejection of the Company's or its licensors' patent applications or the
invalidation of patents, which could have a material adverse effect on the
Company's business, operating results and financial condition. In the event of
such conflicts, or in the event the Company believes that competitive products
infringe patents to which the Company holds rights, the Company may pursue
patent infringement litigation or interference proceedings against, or may be
required to defend against litigation or proceedings involving, holders of such
conflicting patents or competing products. There can be no assurance that the
Company will be successful in any such litigation or proceeding, and the results
and cost of such litigation or proceeding may materially adversely affect the
Company's
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business, operating results and financial condition. See "--Litigation."
In addition, if patents that contain dominating or conflicting claims have
been or are subsequently issued to others, and such claims are ultimately
determined to be valid, the Company may be required to obtain licenses under
patents or other proprietary rights of others. No assurance can be given
that any licenses required under any such patents or proprietary rights would
be made available on terms acceptable to the Company, if at all. If the
Company does not obtain such licenses, it could encounter delays or could
find that the development, manufacture or sale of products requiring such
licenses is foreclosed.
The Company relies to a significant degree on trade secrets, proprietary
know-how and technological advances that are either not patentable or that the
Company chooses not to patent. The Company seeks to protect non-patented
proprietary information, in part, by confidentiality agreements with suppliers,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets and proprietary know-how will not otherwise
become known or be independently discovered by others. The disclosure to third
parties of proprietary non-patented information could have a material adverse
effect on the Company's business, operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL.
The success of the Company is largely dependent on the personal efforts of
key technical and senior management personnel, principally L. Michael Cutrer,
its President and Chief Executive Officer. The Company does not have an
employment agreement with Mr. Cutrer, nor does it currently have a key-man life
insurance policy on the life of Mr. Cutrer. The Company believes that its
future success will depend in large part upon its ability to attract and retain
highly-skilled technical, managerial and marketing personnel and is likely to
require the expansion of its management level personnel. Competition for
radiation source industry personnel can be intense, and the availability of
capable personnel may be limited; thus, their services could be difficult to
obtain or replace. There can be no assurance that the Company will be
successful in attracting and retaining the personnel it requires to develop and
market new and enhanced products and to conduct its operations successfully.
Any inability to attract and retain such personnel could have a material adverse
effect on the Company's business, operating results and financial condition.
RAPID TECHNOLOGICAL CHANGE.
The markets for the Company's products are characterized by ongoing
technological developments, evolving industry standards and rapid changes in
customer requirements. The Company's success depends on its ability to continue
to enhance its existing product lines, to develop and introduce in a timely
manner new products that take advantage of technological advances and to respond
promptly to customers' requirements. There can be no assurance that the
Company's current level and scope of research and development spending will be
adequate, that the Company will be successful in developing and marketing
enhancements to its existing products or new products on a timely basis, or that
its new products will adequately address the changing needs of the marketplace.
Failure by the Company in any of these areas could materially and adversely
affect the Company's business, operating results and financial condition.
LIMITED NUMBER OF SUPPLIERS.
The Company is dependent upon a limited number of outside unaffiliated
suppliers for its radioisotopes. The Company's principal suppliers are Nordion
International, Inc. and the Los Alamos National Laboratory. The Company also
utilizes overseas isotope manufacturers. To date, the Company has generally
been able to obtain the required radioisotopes for its products as needed. The
Company believes that it will be able to continue to obtain required
radioisotopes from these or other sources, although there can be no assurance
thereof. The delay or unavailability of radioisotopes could have a material
adverse effect on the Company's production and sales levels and consequently
upon its business, operating results and financial condition.
LITIGATION.
In June 1996, an action was commenced in the United States District Court
for the Eastern District of Virginia entitled BEST INDUSTRIES, INC. V. CIS BIO
INTERNATIONAL, INC., ET AL., Civil Action No. 96-737-A. In addition to naming
CIS Bio International, its subsidiary CIS-US, Inc. and certain individual
officers and directors of those companies, the complaint also named the Company
and L. Michael Cutrer as defendants. CIS Bio International, Inc. is a customer
of the Company. The complaint sought equitable relief, ordinary damages of $50
million and punitive damages of up to $10 million, on the basis of various
allegations with respect to the alleged misappropriation and misuse by the
defendants of certain purported trade secrets of the plaintiff, the alleged
tortious interference with the plaintiff's business relations and the alleged
defamation of plaintiff's character and professional standing. The purported
trade secrets which the plaintiff claims to have been misappropriated and
misused relate to the I(125) brachytherapy
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<PAGE>
sources the Company has developed. The Company filed an answer to the
complaint denying any liability to the plaintiff with respect to any of the
allegations contained in the complaint. The plaintiff filed a motion to
voluntarily dismiss the case, without prejudice, which motion was granted on
December 13, 1996, subject to payment of certain costs and attorneys' fees to
the Company. Upon the non-payment of the assessed costs and expenses by the
plaintiff, the case was dismissed with prejudice by order dated January 27,
1997. The plaintiff has filed notices of appeal of the court's dismissal,
the first of which was filed on January 29, 1997, and the Company filed a
notice of appeal on March 7, 1997. In its appeal, the Plaintiff has
requested various forms of relief, including the reinstatement of the
plaintiff's case. Oral argument for the appeal was held on December 3, 1997
but the court has yet to issue its decision. The Company believes the
allegations contained in the original complaint were without merit and, if the
case is reinstated by the court or refiled by the Plaintiff, the Company intends
to vigorously defend such action. However, in the event of reinstatement or
refiling of the case, if an adverse judgment is ultimately rendered against the
Company, such judgment could have a material adverse effect on the Company's
ability to produce I(125) brachytherapy sources, and could have a material
adverse effect on the Company's business, operating results and financial
condition.
PRODUCTS LIABILITY; INSURANCE COVERAGE.
The Company's business is subject to product liability risks inherent in
the testing, manufacturing and marketing of products containing radioisotopes.
To date, no product liability claims have been asserted against the Company.
However, there can be no assurance that such claims will not arise in the future
based on past, present or future services or products offered by the Company.
The Company maintains product liability and general liability insurance. The
Company's product liability and general liability policy is provided on a claims
made basis and is subject to annual renewal. There can be no assurance that
liability claims will not exceed the scope of coverage or limits of such
policies or that such insurance will continue to be available on commercially
reasonable terms or at all. If the Company does not or cannot maintain
sufficient liability insurance, its ability to market its products may be
significantly impaired. In addition, product liability claims, as well as
negative publicity arising out of such claims, could have a material adverse
effect on the business, operating results and financial condition of the
Company.
HAZARDOUS MATERIALS.
The Company's manufacturing processes and research and development efforts
involve the controlled use of hazardous materials. Although the Company
believes that its safety procedures for handling and disposing of such 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, the Company could be held liable
for any damages that result, and any such liability could have a material
adverse effect on the Company's business, operating results and financial
condition.
UNCERTAINTY RELATED TO HEALTH CARE REFORM.
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. The Company
anticipates that Congress, state legislatures and the private sector will
continue to review and assess alternative health care delivery and payment
systems. Potential approaches that have been considered include mandated basic
health care benefits, controls on health care spending through limitations on
the growth of private purchasing groups, price controls and other fundamental
changes to the health care delivery system. Legislative debate is expected to
continue in the future, and market forces are expected to demand reduced costs.
The Company cannot predict what impact the adoption of any federal or state
health care reform measures, future private sector reform or market forces may
have on its business, operating results and financial condition.
EFFECT OF CERTAIN STATUTORY, CHARTER AND BYLAW PROVISIONS; AUTHORIZATION AND
DISCRETIONARY ISSUANCE OF PREFERRED STOCK.
Certain provisions of the Company's Certificate of Incorporation and Bylaws
could delay the removal of incumbent directors and could make more difficult a
merger, tender offer or proxy contest involving the Company, even if such events
would be beneficial to the interests of the stockholders. For example, the
Company is currently authorized to issue 2,000,000 shares of Preferred Stock,
par value $.01 per share ("Preferred Stock"), without any vote or further action
by the Company's stockholders. The Preferred Stock, no shares of which are
currently outstanding, is issuable in one or more series with such rights,
preferences, maturity dates and similar matters as the Board of Directors of the
Company may from time to time determine. The Company is also subject to Section
203 of the Delaware General Corporation law which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in a broad range of
business ventures with any "interested stockholder" for a period of three years
from the date such stockholder became an interested stockholder.
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<PAGE>
DIVIDEND POLICY.
The Company has not paid any cash dividends on its Common Stock and does
not expect to declare or pay any cash dividends in the foreseeable future.
Pursuant to its agreements with Mentor, upon FDA approval of IOGOLD-TM-, Mentor
will purchase $2 million of Preferred Stock which will carry a cumulative annual
dividend of 8%.
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NASDAQ NMS LISTING APPLICATION.
The Common Stock of the Company began trading on the EBB in March 1996 and
has a limited trading history thereon. The Company has applied for listing of
the Common Stock on the Nasdaq National Market System ("NMS"), but there can be
no assurance that such listing will be obtained. The Company believes that it
meets the quantitative requirements necessary for listing on the NMS, but Nasdaq
reserves the right to apply additional standards in its sole discretion. If the
Company is unable to meet the listing requirements for the NMS, the Company
intends to apply for listing on the Nasdaq SmallCap Market. If the Company is
unable to achieve the standards for quotation on either the NMS or the Nasdaq
SmallCap Market, the Company anticipates that the Common Stock will continue to
trade on the EBB.
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<PAGE>
USE OF PROCEEDS
The Company will receive proceeds of up to $1,382,400 from the exercise of
the Warrant. However, the Company will receive none of the proceeds from the
sale of the Shares by the Selling Stockholders. Any proceeds received in
connection with the exercise of the Warrant are expected to be used for general
corporate purposes.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of November 26, 1997. The Selling Stockholders do
not hold any position or office, and have not had any other material
relationship with the Company or any of its predecessors or affiliates within
the last three years, except as follows: On October 24, 1997, CIBC Oppenheimer
Corp. ("CIBC OPCO") entered into a letter agreement with the Company relating to
the provision of investment banking services. Pursuant to the letter agreement,
CIBC OPCO acted as placement agent for the Company in connection with the
Private Placement. In connection with such services, CIBC OPCO received a fee
of 7% of the gross proceeds received by the Company in the Private Placement and
received the Warrant. The Warrant is exercisable at $21.60 per share beginning
November 14, 1998 through November 13, 2002, for an aggregate of 64,000 shares
of Common Stock.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering (1) After Offering
_____________________________ ______________________________
Number of Shares Being Number of
Name Shares Percent Offered Shares Percent
________________________________ __________ _______ _____________ __________ ________
<S> <C> <C> <C> <C> <C>
Tudor BVI Futures, Ltd. 114,300 2.7 114,300 0 *
The Raptor Global Fund L.P. 45,300 1.1 45,300 0 *
The Raptor Global Fund Ltd. 125,100 2.9 125,100 0 *
Tudor Arbitrage Partners L.P. 15,300 * 15,300 0 *
SunAmerica Small Co Growth Fund 150,000 3.5 150,000 0 *
GT Global Health Care Class 30,000 * 30,000 0 *
GT Healthcare Fund 20,000 * 20,000 0 *
GT Global Health Care Fund 75,000 1.8 75,000 0 *
Connecticut Capital Associates
L.P. 100,000 2.4 100,000 0 *
INVESCO Global Health Sciences
Fund 100,000 2.4 100,000 0 *
ProMed Partners, L.P. 35,000 * 25,000 10,000 *
CIBC Oppenheimer Corp. (2) 0 * 64,000 0 *
Total 810,000 19.1 864,000 10,000 *
</TABLE>
_____________________
*Represents less than 1% of all outstanding shares of Common Stock
(1) Unless otherwise indicated in the footnotes to this table, the Company
believes that each Selling Stockholder named in this table has sole voting
and investment power with respect to all shares of Common Stock reflected
as being owned by such Selling Stockholder.
(2) The Warrant for 64,000 shares of Common Stock held by CIBC OPCO first
becomes exercisable on November 14, 1998.
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<PAGE>
PLAN OF DISTRIBUTION
All of the Shares of Common Stock being offered hereby are being sold by
the Selling Stockholders and were acquired pursuant to the Company's Private
Placement. The Company sold 800,000 shares of Common Stock to the Selling
Stockholders pursuant to the Private Placement at a price of $18.00 per
share. The $18.00 price was negotiated in an arms length transaction between
the Company and the Selling Stockholders. CIBC OPCO acted as placement
agent for the Company in connection with the Private Placement and, in
connection with such services, received the Warrant. The Warrant is
exercisable at $21.60 per share beginning November 14, 1998 through November
13, 2002, for an aggregate of 64,000 shares of Common Stock. An aggregate of
864,000 Shares of Common Stock may be offered and sold pursuant to this
Prospectus by the Selling Stockholders. The Company will pay all expenses in
connection with the registration of the Shares offered hereby. Such Shares
have been included in the Registration Statement of which this Prospectus
forms a part.
The 864,000 shares of Common Stock being offered by the Selling
Stockholders pursuant to this Prospectus may be offered and sold from time to
time as market conditions permit on the Nasdaq EBB or such other markets upon
which the Company may list shares of its Common Stock from time to time, at
prices and terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The Shares may be sold by one or
more of the following methods, without limitations: (a) a block trade in
which a broker or dealer so engaged will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction; (b) purchases by a broker or dealer as principal and resale
by such broker or dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (d) face-to-face transactions between sellers and purchasers
without a broker/dealer. In effecting sales, brokers or dealers engaged by
the Selling Stockholders may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive commissions or discounts
from the Selling Stockholders in amounts to be negotiated. Such brokers and
dealers and any other participating brokers and dealers may be deemed to be
"Underwriters" within the meaning of the Securities Act in connection with
such sales.
The Company has entered into agreements with the Selling Stockholders to
register their Shares under applicable federal and state securities laws.
The agreements between the Company and the Selling Stockholders provide for
cross-indemnification of the Selling Stockholders and the Company for losses,
claims, damages, liabilities and expenses arising, under certain
circumstances, out of registration of the Shares.
To comply with certain states' securities laws, if applicable, the shares
of Common Stock registered hereunder will be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the Shares may not be sold or offered unless they
have been registered or qualified for sale in such states or an exception for
registration or qualification is available and is complied with.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by D'Ancona & Pflaum. Attorneys of D'Ancona & Pflaum hold an aggregate
of 51,200 shares of Common Stock of the Company.
EXPERTS
The consolidated financial statements of the Company and its subsidiary,
incorporated by reference in this Prospectus and Registration Statement by
reference to the Annual Report on Form 10-KSB for the year ended October 31,
1996 have been so incorporated in reliance on the report of Price Waterhouse
LLP, independent accountants, as set forth in their report thereon, and are
included in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.
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