NORTH AMERICAN SCIENTIFIC INC, 10-K405, 2000-01-10

NORTH AMERICAN SCIENTIFIC INC
10-K405, 2000-01-10
IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
COMMISSION FILE NUMBER 0-26670

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NORTH AMERICAN SCIENTIFIC, INC.

(Exact name of Registrant as specified in its charter)

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DELAWARE 51-0366422
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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20200 SUNBURST STREET, CHATSWORTH, CA 91311
(Address of principal executive offices)

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

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

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

Common Stock, par value $0.01 per share, together
with associated Common Stock Purchase Warrants
(Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of January 4, 2000, was approximately $48,956,283 (based upon the
closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market for the last trading date prior to that date).

On January 4, 2000, approximately 6,830,537 shares of the Registrant's
Common Stock, $.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Stockholders to be held on or about March 24, 2000, are incorporated by
reference into Part III.

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NORTH AMERICAN SCIENTIFIC, INC.

TABLE OF CONTENTS

FORM 10-K

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PART I

ITEM 1 Business.................................................... 1

ITEM 2. Properties.................................................. 8

ITEM 3. Legal Proceedings........................................... 9

ITEM 4. Submission of Matters to a Vote of Security Holders......... 9

PART II

ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 9

ITEM 6. Selected Financial Data..................................... 10

ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10

ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 14

ITEM 8. Financial Statements and Supplementary Data................. 14

ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 14

PART III

ITEM 10. Directors and Executive Officers of the Registrant.......... 14

ITEM 11. Executive Compensation...................................... 14

ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 14

ITEM 13. Certain Relationships and Related Transactions.............. 14

PART IV

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 15

Signatures............................................................ 33
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ITEM 1. BUSINESS

INTRODUCTION

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's business
includes the manufacture and distribution of: (i) interstitial radioactive
Iodine 125 ("I(125)") and Palladium 103 ("Pd(103)") 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. In October 1999, the Company entered into a definitive merger
agreement to acquire Theseus Imaging Corporation, a Delaware corporation
("Theseus"). Theseus is a development stage company which has been engaged in
the development of a new generation of in vivo radiopharmaceutical imaging
agents designed to aid clinicians in assessing the biological responses of
individual patients, thereby guiding the selection of appropriate therapies in
such diseases as cancer, organ transplantation and heart disease. The Company
was originally incorporated under the Company Act of British Columbia, Canada,
and became a Delaware corporation on April 20, 1995.

BRACHYTHERAPY

BACKGROUND

PROSTATE CANCER

Prostate cancer is defined as a malignant tumor within the prostate, a small
gland surrounding the male urethra, located under the bladder and in front of
the rectum. According to the American Cancer Society, most prostate cancer grows
very slowly. However, the cancerous cells in the prostate may eventually spread
outside the gland to other parts of the body, often through lymphatic vessels
which carry the cells to lymph nodes near the prostate. Once the cancer has
reached the lymph nodes, it becomes more likely that the cancer has spread
throughout the body.

Prostate cancer is the most prevalent form of cancer in men in the United
States (excluding skin cancer), and is the second most common cause of cancer
death in men of all ages (first amongst men over 75). The American Cancer
Society estimates that 179,000 new cases of prostate cancer will be diagnosed in
the United States in 1999 and that about 37,000 deaths will be attributable to
prostate cancer in 1999. The cost of medical treatment in the United States for
patients with prostate cancer is estimated to be approximately $3 billion
annually. There is currently no known cause of prostate cancer, nor any
preventative measures to avoid the disease.

Although all men are at risk of acquiring prostate cancer, there are several
identifiable groups who are at comparatively higher risk, including men over the
age of 50 (more than 80% of all prostate cancers are diagnosed in men over the
age of 65), African-American men (prostate cancer is about twice as common
amongst African-American men as compared to white American men), family history
of prostate cancer, and nationality (more common in North America and
Northwestern Europe than in Asia, Africa, Latin America, and South America).
Recent studies suggest that men whose diet regularly includes a high-fat content
may be at increased risk, as well.

As previously mentioned, prostate cancer is somewhat unusual as compared to
other types of cancer due to its slow-growing nature. As a result, techniques
which can detect prostate cancer are widely available and strongly recommended.
The American Cancer Society suggests that health care providers offer the
prostate-specific antigen ("PSA") blood test and digital rectal examination
yearly to all men age 50 and older who have at least a 10-year life expectancy,
and to younger men who are at high risk.

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PSA blood test results are reported as NANOGRAMS PER MILLILITER or NG/ML.
Results under 4 ng/ml are usually considered normal. Results over 10 ng/ml are
high and values between 4 and 10 are considered BORDERLINE. The higher the PSA
level, the more likely the presence of prostate cancer.

TREATMENT OPTIONS

Currently, the most common treatment for prostate cancer is radical
prostatectomy ("RP"), an invasive surgical procedure. Although effective, this
therapy is expensive (estimated to cost between $20,000 and $30,000), generally
requires a two or three day hospital stay with several weeks of recovery time,
and often results in undesired side effects, such as impotence and incontinence.

External beam radiation therapy ("EBRT") emerged as one of the first
alternatives to RP, allowing patients to receive treatment on an outpatient
basis at a significantly lower cost (estimated at between $12,000 to $15,000).
However, studies have shown that the five-year average success rate with
treatment through EBRT is not comparable to the success rate of RP or
brachytherapy. Moreover, the average impotence and incontinence rates of
external beam radiation, while lower than those associated with RP, are still
significant with this treatment for prostate cancer.

A brachytherapy procedure, on the other hand, is estimated to cost
approximately $10,000-$15,000, is performed on an outpatient basis under local
anesthesia with a two or three day recovery period, and has been shown to have a
considerably lower incidence of negative side effects such as impotence and
incontinence. Studies show that the five-year average success rate of
brachytherapy is comparable to, or perhaps even more favorable than, that of RP.
Brachytherapy has been shown to be most effective for localized tumors caught in
the early stage of disease development. Brachytherapy has gained increased
acceptance over the past several years and its share of the market has been
projected to grow more rapidly as physicians and patients become familiar with
this newer, less invasive procedure.

THE COMPANY'S BRACHYTHERAPY PRODUCT LINES

NASI'S SEEDS

The Company was granted 510(k) marketing approval from the U.S. Food and
Drug Administration ("FDA") for I(125) and Pd(103) radioactive brachytherapy
sources in June 1997 and July 1998, respectively. I(125) and Pd(103) sources and
seeds are designed for use in the treatment of prostate cancer in a
brachytherapy procedure referred to as "seeding." In this brachytherapy
procedure, a number of radioactive seeds are inserted into the prostate, using
thin, hollow needles, to treat cancerous prostatic tissue.

Just six months after the Company received 510(k) marketing approval for its
I(125) brachytherapy product, the Company (along with its marketing partner
Mentor) formally launched its I(125) seeds under the trade name of IoGold-TM-.
The IoGold-TM- seed consists of a titanium shell which houses four resin beads
that have been activated with I(125) and two gold marker beads, which allow for
visualization of the seeds under x-ray or CT imaging. The Company has filed for
U.S. patent protection on its brachytherapy product design.

Not long after it began manufacturing and selling its I(125) seeds, the
Company became the first (and to this point only) company to manufacture and
sell both I(125) and Pd(103) seeds (I(125) and Pd(103) are currently the only
isotopes approved by the FDA for brachytherapy procedures). In February 1999,
the Company manufactured and sold its first Pd(103)-based brachytherapy product,
again through a marketing partnership with Mentor. The Pd(103) product is
marketed under the trade name PdGold-TM- and has substantially the same design
as the IoGold-TM- product.

Both IoGold-TM- and PdGold-TM- have been well received in the medical
community, and their market share has continued to increase.

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The Company recently implemented the new calibration protocol established by
the American Association of Physicists in Medicine ("AAPM") and the National
Institute of Standards and Technology ("NIST"). These agencies established new
calibration protocol to ensure accurate dosing of patients being treated for
prostate cancer during brachytherapy seed implantation.

Implementation of the new NIST 1999 calibration protocol for I(125), which
makes the older NIST 1985 calibration technique obsolete, was established to
more accurately describe product dosing characteristics based on AAPM
recommendations and to further ensure accuracy in administering prescribed
treatment. The Company was the first company to implement the NIST 1999
calibration protocol for Pd-103.

MENTOR RELATIONSHIP

Mentor Corporation, a Delaware corporation ("Mentor"), is a publicly traded
company (Nasdaq: "MNTR") based in Minneapolis, Minnesota. According to Mentor's
Annual Report on Form 10-K for the fiscal year ended March 31, 1999, Mentor had
total sales for that year of $203 million. On June 16, 1997, the Company entered
into an exclusive worldwide distribution agreement with Mentor to market and
sell I(125) brachytherapy sources for the treatment of prostate cancer, which
are marketed by Mentor under its trade name IoGold-TM-. Under the terms of the
five-year agreement, Mentor is responsible for all sales and marketing
activities, including the education and training of urologists, radiation
oncologists and other personnel involved in the use of brachytherapy seeds. The
Company manufactures and ships the I(125) brachytherapy sources in exchange for
a fixed percentage of the sales price received by Mentor, subject to an agreed
upon minimum transfer price.

On February 24, 1999, the Company amended the aforementioned agreement for
the purpose of entering into an exclusive worldwide distribution agreement with
Mentor to market and sell Pd(103) brachytherapy sources, marketed by Mentor
under the trade name PdGold-TM-. The terms of the Pd(103) amendment are
substantially similar to the I(125) agreement with respect to the respective
duties of each of the parties, the termination date of the agreements and the
loss of the right of exclusivity should Mentor fail to achieve target market
share requirements as provided for in the agreements.

The Company intends that the alliance with Mentor should provide accelerated
market penetration and increased sales of I(125) and Pd(103) brachytherapy
sources without the need for developing a comprehensive sales, marketing and
product training staff, while allowing the Company to focus on the manufacturing
and development of additional brachytherapy products and other radioactive
source materials. Mentor currently distributes a broad line of urology products
through its dedicated sales force which targets urologists and radiation
oncologists for the brachytherapy line.

RADIATION CALIBRATION AND REFERENCE SOURCE PRODUCTS

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

The Company's principal products in this category are its radiation sources
and standards, which are used in a variety of areas for calibration,
measurement, analysis and control.

STANDARDS FOR NUCLEAR MEDICINE

Nuclear medicine is practiced at over 5,000 U.S. hospitals. Consistent
performance of imaging and calibration instrumentation is crucial to successful
diagnostic and patient management and cannot be

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maintained without extensive calibration programs. The Company supplies many of
the required types of calibration standards.

STANDARDS FOR CALIBRATION AND REFERENCE

The Company manufactures both catalog products 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, the Company's products have a variety of industrial uses,
ranging from measuring the thickness of materials and gauging fluid levels to
electronics stabilization and calibration.

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

The Company's commercial customers include federal and state governmental
agencies, leading medical equipment manufacturers, nuclear utilities and private
organizations. The Company's radiation sources are sold through a select group
of representatives and distributors in North America, Europe and the Far East.
The Company supports its products through a full product catalog, advertising,
telemarketing and trade shows. The Company engages in direct selling to end
users and also sells to equipment manufacturers for inclusion in their product
lines.

Radioisotopes are purchased from government or commercial facilities around
the world or are manufactured by irradiation of target materials at commercially
available sites. The Company often processes and purifies these isotopes in its
laboratories. Once purified, these materials are further processed, contained
and calibrated by the Company.

THESEUS TRANSACTION

On October 21, 1999, the Company entered into an Agreement and Plan of
Merger by and among the Company, NASI Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of the Company ("Merger Sub"), Theseus and certain
stockholders and officers of Theseus (the "Merger Agreement"). Pursuant to the
Merger Agreement, the Company will pay the holders of Theseus common stock and
stock options, (a) total consideration of up to 200,000 shares of the Company's
common stock, consisting of the Company's common stock and options (in each case
valued for purposes of this transaction at $15.00 per share), and
(b) commissions on sales of Theseus' pre-merger products. The Merger Agreement
provides that Merger Sub will be merged with and into Theseus (the "Merger"),
and the separate corporate existence of Merger Sub will cease with Theseus
continuing as the surviving corporation and as a wholly-owned subsidiary of the
Company.

The closing of the Merger is subject to the satisfaction of certain
conditions, including, but not limited to, satisfactory completion of due
diligence, receipt of a financial fairness opinion by a qualified third party
expert, receipt of an opinion by a qualified third party expert as to the
technological and market opportunities of the pre-merger products and results of
certain clinical trials that are satisfactory to the Company.

In addition, the Company has also agreed to provide financing to Theseus up
until the acquisition date. This financing is in the form of convertible notes
bearing interest at the prime rate plus 1%. These notes are convertible into
common stock of Theseus at the Company's option. These notes are due and payable
or must be converted no later than June 1, 2000. The notes are secured by a
first priority interest in Theseus' right, title and interest in the collateral
as defined in the Security Agreement, which consists primarily of certain
licensing agreements. As of October 31, 1999, Theseus had convertible notes
outstanding of $3,462,000. Subsequent to October 31, 1999, Theseus issued
additional convertible notes of $545,000 to the Company for an aggregate total
principal amount outstanding of $4,007,000 as of

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December 31, 1999. In the event the Company does not pursue the acquisition, it
is not obligated to convert the notes.

Theseus is currently developing two products, Apomate-TM-, using technology
which is the subject of third party license agreements. It is also evaluating
new technology for imaging unstable atherosclerotic plaque in patients with
coronary artery disease, which may be useful in identifying patients most at
risk of acute myocardial infarction.

Currently in clinical trials, Apomate-TM-, Theseus' lead agent, is a kit for
the preparation of Technetium Tc-99m recombinant human annexin V. Annexin V is a
naturally occurring human protein which has been shown to bind to cells
undergoing apoptosis, a fundamental process of programmed cell death. Apoptosis
is central to diverse clinical events such as the killing of tumors by
anti-cancer treatments, cell death in acute myocardial infarction, and host
rejection of organ transplants.

Apomate-TM- is designed to enable clinicians to rapidly image the body's
response to cancer treatments using standard nuclear medicine procedures. This
agent will permit clinicians for the first time to optimize the selection of
treatment for each patient, thereby improving response rates. Apomate is also
being studied for its potential ability to assess the adequacy of
immunosuppression associated with organ transplants. The potential to visualize
the body's response to therapeutic interventions such as chemotherapy and
immunosuppresion or to rapidly assess the extent of irreversible cell damage in
heart attack patients could lead to optimal treatment selection and improved
clinical outcomes.

As of January 2000, the U.S. FDA had approved Investigational New Drug (IND)
applications for Apomate-TM- for the study of breast cancer, non-small cell lung
cancer, non-Hodgkins lymphoma and acute cardiac transplant. Studies are also
being carried out in Canada and in Europe.

Leukomate-TM- is a product intended for the tracking of activated white
blood cell distribution to areas of inflammation and injury. Inflammation may
occur due to chronic inflammatory diseases of the bowel, occlusions of coronary
or cerebral arteries or acute infectious processes. Leukomate-TM- therefore may
offer opportunities in managing therapy for acute and chronic inflammation.

There are a number of risks relating to the Theseus transaction, including,
among others, the following: If the conditions precedent to the Company's
obligation to consummate the Merger are not satisfied, and the Company does not
consummate the Merger, although the Company has a security interest in Theseus'
intellectual property, there can be no assurance that the Company will recover
the sums it has previously advanced to Theseus. Although the Company believes it
currently has or will be able to access the capital necessary to fund continued
research and development and conduct clinical trials for Apomate-TM- and
Leukomate-TM-, there can be no assurance that the Company will be successful in
obtaining any needed additional capital or alternatively forming strategic
partnerships to fund such activities. Furthermore, there can be no assurance
that the results of the clinical trials with respect to Apomate-TM- or
Leukomate-TM- will be successful or that necessary FDA approvals can be
obtained. In addition, there can be no assurance that any resulting Apomate-TM-
or Leukomate-TM- products will gain market acceptance or compete successfully
against existing or future diagnostic products intended for similar purposes
even if clinical trials are successfully completed and FDA approval is obtained.

RADIOMED RELATIONSHIP

On October 7, 1997, the Company and RadioMed Corporation, a Delaware
corporation ("RadioMed") entered into a manufacturing and supply agreement (the
"Supply Agreement") whereby the Company was to manufacture products which
utilize ion implantation. In addition, on October 2, 1997, RadioMed issued to
the Company a Convertible Secured Subordinated Note Due 2007 (the "Note") in the
principal amount of $500,000 in consideration of a loan to it of that amount by
the Company.

On December 4, 1999, the Company and RadioMed signed a settlement letter
which provided, subject to RadioMed shareholder approval thereof, for, among
other matters: (i) the termination of the Supply

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Agreement on or prior to March 31, 2000; (ii) repayment of the principal amount
of this Note on or prior to March 31, 2000; and (iii) payment of the accrued
interest on the Note in the form of 20,000 shares of RadioMed Series A
Convertible Preferred Stock, $0.01 par value.

BUSINESS--RISK FACTORS

SOURCES AND AVAILABILITY OF RAW MATERIALS

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 been able to
obtain the required radioisotopes for its products. 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.

PATENTS AND PROPRIETARY TECHNOLOGY

The Company holds rights to issued U.S. patents on (i) a radioisotope-based
device for site localization during biopsy procedures and (ii) a laser welded
closure device. The patents expire in 2014 and 2018, respectively. The Company
has also filed for patent protection on its radioactive brachytherapy source
design. No assurance can be given that pending patent applications will be
approved, that any issued patents will provide competitive advantages for the
Company's products, or that they will not be challenged or circumvented by
competitors.

The Company also 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 independently discovered by third parties.
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.

SEASONALITY

The brachytherapy product lines may experience some variability in revenues
due to limited seasonality. This is primarily due to three major holidays
occurring in the Company's first fiscal quarter and the apparent reduction in
the number of procedures performed during summer months which could affect the
Company's third fiscal quarter results.

DEPENDENCE ON KEY CUSTOMERS

One of the Company's customers, Mentor, accounted for 77% of the Company's
total revenues in fiscal year 1999. Significant customers may continue to
account for a substantial percentage of the Company's sales in both its
reference source and brachytherapy source businesses in the future. In
particular, the Company expects that Mentor will continue to be a significant
customer in the future through the distribution of the IoGold-TM- and PdGold-TM-
products. There can be no assurance that any 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.

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COMPETITIVE CONDITIONS

The Company's brachytherapy business is subject to intense competition. The
Company's primary competitors in its brachytherapy seed business include Nycomed
Amersham PLC, which manufactures and sells I(125) brachytherapy sources, and
Theragenics Corporation, which manufacturers and sells Pd(103) brachytherapy
sources through a sales and marketing relationship with Indigo Medical, Inc., a
subsidiary of Johnson & Johnson. In 1999, several companies announced their
intention to join the brachytherapy market increasing the possibility of
additional competition in 2000. In addition, other products using alternative
technologies may continue to be developed which would compete with the Company's
brachytherapy products.

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

The radiation reference source business is also subject to intense
competition. The Company's competitors in this industry include AEA Technology
PLC and Dupont. The Company believes that these companies have a dominant
position in the market for radiation reference source products.

The Company believes that it competes favorably in its targeted markets with
these and its other competitors on the basis of price, diversity of product
line, customer service, quality and delivery time.

THIRD PARTY REIMBURSEMENT

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. Medicare
reimbursement amounts for seeding are currently significantly less than for RP.
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 on, 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- and PdGold-TM- products, (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.

POTENTIAL HEALTH CARE REFORM

From time to time, significant attention is placed on reforming the health
care system in the United States. Any future changes in Medicare and other
third-party payor reimbursement which may result from health care reform or
deficit reduction legislation would likely place downward pressure on prices. A
number of legislative proposals have been introduced in Congress and state
legislatures in recent years that would effect major reforms of the health care
system and otherwise reduce health care spending. Because of the uncertainties
surrounding the nature, timing and extent of any such reimbursement changes,
audits and reform initiatives, the Company is unable to predict the effects of
any such matters on the Company.

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GOVERNMENT REGULATION

FDA REGULATION

The manufacture and sale of the Company's products are subject to stringent
government regulation in the U.S. and other countries. The Company's products
are subject to FDA and other governmental approval and continual review, and
future discovery of previously unknown problems may result in restrictions on a
product's marketing, or withdrawal of the product from the market. The
commercial distribution in the 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) marketing approval from the FDA for the I(125) product and Pd(103)
brachytherapy seeds. In countries where the Company's products are not currently
approved, the use or sale of the Company's products may require approval by
local government agencies with missions comparable to the FDA's. The process of
obtaining such approvals may be lengthy, expensive and uncertain. 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 foreign governmental agencies.

NRC AND CALIFORNIA DEPARTMENT OF HEALTH

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 received a renewal of
its license for its North Hollywood facility in 1998 and was issued a license
for its new Chatsworth facility in March 1999. California is one of the
"Agreement States" which are so named because the Nuclear Regulatory Commission
("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. Most users of the Company's products
are required to possess 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 the Company may seek to market its products.

RESEARCH AND DEVELOPMENT

The Company's research and development expenses were $287,000 and $196,000
for the fiscal years ended October 31, 1999 and 1998, respectively. During
fiscal year 1999, the Company devoted significant time and effort to its I(125)
and Pd(103) brachytherapy line of products, including necessary facility
expansion. During fiscal year 2000, the Company expects to continue to focus
research and development efforts in medical therapeutic products.

EMPLOYEES

As of October 31, 1999, the Company had a total of 47 full-time employees
and 1 part-time employee. None of the Company's employees are represented by a
labor union. The Company has experienced no work stoppages and believes that its
employee relations are good.

ITEM 2. PROPERTIES

The Company is headquartered in the Los Angeles, California metropolitan
area where it occupies two properties totaling approximately 40,000 square feet.
These facilities are used for office, manufacturing, engineering, warehouse, and
research and development.

The Company believes its manufacturing and distribution facilities are
adequate, suitable and of sufficient capacity to support its current operations.

8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS

The Company is party to one legal proceeding, which is discussed below and
in Note 6 to the Consolidated Financial Statements, "Commitments and
Contingencies."

On August 11, 1999, a demand for arbitration was filed by PracSys Corp.
("PracSys") against the Company in Boston, Massachusetts. On February 6, 1998,
the Company contracted with PracSys to build two linear particle accelerators
intended to produce Pd(103) isotopes to be incorporated in the Company's Pd(103)
brachytherapy seed products. Although the Company paid in full the $2.7 million
contracted purchase price of the machines, PracSys failed to complete their
manufacture. After the Company demanded that PracSys turn over the uncompleted
machines in accordance with the parties' purchase contract, PracSys initiated
the arbitration proceeding against the Company on the basis of claims of breach
of contract, breach of fiduciary duty and unfair and deceptive trade practices.
The Company has vigorously denied and defended against PracSys' claims, and has
also asserted counterclaims against PracSys for breach of contract and fraud and
misrepresentation in connection with PracSys' failure to complete the machines.
A hearing in the arbitration has been scheduled for January 24, 2000.

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

None.

PART II

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

The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "NASI" since February 12, 1998. Prior to that time, the
Company's Common Stock was traded on the Nasdaq OTC Bulletin Board under the
same symbol. The following table sets forth the high and low closing prices for
the Common Stock during the periods indicated, as reported by Nasdaq. Such
quotations represent inter-dealer prices without retail mark-up, markdown or
commission and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
FISCAL 1999 HIGH LOW
- ----------- -------- --------
<S> <C> <C>
First Quarter............................................... $13.25 $ 6.44
Second Quarter.............................................. 8.81 5.44
Third Quarter............................................... 11.13 6.00
Fourth Quarter.............................................. 9.63 7.11

FISCAL 1998
- ------------------------------------------------------------
First Quarter............................................... $16.33 $12.50
Second Quarter.............................................. 25.58 15.53
Third Quarter............................................... 30.50 12.25
Fourth Quarter.............................................. 12.00 3.94
</TABLE>

On April 30, 1998, the Company announced a three-for-two stock split in the
form of a common stock dividend, which was distributed to stockholders of record
on April 20, 1998. All share data and numbers of common shares contained in this
Form 10-K have been restated to reflect this stock split.

As of January 4, 2000, the Company had approximately 67 holders of record
and estimates that it had approximately 2,800 beneficial owners of its' Common
stock.

The Company has never paid cash dividends on its Common Stock and does not
expect to declare or pay any cash dividends in the foreseeable future.

9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Net sales.......................................... $12,767 $5,839 $3,381 $3,063 $1,843
Cost of sales...................................... 4,594 2,680 1,844 1,534 929
------- ------ ------ ------ ------
Gross margin..................................... 8,173 3,159 1,537 1,529 914

Research and development........................... 287 196 72 15 --
Selling, general and administrative................ 3,060 1,859 1,094 870 723
------- ------ ------ ------ ------
Total operating expenses....................... 3,347 2,055 1,166 885 723
------- ------ ------ ------ ------
Income from operations............................. 4,826 1,104 371 644 191
Interest and other income.......................... 611 635 50 20 35
------- ------ ------ ------ ------
Income before provision for income taxes........... 5,437 1,739 421 664 226
Provision for income taxes......................... 2,068 640 145 251 95
------- ------ ------ ------ ------
Net income......................................... $ 3,369 $1,099 $ 276 $ 413 $ 131
======= ====== ====== ====== ======
Diluted earnings per share......................... $ .47 $ .16 $ .05 $ .09 $ .03
======= ====== ====== ====== ======
Shares used in per share calculation............... 7,203 7,024 5,372 4,457 4,475
======= ====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF OCTOBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents and marketable
securities...................................... $ 9,662 $11,220 $1,623 $ 892 $ 516
Working capital................................... 11,204 12,615 2,126 1,271 991
Total debt........................................ -- -- -- -- --
Total assets...................................... 23,838 18,903 3,673 2,000 1,291
Total stockholders' equity........................ 22,366 17,987 3,228 1,528 1,116
</TABLE>

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

The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the financial condition and results of operations of the Company. The discussion
should be read in conjunction with the Consolidated Financial Statements
contained herein and the notes thereto.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED OCTOBER 31, 1999 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1998

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

10
<PAGE>
GROSS PROFIT. Gross profit increased $5,014,000 or 159% to $8,173,000 for
the year ended October 31, 1999 from $3,159,000 for the year ended October 31,
1998. Gross profit as a percent of sales increased from 54% to 64% during this
period. The increase in gross profit as a percentage of sales was primarily
attributable to the significant proportionate increase in revenues from the
I-125 brachytherapy product line in fiscal 1999 which yielded greater gross
margins than the Company's non-therapeutic product lines.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $1,201,000, or 65%, to $3,060,000 for
the year ended October 31, 1999 from $1,859,000 for the year ended October 31,
1998. SG&A as a percent of net sales decreased to 24% for the year ended
October 31, 1999 from 32% for the same period in 1998. SG&A expenses increased
primarily due to the following: (i) the Company added a significant number of
administrative personnel throughout fiscal year 1998 and continuing into fiscal
year 1999 to support the growth of the Company, (ii) the Company leased a new
facility in September 1998 that houses new product development and corporate
offices and (iii) other general and administrative expenses were increased to
give effect to management's plans for the expansion of the Company.

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

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

NET INCOME. Net income increased $2,270,000 to $3,369,000 for the year
ended October 31, 1999 from $1,099,000 for the year ended October 31, 1998. The
increase is a result of the factors described above.

FISCAL YEAR ENDED OCTOBER 31, 1998 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1997

NET SALES. Net sales increased $2,458,000, or 73%, to $5,839,000 for the
year ended October 31, 1998 from $3,381,000 for the year ended October 31, 1997.
The increase in net sales was primarily due to the inclusion of revenues from
the I-125 brachytherapy source product line, which was introduced in
January 1998.

GROSS PROFIT. Gross profit increased $1,622,000 or 106% to $3,159,000 for
the year ended October 31, 1998 from $1,537,000 for the year ended October 31,
1997. Gross profit as a percentage of sales increased from 45% to 54% during
this period. The increase in gross profit as a percentage of sales was primarily
attributable to the inclusion of revenues from the I-125 brachytherapy product
line in fiscal year 1998 which yielded greater gross margins than the Company's
non-therapeutic product lines.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $765,000, or 70%, to $1,859,000 for
the year ended October 31, 1998 from $1,094,000 for the year ended October 31,
1997. SG&A expenses increased primarily due to the following: (i) the Company
added staff to focus on its product sales, to improve gross margins and to
develop capabilities for new product lines and (ii) other general and
administrative expenses were increased to support the growth of the Company.

RESEARCH AND DEVELOPMENT. Research and development efforts increased in
fiscal year 1998, with such expenditures totaling $196,000 during this period
compared to $72,000 in the corresponding 1997 period. The increase was due
primarily to development efforts associated with new product lines. Such
expenditures are expected to increase in future periods.

11
<PAGE>
INTEREST INCOME. Interest income increased $585,000 to $635,000 for the
year ended October 31, 1998 from $50,000 for the year ended October 31, 1997.
This increase resulted primarily from the investment of funds received from the
Company's November 1997 private placement.

NET INCOME. Net income increased $823,000 to $1,099,000 for the year ended
October 31, 1998 from $276,000 for the year ended October 31, 1997. The increase
is a result of the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

At October 31, 1999, the Company had cash and investments in marketable
securities aggregating approximately $9.7 million and working capital of
$11.2 million. For the fiscal year ended October 31, 1999, net cash provided by
operating activities was approximately $4.4 million. Cash used in investing
activities for capital expenditures, convertible notes receivable and
construction in progress totaled approximately $6.0 million during year ended
October 31, 1999. The increase in notes receivable resulted from the Company's
secured loans to Theseus Imaging Corp. Construction in progress includes
payments to PracSys Corp. of approximately $2.7 million for two linear
accelerators purchased pursuant to a purchase agreement dated February 6, 1998.
The manufacture of the accelerators has not been completed and disputes
currently exist between the parties with respect thereto. These disputes have
been submitted to arbitration. The Company is currently investigating what the
costs would be to complete the accelerators and anticipates that such costs
could be material.

The Company is authorized to purchase up to $1.5 million of the Company's
common stock on the open market. No such shares have been repurchased as of
October 31, 1999.

The Company receives cash from the exercise of stock options. Proceeds from
the exercise of stock options and their related tax benefits will vary from
period to period based upon, among other factors, fluctuations in the market
value of the Company's stock relative to the exercise price of such options.

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

To date, the Company's short term liquidity needs have generally consisted
of operating capital to finance growth in inventories, trade accounts
receivable, new product development and strategic investments in related
businesses. The Company has satisfied these needs primarily through a
combination of private equity financings and from cash generated by operations.
The Company does not currently have long-term debt or a line of credit or
similar arrangement with a bank. Management anticipates that its existing cash
resources will be sufficient to fund its planned expansion over the next twelve
months, although additional funding may be required to fund the acquisition or
development of complementary businesses, technologies or products.

YEAR 2000 READINESS

The information provided below is a Year 2000 readiness disclosure entitled
to protection pursuant to the Year 2000 Information and Readiness Disclosure Act
(Pub. L. 105-271).

The Year 2000 issue arises from the fact that most computer software
programs have been written using two digits rather than four to represent a
specific year. Any computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing disruption of
operations, including among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.

12
<PAGE>
In an effort to evaluate and address our Year 2000 exposure the Company
assembled a team of senior managers to create a program that focused on both IT
(information technology) and non-IT components (business machines, manufacturing
equipment, products, computers, and systems). For each component area, the team
created projects to identify risks and remedy problems associated with the new
millennium and leap year. The projects included the following in the list below.

- Strategic Customer and Supplier Evaluation

- Component Assessment

- Non-compliance Resolution

- Testing

- Documentation

The Company concluded its assessment for each of the IT and non-IT
components in late March 1999. The Company then targeted certain at-risk
components for further review. Those IT and non-IT components identified have
since been evaluated and remedied as appropriate. In addition, the Company has
discussed a "most reasonably likely worst case scenario" for the Year 2000. This
includes the identification of principal risks and action items.

In an effort to assess new IT and non-IT components, the Company added a
Year 2000 assessment and disclosure requirement to the purchasing process. A
Year 2000 product assessment accompanied IT and non-IT components acquired in
calendar 1999.

In addition to risks associated with internal components, the Company has
relationships with, and is to varying degrees dependent upon, third parties that
provide us with information, goods and services. These include financial
institutions, suppliers, vendors, research partners and governmental entities,
as well as customers and distributors. External agent risks by definition reside
outside of the Company's span of control. However, the Company has instituted
programs to identify and assess our external agents' Year 2000 compliance. To
date, the Company has received no indication from any material third party that
they anticipate any Year 2000 compliance problems. Further, each customer and
vendor identified as critical to our supply chain has provided statements that
support their Year 2000 compliance.

As a result, we have completed all aspects of the Company's Year 2000
program and total costs to assess and resolve the Year 2000 issue have not been
material to the Company's financial position, results of operations, or cash
flows.

As of January 4, 2000, the Company has not, nor to its knowledge, have any
of the Company's external agents, experienced any material Year 2000
complications. However, there can be no absolute assurance that the Company and
the Company's external agents will not experience some complications resulting
from Year 2000 problems in the future.

FORWARD LOOKING STATEMENTS

Certain matters discussed in this Annual Report on Form 10-K are forward
looking as that term is defined by: (i) The Private Securities Litigation Reform
Act of 1995 (the "1995 Act") and (ii) releases issued by the SEC. These
statements are being made pursuant to the provisions of the 1995 Act and with
the intention of obtaining the benefits of the "safe harbor" provisions of the
1995 Act. 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 stable supply of
appropriate isotopes, whether produced by the Company or purchased from
third-party vendors, the impact of competitive products and pricing, the impact
of third party health care reimbursement, risks associated with strategic
opportunities

13
<PAGE>
or acquisitions the Company may pursue and the risks detailed herein or detailed
from time to time in the Company's filings with the SEC.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's financial instruments include cash, marketable securities, and
notes receivable. At January 4, 2000, the carrying values of the Company's
financial instruments approximated their fair values based on current market
prices and rates or independent appraisals.

It is the Company's policy not to enter into derivative financial
instruments. The Company does not have any significant foreign currency exposure
since it does not transact business in foreign currencies. Therefore, the
Company does not have significant overall currency exposure. In addition, the
Company does not enter into any futures or forward contracts and therefore does
not have significant market risk exposure with respect to commodity prices.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required under this Item is incorporated by reference to the
Company's definitive proxy statement pursuant to Regulation 14A to be filed with
the Commission no later than 120 days after the close of the Company's fiscal
year ended October 31, 1999.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

14
<PAGE>
PART IV

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

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

<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
1. Financial Statements of the Company
Report of Independent Accountants........................... 17
Consolidated Balance Sheets................................. 18
Consolidated Statements of Income........................... 19
Consolidated Statement of Changes in Stockholders' Equity... 20
Consolidated Statements of Cash Flows....................... 21
Notes to Consolidated Financial Statements.................. 22

2. Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts.............. 32
</TABLE>

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

<TABLE>
<S> <C> <C>
3. Exhibits.
Reference is made to Item 14(c) of this Annual Report on
Form 10-K.
</TABLE>

(b) Reports on Form 8-K:

None.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
3.1.......... Certificate of Incorporation of the Registrant, incorporated
by reference to Exhibit 3(i) of the Registrant's
Registration Statement on Form 10-SB, filed August 22, 1995.

3.2.......... Certificate of Amendment of the Registrant, incorporated by
reference to Exhibit 3.1 of the Registrant's Quarterly
Report on Form 10-QSB for the quarterly period ended July
31, 1998.

3.3.......... Certificate of Domestication of the Registrant, incorporated
by reference to Exhibit 3(i)(a) of the Registrant's
Registration Statement on Form 10-SB, filed August 22, 1995.

3.4.......... Bylaws of the Registrant, incorporated by reference to
Exhibit 3(ii) of the Registrant's Registration Statement on
Form 10-SB, filed August 22, 1995.

10.1......... Lease Agreement dated November 30, 1995 between Registrant
and Abraham Stricks, incorporated by reference to
Exhibit 10.2 of the Registrant's Annual Report on
Form 10-KSB, filed January 29, 1998.

10.2......... North American Scientific, Inc. Amended and Restated 1996
Stock Option Plan, incorporated by reference to Exhibit 4.4
of the Registrant's Registration Statement on Form S-8
(Registration No. 333-62631), filed August 31, 1998.

10.6......... Exclusive Manufacturing and Supply Agreement dated as of
October 7, 1997 between the Registrant and RadioMed
Corporation, incorporated by reference to Exhibit 10.1 of
the Registrant's Form 8-K, filed October 9, 1997.

10.7......... Note Purchase Agreement between the Registrant and RadioMed
Corporation, dated as of October 7, 1997, incorporated by
reference to Exhibit 10.2 of the Registrant's Form 8-K
filed October 9, 1997.
</TABLE>

15
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.8......... Stock Purchase Agreement dated as of November 10, 1997 among
the Registrant and the investors identified therein,
incorporated by reference to Exhibit 10.1 of the
Registrant's Form 8-K filed November 24, 1997.

10.9......... Purchase Contract dated February 6, 1998 between the
Registrant and PracSys Corp., incorporated by reference to
Exhibit 10.1 of the Registrant's Form 8-K filed
February 19, 1998.

10.10........ Service Contract dated February 6, 1998 between the
Registrant and PracSys Corp., incorporated by reference to
Exhibit 10.2 of the Registrant's Form 8-K filed
February 19, 1998.

10.11........ Exclusivity and Purchase Contract dated as of December 31,
1997, as amended February 6, 1998 between the Registrant
and PracSys Corp., incorporated by reference to
Exhibit 10.3 of the Registrant's Form 8-K filed
February 19, 1998.

10.12........ Rights Agreement, incorporated by reference to Exhibit 99.1
of the Registrant's Form 8-A, filed October 16, 1998.

21.1......... Subsidiaries of the Registrant, incorporated by reference to
Exhibit 21 of the Registrant's Registration Statement on
Form 10-SB, filed August 22, 1995.

23.1......... Consent of PricewaterhouseCoopers LLP, independent
accountants.

27.1......... Financial Data Schedule.
</TABLE>

(a) Reports on Form 8-K:

No reports on Form 8-K were filed during the fourth quarter of the fiscal year
ended October 31, 1999.

16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 15 present fairly, in all material
respects, the financial position of North American Scientific, Inc. and its
subsidiary at October 31, 1999 and 1998, and the results of their operations and
their cash flows for each of the three years in the period ended October 31,
1999, in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(2) on page 15 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Costa Mesa, California
December 21, 1999

17
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS

Current assets
Cash and cash equivalents................................. $ 1,443,000 $ 2,119,000
Marketable securities..................................... 8,219,000 9,101,000
Accounts receivable, net.................................. 1,983,000 1,323,000
Inventories............................................... 552,000 731,000
Prepaid expenses and other current assets................. 365,000 196,000
----------- -----------
Total current assets.................................... 12,562,000 13,470,000

Notes receivable............................................ 4,162,000 1,163,000
Equipment and leasehold improvements, net................... 3,743,000 1,587,000
Construction in progress.................................... 2,826,000 2,289,000
Deposits and other assets................................... 545,000 394,000
----------- -----------
Total assets.......................................... $23,838,000 $18,903,000
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable.......................................... $ 568,000 $ 338,000
Accrued expenses.......................................... 627,000 202,000
Income taxes payable...................................... 163,000 315,000
----------- -----------
Total current liabilities............................... 1,358,000 855,000

Deferred income taxes....................................... 114,000 61,000
----------- -----------
Total liabilities....................................... 1,472,000 916,000
----------- -----------
Stockholders' equity
Preferred stock, $.01 par value, 2,000,000 shares
authorized; no shares issued............................ -- --
Common stock, $.01 par value, 40,000,000 shares
authorized; 6,828,887 and 6,787,975 shares issued and
outstanding as of October 31, 1999 and 1998,
respectively............................................ 68,000 68,000
Additional paid-in capital................................ 18,172,000 17,162,000
Retained earnings......................................... 4,126,000 757,000
----------- -----------
Total stockholders' equity.............................. 22,366,000 17,987,000
----------- -----------
Total liabilities and stockholders' equity.............. $23,838,000 $18,903,000
=========== ===========
</TABLE>

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

18
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................... $12,767,000 $5,839,000 $3,381,000

Cost of goods sold...................................... 4,594,000 2,680,000 1,844,000
----------- ---------- ----------
Gross profit...................................... 8,173,000 3,159,000 1,537,000
----------- ---------- ----------
Selling, general and administrative expenses............ 3,060,000 1,859,000 1,094,000
Research and development................................ 287,000 196,000 72,000
----------- ---------- ----------
Income from operations.................................. 4,826,000 1,104,000 371,000

Interest and other income............................... 611,000 635,000 50,000
----------- ---------- ----------
Income before provision for income taxes................ 5,437,000 1,739,000 421,000

Provision for income taxes.............................. 2,068,000 640,000 145,000
----------- ---------- ----------
Net income.............................................. $ 3,369,000 $1,099,000 $ 276,000
=========== ========== ==========

Earnings per share

Basic............................................... $ .49 $ .17 $ .06
=========== ========== ==========
Diluted............................................. $ .47 $ .16 $ .05
=========== ========== ==========

Weighted average number of shares outstanding

Basic............................................... 6,800,129 6,435,588 4,591,614
=========== ========== ==========
Diluted............................................. 7,203,264 7,023,650 5,372,398
=========== ========== ==========
</TABLE>

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

19
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
--------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) OTHER EQUITY
--------- -------- ----------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31,
1996..................... 4,474,801 $29,000 $ 2,105,000 ($ 597,000) ($ 9,000) $ 1,528,000

Issuance of common stock... 375,000 3,000 968,000 -- -- 971,000

Issuance of warrants....... -- -- 135,000 -- -- 135,000

Common stock issued upon
exercise of stock
options.................. 176,250 1,000 145,000 -- -- 146,000

Common stock issued upon
exercise of warrants..... 150,000 1,000 162,000 -- -- 163,000

Net income................. -- -- -- 276,000 -- 276,000

Foreign currency
translation adjustment... -- -- -- -- 9,000 9,000
--------- ------- ----------- ---------- -------- -----------

Balance at October 31,
1997..................... 5,176,051 34,000 3,515,000 (321,000) -- 3,228,000

Issuance of common stock
under private
placement................ 1,200,000 8,000 13,186,000 -- -- 13,194,000

Common stock issued upon
exercise of stock
options.................. 336,924 4,000 265,000 -- -- 269,000

Common stock issued upon
exercise of warrants..... 75,000 1,000 80,000 -- -- 81,000

Effect of common stock
dividend................. -- 21,000 -- (21,000) -- --

Tax benefit related to
exercise of stock
options.................. -- -- 116,000 -- -- 116,000

Net income................. -- -- -- 1,099,000 -- 1,099,000
--------- ------- ----------- ---------- -------- -----------

Balance at October 31,
1998..................... 6,787,975 68,000 17,162,000 757,000 -- 17,987,000

Common stock issued upon
exercise of stock
options.................. 40,912 -- 62,000 -- -- 62,000

Tax benefit related to
exercise of stock
options.................. -- -- 948,000 -- -- 948,000

Net income................. -- -- -- 3,369,000 -- 3,369,000
--------- ------- ----------- ---------- -------- -----------

Balance at October 31,
1999..................... 6,828,887 $68,000 $18,172,000 $4,126,000 $ -- $22,366,000
========= ======= =========== ========== ======== ===========
</TABLE>

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

20
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------
1999 1998 1997
----------- ------------ ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 3,369,000 $ 1,099,000 $ 276,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization.................... 375,000 227,000 53,000
Deferred income taxes............................ 53,000 61,000 --
Tax benefit of stock option exercises............ 948,000 116,000 --
Other............................................ -- 10,000 27,000
Changes in assets and liabilities
Accounts receivable............................ (660,000) (903,000) 253,000
Inventories.................................... 179,000 (353,000) (234,000)
Income taxes receivable........................ -- 106,000 (106,000)
Prepaid expenses and other assets.............. (351,000) (362,000) (118,000)
Accounts payable............................... 230,000 (26,000) 187,000
Accrued expenses............................... 425,000 121,000 (58,000)
Income taxes payable........................... (152,000) 315,000 (155,000)
----------- ------------ ----------
Net cash provided by operating
activities............................... 4,416,000 411,000 125,000
----------- ------------ ----------

Cash flows from investing activities:
Construction in progress............................. (537,000) (2,289,000) --
Net sales/(purchases) of marketable securities....... 882,000 (9,074,000) (1,000)
Notes receivable..................................... (2,999,000) (663,000) (500,000)
Capital expenditures................................. (2,500,000) (1,406,000) (180,000)
----------- ------------ ----------
Net cash used in investing activities...... (5,154,000) (13,432,000) (681,000)
----------- ------------ ----------

Cash flows from financing activities:
Net proceeds from issuance of common stock........... 62,000 13,544,000 1,279,000
----------- ------------ ----------
Net cash provided by financing
activities............................... 62,000 13,544,000 1,279,000
----------- ------------ ----------
Effect of foreign currency translation on cash......... -- -- 7,000
----------- ------------ ----------
Net (decrease)/increase in cash and cash equivalents... (676,000) 523,000 730,000

Cash and cash equivalents at beginning of period....... 2,119,000 1,596,000 866,000
----------- ------------ ----------
Cash and cash equivalents at end of period............. $ 1,443,000 $ 2,119,000 $1,596,000
=========== ============ ==========
Supplemental disclosure of cash flow information:

Interest paid........................................ $ -- $ -- $ 1,000
=========== ============ ==========
Income taxes paid.................................... $ 801,000 $ 73,000 $ 407,000
=========== ============ ==========
</TABLE>

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

21
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BUSINESS

North American Scientific, Inc. manufactures and markets a line of low-level
radiation sources and reference standards for medical, scientific and industrial
uses. The Company operates in a single business segment with its primary
products being (i) brachytherapy sources for the treatment of prostate cancer
and (ii) radioactive reference sources used to calibrate a variety of medical
and commercial equipment. References to the "Company" include both the parent
company and its subsidiary.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.

USE OF ESTIMATES

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

STOCK SPLIT

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

CASH AND CASH EQUIVALENTS

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

INVENTORIES

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

MARKETABLE SECURITIES

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

NOTES RECEIVABLE

Notes receivable consists of convertible debt securities of three separate
private companies. The Company accounts for its notes receivable in accordance
with SFAS No. 115 and considers these notes as "available-for-sale". As of
October 31, 1999, there were no material realized or unrealized gains or losses

22
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

recorded with respect to the notes. These companies are in the early stage of
development and management believes that cost approximates fair value. The three
companies' stocks are not actively traded on a public exchange, therefore
management's assessment of fair value was supported by valuations performed by
independent appraisers.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives as
follows:

<TABLE>
<S> <C>
Furniture, fixtures and equipment.... 3-15 years
Leasehold improvements............... Lesser of the useful life or term of
lease
</TABLE>

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.

The Company assesses potential impairments to its long-lived assets, on an
exception basis, when there is evidence that events or changes in circumstances
have made recovery of the asset's carrying value unlikely. An impairment loss
would be recognized when the sum of the expected future net cash flows is less
than the carrying amount of the asset

REVENUE RECOGNITION

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

STOCK OPTION PLAN

The Company measures compensation expense for its stock option plan using
the intrinsic value method and provides pro forma disclosures of net income and
earnings per share as if the fair value method had been applied in measuring
compensation expense.

NET INCOME PER SHARE

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

Diluted earnings per share is computed by dividing the net income by the sum
of the weighted average number of common shares outstanding for the period plus
the assumed exercise of all dilutive securities by

23
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

applying the treasury stock method. The following table sets forth the
computation of basic and diluted earnings per share:

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income............................................... $3,369,000 $1,099,000 $ 276,000
========== ========== ==========
Weighted average shares outstanding--Basic............... 6,800,129 6,435,588 4,591,614
Dilutive effect of stock options and warrants............ 403,135 588,062 780,784
---------- ---------- ----------
Weighted average shares outstanding--Diluted............. 7,203,264 7,023,650 5,372,398
========== ========== ==========
Basic earnings per share................................. $ .49 $ .17 $ .06
Diluted earnings per share............................... $ .47 $ .16 $ .05
</TABLE>

INCOME TAXES

The Company accounts for income taxes utilizing an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than enactments of changes in the tax law or rates.

RECLASSIFICATIONS

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

DIVERSIFICATION OF CREDIT RISK

The Company's financial instruments that are subject to concentrations of
credit risk consist primarily of cash equivalents, collateralized notes
receivable and accounts receivable which are not collateralized. The Company's
policy is to invest its cash with highly rated financial institutions in order
to limit the amount of credit exposure. The Company's customers are financially
sound corporations operating in a variety of industries. The Company's credit
losses have been within management's estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This statement establishes a
new model for accounting for derivatives and hedging activities. Under
SFAS 133, all derivatives must be recognized as assets and liabilities and
measured at fair value. The Company is required to adopt SFAS 133 for its fiscal
year ending October 31, 2000. The Company does not expect the adoption of this
pronouncement to have a material effect on its reported consolidated financial
condition or results of operations.

24
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--INVENTORIES:

Inventories are shown net of applicable reserves and allowances:

<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Raw materials........................................... $285,000 $606,000
Work in process......................................... 166,000 16,000
Finished goods.......................................... 101,000 109,000
-------- --------
$552,000 $731,000
======== ========
</TABLE>

NOTE 3--NOTES RECEIVABLE:

The Company has a $500,000 secured subordinated convertible note (the
"Note") from RadioMed Corporation ("RadioMed"). The Note bears interest at 10%
per annum and had an original maturity date of October 7, 2007. The Note may be
converted at the Company's election at any time prior to the maturity date into
Series A Preferred Stock of RadioMed at a price of $500 per share subject to
adjustment. However, the Note will be automatically converted into such shares
upon the consummation of a public offering by RadioMed or at the maturity date.
Interest is not due until the earlier of conversion of the Note or the maturity
date. The Note is secured by a first lien on RadioMed's physical assets and
proprietary technology as defined in the security agreement, subject to certain
subordination.

The Company entered into an exclusive supply agreement with RadioMed whereby
the Company would supply 100% of RadioMed's North American requirements for
certain ion implantation products for so long as the Company holds at least 50%
of the original value of the Note or equivalent dollar value in stock and for
one year thereafter.

On December 4, 1999, the Company and RadioMed signed a settlement letter
which provided, subject to RadioMed shareholder approval thereof, for, among
other matters: (i) the termination of the Supply Agreement on or prior to
March 31, 2000; (ii) repayment of the principal amount of this Note on or prior
to March 31, 2000; and (iii) payment of the accrued interest on the Note in the
form of 20,000 shares of RadioMed Series A Convertible Preferred Stock, $0.01
par value.

On October 21, 1999 the Company signed a definitive agreement to acquire
Theseus Imaging Corporation, a developmental stage company, in a stock for stock
exchange. Under the terms of the Agreement, Theseus stockholders will receive up
to 200,000 shares of newly issued NASI common stock and certain royalty rights
in exchange for 100% of Theseus' common stock. The acquisition of Theseus is
contingent upon final due diligence, receipt of a financial fairness opinion
from a qualified independent third party and initial clinical results. The
Company has also agreed to provide financing to Theseus up until the acquisition
date. This financing is in the form of convertible notes bearing interest at the
prime rate plus 1%. These notes are convertible into common stock of Theseus at
the Company's option. These notes are due and payable or must be converted no
later than June 1, 2000. The notes are secured by a first priority interest in
Theseus' right, title and interest in the collateral as defined in the Security
Agreement, which consists primarily of certain licensing agreements. As of
October 31, 1999 and 1998, the Company had convertible notes outstanding of
$3,462,000 and $463,000, respectively. In November and December 1999 the Company
advanced Theseus an additional $545,000. In the event NASI does not pursue the
acquisition, it is not obligated to convert the notes.

25
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--NOTES RECEIVABLE: (CONTINUED)

The Company has a $200,000 secured convertible note from a manufacturing
company. The convertible note bears interest at 6% per annum and matures on
June 19, 2000. The note may be converted at any time at the Company's election
into equity securities of the manufacturing company. Interest is not due until
the earlier of conversion of the note or the maturity date. The note is secured
by certain licenses and intellectual property rights.

NOTE 4--CONSTRUCTION IN PROGRESS:

In February 1998, the Company entered into agreements with PracSys Corp., a
Massachusetts corporation ("PracSys"), pursuant to which PracSys would
(i) manufacture and sell to the Company two particle accelerators to be used in
the production of certain isotopes related to the Company's brachytherapy
product line and (ii) operate the machines to produce the isotopes for an
initial two-year period. The agreements called for total payments to PracSys of
approximately $2.7 million which were paid in full. As of October 31, 1999 and
1998, costs related to the construction of the machines totaled $2,826,000 and
$2,289,000, respectively, and are reported as construction in progress in the
consolidated balance sheets.

During fiscal year 1999, a dispute arose between the Company and PracSys and
construction of the machines was halted (See Note 6). In December, 1999 the
Company took possession of the machines and moved them to another location
pending conclusion of the project.

NOTE 5--EQUIPMENT AND LEASEHOLD IMPROVEMENTS:

Equipment and leasehold improvements consist of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Furniture, fixtures and equipment.................... $2,952,000 $1,583,000
Leasehold improvements............................... 1,588,000 460,000
---------- ----------
4,540,000 2,043,000
Less: Accumulated depreciation and amortization...... (797,000) (456,000)
---------- ----------
$3,743,000 $1,587,000
========== ==========
</TABLE>

NOTE 6--COMMITMENTS AND CONTINGENCIES:

The Company leases office and manufacturing space under non-cancelable
operating lease agreements. Future minimum lease payments are subject to annual
adjustment for increases in the Consumer Price Index. Future minimum lease
payments under all operating leases in each of the next five years from fiscal
2000 to 2004 are $277,000, $277,000, $196,000, $180,000 and $15,000,
respectively. Total rent expense for the years ended October 31, 1999, 1998 and
1997 was $265,000, $113,000 and $97,000, respectively.

On August 11, 1999, a demand for arbitration was filed by PracSys against
the Company in Boston, Massachusetts. On February 6, 1998, the Company
contracted with PracSys to build two linear particle accelerators intended to
produce Pd(103) isotopes to be incorporated in the Company's Pd(103)
brachytherapy seed products. PracSys did not complete the manufacturing of the
machines, and the Company demanded that PracSys turn over the uncompleted
machines. PracSys initiated an arbitration proceeding against the Company on the
basis of claims of breach of contract, breach of fiduciary duty and unfair and
deceptive

26
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--COMMITMENTS AND CONTINGENCIES: (CONTINUED)

trade practices. The Company has vigorously denied and defended against PracSys'
claims, and has also asserted counterclaims against PracSys for breach of
contract and fraud and misrepresentation in connection with PracSys' failure to
complete the machines. A hearing in the arbitration has been scheduled for
January 24, 2000.

From time to time the Company is subject to legal proceedings and claims
that arise in the normal course of its business. The Company believes such
proceedings will not have a material adverse effect on the financial position or
results of operations of the Company.

NOTE 7--STOCKHOLDERS' EQUITY:

PRIVATE PLACEMENT

In November 1997, the Company completed a private placement of 800,000
shares of its common stock to certain institutional investors. The net proceeds
to the Company from the sale were approximately $13.2 million.

STOCKHOLDERS' RIGHTS PLAN

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

PREFERRED STOCK

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

STOCK OPTIONS

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

27
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY: (CONTINUED)

The following table summarizes stock option activity:

<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVG.
OUTSTANDING EXERCISE PRICE
----------- --------------
<S> <C> <C>
Balance at October 31, 1996......................... 551,250 $ 0.68
Granted............................................. 375,750 1.15
Canceled or expired................................. -- --
Exercised........................................... (176,250) 0.68
--------
Balance at October 31, 1997......................... 750,750 0.92
Granted............................................. 191,125 14.42
Canceled or expired................................. (58,187) 11.87
Exercised........................................... (336,924) 0.80
--------
Balance at October 31, 1998......................... 546,764 5.00
Granted............................................. 421,500 6.25
Canceled or expired................................. (17,702) 4.62
Exercised........................................... (40,912) 1.52
--------
Balance at October 31, 1999......................... 909,650 $ 5.74
======== ======
</TABLE>

There were 415,744 and 231,125 options exercisable with weighted average
exercise prices of $3.99 and $3.13 at October 31, 1999, and 1998, respectively.

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

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Dividend yield.................................... 0% 0% 0%
Expected volatility............................... 40% 35% 80%
Risk-free interest rate........................... 5.2% 5.7% 6.4%
Expected lives.................................... 5 years 5 years 5 years
</TABLE>

The following table summarizes significant option groups outstanding at
October 31, 1999 and related weighted average exercise price and remaining
contractual life information as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ------------------------
WEIGHTED AVG. WEIGHTED WEIGHTED
RANGE OF REMAINING AVG. AVG.
EXERCISE CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES SHARES LIFE (YEARS) PRICE EXERCISABLE PRICE
- -------- -------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$0.67-$1.96.......... 336,375 7.04 $ 1.00 283,312 $ 1.00
$3.94-$7.63.......... 493,275 9.33 5.96 97,432 5.50
$23.50-$24.54........ 80,000 8.42 24.28 35,000 23.95
------- -------
909,650 8.40 5.74 415,744 3.99
======= =======
</TABLE>

28
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY: (CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Net income:
As reported.............................. $3,369,000 $1,099,000 $276,000
Pro forma................................ $2,584,000 532,000 $ 99,800
Earnings Per Share:
As reported basic........................ $ .49 $ .17 $ .06
As reported diluted...................... $ .47 $ .16 $ .05
Pro forma basic.......................... $ .38 $ .08 $ .02
Pro forma diluted........................ $ .36 $ .08 $ .02
</TABLE>

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. Because
changes in the subjective input assumptions can materially affect the fair value
estimate, in the opinion of management, the existing models do not necessarily
provide a reliable single measure of the fair value of its options. The weighted
average estimated fair value of stock options granted during fiscal year 1999
and 1998 were $3.74 and $5.83 per share, respectively.

MENTOR AGREEMENT

In June 1997, the Company entered into an exclusive worldwide distribution
agreement with Mentor Corporation ("Mentor") to market and sell certain
brachytherapy sources for the treatment of prostate cancer. Under the terms of
the five year agreement, Mentor is responsible for sales and marketing
activities. Pursuant to the agreement, Mentor purchased 375,000 shares of the
Company's common stock at $2.67 per share (the fair market value of the common
stock at the time of the agreement). In addition, the agreement originally
provided Mentor the right to purchase $2,000,000 of the Company's preferred
stock, however, during fiscal year 1998 the agreement was amended to eliminate
this right.

COMMON STOCK WARRANTS

In fiscal 1997, the Company granted 150,000 warrants to a third party in
connection with a contract to provide investment banking services on behalf of
the Company over a five-year term. The warrants permitted the holder to purchase
a total of 150,000 shares of the Company's common stock at $1.63 per share (the
fair market value of the Company's common stock at the date of the agreement).
The holder exercised 100,000 of such warrants in fiscal 1997 and the remaining
50,000 in fiscal 1998. The fair value of the warrants of $135,000 at the grant
date is reflected as other assets and additional paid-in capital and is being
amortized over the term of the agreement.

29
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--SALES TO MAJOR CUSTOMERS:

Revenues from customers that accounted for more than 10% of the Company's
consolidated revenues were as follows:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Customer A................................................. --% 9% 41%
Customer B................................................. 7 17 30
Customer C................................................. 77 45 --
-- -- --
84% 71% 71%
== == ==
</TABLE>

At October 31, 1999, amounts due from Customer C accounted for 76% of gross
trade receivables.

NOTE 9--INCOME TAXES:

The provision (benefit) for income taxes is comprised of the following:

<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Current:
Federal................................... $1,727,000 $526,000 $130,000
State..................................... 288,000 53,000 15,000
---------- -------- --------
2,015,000 579,000 145,000
---------- -------- --------
Deferred:
Federal................................... 69,000 (20,000) --
State..................................... (16,000) 81,000 --
---------- -------- --------
53,000 61,000 --
---------- -------- --------
$2,068,000 $640,000 $145,000
========== ======== ========
</TABLE>

The Company's temporary differences resulted in a net deferred tax liability
consisting of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Depreciation and amortization........................... $264,000 $141,000
Accrued liabilities..................................... (37,000) (27,000)
Allowance for doubtful accounts......................... (22,000) (8,000)
Inventory reserve and capitalized inventory............. (70,000) (17,000)
Other................................................... (21,000) (28,000)
-------- --------
$114,000 $ 61,000
======== ========
</TABLE>

30
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--INCOME TAXES: (CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal tax provision at U.S. statutory rate............... 34% 34% 34%
State income taxes, net of federal benefit................. 3 5 4
Other, net................................................. 1 (2) (4)
-- -- --
38% 37% 34%
== == ==
</TABLE>

NOTE 10--RETIREMENT PLAN:

The Company has a 401(k) retirement plan that allows eligible employees to
contribute up to 15% of their salary, subject to annual limits. Under these
plans, 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
plans totaled $87,000, $7,000, and $4,000 for the years ended October 31, 1999,
1998, and 1997, respectively.

NOTE 11--SELECTED QUARTERLY FINANCIAL DATA:

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

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1999 QUARTER QUARTER QUARTER QUARTER
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales................................... $2,427 $3,007 $3,444 $3,889
Gross Profit................................ 1,518 1,912 2,187 2,556
Net Income.................................. 510 717 981 1,161
Diluted earnings per share.................. $ .07 $ .10 $ .14 $ .16
</TABLE>

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1998 QUARTER QUARTER QUARTER QUARTER
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales................................... $819 $1,353 $1,809 $1,858
Gross Profit................................ 303 766 1,033 1,057
Net Income.................................. 41 279 420 359
Diluted earnings per share.................. $.01 $ .04 $ .06 $ .05
</TABLE>

31
<PAGE>
SCHEDULE II

NORTH AMERICAN SCIENTIFIC, INC.

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED OCTOBER 31, 1999, 1998, 1997

(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGES TO CHARGED BALANCE AT
BEGINNING COST AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended October 31, 1999
Allowance for doubtful accounts.......... $19 $ 32 $ -- $ -- $ 51
Inventory reserves....................... -- 105 -- -- 105

Year ended October 31, 1998
Allowance for doubtful accounts.......... $ 9 $ 10 $ -- $ -- $ 19

Year ended October 31, 1997
Allowance for doubtful accounts.......... $-- $ 9 $ -- $ -- $ 9
</TABLE>

32
<PAGE>
SIGNATURES

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

<TABLE>
<S> <C> <C>
NORTH AMERICAN SCIENTIFIC, INC.

January 4, 2000 By: /s/ L. MICHAEL CUTRER
-----------------------------------------
L. Michael Cutrer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ IRWIN J. GRUVERMAN
-------------------------------------- Chairman of the Board of Directors January 4, 2000
Irwin J. Gruverman

/s/ L. MICHAEL CUTRER President, Chief Executive Officer
-------------------------------------- and Director (Principal January 4, 2000
L. Michael Cutrer Executive Officer)

/s/ ALAN I. EDRICK Chief Financial Officer (Principal
-------------------------------------- Financial and Accounting January 4, 2000
Alan I. Edrick Officer)

/s/ LARRY BERKIN
-------------------------------------- Director January 4, 2000
Larry Berkin

/s/ ALLAN M. GREEN
-------------------------------------- Director January 4, 2000
Allan M. Green

/s/ MICHAEL C. LEE
-------------------------------------- Director January 4, 2000
Michael C. Lee
</TABLE>

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-41165, 333-37341 and 333-63263) and in the
Registration Statements on Form S-8 (Nos. 333-14373, 333-25973 and 333-62631) of
North American Scientific, Inc. of our report dated December 21, 1999 relating
to the financial statements and financial statement schedule, which appears in
this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Costa Mesa, California
January 7, 2000

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 1,443,000
<SECURITIES> 8,219,000
<RECEIVABLES> 2,034,000
<ALLOWANCES> (51,000)
<INVENTORY> 552,000
<CURRENT-ASSETS> 12,562,000
<PP&E> 4,540,000
<DEPRECIATION> (797,000)
<TOTAL-ASSETS> 23,838,000
<CURRENT-LIABILITIES> 1,358,000
<BONDS> 0
0
0
<COMMON> 68,000
<OTHER-SE> 22,298,000
<TOTAL-LIABILITY-AND-EQUITY> 23,838,000
<SALES> 12,767,000
<TOTAL-REVENUES> 12,767,000
<CGS> 4,594,000
<TOTAL-COSTS> 3,060,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,437,000
<INCOME-TAX> 2,068,000
<INCOME-CONTINUING> 3,369,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,369,000
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.47

</TABLE>