UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2009

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-26670

NORTH AMERICAN SCIENTIFIC, INC.

(Exact name of registrant as specified in its charter)

Delaware		51-0366422
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

20200 Sunburst Street, Chatsworth, CA 91311

(Address of principal executive offices)

(818) 734-8600

(Registrant's telephone number, including area code)

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

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

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

The number of shares of Registrant's Common Stock, $0.01 par value, outstanding as of March 19, 2009 was approximately 18,520,000 shares.

NORTH AMERICAN SCIENTIFIC, INC.

Index

		Page

Part I – Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of January 31, 2009 and October 31, 2008	3

	Condensed Consolidated Statements of Operations for the three months ended
	January 31, 2009 and 2008	4

	Condensed Consolidated Statements of Cash Flows for the three months ended
	January 31, 2009 and 2008	5

	Notes to the Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and
	Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41

Item 4.	Controls and Procedures	41

Part II – Other Information

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 6.	Exhibits	57

	Signatures	58

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NORTH AMERICAN SCIENTIFIC, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share data)

	January 31,				October 31,
	2009				2008
	(Unaudited)
Assets

Current assets
Cash and cash equivalents		$	2,142			$	2,256
Accounts receivable, net of reserves			2,052				1,907
Prepaid expenses and other current assets			331				758
Receivable from sale of assets (Note 3)			423				2,190
Assets held for sale			1,963				2,166
Total current assets			6,911				9,277
Equipment and leasehold improvements, net			344				298
Intangible assets, net			23				23
Other assets			4				4
Total assets		$	7,282			$	9,602

Liabilities and Stockholders’ Equity

Current liabilities
Line of credit, in default		$	1,022			$	—
Short-term portion of long-term debt, net of discount, in default			1,397				376
Accounts payable			1,741				1,732
Accrued expenses			2,316				3,118
Total current liabilities			6,476				5,226

Long-term debt, net of discount			—				988
Long-term severance liability			472				569

Commitments and contingencies (Note 9)

Stockholders’ Equity
Preferred stock, $0.01 par value, 2,000,000 shares authorized; no shares
issued			—				—
Common stock, $0.01 par value, 150,000,000 shares authorized:
18,561,676 shares issued: and 18,520,472 shares outstanding as of January 31, 2009 and October 31, 2008, respectively			185				185
Additional paid-in capital			161,915				161,732
Treasury stock, at cost – 41,204 common shares as of January 31, 2009 and October 31, 2008			(227	)			(227	)
Accumulated deficit			(161,539	)			(158,871	)
Total stockholders’ equity			334				2,819
Total liabilities and stockholders’ equity		$	7,282			$	9,602

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

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NORTH AMERICAN SCIENTIFIC, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

	Three Months Ended January 31,
	2009				2008

Operating expenses
Selling and marketing expenses		$	231			$	142
General and administrative expenses			1,161				1,882
Research and development			784				850
Total operating expenses			2,176				2,874

Loss from operations			(2,176	)			(2,874	)
Interest expense			76				1,132
Adjustment to fair value of derivatives			—				(311	)
Interest income and other income, net			10				—

Loss before provision for income taxes			(2,242	)			(4,317	)
Provision for income taxes			—				—
Loss from continuing operations			(2,242	)			(4,317	)
Loss from discontinued operations			(426	)			(78	)
Net loss		$	(2,668	)		$	(4,395	)

Basic and diluted loss per share:
Continuing operations		$	(0.12	)		$	(0.56	)
Discontinued operations			(0.02	)			(0.01	)
Net loss per share		$	(0.14	)		$	(0.57	)

Weighted average number of shares outstanding-basic and diluted			18,520,472				7,660,226

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

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NORTH AMERICAN SCIENTIFIC, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Three Months Ended January 31,
	2009				2008

Cash flows from operating activities:
Net loss		$	(2,668	)		$	(4,395	)
Net loss from discontinued operations			(426	)			(78	)
Net loss from continuing operations			(2,242	)			(4,317	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			86				24
Amortization of warrants and loan origination fees			20				895
Change in fair value of warrant derivative liability			—				311
Provision for doubtful accounts			12				35
Loss on sale of equipment			3				—
Share-based compensation expense			157				168
Changes in assets and liabilities, net of discontinued operations:
Accounts receivable			(157	)			62
Prepaid expenses and other current assets			427				(32	)
Accounts payable			93				(166	)
Accrued expenses			(754	)			152
Long-term severance			(97	)			—
Net cash used in continuing operations			(2,452	)			(2,868	)
Net cash provided by (used in) discontinued operations			1,438				(309	)
Net cash used in operating activities			(1,014	)			(3,177	)
Cash flows from investing activities:
Capital expenditures			(135	)			(118	)
Net cash used in investing activities			(135	)			(118	)
Cash flow from financing activities:
Repayment of long-term borrowings			(45	)			—
Net proceeds from private placement of common stock and warrants			—				14,019
Proceeds from stock purchase plan			—				8
Proceeds from (payments on) line of credit			1,080				(3,323	)
Net cash provided by financing activities			1,035				10,704
Net (decrease) increase in cash and cash equivalents			(114	)			7,409
Cash and cash equivalents at beginning of period			2,256				609
Cash and cash equivalents at end of period		$	2,142			$	8,018

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

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NORTH AMERICAN SCIENTIFIC, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in thousands, except share and per share data)

NOTE 1—BASIS OF PRESENTATION, CONTINUED EXISTENCE, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements of the Company are unaudited, other than the condensed consolidated balance sheet at October 31, 2008, and reflect all material adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the interim periods. The results of operations for the current interim periods are not necessarily indicative of the results to be expected for the entire fiscal year.

These condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnotes normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to these rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Form 10-K, as filed with the SEC for the fiscal year ended October 31, 2008.

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

Continued Existence

The Company has incurred net losses of $2,668, $10,945, $20,998 and $17,130 for the three months ended January 31, 2009 and for the years ended October 31, 2008, 2007 and 2006, respectively, and has used cash in operations of $1,014, $12,015, $12,318 and $15,921 for the three months ended January 31, 2009 and for the years ended October 31, 2008, 2007 and 2006, respectively. As of January 31, 2009, the Company had an accumulated deficit of $161,539, cash and cash equivalents of $2,142, working capital of $435, and $2,535 of interest-bearing debt.

The Company has incurred significant net losses since inception, and has relied on its ability to obtain financing, which to date has been through the sale of common shares and the issuance of promissory notes. Management expects operating losses and negative cash flows to continue for the forseeable future as the Company incurs additional costs and expenses related to the continued development of its products, and obtaining FDA approval for new indications. These factors raise a substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include adjustments relating to the recoverability of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

On March 11, 2009, in response to the Company’s current financial condition, current business prospects, and to effect other arrangements surrounding the sale of its Prostate Brachytherapy Product Line (See Note 3), the Company filed voluntary petitions in the United States Bankruptcy Court for the Central District of California (the “Bankruptcy Court”) under Chapter 11 of the U.S. Bankruptcy Code (the “Chapter 11 Proceeding”). See Note 11 for further information about the Chapter 11 Proceeding.

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Following the filing of the Chapter 11 Proceeding, there is no assurance that the carrying amounts of assets will be realized or that liabilities will be settled for amounts recorded. The Company has not finalized any plans of reorganization or restructuring, although it is anticipated that any such plans will change the amounts reported in the accompanying condensed consolidated financial statements and cause a material change in the carrying amount of assets and liabilities. Future financial statements will be prepared in accordance with the AICPA’s Statement of Position 90-7 (“SOP 90-7”) “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.” SOP 90-7 requires, under certain circumstances, that entities adopt fresh-start reporting upon emergence from Chapter 11 reorganization. Fresh-start reporting involves allocating the reorganization value of the entity (which generally approximates fair value) to the entity’s assets and liabilities. SOP 90-7 also requires the debtor to segregate pre-petition liabilities that are subject to compromise and identify all transactions and events that are directly associated with the reorganization of the debtor. A portion of the liabilities recorded at January 31, 2009 are expected to be subject to compromise. Also in accordance with SOP 90-7, after the filing date, interest will no longer be accrued on any unsecured debt. We expect to sell our prostate brachytherapy business and our breast brachytherapy business through Chapter 11 Proceeding and if we do so we will have no remaining assets to continue in business. We expect all proceeds from sale of such business to be used to pay creditors.

Significant Accounting Policies

Use of Estimates

In the normal course of preparing the financial statements in conformity with generally accepted accounting principles in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Significant areas for which management evaluates its estimates include those related to revenue recognition, allowance for doubtful accounts, valuation of deferred income taxes, tax contingencies, long-lived and intangible assets and share-based compensation. Actual results could differ from those amounts.

Accounts Receivable and Allowance for Doubtful Accounts

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

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, receivables, inventories, accounts payable, and accrued expenses approximate fair value because of their short maturities.

Equipment and Leasehold Improvements

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

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

Long-Lived Assets

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

Intangible Assets

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

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

Derivative Liabilities

The Company issued warrants in connection with its borrowing activities that included an uncertain purchase price. The Company evaluated the warrants under SFAS No. 133 – “Accounting for Derivative Instruments and Hedging Activities” and Emerging Issues Task Force Issue 00-19 – “Accounting for Derivative Financial Indexed to, and Potentially Settled in, a Company’s Own Stock” and determined the warrants should be accounted for as derivative liabilities at estimated fair value, and marked-to-market at subsequent measurement dates. The Company used the Black-Scholes option-pricing model to determine the fair value of the derivative liabilities at each measurement date. Key assumptions of the Black-Scholes option-pricing model include applicable volatility rates, risk-free interest rates and the instruments’ expected remaining life. The fluctuations in estimated fair value are recorded as Adjustments to Fair Value of Derivatives in the Statement of Operations. On December 12, 2007, the uncertain purchase price became certain, and the fair value of the derivatives were reclassified from liabilities to equity. See further discussion in Note 7 - Borrowings.

Revenue Recognition

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

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Income Taxes and Uncertain Tax Positions

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company has recorded a 100% valuation allowance against its deferred tax assets until such time that becomes more likely than not that the Company will realize the benefits of its deferred tax assets. On November 1, 2007, the Company implemented Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109,” (FIN 48). See Note 2 – Income Taxes.

Share-based Compensation

The Company accounts for its share-based payments under the guidance set forth in SFAS No. 123(R), “Share-Based Payment”, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options and employee stock purchases related to the Company’s Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”), based on their fair values. The Company also applies the guidance found in SAB No. 107 with respect to share-based payments and SFAS No. 123(R).

The Company adopted SFAS 123(R) using the modified prospective transition method as of and for the fiscal year ended October 31, 2006. Share-based compensation expense recognized is based on the value of the portion of share-based payment awards that is ultimately expected to vest. Share-based compensation expense recognized in the Company’s Consolidated Statement of Operations includes compensation expense for share-based payment awards granted or modified since the beginning of the fiscal year ended October 31, 2006.

In conjunction with the adoption of SFAS 123(R), the Company elected to attribute the value of share-based compensation to expense using the straight-line method, which was previously used for its pro forma information required under SFAS 123 and SFAS 148.

On March 16, 2006, the Company granted a total of 130,100 stock options to its employees that contain certain market conditions (“2006 Premium Price Awards”). The 2006 Premium Price Awards are, to the extent provided by law, incentive stock options that have an exercise price of $16.75 per share, which is equal to 159% of the fair market value of the Company’s common stock on the grant date. The 2006 Premium Price Awards also include a condition that provides that such stock options will only vest if the closing price of the Company's common stock is equal to or greater than $16.75 on each day over any consecutive four month period beginning on any date after the date of grant and ending no later than the third anniversary of the date of grant. The 2006 Premium Price Awards were cancelled on November 17, 2008 for failure to achieve the required market condition.

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On February 15, 2008, the Company’s Board of Directors approved, subject to the approval of the Company’s stockholders, a plan to reprice certain existing employee stock options at $2.05 per share, the closing price of the Company’s common stock on February 15, 2008. The 2006 Premium Price Awards were re-priced to $3.25 per share, which is equal to 159% of the re-priced fair value of the Company’s common stock. In addition, the Company’s Board of Directors also approved, subject to the approval of the Company’s stockholders, a plan to exchange options held by directors of the Company for a one-time stock option grant at $2.10 per share, the closing price of the Company’s stock on February 13, 2008. The Company’s stockholders approved both the employee stock option re-pricing plan and the director exchange plan at the annual meeting held on April 29, 2008. (See Note 8 – Stockholders’ Equity for further discussion). The Company recorded the re-pricing of the employee stock options and the exchange of the directors’ stock options in accordance the guidance in SFAS 123(R), Paragraph 51 “Modifications of Awards of Equity Instruments.” Pursuant to this guidance, the measurement date can precede the stockholders’ approval date when stockholder approval is considered to be a formality. The Company set the measurement date at the Board of Director’s approval date. The re-pricing exercise of employee stock options generated $332 incremental share-based compensation for un-vested and re-priced stock options, which is being recognized over the vesting period of the new employee stock options. The exchange of options held by directors of the Company generated $166 incremental share-based compensation for un-vested and exchanged options, which is being recognized over the three-year vesting period of the newly issued director stock options.

Share-based compensation expense related to stock options and employee stock purchases, including the amortized portion of the incremental share-based compensation for the re-priced employee stock options and the exchanged director stock options was $157 and $168 for the three months ended January 31, 2009 and 2008, respectively, and was recorded in the financial statements as a component of general and administrative expense. . In addition, $26 of share-based compensation expense has been included as a component of the loss from discontinued operations for the three months ended January 31, 2009.

The Company uses the Black-Scholes option-pricing model for estimating the fair value of options granted. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The Company uses projected volatility rates, which are based upon historical volatility rates, trended into future years. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate. For purposes of financial statement presentation, the estimated fair values of the options are amortized over the options’ vesting periods.

Reverse Stock Split

On April 29, 2008, the Company’s stockholders approved a 1 share for 5 share reverse split to regain compliance with the NASDAQ minimum bid price rule. The reverse split became effective on May 1, 2008, at which time the Company began trading under its new stock symbol “NASM”. All share and per share information in the consolidated financial statements and notes have been restated to reflect the effect of the stock split for all periods presented. The reverse stock split had no effect on the par value of the Company’s common stock or the total authorized shares.

Net Loss per Share

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

Diluted earnings (loss) per share is computed by dividing the net income (loss) by the sum of the weighted average number of common shares outstanding for the period plus the assumed exercise of all dilutive securities by applying the treasury stock method. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on earnings per share and, accordingly, are excluded from the calculation.

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Stock options to purchase 2,453,023 common shares and 1,156,456 common shares for the three months ended January 31, 2009 and 2008, respectively, and warrants to purchase 3,106,191 common shares and 3,006,854 common shares for the three months ended January 31, 2009 and 2008, respectively, were not included in the computation of diluted loss per share for those years because their effect would have been anti-dilutive.

Research and Development Costs

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

Significant Concentrations

As of January 31, 2009, there was one customer that made up more than 10% of revenues for the quarter, and one customer compromised more than 10% of accounts receivable. As of January 31, 2009, four suppliers made up more than 10% of purchases for the quarter and two suppliers that individually comprised more than 10% of accounts payable.

Diversification of Credit Risk

The Company's financial instruments that are subject to concentrations of credit risk consist primarily of cash equivalents and accounts receivable, which are not collateralized. The Company's policy is to invest its cash with highly rated financial institutions in order to limit the amount of credit exposure. As of January 31, 2009, $2,042 of the Company’s cash balance was in excess of the federally insured limit.

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

Fair Value Measurement

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for consistently measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. In February 2008, the FASB deferred the effective date of SFAS 157 by one year for certain nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). On November 1, 2008, the Company adopted the provisions of SFAS 157, except as it applies to those nonfinancial assets and liabilities for which the effective date has been delayed by one year.

The fair value hierarchy described by the standard is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value and include the following:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The adoption of SFAS 157 did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows. The book values of cash and cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these instruments.

Effective November 1, 2008, the Company adopted Financial Staff Position No. SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (FSP SFAS 157-3), which was issued on October 10, 2008. FSP SFAS 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for the financial asset is not active. The adoption of FSP SFAS 157-3 did not have an impact on the Company’s consolidated financial statements.

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

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 141R on its consolidated results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51" (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent's ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners SFAS 160 is effective for fiscal years beginning after December 15, 2008.The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on its consolidated results of operations and financial condition.

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In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact, if any, SFAS No. 161 will have on its consolidated financial position, results of operations or cash flows.

In March 2007, the FASB ratified Emerging Issues Task Force Issue 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”, (“EITF Issue 06-11”). Beginning January 1, 2008, the Company adopted EITF Issue 06-11. In accordance with the EITF Issue, the Company records a credit to additional paid-in capital for tax deductions resulting from a dividend payment on non-vested share awards the Company expects to vest. The adoption of EITF Issue 06-11 did not have any impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”, (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. The Company currently adheres to the hierarchy of GAAP as presented in SFAS No. 162, and does not expect its adoption will have a material impact on its consolidated results of operations and financial condition.

In June 2008, the FASB issued Financial Accounting Standards Board Staff Position EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“EITF 03-6-1”). EITF 03-6-1 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method in accordance with SFAS 128, Earnings per Share. EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, the Company is required to retrospectively adjust its earnings per share data to conform with the provisions in EITF 03-6-1. Early application of EITF 03-6-1 is prohibited. The Company is currently evaluating the impact EITF 03-6-1 will have on its consolidated financial statements.

NOTE 2 – INCOME TAXES

FIN48 adoption

On November 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”, (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the adoption of FIN 48, the Company reduced the liability for net unrecognized tax benefits, classified in other assets and accrued liabilities, by $152 and $440, respectively, and accounted for this as a cumulative effect of a change in accounting principle that was recorded as an increase to retained deficit. In implementing FIN 48, the Company has classified $120 as current income taxes payable, and, reduced to zero, both its short-term and long-term income tax receivable and long-term income tax payable. At January 31, 2009, the $120 current income tax reserve remained unchanged and is included in Accrued Expenses on the accompanying condensed consolidated balance sheet.

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Upon adoption of FIN 48, the Company recognizes interest expense and penalty within Interest and Other Expenses and penalties within General and Administrative expenses accrued on unrecognized tax benefits. As of the date of adoption of FIN 48, the Company had accrued a nominal amount for interest and penalties, and there was not a material change to this amount as of January 31, 2009.

Recognition of any portion of the unrecognized tax benefits arising from the Company’s uncertain tax position would not have a significant effect on the Company’s effective tax rate.

The Company files tax returns in the U.S on a federal basis and in a number of U.S. state jurisdictions. The Company is subject to examination of its tax returns by these jurisdictions, and is subject to challenges of tax liability by other jurisdictions in which the Company currently does not file tax returns. The Company believes it is subject to challenges by the taxing jurisdiction in which it files for tax years from 2004 through 2008, and for other taxing jurisdictions for any periods for which the statute of limitations has not expired. The Company does not expect any significant changes to the amount of its unrecognized tax benefits within the next twelve months.

As of October 31, 2007, the Company had generated approximately $141,367 and $116,000 of Federal and state Net Operating Loss Carry-forwards (“NOL”), respectively, and $4,813 of Federal Research & Development Credits (“R&D Credits”) through its recurring operating losses, and its acquisitions of Theseus Corporation in 2000 and NOMOS Corporation in 2004. The tax effect of the Federal and state NOL and R&D Credits have been carried as a component of its deferred tax assets, and completely offset by a valuation allowance. The Federal NOL and R&D Credits are subject to certain statutory limitations, imposed upon a change of control, which reduce the value of the Federal NOL and R&D Credits that can be used to offset future income under Internal Revenue Service Code Section 382 and Section 383, collectively the “Code”. As a result of the Company’s January 2008 PIPE transaction (See Note 8—Stockholders’ Equity) the Company has experienced a change in ownership as defined by the Code. Federal statutory limitations under the sections are generally accepted as limitations by the states in which the Company currently files state returns. The effect of the change of ownership has been to reduce to $10,199 the combined statutory limit on the Federal and State NOL and R&D Credits available to the Company, as determined under the Code. Based on its effective tax rate 40%, the Company recorded a $59,921 decrease to its deferred tax assets and its valuation allowance at January 31, 2008 as a result of the limitation.

NOTE 3 - DISCONTINUED OPERATIONS

Brachytherapy Product Lines

On February 11, 2009, the Company entered into an Asset Purchase Agreement and Management Agreement relating to the sale of its prostate brachytherapy product line to Best Theratronics, Ltd. (“Best”) for $5,000, collectively, the “February 11 Agreements”. On February 26, 2009, Best terminated the February 11 Agreements in accordance with their terms. On March 11, 2009, in connection with the Company’s Chapter 11 Proceeding (See Notes 1 and 11), the Company entered into a new Asset Purchase Agreement with Best for the sale its prostate brachytherapy product line for $2,500. The sale is subject to the Chapter 11 Proceeding process and the approval of the Bankruptcy Court, and currently is expected to close in April 2009. We also expect to sell the ClearPath product line through the Chapter 11 Proceeding. We have received an Asset Purchase Agreement for the sale of such business from a buyer. We expect the buyer to continue supporting such product line. The Asset Purchase Agreement for the prostate brachytherapy product line provides for the transfer of inventory, certain fixed assets and intellectual property with a carrying value of approximately $1,963 to Best in return for a purchase price of $2,500, which is to be paid $1,500 at closing and $1,000 in installments over the 12 month period following the closing.

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Assets of discontinued operations on the Company’s Condensed Consolidated Balance Sheets related to the prostate brachytherapy product line consist of the following:

	January 31, 2009			October 31, 2008

Inventory	$	705		$	796
Installment receivable		46			57
Prepaid expenses		107			158
Accrued decommissioning liability		(34	)		(34	)
Fixed assets, net of accumulated depreciation of $3,875 and 3,751, respectively		1,070			1,114
Intellectual property, net of accumulated amortization of $205 and $198, respectively		69			75
	$	1,963		$	2,166

The assets of discontinued operations are recorded at the lesser of cost or net realizable value. No significant changes have occurred in their valuation, and the Company has determined that there was no impairment to their carrying value prior to the sale.

Non-Therapeutic Product Line

On August 29, 2008, the Company entered into an agreement relating to the sale of its non-therapeutic product line to Eckert & Ziegler Isotope Products, Inc. (“EZIP”). The sale was completed on September 5, 2008. The Company expects its departure from the non-therapeutic business will allow it to concentrate on its core business of brachytherapy products and to provide necessary working capital. The agreement for the sale transferred inventory, certain fixed assets and intellectual property with a carrying value of $605 to EZIP in return for a purchase price of up to $6,000, which was paid $3,000 at closing and a promissory note for $2,000, which was collected in January 2009. An additional $1,000 may be paid to the Company in September 2009, upon the achievement of certain sales-based milestones measured during the 12 month period beginning at the date of the sale. Based on available evidence at January 31, 2009, EZIP has achieved 41.8% of the target sales, and as a result, the Company has recorded $151 as part of the $4,502 gain on disposition of its non-therapeutic product line for the year ended October 31, 2008, and an additional $267 for the three months ended January 31, 2009. The milestone receivable of $418, plus $5 for continued web site support in accordance with the terms of the purchase and sale agreement are recorded as a Receivable from Sale of Assets on the Balance Sheet at January 31, 2009. The balance owed on the promissory note due January 2009 and the milestone receivable, along with $39 arising from a transitional arrangement for EZIP to use the Company’s facility and computer support through October 31, 2008, are recorded as a Receivable from Sale of Assets on the Balance Sheet at October 31, 2008. The promissory note was paid in full in January 2009. The Company believes the collection of the sales-based milestone receivable is probable since the sales agreement requires payment by EZIP for percentage milestones achieved. The breakdown of the gain on disposition is as follows:

Cash received at closing	$	3,000
Promissory note due January 2009		2,000
Milestone receivable due September 2009		418
Purchase price as recorded	$	5,418
Less:
Book value of assets sold		605
Expenses incurred		44
Gain on disposition	$	4,769

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The gain on sale of disposal is recorded as an element of income (loss) from discontinued operations, with $4,502 recognized in the year ended October 31, 2008, and $267recognized in the three months ended January 31, 2009. The balance owed on the promissory note due January 2009 and the milestone receivable, along with $39 arising from a transitional arrangement for EZIP to use the Company’s facility and computer support through October 31, 2008, are recorded as a Receivable from Sale of Assets on the Balance Sheet at October 31, 2008. The promissory note was paid in full in January 2009. The milesone receivable of $418, plus $5 for continued web site support in accordance with the terms of the purchase and sale agreement are recorded as a Receivable from Sale of Assets on the Balance Sheet at January 31, 2009.

There were no assets held for sale at October 31, 2008 or January 31, 2009 related to the sale of the non-therapeutic product line.

NOMOS

On August 3, 2007, the Company announced its intent to divest its NOMOS Radiation Oncology business (“NOMOS”), which develops and markets IMRT/IGRT products used during external beam radiation therapy for the treatment of cancer. The Company expects that the divestiture of NOMOS will allow it to better utilize financial resources to benefit the marketing and development of innovative brachytherapy products for the treatment of cancer. The Company executed a purchase and sale agreement with Best Medical International, Inc. to purchase certain assets and to assume certain liabilities of NOMOS, with a carrying value of $489 at September 17, 2007 for $500. The Company incurred $464 in legal and other closing costs in connection with the sale. In connection with the divestiture of NOMOS, the Company determined that the carrying value of the NOMOS assets held for sale at July 31, 2007 exceeded their fair value, as determined by estimated future cash flows, and therefore, recorded a $6,654 charge for the impairment of its net assets. The sale was completed on September 17, 2007. These amounts were recorded as part of the loss from discontinued operations for the year ended October 31, 2007.

At January 31, 2009 and October 31, 2008, the Company has included in its Accounts Payable and Accrued Liabilities on its Balance Sheet $410 and $422, respectively, of retained obligations to its vendors, customers and former employees of the NOMOS operation, to be paid in accordance with their terms.

Summarized statement of earnings data for discontinued operations are as follows for the three months ended (in thousands):

	January 31, 2009			January 31, 2008

Net revenue:
Prostate Brachytherapy Product Line	$	3,161		$	3,466
Non-Therapeutic Product Line		7			871
NOMOS		—			—
	$	3,168		$	4,337

Income (loss) from discontinued operations before income tax benefit:
Gain (loss) on disposal:
Non-Therapeutic Product Line	$	267		$	—
Discontinued operations:
Prostate Brachytherapy Product Line		(671	)		(329	)
Non-Therapeutic Product Line		(22	)		314
NOMOS		—			(63	)
Income tax benefit, net of reserve		—			—
Loss from discontinued operations	$	(426	)	$	(78	)
Loss from discontinued operations, per share	$	(0.23	)	$	(0.01	)

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NOTE 4—ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

	January 31, 2009			October 31, 2008
Accounts receivable - trade	$	2,160		$	2,086
Less: allowance for doubtful accounts		(108	)		(179	)
	$	2,052		$	1,907

The provision for doubtful accounts was $12 and $35 for the three months ended January 31, 2009 and 2008, respectively.

NOTE 5—EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consist of the following:

	January 31, 2009			October 31, 2008
Furniture, fixtures and equipment	$	1,170		$	1,694
Leasehold improvements		3			3
		1,173			1,697
Less: accumulated depreciation		(829	)		(1,399	)
	$	344		$	298

Depreciation expense was $86 and $24 for the three months ended January 31, 2009 and 2008, respectively.

NOTE 6- ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

	January 31, 2009		October 31, 2008

Payroll	$	143	$	277
Bonus		—		223
Severance		483		523
Vacation		395		390
Commission		68		80
Customer Deposits		290		319
Vendor Payments		388		570
Site Decommissioning Costs		180		252
Professional Fees		144		294
Income Taxes		120		120
Other		105		70

	$	2,316	$	3,118

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On March 19, 2008 (the “Effective Date”), the Company reached agreement with its former Vice-President of New Product Development (“VP”) to sever his employment. Pursuant to the terms of the severance agreement, the Company will continue to pay $168 annual salary in bi-weekly installments for 18 months, beginning on the Effective Date. In further consideration, the Company agreed to pay medical, dental and vision benefits during the same period. The Company will continue to cover legal costs relating to certain ongoing litigation for the VP as previously determined under his employment agreement.

In addition, the Company reached agreement with its former Chief Technology Officer (“CTO”) to sever his employment, effective May 31, 2008. Pursuant to the terms of its employment agreement with the CTO, the Company will pay 36 equal monthly installments of $28 in salary continuation beginning June 1, 2008. Also, in May 2008, the Company reached agreement with its former Vice-President of Technical Development to sever his employment. Pursuant to the terms of the severance agreement, the Company paid $57 as salary continuation, plus medical benefits during the first quarter of 2009.

Relating to these agreements, the Company incurred $1,411 included as severance expense on the Consolidated Statement of Operations for the year ended October 31, 2008, and has accrued the remaining costs relating to this agreement and the amount is included in Accrued Expenses and Long-Term Severance on the Consolidated Balance Sheets at January 31, 2009 and October 31, 2008.

NOTE 7 – BORROWINGS

The borrowings were $2,419, net of discount at January 31, 2009, and $1,364, net of discount at October 31, 2008, consisting of a loan and a line of credit with a bank. Borrowing activities for the three months ended January 31, 2009 are as follows:

	October 31,									January 31,
	2008			Borrowings			Repayments			2009
Silicon Valley Bank -
Line of credit	$	—		$	3,988		$	(2,908	)	$	1,080
Short-term portion of long-term debt		455			1,044			(45	)		1,454

Total borrowings		455			5,032			(2,953	)		2,534
Less Unamortized loan discount fees		(79	)		(57	)		21			(115	)
Total short-term borrowings	$	376		$	4,975		$	(2,932	)	$	2,419
Long-Term Borrowings:
Growth Capital Loan		1,045			—			(1,045	)		—
Less Unamortized loan discount fees		(57	)		—			57			—
Total long-term borrowings	$	988		$	—			(988	)	$	—

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Lines of Credit

Silicon Valley Bank

On October 5, 2005, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (the “Bank”). On January 12, 2006, the Company entered into a First Amendment to Loan and Security Agreement (the “First Amendment”) with the Bank and as consideration granted the Bank a warrant to purchase 7,936 shares of the Company’s common stock at an exercise price of $9.45 per share. The warrant will expire in five years unless previously exercised. The fair value of the warrant on the date of grant was $51 and was amortized to interest expense.

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

On October 31, 2006, the Company entered into a Second Amendment to the Loan Agreement (the “Second Amendment”) with the Bank. The Second Amendment extended the term of the line of credit to October 3, 2007 and revised certain terms of the Loan Agreement. On August 24, 2007, the Company entered into a Third Amendment to the Loan Agreement (the “Third Amendment”) with the Bank. The Third Amendment added a Bridge Loan Sub-limit to the Loan Agreement of up to $1.5 million at an interest rate of prime plus 4.0%, subject to a borrowing base formula, and decreased the minimum tangible net worth that must be maintained by the Company from $5.0 million to $2.0 million. The maturity date of the Bridge Loan Sub-limit was the earlier of October 3, 2007 or the date the Company closed a private investment public equity transaction. Concurrent with the Third Amendment, the Company issued the Bank a warrant for 60,000 shares of the Company’s common stock at an exercise price of $4.90, the closing price of the Company’s common stock on August 24, 2007. The Company calculated the fair value of the warrant on the date of grant to be $175 using the Black-Scholes model incorporating the following assumptions:

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

The value of the warrant has been amortized over the term of the line of credit, and is included in Interest and Other Expense on the Income Statement for the three months ended January 31, 2008.

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

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

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

On November 20, 2007, the Company entered into a Seventh Amendment and Forbearance to its Loan Agreement (the “Seventh Amendment”) with the Bank. The Seventh Amendment includes: (i) an extension of the maturity date of the Loan Agreement to December 20, 2007, and an extension of the maturity date of the Bridge Loan Sub-limit to the earlier of December 20, 2007 or the date the Company closes a private investment public equity transaction, and (ii) a forbearance by the Bank from exercising its rights and remedies against the Company, until such time as the Bank determines in its discretion to cease such forbearance, due to the defaults under the Loan Agreement resulting from the Company failing to comply with the tangible net worth covenant in the Loan Agreement as of July 31, 2007, August 31, 2007 and September 30, 2007. In connection with the Seventh Amendment, the Company granted a warrant to the Bank to purchase 18,181 shares of the Company’s common stock, at a warrant price of $2.75 per share, which is equal to the closing price of the Company’s common stock on November 20, 2007, the date the Company’s Board of Directors approved the issuance of this warrant. The number of shares is subject to adjustment as provided by the terms of the warrant. The warrant will expire in five years unless previously exercised. The Company calculated the fair value of the warrant on the date of grant to be $31 using the Black-Scholes model incorporating the following assumptions:

Dividend yield		0	%
Expected volatility		71	%
Risk-free interest rate		3.5	%
Expected life	5 years

The value of the warrant has been amortized over the term of the line of credit, and is included in Interest and Other Expense on the Income Statement for the three months ended January 31, 2008.

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On December 18, 2007, the Company entered into an Eighth Amendment and Forbearance to the Loan Agreement (the “Eighth Amendment”) with the Bank. The Eighth Amendment includes: (i) an extension of the maturity date of the Loan Agreement to the earlier of February 1, 2008 or the date the Company completes its private placement, (ii) a forbearance by the Bank from exercising its rights and remedies against the Company, until such time as the Bank determines in its discretion to cease such forbearance, due to the defaults under the Loan Agreement resulting from the Company failing to comply with the tangible net worth covenant in the Loan Agreement as of July 31, 2007, August 31, 2007, September 30, 2007 and October 31, 2007 and (iii) a consent from the Bank to allow the Company to repay its outstanding loan from Mr. John A. Friede in the amount of $250. In connection with the Eighth Amendment, the Company granted a warrant to the Bank to purchase 38,461 shares of the Company’s common stock as determined by dividing the warrant price of $50 by the $1.30 warrant price per share, which is equal to the closing price of the Company’s common stock on December 18, 2007, the date the Company’s Board of Directors approved the issuance of this warrant. The number of shares are subject to adjustment as provided by the terms of the warrant. The warrant will expire in five years unless previously exercised. The Company calculated the fair value of the warrant on the date of grant to be $33 using the Black-Scholes model incorporating the following assumptions:

Dividend yield		0	%
Expected volatility		82	%
Risk-free interest rate		3.5	%
Expected life	5 years

The value of the warrant has been amortized over the term of the line of credit, and is included in Interest and Other Expense on the Income Statement for the three months ended January 31, 2008.

The Company paid the $1,275 and $755 outstanding balance of the Line of Credit and the Bridge Sub-Limit, including accrued interest on January 23, 2008. The Bridge Sub-Limit agreement was terminated in accordance with its terms upon payment of the outstanding balance.

On May 28, 2008, the Company entered into a Ninth Amendment to the Loan Agreement (the “Ninth Amendment”) with the Bank. The Ninth Amendment renews the revolving credit facility under which the Company may borrow an additional $3,000 based upon eligible receivables. The revolving credit facility is payable monthly and carries interest at prime plus 0.50%, and is subject to certain financial covenants. The revolving credit facility expires 24 months from the date of execution of the Ninth Amendment.

The Ninth Amendment also includes a $3,000 Growth Capital Loan which provides for an advance period during which $1,500 was advanced to the Company on June 7, 2008, and $1,500 may be advanced to the Company no later than September 30, 2008 (see Eleventh Amendment below). The Growth Capital Loan provides for interest only payments through the advance period at prime plus 2.25%, and 36 month repayment including principal and interest.

In connection with the Ninth Amendment, the Company granted a warrant to the Bank to purchase 99,337 shares of the Company’s common stock as determined by dividing the warrant price of $150 by the $1.51 warrant price per share, which is equal to the closing price of the Company’s common stock on May 19, 2008, the date the Company’s Board of Directors approved the issuance of this warrant. The number of shares is subject to adjustment as provided by the terms of the warrant. The warrant will expire in five years unless previously exercised. The Company calculated the fair value of the warrant on the date of grant to be $118 using the Black-Scholes model incorporating the following assumptions:

Dividend yield		0	%
Expected volatility		89	%
Risk-free interest rate		3.3	%
Expected life	5 years

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The total debt discount of $118 is recorded as net to the total borrowings in the Ninth Amendment. The debt discount of $56 related to the revolving line of credit facility is amortized over the life of the facility. The remaining debt discount related to the Growth Capital Loan is determined through allocation based on the relative fair value of the loan and the relative fair value of the warrant. The amount allocated to the warrant, accounted for as debt discount, is amortized over the life of the Growth Capital Loan using the effective interest method.

On September 11, 2008, the Company and the Bank executed the Tenth Amendment to the Loan Agreement (the “Tenth Amendment”) which provides a waiver to the Company for its non-compliance with the Minimum Tangible Net Worth Covenant at July 31, 2008.

On October 10, 2008, the Company and the Bank executed an Eleventh Amendment to the Loan Agreement (the “Eleventh Amendment”) to modify the definition of eligible accounts and to modify the disbursement and repayment of the Growth Capital Loan. Under the Eleventh Amendment, the final $1,500 of the Growth Capital Loan is to be disbursed prior to March 31, 2009 subject to certain conditions, as defined. Additionally, the outstanding principal balance of the Growth Capital Loan will be repaid in thirty-three (33) equal monthly payments commencing on January 1, 2009.

The Loan Agreement is collateralized by the substantially all the assets of the Company.

At January 31, 2009, the Company was not in compliance with the Minimum Tangible Net Worth covenant on the Loan Agreement, and as a result, in February 2009, the Bank withdrew the ability of the Company to draw the second installment on the Growth Capital Line of $1,500 which was to be drawn by March 31, 2009, and has withdrawn access to any further borrowings on the revolving line of credit. Also, in accordance with the terms of the Loan Agreement, the Company was required to surrender its cash receipts from accounts receivable to pay back the amounts outstanding on the revolving line of credit. See Note 11 Subsequent Events for further information.

NOTE 8—STOCKHOLDERS' EQUITY

Preferred Stock

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

Sale of Common Stock and Warrants

2007 PIPE

Pursuant to the terms of the Securities Purchase Agreement dated December 12, 2007 (the “2007 Securities Purchase Agreement”), the Company completed a private placement (the “2007 Private Placement”) of 12,601,628 shares of the Company’s common stock on January 18, 2008 with Three Arch Partners IV, L.P. and affiliated funds (“Three Arch Partners”), SF Capital Partners Ltd. (“SF Capital”) and CHL Medical Partners III, L.P. and an affiliated fund (“CHL,” and together with Three Arch Partners and SF Capital, the “Investors”) at a purchase price of $1.23 per share as well as warrants to purchase an additional 630,081 shares of the Company’s common stock (the “Warrants”) at an exercise price of $1.23 per share for an aggregate consideration of approximately $15,500 (before cash commissions and expenses of approximately $1,500). The purchase price represents a 40% discount to the volume weighted average price of the common stock on the NASDAQ Global Market, as reported by Bloomberg Financial Markets, for the 20 trading day period ending on the trading day immediately preceding the date of the 2007 Securities Purchase Agreement. The Investors purchased the following amounts of securities in the offering:

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Investor	Shares		Warrants (Shares issuable upon exercise)
Three Arch Partners		8,130,084	406,504
SF Capital		2,032,520	101,626
CHL		2,439,024	121,951

Prior to the closing of the transaction, Three Arch Partners owned 1,024,327 shares of common stock of the Company. After the transaction was consummated, Three Arch Partners’ percentage ownership of the outstanding common stock increased from approximately 17.3% to 49.5% (and 43.9% of the common stock on a fully diluted basis).

The Warrants are exercisable beginning 180 days after the date of closing until 7 years after the date of closing. The values of the Warrants and common stock in excess of par value have been classified as stockholders’ equity in additional paid-in capital in the accompanying consolidated balance sheets. The Warrants were evaluated under SFAS 133 and EITF 00-19, and the Company determined that the Warrants have been correctly classified as equity.

The terms of the 2007 Private Placement were approved by a committee of the Company’s Board of Directors consisting only of disinterested directors. The Company received approval of a majority of the Company’s stockholders on January 17, 2008 of the 2007 Private Placement and amendment of its Certificate of Incorporation to increase the number of shares of common stock it is authorized to issue to 150,000,000 shares.

Holders of the shares of common stock sold to the Investors (the “Shares”) and the shares of common stock issuable upon the exercise of the Warrants (the “Warrant Shares” and collectively, with the Shares, the “Registrable Securities”) are entitled to certain registration rights as set forth in the 2007 Securities Purchase Agreement. In accordance with the 2007 Securities Purchase Agreement, the Company filed a registration statement on Form S-3 to register the resale of the Registrable Securities on July 16, 2008, which was declared effective by the SEC on July 24, 2008.

Under the 2007 Securities Purchase Agreement, Three Arch Partners has the right to name one member to the Board so long as Three Arch Partners beneficially owns greater than 1,000,000 shares of common stock of the Company (including shares of common stock issuable upon exercise of the Warrants, and as appropriately adjusted for stock splits, stock dividends and recapitalizations). Two of the current members of the Board, Dr. Wilfred E. Jaeger and Roderick A. Young, have been designated by Three Arch Partners.

In connection with the issuance of the Warrants and upon closing of the transaction, the Company entered into warrant agreements with its transfer agent relating to the Warrants. The warrant agreement relating to the Warrants issued to SF Capital contains a non-waivable provision that provides that the number of shares issuable upon exercise of the Warrants granted to SF Capital pursuant to the 2007 Private Placement will be limited to the extent necessary to assure that, following such exercise, the total number of shares of common stock of the Company then beneficially owned by such holder and its affiliates does not exceed 14.9% of the total number of issued and outstanding shares of common stock of the Company (including for such purpose the shares of common stock issuable upon such exercise of Warrants). The warrant agreement relating to the Warrants issued to the other Investors does not contain this provision.

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Stock Options

The Company's 1996 Stock Option Plan ("1996 Plan"), as amended April 6, 2001, provided for the issuance of incentive stock options to employees of the Company and non-qualified options to employees, directors and consultants of the Company with exercise prices equal to the fair market value of the Company's stock on the date of grant. Options vest in accordance with their terms over periods up to four years and expire ten years from the date of grant. The 1996 Plan expired on April 1, 2006. As of January 31, 2009, options underlying 68,519 shares of common stock were outstanding under the 1996 Plan.

On May 3, 2006, the Company’s stockholders approved the North American Scientific, Inc. 2006 Stock Plan (“2006 Plan”). Under the 2006 Plan, the Company may issue up to 340,000 shares, plus any shares from the 1996 Plan that are subsequently terminated, expire unexercised or forfeited, to employees of the Company through incentive stock options, non-qualified options, stock appreciation rights, restricted stock and restricted stock units. Since its inception, 490,717 shares have been transferred into the 2006 Plan from the 1996 Plan. On April 29, 2008, the Company’s stockholders approved the adoption of Amendment No. 1 to the 2006 Plan (the “Amendment”) to (i) increase by 2,000,000 shares the number of shares available to be issued under the 2006 Plan, (ii) increase by 35,000 the maximum number of shares under the Plan that may be granted in any one fiscal year to an individual participant from 60,000 to 95,000 and (iii) increase by 35,000 the maximum number of shares under the Plan, in connection with a participant’s initial service, such participant may be granted from 60,000 to 95,000 that will not count against the limit set forth in (ii) above. The exercise price of an option is equal to the fair market value of the Company’s stock on the date of the grant. As of January 31, 2009, options underlying 1,404,168 shares of common stock were available for grant in the 2006 Plan.

On April 23, 2007, the Company granted stock options with respect to 360,000 shares of its common stock in connection with the employment by the Company of its new CEO, John B. Rush. Options with respect to 150,000 shares of the Company’s common stock were issued under the 2006 Plan. Options with respect to the remaining 240,000 shares of the Company’s common stock were issued as a stand-alone grant outside the 2006 Plan and approved by the written consent of a majority of stockholders on April 20, 2007. The stock options have an exercise price of $5.80, which is equal to the fair market value per share of the Company’s common stock on the grant date. All of the options have a term of ten years and vest monthly over a four-year period. The options remain exercisable until the earlier of the expiration of the term of the option or (i) three months following Mr. Rush’s date of termination in the case of termination for reasons other than cause, death or disability (as such terms are defined in his employment agreement) or (ii) 12 months following Mr. Rush’s date of termination in the case of termination on account of death or disability. In the event that Mr. Rush is terminated for cause, all outstanding options, whether vested or not, will immediately lapse. Pursuant to his employment agreement, stock options issued to Mr. Rush were subject to an anti-dilution clause, triggered in the event the Company issued additional equity securities within the twenty-four months immediately following March 22, 2007, the date of his employment, such that the number of options granted to Mr. Rush under the employment agreement remains equivalent to 3% of the outstanding common stock of the Company. At its January 15, 2008 meeting, the Board of Directors, agreed to make an additional award to Mr. Rush as part of his employment. As a result of the 2007 Private Placement, the Company issued 190,000 and 376,094 options underlying common stock from the 2006 Plan and outside the 2006 Plan, respectively, to Mr. Rush at an exercise price of $1.40 per share, the closing price of the Company’s common stock on January 15, 2008, the date the option grant was approved by the Board of Directors. The stock options vest 25% upon the first anniversary of the grant date, and then evenly over the remaining (36) thirty-six months, such that all options are vested after four years, and have a term of ten years.

In addition, three members of the executive management team were granted anti-dilution guarantees by the Board of Directors as consideration of their employment. The Company issued 440,369 stock options to these executives from the 2006 Plan, at an exercise price of $1.40 per share, the closing price of the Company’s on January 15, 2008, the date the option grant was approved by the Board of Directors. Also at the January 15, 2008 meeting, the Board of Directors granted, from the 2006 Plan, stock options underlying 156,000 shares of the Company’s common stock to certain management employees, at a $1.40 exercise price. The stock options vest 25% after a one year cliff, and then evenly over the remaining (36) thirty-six months, such that all options are vested after four years, and have a term of ten years.

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On February 15, 2008, the Company’s Board of Directors approved, subject to the approval of the Company’s stockholders, a plan to re-price all existing employee stock options at $2.05 per share, the closing price of the Company’s common stock on February 15, 2008, except for the 2006 Premium Price Awards, which were re-priced to $3.25 per share, which is equal to 159% of the re-priced fair value of the Company’s common stock. The re-pricing applies to all stock options outstanding as of February 15, 2008 held by all persons who are currently employed or actively engaged by the Company, including its executive officers, and to certain other persons for which the Board determined that re-pricing was appropriate (collectively, the “Eligible Participants”). The number of shares subject to the new stock options was determined based on a Black-Scholes valuation of the existing stock option such that the Black-Scholes value of the new stock option will approximately equal the Black-Scholes value of the existing stock option, using the following variables.

Dividend yield		0	%
Expected volatility		72	%
Risk-free interest rate		3.4	%
Expected life	5 Years

All new stock options continue to vest in accordance with the vesting terms of the existing stock options. All new stock options, to the extent such option are vested, will be exercisable for a period of seven years. The Company’s stockholders approved the re-pricing at their annual meeting on April 29, 2008. As a result of the re-pricing exercise, options underlying 691,852 shares of common stock, with an exercise price ranging from $4.65 to $83.75, were replaced by options underlying 535,257 shares of common stock, with and exercise price of $2.05 or $3.25 for the 2006 Premium Awards.

The following table summarizes the re-pricing activity approved by the Board of Directors and stockholders as of January 31, 2009:

	Employee Options Cancelled and Re-priced						Re- priced Options Granted
Plan	Shares	Range of Exercise Price					Shares	Weighted Avg. Exercise Price
1996 Plan	179,060	$	11.15	—	$	83.75	41,595	$	2.05
Premium Price	49,900		16.75	—		16.75	22,658		3.25
2006 Plan	222,892		4.65	—		5.80	231,004		2.05
CEO Options	240,000		5.80	—		5.80	240,000		2.05
	691,852	$	4.65		$	83.75	535,257	$	2.05

On April 29, 2008, the Company’s stockholders approved the 2008 Non-Employee Directors’ Equity Compensation Plan (the “2008 Director Plan”). The 2008 Directors Plan supersedes the 2003 Non-Employee Directors' Equity Compensation Plan. Under the 2008 Director Plan, the Company may issue up to 1,500,000 shares to eligible non-employee directors of the Company through non-qualified options and/or restricted stock. The exercise price of an option is equal to the fair market value of the Company's stock on the date of grant. Options and restricted stock vest in accordance with the terms set forth at the time of the grant, and will become exercisable provided that the holder is a non-employee director of the Company on any such vesting date. The options expire ten years from the date of grant. Pursuant to the terms of the 2008 Director Plan, the Board of Directors and the stockholders approved a one-time non-statutory stock option grant to each non-employee director, to purchase 30,000 shares of the Company’s common stock, and to the Chairman of the Board, a non-statutory stock option grant to purchase 45,000 shares of the Company’s common stock, in exchange for all of such director’s and the Chairman’s outstanding stock options. As a result, the Company cancelled 68,000 stock options, with a range of exercise price between $6.15 and $44.00 from the 2003 Non-Employee Director Equity Compensation Plan, and issued 195,000 stock options, from the 2008 Director Plan, at an exercise price of $2.10 per share, the closing price of the Company’s common stock on the NASDAQ Capital Market on February 13, 2008, which is the date the Company’s Compensation Committee approved the exchange. The Company’s stockholders approved the exchange on April 29, 2008.

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In addition, under the terms of the 2008 Director Plan, each non-employee director elected to serve on the Board at the annual meeting is granted a non-statutory stock option to purchase 10,000 shares of the Company’s common stock. On the date of such meeting, the non-employee director elected or appointed Chairman of the Board shall be granted an additional 10,000 stock options. Each individual who is first elected or appointed as a non-employee director shall be granted, on the date of such initial election or appointment, a stock option to purchase 30,000 shares of common stock. Pursuant to these terms, and subsequent to its annual meeting on April 29, 2008, the Company issued 100,000 stock options at a $1.65 exercise price, the closing price of the Company’s common stock on April 29, 2008 to its non-employee Directors appointed at the annual meeting. The options vest one year from the date of grant and have a seven-year term from the date of grant.

At January 31, 2009, a total of 2,698,871 shares of the Company’s common stock were reserved for issuance. The following table summarizes stock option activity for both plans:

				Options Outstanding
	Options Available for Grant			Number Outstanding		Exercise Price
Balance at October 31, 2006		357,000		687,661		$	0.15 - $122.70
Granted		(492,894	)	492,894		$	4.65 - $6.15
Forfeited and expired		296,255		(279,132	)	$	3.50 - $122.70
Exercised		—		—			—
Additional shares reserved		240,000		—			—

Balance at October 31, 2007		400,361		901,423		$	0.15 - $117.50
Granted		(1,957,480	)	1,957,480		$	0.30 - $2.10
Forfeited and expired		262,797		(373,397	)	$	1.40 -$117.50
Exercised		—		—			—
Additional shares reserved		3,921,868		—			—
Shares cancelled for re-pricing		691,852		(691,852	)	$	4.65 – $83.75
Shares cancelled for exchange		68,000		(68,000	)	$	6.15 – $44.00
Shares issued for re-pricing		(535,257	)	535,257		$	2.05 – $3.25
Shares issued in exchange		(195,000	)	195,000		$	2.10

Balance at October 31, 2008		2,657,141		2,455,911		$	0.15 - $83.75
Granted		(20,000	)	20,000		$	0.27
Forfeited and expired		61,730		(61,730	)	$	1.40 - $16.75
Exercised		—		—			—

Balance at January 31, 2009		2,698,871		2,414,181		$	0.15 - $83.75

There were 618,321, 333,969, options, 333,904 options and 375,733 options exercisable with weighted average exercise prices of $13.78, $13.78, $34.70 and $42.85 at January 31, 2009, October 31, 2008, October 31, 2007 and 2006, respectively.

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The following table summarizes options outstanding at January 31, 2009 and the related weighted average exercise price and remaining contractual life information:

	Employee Options Outstanding					Employee Options Exercisa ble
Range of Exercise Prices	Shares		Weighted A vg. Remaining Contractual Life (Years)	Weighted Avg. Exercise Price		Shares	Weighted Avg. Exercise Price
$0.15 - $1.35		528,413	7.93	$	0.79	26,816	$	0.97
$1.40 - $1.40		926,530	8.96	$	1.40	231,630	$	1.40
$1.60 - $2.05		665,445	7.67	$	1.87	215,832	$	1.97
$2.10- $44.00		273,913	2.73	$	10.56	124,163	$	20.61
$83.75 - $83.75		19,880	1.32	$	83.75	19,880	$	83.75
		2,414,181				618,321

The average fair value for accounting purposes of options granted was $0.85 and $3.14 for the years ended October 31, 2008 and 2007, respectively, and $0.20 for the three months ended January 31, 2009.

The following table summarizes the weighted average price, weighted average remaining contractual life and intrinsic value for granted and exercisable options outstanding as of January 31, 2009 and October 31, 2008:

	Number of Shares	Weighted Average Exercise Price		Weighted Avg. Remaining Contractual Life (Years)	Intrinsic Value (in whole $)
As of October 31, 2008:
Employee Options Outstanding	2,455,911	$	3.12	7.77	$	140
Employee Options Expected to Vest	2,121,942	$	10.46	6.61	$	—
Employee Options Exercisable	333,969	$	13.78	6.22	$	140

As of January 31, 2009:
Employee Options Outstanding	2,414,181	$	3.12	7.61	$	140
Employee Options Expected to Vest	1,795,860	$	5.51	7.61	$	—
Employee Options Exercisable	618,321	$	8.08	7.11	$	140

As of January 31, 2009, there was $1,893 of unrecognized compensation expense related to non-vested share-based compensation arrangements granted under share-based compensation plans using the fair value method of SFAS 123 (R). As of January 31, 2009, the cost was expected to be recognized over a weighted average period of 4 years, using the straight line method.

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Fair Value Disclosures

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

	Three Months Ended January 31,			Year Ended October 31,
	2009			2008			2007
Dividend yield		0	%		0	%		0	%
Expected volatility		99	%		72	%		61	%
Risk-free interest rate		1.8	%		3.4	%		4.8	%
Expected life	5 years			5 years			5 years

Stockholders' Rights Plan

In October 1998, the Board of Directors of the Company implemented a rights agreement to protect stockholders' rights in the event of a proposed takeover of the Company. In the case of a triggering event, each right entitles the Company's stockholders to buy, for $80, $160 worth of common stock for each share of common stock held. The rights will become exercisable only if a person or group acquires, or commences a tender offer to acquire, 15% or more of the Company's common stock. The rights expired pursuant to their terms in October 2008.

Employee Stock Purchase Plan

In March 2000, the Board of Directors authorized an Employee Stock Purchase Plan (the “ESPP") under which 60,000 shares of the Company's common stock are reserved for issuance. Eligible employees may authorize payroll deductions of up to 15% of their salary to purchase shares of the Company's common stock at a discount of up to 15% of the market value at certain plan-defined dates. For the years ended October 31, 2008, 2007 and 2006, the shares issued under the ESPP were 21,455, 30,816 and 19,296 shares, respectively. There were no shares issued under the ESPP for the three months ended January 31, 2009. At January 31, 2009, October 31, 2008 and 2007, 21,527, 21,257 and 43,951 shares were available for issuance under the ESPP, respectively.

Common Stock Repurchase Program

In October 2001, the Board of Directors authorized a stock repurchase program to acquire up to $10,000 of the Company's common stock in the open market at any time. The number of shares of common stock actually acquired by the Company will depend on subsequent developments and corporate needs, and the repurchase of shares may be interrupted or discontinued at any time. As of January 31, 2009 and October 31, 2008, a cumulative total of 23,399 shares had been repurchased by the Company at a cost of $227, and are reflected as Treasury Stock on the Balance Sheet at the respective dates.

NOTE 9—COMMITMENTS AND CONTINGENCIES

Contract Commitments

As of January 31, 2009, the Company has entered into purchase commitments of $52 to suppliers under blanket purchase orders. The blanket purchase orders expire when the designated quantities have been purchased.

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Lease Commitments

The Company leases facilities and equipment under non-cancelable operating lease agreements. Future minimum lease payments are subject to annual adjustment for increases in the Consumer Price Index. Total rent expense for the three months ended January 31, 2009 and 2008 was $111 and $93, respectively.

Related Parties and License Agreements

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

$375 remains payable through 2011 under the IdeaMatrix license agreement.

Outsourcing

On April 20, 2008, the Company entered into an administrative management agreement with third-party administrator (the “Administrator”). Under the terms of the agreement, all of the Company’s employees became employees of the Administrator, and the Administrator assumed the cost all employee-related health benefit costs, workers’ compensation insurance and the payroll and human resource functions of the Company. The Company pays a monthly fee to the Administrator equal to the monthly payroll for its former employees, plus a fixed fee as a percentage of the payroll costs, to cover the costs of the employee’s participation in the Administrator’s benefit plans, net of employee contributions, workers’ compensation costs, and the payroll and human resource management costs.

Employment Agreements

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

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Litigation

In November 2005, we were served with a complaint filed in U.S. District Court in Hartford, Connecticut by World Wide Medical Technologies (WWMT). WWMT’s six count complaint alleges breach of a confidentiality agreement, fraud, patent infringement, wrongful interference with contractual relations, violation of the Connecticut Uniform Trade Secrets Act, and violation of the Connecticut Unfair Practices Act. WWMT alleges that we fraudulently obtained WWMT’s confidential information during negotiations to purchase WWMT in 2004 and that once we acquired that information, we allegedly learned that Richard Terwilliger, (our former Vice President of New Product Development) owned certain patent rights and that we began trying to inappropriately gain property rights by hiring him away from WWMT. We were served with this matter at approximately the same time Mr. Terwilliger was served with a lawsuit in state court and with an application seeking a preliminary injunction declaring plaintiffs to be the sole owners of the intellectual property at issue and preventing Mr. Terwilliger from effectively serving as our Vice President of New Product Development. We have agreed to defend Mr. Terwilliger. We have moved the state court claim against Mr. Terwilliger to federal court and the cases have been consolidated. The defendants have answered both complaints and discovery has commenced in each matter. In April 2006, WWMT had its hearing for a preliminary injunction against Mr. Terwilliger heard in U.S. District Court. Plaintiffs abandoned that portion of their application for preliminary injunction that was based on an alleged misappropriation of trade secrets shortly before the hearing. On August 30, 2006, Magistrate Judge Donna Martinez issued a ruling ordering that what remained of plaintiffs' motion be denied. Specifically, the Magistrate Judge found that plaintiffs do not have a reasonable likelihood of success on the merits of their claim for declaratory judgment that some or all of plaintiffs are the sole owners of the intellectual property at issues, and she further found that there do not exist sufficiently serious questions going to the merits of that claim to make them a fair ground for litigation. On March 12, 2007, the Court administratively dismissed the action. On or about April 30, 2007, the parties filed a Joint Motion to Reopen the Case after Administrative Dismissal, which the court subsequently denied without prejudice. The parties re-filed the Joint Motion to Reopen the Case, and the Court issued an order reopening the case on July 3, 2008. On August 22, 2008, the Court set a scheduling order in this matter. On September 24, 2008, plaintiffs filed a Motion for an Extension of Time to File a Motion For Leave to Amend. Subsequently, on September 29, 2008, plaintiffs filed a Motion for Leave to Amend the Complaint, seeking to add additional claims to the action and remove other claims. On December 5, 2008, the Court denied both of plaintiffs’ motions, and ordered plaintiffs to file a request to dismiss any claims they intend to withdraw voluntarily by December 22, 2008. On December 19, 2008, the plaintiffs filed a Motion to Withdraw and Narrow claims, seeking to withdraw their claims for misappropriation of trade secrets against the defendants for certain time periods without prejudice. On January 12, 2009, the defendants filed an opposition to that motion asserting that the misappropriation of trade secret claim against the defendants should be dismissed with prejudice. On March 3, 2009, the defendants filed a motion for summary judgment on all claims pending in the motion. On March 11, 2009, the Company filed for protection under Chapter 11 of the U. S. Bankruptcy laws, and on March 20, 2009 the Court Stayed the Case for ninety days and denied all pending motions without prejudice to refiling at the Conclusion of the Stay. We deny liability and intend to vigorously defend this litigation as it progresses.

In October 2007, we were served with a demand for arbitration by AnazaoHealth Corporation (“AnazaoHealth”). AnazaoHealth provides needle loading services for our Prospera brachytherapy products pursuant to a Services Agreement dated as of June 1, 2005, as amended (the “Services Agreement”). In its demand for arbitration, AnazaoHealth is seeking indemnification from us under the Services Agreement for damages arising out of a litigation filed against AnazaoHealth in the U.S. District Court for the District of Connecticut (the “Connecticut Litigation”) by Richard Terwilliger, Gary Lamoureux, World Wide Medical Technologies, LLC, IdeaMatrix, Inc., Advanced Care Pharmacy, LLC, Advanced Care Pharmacy, Inc., and Advanced Care Medical, Inc. In September 2008, AnazaoHealth filed an Amended Arbitration Demand to which we filed an Objection. On or about October 7, 2008, the parties agreed to toll the issues in the Amended Arbitration Demand and the matter was taken off calendar. The plaintiffs in the Connecticut Litigation claim that AnazaoHealth’s provision of services in the brachytherapy field infringes their patent rights, and certain of the plaintiffs claim that our Prospera products infringe their patent rights. We deny liability and intend to vigorously defend this arbitration should it recommence.

In February 2008, an individual plaintiff, Richard Hodge, filed a complaint in the Multnomah County Circuit Court of the State of Oregon against Bay Area Health District, North American Scientific, Inc., NOMOS Corporation and Carl Jenson, M.D., alleging the defendants caused Mr. Hodge to receive excessive radiation during the course of his IMRT treatment, as a result of a manufacturing and/or design defect(s) in our former CORVUS and BAT products. The plaintiff dismissed this complaint with prejudice on October 28, 2008.

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In November 2008, Denise M. Black and Lon Black, filed a complaint in the State of New York, Supreme Court, County of Ontario against Clifton Springs Hospital & Clinic, Charles H. Albrecht Radiation Oncology, Dana P. Hansen, M.D., Charles H. Albrecht, M.D., Matthew Pacella, MS, DABR, Dustin A. Gress, MS, Upstate Medical Physics, Inc., Sandy K.S. Perry, M.D., Finger Lakes Women’s Health LLC, NOMOS Corporation, n/k/a Best Nomos and North American Scientific, Inc. alleging the defendants caused Mrs. Black to sustain personal injuries, increased pain and suffering and additional medical expense due to negligence and deviation from accepted medical practice. We deny liability and intend to vigorously defend this litigation as it progresses. No trial date has yet been set.

On February 13, 2009, the Company was served a lawsuit by Core Oncology, Inc., a Washington corporation, alleging that the Company breached the terms of a supply agreement. On February 27, 2009, Plaintiff filed a motion for a preliminary injunction seeking to enjoin the proposed transaction with Best Theratronics, Ltd. The deadline to respond to the complaint and oppose the motion for a preliminary injunction was March 16, 2009. The Chapter 11 Proceeding has effected an automatic Stay in the Proceeding. The Company intends to vigorously defend itself with respect to this matter.

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

NOTE 10—NASDAQ LISTING

On March 23, 2009, the Company’s stock was suspended from trading on NASDAQ. See Note 11 for further information.

NOTE 11—SUBSEQUENT EVENTS

Chapter 11 Voluntary Bankruptcy Filing

On March 11, 2009, in response to the Company’s current financial condition, the reduced borrowing capabilities under its Loan Agreement (See Note 7), current business prospects, and to effect other arrangements surrounding the sale of its Prostate Brachytherapy Product Line (See Note 3), the Company filed the Chapter 11 Proceeding. It is anticipated that the Chapter 11 Proceeding will result in the Bankruptcy Court’s approval of the sale of the Prostate Brachtherapy Product Line and the potential sale of the assets of the ClearPath breast brachytherapy product line.

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Part of the Chapter 11 Proceeding is an agreement with the Company’s Bank (See Note 7) to allow the use of cash collateral on an interim basis. Because the Company was in default of its loan covenants at January 31, 2009, in February 2009, the Bank exercised its rights under the Loan Agreement to require the Company to surrender its cash receipts from accounts receivable collections to repay outstanding amounts under the Loan Agreement. Commencing with the March 11, 2009 bankruptcy petition, the Bank has agreed to allow the Company to retain its accounts receivable collections as a source of working capital to be used for defined purposes in the operation of its affairs. When the sale of the Company’s Prostate Brachytherapy Product Line closes (see Note 3), $1,400 of the $1,500 payment at closing will be used to repay amounts outstanding under the Loan Agreement. Thereafter, monthly payments of $83 will be made to the Bank until the debt is fully satisfied.

Debtor In Possession Loan

Also on March 11, 2009, as part of the Chapter 11 Proceeding, the Company and Portola Medical, a portfolio company of Three Arch Partners, a related party to the Company, agreed to a $1,000 Debtor In Possession (“DIP”) loan to allow the Company a short-term source of working capital as it conducts its ongoing operations, proceeds with the sale of its business units and completes its Chapter 11 Proceeding. The DIP loan carries an interest rate of 12% per annum, with interest payable monthly.

NASDAQ Delisting Notice

On March 12, 2009, the Company received a notice from NASDAQ indicating that due to the filing of Chapter 11 Proceeding on March 11, 2009, NASDAQ had determined that, in accordance with the discretionary authority of the staff of NASDAQ pursuant to Marketplace Rule 4300 and IM-4300, the Company’s securities will be suspended from trading on NASDAQ at the opening of business on March 23, 2009. The Company expects its securities to be delisted from NASDAQ on or about April 16, 2009.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information, which our management believes is relevant to an assessment and understanding of our financial condition and results of operations. The discussion should be read in conjunction with the Consolidated Financial Statements contained herein and the notes thereto. Certain statements contained in this Form 10-Q, including, without limitation, statements containing the words “believes”, “anticipates”, “estimates”, “expects”, “projections”, and words of similar import are forward looking as that term is defined by: (i) the Private Securities Litigation Reform Act of 1995 (the "1995 Act") and (ii) releases issued by the Securities and Exchange Commission (“SEC”). These statements are being made pursuant to the provisions of the 1995 Act and with the intention of obtaining the benefits of the "Safe Harbor" provisions of the 1995 Act. We caution that any forward looking statements made herein are not guarantees of future performance and that actual results may differ materially from those in such forward looking statements as a result of various factors, including, but not limited to, any risks detailed herein or detailed from time to time in our other filings with the SEC including our most recent report on Form 10-K. We are not undertaking any obligation to update publicly any forward-looking statements. Readers should not place undue reliance on these forward-looking statements. All amounts are in thousands except share and per share data.

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Overview

We manufacture, market and sell products for the radiation oncology community, including Prospera® brachytherapy seeds and SurTRAK™ needles and strands used primarily in the treatment of prostate cancer. We also develop and market brachytherapy accessories used in the treatment of disease and calibration sources used in medical, environmental, research and industrial applications.

In November 2006, we announced the introduction of ClearPath TM , our unique multicatheter breast brachytherapy device for Accelerated Partial Breast Irradiation (“APBI”). APBI is a standard radiation treatment appropriate for all women with early stage breast cancer. Typically, patients undergoing radiation treatment for breast cancer are treated with external beam radiation (EBR). The EBR treatments are delivered daily for a period of six weeks. Women who receive APBI instead of EBR can be treated in just five days with the same level of efficacy and with better control of radiation dose to surrounding tissue. Management estimates that approximately 250,000 women in the United States are diagnosed with breast cancer each year. With early detection on the rise, we believe the total market for APBI devices in the United States to be as high as $500 million per year.

Our ClearPath systems are designed to place the radiation source directly into the post-lumpectomy site which reduces the treatment time to approximately five days compared to six weeks and reduces the risks associated with the external beam radiation treatment. Our ClearPath device is placed through a single incision and is designed to conform to the tumor resection cavity, allowing physicians to deliver a more conformal therapeutic radiation dose distribution following lumpectomy compared to other methods of APBI. Our ClearPath family of devices are designed to deliver either high-dose rate treatment, (ClearPath-HDR™) or low-dose rate continuous treatments (ClearPath-CR™).

We have received 510(k) approval from the United States Food and Drug Administration for both ClearPath-CR™ to enable a low-dose rate, or continuous release treatment utilizing our Prospera® brachytherapy seeds, and for ClearPath-HDR™ to enable a high-dose rate treatment. Throughout 2007 and 2008, we have been gaining clinical experience with the first generation ClearPath-HDR , and we intend to launch the second generation devices in 2009, to be followed by the general commercial release of our ClearPath-CR.

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

On September 5, 2008 we completed the sale of certain assets, principally our non-therapeutic product line to EZIP for an amount valued up to $6,000. The financial results of the non-therapeutic product line are reported as a discontinued operation in the accompanying condensed consolidated financial statements.

On March 11, 2009, in response to our current financial condition, current business prospects, and to effect other arrangements surrounding the sale of our Prostate Brachytherapy Product Line and Breast Brachytherapy Product Line(See Note 3 of Notes to the Condensed Consolidated Financial Statements), we filed the Chapter 11 Proceeding. See Note 11 of Notes to the Condensed Consolidated Financial Statements for further information about the Chapter 11 Proceeding and our new Debtor In Possession financing.

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Results of Operations

Three Months Ended January 31, 2009 Compared to Three Months Ended January 31, 2008

Selling and marketing expenses

	Three Months Ended January 31,

	2009		2008		% Change

Selling and marketing expenses	$	231	$	142		63	%

Selling and marketing expenses, comprised primarily of salaries, commissions, and marketing costs, increased $89, or 63%, to $231 for the three months ended January 31, 2009, from $142 for the three months ended January 31, 2008. The increase in selling and marketing expenses is primarily attributed to a $143 increase in payroll expenses and a $12 increase in market research expenses, partially offset by a $24 decrease in reimbursement consulting expenses and professional fees, a $31 decrease in trade show expenses and a $11 decrease in all other expenses.

General and administrative expenses ("G&A")

	Three Months Ended January 31,

	2009		2008		% Change

General and administrative expenses	$	1,161	$	1,882		(38	)%

G&A decreased $721, or 38%, to $1,161 for the three months ended January 31, 2009, from $1,882 for the three months ended January 31, 2008. The decrease in G&A is primarily attributed to a $379 decrease in professional fees for accounting related work, a $354 decrease in personnel costs, a $36 decrease in travel expenses and a $23 decrease in all other expense categories, partially offset by a $72 increase in legal fees.

Research and development (“R&D”)

	Three Months Ended January 31,

	2009		2008		% Change

Research and development expenses	$	784	$	850		(8	)%

R&D decreased $66 or 8%, to $784 for the three months ended January 31, 2009, from $850 for the three months ended January 31, 2008. The decrease in R&D spending is primarily due to the timing of project spending on ClearPath.

Interest expense- Interest expense was $76 for the three months ended January 31, 2009, compared to $1,132 for the three months ended January 31, 2008. The interest expense in both periods resulted from the interest on short-term and long-term debt and amortization of warrants. The decrease was attributable to bridge loan activity in 2007 which was not present in later periods.

Interest income and other income (expense), net — Interest income and other income (expense) increased by $10 to $10 for the three months ended January 31, 2009 due to an increase in our borrowing activities in the first quarter of 2008 and the last half of 2007.

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Liquidity and Capital Resources

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

As more fully described in Note 7 of the Notes to the Condensed Consolidated Financial Statements, we were not in compliance with certain covenants under our pre-petition credit facility. As previously discussed, we filed a voluntary petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code, which also triggered a default under our pre-petition credit facility. However, under Section 362 of the U.S. Bankruptcy Code, the filing of a bankruptcy petition automatically stays most actions against a debtor, including most actions to collect pre-petition indebtedness or to exercise control over the property of the debtor’s estate. Absent an order of the Bankruptcy Court, substantially all pre-petition liabilities are subject to settlement under a plan of reorganization.

As a result of our Chapter 11 Proceeding filing on March 11, 2009 and the associated agreements (See Notes 1, 3, 7 and 11 of Notes to the Condensed Consolidated Financial Statements for further information), we believe that our current cash balances, DIP loan facility, the use of the cash collateral under our Loan Agreement, will provide the time for the completion of the sale of the Prostate Brachytherapy Product Line and Breast Brachytherapy Product Line. If events and circumstances occur such that we do not meet our current operating plans, or satisfactorily satisfy all the conditions of our Chapter 11 Proceeding, we may be required to further reduce expenses or take other steps which could have a material adverse effect on our effort to sale our product lines that we now intend to sale. It is our expectation that the buyers of these product lines will continue to support and operate such businesses, however, if we are unable to meet all the conditions of the Chapter 11 Proceeding it may be difficult to keep such businesses in operation prior to the sale. Following the sale of our two brachytherapy product lines we will have no operating assets. The proceeds from the sale of the two product lines may not be sufficient to satisfy all of our liabilities.

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have incurred net losses of $2,668, $10,945, $20,998 and $17,130 for the three months ended January 31, 2009 and for the years ended October 31, 2008, 2007 and 2006, respectively, and have used cash in operations of $1,014, $12,015, $12,318 and $15,921 for the three months ended January 31, 2009 and for the years ended October 31, 2008, 2007 and 2006, respectively. As of January 31, 2009, we had an accumulated deficit of $161,539 cash and cash equivalents of $2,142, working capital of $435 and $2,534 of interest-bearing debt.

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

Balance Sheet and Cash Flows

Cash and cash equivalents. At January 31, 2009, we had cash and cash equivalents aggregating approximately $2,142, a decrease of $114 from $2,256 at October 31, 2008. The decrease was primarily attributed to cash used in continuing operations of $1,014 and capital expenditures of $135, partially offset by additional bank borrowings on our line of credit of $1,080.

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

Equipment and leasehold improvements. Equipment and leasehold improvements (“Fixed Assets”) increased approximately $46 to $344 at January 31, 2009, from $298 at October 31, 2008. The increase in Fixed Assets reflects capital expenditures of $135 offset by depreciation expense.

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Accounts payable and accrued expenses. Accounts payable and accrued expenses decreased approximately $793 to $4,057 as of January 31, 2009, from $4,850 at October 31, 2008, as we settled accounts with suppliers and vendors with cash raised from the sale of the non-therapeutic product line in September 2008 and the collection of the $2,000 receivable in January 2009 related to the sale of assets.

Liquidity and Capital Resource Requirements

Bank debt. The bank debt with Silicon Valley Bank consists of a $3,000 revolving credit facility with an interest rate of prime plus 0.5% and a $3,000 Growth Capital Loan with an interest rate of prime plus 2.25%. The outstanding balance at January 31, 2009 is $1,080 for the revolving credit facility and $1,454 on the Growth Capital Loan. We do not have any available borrowing capabilities on the revolving credit facility or the Growth Capital Loan. See Note 11 of Notes to the Condensed Consolidated Financial Statements for the Company’s plans to repay this bank debt in connection with its Chapter 11 voluntary bankruptcy filing on March 11, 2009.

DIP loan. Our Debtor-in-Possession loan from Portola Medical, an affiliate of Three Arch Partners, a related party to the Company, consists of a $1,000 loan with an interest rate of 12% per annum. We plan to access this DIP loan as a short-term source of working capital during our Chapter 11 Proceeding.

Operating leases. We lease our facilities under noncancelable operating leases which expire in mid 2009. Under each lease, we are required to pay for insurance, taxes, utilities and building maintenance, commonly known as a “triple net” lease. Future minimum lease payments are subject to annual adjustment for increases in the Consumer Price Index. We also lease some equipment under non-cancelable operating leases.

License fees. We license some of the technologies used in our products from third parties.

Purchase commitments. We also have purchase commitments to a supplier under blanket purchase orders.

Severance liabilities. We have committed to severance payments to several employees whose employment was terminated in 2008. We will be making those payments over specified terms, and at January 31, 2009, $472 of those payments are in long-term liabilities and $483 is included in accrued expenses.

Critical Accounting Policies

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

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Use of Estimates

Accounts Receivable and Allowance for Doubtful Accounts

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

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, receivables, inventories, accounts payable, and accrued expenses approximate fair value because of their short maturities.

Equipment and Leasehold Improvements

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

Intangible Assets

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

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Long-Lived Assets

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

Derivative Liabilities

We issued warrants in connection with our borrowing activities in 2007 that included an uncertain purchase price for a period of time. We evaluated these warrants under SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities and Emerging Issues Task Force Issue 00-19 - Accounting for Derivative Financial Indexed to, and Potentially Settled in, a Company’s Own Stock and determined the warrants should be accounted for as derivative liabilities at estimated fair value, and marked-to-market at subsequent measurement dates. We used the Black-Scholes option-pricing model to determine the fair value of the derivative liabilities at each measurement date. Key assumptions of the Black-Scholes option-pricing model include applicable volatility rates, risk-free interest rates and the instruments’ expected remaining life. The fluctuations in estimated fair value are recorded as Adjustments to Fair Value of Derivatives in Other Expenses in the Statement of Operations. On December 12, 2007, the uncertain purchase price became certain, and the derivative features were eliminated. See further discussion in Note 7 and Note 8 to the condensed consolidated financial statements.

Income Taxes and Uncertain Tax Positions

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We have recorded a 100% valuation allowance against our deferred tax assets until such time that it becomes more likely than not that we will realize the benefits of the deferred tax assets. On November 1, 2007, we implemented Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”.

Revenue Recognition

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

Research and Development Costs

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Share-based Compensation

We account for our share-based payments under the guidance set forth in SFAS No. 123(R), Share-Based Payment, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options and employee stock purchases related to our Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”), based on their fair values. We also apply the guidance found in SAB No. 107 (“SAB 107”) with respect to share-based payments and SFAS No. 123(R).

Under SFAS 123(R), we attribute the value of share-based compensation to expense using the straight-line method. We use a 10% forfeiture rate, and a 46% forfeiture rate for the 2006 Premium Price Awards, under the straight-line method based on historic and estimated future forfeitures.

We use the Black-Scholes option-pricing model for estimating the fair value of options granted. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. We use projected volatility rates, which are based primarily upon historical volatility rates. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate. For purposes of financial statement presentation, the estimated fair values of the options are amortized over the options’ vesting periods.

Recent Accounting Pronouncements

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

In March 2007, the FASB ratified Emerging Issues Task Force Issue 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards, (“EITF Issue 06-11”). Beginning January 1, 2008, we adopted EITF Issue 06-11. In accordance with EITF Issue 06-11, we record a credit to additional paid-in capital for tax deductions resulting from a dividend payment on non-vested share awards we expect to vest. The adoption of EITF Issue 06-11 did not have any impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the potential impact, if any, of the adoption of SFAS 141R on our consolidated results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 160, " Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 " (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent's ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the potential impact, if any, of the adoption of SFAS 160 on our consolidated results of operations and financial condition.

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In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We are currently evaluating the impact, if any, SFAS No. 161 will have on our consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”, (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This Statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. We currently adhere to the hierarchy of GAAP as presented in SFAS No. 162, and therefore we do not expect its adoption will have a material impact on our consolidated results of operations and financial condition.

In June 2008, the FASB issued Financial Accounting Standards Board Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“EITF 03-6-1”). The EITF 03-6-1 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method in accordance with SFAS 128, Earnings per Share. EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, we are required to retrospectively adjust the earnings per share data to conform with the provisions in EITF 03-6-1. Early application of EITF 03-6-1 is prohibited. We are currently evaluating the impact EITF 03-6-1 will have on our consolidated financial statements.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Information about market risks for the three months ended January 31, 2009, does not differ materially from that discussed under Item 7A of our Annual Report on Form 10-K for the fiscal year ended October 31, 2008.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness, as of the end of the fiscal quarter covered by this report, of the design and operation of our “disclosure controls and procedures” as defined in Rule 13a-15(e) promulgated by the SEC under the Exchange Act. Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures, as of the end of such fiscal quarter, were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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Changes in Internal Controls

There has been no change in our internal control over financial reporting during the quarter ended January 31, 2009, that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II – OTHER INFORMATION

The Company was not required to report the information pursuant to Items 1 through 6 of Part II of Form 10-Q except as follows:

Item 1. Legal Proceedings

See Note 9 of Condensed Notes to Consolidated Financial Statements for information regarding legal proceedings.

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. In addition to other information in this Form 10-Q, you should carefully consider the risks described below before investing in our securities. This discussion highlights some of the risks that may affect future operating results. The risks described below are not the only ones facing us. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer.

Our wholly-owned subsidiary and sole operating company, North American Scientific, Inc. a California corporation (the “Operating Company”), filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on March 11, 2009, We are subject to the risks and uncertainties associated with a Chapter 11 Proceeding.

For the duration of our Chapter 11 Proceeding, our operations, including our ability to execute our business plan, are subject to the risks and uncertainties associated with bankruptcy. Risks and uncertainties associated with our Chapter 11 Proceeding include the following:

the actions and decisions of our creditors and other third parties who have interests in our Chapter 11 Proceeding that may be inconsistent with our plans;

our ability to obtain court approval with respect to motions in the Chapter 11 Proceeding prosecuted from time to time;

our ability to develop, prosecute, confirm and consummate a plan of reorganization with respect to the Chapter 11 Proceeding;

our ability to obtain and maintain normal terms with vendors and service providers;

our ability to maintain contracts that are critical to our operations;

our ability to retain and motivate key personnel through the process of reorganization, or to attract new employees; and

risks associated with third parties seeking and obtaining court approval to terminate or shorten the exclusivity period for us to propose and confirm a plan of reorganization, to appoint a Chapter 11 trustee or to convert the proceedings to Chapter 7 Proceeding.

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In addition, the uncertainty regarding the eventual outcome of our restructuring which involves the sale of both of our product lines, and the effect of other unknown adverse factors, could prevent us from selling such product lines as going concerns which, may cause the proceeds from the sale of such product lines to be insufficient to fully pay all of our creditors. Continuing as a going concern is dependent upon, among other factors, the success and Bankruptcy Court approval of a reorganization plan, maintaining the support of key suppliers and customers, and retaining key personnel, along with financial, business and other factors, many of which are beyond our control.

Under the priority scheme of the U.S. Bankruptcy Code, unless creditors agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full before shareholders may be entitled to receive any distribution or retain any property under a plan of reorganization. The recovery to creditors and/or shareholders, if any, will not be ultimately determined until a plan of reorganization is confirmed. No assurance can be given as to what values, if any, will be ascribed to each of these constituencies, or what types or amounts of distributions, if any, such constituencies will receive, in the Chapter 11 Proceeding. A plan of reorganization could result in holders of our capital stock receiving no distribution on account of their interests and cancellation of their existing stock. Under the U.S. Bankruptcy Code, if certain requirements are met, a plan of reorganization can be confirmed notwithstanding the rejection of such plan by the holders of our equity securities and notwithstanding the fact that, under the plan, such equity security holders do not receive or retain any property on account of their equity interests. We consider the value of our common stock to be highly speculative and we strongly caution our equity holders that our stock may ultimately be determined to have no value. Accordingly, we urge that appropriate caution be exercised with respect to existing and future investments in our common stock or other equity securities, or any claims relating to pre-petition liabilities.

Our Operating Company intends to sell its brachytherapy business and its Clearpath product development as the essential part of its plan of reorganization.

Out Operating Company must develop a plan of reorganization by March 31, 2009 to effectively emerge from its Chapter 11 Proceeding. As a part of that reorganization plan, we have reached agreement with Best Theratronics, Ltd, a Canadian company, to purchase substantially all the assets and assume certain liabilities of our Prostate Brachytherapy business for $2.5 million subject to adjustment for operating results prior to the closing date. The sale of the Prostate Brachytherapy business will leave us with no established source of future revenue.

In addition, the Operating Company executed a Debtor In Possession (“DIP”) Financing arrangement with Portola Capital, a company wholly owned by our largest shareholder for $1.0 million. Our DIP lender intends to file a motion with the Bankruptcy Court to acquire exclusive rights to our Clearpath product development for an undetermined price.

Both sales are subject to a bidding process that may be joined by parties not yet known to us. The bidding process may result in a purchase price that differs substantially from that which was submitted to the Bankruptcy Court.

We consider the value of our common stock to be highly speculative and we strongly caution our equity holders that our stock may ultimately be determined to have no value. Accordingly, we urge that appropriate caution be exercised with respect to existing and future investments in our common stock or other equity securities, or any claims relating to pre-petition liabilities.

If our Operating Company is successful in selling the Prostate Brachtherapy business and the Clearpath product development, we will have no operating activities remaining and no source of income. The risk factors which follow are principally based on the risks inherent in operating and financing our business in a manner which includes our current operations. The presentation of these risk factors is not meant to suggest that we expect to own and operate any of our current, or any other, operating business in the future.

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

In January 2008, we completed a private placement of 12,601,628 shares of our common stock that also included 630,081 shares of common stock issuable upon exercise of warrants. This financing resulted in significant dilution of our current stockholders, such that the three participants in the private placement transaction now control in excess of 70% of our outstanding common stock. If we raise additional equity financing in the future, the percentage ownership held by existing stockholders would be further reduced, and existing stockholders may experience further significant dilution. In addition, new investors may demand rights, preferences or privileges that differ from, or are senior to, those of our existing shareholders, such as warrants in addition to the securities purchased and other protections against future dilutive transactions. We expect no further equity financings.

Recent turmoil in the credit markets and the financial services industry may negatively impact our business, results of operations, financial condition or liquidity.

Recently, the credit markets and the financial services industry have been experiencing a period of unprecedented turmoil and upheaval characterized by the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the United States federal government. These conditions not only limit our access to capital but also make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and they could cause U.S. and foreign businesses to slow spending on our products and services, which would delay and lengthen sales cycles. Furthermore, during challenging economic times our customers may face issues gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. In addition, the recent economic crisis could also adversely impact our suppliers’ ability to provide us with materials and components, either of which may negatively impact our business, financial condition and results of operations.

Although we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments and such losses have historically been within our expectations and the provisions established, we may not continue to experience the same loss rates that we have in the past, especially given the current turmoil of the worldwide economy.

Our common stock was suspended by the NASDAQ Capital Market at the opening of business on March 23, 2009. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected by the delisting from the NASDAQ Capital Market.

On March 12, 2009, we received a notice from NASDAQ indicating that due to the filing of Chapter 11 Bankruptcy on March 11, 2009, NASDAQ had determined that, in accordance with the discretionary authority of the staff of NASDAQ pursuant to Marketplace Rule 4300 and IM-4300, our securities were suspended from trading on NASDAQ at the opening of business on March 23, 2009. We expect our securities to be delisted from NASDAQ on or about April 16, 2009. We do not plan to appeal this determination.

Our common stock may be eligible to trade on the OTC Bulletin Board maintained by NASDAQ, another over-the-counter quotation system, or on the pink sheets where an investor may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock, although there can be no assurance that our common stock will be eligible for trading on any alternative exchanges or markets.

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In addition, delisting from NASDAQ could adversely affect our ability to raise additional financing through the public or private sale of equity securities. We expect to raise no additional funds through equity financings. Delisting from NASDAQ also would make trading our common stock more difficult for investors, potentially leading to further declines in our share price.

ClearPath breast brachytherapy device.

We now believe that our Operating Company will sell the rights to the ClearPath product line through the Chapter 11 Proceeding. We expect such business to be supported by the buyer of such business.

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

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

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

• failure to prove feasibility;

• time required from proof of feasibility to routine production;

• timing and cost of regulatory approvals and clearances;

• competitors' responses to new product developments;

• manufacturing cost overruns;

• failure to obtain customer acceptance and payment; and

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

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

We expect to sell our Prostate Brachytherapy Product Line and our ClearPath product development through the Chapter 11 Proceeding. If we are successful in selling such product lines we will have no operating assets. In addition, we may not be able to raise adequate proceeds from the sale of such product lines to pay all of our creditors. We do not expect to continue as a going concern.

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

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

Because we are a small company with limited resources, there is a risk that potential customers will purchase products from larger manufacturers, even if our products are technically superior, based on the perception that a larger, more established manufacturer may offer greater certainty of continued product improvements, support and service, which could cause our revenues to decline. In addition, many of our competitors are substantially larger and have greater sales, marketing and financial resources than we do. Developments by any of these or other companies or advances by medical researchers at universities, government facilities or private laboratories could render our products obsolete. Moreover, companies with substantially greater financial resources, as well as more extensive experience in research and development, the regulatory approval process, manufacturing and marketing, may be in a better position to seize market opportunities created by technological advances in our industry.

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

Our current domestic direct sales force is small relative to many of our competitors. There is intense competition for skilled sales and marketing employees, particularly for people who have experience in the radiation oncology market. In addition, our Chapter 11 Proceeding creates uncertainty regarding our ability to continue as a going concern. Accordingly, we could find it difficult to hire or retain skilled individuals to sell our products. Any failure to build our direct sales force could adversely affect our growth and our ability to meet our revenue goals.

As a result of our relatively small sales force the need to hire and train additional sales representatives to sell our ClearPath device, and the intense competition for skilled sales and marketing employees, our direct sales and marketing efforts may not be successful. If we are not successful in our direct sales and marketing, our sales revenue and results of operations are likely to be materially adversely affected.

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

Our 2005 agreement with Oncura, Inc. and our 2007 agreement with Core Oncology, Inc. for distribution of our Palladium-103 brachytherapy seeds are important components of that business. As described in Note 9 to the Condensed Consolidated Financial Statements, Core Oncology, Inc. has served us with a lawsuit alleging breach of our 2007 agreement with Core Oncology, Inc., and has ceased compliance with the terms of that agreement. Accordingly, Core Oncology, Inc. is not currently distributing our Palladium-103 brachytherapy seeds. If we are not able to maintain our existing relationships with our other agents and distributors for the sale of our Palladium-103 brachytherapy seeds or these third parties do not successfully distribute our products, our revenues will be adversely impacted.

We depend partially on our relationship with a large customer that comprises more than 10% of our revenue. If this relationship is discontinued or if we are unable to develop new relationships, our revenues could decline.

Our sales to Core Oncology, Inc. comprised more than 10% of our revenue for fiscal 2008. As disclosed in Note 9 to the Condensed Consolidated Financial Statements we were served a lawsuit by Core Oncology, Inc., on February 13, 2009 alleging that the Company breached the terms of a supply agreement. In addition to its lawsuit, Core Oncology, Inc. has ceased purchasing products from us.

We cannot assure you that we will be able to develop new relationships or maintain our existing relationships with our other large customers for the sale of our Palladium-103 brachytherapy seeds.

The cost of defending lawsuits for product-related liabilities could be prohibitive to us.

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

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

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

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

We depend upon a limited number of outside unaffiliated suppliers for our radioisotopes. Our principal suppliers are Nordion International, Inc. and Eckert & Ziegler AG. We also utilize other commercial isotope manufacturers located in the United States and overseas. To date, we have been able to obtain the required radioisotopes for our products without any significant delays or interruptions. Currently, we rely exclusively upon Nordion International for our supply of the Palladium-103 isotope; if Nordion International ceases to supply isotopes in sufficient quantity to meet our needs, there may not be adequate alternative sources of supply. The Chapter 11 Proceeding of our Operating Comapny creates uncertainty regarding our ability to continue as a going concern, which could adversely affect our ability to obtain isotope supplies in sufficient quantity to meet our needs. If we lose any of these suppliers (including any single-source supplier), we would be required to find and enter into supply arrangements with one or more replacement suppliers. Obtaining alternative sources of supply could involve significant delays and other costs and these supply sources may not be available to us on reasonable terms or at all. Any disruption of supplies could delay delivery of our products that use radioisotopes, which could adversely affect our business and financial results and could result in lost or deferred sales.

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

Our success is materially dependent on a limited number of key employees, and, in particular, the continued services of John B. Rush, our President and Chief Executive Officer and Brett L. Scott, our Senior Vice President and Chief Financial Officer. Our future business and financial results could be adversely affected if the services of Messrs. Rush, Scott or other key employees cease to be available. To our knowledge, none of our key employees have any plans to retire or leave in the near future.

Our future success and ability to grow our business will depend in part on the continued service of our skilled personnel and our ability to identify, hire and retain additional qualified personnel. The Chapter 11 Proceeding of our Operating Company creates uncertainty regarding our ability to continue as a going concern, which could adversely affect our ability to hire and retain key employees and additional qualified personnel. Although some employees are bound by a limited non-competition agreement that they sign upon employment, few of our employees are bound by employment contracts, and it is difficult to find qualified personnel, particularly medical physicists and customer service personnel, who are willing to travel extensively. We compete for qualified personnel with medical equipment manufacturers, universities and research institutions. Because the competition for these personnel is intense, costs related to compensation may increase significantly.

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

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

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

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

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

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

Our success depends in part on our ability to obtain and enforce patent protections for our products and operate without infringing on the proprietary rights of third parties. We rely on U.S. and foreign patents to protect our intellectual property. We also rely significantly on trade secrets and know-how that we seek to protect. We attempt to protect our intellectual property rights by filing patent applications for new features and products we develop. We enter into confidentiality or license agreements with our employees, consultants, independent contractors and corporate partners, and we seek to control access to our intellectual property and the distribution of our products, documentation and other proprietary information. We plan to continue these methods to protect our intellectual property and our products. These measures may afford only limited protection. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States.

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If a competitor infringes upon our patent or other intellectual property rights, enforcing those rights could be difficult, expensive and time-consuming, making the outcome uncertain. Competitors could also bring actions or counterclaims attempting to invalidate our patents. Even if we are successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be costly and could divert our management's attention. Due to our limited resources, the costs of such litigation may exceed our ability to pay and we may not be able to adequately enforce our intellectual property rights or defend our patents.

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

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

We manufacture and process radioactive materials which are subject to stringent regulation. We operate under licenses issued by the California Department of Health which are renewable every eight years. We received a renewal of our licenses for our North Hollywood and Chatsworth facilities in 2007. California is one of the "Agreement States," which are so named because the Nuclear Regulatory Commission, or NRC, has granted such states regulatory authority over radioactive materials, provided such states have regulatory standards meeting or exceeding the standards imposed by the NRC. Most users of our products must obtain licenses issued by the state in which they reside (if they are Agreement States) or the NRC. Use licenses are also required by some of the foreign jurisdictions in which we may seek to market our products.

Although we believe that our safety procedures for handling and disposing of these radioactive materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result. We believe we carry reasonably adequate insurance to cover us in the event of any damages resulting from the use of hazardous materials.

As part of the sale of our Non-Therapeutic Product Line in September 2008, we closed our North Hollywood facility and have agreed to decommission the site at our expense. We were not able to complete the decommissioning process prior to commencing the Chapter 11 proceeding, and we did not obtain certification of the premises from the State of California. The ultimate resolution of the decommissioning is not certain. We may be required under our license by the State of California to complete the decommissioning process prior to emerging from Chapter11. We estimate the remaining cost to complete the decommissioning project to be up to $150,000, but actual costs could be well above this estimate.

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

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

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

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

Medicare reimbursement amounts for seeding are currently significantly less than for RP. Although seeding generally requires less physician time than RP, lower reimbursement amounts, when combined with physician familiarity with RP, may create disincentives for urologists to perform seeding.

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

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Acceptance of our products in foreign markets could be affected by the availability of adequate reimbursement or funding, as the case may be, within prevailing healthcare payment systems. Reimbursement, funding and healthcare payment systems vary significantly by country and include both government-sponsored healthcare and private insurance. We may not obtain third-party reimbursement with respect to treatments using our products under any foreign reimbursement system.

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

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

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

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

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

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

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

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

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

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

• fines, injunctions and civil penalties;

• the recall or seizure of our products;

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

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

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

• criminal prosecution.

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

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

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

	Operating Company may not be able to manage the business at a consistent level through the Chapter 11 proceedings due to the uncertainty of its ability to fulfill its sales obligations, produce and ship product and other factors;
	Our net sales may grow at a slower rate than necessary to achieve profitability and, in particular periods, may decline;
	Our future sales growth is highly dependent on the successful introduction of our ClearPath device;
	Our brachytherapy product lines may experience some variability in revenue due to seasonality. This is primarily due to three major holidays occurring in our first fiscal quarter and the apparent reduction in the number of procedures performed during summer months, which could affect our third fiscal quarter results;
	Estimates with respect to the useful life and ultimate recoverability of our carrying basis of assets, including goodwill and purchased intangible assets, could change as a result of such assessments and decisions;
	As a result of our growth in past periods, our fixed costs have increased. With increased levels of spending and the impact of long-term commitments, we may not be able to quickly reduce these fixed expenses in response to short-term business changes;
	Acquisitions that result in in-process research and development expenses may be charged fully in an individual quarter;
	Changes or anticipated change in third-party reimbursement amounts or policies applicable to treatments using our products;
	Timing of the announcement, introduction and delivery of new products or product enhancements by us and by our competitors;

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	The possibility that unexpected levels of cancellations of orders or backlog may affect certain assumptions upon which we base our forecasts and predictions of future performance;
	Changes in the general economic conditions in the regions in which we do business;
	Unfavorable outcome of any litigation; and
	Accounting adjustments such as those relating to reserves for product recalls, stock option expensing as required under SFAS No. 123R and changes in interpretation of accounting pronouncements

Being a public company significantly increases our administrative costs.

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

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

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

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

The market price of our common stock has historically been, and we expect it to continue to be, volatile. The price of our common stock has ranged between $0.05 and $3.75 per share in the fifty-two week period ended October 31, 2008, and between $0.09 and $0.39 per share in the three months ended January 31, 2009. The stock market has from time to time experienced extreme price and volume fluctuations, particularly in the medical device sector, which have often been unrelated to the operating performance of particular companies. Factors such as announcements of technological innovations or new products by our competitors or disappointing results by third parties, as well as market conditions in our industry, may significantly influence the market price of our common stock. Our stock price has also been affected by our own public announcements regarding such things as quarterly sales and earnings. Consequently, events both within and beyond our control may cause shares of our stock to lose their value rapidly.

In addition, sales of a substantial number of shares of our common stock by stockholders could adversely affect the market price of our shares. In connection with our January 2008 sale of common stock and accompanying warrants, we have filed resale registration statements covering an aggregate of up to 12,601,628 shares of common stock and 630,081 shares of common stock issuable upon exercise of warrants for the benefit of the selling security holders. The actual or anticipated resale by such investors under these registration statements may depress the market price of our common stock. Bulk sales of shares of our common stock in a short period of time could also cause the market price for our shares to decline.

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Trading volume in our stock has been limited, so investors may not be able to sell as much stock as they want at prevailing prices.

The average daily trading volume in our common stock for fiscal year 2008 was approximately 16,000 shares and the average daily number of transactions was approximately 40 for the same period. If limited trading in our stock continues, it may be difficult for investors to sell their shares in the public market at any given time at prevailing prices. Moreover, the market price for shares of our common stock is made more volatile because of the relatively low volume of trading in our common stock. When trading volume is low, significant price movement can be caused by the trading in a relatively small number of shares. Volatility in our common stock could cause stockholders to incur substantial losses.

Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.

As of January 31, 2009, our officers, directors and principal stockholders, collectively beneficially own approximately 79% of our common stock in the aggregate. As a result, these stockholders, if they act together, will be able to control the management and affairs of our company and most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock.

Some provisions of our charter documents may make takeover attempts difficult, which could depress the price of our stock and inhibit your ability to receive a premium price for your shares.

Provisions of our amended and restated certificate of incorporation could make it more difficult for a third party to acquire control of our business, even if such change in control would be beneficial to our stockholders. Our amended and restated certificate of incorporation allows our board of directors to issue shares of preferred stock and to fix the rights and preferences of such shares without stockholder approval. Any such issuance could make it more difficult for a third party to acquire our business and may adversely affect the rights of our stockholders. These provisions may delay, deter or prevent a change in control of us, adversely affecting the market price of our common stock.

We do not anticipate declaring any cash dividends on our common stock.

We have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and any earnings for use in the operation and expansion of our business. The payment of cash dividends by us is restricted by our credit facility with Silicon Valley Bank. If we do not pay dividends, our stock may be less valuable to you because a return on your investment will only occur if our stock price appreciates.

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Item 6.

Exhibits

(a) Exhibits.

	Exhibits No.		Title

	2.1		Asset Purchase Agreement, dated February 11, 2009, by and among the Company, North American Scientific, Inc., a California corporation, and Best Theratronics, Ltd., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on February 17, 2009.
	2.2		Asset Purchase Agreement, dated March 11, 2009, by and among the Company, North American Scientific, Inc., a California corporation, and Best Theratronics, Ltd., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on March 17, 2009.
	3.1		Amended and Restated Certificate of Incorporation of the Company, as amended on April 30, 2008 by the Certificate of Amendment of Amended an Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed on June 16, 2008.
	3.2		Bylaws of the Company, (as amended December 5, 2007), incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on December 11, 2007.
	10.1		Amendment to the Employment Agreement, dated as of December 31, 2008, between the Company and John Rush, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 31, 2008.
	10.2		Amendment to the Offer Letter, dated as of December 31, 2008, between the Company and Brett Scott, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on December 31, 2008.
	10.3		Management Agreement, dated February 11, 2009, by and among North American Scientific, Inc., a California corporation, and Best Theratronics, Ltd., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on February 17, 2009.
	31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

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

	NORTH AMERICAN SCIENTIFIC, INC.

March 23, 2009	By:	/s/ John B. Rush
		Name:	John B. Rush
		Title:	President and
			Chief Executive Officer
			(Principal Executive Officer)

March 23, 2009	By:	/s/ Brett L. Scott
		Name:	Brett L. Scott
		Title:	Senior Vice President and
			Chief Financial Officer
			(Principal Financial Officer)

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Exhibit Index

Exhibit No.
2.1	Asset Purchase Agreement, dated February 11, 2009, by and among the Company, North American Scientific, Inc., a California corporation, and Best Theratronics, Ltd., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on February 17, 2009

2.2	Asset Purchase Agreement, dated March 11, 2009, by and among the Company, North American Scientific, Inc., a California corporation, and Best Theratronics, Ltd., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on March 17, 2009

3.1	Amended and Restated Certificate of Incorporation of the Company, as amended on April 30, 2008 by the Certificate of Amendment of Amended an Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed on June 16, 2008.

3.2	Bylaws of the Company, (as amended December 5, 2007), incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on December 11, 2007.

10.1	Amendment to the Employment Agreement, dated as of December 31, 2008, between the Company and John Rush, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 31, 2008.

10.2	Amendment to the Offer Letter, dated as of December 31, 2008, between the Company and Brett Scott, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on December 31, 2008.

10.3	Management Agreement, dated February 11, 2009, by and among North American Scientific, Inc., a California corporation, and Best Theratronics, Ltd., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on February 17, 2009.

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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NORTH AMERICAN SCIENTIFIC INC 10-Q