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 ~~July~~January 31, ~~2007~~2009

~~o TRANSITION~~¨ 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, or a non-accelerated filer, or a smaller reporting company. See ~~definition~~definitions of “large accelerated filer” and “~~large~~ accelerated filer” inand “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 ~~August~~March 3119, ~~2007~~2009 was 29approximately 18,~~511~~520,~~912~~000 shares.

NORTH AMERICAN SCIENTIFIC, INC.

Index

		~~Page~~	Page
	Part I - Financial Information
Part I – Financial Information
Item 1.	Financial Statements
Consolidated Balance Sheets as of July 31, 2007 and October 31, 2006		3
	Condensed Consolidated Balance Sheets as of January 31, 2009 and October 31, 2008		3
Consolidated Statements of Operations for the three and nine months ended
	Condensed Consolidated Statements of Operations for the three months ended
July 31, 2007 and 2006		4
	January 31, 2009 and 2008		4
Consolidated Statements of Cash Flows for the nine months ended
	Condensed Consolidated Statements of Cash Flows for the three months ended
July 31, 2007 and 2006		5
	January 31, 2009 and 2008		5
Condensed Notes to the Consolidated Financial Statements		7
	Notes to the Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and
	Results of Operations	27	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36	41
Item 4.	Controls and Procedures	36	41
	Part II - Other Information
Part II – Other Information
Item 1A.	Risk Factors	37
Item 1.	Legal Proceedings		42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 1A.	Risk Factors		42
Item 4.	Submission of Matters to a Vote of Security Holders	50
Item 6.	Exhibits		57
Item 5.	Other Information	50
	Signatures		58
Item 6.	Exhibits	51
Signatures		52

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PART I -– FINANCIAL INFORMATION

Item 1. Financial Statements

NORTH AMERICAN SCIENTIFIC, INC.
Consolidated Balance Sheets
	July 31,			October 31,
	2007			2006
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	1,817,000		$	903,000
Marketable securities, held to maturity		---			8,420,000
Accounts receivable, net of reserves		1,911,000			2,618,000
Inventories, net of reserves		1,775,000			1,284,000
Prepaid expenses and other current assets		909,000			830,000
Assets held for sale		3,634,000			11,377,000
Total current assets		10,046,000			25,432,000
Equipment and leasehold improvements, net		1,047,000			1,318,000
Goodwill		---			---
Intangible assets, net		117,000			138,000
Other assets		59,000			310,000
Total assets	$	11,269,000		$	27,198,000
Liabilities and Stockholders’ Equity
Current liabilities
Line of Credit	$	1,363,000		$	---
Accounts payable		2,468,000			2,406,000
Accrued expenses		3,422,000			3,790,000
Deferred revenue		---			---
Liabilities held for sale		3,263,000			3,814,000
Total current liabilities		10,516,000			10,010,000
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $0.01 par value, 2,000,000 shares authorized; no shares
Issued		—			—
Common stock, $0.01 par value, 100,000,000 shares and 40,000,000 shares
authorized, 29,601,352 and 29,447,270 shares issued, 29,395,331 and 29,336,144 shares outstanding, as of July 31, 2007 and October 31, 2006, respectively		299,000			298,000
Additional paid-in capital		145,264,000			144,543,000
Treasury stock, at cost - 206,021 and 111,126 common shares as of July 31, 2007 and October 31, 2006, respectively		(227,000	)		(133,000	)
Accumulated deficit		(144,583,000	)		(127,520,000	)
Total stockholders’ equity		753,000			17,188,000
Total liabilities and stockholders’ equity	$	11,269,000		$	27,198,000
See condensed notes to the consolidated financial statements.

NORTH AMERICAN SCIENTIFIC, INC.
Consolidated Statements of Operations
(Unaudited)
	Three months ended July 31,						Nine months ended July 31,
	2007			2006			2007			2006
Revenue -
Product	$	3,438,000		$	3,166,000		$	11,140,000		$	9,245,000
Total revenue		3,438,000			3,166,000			11,140,000			9,245,000
Cost of revenue -
Product		2,688,000			2,172,000			7,792,000			6,700,000
Total cost of revenue		2,688,000			2.172,000			7,792,000			6,700,000
Gross profit		750,000			994,000			3,348,000			2,545,000
Operating expenses
Selling expenses		1,060,000			654,000			2,845,000			1,972,000
General and administrative expenses		2,073,000			2,605,000			6,516,000			6,302,000
Research and development		518,000			182,000			1,282,000			715,000
Total operating expenses		3,651,000			3,441,000			10,643,000			8,989,000
Loss from operations		(2,901,000	)		(2,447,000	)		(7,295,000	)		(6,444,000	)
Interest and other (expense) income, net		(69,000	)		(79,000	)		(98,000	)		(171,000	)
Loss before provision for income taxes		(2,970,000	)		(2,526,000	)		(7,393,000	)		(6,615,000	)
Loss from continuing operations		(2,970,000	)		(2,526,000	)		(7,393,000	)		(6,615,000	)
Loss from discontinued operations, net of tax benefits		(7,718,000	)		(2,107,000	)		(9,670,000	)		(4,388,000	)
Net loss	$	(10,688,000	)	$	(4,633,000	)	$	(17,063,000	)	$	(11,003,000	)
Basic and diluted loss per share:
Net loss per share from continuing operations	$	( 0.10	)	$	( 0.10	)	$	( 0.25	)	$	( 0.34	)
Net loss per share from discontinued operations	$	( 0.26	)	$	( 0.09	)	$	( 0.33	)	$	( 0.23	)
Net loss per share	$	( 0.36	)	$	( 0.19	)	$	( 0.58	)	$	( 0.57	)
Weighted average number of shares outstanding		29,317,056			23,954,948			29,327,062			19,327,230

See condensed notes to the consolidated financial statements.

NORTH AMERICAN SCIENTIFIC, INC.
Consolidated Statements of Cash Flows
(Unaudited)
	Nine months ended July 31,
	2007			2006
Cash flows from operating activities:
Net loss	$	(17,063,000	)	$	(11,003,000	)
Net loss from discontinued operations		(9,670,000	)		(4,388,000	)
Net loss from continuing operations		(7,393,000	)		(6,615,000	)
Depreciation and amortization		414,000			482,000
Amortization of warrants		238,000			142,000
Share-based compensation expense		490,000			645,000
Provision for doubtful accounts		(213,000	)		39,000
Provision for inventory adjustments		88,000			(88,000	)
Loss on sale of equipment		4,000			---
Changes in assets and liabilities, net of discontinued operations:
Accounts receivable		921,000			(659,000	)
Inventories		(581,000	)		(249,000	)
Prepaid and other current assets		(26,000	)		(439,000	)
Accounts payable		8,000			62,000
Accrued expenses		40,000			(159,000	)
Net cash used in continuing operations		(6,010,000	)		(6,839,000	)
Net cash used in discontinued operations		(2,675,000	)		(4,235,000	)
Net cash used in operating activities		(8,685,000	)		(11,074,000	)
Cash flows from investing activities:
Proceeds from maturity (purchase) of marketable securities		8,419,000			(8,956,000	)
Proceeds from sale of equipment		15,000			---
Capital expenditures		(139,000	)		(232,000	)
Net cash provided by (used in) investing activities - continuing operations		8,295,000			(9,188,000	)
Net cash used in investing activities - discontinued operations		(102,000	)		(75,000	)
Net cash provided (used in) by investing activities		8,193,000			(9,263,000	)
Cash flow from financing activities:
Net borrowings under line of credit		1,363,000			---
Proceeds from private placement of common stock and warrants, net		---			21,961,000
Proceeds from exercise of stock options and stock purchase plan		137,000			163,000
Purchase of stock for treasury		(94,000	)		---
Net cash provided by financing activities - continuing operations		1,406,000			22,124,000
Net cash provided (used in) by financing activities - discontinued operations		---			---
Net cash provided by financing activities		1,406,000			22,124,000
Net increase in cash and cash equivalents		914,000			1,787,000
Cash and cash equivalents at beginning of period		903,000			2,630,000
Cash and cash equivalents at end of period	$	1,817,000		$	4,417,000

Supplemental disclosure:

In the nine months ended July 31, 2006, the Company has issued warrants with an estimated fair value totaling $526,000 to a bank and a debt provider as consideration for entering into Loan and Security Agreements. See Note 8 to the Financial Statements.

See condensed notes to the consolidated financial statements.

NORTH AMERICAN SCIENTIFIC, INC.

Condensed ~~Notes to~~ Consolidated ~~Financial~~Balance ~~Statements~~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)

~~NOTE~~(in ~~1—SUMMARY~~thousands, OFexcept ~~SIGNIFICANT~~share ~~ACCOUNTING~~and ~~POLICIES~~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.

- 4 -

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.

- 5 -

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, ~~2006~~ 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 ~~consolidated~~condensed consolidated financial statements should be read in conjunction with the ~~consolidated~~ 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, ~~2006~~ 2008.

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

~~Management’s~~Continued ~~Plans~~Existence

The ~~accompanying~~Company ~~financial~~has ~~statements~~incurred ~~have~~net ~~been~~losses ~~prepared~~of on$2,668, a$10,945, ~~going concern basis~~$20, ~~which~~998 ~~contemplates the realization of assets~~ and ~~liquidation of liabilities in the normal course of business. We have incurred net losses of~~ $17~~.1 million~~,130 infor the three ~~nine~~ months ended ~~July~~January 31, ~~2007,~~2009 and ~~$17.1 million, $55.5 million and $36.3 million~~ for the years ended October 31, ~~2006~~2008, 2007 ~~2005~~ and ~~2004~~2006, respectively., Weand ~~have~~has used cash in operations of $~~8.7~~1,014, ~~million~~$12,015, $12,318 inand $15,921 for the ~~nine~~three months ended ~~July~~January 31, ~~2007,~~2009 and ~~$15.9 million, $11.9 million and $23.1 million~~ for the years ended October 31, ~~2006~~2008, ~~2005~~2007 and ~~2004~~2006, respectively. As of ~~July~~ January 31, ~~2007~~ 2009, wethe Company had an accumulated deficit of $~~144.6~~161,539, ~~million;~~ cash and cash ~~equivalents~~ equivalents of $~~1.8~~2,142, ~~million;~~working ~~borrowings~~capital ~~under a line~~ of ~~credit~~$435, ofand $~~1.4~~2,535 ~~million~~of ~~and no long~~interest-~~term~~ bearing debt.

~~Based~~The ~~on the~~ Company’s ~~current~~has ~~operating~~incurred ~~plans,~~significant ~~management~~net ~~believes~~losses ~~that~~since ~~the~~inception, ~~Company’s existing cash resources~~ and ~~cash~~has ~~forecasted~~relied byon its ~~management~~ability to beobtain ~~generated by operations~~financing, ~~funds~~which to bedate ~~raised~~has bybeen ~~the Company~~ through anthe ~~equity~~sale ~~financing,~~of ~~as well~~common asshares and the ~~Company’s~~issuance ~~anticipated available line~~ of ~~credit,~~promissory ~~will be sufficient~~notes. Management toexpects ~~meet~~operating ~~working~~losses ~~capital~~ and ~~capital~~negative ~~requirements~~cash ~~through~~flows atto ~~least~~continue for the ~~next~~forseeable ~~twelve~~future ~~months.~~as Inthe ~~this~~Company ~~regard,~~incurs weadditional ~~must~~costs ~~raise~~and ~~additional~~expenses ~~financing~~related ~~in fiscal 2007~~ to ~~support launch and~~ the continued development of ~~ClearPath~~its ~~and~~products, ~~fund our continuing operations~~ and ~~other~~obtaining ~~activities.~~FDA ~~However,~~approval ~~there~~for ~~is no assurance that the Company~~new ~~will be successful with its plans~~indications. If ~~events~~These ~~and~~factors ~~circumstances~~raise ~~occur~~a ~~such that~~substantial ~~the~~doubt ~~Company~~about ~~does not meet its current operating plans,~~ the Company’s isability ~~unable~~ to ~~raise~~continue ~~sufficient~~as ~~additional~~a ~~financing,~~going orconcern. ~~the~~The ~~Company’s~~accompanying ~~line~~financial ofstatements ~~credit~~have been ~~(which~~prepared ~~presently~~on ~~expires~~a ongoing ~~October~~concern 3,basis ~~2007)~~that iscontemplates ~~insufficient~~the orrealization ~~not~~of ~~available,~~assets and the ~~Company~~satisfaction ~~will~~of beliabilities ~~required~~in tothe ~~further~~normal ~~reduce~~course ~~expenses~~of orbusiness. ~~take other steps~~The ~~which~~financial ~~could~~statements ~~have~~do anot ~~material~~include ~~adverse~~adjustments ~~effect~~relating onto ~~our~~the ~~future performance, including~~recoverability ~~but~~of ~~not~~recorded ~~limited~~asset ~~to,~~amounts or the ~~premature~~amounts ~~sale of some~~ or ~~all~~classification of ~~our~~liabilities ~~assets or product~~that ~~lines~~might onbe ~~undesirable~~necessary ~~terms,~~should ~~merger~~the ~~with~~Company orbe ~~acquisition~~unable byto ~~another~~continue ~~company~~as ~~on unsatisfactory~~a ~~terms, or the cessation of operations~~going concern.

7On 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.

~~Management also~~- ~~expects that in future periods new products and services will provide~~6 ~~additional cash flow, although no assurance can be given that such cash flow can be realized, and we are presently placing an emphasis on controlling expenses.~~ -

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~~ those amounts.

Marketable Securities

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

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

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

Accounts Receivable and Allowance for Doubtful Accounts

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

- 7 -

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

8Long-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, ~~including~~primarily brachytherapy seeds used in the treatment of cancer and non-~~therapuetic~~therapeutic sources used in calibration. ~~devices~~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.

~~Product~~- 8 ~~revenue~~-

~~The~~Income ~~Company~~Taxes applies the provisions of SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” for the sale of non-software products. SAB No. 104, which supercedes SAB No. 101, “Revenue Recognition in Financial Statements”, provides guidance on the recognition, presentation and ~~disclosure~~Uncertain ofTax 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.Positions

~~Stock-based~~Deferred ~~Compensation~~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.

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

The Company ~~adopted~~accounts ~~SFAS 123(R) using the modified prospective transition method as of and~~ for ~~the~~its ~~nine~~share-based ~~months~~payments ~~ended~~under ~~July 31, 2007 and 2006. In accordance with~~ the ~~modified~~ ~~prospective~~guidance ~~transition~~set ~~method,~~forth ~~the Company’s financial statements for~~in ~~prior periods have not been restated to reflect, and do not include, the impact of~~ SFAS No. 123(R)., “Share-~~based compensation expense recognized is based on the~~Based ~~value~~Payment”, ofwhich ~~the~~requires ~~portion of share-based payment awards that is ultimately expected to vest. Share-based compensation expense recognized in~~ the ~~Company’s Consolidated~~measurement ~~Statement of Operations during the nine months ended July 31, 2007~~ and ~~2006~~recognition ~~includes~~of compensation expense for all share-based payment awards ~~granted prior~~made to, ~~but~~employees ~~not~~and ~~yet vested as of~~directors, ~~October 31, 2005 based on the grant date~~ ~~fair~~including ~~value estimated in accordance with the pro forma provisions of SFAS 123 and new~~ stock ~~option~~options ~~grants made subsequent to October 31, 2005. A total of 1,850,000,~~ and ~~1,303,000~~employee stock ~~option~~purchases ~~grants~~related ~~were awarded~~ to ~~employees~~the ~~during~~Company’s ~~the~~Employee ~~nine~~Stock ~~months~~Purchase ~~ended~~Plan ~~July~~(the ~~31,~~“Employee ~~2007~~Stock ~~and~~Purchase ~~2006~~Plan”), ~~respectively,~~based ~~and~~on their afair ~~total~~values. ~~of 115,000~~The ~~and~~Company ~~150,000~~also ~~stock~~applies ~~option~~the ~~grants~~guidance ~~were~~found ~~awarded~~in toSAB ~~directors~~No. ~~during the~~107 ~~nine~~with ~~months~~respect ~~ended~~to ~~July~~share-based ~~31,~~payments ~~2007~~ and ~~2006,~~SFAS ~~respectively~~No. 123(R).

9The 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. Note that the stock option grants on March 16, 2006 included a total of 650,500 stock options that contain certain market condition requirements (“2007 Premium Price Awards”) The 2007 Premium Price Awards are, to the extent provided by law, incentive stock options that have an exercise price of $3.35 per share, which is equal to 159% of the fair market value of the Company’s common stock on the grant date. The 2007 Premium Price Awards also include a market condition that provides that such stock options will only vest if the closing price of the Company's common stock is equal to or greater than $3.35 on each day over any consecutive four month period beginning on any date after the date of grant and ending no later than the third anniversary of the date of grant. If the market condition is not satisfied by the third anniversary of the date of grant, the 2007 Premium Price Awards will not vest. Subject to the attainment of the market condition by the Company’s common stock, the 2007 Premium Price Awards will vest, if at all, in equal annual installments over a four year period beginning on the second anniversary of the grant date of March 16, 2006. The 2007 Premium Price Awards have a term of 8 years from the date of grant. As of July 31, 2007 the market condition for the vesting of the 2007 Premium Price Awards has not been met. Share-based compensation expense related to stock options and employee stock purchases, including the 2007 Premium Price Awards, of $176,000 and $209,000 for the three months ended July 31, 2007 and 2006, respectively, and $490,000 and $645,000 for the nine months ended July 31, 2007 and 2006, respectively, was recorded in the financial statements as a component of general and administrative expense. Share-based compensation expense of $33,000 and $41,000 for the three months ended July 31, 2007 and 2006, respectively and $94,000 and $85,000 for the nine months ended July 31, 2007 and 2006, respectively, was recorded as part of the discontinued operations of NOMOS Corporation.

~~The~~On March ~~Company~~16, ~~uses~~2006, the ~~Black-Scholes~~Company ~~option-pricing~~granted ~~model~~a ~~for~~total ~~estimating~~of ~~the~~130,100 ~~fair~~stock options to its employees ~~value~~that ofcontain ~~options~~certain ~~granted.~~market ~~The~~conditions ~~Black-Scholes~~(“2006 ~~option-pricing~~Premium ~~model~~Price ~~was~~Awards”). ~~developed~~The 2006 ~~for~~Premium ~~use~~Price inAwards ~~estimating~~are, to the ~~fair~~extent ~~value~~provided ofby ~~traded~~law, ~~options~~incentive stock options that have noan ~~vesting restrictions~~exercise ~~and~~price ~~are~~of ~~fully transferable~~$16.75 Inper ~~addition~~share, ~~option~~which ~~valuation~~is ~~models require~~equal ~~the~~to ~~input~~159% of ~~highly~~the fair ~~subjective~~market ~~assumptions,~~value ~~including~~of the ~~expected stock price volatility. The~~ Company’s ~~uses~~common ~~projected~~stock ~~volatility~~on ~~rates,~~the ~~which~~grant ~~are~~date. ~~based~~The 2006 ~~upon~~Premium ~~historical~~Price ~~volatility~~Awards ~~rates,~~also ~~trended~~include ~~into~~a ~~future~~condition ~~years.~~that ~~Because~~provides ~~the Company’s~~that ~~employee~~such stock options ~~have~~will ~~characteristics~~only ~~significantly~~vest ~~different from~~if ~~those~~the closing price of ~~traded~~the ~~options,~~Company's ~~and~~common ~~because~~stock ~~changes~~is equal into ~~the~~or ~~subjective~~greater ~~input assumptions~~than ~~can~~$16.75 ~~materially~~on ~~affect~~each ~~the~~day ~~fair~~over ~~value~~any ~~estimate,~~consecutive infour ~~management’s~~month ~~opinion,~~period ~~the~~beginning ~~existing~~on ~~models~~any dodate ~~not~~after ~~necessarily~~the ~~provide~~date aof ~~reliable~~grant ~~single measure~~and ofending no later than the ~~fair~~third ~~value~~anniversary of the ~~Company’s~~date ~~options~~of grant. ~~For~~The ~~purposes~~2006 ofPremium ~~financial statement~~Price ~~presentation~~Awards ~~and~~were cancelled ~~pro~~on ~~forma~~November ~~disclosures~~17, ~~the~~2008 ~~estimated~~for ~~fair~~failure ~~values of the~~to ~~options~~achieve ~~are amortized over~~ the ~~options’~~required ~~vesting periods~~market condition.

- 9 -

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. ~~The following table sets forth the computation of basic and diluted loss per share:~~

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	Three months ended July 31,						Nine months ended July 31,
	2007			2006			2007			2006
Net loss from continuing operations	$	(2,970,000	)	$	(2,526,000	)	$	(7,393,000	)	$	(6,615,000	)
Net loss from discontinued operations	$	(7,718,000	)	$	(2,107,000	)	$	(9,670,000	)	$	(4,388,000	)
Net loss	$	(10,688,000	)	$	(4,633,000	)	$	(17,063,000	)	$	(11,003,000	)
Weighted average shares outstanding - basic		29,317,056			23,954,948			29,327,062			19,327,230
Dilutive effect of stock options and warrants		—			—			—			—
Weighted average shares outstanding -diluted		29,317,056			23,954,948			29,327,062			19,327,230
Basic and diluted net loss per share:
Net loss per share from continuing operation	$	(0.10	)	$	(0.10	)	$	(0.25	)	$	(0.34	)
Net loss per share from continuing operations	$	(0.26	)	$	(0.09	)	$	(0.33	)	$	(0.23	)
Net loss per share	$	(0.36	)	$	(0.19	)	$	(0.58	)	$	(0.57	)

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.

~~Stock~~Research ~~options to purchase 4,629,600~~ and ~~3,594,588~~Development common shares for the three months ended July 31, 2007, and 2006, respectively, and 3,705,813 and 2,919,278 common shares for the nine months ended July 31, 2007 and 2006, respectively, were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.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 ~~July~~January 31, ~~2007~~2009, there ~~were~~was ~~two~~one ~~customers~~customer that made up more than 10% of revenues ~~and~~for ~~five~~the ~~customers~~quarter, ~~that~~and ~~each~~one ~~made~~customer upcompromised more than 510% of accounts receivable. As of January 31, ~~and one~~2009, ~~supplier~~four ~~that~~suppliers made up more than 10% of purchases. Nofor ~~vendors~~the ~~represented~~quarter and two suppliers that individually comprised more than 510% 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.

- 11 -

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 ~~June 2006~~December 2007, the ~~Financial Accounting Standards Board (“~~FASB”) issued ~~Interpretation~~ SFAS No. ~~48,~~141 ~~Accounting~~(revised ~~for~~2007), ~~Uncertainty~~"Business ~~in Income Taxes — An Interpretation~~Combinations" ~~of FASB Statement No. 109,~~ (~~FIN~~"SFAS 48141R"). ~~FIN~~ SFAS 48141R ~~clarifies~~establishes ~~the accounting~~principles and requirements for how ~~uncertainty~~an inacquirer ~~income~~recognizes ~~taxes~~and ~~recognized~~measures in anits ~~enterprise’s~~ financial statements inthe identifiable ~~accordance~~assets ~~with~~acquired, ~~FASB~~the ~~Statement~~liabilities ~~No. 109~~assumed, ~~Accounting~~any noncontrolling ~~for~~interest ~~Income~~in ~~Taxes.~~the ~~FIN 48~~acquiree ~~also prescribes a recognition threshold~~ and ~~measurement~~ ~~attribute for~~ the ~~financial~~goodwill ~~statement~~acquired. ~~recognition~~SFAS 141R ~~and measurement~~also ~~of a~~establishes ~~tax~~disclosure ~~position~~requirements ~~taken or expected~~ to beenable ~~taken~~the inevaluation aof ~~tax~~the ~~return~~nature ~~that results in~~and ~~a tax~~financial ~~benefit.~~effects ~~Additionally, FIN 48 provides guidance on de-recognition, income statement classification~~ of ~~interest~~the ~~and~~business ~~penalties, accounting in interim periods, disclosure, and transition~~combination. ~~This~~SFAS 141R ~~interpretation~~ is effective for ~~fiscal~~ fiscal years beginning after December 15, ~~2006~~2008. The Company is ~~currently~~ currently evaluating the ~~effect~~potential ~~that~~impact, ~~the~~if ~~application~~any, of ~~FIN~~the 48adoption ~~will~~of ~~have~~SFAS 141R on its ~~financial~~ ~~position,~~consolidated results of operations orand ~~cash~~financial ~~flows~~condition.

In ~~September~~December ~~2006~~2007, the FASB issued SFAS No. ~~157~~ 160, ~~“Fair~~"Noncontrolling ~~Value Measurements”,~~Interests in ~~(“SFAS~~Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51" ~~157~~(“SFAS 160”). SFAS ~~No.~~160 ~~157~~establishes ~~defines~~accounting ~~fair~~and ~~value,~~reporting standards ~~establishes~~for aownership ~~framework~~interests ~~for~~in subsidiaries held by parties other than the ~~measuring~~parent, ~~fair~~the ~~value~~amount inof ~~generally~~consolidated ~~accepted~~net ~~accounting~~income ~~principles~~attributable ~~(GAAP),~~to the parent and to ~~expands~~the ~~disclosures~~noncontrolling ~~about~~interest, ~~fair~~changes ~~value~~in ~~measurements.~~a ~~This~~parent's ~~Statement~~ownership ~~applies~~interest, ~~under~~and the ~~other~~valuation ~~accounting~~of ~~pronouncements~~retained ~~that~~noncontrolling ~~require~~equity orinvestments ~~permit~~when ~~fair~~a ~~value~~subsidiary ~~measurements,~~is ~~and~~deconsolidated ~~does~~SFAS ~~not~~160 ~~require~~also ~~any~~establishes ~~new~~disclosure ~~fair~~requirements ~~value~~that ~~measurements.~~clearly identify ~~The~~and ~~application~~distinguish ofbetween ~~SFAS No.~~the ~~157,~~interests ~~however,~~of ~~may~~the ~~change~~parent ~~current~~and ~~practice~~the ~~within~~interests of anthe ~~organization.~~noncontrolling owners SFAS ~~No. 157~~ 160 is effective for ~~all~~ fiscal years beginning after ~~November~~ December 15, ~~2007, with earlier application encouraged~~2008. The Company is currently evaluating the ~~effect~~potential impact, ~~that~~if any, of the ~~application~~adoption of SFAS ~~No. 157 will~~160 ~~have~~ on its ~~financial~~consolidated ~~position,~~ results of operations orand ~~cash flows~~financial condition.

11- 12 -

In March ~~February 2007~~2008, the FASB issued SFAS No. ~~159~~ 161, “~~The Fair~~Disclosures ~~Value~~about ~~Option~~Derivative Instruments ~~for Financial Assets~~ and ~~Financial~~Hedging ~~Liabilities.” SFAS 159 provides~~Activities – ~~companies with~~ an ~~option~~amendment toof ~~report~~FASB ~~selected financial assets and~~Statement ~~liabilities at fair value~~No. 133”. The new standard’s ~~objective~~ is intended to ~~reduce~~improve ~~both complexity~~financial inreporting ~~accounting~~about ~~for~~derivative ~~financial~~ instruments and ~~the~~hedging ~~volatility~~activities ~~in earnings caused~~ by ~~measuring~~ ~~related assets and liabilities differently. The standard requires~~requiring ~~companies~~enhanced disclosures to ~~provide~~enable ~~additional information that will help~~ investors ~~and other users of financial statements~~ to ~~more~~better ~~easily~~ understand ~~the~~their ~~effect~~effects ~~of the~~on ~~company~~an entity’s ~~choice~~financial toposition, ~~use~~financial ~~fair~~performance, ~~value~~and oncash ~~its earnings~~flows. ItEntities are ~~also~~required ~~requires companies~~ to ~~display~~provide ~~the~~enhanced ~~fair~~disclosures ~~value~~about: of(a) how ~~those assets~~ and ~~liabilities~~why ~~for~~an entity ~~which~~uses ~~the~~derivative ~~company has~~instruments; ~~chosen~~(b) how toderivative ~~use~~instruments ~~fair~~and related ~~value~~hedged onitems ~~the~~are ~~face~~accounted offor ~~the~~under ~~balance~~SFAS ~~sheet~~No. 133 ~~The~~and ~~new~~its ~~standard~~related ~~does~~interpretations; ~~not~~and ~~eliminate~~(c) how ~~disclosure~~derivative ~~requirements~~instruments ~~included~~and inrelated ~~other accounting~~hedged ~~standards,~~items ~~including~~affect ~~requirements~~an ~~for~~entity’s ~~disclosures~~financial ~~about fair value measurements included in SFAS 157~~position, ~~“Fair Value~~financial ~~Measurements~~performance,” and ~~SFAS 107,~~ ~~“Disclosures~~cash ~~about Fair Value of Financial Instruments~~flows.” This ~~SFAS 159~~ standard is effective asfor offinancial ~~the~~statements ~~start~~issued of for fiscal years and interim periods beginning after November 15, ~~2007.~~ ~~Early~~2008, ~~adoption~~with early isapplication ~~permitted~~encouraged. WeThe ~~are~~Company inis ~~the~~currently ~~process of~~ evaluating ~~this standard and therefore have not yet determined~~ the impact, ~~that the adoption~~if of any, SFAS ~~159~~No. 161 will have on ~~our~~its consolidated financial position, results of operations or cash flows.

~~NOTE~~In March 2—2007, the FASB ratified Emerging Issues Task Force Issue 06-11, “Accounting for Income Tax Benefits ~~DISCONTINUED~~of ~~OPERATIONS~~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.

OnIn May ~~August 3~~2008, ~~2007,~~ the ~~Company~~FASB ~~announced~~issued ~~its~~SFAS ~~intent~~No. to162, ~~divest~~“The ~~its~~Hierarchy ~~NOMOS~~of ~~Radiation~~Generally ~~Oncology~~Accepted ~~business~~Accounting Principles”, (“~~NOMOS~~SFAS No. 162”),. ~~which~~SFAS ~~develops~~No. ~~and~~162 ~~markets~~identifies ~~IMRT/IGRT~~the sources ~~products~~of ~~used~~accounting ~~during external~~principles ~~beam~~to ~~radiation~~be ~~therapy~~used ~~for~~in the ~~treatment~~preparation of ~~cancer.~~financial statements ~~The~~of ~~Company~~nongovernmental ~~expects~~ entities that ~~the~~are ~~divestiture~~presented ofin ~~NOMOS~~conformity ~~will~~with generally ~~allow~~accepted itaccounting toprinciples ~~better~~(GAAP) ~~utilize~~in ~~financial resources~~the toUnited ~~benefit~~States (the ~~marketing~~GAAP hierarchy). ~~and~~SFAS ~~development~~No. of162 ~~innovative~~is ~~brachytherapy products~~effective ~~for~~60 days following the ~~treatment~~SEC’s approval of the ~~cancer~~Public ~~The~~ Company ~~has~~Accounting ~~executed~~Oversight aBoard ~~purchase~~amendments ~~and~~to AU Section 411, “The ~~sale~~Meaning ~~agreement~~of ~~with~~Present ~~Best~~Fairly ~~Medical~~in ~~International,~~Conformity ~~Inc.~~with ~~(hereinafter~~Generally ~~referred to~~Accepted asAccounting ~~the “Best~~Principles”). toThe ~~purchase~~Company ~~certain~~currently ~~assets~~adheres ~~and~~ to ~~assume~~the ~~certain~~hierarchy ~~liabilities~~ of GAAP as presented ~~NOMOS~~in ~~for~~SFAS $0No.4 ~~million~~162, ~~net~~and ofdoes ~~estimated~~not ~~closing~~expect ~~costs.~~its ~~The~~adoption ~~closing~~will ~~was completed~~have a material impact on its ~~September~~consolidated ~~17,~~results ~~2007~~of operations and financial condition.

In June ~~connection~~2008, ~~with~~ the ~~divestiture~~FASB ofissued ~~NOMOS~~Financial Accounting Standards Board Staff Position EITF 03-6-1, ~~the~~“Determining ~~Company~~Whether Instruments ~~determined~~Granted in Share-Based Payment Transactions Are Participating Securities” (“EITF 03-6-1”). EITF 03-6-1 provides that ~~the~~unvested ~~carrying~~share-based ~~value~~payment ofawards ~~the~~that ~~NOMOS~~contain ~~assets~~nonforfeitable ~~held~~rights ~~for~~to ~~sale~~dividends ator dividend ~~July~~equivalents ~~31,~~(whether ~~2007~~paid ~~exceeded~~or unpaid) are participating securities and ~~their~~shall be included in the computation of earnings per share pursuant to the ~~fair~~two-class ~~value~~method in accordance with SFAS 128, asEarnings ~~determined~~per byShare. ~~estimated~~EITF ~~future~~03-6-1 ~~cash~~is effective ~~flows~~for financial statements issued for fiscal years beginning after December 15, 2008, and ~~therefore, recorded~~interim aperiods ~~$6.7~~within ~~million~~those ~~charge~~years. ~~for~~Upon adoption, the Company ~~impairment~~is ofrequired to retrospectively adjust its ~~net~~earnings ~~assets.~~per ~~These~~share data to ~~amounts~~conform ~~have~~with ~~been~~the ~~recorded~~provisions asin ~~part~~EITF 03-6-1. Early application of EITF 03-6-1 is prohibited. The Company is currently evaluating the ~~loss~~impact ~~from~~EITF ~~discontinued~~03-6-1 will have ~~operations~~on its consolidated financial statements.

~~Summarized~~NOTE ~~statement~~2 of– ~~earnings~~INCOME ~~data for NOMOS:~~TAXES

	Three Months Ended July 31,						Nine Months Ended July 31,
	2007			2006			2007			2006
Net revenue	$	3,065,000		$	3,931,000		$	9,136,000		$	13,437,000
Loss from discontinued operations before income tax benefit	$	(7,718,000	)	$	(2,107,000	)	$	(9,670,000	)	$	(4,388,000	)
Income tax benefit, net of reserve		---			---			---			---
Loss from discontinued operations	$	(7,718,000	)	$	(2,107,000	)	$	(9,670,000	)	$	(4,388,000	)

FIN48 adoption

12On 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.

Summarized balance sheet for NOMOS is as follows:
	July 31, 2007			October 31, 2006
Assets held for sale:
Accounts receivable	$	1,492,000		$	2,093,000
Inventories		2,714,000			2,918,000
Prepaid and other current assets		604,000			262,000
Equipment and leasehold improvements		898,000			1,082,000
Goodwill		2,564,000			2,564,000
Intangible assets		1,945,000			2,394,000
Other assets		71,000			71,000
Impairment charge		(6,654,000	)		---
Total assets held for sale	$	3,634,000		$	11,384,000
Liabilities held for sale:
Deferred Revenue		3,110,000			3,664,000
Other current liabilities		153,000			150,000
	$	3,263,000		$	3,814,000

- 13 -

Upon ~~completion~~adoption of FIN 48, the ~~divestiture~~Company ofrecognizes ~~the~~interest ~~NOMOS~~expense ~~related~~and ~~assets,~~penalty within ~~the~~Interest ~~Company~~and ~~estimates~~Other Expenses and penalties within General and ~~NOMOS~~Administrative ~~will~~expenses ~~incur~~accrued ~~payments~~on ~~for~~unrecognized ~~the~~tax ~~retained~~benefits. ~~obligations~~As toof ~~its~~the ~~vendors,~~date ~~customers~~of ~~and~~adoption ~~former~~of ~~employees~~FIN 48, ofthe ~~approximately~~Company ~~$1.9~~had ~~million~~accrued ina ~~accordance~~nominal ~~with~~amount ~~their~~for interest ~~terms~~and penalties, ~~which~~and ~~are~~there ~~included~~was innot ~~accounts~~a ~~payable~~material ~~and~~change ~~accrued~~to ~~liabilities~~this atamount ~~July~~as of January 31, ~~2007~~2009.

~~During~~Recognition ~~the~~of ~~nine~~any ~~months~~portion ~~ended~~of ~~July 31, 2006,~~ the ~~Company~~unrecognized ~~paid~~tax ~~$0.1~~benefits ~~million~~arising ~~related to expenses~~from ~~accrued during~~ the ~~shut-down of its Theseus operation in 2004, and~~Company’s ~~this amount~~uncertain istax ~~included~~position inwould ~~cash~~not ~~used~~have ina ~~discontinued~~significant ~~operations~~effect inon the ~~Consolidated~~Company’s ~~Statements~~effective oftax ~~Cash Flows~~rate. No cash was paid, and no amounts remain outstanding related to the Theseus discontinued operations as of July 31, 2007. There were no revenues or expenses relating to the Theseus discontinued operations for the three months ended and the nine months ended July 31, 2007 and 2006.

~~NOTE~~The 3—Company files tax returns in the U.S on a federal basis and in a number of U.S. ~~MARKETABLE~~state ~~SECURITIES~~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.

~~Marketable~~As of ~~securities~~October ~~consist~~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 ~~following:~~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.

	July 31, 2007		October 31, 2006
Securities held to maturity:
Corporate and government bonds	$	---	$	4,886,000
Commercial paper		---		2,947,000
Certificate of deposits and other		---		587,000
		---		8,420,000
Less: current portion		---		(8,420,000	)
Non-current portion	$	---	$	—
The amortized cost of all held to maturity securities approximates fair value.

NOTE 3 - DISCONTINUED OPERATIONS

13Brachytherapy 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.

- 14 -

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

- 15 -

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	)

- 16 -

NOTE 4—ACCOUNTS RECEIVABLE

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

Accounts receivable consist of the following:

	July 31, 2007			October 31, 2006
	January 31, 2009				October 31, 2008
Accounts receivable - trade	$	2,~~135,000~~160		$	~~3,392,000~~$	2,086
Less: allowance for doubtful accounts		(~~224,000~~108	)		~~(774,000~~	)(179	)
	$	12,~~911,000~~052		$	~~2,618,000~~$	1,907

The provision for doubtful accounts was $~~(103,000)~~12 and $~~95,000~~35 for the three months ~~ended~~ ~~July 31, 2007 and 2006, respectively, and $(213,000) and $281,000 for the nine months~~ ended ~~July~~ January 31, ~~2007~~2009 and ~~2006~~2008, respectively.

NOTE 5—~~INVENTORIES~~EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Inventories consist of the following:
	July 31, 2007			October 31, 2006
Raw materials	$	1,457,000		$	1,059,000
Work in process		128,000			140,000
Finished goods		328,000			135,000
Reserve for excess inventory		(138,000	)		(50,000	)
	$	1,775,000		$	1,284,000

Adjustments to the reserve for excess inventory included in cost of sales was $88,000 for the three months ended July 31, 2007,and $88,000 and $(88,000) for the nine months ended July 31, 2007 and 2006, respectively. No adjustments to the reserve were recorded for the three months ended July 31, 2006.

NOTE 6—EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consist of the following:

	July 31, 2007			October 31, 2006
	January 31, 2009				October 31, 2008
Furniture, fixtures and equipment	$	41,~~902,000~~170		$	~~4,861,000~~$	1,694
Leasehold improvements		~~2,194,000~~3			~~2,134,000~~	3
		7,096,000			6,995,000
		1,173				1,697
Less: accumulated depreciation		(~~6,049,000~~829	)		~~(5,677,000~~	)(1,399	)
	$	~~1,047,000~~344		$	~~1,318,000~~$	298

Depreciation expense was $~~114,000~~86 and $~~151,000~~24 for the three months ended ~~July~~ January 31, ~~2007 and 2006,~~2009 ~~respectively,~~ and ~~$392,000 and $461,000 for the nine months ended July~~ 312008, ~~2007~~ ~~and 2006,~~ respectively.

NOTE ~~7—INTANGIBLE~~6- ~~ASSETS~~ACCRUED EXPENSES

	July 31, 2007			October 31, 2006
Amortizable intangible assets
Purchased technology	$	98,000		$	98,000
Existing customer relationships		11,000			11,000
Trademark		19,000			19,000
Patents and licenses		158,000			158,000
		286,000			286,000
Less: accumulated amortization		(169,000	)		(148,000	)
	$	117,000		$	138,000

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

~~Amortization expense~~- ~~was $7,000 for each three month period ended July 31, 2007 and 2006,~~17 ~~and $21,000 for each nine month period ended July 31, 2007 and 2006. Estimated amortization expense for the subsequent years is $28,000 annually through the October, 2011.~~-

~~NOTE~~On March 8—19, 2008 (the “Effective Date”), the Company reached agreement with its former ~~BORROWINGS~~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.

~~Line~~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 ~~Credit~~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.

OnRelating ~~October~~to 5,these ~~2005~~agreements, the Company ~~entered~~incurred ~~into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (the “Bank”), for a secured, revolving line of credit of up to~~ $51,~~000,000.~~411 ~~The~~included ~~line~~as ofseverance ~~credit had a term of one year and includes a letter~~expense ~~of credit sub-facility. Borrowings under the line of credit are subject to a borrowing base formula. The Company will pay interest~~ on the ~~borrowings~~Consolidated ~~under the~~Statement ~~line~~ of ~~credit~~Operations atfor the ~~Bank’s~~year ~~prime~~ended ~~rate,~~October ~~which was 8.25% on July~~ 31, ~~2007~~2008, ~~or,~~and ifhas ~~certain~~accrued ~~financial~~the ~~tests~~remaining ~~are~~costs ~~not~~relating ~~satisfied,~~to atthis ~~the~~agreement ~~Bank’s~~and ~~prime~~the ~~rate~~amount ~~plus~~is ~~1.5%.~~included ~~The~~in ~~line~~Accrued ofExpenses ~~credit~~and isLong-Term ~~secured~~Severance byon ~~all of~~ the ~~assets~~Consolidated ~~of the Company and~~Balance ~~is subject~~Sheets toat ~~customary~~January ~~financial~~31, 2009 and ~~other~~October ~~covenants~~31, ~~including reporting requirements~~2008.

OnNOTE ~~January 12,~~7 ~~2006,~~– the Company, entered into a First Amendment to Loan and Security Agreement (the “Amendment”) with the Bank. The Amendment revised certain terms of the Loan Agreement to provide an adjustment to the borrowing base formula and to permit liens in favor of a holder of subordinated debt that are subordinated to the liens of the Bank. In addition, the Amendment decreased the minimum tangible net worth that must be maintained by the Company under the Asset Based Terms of the Loan Agreement from $5 million to $1.5 million and granted the Bank a warrant to purchase 39,683 shares of the Company’s common stock at an exercise price of $1.89 per share. The warrant will expire in five years unless previously exercised. The Company calculated the fair value of the warrant on the date of grant to be $51,000 using the Black-Scholes model incorporating the following assumptions:BORROWINGS

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

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:

The value of the warrant is being amortized over the term of the line of credit at $5,100 per month, and is included in Interest and Other Expense on the Income Statement.

	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	)	$	—

~~On October~~- ~~31, 2006, the Company entered into a Second Amendment to Loan and~~18 Security Agreement (the “Second Amendment”) with the Bank. The Second Amendment extended the term of the line of credit to October 3, 2007 and revised certain terms of the Loan Agreement. Specifically, the Second Amendment decreased the amount available under the line of credit from $5 million to $4 million, and increased the minimum tangible net worth that must be maintained by the Company from $1.5 million to $5 million. Borrowings under the line of credit continue to be subject to a borrowing base formula. Borrowings now bear interest at the prime rate until such time as the Company’s quick ratio, which is defined as the ratio of unrestricted cash plus the Company’s net accounts receivable to the Company’s current liabilities, falls below 1.00 to 1.00. At such time as the Company’s quick ratio falls below 1.00 to 1.00, borrowings will bear interest at the prime rate plus 1.50%, and the Company will pay a fee of 0.50% per annum on the unused portion of the line of credit, and a collateral handling fee in an amount equal to $2,000 per month. $1.4 million was outstanding against the Line of Credit as of July 31, 2007 at an interest rate of 9.75% per annum.-

15Lines of Credit

~~Subordinated~~Silicon ~~Debt~~Valley Bank

On ~~March 28~~October 5, ~~2006~~2005, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with ~~Partners~~ ~~for~~Silicon ~~Growth,~~Valley ~~LLC~~Bank (the “~~Debt Provider~~Bank”),. ~~for~~On ~~a secured~~January 12, ~~revolving line of~~ ~~credit of up to $4~~2006,~~000,000,~~ ~~which~~the ~~supplemented~~Company anentered ~~existing~~into ~~line of credit provided by Silicon Valley Bank. The line of credit had~~ a ~~term~~First ofAmendment ~~eighteen months. Borrowings under the Loan Agreement were subject~~ to ~~a borrowing base formula. The Company has paid interest on the borrowings under the~~ Loan ~~Agreement~~ atand ~~prime~~Security ~~rate as quoted in the Wall Street Journal, which on July 31, 2007 was 8.25%. Amounts owing under the Loan~~ Agreement ~~are secured~~ ~~by all of~~ (the ~~assets~~“First ofAmendment”) ~~the~~with ~~Company and are subordinated to amounts owing under~~ the ~~line~~ ~~of credit with Silicon Valley~~ Bank. ~~The Loan Agreement does not contain financial covenants; however the Company is subject to other customary covenants, including reporting requirements,~~ and ~~events~~as ofconsideration ~~default. In connection with the Loan Agreement, the Company also~~ granted the ~~Debt~~Bank ~~Provider~~ a warrant to purchase ~~395~~7,~~000~~936 shares of the Company’s common stock at an exercise price of $19.8945 per share. As a result of the private placement of the Company’s common stock completed on June 7, 2006, and pursuant to the anti-dilution terms of the warrant issued to the Debt Provider, the warrant was amended to increase the number of shares of the Company’s common stock that the Debt Provider can purchase from 395,000 shares to 555,039 shares, and the exercise price was decreased from $1.89 per share to $1.35 per share. The warrant will expire in five years unless previously exercised. The ~~Company~~ ~~calculated the~~ fair value of the warrant on the date of grant towas be $~~475,000~~51 and ~~using~~was ~~the~~amortized ~~Black-Scholes~~to ~~model~~interest ~~incorporating the following assumptions:~~expense.

Stock price	$~~2.05~~	1.89
Dividend yield	0%	0	%
Expected volatility	~~63%~~	63	%
Risk-free interest rate	~~4.9%~~	4.9	%
Expected life	5 years

~~The~~On ~~issuance~~October of31, 2006, the ~~warrant~~Company ~~has~~entered ~~been~~into ~~accounted~~a ~~for~~Second asAmendment ato ~~loan~~the ~~origination~~Loan Agreement ~~fee~~(the “Second Amendment”) with the Bank. The AsSecond Amendment ~~such,~~extended the ~~value~~term of the ~~warrant~~line ~~has~~of ~~been~~credit ~~deferred~~to October 3, 2007 and isrevised ~~being~~certain terms ~~amortized~~of ~~over~~the Loan Agreement. On August 24, 2007, the Company entered into a Third Amendment to the Loan Agreement (the “Third Amendment”) with the ~~life~~Bank. ofThe Third Amendment added a Bridge Loan Sub-limit to the ~~loan~~Loan atAgreement of up to $261.5 million at an interest rate of prime plus 4.0%,~~500~~ ~~per~~subject ~~month~~to a borrowing base formula, and isdecreased ~~included~~the inminimum ~~Interest~~tangible ~~and~~net ~~Other~~worth that must ~~Expense~~be onmaintained by the ~~Income~~Company ~~Statement~~from $5.0 ~~No borrowings~~million ~~were~~to ~~outstanding~~$2.0 ~~against~~million. The maturity date of the Bridge Loan ~~Agreement~~Sub-limit aswas the earlier of ~~July~~October 313, 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:

NOTE 9—STOCKHOLDERS' EQUITY

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.

- 19 -

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.

- 20 -

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

- 21 -

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.

Authorized Shares of Common Stock

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

Sale of Common Stock and Warrants

On June 7, 2006, we completed a private placement of 12,291,934 shares of the Company’s common stock at a purchase price of $1.95 per share as well as warrants to purchase an additional 6,145,967 shares of the Company’s common stock at an exercise price of $2.08 per share for an aggregate consideration of approximately $24.0 million (before cash commissions and expenses of approximately $2.0 million). The warrants are exercisable beginning 180 days after the date of closing until 7 years after the date of closing. The values of the warrants and common stock in excess of par value have been classified as stockholders’ equity in additional paid-in capital in our consolidated balance sheet as of January 31, 2007 ~~and October 31, 2006. The~~ ~~warrants were evaluated under SFAS 133 and EITF 00-19, and the Company determined that the warrants have been correctly classified as equity.~~PIPE

~~The~~Pursuant ~~shares of common stock sold~~ to the ~~investors~~terms ~~and the shares~~ of ~~common stock issuable upon~~ the ~~exercise~~Securities ofPurchase ~~the~~Agreement ~~warrants~~dated ~~are~~December ~~subject~~12, to2007 ~~certain registration~~(the ~~rights~~“2007 ~~as set forth in the~~ Securities Purchase ~~Agreements.~~Agreement”), ~~Under~~ the ~~Securities Purchase~~Company ~~Agreements,~~completed ~~we agreed to file~~ a ~~registration~~private ~~statement with the~~placement ~~Securities and Exchange Commission within 45 days after~~ (the ~~closing~~“2007 ofPrivate ~~the transaction~~Placement”) ~~to register the resale~~ of ~~the~~12,601,628 shares of ~~common stock and~~ the ~~shares of~~Company’s common stock ~~issuable~~on ~~upon~~January ~~the~~18, ~~exercise~~2008 ofwith ~~the~~Three ~~warrants.~~Arch IfPartners weIV, ~~failed~~L.P. ~~to file a~~and ~~registration~~affiliated ~~statement within such time period or such registration statement~~funds ~~was~~(“Three ~~not~~Arch ~~declared~~Partners”), ~~effective~~SF ~~within~~Capital 90Partners ~~days~~Ltd. ~~after~~(“SF ~~the~~Capital”) ~~closing~~and ofCHL ~~the~~Medical Partners ~~transaction~~III, we ~~would~~L.P. ~~have~~and ~~been~~an ~~liable~~affiliated ~~for~~fund ~~certain~~(“CHL,” ~~specified~~and ~~liquidated~~together ~~damages~~with asThree ~~set forth~~Arch inPartners ~~the~~and ~~Securities~~SF ~~Purchase Agreements~~Capital, ~~except that~~ the ~~parties~~“Investors”) ~~have~~at ~~agreed that the~~a ~~Company~~purchase ~~will~~price ~~not~~of be$1.23 ~~liable~~per ~~for~~share as ~~liquidated~~well ~~damages~~as ~~with~~warrants ~~respect~~ to ~~the warrants~~purchase oran ~~the~~additional ~~warrant~~630,081 shares. Weof ~~have agreed to maintain~~ the ~~effectiveness~~Company’s ~~of this~~common ~~registration~~stock ~~statement until~~ (the ~~earlier~~“Warrants”) ofat ~~such~~an ~~time~~exercise asprice ~~the passage~~ of ~~two years~~ ~~from~~$1.23 ~~the~~per ~~closing~~share ~~date~~for oran aggregate ~~all~~consideration of ~~the~~approximately ~~securities~~$15,500 ~~registered under the registration statement may be sold under Rule 144~~(k)before ofcash ~~the~~commissions ~~Securities Act~~and ~~of 1933~~expenses ~~or all~~ of ~~the~~approximately ~~securities registered under the registration statement have been sold~~$1,500). WeThe ~~will~~purchase ~~pay~~price ~~all~~represents ~~expenses~~a ~~incurred~~40% indiscount to ~~connection with~~ the ~~registration,~~ ~~except~~volume ~~for~~weighted ~~underwriting~~average ~~discounts~~price ~~and~~of ~~commissions.~~the ~~Pursuant~~common ~~to the terms~~stock ofon the ~~Securities~~NASDAQ ~~Purchase Agreement~~Global Market, weas ~~filed~~reported aby ~~registration~~Bloomberg ~~statement on Form~~Financial ~~S-3~~Markets, ~~with~~for the ~~Securities~~20 ~~and~~trading ~~Exchange~~day period ~~Commission~~ending on ~~July 21, 2006 to register~~ the ~~shares~~trading ofday ~~common~~immediately ~~stock~~preceding ~~sold to~~ the ~~investors~~date ~~and~~of the ~~shares of~~2007 ~~common~~Securities ~~stock~~Purchase ~~issuable~~Agreement. The ~~upon~~Investors ~~the~~purchased ~~exercise of~~ the ~~warrants. The registration~~following ~~statement~~amounts ~~was~~of ~~declared~~securities ~~effective~~in by the ~~Securities and Exchange Commission on August 4, 2006.~~offering:

~~The Securities~~- ~~Purchase Agreements contain certain customary closing conditions,~~22 as well as the requirement that we increase the number of members of the Board of Directors of the Company (the “Board”) from seven members to nine members. Under the Securities Purchase Agreements, Three Arch Partners, one of the investors, has the right to designate two members to the Board so long as Three Arch Partners beneficially owns greater than 3,500,000 shares of common stock (including shares of common stock issuable upon exercise of the warrants, and as appropriately adjusted for stock splits, stock dividends and recapitalizations) and the right to designate one member to the Board so long as Three Arch Partners beneficially owns greater than 2,000,000 shares of common stock (including shares of common stock issuable upon exercise of the warrants, and as appropriately adjusted for stock splits, stock dividends and recapitalizations). In accordance with the terms of the Securities Purchase Agreements, we increased the number of members of our Board from seven members to nine members and Three Arch Partners designated Wilfred E. Jaeger, M.D. and Roderick A. Young to fill the two vacancies. Our Board elected Dr. Jaeger and Mr. Young to serve as members of the Board on June 13, 2006.-

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

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 ~~Three Arch~~Warrants ~~Partners~~are ~~Warrant~~exercisable ~~Agreement~~beginning ~~includes~~180 adays ~~non-waivable~~after ~~provision that provides that~~ the ~~number~~date of ~~shares~~closing ~~issuable~~until ~~upon exercise of the warrants that may be~~7 ~~acquired~~years byafter ~~Three Arch Partners will be limited to~~ the ~~extent~~date ~~necessary~~of ~~to assure~~closing. ~~that,~~The ~~following~~values ~~such~~of ~~exercise,~~ the ~~total~~Warrants ~~number~~and ~~of shares of~~ common stock ~~then~~ ~~beneficially owned by Three Arch Partners and its affiliates does not~~in ~~exceed~~excess ~~19.9%~~ of ~~the~~par ~~total~~value ~~number~~have ofbeen ~~issued~~classified ~~and~~as ~~outstanding~~stockholders’ ~~shares~~equity ofin ~~common~~additional ~~stock~~paid-in ascapital ofin the ~~date~~accompanying ofconsolidated ~~such~~balance ~~exercise~~sheets. ~~(including~~The ~~for such purpose the shares~~Warrants ~~of common~~were ~~stock~~evaluated ~~issuable~~under ~~upon~~SFAS ~~such~~133 ~~exercise~~and ofEITF ~~warrants)~~00-19, ~~unless~~and ~~approved~~the byCompany ~~our stockholders~~determined ~~prior to such exercise. The Warrant Agreement relating to the~~that ~~warrants of~~ the ~~other~~Warrants ~~investors~~have ~~does~~been ~~not~~correctly ~~include~~classified ~~such~~as ~~a provision~~equity.

The ~~Warrant~~ ~~Agreement relating to the investors other than Three Arch Partners~~terms ~~includes a waivable provision that provides that the number~~ of ~~shares issuable upon exercise of~~ the ~~warrants~~2007 ~~that~~Private ~~may~~Placement bewere ~~acquired~~approved by a ~~registered~~committee ~~holder~~ of ~~warrants~~ ~~upon an exercise of warrants will be limited to~~ the ~~extent necessary~~Company’s ~~to assure~~Board ~~that,~~of ~~following~~Directors ~~such~~consisting ~~exercise,~~only ~~the total number~~ of ~~shares~~disinterested ~~of common stock then beneficially owned by its holder and its affiliates does not exceed 4~~directors.~~99% of~~ ~~the~~The ~~total number of issued and outstanding shares of common stock (including~~Company ~~for~~received ~~such~~approval ~~purpose the shares~~ of ~~common stock issuable upon such exercise of warrants). This provision may be waived by~~ a ~~registered~~majority ~~holder~~ of ~~warrants upon, at~~ the ~~election~~Company’s ofstockholders ~~such~~on ~~holder,~~January ~~upon not less than 61 days prior notice to~~17, ~~us. This~~2008 ~~Warrant Agreement also contains a non-waivable provision that provides that the number~~ of ~~shares issuable upon exercise of~~ the ~~warrants~~2007 ~~that~~Private ~~may~~Placement beand ~~acquired by~~amendment ~~a registered holder~~ of ~~warrants~~its ~~upon~~Certificate ~~an exercise~~ of ~~warrants will be limited~~ toIncorporation ~~the extent necessary~~ to ~~assure~~increase ~~that, following such exercise,~~ the ~~total~~ number of shares of common stock ~~then~~it ~~beneficially~~is ~~owned by such holder and~~authorized ~~its affiliates~~to ~~does~~issue ~~not~~to ~~exceed~~150,000,000 ~~9.99% of the total number of issued and outstanding~~ shares ~~of common stock (including for such purpose the shares of common stock issuable upon such exercise of warrants)~~. ~~The Warrant Agreement relating to the warrants of Three Arch Partners does not include such provisions.~~

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.

- 23 -

Stock Options

The Company's 1996 Stock Option Plan ("1996 Plan"), as amended April 6, 2001, provided for the issuance of incentive stock options to employees of the Company and non-qualified options to employees, directors and consultants of the Company with exercise prices equal to the fair market value of the Company's stock on the date of grant. ~~Certain~~Options ~~options~~vest ~~are~~in ~~immediately~~accordance ~~exercisable~~with ~~while~~their ~~other options~~terms ~~vest~~ over periods up to four years. ~~The~~and ~~options~~ expire ten years from the date of grant. The 1996 Plan ~~provided for the automatic increase on~~expired ~~January 1~~on ofApril ~~each year~~1, ~~beginning with calendar year 2002 and continuing through calendar year 2004, by a number of shares equal to 3~~2006.5% ofAs ~~the total number~~ of ~~shares~~January of31, ~~the Company's Common Stock outstanding on the last trading day in the immediately preceding calendar year. In May 2004~~2009, ~~the~~options ~~Company’s shareholders~~underlying ~~approved proposals to amend the 1996 Plan to make an additional 600~~68,~~000~~519 shares ~~available for issuance under the plan and to permit the issuance~~ of ~~1,362,589 replacement options in connection with the acquisition of NOMOS.~~ ~~From~~common ~~November 1, 2005 through March 31, 2006,~~ stock ~~options for 1,303,000 shares~~ were ~~granted~~outstanding ~~to employees~~ under the 1996 Plan. ~~The 1996 Plan expired on April 1, 2006.~~

On May 3, 2006, the Company’s ~~shareholders~~stockholders approved the North American Scientific, Inc. 2006 Stock Plan (“2006 Plan”). Under the 2006 Plan, the Company may issue up to 1340,~~700,~~000 shares, plus any shares from the 1996 Plan that are subsequently terminated, expire unexercised or forfeited, to employees of the Company through incentive stock options, non-qualified options, stock appreciation rights, restricted stock and restricted stock units. ~~The~~Since ~~exercise~~its ~~price~~inception, of490,717 ~~an option~~shares ~~is equal~~have tobeen transferred into the ~~fair~~2006 ~~market~~Plan ~~value~~from ofthe 1996 Plan. On April 29, 2008, the Company’s ~~stock~~stockholders onapproved the ~~date~~adoption of ~~the~~Amendment ~~grant~~No. 1 to the 2006 AsPlan of(the ~~July~~“Amendment”) ~~31,~~to ~~2007,~~(i) ~~927~~increase by 2,~~525~~000,000 shares ~~were~~the ~~terminated,~~number ~~expired~~of ~~unexercised or~~shares ~~forfeited~~available into be issued under the ~~1996~~2006 Plan, ~~and~~(ii) ~~were~~increase ~~transferred~~by to35,000 the ~~2006~~maximum number ~~Plan.~~of ~~During~~shares under the ~~three~~ ~~months~~Plan ~~and~~that ~~nine~~may ~~months~~be ~~ended~~granted ~~July~~in ~~31,~~any ~~2007,~~one ~~stock~~fiscal ~~options~~year ~~for~~to an ~~aggregate~~ ~~650~~individual participant from 60,000 ~~shares~~to ~~were~~95,000 ~~granted~~and to(iii) ~~employees~~increase ~~under~~by 35,000 the maximum ~~2006~~number of shares under the Plan, ~~There~~in ~~were~~connection nowith a participant’s ~~equity~~initial ~~awards~~service, such participant may be granted ~~under~~from ~~the~~60,000 ~~2006~~to ~~Plan~~95,000 ~~during~~that will not count against the ~~three~~limit ~~months~~set ~~and~~forth ~~nine~~in (ii) above. The exercise price of an ~~months~~option ~~ended~~is ~~July~~equal ~~31,~~to ~~2006~~the fair market value of the Company’s stock on the date of the grant. AtAs ~~July~~of January 31, ~~2007~~2009, ~~there~~options ~~were~~underlying 21,~~002~~404,~~525~~168 shares of common stock were available for grant ~~under~~in the 2006 Plan.

18On 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 ~~March 2003~~addition, ~~the~~three ~~Company's~~members ~~shareholders~~of ~~approved~~ the ~~2003~~executive ~~Non-Employee Directors'~~management ~~Equity~~team ~~Compensation~~were ~~Plan ("Directors' Plan"). The Directors' Plan~~granted ~~supersedes~~anti-dilution ~~prior~~guarantees ~~provisions~~by ~~for~~the ~~grants~~Board of ~~stock~~Directors ~~options~~as toconsideration ~~non-employee directors~~of ~~contained in the 1996 Plan~~their employment. ~~Under~~The ~~the~~Company ~~Directors'~~issued ~~Plan~~440,369 ~~the~~stock ~~Company may issue~~options up to ~~500,000~~these ~~shares~~executives ~~to non-employee directors of~~ from the ~~Company~~2006 ~~through non-qualified~~Plan, ~~options~~at oran ~~restricted stock. The~~ exercise price of an$1.40 ~~option is equal~~per toshare, the ~~fair~~closing ~~market~~price ~~value~~ of the Company'’s ~~stock~~ on ~~the~~January ~~date~~15, of2008, ~~grant. Options~~the ~~and~~date ~~restricted~~the ~~stock~~option ~~vest~~grant ~~equally~~was ~~over~~approved aby ~~three-year period on~~ the ~~anniversary~~Board ~~date~~ of ~~grant~~Directors. ~~The~~Also ~~options~~at ~~expire~~the ~~ten~~January ~~years~~15, ~~from~~2008 meeting, the ~~date~~Board of ~~grant.~~Directors ~~On June 5~~granted, ~~2007,~~from the ~~Board~~2006 ofPlan, ~~Directors granted~~ stock options underlying ~~115~~156,000 shares of the Company’s common stock to ~~the~~certain ~~elected~~management ~~non-employee Directors~~employees, ofat ~~which~~a ~~30,000~~$1.40 exercise ~~shares~~price. ~~are~~The ~~pending~~stock ~~approval~~options ofvest an25% ~~increase~~after ina ~~authorized~~one ~~shares~~year ~~for~~cliff, ~~the Directors’~~and ~~Plan~~then byevenly over the ~~shareholders~~remaining at(36) ~~the~~thirty-six ~~next~~months, ~~annual~~such ~~meeting.~~that all options are vested after four years, and have a term of ten years.

On April 23, 2007 the Company granted stock options with respect to 1,800,000 shares of its common stock in connection with the employment by the Company of its new CEO. (See Note 10 - ~~Commitments and Contingencies). Options with respect to~~24 600,000 shares of the Company’s common stock were issued under the 2006 Plan. Options with respect to the remaining 1,200,000 shares of the Company’s common stock were issued as a stand-alone grant outside the 2006 Plan as approved by written consent of a majority of shareholders on April 20, 2007. The stock options have an exercise price of $1.16, which was 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.

AtOn ~~July 31~~February 15, ~~2007~~2008, the Company’s Board of Directors approved, subject to the approval of the Company’s stockholders, a ~~total~~plan to re-price all existing employee stock options at $2.05 per share, the closing price of 6the Company’s common stock on February 15,~~618~~ 2008,~~978~~ ~~shares~~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. ~~were~~The re-pricing applies to all stock options ~~reserved~~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 ~~issuance~~which the Board determined that re-pricing was appropriate (collectively, the “Eligible Participants”). The ~~following~~number ~~table~~of ~~summarizes~~shares subject to the new stock options was determined based on a Black-Scholes valuation of the existing stock option ~~activity~~such that the Black-Scholes value of the ~~for~~new stock option will approximately equal the Black-Scholes value of the ~~both~~existing ~~plans:~~stock option, using the following variables.

				Options Outstanding
Dividend yield		0	%
	Options Available for Grant			Number Outstanding			Exercise Price
Expected volatility		72	%
Balance at October 31, 2004		1,579,742			3,253,821		$	0.03 - $24.54
Risk-free interest rate		3.4	%
Granted		(275,000	)		275,000		$	2.25 - $3.66
Expected life	5 Years
Forfeited and expired		427,699			(427,699	)	$	1.11 - $16.75
Exercised		—			(687,013	)	$	1.11 - $1.96
Balance at October 31, 2005		1,732,441			2,414,109		$	0.03 - $24.54
Granted		(1,453,000	)		1,453,000		$	1.92 - $3.35
Forfeited and expired		(194,441	)		(426,618	)	$	1.11 - $16.75
Exercised		—			(2,186	)	$	1.11 - $1.12
Additional shares reserved		1,700,000			—
Balance at October 31, 2006		1,785,000			3,438,305		$	0.03 - $24.54
Granted		(1,965,000	)		1,965,000		$	0.93 - $1.50
Forfeited and expired		972,525			(776,852	)	$	0.70 - $24.54
Exercised		—			—			—
Additional shares reserved		1,200,000			—			—
Balance at July 31, 2007		1,992,525			4,626,453		$	0.03 - $23.50

19All 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.

~~There~~The ~~were~~following ~~1,649,187,~~table ~~1,878,663~~summarizes ~~and~~the ~~1,873,220~~re-pricing ~~options~~activity ~~exercisable~~approved ~~with~~by ~~weighted average~~the ~~exercise~~Board ~~prices~~ of Directors ~~$7.18, $8.57~~ and ~~$8.79~~stockholders atas ~~July~~of ~~31,~~January ~~2007, October~~ 31, ~~2006~~ ~~and 2005, respectively.~~2009:

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

	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

	Employee Options Outstanding						Employee Options Exercisable
Range of Exercise Prices	Shares		Weighted Avg. Remaining Contractual Life (Years)		Weighted Avg. Exercise Price		Shares		Weighted Avg. Exercise Price
$0.03 - $1.12		118,945		4.58	$	1.02		98,800	$	1.03
$1.13 - $1.16		1,800,000		9.73		1.16		112,500		1.16
$1.17 - $3.18		994,500		7.13		2.28		246,879		2.44
$3.19 - $7.60		1,126,566		5.45		5.36		604,566		7.01
$7.61 - $23.50		586,442		4.18		11.54		586,442		11.54
		4,626,453		7.30	$	3.73		1,649,187	$	7.18

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.

~~The average~~- ~~fair value for accounting purposes of options granted was $1.17, $1.09~~25 ~~and $2.47 for the nine months ended July 31, 2007 and for the years ended October 31, 2006 and 2005, respectively.~~-

~~The~~In ~~following~~addition, ~~table~~under ~~summarizes~~the terms of the ~~weighted~~2008 ~~average~~Director ~~price~~Plan, ~~weighted~~each ~~average~~non-employee director ~~remaining~~elected ~~contractual~~to ~~life~~serve ~~and~~on ~~intrinsic~~the ~~value~~Board ~~for~~at the annual meeting is granted ~~and~~a ~~exercisable~~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. ~~outstanding~~Each individual who is first elected or appointed as a non-employee director shall be granted, on the date of ~~July~~such 31initial election or appointment, ~~2007~~a stock option to purchase 30,000 shares of common stock. Pursuant to these terms, and ~~October~~subsequent 31to its annual meeting on April 29, ~~2006:~~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.

	Number of Shares		Weighted Average Exercise Price		Weighted Avg. Remaining Contractual Life (Years)		Intrinsic Value
As of October 31, 2006:
Employee Options Outstanding		3,438,305	$	6.06		5.81	$	56,500
Employee Options Expected to Vest		1,559,642	$	2.68		7.14	$	—
Employee Options Exercisable		1,878,663	$	8.57		4.52	$	56,500
As of July 31, 2007
Employee Options Outstanding		4,626,453	$	3.73		7.30	$	24,640
Employee Options Expected to Vest		2,977,266	$	0.65		1.65	$	17,250
Employee Options Exercisable		1,649,187	$	7.18		5.05	$	7,840

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:

	Nine months ended July 31			Year Ended October 31,
	ThreeMonthsEndedJanuary 31,				Year EndedOctober 31,
	2007			2006			2005
	2009				2008				2007
Dividend yield		0	%		0	%0	%	0	%	0	%
Expected volatility		6199	%		63	%72	%	82	%	61	%
Risk-free interest rate		41.8	%		~~4.9~~	%3.4	%	~~3.9~~	%	4.8	%
Expected life	5 years	~~5 years~~			5 years			~~5 years~~	5 years

Stockholders' Rights Plan

In October 1998, the Board of Directors of the Company implemented a rights agreement to protect stockholders' rights in the event of a proposed takeover of the Company. In the case of a triggering event, each right entitles the Company's stockholders to buy, for $80, $160 worth of common stock for each share of common stock held. The rights will become exercisable only if a person or group acquires, or commences a tender offer to acquire, 15% or more of the Company's common stock. The rights, ~~which~~expired ~~expire~~pursuant ~~in October 2008, are redeemable at the Company's option for $0.001 per right. The Company also has the ability~~ to ~~amend~~their ~~the~~terms ~~rights,~~in ~~subject to certain limitations. On May 2,~~October 2007, the Company entered into a Third Amendment to Rights Agreement, which amended the Rights Agreement to provide, among other things, that the Board of Directors of the Company may determine that a person who would otherwise become an Acquiring Person has become such inadvertently, and provided certain conditions are satisfied, that such person is not an Acquiring Person for any purposes of the Rights Agreement2008.

Employee Stock Purchase Plan

In March 2000, the Board of Directors authorized an Employee Stock Purchase Plan ("the “ESPP") under which ~~300~~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. InFor the ~~nine months ended July 31, 2007 and the~~ years ended October 31, ~~2006~~2008, 2007 and ~~2005~~2006, the shares issued under the ESPP were ~~154~~21,~~082~~455, 96 30,~~489~~816 and 5919,~~742~~296 shares, respectively. ~~On June~~ 5,There ~~2007,~~were ~~the~~no ~~Board~~shares ofissued ~~Directors~~under ~~approved~~the ESPP afor ~~300,000~~the ~~share~~three ~~increase~~months ~~to 600,000~~ended ~~authorized~~January ~~shares~~31, ~~for the ESPP~~2009. At ~~July~~January 31, 2009, ~~2007~~October 31, 2008 and ~~October 31~~2007, ~~2006~~ 21,527, ~~219~~21,~~757~~257 and 7343,~~839~~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 ~~million~~,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. ~~No shares were repurchased by the Company during the three months ended July 31, 2007.~~ As of ~~July~~January 31, ~~2007~~ 2009 and October 31, ~~2006~~2008, a cumulative total of ~~116~~23,~~995~~399 ~~and 22,100~~ shares had been repurchased by the Company at a cost of $227,~~000~~ and ~~$133,000,~~ ~~respectively and~~ are reflected as Treasury Stock on the Balance Sheet at the respective dates.

NOTE 10 9—COMMITMENTS AND CONTINGENCIES

Contract Commitments

~~The~~As of January 31, 2009, the Company has entered into purchase commitments of $~~112,000~~52 to suppliers under blanket purchase orders. The blanket purchase orders expire when the designated quantities have been purchased.

21- 28 -

Lease Commitments

The Company leases facilities and equipment under non-cancelable operating lease agreements. ~~which~~Future ~~renew~~minimum ~~annually~~lease atpayments ~~rates that~~ are subject to annual adjustment ~~for~~ for increases in the Consumer Price Index. ~~Future minimum lease payments under these operating leases are $350,000 annually.~~ Total rent expense ~~was $87,000 and $98,000~~ for the three months ended ~~July~~January 31, ~~2007~~2009 and ~~2006,~~2008 ~~respectively,~~was ~~and~~ $~~283,000~~111 and $~~293~~93,~~000,~~ ~~for the nine months ended July 31, 2007 and 2006,~~ respectively.

~~Third~~Related ~~Party~~Parties and License Agreements

WeOn February 17, 2006 the Company entered an exclusive license ~~from~~agreement ~~third~~with IdeaMatrix, ~~parties~~Inc. ~~some~~(a company wholly owned by our former Vice President of ~~the~~New Product ~~technologies~~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 ~~core~~SurTRAK line of products, sold in connection with our brachytherapy seeds. Under this exclusive license agreement, the Company paid $125 ~~The~~upon ~~following~~execution ~~are~~of the ~~minimum~~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 ~~amounts~~out ~~under~~of ~~each~~this license. The term of this license expires upon the last expiring patent included in the license. As part of this license ~~agreements:~~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.

IdeaMatrix, Inc.	$	125,000
University of South Florida Research Foundation, Inc.		50,000
	$	175,000

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

22Outsourcing

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

OnThe ~~March 22, 2007, the~~ Company ~~entered~~maintains ~~into an~~ employment ~~agreement~~agreements ~~(the “Agreement”)~~ with ~~John~~certain Bkey management. ~~Rush in connection with his employment as the Company’s new~~The ~~President~~agreements ~~and~~provide ~~Chief~~for ~~Executive~~minimum ~~Officer. Mr. Rush’s~~ base ~~salary will be $350~~salaries,~~000. Mr.~~ ~~Rush~~eligibility ~~will~~for ~~also~~stock beoptions ~~eligible to receive an annual bonus, if any, based upon~~and performance ~~goals~~bonuses approved by the Board or the Compensation Committee of the Board, in consultation with Mr. Rush, in an amount, not to exceed 60% of his base salary, to be determined by the Compensation Committee. For the period beginning on April 23,2007 and ~~ending~~severance ~~the last day of the Company’s fiscal year, October 31, 2007, Mr~~payments. ~~Rush will receive a guaranteed, minimum, pro-rated bonus of 30% of his base salary.~~

~~On April 23,~~- ~~2007, the Company granted stock options to Mr. Rush with respect to~~29 1,800,000 shares of our common stock. The stock options have an exercise price of $1.16, which was equal to the fair market value per share of our common stock on the grant date. In addition, in the event that within 24 months of April 23, 2007, the Company issues additional shares of stock in connection with raising capital in a private placement transaction, the Company is required to grant options to Mr. Rush to acquire an additional number of shares of common stock equal to 3% of the number of shares issued in connection with such transaction (the “Additional Shares”).-

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

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

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

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

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

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

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

In the event Mr. Cutrer’s employment terminates at any time after the Effective Date for any reason, except for a “Control Termination” (as defined in the Amended Agreement), and in addition to any payment that may be due if he is terminated on or before October 31, 2007 as noted above, Mr. Cutrer will be entitled to receive (a) severance pay equal to three times (3x) his highest base salary during his employment by the Company payable over a three year period in accordance with the Company’s standard payroll practices for salaried employees, and (b) any unvested stock options shall immediately vest as of the termination date. In addition, the exercise date of all stock options that, on the termination date, have an exercise price greater than the fair market value of the Company’s common stock will be extended to the later of (i) the last day of the year in which the stock option would otherwise have expired or (ii) two and a half months after the date on which the stock option would otherwise have expired (or such later date as may be permitted by final regulations issued pursuant to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), but in no event later than the date on which the stock option would have expired had Mr. Cutrer’s employment not been terminated).

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

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

Litigation

In November 2005, ~~the~~we ~~Company~~were ~~was~~ served with a complaint filed in U.S. District Court in Hartford, Connecticut by World Wide Medical Technologies (WWMT). WWMT’s ~~six~~ six count complaint alleges breach of a confidentiality agreement, fraud, patent infringement, wrongful interference with contractual relations, violation of the Connecticut Uniform Trade Secrets Act, and violation of the Connecticut Unfair Practices Act. WWMT alleges that ~~the~~we ~~Company~~ fraudulently obtained WWMT’s ~~confidential~~ confidential information during negotiations to purchase WWMT in 2004 and that once ~~the Company~~ we acquired that information, itwe ~~purportedly~~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. ~~The~~We ~~Company~~were ~~was~~ served with this matter at approximately the same time Mr. Terwilliger was served with a lawsuit in state court and with an application seeking a preliminary injunction declaring plaintiffs to be the sole owners of the intellectual property at issue and preventing Mr. Terwilliger from effectively serving as our Vice President of New Product Development ~~at the Company~~. ~~The~~We ~~Company~~have ~~has~~ 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 ~~Company~~parties ~~denies~~re-filed ~~liability~~the Joint Motion to Reopen the Case, and ~~intends~~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 ~~vigorously~~File a Motion For Leave to Amend. Subsequently, on ~~defend itself~~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 ~~this~~the ~~litigation as~~motion. itOn ~~progresses~~March 11, 2009, the Company filed for protection under Chapter 11 of the U. NoS. ~~trial~~Bankruptcy ~~date~~laws, ~~has~~and on March 20, 2009 the Court Stayed ~~yet~~the ~~been~~Case ~~set~~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.

24In 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.

OnIn ~~April 20,~~February ~~2006~~2008, aan ~~lawsuit~~individual ~~captioned J.P. Morgan Trust Company~~plaintiff, ~~N.A.~~Richard ~~v. John Alan Friede~~Hodge, ~~et al. was~~ filed a complaint in the Multnomah ~~U.S.~~County ~~District~~Circuit Court ~~for~~of the ~~Southern~~State ~~District~~ of ~~New~~Oregon ~~York~~ against ~~John~~ A.Bay ~~Friede~~Area Health District, aNorth ~~current~~American ~~director and stockholder of the Company~~Scientific, MrInc. ~~Friede’s wife~~, ~~and~~ NOMOS Corporation, aand ~~subsidiary~~Carl ~~of the Company. The plaintiff~~Jenson, J M.PD. ~~Morgan Trust Company~~, ~~filed~~alleging the ~~lawsuit~~defendants incaused ~~its capacity as personal representative of the Estate of Evelyn A.J. Hall,~~ Mr. ~~Friede’s~~Hodge ~~deceased~~to ~~mother. The~~receive ~~complaint,~~excessive ~~as amended on August 8, 2006, asserts claims for reimbursement~~radiation ~~and~~during ~~contribution,~~the ~~constructive~~course ~~fraud, breach~~ of ~~contract~~his ~~and~~IMRT ~~other related claims arising out of loans made by Mrs. Hall to~~treatment, oras ~~for~~a ~~the~~result ~~benefit~~ of, ~~Mr. and Mrs.~~a ~~Friede~~manufacturing and/or design ~~NOMOS,~~defect(s) ~~or acting as an accommodation party~~ in ~~additional loans~~our ~~made~~former toCORVUS ~~Mr.~~ and ~~Mrs.~~BAT ~~Friede by financial institutions that were not subsequently repaid~~products. ~~During~~The ~~the~~plaintiff ~~time periods alleged in the complaint, Mr.~~dismissed ~~Friede~~this ~~was the Chairman, Chief Executive Officer and the largest stockholder of NOMOS. With respect to NOMOS, the~~ complaint ~~seeks~~with atprejudice ~~least~~on ~~approximately $5,250,000~~October ~~principal amount of loans allegedly made to and still outstanding and owed by NOMOS~~28, ~~and other related equitable remedies plus interest, costs and expenses~~2008.

~~On the basis~~- ~~of copies of documents that have been made available to us, we believe~~30 that the claims made against NOMOS in the lawsuit appear to be without merit and we intend to vigorously defend against them. However, in accordance with the indemnification provisions of the merger agreement under which we acquired NOMOS on May 4, 2004, and the related indemnity escrow agreement, we have made a claim for indemnification against the escrow to preserve our right of indemnity. Under these provisions, an indemnifying party will not have any indemnification obligations until such time as the aggregate indemnified losses for which we are entitled to indemnification equals or exceeds $400,000, at which point, the indemnifying party will be liable for the full amount of all such indemnified losses without regard to the $400,000 basket. As of the date hereof, the indemnity escrow account holds approximately $1,225,000 of cash and 526,810 shares of our common stock. We also intend to review various other legal remedies that may be available to us.-

~~The~~In ~~Company~~November is2008, ~~also~~Denise ~~subject~~M. toBlack ~~other~~and ~~legal~~Lon ~~proceedings~~Black, ~~claims~~filed ~~and~~a ~~litigation arising~~complaint in the ~~ordinary~~State ~~course~~of New York, Supreme Court, County of ~~business~~Ontario against Clifton Springs Hospital & Clinic, Charles H. ~~While~~Albrecht ~~the~~Radiation ~~outcome~~Oncology, ofDana ~~these~~P. ~~matters~~Hansen, M.D., isCharles ~~currently~~H. ~~not~~Albrecht, ~~determinable~~M.D., ~~management~~Matthew ~~does~~Pacella, ~~not~~MS, ~~expect~~DABR, ~~that~~Dustin ~~the~~A. ~~ultimate~~Gress, MS, ~~costs~~Upstate toMedical ~~resolve~~Physics, ~~these~~Inc., ~~matters~~Sandy ~~will~~K.S. ~~have~~Perry, M.D., Finger Lakes Women’s Health LLC, NOMOS Corporation, n/k/a ~~material~~Best ~~adverse~~Nomos ~~effect~~and onNorth ~~the~~American Scientific, ~~Company's~~Inc. ~~consolidated~~alleging ~~financial~~the ~~position,~~defendants ~~results~~caused ofMrs. ~~operations~~Black to sustain personal injuries, increased orpain ~~cash~~and suffering and additional medical expense due to negligence ~~flows~~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.

AsOn ~~of this~~February ~~filing~~13, 2009, the Company ~~does~~was ~~not~~served ~~meet~~a ~~the~~lawsuit ~~$10~~by ~~million~~Core ~~stockholders’~~Oncology, ~~equity requirement~~Inc., ~~under~~a ~~Maintenance~~Washington ~~Standard~~corporation, 1alleging ~~for~~that ~~continued listing on~~ the ~~Nasdaq~~ ~~Global~~Company ~~Market set forth~~breached inthe ~~Marketplace~~terms ~~Rule~~of ~~4450(~~a~~)(3). As~~ asupply ~~result~~agreement. ofOn ~~the~~February ~~Company’s~~27, ~~non-compliance~~2009, ~~The~~Plaintiff ~~Nasdaq~~filed ~~Stock~~a ~~Market~~motion ~~may~~for ~~send~~a ~~the~~preliminary ~~Company~~injunction aseeking ~~notice that the Company’s stock is subject~~ to ~~delisting~~enjoin ~~from~~ the ~~The Nasdaq~~proposed ~~Global~~transaction ~~Market unless the Company requests a hearing~~ with aBest ~~Nasdaq Listing Qualifications Panel to~~Theratronics, ~~appeal such delisting~~Ltd. AThe ~~request~~deadline ~~for~~to arespond ~~hearing~~to ~~will stay~~ the ~~delisting~~complaint ~~action pending~~and oppose the ~~issuance~~motion offor a preliminary ~~written~~injunction ~~determination~~was byMarch a16, ~~Nasdaq Listing Qualifications Panel~~2009. ~~While~~The ~~the~~Chapter ~~Company~~11 isProceeding ~~working diligently to meet the~~has ~~minimum~~effected ~~stockholders’~~an ~~equity~~automatic ~~requirement~~Stay asin ~~promptly~~the asProceeding. ~~possible,~~The ~~the~~ Company ~~can~~ ~~provide~~intends noto ~~assurances that a Nasdaq Listing Qualifications Panel will grant~~vigorously ~~the~~defend ~~Company’s~~itself ~~request~~with ~~for~~respect ~~continued~~to ~~listing~~this ~~on The Nasdaq Global Market~~matter.

25 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

OnChapter ~~August 24,~~11 ~~2007,~~Voluntary ~~North~~Bankruptcy American Scientific, Inc. (“NASI”) and two of its subsidiaries, NOMOS Corporation (“NOMOS”) and North American Scientific, Inc., a California corporation (“NASI-California” and collectively, with NASI and NOMOS, the “Company”), entered into a Third Amendment to Loan and Security Agreement (the “Third Amendment”) with Silicon Valley Bank (“Silicon Valley”). The Third Amendment amended that certain Loan and Security Agreement dated October 5, 2005 (the “Loan Agreement”).Filing

~~The~~On March ~~Third Amendment~~11, ~~added~~2009, ain ~~Bridge~~response ~~Loan Sub-limit~~ to the ~~Loan~~Company’s ~~Agreement~~current offinancial upcondition, tothe reduced ~~$1,500,000~~borrowing atcapabilities anunder ~~interest~~its ~~rate~~Loan ofAgreement ~~prime~~(See ~~plus~~Note ~~4.0%~~7), ~~subject~~current ~~to a borrowing base~~business ~~formula~~prospects, and ~~decreased~~to ~~the~~effect ~~minimum~~other ~~tangible~~arrangements ~~net~~surrounding ~~worth that must be maintained by~~ the ~~Company~~sale ~~from $5 million to $2 million. The maturity date~~ of ~~the~~its ~~Bridge~~Prostate ~~Loan Sublimit~~Brachytherapy ~~shall~~Product beLine ~~the~~(See ~~earlier~~Note ~~of October~~ 3), ~~2007 or~~ the ~~date~~Company ~~NASI~~filed ~~closes~~the aChapter 11 ~~private~~Proceeding. It ~~investment~~is ~~public~~anticipated ~~equity~~that ~~transaction.~~the ~~Concurrent~~Chapter ~~with~~11 ~~the~~Proceeding ~~Third~~will ~~Amendment,~~result ~~NASI~~in ~~issued~~the ~~Silicon~~Bankruptcy ~~Valley~~Court’s aapproval ~~warrant~~of ~~for~~the ~~300,000~~sale ~~shares~~ of ~~NASI~~the Prostate ~~common~~Brachtherapy ~~stock~~Product atLine anand ~~exercise~~the ~~price~~potential sale of ~~$0.98,~~ the ~~closing~~assets ~~price~~ of ~~NASI~~the ~~common~~ClearPath ~~stock~~breast onbrachytherapy ~~August~~product ~~24, 2007~~line.

~~On August 30,~~- ~~2007 the Company terminated the Loan and Security Agreement (the “PFG Loan~~31 Agreement”) with Partners For Growth II, L.P. (“PFG”) by mutual consent. The PFG Loan Agreement was entered into on March 28, 2006 and was scheduled to expire on September 28, 2007. As a result of the termination, PFG released all liens on the Company’s assets. There were no outstanding borrowings under the PFG Loan Agreement at the date of termination.-

OnPart of ~~September~~the ~~12,~~Chapter ~~2007~~11 ~~NASI~~Proceeding ~~announced~~is ~~that~~an itagreement ~~had~~with ~~executed~~the aCompany’s ~~purchase~~Bank ~~and~~(See ~~sale~~Note 7) ~~agreement~~to ~~with~~allow ~~Best~~the ~~Medical~~use ~~International,~~of ~~Inc.~~cash tocollateral ~~purchase~~on ~~certain~~an ~~assets~~interim basis. Because the ~~and to~~Company ~~assume~~was ~~certain~~in ~~liabilities~~default of ~~our~~its ~~NOMOS~~loan ~~Radiation~~covenants ~~Oncology~~at ~~business~~January 31, ~~which~~2009, in February ~~we previously~~2009, ~~had~~the ~~reported~~Bank asexercised ~~our~~its ~~IMRT/IGRT~~rights ~~business~~under ~~segment~~the ~~(“NOMOS~~Loan ~~Transaction”). The~~Agreement ~~purchase~~to ~~price~~require isthe Company ~~$500,000~~to surrender its cash atreceipts ~~closing,~~from ~~plus~~accounts ~~assumption~~receivable ofcollections ~~certain~~to ~~obligations~~repay ~~and~~outstanding ~~liabilities,~~amounts ~~including~~under ~~approximately~~the $3Loan Agreement.1 ~~million~~Commencing ofwith ~~liabilities~~the March ~~for~~11, ~~warranty~~2009 ~~and~~bankruptcy ~~maintenance agreements~~petition, ~~$0.2~~the ~~million~~Bank ofhas ~~other~~agreed ~~accrued liabilities,~~to asallow ~~well as~~ the ~~NOMOS~~Company ~~facility~~to ~~lease~~retain its inaccounts ~~Cranberry~~receivable ~~Township, Pennsylvania.~~collections ~~NOMOS~~as isa ~~retaining~~source ~~certain~~of ~~other~~working ~~liabilities,~~capital ~~including~~to ~~certain~~be used ~~trade~~for ~~accounts~~defined ~~payable~~purposes ~~and~~in ~~certain~~the ~~employee~~operation ~~obligations.~~of ~~The~~its ~~closing~~affairs. When ~~was~~the sale ~~completed~~of onthe ~~September~~Company’s ~~17,~~Prostate ~~2007.~~Brachytherapy AsProduct aLine ~~result,~~closes we(see ~~have~~Note ~~reported~~3), ~~the results~~$1,400 of the ~~NOMOS~~$1,500 ~~Radiation~~payment ~~Oncology~~at ~~business~~closing aswill abe ~~discontinued~~used ~~operation~~to inrepay ~~our financial~~amounts ~~statements~~outstanding ~~for~~ under the ~~three~~Loan ~~and~~Agreement. Thereafter, ~~nine~~monthly ~~months~~payments ~~ended~~of ~~July~~$83 ~~31,~~will ~~2007~~be ~~and~~made ~~2006~~to the Bank until the debt is fully satisfied.

OnDebtor ~~September~~In ~~14,~~Possession ~~2007, NASI and NASI-California entered into a Fourth Amendment to~~ Loan ~~and Security Agreement (the “Fourth Amendment”) with Silicon Valley. The Fourth Amendment further amended the Loan Agreement.~~

~~The~~Also on ~~Fourth~~March ~~Amendment~~11, ~~included:~~2009, ~~(i)~~as apart ~~forbearance~~of bythe ~~Silicon~~Chapter ~~Valley~~11 ~~from~~Proceeding, ~~exercising its~~the ~~rights~~Company and ~~remedies against the Company~~Portola Medical, ~~until~~a ~~such~~portfolio ~~time~~company asof ~~Silicon~~Three ~~Valley determines~~Arch inPartners, ~~its~~a ~~discretion~~related party to ~~cease such forbearance~~the Company, ~~due~~agreed to ~~the~~a ~~default under the~~$1,000 ~~Loan~~Debtor ~~Agreement~~In ~~resulting~~Possession ~~from~~(“DIP”) ~~the~~loan ~~Company failing~~ to ~~comply~~allow ~~with~~ the ~~tangible~~Company ~~net~~a ~~worth~~short-term ~~covenant~~source inof ~~the~~working ~~Loan~~capital ~~Agreement~~ as ofit ~~July~~conducts ~~31,~~its ~~2007 and August~~ongoing 31operations, ~~2007,~~proceeds ~~and~~with ~~(ii)~~the asale ~~consent~~of toits abusiness ~~subordinated~~units ~~debt~~and ~~facility~~completes ~~of up to $750,000~~its ~~with~~Chapter ~~Agility~~11 ~~Capital LLC~~Proceeding. The InDIP ~~connection~~loan ~~with~~carries ~~the~~an ~~Fourth~~interest ~~Amendment,~~rate ~~Silicon~~of 12% ~~Valley~~per ~~consented~~annum, towith ~~the~~interest ~~NOMOS~~payable ~~Transaction and released its lien on the NOMOS assets,~~monthly.

26NASDAQ 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.

~~Subsequent~~- 32 ~~Events~~-

On August 24, 2007, North American Scientific, Inc. (“NASI”) and two of its subsidiaries, NOMOS Corporation (“NOMOS”) and North American Scientific, Inc., a California corporation (“NASI-California” and collectively, with NASI and NOMOS, the “Company”), entered into a Third Amendment to Loan and Security Agreement (the “Third Amendment”) with Silicon Valley Bank (“Silicon Valley”). The Third Amendment amended that certain Loan and Security Agreement dated October 5, 2005 (the “Loan Agreement”).

The Third Amendment added a Bridge Loan Sub-limit to the Loan Agreement of up to $1,500,000 at an interest rate of prime plus 4.0%, subject to a borrowing base formula, and decreased the minimum tangible net worth that must be maintained by the Company from $5 million to $2 million. The maturity date of the Bridge Loan Sublimit shall be the earlier of October 3, 2007 or the date NASI closes a private investment public equity transaction. Concurrent with the Third Amendment, NASI issued Silicon Valley a warrant for 300,000 shares of NASI common stock at an exercise price of $0.98, the closing price of NASI common stock on August 24, 2007.

On August 30, 2007 the Company terminated the Loan and Security Agreement (the “PFG Loan Agreement”) with Partners For Growth II, L.P. (“PFG”) by mutual consent. The PFG Loan Agreement was entered into on March 28, 2006 and was scheduled to expire on September 28, 2007. As a result of the termination, PFG released all liens on the Company’s assets. There were no outstanding borrowings under the PFG Loan Agreement at the date of termination.

On September 12, 2007 NASI announced that it had executed a purchase and sale agreement with Best Medical International, Inc. to purchase certain assets and to assume certain liabilities of our NOMOS Radiation Oncology business, which we previously had reported as our IMRT/IGRT business segment (“NOMOS Transaction”). The purchase price is $500,000 cash at closing, plus assumption of certain obligations and liabilities, including approximately $3.1 million of liabilities for warranty and maintenance agreements, $0.2 million of other accrued liabilities, as well as the NOMOS facility lease in Cranberry Township, Pennsylvania. NOMOS is retaining certain other liabilities, including certain trade accounts payable and certain employee obligations. The closing was completed on September 17, 2007. As a result, we have reported the results of the NOMOS Radiation Oncology business as a discontinued operation in our financial statements for the three and nine months ended July 31, 2007 and 2006.

On September 14, 2007, NASI and NASI-California entered into a Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”) with Silicon Valley. The Fourth Amendment further amended the Loan Agreement.

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

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~~ applications.

OnIn November 7, 2006, we announced the introduction of ClearPath™ TM , our ~~unique~~ unique multicatheter breast brachytherapy device for Accelerated Partial Breast Irradiation (“APBI”),. atAPBI ~~the~~is ~~American~~a ~~Society~~standard ~~for~~radiation ~~Therapeutic~~treatment ~~Radiology~~appropriate ~~and~~for all ~~Oncology~~women ~~(ASTRO)~~with ~~Annual~~early ~~Meeting~~stage inbreast ~~Philadelphia~~cancer. ~~The~~Typically, ~~ClearPath~~patients ~~systems~~undergoing ~~are~~radiation ~~placed~~treatment ~~through~~for abreast ~~single~~cancer ~~incision and~~ are ~~designed~~treated towith ~~conform~~external tobeam ~~the resection cavity, allowing for more conformal therapeutic~~ radiation ~~dose~~(EBR). ~~distribution~~The ~~following~~EBR ~~lumpectomy~~treatments ~~compared~~are todelivered ~~other~~daily ~~methods~~for a period of ~~APBI~~six weeks. ~~ClearPath~~Women iswho ~~designed~~receive ~~to accommodate~~APBI ~~either~~instead ~~high-dose,~~of ~~ClearPath-HDR™,~~EBR orcan ~~low-dose~~be ~~rate,~~treated ~~ClearPath-CR™, treatment~~in ~~methods.~~just ~~The~~five ~~Company~~days ~~received~~with ~~510k approval from~~ the ~~United~~same ~~States~~level of ~~Food~~efficacy and ~~Drug~~with ~~Administration~~better ~~for~~control aof ~~low-~~radiation dose ~~rate,~~to orsurrounding ~~continuous release~~tissue. ~~treatment~~Management ~~utilizing~~estimates ~~the~~that ~~Company’s~~approximately ~~Prospera®~~250,000 ~~brachytherapy~~women ~~seeds~~ in ~~April~~the ~~2006~~United States are ~~and~~diagnosed ~~approval~~with ~~for~~breast ~~the~~cancer ~~high-dose~~each ~~rate~~year. ~~treatment~~With inearly ~~November~~detection ~~2006.~~on Wethe ~~expect~~rise, towe ~~begin~~believe the ~~commercial~~total ~~launch~~market ~~our~~for ~~ClearPath~~APBI ~~product~~devices ~~during~~in ~~fiscal~~the ~~year~~United ~~2007, with an~~States ~~initial focus on ClearPath-HDR,~~ to be ~~followed~~as byhigh ~~release~~as $500 ofmillion ~~our ClearPath-CR.~~per year.

AsOur ~~stated~~ClearPath systems are designed to place the radiation source directly into the inpost-lumpectomy ~~Subsequent~~site ~~Events~~which ~~above,~~reduces ~~effective~~the astreatment oftime to approximately five days compared to six weeks and reduces the ~~end~~risks ofassociated ~~our~~with ~~fiscal~~the ~~third~~external ~~quarter~~beam ~~ended~~radiation ~~July~~treatment. ~~31,~~Our ~~2007,~~ClearPath ~~our~~device ~~NOMOS~~is ~~Radiation~~placed ~~Oncology~~through ~~business~~a ~~has~~single ~~been~~incision and ~~treated~~is designed to conform to the tumor resection cavity, allowing physicians to asdeliver a more conformal therapeutic radiation dose distribution following ~~discontinued~~lumpectomy ~~operation~~compared into ~~our~~other ~~financial~~methods ~~statements~~of APBI. ~~This~~Our ~~business~~ClearPath ~~was~~family ~~sold~~of devices ~~on September~~are 17designed to deliver either high-dose rate treatment, ~~2007~~(ClearPath-HDR™) or low-dose rate continuous treatments (ClearPath-CR™).

~~Based~~We have ~~on the~~received ~~Company’s~~510(k) ~~current~~approval ~~operating~~from ~~plans, management believes that~~ the ~~Company’s existing~~United ~~cash~~States ~~resources~~Food and ~~cash~~Drug ~~forecasted~~Administration ~~by management to be generated by~~for ~~operations,~~both ~~funds~~ClearPath-CR™ to beenable ~~raised~~a bylow-dose ~~the~~rate, ~~Company~~or ~~through~~continuous anrelease ~~equity financing,~~treatment ~~as well~~utilizing asour ~~the~~Prospera® ~~Company’s~~brachytherapy ~~anticipated available line of credit~~seeds, ~~will be sufficient to meet working capital~~ and ~~capital~~for ~~requirements~~ClearPath-HDR™ ~~through~~to atenable ~~least the next~~a ~~twelve~~high-dose ~~months~~rate treatment. InThroughout ~~this regard, we must raise additional financing in fiscal~~ 2007 to ~~support launch~~ and ~~future development of ClearPath and fund our continuing operations and other activities. However~~2008, ~~there~~we ishave nobeen ~~assurance that the Company~~gaining ~~will~~clinical beexperience ~~successful~~ with ~~its plans. If events and circumstances occur such that~~ the ~~Company~~first ~~does~~generation ~~not~~ClearPath-HDR ~~meet its current operating plans~~, ~~the~~and ~~Company~~we ~~is unable~~intend to launch ~~raise sufficient additional financing, or~~ the ~~Company’s~~second ~~line~~generation ofdevices ~~credit (which~~in ~~presently expires on October 3~~2009, ~~2007) is~~to ~~insufficient~~be orfollowed ~~not available,~~by the ~~Company will be required to further reduce expenses or take~~general ~~other steps~~commercial ~~which~~release ~~could have a material adverse effect on our future performance, including but not limited to, the premature sale~~ of ~~some or all of~~ our ~~assets or product lines on undesirable terms, merger with or acquisition by another company on unsatisfactory terms, or the cessation of operations~~ClearPath-CR.

~~Management~~On ~~also~~September ~~expects~~17, ~~that~~2007, inwe ~~future~~completed ~~periods~~the ~~new~~sale ~~products~~of ~~and~~all ~~services~~significant ~~will~~assets, ~~provide~~including ~~additional~~licenses, ~~cash~~trademarks ~~flow~~and brand-names, ~~although~~and noselected ~~assurances~~liabilities ~~can~~of beNOMOS Corporation ~~given~~to Best Medical, Inc. for $500. We expect that ~~such~~the ~~cash~~divestiture ~~flow~~of NOMOS will beallow ~~realized,~~us to better utilize financial resources to benefit the marketing and wedevelopment of innovative brachytherapy products for the treatment of cancer. The financial results of NOMOS are ~~presently~~reported ~~placing~~as ana ~~emphasis~~discontinued operation onin ~~controlling~~the accompanying condensed consolidated financial ~~expenses~~statements.

28On 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.

- 33 -

Results of Operations

Three Months Ended ~~July~~January 31, ~~2007~~2009 Compared to Three Months Ended ~~July~~January 31, ~~2006~~2008

Total Revenue
	Three Months Ended July 31,
	2007		2006		% Change
($ millions)
Radiation Sources	$	3.4	$	3.2		8.6	%

Total revenue increased 9% to $3.4 million for the three months ended July 31, 2007 from $3.2 million for the three months ended July 31, 2006. The increase in revenue is due to a 17% increase in sales of our brachytherapy seeds and accessories, with increased product sales partially offset by a decline in average selling prices, and a 14% decrease in sales of our non-therapeutic products.

Gross profit

	Three Months Ended July 31,
	2007			2006			% Change
($ millions)
Radiation Sources	$	0.8		$	1.0			(24.5)	%
(% of Revenue)
Radiation Sources		21.8	%		31.4	%		(9.6)	%

Gross profit decreased $0.2 million, or 25%, to $0.8 million for the three months ended July 31, 2007 from $1.0 million for the three months ended July 31, 2006. Gross profit as a percent of sales decreased from 31% in the three months ended July 31, 2006 to 22% in three months ended July 31, 2007. The decrease in our gross profit and gross profit as a percent of sales is primarily due to increased material usage costs in brachytherapy seeds and non-therapeutic products, partially offset by increased gross profit on higher product sales and reduced cost of outside stranding.

Selling and marketing expenses

	Three Months Ended July 31,
	Three Months Ended January 31,
	2007			2006			% Change
	2009				2008				% Change
($ millions)
Selling and marketing expenses	$	231			$	142				63	%
Selling and marketing expenses	$	1.1		$	0.7			62.1	%
As a percent of total revenue		30.8	%		20.7	%

Selling and marketing expenses, comprised primarily of salaries, commissions, and marketing costs, increased $~~0.4 million~~89, or 6263%, to $~~1.1~~231 ~~million~~ for the three months ended January ~~July~~ 31, ~~2007~~2009, from $~~0.7~~142 ~~million~~ for the three months ended ~~July~~ January 31, ~~2006~~2008. The increase in selling and marketing expenses is primarily attributed to ~~higher~~a ~~sales~~$143 increase ~~commissions~~in ~~related~~payroll toexpenses ~~the~~and ~~increased~~a ~~sales~~$12 ofincrease ~~brachytherapy~~in market research expenses, ~~products~~partially offset by a $24 decrease in reimbursement consulting expenses and professional fees, a $31 decrease in trade show expenses and ~~increased~~a ~~marketing~~$11 ~~spending~~decrease onin ~~our~~all ~~ClearPath~~other ~~device~~expenses.

General and administrative expenses ("G&A")

	Three Months Ended July 31
	Three Months Ended January 31,
	2007			2006			% Change
	2009				2008				% Change
($ millions)
General and administrative expenses	$	1,161			$	1,882				(38	)%
General and administrative expenses	$	2.1		$	2.6			(20.4	)%
As a percent of total revenue		60.3	%		82.3	%

G&A decreased $~~0.5 million~~721, or 2038%, to $2.1,161 ~~million~~ for the three months ended ~~July~~ January 31, ~~2007~~ 2009, from $~~2.6~~1,882 ~~million~~ for the three months ended ~~July~~ January 31, ~~2006~~2008. The ~~decrease~~ decrease in G&A is primarily attributed to a ~~reduction~~$379 decrease in professional fees for ~~and~~accounting related work, a $354 decrease in ~~the~~personnel ~~allowance~~costs, ~~for~~a ~~bad~~$36 ~~debts~~decrease ~~resulting~~in travel ~~from~~expenses ~~improved~~and a $23 decrease in all other expense categories, partially ~~collections~~offset ofby ~~receivables~~a $72 increase in legal fees.

Research and development (“R&D”)

	Three Months Ended July 31
	Three Months Ended January 31,
	2007			2006			% Change
	2009				2008				% Change
($ millions)
Research and development expenses	$	784			$	850				(8	)%
Research and development expenses	$	0.5		$	0.2			184.6	%
As a percent of total revenue		15.1	%		5.7	%

R&D ~~increased~~decreased $~~0.3~~66 ~~million~~ or ~~185~~8%, to $~~0.5~~784 ~~million~~ for the three months ended ~~July~~ January 31, ~~2007~~2009, from $~~0.2~~850 ~~million~~ for the three months ended ~~July~~ January 31, ~~2006~~2008. The ~~increase~~ indecrease in R&D spending is primarily due to ~~increased~~the ~~spending~~timing onof ~~product development~~project ~~for~~spending ~~our~~ on ClearPath~~™ breast brachytherapy device~~.

~~Nine~~Interest ~~Months~~expense- ~~Ended~~Interest ~~July~~expense was $76 for the three months ended January 31, ~~2007~~2009, compared ~~Compared~~ to ~~Nine~~$1,132 ~~Months~~for ~~Ended~~the ~~July~~three months ended January 31, 2008. The interest ~~2006~~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.

Total Revenue
	Nine Months Ended July 31
	2007		2006		% Change
($ millions)
Radiation Sources	$	11.1	$	9.2		20.5	%

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.

~~Total revenue~~- ~~increased 21% to $11.1 million for the nine months ended July 31, 2007~~34 from $9.2 million for the nine months ended July 31, 2006. The increase in our Radiation Sources business reflects a 21% increase in sales of our brachytherapy seeds and accessories, with increased product sales partially offset by a decline in average selling prices, and a 18% increase in sales of our non-~~therapeutic products.~~

Gross profit

	Nine Months Ended July 31,
	2007			2006			% Change
($ millions)
Radiation Sources	$	3.3		$	2.5			31.5	%
(% of Revenue)
Radiation Sources		30.0	%		27.5	%		2.5	%

Gross profit increased $0.8 million, or 32%, to $3.3 million for the nine months ended July 31, 2007 from $2.5 million for the nine months ended July 31, 2006. Gross profit as a percent of sales increased from 28% in the nine months ended July 31, 2006 to 30% in nine months ended July 31, 2007. The increase in our gross profit and our gross profit as a percent of sales is primarily due to increased product sales and reduced cost of outside stranding in our brachytherapy business, and increased sales of our non-therapeutic products.

Selling and marketing expenses

	Nine Months Ended July 31,
	2007			2006			% Change
($ millions)
Selling and marketing expenses	$	2.8		$	2.0			44.3	%
As a percent of total revenue		25.5	%		21.3	%

Selling and marketing expenses, comprised primarily of salaries, commissions, and marketing costs, increased $0.8 million, or 44%, to $2.8 million for the nine months ended July 31, 2007, from $2.0 million for the nine months ended July 31, 2006. The increase in selling and marketing expenses is primarily attributed to higher sales commissions related to the increased sales of brachytherapy products, and increased marketing expenses related to our ClearPath device and trade show expenses.

	Nine Months Ended July 31,
	2007			2006			% Change
($ millions)
General and administrative expenses	$	6.5		$	6.3			3.4	%
As a percent of total revenue		58.6	%		68.5	%

G&A increased $0.2 million, or 3%, to $6.5 million for the nine months ended July 31, 2007, from $6.3 million for the nine months ended July 31, 2006. The increase in G&A is primarily attributed to $0.7 million increase in professional fees, partially offset by $0.5 million decrease in the allowance for bad debts resulting from improved collections of accounts receivable

	Nine Months Ended July 31,
	2007			2006			% Change
($ millions)
Research and development expenses	$	1.3		$	0.7			79.3	%
As a percent of total revenue		11.5	%		7.7	%

R&D increased $0.6 million or 79%, to $1.3 million for the nine months ended July 31, 2007, from $0.7 million for the nine months ended July 31, 2006. The increase in R&D spending is primarily due to increased spending on product development for our ClearPath™ breast brachytherapy device.

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, ~~public~~lines ~~offerings and private placements~~ of ~~our~~credit, ~~common~~public ~~stock~~offerings and ~~borrowings~~ from ~~lenders. We~~private ~~expect~~placements ~~that we will be able to satisfy our longer term liquidity needs for research and development, capital expenditures, and acquisitions through a combination~~ of ~~cash generated by operations, issuance of~~ our common stock~~, and our anticipated available line of credit~~.

~~The~~As more ~~accompanying~~fully ~~financial~~described ~~statements~~in ~~have~~Note ~~been~~7 ~~prepared~~of onthe aNotes ~~going~~to ~~concern~~the ~~basis,~~Condensed Consolidated Financial ~~which~~Statements, ~~contemplates~~we ~~the~~were ~~realization~~not ofin ~~assets~~compliance ~~and~~with ~~liquidation~~certain ofcovenants ~~liabilities~~under our inpre-petition credit facility. As previously discussed, we filed a ~~the~~voluntary ~~normal~~petition ~~course~~for reorganization relief under Chapter 11 of ~~business~~the U.S. Bankruptcy ~~However~~Code, ~~the~~which ~~Company~~also ~~has~~triggered ~~continued~~a todefault ~~incur substantial~~under ~~net~~our ~~losses~~pre-petition ~~and~~credit facility. However, ~~used~~under ~~substantial~~Section ~~amounts~~362 of ~~cash~~the U.S. AsBankruptcy Code, the filing of ~~July~~a ~~31,~~bankruptcy petition automatically stays most actions against a ~~2007~~debtor, ~~the~~including ~~Company~~most ~~has~~actions anto ~~accumulated~~collect ~~deficit~~pre-petition ofindebtedness ~~$144.6~~or ~~million;~~to exercise ~~cash~~control ~~and~~over ~~cash equivalents~~the property of $1the debtor’s estate.8 Absent ~~million,~~an ~~borrowings~~order ~~under~~of athe ~~line~~Bankruptcy ofCourt, ~~credit~~substantially ofall ~~$1.4~~pre-petition ~~million, and~~liabilities noare ~~long-term~~subject ~~debt~~to settlement under a plan of reorganization.

~~Based~~As a ~~on the~~result ~~Company’s~~of ~~current~~our ~~operating~~Chapter ~~plans,~~11 Proceeding ~~management~~filing ~~believes~~on ~~that~~March ~~the~~11, ~~Company’s existing~~2009 ~~cash~~and ~~resources~~the associated ~~and~~agreements ~~cash~~(See ~~forecasted~~Notes by1, ~~management~~3, to7 beand ~~generated~~11 ~~by operations,~~of ~~funds~~Notes to bethe ~~raised~~Condensed Consolidated byFinancial ~~the~~Statements ~~Company~~for ~~through~~further aninformation), ~~equity~~we ~~financing,~~believe that our ~~as well~~current ascash ~~the~~balances, ~~Company’s~~DIP ~~anticipated~~loan ~~available~~facility, ~~line~~the use of ~~credit,~~the ~~will~~cash becollateral ~~sufficient~~under toour ~~meet~~Loan ~~working~~Agreement, ~~capital~~will ~~and~~provide ~~capital~~the ~~requirements~~time ~~through~~for atthe ~~least~~completion of the ~~next~~sale of the ~~twelve~~Prostate ~~months.~~Brachytherapy InProduct ~~this~~Line ~~regard,~~and weBreast ~~expect~~Brachytherapy ~~that~~Product weLine. ~~will~~If events ~~raise~~and ~~additional~~circumstances ~~financing in~~occur ~~fiscal~~such ~~2007~~that towe ~~fund~~do not meet our ~~continuing~~current ~~operations~~operating plans, ~~support~~or ~~the~~satisfactorily ~~further development~~satisfy ~~and~~all ~~launch~~the conditions of ~~ClearPath~~our ~~and~~Chapter ~~other activities. However~~11 Proceeding, ~~there~~we ~~is no assurance~~may ~~that~~be ~~the~~required ~~Company~~to ~~will~~further bereduce ~~successful~~expenses ~~with~~or ~~its~~take ~~plans. If~~other ~~events~~steps ~~and~~which ~~circumstances~~could ~~occur~~have ~~such~~a ~~that~~material ~~the~~adverse ~~Company~~effect ~~does~~on ~~not~~our ~~meet~~effort ~~its~~to ~~current operating~~sale ~~plans,~~our ~~the~~product lines ~~Company~~that iswe ~~unable~~now intend to ~~raise~~sale. ~~sufficient~~It ~~additional~~is ~~financing, or~~our ~~the~~expectation ~~Company’s~~that ~~line~~the buyers of ~~credit~~these product ~~(which~~lines ~~presently~~will ~~expires~~continue onto ~~October~~support ~~3, 2007) is~~and ~~insufficient~~operate orsuch ~~not~~businesses, ~~available~~however, ~~the~~if we ~~Company~~are ~~may~~unable ~~be required~~ to ~~further~~ ~~reduce~~meet ~~expenses~~all orthe ~~take~~conditions ~~other~~of ~~steps~~the ~~which~~Chapter ~~could~~11 ~~have~~Proceeding ait ~~material~~may ~~adverse~~be ~~effect~~difficult onto ~~our~~keep ~~future~~such ~~performance,~~businesses ~~including~~in ~~but~~operation ~~not~~prior ~~limited~~ to, the ~~premature~~ sale. ofFollowing ~~some~~the sale ~~or all~~ of our ~~assets~~two orbrachytherapy product lines onwe ~~undesirable~~will ~~terms,~~have ~~merger~~no operating assets. ~~with~~The orproceeds ~~acquisition~~from bythe ~~another~~sale ~~company~~of onthe ~~unsatisfactory~~two ~~terms,~~product orlines ~~the~~may ~~cessation~~not be sufficient to satisfy all of ~~operations~~our liabilities.

~~Management~~Our ~~also~~financial ~~expects~~statements ~~that~~have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in ~~future~~the normal ~~periods~~course ~~new~~of ~~products~~business. We have incurred net losses of $2,668, $10,945, $20,998 and ~~services~~$17,130 ~~will~~for ~~provide~~the three months ended January 31, 2009 and for the ~~additional~~years ~~cash~~ended ~~flow~~October 31, ~~although~~2008, no2007 ~~assurance~~and ~~can~~2006, berespectively, ~~given~~and ~~that~~have ~~such~~used cash ~~flow~~in ~~will~~operations beof ~~realized~~$1,014, $12,015, $12,318 and we$15,921 ~~are~~for ~~presently~~the ~~placing~~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 ~~emphasis~~accumulated ondeficit ~~controlling~~of ~~expenses~~$161,539 cash and cash equivalents of $2,142, working capital of $435 and $2,534 of interest-bearing debt.

AtThe ~~July 31,~~following ~~2007,~~sections wediscuss ~~had~~the ~~cash~~effects ~~and~~of ~~cash~~changes ~~equivalents~~in ~~aggregating~~our ~~approximately~~balance ~~$1.8 million~~sheets, ~~a decrease of approximately $7.5 million from $9.3 million at October~~cash 31flows, ~~2006.~~and ~~The~~commitments ~~decrease~~on ~~was~~our ~~primarily~~liquidity ~~attributed to $8.7 million used in operations~~ and ~~$0.1 million used for~~ capital ~~expenditures, partially offset by borrowings under the line of credit of $1~~resources.~~4 million.~~

~~Cash~~Balance ~~flows~~Sheet used in operating activities decreased $2.4 million, or 22%, to $8.7 million for the nine months ended July 31, 2007 from $11.1 million for the nine months ended July 31, 2006, primarily due to improved collections of accounts receivable ($1.8 million), and aCash decrease in the allowance for doubtful accounts of $0.2 million compared to an increase of $0.3 million in the prior year. 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. Flows

32Cash 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.

~~Cash~~We expect ~~flows~~that ~~provided~~cash byused ~~investing~~in operating activities ~~increased~~may ~~$17.5~~fluctuate ~~million~~in tofuture ~~$8.2~~periods ~~million~~as a ~~for~~result ~~the~~of ~~nine~~a ~~months~~number ~~ended~~of ~~July 31~~factors, ~~2007,~~including ~~from~~fluctuations ~~$9.3~~in ~~million~~our ~~cash~~operating ~~used in~~results, ~~investing~~accounts ~~activities~~receivable ~~for~~collections, ~~the~~inventory ~~nine months ended July 31~~management, ~~2006.~~research ~~The~~and ~~increase~~development ~~reflects~~expenses, and the ~~additional~~timing ~~draw down~~ of ~~our balance of marketable securities to fund operations in 2007 compared to investments in marketable securities in 2006~~payments.

~~Cash~~Equipment and leasehold ~~provided~~improvements. Equipment byand ~~financing~~leasehold ~~activities~~improvements ~~decreased~~(“Fixed ~~$20.7~~Assets”) increased ~~million~~approximately $46 to $~~1.4~~344 ~~million~~at ~~for the nine~~January ~~months ended July~~ 31, ~~2007~~2009, from $~~22.1~~298 ~~million~~at ~~for the nine months ended~~October ~~July~~ 31, ~~2006~~2008. The ~~decrease~~increase isin ~~due~~Fixed toAssets areflects ~~drawdown~~capital onexpenditures ~~the lines~~ of ~~credit of~~ $~~1.4 million~~135 inoffset ~~2007~~by ~~and~~depreciation ~~proceeds from the sale of stock in 2006~~expense.

~~We have $0.3 million in operating lease obligations for facilities and equipment under non~~-~~cancelable~~ ~~operating lease agreements. We have also entered into purchase~~35 ~~commitments to suppliers under blanket purchase orders in the amount of $0.1 million.~~ -

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~~consolidated ~~Financial~~financial ~~Statements~~statements ~~included in the Company’s Form 10-K for the year ended October 31, 2006,~~ and accompanying notes. ~~Note~~ Note 1 to the ~~Consolidated~~consolidated ~~Financial~~financial ~~Statements~~statements describes the ~~significant~~ significant accounting policies and methods used in the preparation of the ~~Consolidated~~ ~~Financial~~consolidated ~~Statements~~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~~ have historically been minor and have been included in the consolidated ~~financial~~ financial statements as soon as they became known. The following critical ~~accounting~~ accounting policies are impacted significantly by judgments, assumptions and ~~estimates~~ estimates used in the preparation of the ~~Consolidated~~consolidated ~~Financial~~financial ~~Statements~~statements and actual results could differ materially from the amounts reported based on these policies.

- 36 -

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.

- 37 -

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

~~The Company~~We ~~sells~~ sell products for radiation therapy treatment, ~~including~~primarily brachytherapy seeds used in the treatment of cancer. ~~and~~We apply the provisions of SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” for the sale of non-~~therapuetic~~software ~~sources~~products. SAB ~~used~~No. 104, which supersedes SAB No. 101, “Revenue Recognition in ~~calibration~~Financial ~~devices~~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.

Product revenue

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 supercedes 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.

Allowance for Doubtful Accounts and Sales Returns

The allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. We regularly review the allowance by considering factors such as historical experience, age of the accounts receivable balances and current economic conditions that may affect a customer's ability to pay. If there was a deterioration of a major customer's credit worthiness or actual defaults are higher than our historical experience, our estimates of the recoverability of amounts due us could be overstated which could have an adverse impact on our financial results.

A reserve for sales returns is established based on historical trends in product return rates and is recorded as a reduction of our accounts receivable. If the actual future returns were to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected. To date, product returns have not been considered material to our results of operations.

Inventory Reserves

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

The Company's products are subject to shelf-life expiration periods, which are carefully monitored by the Company. Provision is made for inventory items which may not be sold because of expiring dates. The Company routinely reviews other inventories for evidence of impairment of value and makes provision as such impairments are identified.

Goodwill and Other Intangible Assets

SFAS 142, Goodwill and Other Intangible Assets, requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (September 30) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of a reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, the useful life over which cash flows will occur, and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

Research and Development Costs

WeResearch ~~account for research~~ and development ~~costs~~("R&D") inexpenses ~~accordance~~are ~~with~~comprised ~~several~~primarily ~~accounting pronouncements,~~of ~~including~~the ~~SFAS 2, Accounting for Research and Development Costs,~~following ~~and~~types ~~SFAS 86, Accounting for the Costs~~ of ~~Computer Software to be Sold, Leased, or Otherwise Marketed. SFAS 86 specifies that~~ costs incurred ~~internally~~ in ~~researching~~ ~~and~~performing ~~developing~~R&D aactivities: ~~computer~~salaries ~~software~~and ~~product should be charged to~~benefits, ~~expense~~allocated ~~until~~overhead, ~~technological~~occupancy ~~feasibility~~costs, ~~has~~contract ~~been~~services ~~established~~and ~~for~~other ~~the~~outside ~~product.~~costs, ~~Once~~and ~~technological feasibility is established, all software~~ costs ~~should be capitalized until the product is available for general release~~ to ~~customers. Judgment~~acquire ~~is required~~ in-process ~~determining~~research ~~when~~and ~~technological~~development ~~feasibility~~projects ~~of a product~~and istechnologies ~~established.~~which We have ~~determined~~no ~~that~~alternative ~~technological~~future ~~feasibility for our software products is reached shortly before the products are released to manufacturing~~use. ~~Costs~~Research ~~incurred~~and ~~after technological feasibility is established~~development costs are ~~not~~ ~~material,~~expensed ~~and~~as ~~accordingly, we expense all research and development costs when~~ incurred.

34- 38 -

~~Loss~~Share-based ~~Contingencies~~Compensation

We ~~record liabilities~~account ~~related~~for toour ~~pending~~share-based ~~litigation~~payments ~~when~~under ~~an unfavorable outcome is probable and we can reasonably estimate~~ the ~~amount~~guidance ofset ~~the~~forth ~~loss.~~in ~~We are subject~~SFAS ~~to various legal proceedings and claims~~No. 123(R), ~~either asserted or unasserted, that~~Share-Based ~~arise in the ordinary course of business. We evaluate~~Payment, ~~among~~which ~~other~~requires ~~factors,~~ the ~~degree~~ ofmeasurement ~~probability of an unfavorable outcome~~ and anrecognition ~~estimate~~ of ~~the amount~~compensation ~~of the~~expense ~~loss.~~for ~~Significant~~all ~~judgment~~share-based ispayment ~~required~~awards inmade ~~both~~to ~~the~~employees ~~determination of the probability~~ and ~~as to whether an exposure can be reasonably estimated. When~~directors, ~~we determine~~including ~~that~~stock itoptions isand ~~probable~~employee ~~that~~stock apurchases ~~loss~~related ~~has~~to ~~been~~our ~~incurred, the effect is~~Employee ~~recorded~~Stock ~~promptly~~Purchase inPlan (the ~~consolidated~~“Employee ~~financial~~Stock ~~statements.~~Purchase ~~Although the outcome of these claims cannot be predicted with certainty~~Plan”), webased doon ~~not~~their ~~believe that~~fair ~~any of~~values. ~~our~~We ~~existing~~also ~~legal~~apply ~~matters~~the ~~will~~guidance ~~have~~found ain ~~material~~SAB No. 107 ~~adverse~~(“SAB 107”) ~~effect~~with onrespect ~~our financial~~to ~~condition~~share-based orpayments ~~results~~and ofSFAS ~~operations~~No. 123(R).

~~Income~~ Under ~~Taxes~~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 ~~account~~the ~~for~~Black-Scholes ~~income~~option-pricing ~~taxes~~model ~~using~~for estimating the ~~liability~~fair ~~method~~value of options granted. ~~Deferred~~The ~~taxes~~Black-Scholes ~~are determined~~option-pricing ~~based~~model onwas ~~the~~developed ~~differences~~for ~~between~~use in estimating the ~~financial~~fair ~~statement~~value ~~and~~of ~~tax bases~~traded ofoptions ~~assets~~that have no vesting restrictions and ~~liabilities,~~are ~~using~~fully ~~enacted~~transferable. ~~tax~~In ~~rates~~addition, inoption ~~effect~~valuation ~~for~~models require the ~~year in~~input ~~which~~of ~~the~~highly ~~differences~~subjective ~~are~~assumptions, including the expected tostock ~~reverse~~price volatility. ~~Valuation~~We ~~allowances~~use projected volatility rates, which are ~~established~~ ~~when~~based ~~necessary~~primarily toupon historical ~~reduce~~volatility ~~deferred~~rates. ~~tax~~Because ~~assets~~our toemployee ~~the~~stock ~~amounts~~options ~~expected~~have tocharacteristics besignificantly ~~realized.~~different Infrom ~~addition~~those of traded options, weand because ~~are~~changes ~~subject~~in tothe ~~examination~~subjective ofinput ~~our~~assumptions ~~income~~can ~~tax returns~~materially byaffect the fair ~~Internal~~value ~~Revenue~~estimate. ~~Service~~For ~~and~~purposes ~~other~~of ~~tax~~financial ~~authorities.~~statement Wepresentation, ~~regularly~~the ~~assess~~estimated ~~the~~fair ~~likelihood~~values of ~~adverse~~the ~~outcomes~~options ~~resulting~~are ~~from~~amortized ~~these~~over the options’ vesting ~~examinations~~periods.

Recent Accounting Pronouncements

In ~~June~~ September 2006, the ~~Financial Accounting Standards Board (“~~FASB”) issued ~~Interpretation~~ SFAS No. 48157, ~~Accounting~~“Fair ~~for~~Value ~~Uncertainty~~Measurements”, which indefines ~~Income~~fair ~~Taxes —~~value, Anestablishes ~~Interpretation of~~a ~~FASB~~framework ~~Statement~~for ~~No. 109,~~consistently ~~(FIN 48). FIN 48~~measuring fair ~~clarifies~~value ~~the~~ under generally accepted accounting ~~for~~principles, ~~uncertainty~~and inexpands disclosures ~~income~~about ~~taxes~~fair ~~recognized~~value inmeasurements. anSFAS ~~enterprise’s financial~~157 ~~statements~~does innot ~~accordance~~require ~~with~~any ~~FASB~~new fair ~~Statement~~value ~~No. 109~~measurements, ~~Accounting for~~but ~~Income~~provides ~~Taxes.~~guidance ~~FIN 48~~on ~~also~~how ~~prescribes~~to ameasure ~~recognition~~fair ~~threshold~~value ~~and~~by ~~measurement~~providing ~~attribute~~a ~~for~~fair ~~the~~value ~~financial~~hierarchy ~~statement~~used ~~recognition~~to ~~and~~classify ~~measurement of a~~the ~~tax~~source ~~position~~of ~~taken~~the information. In orFebruary ~~expected~~2008, tothe beFASB ~~taken~~deferred inthe aeffective ~~tax~~date of ~~return~~SFAS ~~that~~157 ~~results~~by ~~in a tax~~one ~~benefit.~~year ~~Additionally,~~for ~~FIN 48~~certain ~~provides~~nonfinancial ~~guidance~~assets onand ~~de-recognition~~liabilities, except ~~income~~those ~~statement~~that ~~classification~~are ofrecognized ~~interest~~or ~~and~~disclosed ~~penalties,~~at ~~accounting~~fair value in ~~interim periods,~~the ~~disclosure,~~financial ~~and~~statements on ~~transition.~~a ~~This~~recurring ~~interpretation~~basis is(at ~~effective~~least ~~for~~annually). On ~~fiscal years~~November ~~beginning~~1, ~~after December 15~~2008, ~~2006. The~~the Company isadopted ~~currently~~the ~~evaluating~~provisions ~~the~~of ~~effect~~SFAS ~~that~~157, ~~the~~except ~~application~~as ofit ~~FIN~~applies 48to ~~will~~those ~~have~~nonfinancial onassets ~~its~~and ~~financial~~liabilities ~~position,~~for ~~results~~which ofthe ~~operations~~effective ordate ~~cash~~has been ~~flows~~delayed by one year.

~~In September~~The ~~2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, (“SFAS No. 157”). SFAS No. 157 defines~~ fair value, ~~establishes~~hierarchy adescribed ~~framework~~by ~~for measuring~~the ~~fair~~standard ~~value~~is inbased ~~generally~~on ~~accepted~~three ~~accounting~~levels ~~principles~~of ~~(GAAP)~~inputs, ~~and~~of ~~expands~~which ~~disclosures~~the ~~about~~first ~~fair~~two ~~value~~are ~~measurements.~~considered ~~This~~observable ~~Statement~~and ~~applies~~the ~~under other~~last ~~accounting~~unobservable, ~~pronouncements~~ that ~~require or permit fair value measurements,~~ ~~and~~may ~~does~~be ~~not~~used ~~require~~to ~~any~~measure ~~new~~ fair value ~~measurements.~~and ~~The~~include application of SFAS No. 157, however, may change current practice within an organization. SFAS No. 157 is effective for all fiscal years beginning after November 15, 2007, with earlier application encouraged. The Company is currently evaluating the ~~effect that the application of SFAS No. 157 will have on its financial position, results of operations or cash flows.~~following:

35Level 1 – Quoted prices in active markets for identical assets or liabilities.

~~In February 2007,~~Level ~~the~~2 ~~FASB issued SFAS No. 159, “The~~– ~~Fair~~Inputs ~~Value~~other ~~Option~~than ~~for~~Level ~~Financial~~1 ~~Assets~~that ~~and~~are ~~Financial~~observable, ~~Liabilities.” SFAS 159 provides~~either ~~companies~~directly ~~with~~or ~~an option to report selected financial assets and~~indirectly, ~~liabilities~~such atas ~~fair~~quoted ~~value.~~prices ~~The standard’s objective is to reduce both complexity in accounting~~ for ~~financial~~similar ~~instruments and the volatility in earnings caused by measuring related~~ assets ~~and~~or liabilities; ~~differently.~~quoted ~~The~~prices ~~standard requires~~in ~~companies~~markets ~~to provide additional information~~ that ~~will~~are ~~help~~not ~~investors~~active; ~~and~~or other ~~users~~ ofinputs ~~financial~~that ~~statements~~are toobservable ~~more~~or ~~easily~~can ~~understand the effect of the~~be ~~company’s~~corroborated ~~choice~~by toobservable ~~use~~market ~~fair~~data ~~value on its earnings. It also requires companies to display the fair value of those assets and liabilities~~ for ~~which~~substantially the ~~company has~~full ~~chosen~~term ~~to use fair value on the face~~ of the ~~balance sheet. The new standard~~ ~~does~~assets not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157, “Fair Value Measurements,” and SFAS 107, “Disclosures about Fair Value of Financial Instruments.” SFAS 159 is effective as of the start of fiscal years beginning after November 15, 2007. Early adoption is permitted. We are in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of SFAS 159 will have on our financial position, results of operations or ~~cash flows~~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.

- 39 -

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.

- 40 -

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 ~~July~~January 31, ~~2007~~2009, does not differ materially from that discussed under Item 7A of ~~the~~our ~~registrant's~~ Annual Report on Form 10-K for the fiscal year ended October 31, ~~2006~~2008.

Item 4.

Controls and Procedures

~~(a)~~ 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 ~~adequate and~~ effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~Commission~~SEC’s rules and forms ~~and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to all timely decisions regarding required disclosure~~.

~~(b) Changes~~- ~~in Internal Controls~~ 41 -

~~There~~Changes ~~has been no change~~ in ~~our~~Internal internal control over financial reporting during the quarter ended July 31, 2007, that has materially affected or is reasonably like to materially affect our internal control over financial reporting. Controls

36There 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:

WeItem ~~operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control~~1. InLegal 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.Proceedings

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

Item 1A. Risk Factors

We ~~have~~operate ~~experienced~~in ~~significant~~a ~~losses~~rapidly ~~and~~changing ~~may~~environment ~~continue~~that toinvolves ~~incur~~a ~~such~~number ~~losses~~of inrisks, some ~~the future~~of which are beyond our control. In Asaddition ato ~~result~~other information in this Form 10-Q, ~~the~~you ~~amount~~should ofcarefully ~~our~~consider ~~cash,~~the ~~cash~~risks ~~equivalents,~~described ~~and~~below ~~investments~~before investing in ~~marketable~~our securities ~~has materially declined~~. This Wediscussion ~~will~~highlights ~~need~~some toof ~~raise~~the ~~additional~~risks ~~financing~~that inmay ~~fiscal~~affect ~~2007~~future tooperating ~~fund~~results. The ~~our~~risks ~~continuing~~described below ~~operations,~~are ~~support~~ not the ~~further~~only ~~development~~ones ~~and~~facing ~~launch~~us. Additional ofrisks ~~ClearPath~~ and uncertainties ~~other~~not ~~activities.~~presently Ifknown to us, which we currently deem immaterial or ~~continue~~which are similar to ~~incur~~those ~~significant~~faced ~~losses~~by ~~and~~other ~~are~~companies ~~unable~~in toour ~~access~~industry ~~sufficient~~or ~~working~~business ~~capital~~in ~~from~~general, may also impair our business operations. If orany ~~through~~of ~~external~~the following ~~financings,~~risks weor ~~will~~uncertainties beactually ~~unable to fund~~occurs, ~~future~~our ~~operations~~business, financial condition and ~~operate~~operating asresults awould ~~going~~likely ~~concern~~suffer.

WeOur ~~have incurred~~wholly-owned ~~substantial~~subsidiary ~~net losses in each of the last six fiscal years. As reflected in our financial statements, we have experienced net losses of $17.1 million in the nine months ended July 31, 2007,~~ and ~~$17.1~~sole ~~million,~~operating ~~$55.5 million and $36.3 million in our fiscal years ended October 31~~company, ~~2006,~~North ~~2005~~American ~~and 2004~~Scientific, ~~respectively~~Inc. As a ~~result,~~California corporation (the ~~amount~~“Operating ~~of our cash~~Company”), ~~cash~~filed ~~equivalents, and~~for ~~investments~~reorganization inunder ~~marketable~~Chapter ~~securities~~11 ~~has~~of ~~significantly~~the ~~declined from approximately $15~~U.~~0 million at October 31, 2004 to $1~~S.8 ~~million~~Bankruptcy atCode ~~July 31, 2007. In addition, our subordinated line of credit with Partners For Growth was teminated by mutual consent~~ on ~~August~~March 3011, ~~2007~~2009, ~~and although our line of credit with Silicon Valley~~ ~~Bank~~We ~~was~~are ~~expanded~~subject byto ~~$1.5 million with a bridge loan sublimit on August 24, 2007,~~ the ~~line~~risks ~~of credit expires on October 3, 2007,~~ and ~~there~~uncertainties isassociated nowith ~~assurance that~~a itChapter ~~will be renewed~~11 Proceeding.

~~The~~For the ~~negative~~duration ~~cash~~of ~~flow~~our weChapter ~~have~~11 ~~sustained~~Proceeding, ~~has materially reduced~~ our ~~working capital~~operations, ~~which~~ inincluding ~~turn, could materially and negatively impact~~ our ability to ~~fund future~~ ~~operations~~execute ~~and continue to operate as a going concern. Management has taken and continues to take actions intended to improve~~ our ~~results.~~business ~~These actions include reducing cash operating expenses~~plan, ~~developing~~are ~~new~~subject ~~technologies~~to ~~and~~the ~~products, improving~~risks ~~existing technologies~~ and ~~products,~~uncertainties ~~and expanding into new~~associated ~~geographical~~with ~~markets~~bankruptcy. ~~The availability~~ ofRisks ~~necessary working capital, however, is subject to many factors beyond our control, including our ability to obtain additional financing, our ability to increase revenues~~ and touncertainties ~~reduce~~associated ~~further~~with our ~~losses~~Chapter ~~from operations,~~11 ~~economic~~Proceeding ~~cycles,~~include ~~market acceptance of our products, competitors’ responses to our products,~~ the ~~intensity of competition in our markets, and the level of demand for our products.~~ following:

37· 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;

~~The amount~~· ~~of working~~our ~~capital~~ability ~~that~~to weobtain ~~will~~court ~~need~~approval inwith ~~the~~respect ~~future~~to ~~will~~motions ~~also~~in ~~depend~~the onChapter ~~our~~11 ~~efforts and~~Proceeding ~~many~~prosecuted ~~factors,~~from ~~including:~~time to time;

•· ~~Our~~our ability to ~~successfully~~ develop, ~~market and sell our products~~prosecute, ~~including~~confirm ~~the~~and ~~successful~~consummate ~~further~~a ~~development~~plan ~~and launch~~ of ~~our~~reorganization ~~new~~with ~~ClearPath~~respect ~~device~~to ~~for~~the ~~treatment~~Chapter of11 ~~breast cancer~~Proceeding;

•· ~~Continued~~our ~~scientific~~ability ~~progress~~to inobtain ~~our~~and ~~discovery~~maintain normal terms with vendors and ~~research~~service ~~programs~~providers;

•· ~~Levels~~our ofability ~~selling~~to ~~and~~maintain ~~marketing~~contracts ~~expenditures~~ that ~~will~~are becritical ~~required~~ to ~~launch~~our ~~future products and achieve and maintain a competitive position in the marketplace for both existing and new products~~operations;

•· ~~Structuring~~ our ~~businesses~~ability into ~~alignment~~retain ~~with~~and ~~their~~motivate ~~revenues~~key personnel through the process of reorganization, or to ~~reduce~~attract ~~operating~~new ~~losses~~employees; and

•· ~~Levels~~risks ofassociated ~~inventory~~with third parties seeking and ~~accounts~~obtaining ~~receivable~~court ~~that~~approval weto ~~maintain;~~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.

•- ~~Level of capital expenditures;~~42 -

•In addition, ~~Acquisition~~the oruncertainty ~~development~~regarding the eventual outcome of our restructuring which involves the sale of both of our product lines, and the effect of other unknown ~~businesses~~adverse factors, ~~technologies~~could orprevent ~~products;~~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 ~~time~~recovery to creditors and/or ~~costs~~shareholders, ~~involved~~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 ~~obtaining~~the Chapter ~~regulatory~~11 ~~approvals;~~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 ~~The~~Company ~~costs~~intends ~~involved~~to insell ~~preparing,~~its ~~filing,~~brachytherapy ~~prosecuting,~~business ~~maintaining,~~and ~~defending,~~its ~~and~~Clearpath product ~~enforcing~~development ~~patent~~as ~~claims;~~the ~~and~~essential part of its plan of reorganization.

•Out Operating ~~The~~Company ~~potential~~must ~~need~~develop a plan of reorganization by March 31, 2009 to effectively ~~develop~~emerge from its Chapter 11 Proceeding. As a part of that reorganization plan, ~~acquire~~we orhave ~~license~~reached ~~new~~agreement ~~technologies~~with Best Theratronics, Ltd, a Canadian company, to purchase substantially all the assets and ~~products~~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.

WeIn ~~will need~~addition, tothe ~~raise~~Operating ~~additional~~Company ~~equity~~executed ~~financing,~~a ~~reduce~~Debtor ~~operations~~In ~~and~~Possession ~~take other~~(“DIP”) ~~steps~~Financing toarrangement ~~achieve~~with ~~positive~~Portola ~~cash~~Capital, ~~flow.~~a Wecompany ~~also~~wholly ~~may~~owned beby ~~required to curtail~~ our ~~expenses~~largest orshareholder tofor ~~take~~$1.0 ~~steps~~million. ~~that~~Our ~~could~~DIP ~~hurt~~lender ~~our~~intends ~~future performance, including but not limited~~ to, ~~the~~file ~~termination~~a ~~of major portions of our research and~~motion ~~development~~with ~~activities,~~ the ~~premature~~Bankruptcy ~~sale~~Court ofto ~~some~~acquire orexclusive ~~all~~rights ofto our ~~assets~~Clearpath or product ~~lines on undesirable terms, merger with or acquisition by another~~ ~~company~~development onfor ~~unsatisfactory~~an ~~terms~~undetermined ~~or the cessation of operations~~price. We cannot assure you that we will be successful in these efforts or that any or some of the above factors will not negatively impact us. We believe that we will be able to raise sufficient cash to sustain us at least through the next twelve months.

~~Future~~Both ~~financing~~sales ~~transactions~~are ~~will~~subject ~~likely~~to ~~have~~a ~~dilutive~~bidding ~~and~~process ~~other~~that ~~negative~~may ~~effects~~be joined by parties not yet ~~on our~~known ~~existing~~to ~~shareholders~~us. The bidding process may result in a purchase price that differs substantially from that which was submitted to the Bankruptcy Court.

InWe ~~June 2006,~~consider the ~~Company~~value ~~completed a private placement~~ of ~~shares~~our ~~of its~~ common stock ~~that~~ ~~also~~to ~~includes~~be ~~6,145,967~~highly ~~shares~~speculative ofand ~~common~~we ~~stock~~strongly caution ~~issuable~~our ~~upon~~equity ~~exercise of warrants.~~holders ~~This~~that ~~financing~~our ~~resulted~~stock inmay ~~significant~~ultimately ~~dilution~~be ofdetermined ~~the~~to ~~Company’s~~have ~~current~~no ~~shareholders~~value. ~~In fiscal 2007~~ Accordingly, ~~the~~we ~~Company~~urge ~~will~~that ~~endeavor~~appropriate tocaution ~~issue~~be ~~and~~exercised ~~sell~~with ~~additional~~respect ~~equity or convertible securities~~ to ~~raise capital. If the Company does so, the percentage ownership of the Company held by~~ existing ~~shareholders~~ ~~would be further reduced,~~ and ~~existing~~future ~~shareholders~~investments ~~may experience significant dilution. In addition, new investors~~ in ~~the~~our ~~Company~~common ~~may~~stock ~~demand rights, preferences~~ or ~~privileges~~other equity ~~that differ from~~securities, or ~~are~~any ~~senior~~claims ~~to,~~relating ~~those of our existing shareholders, such as warrants in addition~~ to ~~the securities~~pre-petition ~~purchased and other protections against future dilutive transactions~~liabilities.

WeIf our ~~currently~~Operating doCompany ~~not~~is ~~meet~~successful ~~the~~in ~~continued~~selling ~~listing~~the ~~requirements~~Prostate ofBrachtherapy business and the ~~Nasdaq~~Clearpath ~~Global~~product development, we will have no operating activities ~~Market~~remaining and no source of income. The ~~Our~~risk ~~ability~~factors towhich ~~publicly~~follow orare principally ~~privately~~based ~~sell~~on ~~equity~~the ~~securities~~risks inherent in operating and ~~the~~financing our business ~~liquidity~~in ofa manner which includes our ~~common~~current ~~stock~~operations. The ~~could~~presentation of bethese ~~adversely~~risk ~~affected~~factors ifis not meant to suggest that we ~~are~~expect ~~delisted~~to own and operate ~~from~~any ~~The~~of ~~Nasdaq~~our ~~Global~~current, ~~Market.~~or any other, operating business in the future.

As of this filing, the Company does not meet the $10 million stockholders’ equity requirement under Maintenance Standard 1 for continued listing on the Nasdaq Global Market set forth in Marketplace Rule 4450(a)(3). As a result of the Company’s non-~~compliance,~~ ~~The Nasdaq Stock Market may send the~~43 Company a notice that the Company’s stock is subject to delisting from the The Nasdaq Global Market unless the Company requests a hearing with a Nasdaq Listing Qualifications Panel to appeal such delisting. A request for a hearing will stay the delisting action pending the issuance of a written determination by a Nasdaq Listing Qualifications Panel. While the Company is working diligently to meet the minimum stockholders’ equity requirement as promptly as possible, the Company can provide no assurances that a Nasdaq Listing Qualifications Panel will grant the Company’s request for continued listing on The Nasdaq Global Market. -

~~Alternatively,~~Future iffinancing ~~faced~~transactions ~~with~~will ~~such~~likely ~~delisting,~~have wedilutive ~~may~~and ~~submit~~other annegative ~~application~~effects ~~to transfer the~~on ~~listing of~~ our ~~common~~existing ~~stock to The Nasdaq Capital Market. Among other requirements, The Nasdaq Capital Market has a minimum $2.5 million~~ stockholders~~’ equity requirement and a $1~~.00 minimum bid price requirement for continued listing. As of this filing, we do not meet the minimum $2.5 million stockholders’ equity requirement or the $1.00 minimum bid price requirement for listing on the Nasdaq Capital Market.

38In 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.

~~Alternatively,~~Recent ifturmoil ~~our common~~in ~~stock is delisted by Nasdaq, our common stock may be eligible to trade on~~ the ~~American~~credit ~~Stock~~markets ~~Exchange,~~and the ~~OTC~~financial ~~Bulletin~~services ~~Board~~industry ~~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~~negatively asimpact ~~to the market value of~~ our ~~common stock~~business, ~~although~~results there can be no assurance that our common stock will be eligible for trading on any alternative exchanges or markets. In addition, we would be subject to Rule 15c2-11 promulgated by the SEC. If we fail to meet criteria set forth in the rule (for example, by failing to file periodic reports as required by the Exchange Act), various practice requirements are imposed on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. For these types of ~~transactions~~operations, ~~the~~financial ~~broker-dealer~~condition must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transactions prior to sale. Consequently, such rule may deter broker-dealers from recommending or ~~selling our common stock, which may further~~ ~~affect the~~ liquidity ~~and price of our common stock~~.

~~Delisting~~Recently, ~~from~~the ~~Nasdaq~~credit ~~could~~markets ~~adversely~~and ~~affect~~the ~~our~~financial ~~ability~~services toindustry ~~raise~~have ~~additional~~been ~~financing~~experiencing a ~~through~~period of unprecedented turmoil and upheaval characterized by the ~~public~~bankruptcy, failure, collapse or ~~private~~ sale of ~~equity~~various ~~securities.~~financial Weinstitutions ~~need~~and toan ~~raise~~unprecedented ~~additional~~level ~~financing~~of inintervention ~~fiscal~~from ~~2007~~the toUnited ~~fund~~States federal government. These conditions not only limit our ~~continuing~~access ~~operations,~~to ~~support~~capital but also make it extremely ~~the~~difficult ~~launch~~for our customers, our vendors and ~~further~~us ~~development~~to ofaccurately ~~ClearPath,~~forecast and ~~other~~plan future business activities, and they could cause U.S. and ~~Delisting~~foreign ~~from~~businesses ~~Nasdaq~~to ~~also~~slow ~~would~~spending ~~make~~on ~~trading~~ our ~~common~~products ~~stock~~and ~~more~~services, ~~difficult~~which ~~for~~would delay and ~~investors~~lengthen sales cycles. Furthermore, ~~potentially~~during ~~leading~~challenging economic times our customers may face issues gaining timely access to ~~further~~sufficient ~~declines~~credit, which could result in ~~our~~an ~~share~~impairment ~~price.~~of Ittheir ~~would~~ability to make timely payments to us. In addition, the recent economic crisis could also ~~make~~adversely impact itour ~~more~~suppliers’ ~~difficult~~ability ~~for~~to provide us towith ~~raise~~materials ~~additional~~and ~~capital.~~components, either of which may negatively impact our business, financial condition and results of operations.

~~Success~~Although we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our ~~announced~~customers ~~plans~~to make required payments and such losses have historically been within our expectations and the provisions established, we may not continue to ~~introduce~~experience athe ~~breast~~same ~~brachytherapy~~loss ~~device~~rates ~~will~~that bewe have in the past, ~~dependent~~especially ~~upon~~given athe ~~variety~~current turmoil of ~~factors~~the worldwide economy.

WeOur ~~previously~~common ~~have~~stock ~~announced~~was ~~the~~suspended ~~introduction~~by ofthe ~~ClearPath,~~NASDAQ aCapital ~~new~~Market ~~brachytherapy device~~at ~~for~~ the ~~treatment~~opening of ~~breast cancer. Because we believe that our ClearPath~~ ~~device~~business ~~has~~on ~~certain~~March ~~technical and market advantages~~23, we2009. ~~expect~~Our ~~that~~ability ~~this~~to ~~device may~~publicly ~~generate~~or ~~significant~~privately ~~revenues~~sell inequity securities and the ~~future.~~liquidity ~~There~~of ~~are~~our acommon ~~number~~stock ~~of factors which~~ could be adversely ~~affect~~affected ~~our~~by the ~~ability~~delisting tofrom ~~achieve~~the ~~this~~NASDAQ ~~goal, including:~~Capital Market.

·On ~~Successful~~March 12, ~~further~~2009, ~~development~~we ofreceived a ~~commercially~~notice ~~marketable~~from ~~device;~~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 ~~Successful~~stock ~~launch~~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 aor ~~marketing~~obtain ~~and~~accurate quotations ~~sales~~as ~~program~~to the market value of our common stock, although there can be no assurance that our common stock will be eligible for ~~this~~trading ~~device;~~on any alternative exchanges or markets.

·- ~~Our ability to protect our intellectual property through patents and licenses and avoid infringement of intellectual property of others;~~44 -

·In addition, ~~Successful~~delisting ~~completion~~from ofNASDAQ ~~technical~~could ~~improvements~~adversely affect our ability to raise additional financing through the ~~device;~~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 ~~Our~~brachytherapy ~~ability to successfully manufacture production quantities of the~~ device;.

·We ~~The~~now believe ~~acceptance~~that ofour ~~the~~Operating ~~device~~Company bywill ~~physicians~~sell ~~and~~the ~~health~~rights ~~professionals as an alternative~~ to ~~other~~the ~~approaches~~ClearPath toproduct line ~~delivering~~through ~~radiation~~the toChapter a11 ~~cancer~~Proceeding. We ~~patient’s~~expect ~~breast~~such ~~tissue~~business or to ~~other~~be supported ~~products~~by ~~using~~the abuyer ~~similar~~of ~~approach~~such ~~but employing different competitive technologies; and~~business.

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

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

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

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

• failure to prove feasibility;

• time required from proof of feasibility to routine production;

• timing and cost of regulatory approvals and clearances;

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

~~All~~We expect ofto sell our ~~product~~Prostate ~~lines~~Brachytherapy ~~are~~Product ~~subject~~Line toand ~~intense~~our ~~competition.~~ClearPath ~~Our most significant~~product ~~competitors~~development ~~have~~through ~~greater~~the ~~resources~~Chapter ~~than~~11 ~~we do~~Proceeding. If Aswe aare ~~result,~~successful in weselling ~~cannot~~such beproduct ~~certain that~~lines ~~our~~we ~~competitors~~ will ~~not~~have ~~develop~~no ~~superior~~operating ~~technologies~~assets. In addition, ~~larger~~we ~~more experienced~~may ~~sales~~not ~~forces or otherwise~~ be able to ~~compete~~raise ~~against~~adequate usproceeds ~~more effectively.~~from Ifthe wesale ~~fail~~of tosuch product ~~maintain~~lines ~~our~~to ~~competitive~~pay ~~position~~all inof ~~key~~our ~~product areas,~~creditors. We wedo ~~may~~not ~~lose~~expect ~~significant~~to continue ~~sources~~as ofa ~~revenue~~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.

- 45 -

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.

~~Our~~Because ~~primary competitors~~we inare ~~the~~a ~~brachytherapy~~small ~~seed~~company ~~business~~with ~~include:~~limited ~~Nycomed~~resources, ~~Amersham~~there ~~PLC (through~~is ~~its~~a ~~control~~risk ofthat ~~Oncura)~~potential customers ~~and~~will ~~C.R~~purchase ~~Bard, Inc.,~~products ~~both~~from oflarger ~~whom manufacture~~manufacturers, ~~and~~even ~~sell~~if ~~Iodine-125~~our ~~brachytherapy~~products are ~~seeds~~technically superior, asbased ~~well~~on asthe ~~distribute Palladium-103~~perception ~~seeds~~that ~~manufactured~~a bylarger, amore established ~~third~~manufacturer ~~party~~may ~~(in~~offer ~~the~~greater ~~case~~certainty of ~~Oncura,~~continued weproduct ~~currently~~improvements, ~~manufacture~~support aand ~~portion~~service, ofwhich ~~its~~could ~~Palladium-103~~cause ~~seed~~our ~~requirements~~revenues ~~pursuant~~ to adecline. ~~distribution~~In addition, ~~agreement~~many ~~reached~~of inour ~~July,~~competitors ~~2005);~~are ~~Core~~substantially ~~Oncology,~~larger ~~which manufactures~~ and ~~sells~~have ~~Iodine-125~~greater sales, ~~brachytherapy~~marketing ~~seeds~~ and ~~currently~~financial ~~distributes third~~resources ~~party~~than ~~manufactured~~we ~~Palladium-103~~do. ~~brachytherapy~~Developments ~~seeds;~~by ~~and~~any ~~Theragenics~~of ~~Corporation,~~these ~~which~~or ~~manufacturers~~other ~~Palladium-103~~companies ~~seeds~~or ~~and~~advances ~~sells~~by ~~Palladium-103~~medical researchers at universities, ~~and Iodine-125~~government ~~brachytherapy~~facilities ~~seeds~~or ~~directly~~private ~~and~~laboratories ~~its~~could ~~Palladium-103~~render ~~brachytherapy~~our products ~~seeds~~obsolete. ~~through~~Moreover, ~~marketing~~companies ~~relationships~~ with ~~third~~substantially ~~parties.~~greater ~~Several~~financial ~~additional~~resources, as ~~companies~~well ~~currently~~as ~~sell~~more ~~brachytherapy~~extensive ~~seeds~~experience asin ~~well.~~research ~~Our~~and ~~SurTRAK~~development, ~~strands~~the ~~and~~regulatory ~~needles~~approval ~~are~~process, ~~subject~~manufacturing toand ~~competition~~marketing, ~~from~~may abe ~~number~~in ofa ~~companies,~~better ~~including~~position to ~~Worldwide~~seize ~~Medical~~market ~~Technologies,~~opportunities ~~Inc~~created by technological advances in our industry.

40We 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 ~~new ClearPath-HDR~~current ~~device~~domestic ~~for~~direct ~~treatment~~sales offorce ~~breast cancer~~ is, ~~like~~small ~~its~~relative ~~competitors, designed~~ to ~~connect~~many ~~to a source~~ of ~~high-dose-rate~~our competitors. ~~(HDR)~~There ~~radiation which~~ is ~~administered~~ inintense acompetition ~~specially~~for ~~shielded~~skilled ~~room~~sales inand ~~a hospital. It faces competition~~marketing ~~from~~employees, ~~Cytyc~~particularly ~~Corp.~~for ~~SenoRx,~~people ~~Inc.~~who ~~and~~have ~~Cianna~~experience ~~Medical,~~in ~~(previously~~the ~~BioLucent,~~radiation ~~Inc.)~~oncology ~~The~~market. ~~MammoSite~~In ~~RTS~~addition, ~~device~~our ~~from~~Chapter ~~Cytyc~~11 ~~Corp.,~~Proceeding ~~currently~~creates ~~the~~uncertainty ~~market~~regarding ~~leader, uses~~our ~~a balloon~~ability ~~and catheter system~~ to ~~place~~continue ~~the~~as ~~radiation~~a ~~source~~going ~~directly into the post-lumpectomy cavity~~concern. AAccordingly, ~~device~~we ~~developed~~could byfind ~~SenoRx,~~it ~~Inc.~~difficult to ~~also~~hire ~~uses~~or aretain ~~balloon and~~skilled ~~catheter~~individuals ~~system~~ to ~~deliver~~sell ~~the~~our ~~radiation dose~~products. ~~The~~Any ~~SAVI~~failure ~~device~~to ~~manufactured~~build byour ~~Cianna~~direct ~~Medical~~sales ~~does~~force ~~not~~could ~~use~~adversely aaffect ~~balloon~~our growth and isour ~~comprised~~ability ofto ~~an expandable~~meet ~~bundle~~our ofrevenue ~~catheters~~goals.

~~Our~~As a ~~radiation~~result ~~reference~~of ~~source~~our ~~business~~relatively ~~also~~small issales ~~subject~~force the need to hire and train additional sales representatives to sell our ClearPath device, and the intense competition. ~~Competitors~~for inskilled ~~this~~sales ~~industry~~and ~~include~~marketing ~~AEA~~employees, ~~Technology~~our ~~PLC~~direct sales and ~~Eckert &~~marketing ~~Ziegler~~efforts ~~AG.~~may Wenot ~~believe~~be ~~that~~successful. ~~these~~If ~~companies~~we ~~have~~are anot ~~dominant~~successful ~~position~~ in ~~the~~our direct sales and ~~market~~marketing, ~~for~~our ~~radiation~~sales ~~reference~~revenue ~~source~~and ~~products~~results of operations are likely to be materially adversely affected.

~~Because we~~We ~~are a relatively small company, there is a risk that potential customers~~expect ~~will purchase~~to ~~products~~sell ~~from~~our ~~larger~~Prostate ~~manufacturers,~~Brachytherapy ~~even~~Product ifLine and our ~~products~~ClearPath ~~are~~product ~~technically~~development ~~superior,~~through ~~based on~~ the ~~perception~~Chapter ~~that~~11 aProceeding. If ~~larger,~~we ~~more~~are ~~established~~successful ~~manufacturer~~in ~~may~~selling ~~offer~~such ~~greater certainty of continued~~ product ~~improvements, support~~lines ~~and~~we ~~service,~~will ~~which~~have ~~could~~no ~~cause~~operating ~~our revenues to decline~~assets. In addition, ~~many of our~~ ~~competitors~~we ~~are~~may ~~substantially~~not ~~larger~~be ~~and~~able ~~have~~to ~~greater~~raise ~~sales,~~adequate ~~marketing and financial~~proceeds ~~resources~~from ~~than~~the wesale ~~do. Developments by any~~ of ~~these or other companies~~such orproduct ~~advances~~lines byto ~~medical~~pay ~~researchers~~all atof ~~universities, government facilities or private laboratories could render~~ our ~~products obsolete~~creditors. We ~~Moreover,~~do ~~companies with~~not ~~substantially~~expect ~~greater~~to continue ~~financial resources,~~ as ~~well as more extensive experience in research and development, the regulatory approval process, manufacturing and marketing, may be in~~ a ~~better~~going ~~position to seize market opportunities created by technological advances in our industry~~concern.

~~We are~~- ~~highly dependent on our direct sales organization, which is small compared~~46 to many of our competitors. Also, we will need to hire and train additional sales representatives to sell our ClearPath device. Any failure to build, manage and maintain our direct sales organization could negatively affect our revenues. -

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

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

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

Our 2005 agreement with Oncura, ~~for~~Inc. and our 2007 agreement with Core Oncology, Inc. for distribution of our Palladium-103 brachytherapy seeds is beare an important ~~component~~ components of that business. InAs ~~addition,~~described wein doNote ~~not~~9 ~~have~~to the Condensed Consolidated Financial Statements, Core Oncology, Inc. has served us with a ~~direct~~ ~~sales~~lawsuit ~~force~~alleging ~~for~~breach of our ~~non-therapeutic~~2007 ~~radiation~~agreement ~~source~~with ~~products~~Core Oncology, Inc., and ~~rely entirely~~has onceased ~~the~~compliance ~~efforts~~with the terms of ~~agents~~that ~~and~~agreement. ~~distributors~~Accordingly, ~~for~~Core ~~sales~~Oncology, ofInc. ~~those non-brachytherapy~~is ~~products.~~not Wecurrently distributing ~~cannot~~our ~~assure~~Palladium-103 ~~you~~brachytherapy ~~that~~seeds. If we ~~will~~are benot able to maintain our existing relationships with our other agents and distributors for ~~the~~ the sale of our Palladium-103 brachytherapy seeds ~~and~~or ~~our~~these ~~non-therapeutic~~third ~~radiation~~parties do not ~~source~~successfully distribute our products, our revenues will be adversely impacted.

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

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.

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.

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.

41Currently, 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 ~~predominantly~~ used inalmost exclusively for the treatment of prostate ~~tumors~~cancer. Further research, clinical data and years of ~~the~~experience ~~prostate.~~will Iflikely webe dorequired ~~not~~before ~~obtain~~there ~~wider~~can be broad acceptance for the use of our brachytherapy products tofor ~~treat~~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 ~~and~~or we could ~~fail~~decrease topossibly ~~achieve~~causing ~~our desired~~us ~~growth~~to ~~rate~~cease operations.

~~Currently, our~~- ~~brachytherapy products are used almost exclusively for the treatment of~~47 prostate cancer. Further research, clinical data and years of experience will likely be required before there can be broad acceptance for the use of our brachytherapy products for additional types of cancer. If our products do not become more widely accepted in treating other types of cancer, our sales could fail to increase or could decrease. -

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

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~~ 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~~President and ~~chief~~Chief ~~executive~~Executive ~~officer,~~Officer ~~L. Michael Cutrer, our executive vice president~~ and ~~chief technology~~Brett ~~officer, Troy A~~L. ~~Barring~~Scott, our ~~chief~~Senior ~~operating~~Vice ~~officer,~~President and ~~James~~Chief ~~W. Klingler,~~Financial ~~our chief financial officer~~Officer. Our future business and financial results could be adversely affected if the services of Messrs. Rush, ~~Cutrer,~~Scott ~~Barring~~ or ~~Klingler~~ or other key employees cease to be available. To our knowledge, none of our key employees have any plans to retire or leave in the near future.

Our future success and ability to grow our business will depend in part on the continued service of our skilled personnel and our ability to identify, hire and retain additional qualified personnel. 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 by a limited non-competition agreement that they sign upon employment, few of ~~our~~ 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.

42We 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.

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.

~~If a competitor infringes upon our patent or other intellectual property rights, enforcing those rights could be difficult, expensive and time~~-~~consuming,~~ ~~making~~49 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. -

43 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~~ litigation brought by WorldWide Medical Technologies in U.S. District Court against both ~~the~~ ~~Company~~us asand ~~well~~our ~~as their~~ former employee, Richard Terwilliger, who was ~~previously~~ previously our Vice-President of New Product Development. This intellectual ~~property~~ property relates to ~~the~~our ~~Company’s~~ brachytherapy business, specifically, certain needle-loading and stranding technologies. While ~~the~~we ~~Company~~do ~~does~~ not believe that itwe ~~has~~have any liability in this matter, and isare vigorously defending ~~itself~~ 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.

~~Healthcare~~As part ~~reforms,~~of the ~~changes~~sale inof ~~health~~our Non-~~care~~Therapeutic ~~policies~~Product ~~and~~Line in ~~unfavorable~~September ~~changes~~2008, we closed our North Hollywood facility and have agreed to decommission ~~third-party~~the site at our expense. We were not able to ~~reimbursements~~complete ~~for~~the ~~use~~decommissioning ofprocess ~~our~~prior ~~products~~to commencing the Chapter 11 proceeding, ~~could~~and ~~cause~~we ~~declines~~did innot obtain certification of the ~~revenues~~premises from the State of California. The ultimate resolution of the decommissioning is not certain. We ~~our~~may ~~products,~~be ~~and~~required ~~could~~under ~~hamper~~our license by the ~~introduction~~State of ~~new~~California to complete the ~~products~~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 ~~radical~~ ~~prostatectomy, or~~ RP. Although seeding generally requires less physician time than RP, lower reimbursement amounts, when combined with physician familiarity with RP, may create disincentives for urologists to perform seeding.

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

Acceptance of our products in foreign markets could be affected by the availability of adequate reimbursement or funding, as the case may be, within prevailing healthcare payment systems. Reimbursement, funding and healthcare payment systems vary significantly by country and include both government-~~sponsored healthcare~~ ~~and private insurance. We can provide no assurance that third-party~~51 ~~reimbursement will be made available with respect to treatments using our products under any foreign reimbursement system.~~ -

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

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

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

45In 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.

~~In the United~~- ~~States, medical devices are classified into three different categories,~~52 over which the FDA applies increasing levels of regulation: Class I, Class II, and Class III. The FDA has classified all of our brachytherapy products as Class I devices. Before a new device can be introduced into the United States market, the manufacturer must obtain FDA clearance or approval through either a 510(k) premarket notification or a premarket approval, unless the product is otherwise exempt from the requirements. Class I devices are statutorily exempt from the 510(k) process, unless the device is intended for a use which is of substantial importance in preventing impairment of human health or it presents a potential unreasonable risk of illness or injury. -

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

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

In addition to FDA-required market clearances and approvals, our manufacturing operations are required to comply with the FDA's Quality System Regulation, or QSR, which addresses the quality program requirements, such as a company's management responsibility for the company's quality systems, and good manufacturing practices, product design, controls, methods, facilities and quality assurance controls used in manufacturing, assembly, packing, storing and installing medical devices. Compliance with the QSR is necessary to receive FDA clearance or approval to market new products and is necessary for us to be able to continue to market cleared or approved product offerings. There can be no assurance that we will not incur significant costs to comply with these regulations in the future or that the regulations will not have a material adverse effect on our business, financial condition and results of operations. Our compliance and the compliance by some of our suppliers with applicable regulatory requirements isare 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.

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

Our future profitability will depend in part on our ability to establish, grow and ultimately maintain our product sales in foreign markets, particularly in Asia and Europe. However, we have limited experience in marketing, servicing and distributing our products in other countries. In 2006, less than 5% of our product revenues and less than 5% of our total revenues were derived from sales to customers outside the United States and Canada. Our foreign operations subject us to additional risks and uncertainties, including:

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

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

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

• longer accounts receivable collection times;

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

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

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

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

As part of our business strategy, we intend to pursue transactions that may cause us to experience significant charges to earnings that may adversely affect our stock price and financial condition.

We regularly review potential transactions related to technologies, product candidates or product rights and businesses complementary to our business. Such transactions could include mergers, acquisitions, strategic alliances, licensing agreements or co-promotion agreements. Our acquisition of Theseus Imaging Corporation in October 2000 and the acquisition of NOMOS, in May 2004, are examples of such transactions. In the future, if we have sufficient available capital, we may choose to enter into such transactions. We may not be able to successfully integrate newly acquired organizations, products or technologies into our business and the process could be expensive and time consuming and may strain our resources. Depending upon the nature of any transaction, we may experience a charge to earnings which could be material.

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

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

· 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 ~~experienced~~necessary into ~~previous~~achieve ~~periods~~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;

·- ~~Our future sales growth is highly dependent on the successful introduction of our ClearPath device;~~54 -

· ~~Our~~The ~~brachytherapy~~possibility ~~product~~that ~~lines~~unexpected ~~may~~levels ~~experience~~of ~~some~~cancellations ~~variability~~of inorders ~~revenue~~or ~~due~~backlog tomay ~~seasonality.~~affect ~~This~~certain isassumptions ~~primarily~~upon ~~due~~which towe ~~three~~base ~~major~~our ~~holidays~~forecasts ~~occurring~~and inpredictions ~~our~~of ~~first~~future ~~fiscal~~performance; ~~quarter~~ ~~and~~Changes in the ~~apparent~~general ~~reduction~~economic conditions in the ~~number~~regions in which we do business;  Unfavorable outcome of ~~procedures~~any ~~performed~~litigation; ~~during~~and ~~summer~~ ~~months~~Accounting adjustments such as those relating to reserves for product recalls, ~~which~~stock ~~could~~option ~~affect~~expensing ~~our~~as ~~third~~required ~~fiscal~~under ~~quarter~~SFAS ~~results;~~No. 123R and changes in interpretation of accounting pronouncements

·We expect ~~Estimates~~to ~~with~~sell ~~respect~~our toProstate ~~the~~Brachytherapy ~~useful~~Product ~~life~~Line and ~~ultimate~~our ~~recoverability~~ClearPath ofproduct development ~~our~~through ~~carrying~~the ~~basis~~Chapter of11 ~~assets,~~Proceeding. If ~~including~~we ~~goodwill~~are ~~and~~successful in ~~purchased~~selling ~~intangible~~such product lines we will have no operating assets. In addition, ~~could~~we ~~change~~may asnot abe ~~result~~able to raise adequate proceeds from the sale of such product ~~assessments~~lines ~~and~~to ~~decisions;~~pay all of our creditors. We do not expect to continue as a going concern.

· 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; and

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

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

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

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

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

· Unfavorable outcome of any litigation; and

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

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. ~~The~~We ~~Company~~expect ~~expects its continued~~our continued compliance with these and future rules and regulations to continue to ~~require~~ require significant resources. These new rules and regulations also may make it ~~more~~ more difficult and more expensive for us to obtain director and officer ~~liability~~ 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~~ 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 $0.8505 and $23.0075 per share in the fifty-two week period ended ~~July~~October 31, ~~2007~~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~~ unrelated to the operating performance of particular companies. Factors such as ~~announcements~~ announcements of technological innovations or new products by our competitors or ~~disappointing~~ 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 ~~June~~January ~~2006~~2008 sale of common stock and accompanying warrants, we have filed resale registration statements covering an aggregate of up to 12,~~291~~601,~~934~~ 628 shares of common stock and 6 630,~~145,967~~ 081 shares of common stock issuable to 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.

49- 55 -

~~Item~~We expect 2to sell our Prostate Brachytherapy Product Line and our ClearPath product development through the Chapter 11 Proceeding. ~~Unregistered~~ If we are successful ~~Sales~~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 ~~Equity~~such product ~~Securities~~lines ~~and~~to ~~Use~~pay all of ~~Proceeds~~our creditors. We do not expect to continue as a going concern.

~~None~~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.

~~Issuer~~The ~~Purchases~~average daily trading volume in our common stock for fiscal year 2008 was approximately 16,000 shares and the average daily number of ~~Equity~~transactions ~~Securities~~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.

InWe ~~October 2001,~~expect ~~the Board of Directors authorized a stock repurchase program~~ to ~~acquire~~sell upour toProstate ~~$10 million~~Brachytherapy ofProduct ~~the~~Line ~~Company's~~and ~~common~~our ~~stock~~ClearPath ~~in the open~~product ~~market~~development atthrough ~~any time. The number of shares of common stock actually acquired by~~ the ~~Company~~Chapter ~~will~~11 ~~depend~~Proceeding. If onwe ~~subsequent~~are ~~developments and corporate needs, and~~successful ~~the repurchase~~in ofselling ~~shares~~such ~~may~~product belines ~~interrupted~~we orwill ~~discontinued~~have atno ~~any~~operating ~~time~~assets. ~~No shares~~ In ~~were repurchased by the Company for the three months ended July 31~~addition, ~~2007.~~we ~~As of July~~may ~~31,~~not ~~2007~~be ~~and~~able ~~October 31,~~to ~~2006,~~raise aadequate ~~cumulative~~proceeds ~~total~~from ~~of 116,995 shares and 22,100 shares had been repurchased by~~ the ~~Company~~sale ~~at a cost~~ of ~~$227,000~~such ~~and $133,000,~~product ~~respectively~~lines ~~and~~to ~~are~~pay ~~reflected~~all asof ~~Treasury~~our ~~Stock on the Balance Sheet at the respective dates~~creditors. We ~~expect~~ ~~repurchases~~do ~~will~~not beexpect ~~made~~to continue inas ~~accordance with Rule 10b-18 and include~~ a ~~plan~~ ~~designed~~going ~~to satisfy the Rule 10b5-1 safe harbor~~concern.

~~Item~~Our directors, officers and principal 4.stockholders ~~Submission~~have ofsignificant ~~Matters~~voting topower aand ~~Vote~~may take actions that may not be in the best interests of ~~Security~~our ~~Holders~~other stockholders.

OnAs of ~~June 5~~January 31, ~~2007~~2009, ~~the~~our ~~Company~~officers, atdirectors ~~its~~and ~~Annual~~principal ~~Meeting~~stockholders, collectively beneficially own approximately 79% of ~~Stockholders~~our common stock in the aggregate. As a result, ~~elected~~these ~~nine~~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 toand ~~hold~~approval ~~office~~of significant ~~until~~corporate transactions. This concentration of ownership may have the effect ~~2008~~of ~~Annual~~delaying ~~Meeting~~or preventing a change in control and might adversely affect the market price of our common stock.

~~The~~Some ~~following~~provisions ~~table~~of ~~includes~~our ~~those~~charter ~~persons~~documents ~~nominated~~may ~~and~~make ~~elected~~takeover asattempts ~~directors~~difficult, towhich ~~hold~~could ~~office~~depress ~~until~~ the ~~2008~~price ~~Annual Meeting~~ of ~~Stockholders,~~our ~~including~~stock ~~the number of shares cast for, withheld, abstained~~ and ~~broker~~inhibit ~~non-votes~~your ~~with~~ability ~~respect~~ to receive a ~~each~~premium ofprice ~~the~~for ~~nominees:~~your shares.

Description	For	Withheld	Abstained	Broker Non-Votes
L. Michael Cutrer	22,198,438	360,118	---	---
John A. Friede	22,279,911	278,645	---	---
Dr. Wilfred E. Jaeger	22,314,953	243,603	---	---
John B. Rush	22,299,953	258,603	---	---
John M. Sabin	22,291,879	266,677	---	---
Richard A. Sandberg	22,116,899	441,657	---	---
Dr. Gary N. Wilner	22,307,129	152,427	---	---
Nancy J. Wysenski	22,120,903	437,653	---	---
Roderick A. Young	22,305,929	252,627	---	---

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.

~~Item~~We 5.do ~~Other~~not ~~Information~~anticipate declaring any cash dividends on our common stock.

~~Completion~~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 ~~Disposition~~our business. The payment of ~~Assets~~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.

~~On September~~- ~~17, 2007 North American Scientific, Inc. (“NASI”) completed the~~56 disposition of its NOMOS Radiation Oncology business (the “NOMOS Transaction”). In connection with the NOMOS Transaction, NOMOS Corporation (“NOMOS”) sold substantially all of its assets, including accounts receivable, contract rights, inventory, equipment and intellectual property, but excluding cash and certain other assets, to Best Medical International, Inc. (“Best”). The purchase price was $500,000 cash at closing, plus assumption of certain obligations and liabilities of NOMOS by Best, including approximately $3.1 million of liabilities for warranty and maintenance agreements, $0.2 million of other accrued liabilities, as well as the NOMOS facility lease in Cranberry Township, Pennsylvania. NOMOS retained certain other liabilities, including certain trade accounts payable and certain employee obligations. -

Entry into a Material Definitive Agreement

On September 14, 2007, NASI and its wholly-owned subsidiary, North American Scientific, Inc., a California corporation (collectively, the “Company”), entered into a Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”) with Silicon Valley Bank (“Silicon Valley”). The Fourth Amendment amended the Loan and Security Agreement dated October 5, 2005 (the “Loan Agreement”). The Fourth Amendment included: (i) a forbearance by Silicon Valley from exercising its rights and remedies against the Company, until such time as Silicon Valley 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 and August 31, 2007, and (ii) a consent to a subordinated debt facility of up to $750,000 with Agility Capital LLC. In connection with the Fourth Amendment, Silicon Valley consented to the NOMOS Transaction and released its lien on the NOMOS assets. A copy of the Fourth Amendment is attached hereto as Exhibit 10.3.

Item 6.

Exhibits

(a) Exhibits.

~~Exhibits No.~~	~~Title~~Exhibits No.	Title
10.1	Third Amendment to Loan and Security Agreement dated August 24, 2007, between Silicon Valley Bank, North American Scientific, Inc., a Delaware corporation, North American Scientific, Inc., a California corporation, and NOMOS Corporation.
	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.
10.2	Agreement among North American Scientific, Inc., NOMOS corporation, and Best Medical International, Inc., dated as of September 11, 2007, incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed September 14, 2007.
	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.
10.3	Fourth Amendment and Forbearance to Loan and Security Agreement dated September 14, 2007, between Silicon Valley Bank, North American Scientific, Inc., a Delaware corporation, and North American Scientific, Inc., a California corporation.
	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.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	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.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	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.
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	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

51- 57 -

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.
September 19, 2007	By:	/s/ John B. Rush
March 23, 2009	By:	/s/ John B. Rush
		Name: John B. Rush
		Name:	John B. Rush
		Title: President and Chief Executive Officer (Principal Executive Officer)
		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)

September 19, 2007	By:	/s/ James W. Klingler
		Name: James W. Klingler
		Title: Senior Vice President and Chief Financial Officer (Principal Financial Officer)

- 58 -

52Exhibit 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.

- 59 -

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