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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended - June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-27094
FIRST AMERICAN SCIENTIFIC CORP.
(Exact name of Company as specified in its charter)
Nevada 88-0338315
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
409 Granville Street
Suite 1003
Vancouver, British Columbia V6C 1V5
(Address of principal executive offices, including postal code.)
(604) 681-8656
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock
Securities registered pursuant to Section 15(d) of the Act:
Title of each class
None
Indicate by check mark whether the Company (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 Company was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The number of shares outstanding each of the Registrant's classes
of Common Stock, as of November 10, 1999 was 72,946,018.
Documents Incorporated by Reference
1. Form S-8 Registration Statement filed with the Securities and
Exchange Commission on June 26, 1996.
2. Form 10-K for the period ending June 30, 1996.
3. Form 10-K for the period ending June 30, 1997.
4. Form 10-K for the period ending June 30, 1998.
5. Form S-8 Registration Statement filed with the Securities and
Exchange Commission on September 13, 1999.
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PART I
Item 1. BUSINESS
General
FIRST AMERICAN SCIENTIFIC CORP. (the "COMPANY") was incorporated
under the laws of Nevada on April 12, 1995. Soon after incorporation,
the Company acquired licensing rights to the KINETIC DISINTEGRATION
SYSTEM (KDS), which is a highly refined micronizing process utilizing
kinetic energy to disintegrate non-ferrous material such as rubber,
glass, and various industrial minerals. The initial purpose of the
Company was to develop, market, manufacture, distribute, and sell KDS
equipment. The areas of interest were rubber, sludge and industrial
minerals, including minerals such as gypsum, phosphates, sulfates, and
nitrates. Other areas of interest were wallboard recycling, and
recovery of minerals from black sands, and gold tailing deposits.
The Company executed three licensing agreements with the original
owners of the technology. The first agreement in June 1995, dealt with
processing rubber and glass. The second agreement in February 1996
covered gypsum and the third agreement, in May 1996, covered any other
applications.
In June 1997 the Company acquired the rights to all patents
(either issued or pending), CAD drawings, blueprints, and all other
data pertaining to the technology and its patent process. The purchase
was subject only to settlement of payments terms as agreed.
Business
The KDS system produces extremely fine powders, from any number of
raw materials or recycled product. The KDS system utilizes a highly
refined process using kinetic energy technology and standing sound
waves for the disintegration of materials.
These fine powders referred to as MICROFINE ( ) normally have a
higher market value and are used as high performance fillers and
additives in a variety of compounds and emulsions. The product produced
in extremely fine, like a talcum powder, and assuming consistency in
size of particles, can be very useful in various industrial
applications, including plastics, tire recycling, etc.
While the initial thrust of the Company was in the area of rubber
recycling, the Company decided on additional research to enhance the
consistency of particle size, and volumes, and instead, the company
turned its focus to industrial minerals.
The Company opened a plant in late 1996 to process industrial
gypsum but closed this operation in June 1998 because of lack of supply
of gypsum and a lack of working capital to conduct this business on an
economically sound basis.
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The Company has continued its research in sludge and rubber, and
is currently not producing any powders, nor does it have any contracts
to produce any powders. There is no assurance that the Company will
produce any powders in the future or will enter into any contracts with
anyone to produce any powders.
The Company is continuing its research in Northern Ireland in the
areas of rubber, sludge, wood chips, and computer boards. In the state
of Washington, the Company is continuing its research in the area of
fine mineral recovery from gold tailings, and black sands.
The KDS machine weighs approximately five (5) tons and measures
sixteen (16) feet (H), x ten (10) feet (L) eight (8) feet (W). The
feed material is typically one inch in diameter and carried by a
pneumatic lift and material grading system, passing through the KDS
system within seconds.
The life span of the KDS is greater than ten (10) years. Ongoing
service is minimal and requires less than thirty minutes per day and
twenty-four hour servicing twice a year. Manufacturing of the KDS will
be contracted out.
During the fiscal year ending June 30, 1999, sales amounted to
$285,000 from the sale of the KDS system. Final results for 1999 were
below expectations but recent testing results have provided management
with a clear indication that sales in the current fiscal year should
exceed 1999.
The Company's micronizing system can cost effectively process any
of the industrial minerals such as gypsum, limestone, sulphur,
dolomite, and various phosphates and nitrates into MICROFINE ( )
powders and has the unique capability of being able to "prescription-
blend" any combination of minerals for more optimal results.
Research carried out during the year has focused on sludge, rubber
and special minerals, such as gold recovery from black sands and
tailings. These tests are being carried out in the State of Washington,
and there is no assurance that any operations will ever be initiated as
a result of these tests, in the State of Washington.
The Company entered into a licensing agreement in September 1998
with The Green Leaf Fibre Company Ltd. (hereinafter "GlF") of Northern
Ireland for GLF to conduct research and development testing within the
United Kingdom on the commercial viability of the Company's KDS system.
This research continues for both sludge and rubber processing.
Summary of Exclusive Agreements with Spectrasonic Corp. and Ashford
Holdings Ltd.
On June 22, 1995 the Company entered into an Exclusive License
Agreement with Spectrasonic. The contract is for a period of 99 years.
Under the terms of the June 22, 1995 agreement, Spectrasonic granted
the Company the exclusive license to develop, market, manufacture,
distribute, and sell equipment, technology products, and services
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worldwide using the KDS system as it relates to rubber and glass
disposal. The contract price for this license was $550,000. The Company
issued 250,000 common shares to Spectrasonic at an aggregate value of
US$175,000 plus cash of $375,000. This contract has been fully paid.
On February 22, 1996 the Company executed a License Agreement with
Spectrasonic Corp for the exclusive rights to exploit, develop, use,
manufacture, market, distribute and sell KDS systems as it relates to
gypsum disintegration, disposal, recycling, remanufacturing or
manufacturing, using used or raw materials. The license is for a period
of 99 years. The contract price for this was US$775,000, consisting of
1,000,000 common shares at $0.50 per share, plus cash payments of
US$275,000. This contract has been fully paid. This contract is
exclusive except for a small operator in the State of Washington who
has certain rights to continue his operation. This operation has not
nor will not have any significant impact on the operation of the
Company.
On May 17, 1996, the Company executed a further License Agreement
with Spectrasonic Corp wherein it acquired the worldwide rights to all
and any kinds of materials not covered in previous agreements with
Spectrasonic. This agreement covers both used and new materials, and
covers disintegration, disposal, recycling, remanufacturing or
manufacturing or any kinds of materials using the KDS equipment or
technology. This agreement is for a period of 99 years. The
consideration is 1,000,000 shares of common stock at $0.50 per share
plus payment of $1,000,000 in Canadian funds (US$680,000) by January 2,
1997.This payout schedule was amended on October 24, 1996, and the
balance outstanding at June 30, 1999 was $302,000. Subsequent to this
agreement, Spectrasonic advised the Company that its interests had been
assigned to Ashford Holdings Ltd. While the company is technically in
default on the payout of this agreement, negotiations are underway
with Ashford to settle this balance.
On July 2, 1997 the Company acquired all patents issued, to be
issued, or pending, as well as all manufacturing rights, drawings,
blueprints, CAD drawings, for a total consideration of 1,000,000 common
shares at $0.25 per share plus US$500,000 payable on the basis of
US$50,000 per KDS machine sold, until 10 machines are sold. A patent
was issued on November 24, 1998, and its U.S. patent number is
5,839,671.
Market
The Company is not currently producing any KDS machines although
they are on the opinion that a market for the sale of the KDS machine
exists. In spite of this belief, there is no assurance that the Company
will produce any KDS machines in the future.
The Company has competition from other producers of Microfine ( )
powders, most of who have greater financial resources than the Company.
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Competition
The Company competes with other producers of gypsum and gypsum
powder who have superior financial and manufacturing capabilities. The
Company believes the market is sufficiently large, and its product
sufficiently unique, that superior competition will not effect the
Company's operations.
Company Facilities
The Company's corporate offices are located at 1003-409 Granville
St, Vancouver BC Canada, V6C 1T2. The phone number of the Company is
(604) 681-8656 and the fax number is (604) 685-0698. The premises are
leased for a three year period commencing August 1, 1998 at a monthly
rental of US$1,000.
The Company has maintained a branch office at 4100 Burr Street,
Bakersfield, CA. 93308. This lease has expired and negotiations are
underway for renewal of this lease. The premises consist of 3 acres of
land and a 5,000 square foot building. No payments are currently being
made on this property.
Employees
The Company currently has no employees other than the President
and CEO who is not paid a salary. The Company engages personnel through
consulting agreements where necessary as well as outside consultants,
attorneys and accountants.
Other
On August 5, 1999, the Company entered into a letter of intent
with Fortune Corporation, a public company listed on the Vancouver
Stock Exchange, whereby the Company will utilize its KDS technology on
material containing gold. The Company intends to carry out testing on
materials supplied by Fortune.
On September 1, 1999, the Company entered into a formal agreement
with VideoMovieHouse.com whereby the Company will purchase all of the
shares of said company for US$250,000.
On September 1, 1999, the Company acquired 100,000 shares of
common stock of Lynx Express for US$1,000.
On May 31, 1999 the Company entered into a Memorandum of Agreement
with Ashford Holdings Ltd. wherein Ashford agrees to deliver all legal
and beneficial ownership of certain technology, free and clear of all
liens, charges and encumbrances. In return the Company agrees to pay
US$150,000 plus 500,000 common shares (legended as Reg. S stock with a
one year hold period) plus 1,000,000 in stock options at $0.025 per
share. On October 7, 1999, the parties agreed to an amendment whereby
the Company will issue 4,000,000 shares in cancellation of the
debenture of $200,000. This transaction is expected to close by
November 30, 1999.
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During the fiscal period ending June 30, 1999, the Company settled
various accounts owing by issuance of common stock.
J.K. Lovelock $93,500 1,870,000 common shares
Global Precision Investments Ltd. $ 3,750 3,750,000 common shares
M. Dimich $12,500 500,000 common shares
J.K. Lovelock $19,666 1,560,000 common shares
Ashford Holdings Ltd. $50,000 1,000,000 common shares
RISK FACTORS
1. Going Concern Opinion. During the fiscal year ended June 30,
1999, the Company had a net loss of US$65,769 compared to a net loss of
US$1,072,922 at June 30, 1998. This significant improvement in
operating results was caused primarily by ceasing operations at the
plant in Bakersfield CA. During the past year the Company concentrated
on research and machine sales, both of which require far less overhead
expenses. The loss in the current year has reduced the shareholders
equity to $3.528,000. Total liabilities of the Company have reduced to
$570,000 from $945,000 at June 30, 1998. Subsequent to the June 30,
1999 year end, agreements were reached with Ashford Holdings Ltd.
wherein their debt of $302,000 has been settled, leaving only the trade
payables outstanding. While significant improvement has been achieved,
serious concerns exist as to the ability of the Company to remain in
business.
2. Development and Market Acceptance of New Products. The
Company's success and growth will depend upon its ability to improve and
market its existing products and to successfully develop, manufacture
and market new products.
3. Liquidity; Need for Additional Financing. The Company
believes that it will need additional cash during the next twelve
months. If the Company is unable to generate a positive cash flow
before its cash is depleted, it will need to seek additional capital.
There is no assurance that the Company will be able to obtain
additional capital if required, or obtain the capital on terms and
conditions acceptable to it. The Company is currently suffering from a
lack of liquidity although its current obligations are not significant,
in spite of this, the Company continues its sales efforts while it
continuously seeks out additional capital. The Company's auditors have
also issued a going concern opinion. See "Financial Statements".
4. Dependence on Suppliers. The Company relies on a number of
suppliers to provide certain raw materials for its products. The
interruption of certain sources of supply or the failure to adapt
materials to the Company's changing technological requirements could
disrupt the Company's ability to manufacture products or cause the
Company to incur costs associated with the development of alternative
sources, either of which could adversely affect the Company's financial
performance.
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5. Technology Risk. All manufacturers, including the Company,
utilize different applications of known technology. Should a competitor
develop a technology breakthrough that cannot be adapted to the
Company's systems or develop a more effective application of existing
technology, the Company's products would be at risk of becoming
obsolete.
6. Competition. Most of the competition are Companies with
substantially greater financial, technical and marketing resources
than the Company. As the market for the Company's products expand, the
Company expects that additional competition will emerge and that
existing competitors may commit more resources to those markets. See
"Business Competition."
7. Issuance of Additional Shares. At June 30, 1999, there were
33,854,982 shares of common stock or 33.85% or the 100,000,000
authorized shares of Common Stock of the Company unissued. The Board
of Directors has the power to issue such shares, subject to shareholder
approval, in some instances. Although the Company presently has no
commitments, contracts, or intentions to issue any additional shares to
other persons, other than in the exercise of options, the Company may
in the future attempt to issue shares to acquire products, equipment,
or properties, or for other corporate purposes. Any additional issuance
by the Company , from its authorized but unissued shares, would have
the effect of diluting the interest of existing shareholders. See
"Description of Securities".
8. Indemnification of Officers and Directors for Securities
Liabilities. The Articles of Incorporation of the Company provide that
any Director, Officer, agent and /or employee will be indemnified as to
those liabilities and on those terms and conditions as are specified in
the Company Act of the State of Nevada. Further, the Company may
purchase and maintain insurance on behalf of any such persons whether
or not the Corporation would have the power to indemnify such person
against the liability insured against. The foregoing could result in
substantial expenditures by the Company and prevent any recovery from
such Officers, Directors, agents and employees for losses incurred by
the Company as a result of their actions. Further, the Company has been
advised that in the opinion of the Securities and Exchange Commission,
indemnification is against public policy as expressed in the Securities
Act of 1933, as amended, and is, therefore, unenforceable.
9. Cumulative Voting, Preemptive Rights and Control. There are
no preemptive rights in connection with the Company's Common Stock.
Shareholders may be further diluted in their percentage ownership of
the Company in the event additional shares are issued by the Company in
the future. Cumulative voting in the election of Directors is not
provided for. Accordingly, the holders of a majority of the shares of
Common Stock, present in person or by proxy, will be able to elect all
of the Company's Board of Directors. See "Description of the Securities"
10. No Dividends Anticipated. At the present time the Company
does not anticipate paying dividends, cash or otherwise, on its Common
Stock in the foreseeable future. Future dividends will depend on
earnings, if any, of the Company, its financial requirements and other
factors. See "Dividend Policy"
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11. Impact of Year 2000 Issue The Company has reviewed its
internal computer systems and products and their capability of
recognizing the year 2000 and years thereafter. The Company expects
that any costs relating to ensuring such systems to be year 2000
compliant will not be material to the financial condition or results of
operations of the Company.
12. Lack of Current Operations. The Company currently is not
producing any KDS machines nor does it have any current contracts to
manufacture any KDS machines.
13. Lack of Market Research. The Company has neither conducted
nor has the Company engaged other entities to conduct market research
such that management has assurance market demand exists for the
transactions contemplated by the Company. See "Business"
14. No Cash Dividends and None Anticipated. The Company has not
paid any cash dividends, nor does it contemplate or anticipate paying
any cash dividends upon its securities in the foreseeable future. The
Company anticipates that it will use all earnings generated from
operations to finance the growth of the Company. See "Description of
Securities" and "Dividends"
15. Product Liability. The Company could incur liability for
product defects, which result in damage from the use of its equipment
and products. Any such claims, if successful, could result in
substantial losses to the Company.
16. No Insurance Coverage. The Company, like other companies in
its industry, is finding it increasingly difficult to obtain adequate
insurance coverage against possible liabilities that may be incurred in
conducting its business activities. At present, the Company has not
secured any liability insurance. The Company has potential liability
from its general business activities, and accordingly, it could be
rendered insolvent by serious error omission.
17. Non-arms Length Transactions and Conflicts of Interest. The
Company has engaged in transactions with its Officers, Directors and
principal shareholders. Such transactions may be considered as not
having occurred at arms length. The Company will be engaged in
transactions with management and others involving conflicts of
interest, including conflicts on salaries and other payments to such
parties. See "Business"
18. Reliance Upon Current Management. The Company's current
operations and future success are greatly dependent upon the
participation of its sole officer and director, Gary Burnie. The death
or absence of Mr. Burnie in all likelihood would result in a cessation
of operations. The Company does not have an employment agreement with
Mr. Burnie.
19. Lack of Key Man Insurance. The Company has not obtained key
man life insurance on the life of its sole officer and director. The
death or unavailability of its sole officer and director could have a
material adverse impact on the operation of the Company. See
"Management"
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ITEM 2. PROPERTIES
The Company owns no real property. It leases 1,000 square feet of
office space at 409 Granville Street, Suite 1003, Vancouver, British
Columbia V6C 1T2. The cost of this space is approximately $1,000 per
month. The lease is for three years and was effective August 1, 1998.
The Company leased industrial land at 4100 Burr Street,
Bakersfield, California 93303, for the operation of its plant. In that
it closed its plant June 30, 1998, the Company continues to occupy the
premises at 4100 with the consent of the landlord. Negotiations are
currently in process whereby a renewal of the lease is being discussed.
These discussions have not yet resulted in a firm agreement. The land
consists of 100,000 square feet and the rent was $1.500 per month.
The Company owns two KDS systems and has lease/purchase agreements
on an additional two machines. The first two KDS systems were acquired
as part of the licensing agreement with Spectrasonic and are recorded
at a cost of $872,246. In the fiscal year ending June 30, 1999 no
additional funds were expended on these systems. The two other KDS
systems are being used in research and development for both sludge,
rubber and various minerals.
The Company has other fixed assets located in California. The cost
of these assets at June 30, 1999 is US$1,359,160 and consists of
bagging equipment, hoppers, electrical paneling, site preparation,
paving, construction of building, and general storage bins. The Company
has office equipment costing $23,916.
The Company has also expended costs of $2,155,000 for the
Technology License.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are pending to which the Company is
a party or of which any of the Company's property is the subject matter
other than as described below. Further no legal proceedings are known
to be contemplated by governmental authorities and no officer or
director of the Company is a party to any litigation other than as
described below:
PRIMECO V. FIRST AMERICAN SCIENTIFIC CORP., Kern County Municipal
Court, Bakersfield Judicial District Case No. 139650, filed on
approximately September 19, 1998. This complaint claims breach of
contract and accompanying causes of action seeking payment for rental
equipment. The claim is in the amount $21,231.54. The complaint has
been answered and a settlement agreement has been proposed and
accepted. The settlement will be for the amount of the claim paid out
over 10 months to be paid in full by August 30, 1998. The Company has
not made full payment and plaintiff has entered a judgment pursuant to
a stipulation for entry of judgment executed in concurrence with the
settlement agreement in the amount of $16,231.54
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DARCO EQUIPMENT VS. FIRST AMERICAN SCIENTIFIC CORP., Orange County
Superior Court, Case No. 786408, filed on approximately November 4,
1997. It is a complaint for Breach of contract and accompanying causes
of action seeking payment for equipment purchased. Management has
settle the matter out of court for $4,000.00 and the amount has been
paid in full.
KERN ROCK V. FIRST AMERICAN SCIENTIFIC CORP., Kern County
Municipal Court, Bakersfield Judicial District, Case No. 137938, filed
on approximately July 24, 1997. It is a complaint for breach of
contract and accompanying causes of action seeking payment for labor
performed. A settlement was reached in this matter whereby the Company
agreed to pay $2,000 per month until a total of $11,634.96 is paid to
plaintiff. The parties entered into a stipulation for entry of
judgment to be filed only if the Company defaulted on the payment plan.
The Company has not made full payment and plaintiff has entered a
judgment pursuant to a stipulation for entry of judgment executed in
concurrence with the settlement agreement in the amount of $5,060.14.
Plaintiff has offered to accept a settlement of $3,000, but the Company
has not accepted this offer.
TERRAIN TECHNOLOGY V. FIRST AMERICAN SCIENTIFIC CORP., Kern County
Municipal Court, Bakersfield Judicial District, Case No. 140950, filed
on approximately October 8, 1997. This complaint claims breach of
contract and accompanying causes of action seeking payment for road
work improvement. The total amount of the claim is $6,194.93.
Judgment was entered in this matter on June 4, 1998 in the amount of
$6,278.31, plus interest at the rate of 10% per annum from October 1,
1997 to May 7, 1998, totaling $374.98, plus attorneys' fees in the
amount of $2,765.00, plus costs in the sum of $231.00. No amount has
been paid toward satisfaction of this judgement.
GAHVEJJAN ENTERPRISES, INC. V. FIRST AMERICAN SCIENTIFIC CORP.,
Fresno Municipal Court, Consolidated Fresno Judicial District, Case No.
C97908858-4, filed on approximately November 17, 1997. This complaint
claims breach of contract and accompanying causes of action seeking
payment for goods delivered to the Company. This matter went to trial
on April 2, 1998 and judgment for plaintiff was rendered in the amount
$9,980.41. An abstract of judgment has been filed and the judgment has
not been satisfied.
Summan Material asserted a claim for $22,204 by demand letter of
February 12, 1997. The claim arises out of the processing of material
for Summa and the claim that product was lost and not delivered in
accordance with the time and size specifications set forth in the
contract. Management elected to vigorously oppose the claim and has
informally settled the matter.
On October 1, 1997, Scientific American, Inc. sent a letter to the
Company claiming the it infringed on federal service marks belonging to
Scientific American, Inc. No claim for any dollar figure accompanied
the demand to cease and desist from doing business under the name First
American Scientific Corp. However, a claim may include damages,
profits and attorneys' fees. No assessment of this claim is possible
at this time and further research must be undertaken to determine the
validity of this claim.
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COMMERCIAL TRADE BUREAU V. FIRST AMERICAN SCIENTIFIC CORP., Kern
County Municipal Court, Bakersfield Judicial District, Case No. 146019,
filed on June 26, 1998. This complaint seeks $17,353.76, plus costs
and attorneys' fees. An answer was filed and the matter was set for
trial on March 1, 1998. The Company has negotiated with the plaintiff
for a settlement and settlement out of court is likely to be the
outcome. If the matter is settled prior to trial and an offer has been
made by the plaintiff to settle for 30% of the claim.
WOOD V. FIRST AMERICAN SCIENTIFIC CORP., Kern County Municipal
Court, Bakersfield Judicial District, Case No. 146901, filed on August
7, 1998. This complaint seeks $16,200. The case was set for trial on
February 22, 1999, however, the matter was settled out of court
$16,200, whereby the Company agreed to a judgment in the amount stated.
No payment has been made toward satisfaction of this judgment.
FORD MOTOR CREDIT COMPANY V. FIRST AMERICAN SCIENTIFIC CORP.,
Kern County Municipal Court, Bakersfield Judicial District, Case No.
148129, filed on October 10, 1998. This complaint seeks $3,549.96, plus
attorneys' fees and costs for failure to pay on a lease executed by the
Company. No trial date has been set and discovery has been propounded
by plaintiff. Management would like to settle this matter prior to
trial. Plaintiff has made an offer to settle for $3,549.60 and this
offer was not accepted by the Company's management. It is likely that
plaintiff will prevail at trial and thus out of court settlement is
sought.
HARTWICK & HAND V. FIRST AMERICAN SCIENTIFIC CORP., Kern County
Municipal Court, Bakersfield Judicial District, Case No. 146948, filed
on August 10, 1998. This complaint seeks $18,246.44, plus costs and
attorney's fees for money not paid to plaintiff for services rendered
or goods sold. The matter has not been set for trial and plaintiff has
offered to settle this matter for 30% of the claim. The Company has
yet to accept the offer. It is likely that the plaintiff will prevail
at trial and thus the Company continues to pursue an out of court
settlement.
SMALL V. FIRST AMERICAN SCIENTIFIC CORP., Kern County Superior,
Case No. 235377 RA, filed on December 26, 1997. The plaintiff sought
damages for breach of contract in the amount of $29,235.48. The matter
was set for trial and prior to trial a settlement agreement was entered
into. The terms of the settlement required the Company to make payment
in a reduced amount by a certain dated and the Company was unable to
make the payments, thus pursuant to the agreement plaintiff can now, as
of January 1, 1999, enter a judgment, per stipulation, in the amount of
$29,037.71. To date plaintiff has not entered judgment and it is a
strong possibility that plaintiff will accept approximately $14,000 in
satisfaction of its claim.
H. LIMA CO. V. FIRST AMERICAN SCIENTIFIC CORP., Kern County
Superior Court, Case No. 235647 AEW, filed on February 6, 1998. The
plaintiff sought $69,133.62, plus interest, costs and attorneys' fees.
The matter has been settled out of court of $18,000, of which the
Company has paid $13,000. The plaintiff can at any time file a
judgment for that amount pursuant to a stipulation entered into between
the parties.
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L.A. COMMERCIAL V. FIRST AMERICAN SCIENTIFIC CORP., Kern County
Municipal Court, Bakersfield Judicial District, Case No. 144246, filed
on March 26, 1998. This complaint seeks damages for unpaid sums for
services rendered in the amount of $6,885.00, plus costs and attorneys'
fees. The matter was settled out of court on or about September 9,
1998 for $2,000, which has been paid in full.
ITO PACKING CO. V. FIRST AMERICAN SCIENTIFIC CORP., Fresno County
Municipal Court, Case No. C98906111-0, filed on August 10,1998. The
matter went to trial and judgment was rendered on January 7, 1999 in
favor of the plaintiff in the amount of $9,513.34. No amount has been
paid toward satisfaction of this judgment.
QUINN CO. V. FIRST AMERICAN SCIENTIFIC CORP., Fresno County
Municipal Court, Case No. 613896-0, filed on July 16, 1998. This
complaint seeks damages in the amount of $35,523.90 for breach of
contract. The Company filed an answer asserting various defenses to
the action. Discovery is ongoing. The plaintiff has offered to settle
the matter for 70% of the amount claimed. Management has elected to
pursue the matter and attempted to settle it for an amount less than
70% of the claim. If this matter does not proceed to trail, there is
a strong possibility that a judgment will be rendered in the full
amount of the claim plus attorneys' fees, costs and interest.
The Company has a number of commercial credit who have the ability
to being actions to recover money due them. Some of these claims will
entitle the creditor to attorneys' fees spent in recovering these funds.
In the event all parties are successful in their claims, the
Company may be forced into bankruptcy, receivership and/or forced to
cease operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No proposals have been submitted to the Company's shareholders
during the fiscal year ending June 30, 1999.
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
At June 30, 1999, the Company had 443 shareholders of record of
its Common Stock.
The Company has not paid any dividends since its inception and
does not anticipate paying any dividends on its Common Stock in the
foreseeable future.
The Company's securities are traded over-the-counter on the
Bulletin Board operated by the National Association of Securities
Dealers, Inc. under the symbol "FASC". The table shows the high and low
bid of the Company's Common Stock since February 29, 1996, when the
Company's securities began trading.
<PAGE> 14
Quarter ended BID
High Low
March 31, 1996 2 1/8 1 5/8
June 30, 1996 1 29/32 7/8
September 30, 1996 0.71 0.71
December 31, 1996 0.20 0.18
March 31, 1997 0.16 0.12
June 30, 1997 0.175 0.15
September 30, 1997 0.20 0.18
December 31, 1997 0.10 0.085
March 31, 1998 0.065 0.055
June 30, 1998 0.07 0.06
September 30, 1998 0.0275 0.0225
December 31, 1998 0.02 0.018
March 31, 1999 0.021 0.021
June 30, 1999 0.055 0.055
September 30, 1999 0.0525 0.0525
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from
the financial statements of the Company. The following table summarizes
certain financial information and should be read in conjunction with
Management's Discussion and Analysis of Results of Operations and
Financial Condition " and the Financial Statements and related notes
included elsewhere in this Statement.
<TABLE>
<CAPTION>
Year ended Year ended Year ended Year ended
06/30/99 06/30/98 06/30/97 06/30/96
<S> <C> <C> <C> <C>
Income $ 319,166 $ 665,638 $ 347,721 $ -
Cost of Sales $ 106,595 $ 290,086 $ 157,974 $ -
Gross Profit $ 212,571 $ 375,552 $ 189,747 $ -
Operating Expenses $ 278,340 $ 1,290,783 $ 1,514,381 $ 473,369
Other expenses $ - $ 157,691 $ - $ -
Net Loss $ 65,769 $ 1,072,922 $ 1,324,634 $ 473,369
Accumulated Deficit:
Beginning of Period $ 2,870,977 $ 1,798,055 $ 473,421 $ -
End of Period $ 2,936,747 $ 2,870,977 $ 1,798,055 $ 473,421
Net loss per share $ (0.001) $ (0.05) $ (0.12) $ (0.07)
Shares outstanding 66,146,018 49,326,018 13,622,448 8,505,117
Balance Sheet Data:
Working Capital $ (535,365) $ (863,909) $(2,320,026) $(1,987,273)
Total Assets $ 4,098,493 $ 4,314,959 $ 4,422,427 $ 2,932,278
Long-term Debt $ - $ - $ - $ -
Shareholders' Equity $ 3,528,427 $ 3,160,219 $ 1,947,038 $ 935,902
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Liquidity and Capital Resources
The Company closed its Bakersfield plant on June 30, 1998, because
of working capital deficiencies and continuous operating losses. This
significantly reduced the demand for capital while the Company searched
for a joint venture entity to assist in the operation of the plant.
<PAGE> 15
Discussions are underway to revisit the plant by processing another
mineral. These discussions include negotiations on a renewal of the
lease on the premises.
The Company continues to resolve its outstanding liabilities and
has achieved a significant reduction in the past 12 months. Private
placement transactions have allowed the Company to reduce its
obligation to Ashford Holdings Ltd. By $235,000 to $302,000. As well,
trade and other obligations have been reduced by $134,000 in the past
12 months. The Company currently owes $268,000 to its trade creditors
and $302,000 to Ashford Holdings Ltd. Subsequent to the year-end, the
debt to Ashford has been reduced to $200,000.
The Company continues to raise necessary capital by sale of common
stock. The monthly operating requirements of the Company and not
significant and the Company intends to continue raising necessary
capital by sale of stock until such time as its KDS technology results
in sufficient revenue to cover its obligations.
Operating losses for the fiscal year ended June 30, 1999 amounted
to $66,769, down significantly from a loss at June 30, 1998 of
$1.072,922.
While the Company has abandoned its concept of producing fine
grind gypsum at its Bakersfield CA plant, it continues to seek markets
for its KDS systems whereby others operating the resulting business and
the Company focuses on KDS systems sales and continuous product
development.
Marketing, strategic planning, financial planning and general
corporate management are conducted under the direction of Gary Burnie,
the President & CEO, and hired consultants. There is currently no
remuneration paid to Mr. Burnie other than a stock option of 1,000,000
common shares at $0.025 per share.
In May 1999, stock options were also granted to:
Jack Lovelock 1,000,000 shares at $0.001 per share
Robert Dinning 1,000,000 shares at $0.001 per share
Mr. Lovelock was CEO and a director of the Company until May 14th
1999 while Mr. Dinning was CFO and a director until May 14, 1999.
Results of Operations July 1, 1996 July 31, 1999
The Company commenced operations in March 1997 on a test basis and
became fully operational in June 1997. During the fiscal ending June
30, 1997 the Company had revenues of $347,000 and a resulting operating
loss of $1,324,000. These losses included research and development
costs of $91,000 and interest costs of $203,000. In the fiscal year
ending June 30, 1998, revenues amounted to $665,000 and operating
losses of $915,000. Adverse weather conditions caused significant
delays in delivery of raw material that resulted in cancellation of
contracts. The Company continued to experience working capital
deficiencies that also affected the operations in Bakersfield.
<PAGE> 16
During the fiscal year ending June 30, 1999, the Company had no
revenue from sale of product but did generate revenue from the sale of
a KDS system to a division of the U.S. military. Revenues for the
fiscal year amounted to $285,399 and operating losses for the year were
$66,769. The Company plans to accelerate its program of sale of KDS
systems in the next fiscal year. Research continues in Northern Ireland
and in the state of Washington.
Foreign Operations
The Company has a foreign subsidiary, 521245 B.C. Ltd. a British
Columbia corporation, which is located in Vancouver, British Columbia,
Canada. Its primary function is research and development and its
director and sole officer is Gary Burnie. All sale of KDS systems is
conducted through the parent company, and to date these sales have all
taken place in the United States. Exchange rates in the past year have
varied somewhat, having decreased from $0.72 to $0.66 in the current
fiscal year. As all sales are in U.S. dollars and the majority of its
costs incurred in Canadian currency, the impact on exchange rates has
not been material.
Inflation
Inflation is not a factor in the results for the year ending June
30, 1999. This is consistent with the previous fiscal year. Inflation
has played no factor in Capital costs incurred. In the current fiscal
year, no capital costs are contemplated and thus, inflation is not a
factor.
ITEM 8. FINANCIAL STATEMENTS
FIRST AMERICAN SCIENTIFIC CORP.
Audited Financial Statements
June 30, 1999
TABLE OF CONTENTS
AUDITOR'S REPORT . . . . . . . . F-1
FINANCIAL STATEMENTS
Balance Sheets . . . . . . . . F-2
Statements of Operations and
Comprehensive Income (Loss) . . . . . F-3
Statement of Stockholders' Equity . . . . F-4
Statements of Cash Flows . . . . . . F-5
NOTES TO FINANCIAL STATEMENTS . . . . . . F-7
<PAGE> 17
Board of Directors
First American Scientific Corp.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of First American
Scientific Corp. as of June 30, 1999 and 1998, and the related
statements of operations and comprehensive income (loss), stockholders'
equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present
fairly, in all material respects, the financial position of First
American Scientific Corp. at June 30, 1999 and 1998, and the results of
its operations, changes in stockholders' equity and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2
to the financial statements, the Company's substantial working capital
deficit and history of accumulated losses at June 30, 1999 raises
substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters are discussed in Note 2. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
November 5, 1999
F-1
<PAGE> 18
FIRST AMERICAN SCIENTIFIC CORP.
BALANCE SHEETS
ASSETS
<TABLE><CAPTION>
June 30, 1999 June 30, 1998
<S> <C> <C>
CURRENT ASSETS
Cash $ 25,690 $ 1,133
Accounts receivable 9,007 32,915
Inventory - 5,500
------------ -------------
TOTAL CURRENT ASSETS 34,697 39,548
------------ -------------
PROPERTY AND EQUIPMENT
Property and equipment 1,589,519 2,260,799
Less: Accumulated depreciation (327,567) (200,142)
------------ -------------
TOTAL PROPERTY AND EQUIPMENT 1,261,952 2,060,657
------------ -------------
OTHER ASSETS
Technology licenses -
net of amortization 1,629,775 1,756,775
Patents and manufacturing rights -
net of amortization 218,265 234,931
Deposits 11,431 13,735
------------ -------------
TOTAL OTHER ASSETS 1,859,471 2,005,441
------------ -------------
TOTAL ASSETS $ 3,156,120 $ 4,105,646
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ - $ 6,061
Accounts payable and
accrued expenses 268,061 322,366
Short term loans payable - 80,000
License agreement payable
- Spectrasonic Corp. 302,000 537,000
------------ -------------
TOTAL CURRENT LIABILITIES 570,061 945,427
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $.001 par value
100,000,000 shares authorized
66,146,018 and 49,326,018 shares
issued, respectively 66,146 49,326
Additional paid-in capital 6,399,031 6,027,370
Stock options and subscriptions
receivable - (45,500)
Accumulated deficit (3,882,072) (2,870,977)
Accumulated other comprehensive
income 2,954 -
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 2,586,059 3,160,219
------------ -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,156,120 $ 4,105,646
============ =============
</TABLE>
The accompanying notes are an integral part of these financial,
statements.
F-2
<PAGE> 19
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1999 June 30, 1998
<S> <C> <C>
Revenues $ 285,399 $ 665,638
Cost of Sales 106,595 290,086
------------- -------------
Gross Profit 178,804 375,552
Operating Expenses 594,993 1,290,783
------------- -------------
Net Loss from Operations (416,189) (915,231)
Other Income (Expense)
Miscellaneous 445 -
Loss on abandonment of assets - (157,691)
Loss on impairment of assets (629,118) -
------------- -------------
Income before extraordinary
items (1,044,862) (1,072,922)
Extraordinary Income
Gain on debt forgiveness 33,767 -
------------- -------------
Net Loss (1,011,095) (1,072,922)
Other Comprehensive Income
Foreign currency translation gain 2,954 -
------------- -------------
Comprehensive Net Income (Loss) $ (1,008,141) $ (1,072,922)
============ ============
Basic and diluted net loss
per common share $ (0.01) $ (0.04)
============ ============
Weighted average number of basic
and diluted common stock shares
outstanding 55,876,015 23,656,167
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 20
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Shares Amount Capital
<S> <C> <C> <C>
Balance, June 30, 1997 13,622,448 $ 13,623 $ 3,731,471
Issuance of stock at $.05
- $.158 8 per share for
settlement of debt 27,919,250 27,919 1,606,268
Issuance of stock at $.02
- $.20 per share for cash 3,000,000 3,000 237,000
Issuance. of stock at $.25
for purchase of patent and
manufacturing rights 1,000,000 1,000 249,000
Issuance of stock at $.10 -
$.227 per share for purchase
of Bakersfield assets 223,000 223 31,377
Issuance of stock at $.117 -
$.05 per share for settlement
of royally agreement 3,011,320 3,011 167,304
Exercise of stock, options
at $.01 per share 550,000 550 4,950
Net loss for year ended
June 30, 1999 - - -
---------- -------- -----------
Balance, June 30, 1998 49,326,018 49,326 6,027,370
Issuance of stock for services
at $.001 - $.025 per share 8,010,000 8,010 25,230
Issuance of stock for repayment
of debt at $.01 - $.025
per share 3,160,000 3,160 96,506
Issuance of stock for partial
payment of license agreement
at $.05 per share 1,000,000 1,000 49,000
Issuance of stock for cash at
$.04 per share 4,650,000 4,650 200,925
Stock subscriptions collected - - -
Net loss for year ended
June 30, 1999 - - -
Foreign currency translation
gain - - -
----------- -------- -----------
Balance June 30, 1999 66,146,018 $ 66,146 $ 6,399,031
=========== ======== ===========
The accompanying notes are an integral part of these financial
statements.
F-4a
<PAGE> 21
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF STOCKHOLDER'S EQUITY
Accumulated
Subscriptions Other Total
& Options Accumulated Comprehensive Stockholders'
Receivable Deficit Income Equity
<S> <C> <C> <C> <C>
Balance, June 30,1997 $ - $ (1,798,055) $ - $ 1,947039
Issuance of stock at
$.05 - $.158 per share
for settlement of debt - - - 1,634,187
Issuance of stock at
$.02 - $.20 per
share for cash (40,000) - - 200,000
Issuance of stock at
$.25 for purchase
of patent and
manufacturing rights - - - 250,000
Issuance of stock at
$.10 - $.227 per share
for purchase of
Bakersfield assets - - - 31,600
Issuance of stock at $.117
- $.05 per share for
settlement of royalty
agreement - - - 170,315
Exercise of stock options at
$.01 per share (5,500) - - -
Net loss for year ended
June 30, 1999 - (1,072,922) - (1,072,922)
--------- ------------ --------- -----------
Balance, June 30, 1998 (45,500) (2,970,977) - 3,160,219
Issuance of stuck for
services at $.001 -
$.025 per share - - - 33,240
Issuance of stock for
repayment of debt at
$.01 - $.025 per share - - - 99,666
Issuance of stock for
partial payment of
license agreement
at $.05 per share - - - 50,000
Issuance of stock for
cash at $.04 per share - - - 205,575
Stock subscriptions
collected 45,500 - - 45,500
Net loss for year ended
June 30, 1999 - (1,011,095) - (1,011,095)
Foreign currency
translation gain - - 2,954 2,954
--------- ------------ --------- -----------
Balance, June 30, 1999 $ - $ (3,882,072) $ 2,954 $ 2,586,059
======== ============ ======== ===========
</TABLE>
F-4b
<PAGE> 22
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1999 June 30, 1998
<S> <C> <C>
CASH FLOWS PROVIDED (USED) IN
OPERATING ACTIVITIES
Net income (loss) $ (1,011,095) $ (1,072,922)
Depreciation and amortization 313,255 323,041
Impairment of assets 629,118 -
Adjustments to reconcile net loss
to net cash used by operations:
Services paid by issuance of stock 33,240 13,500
Decrease (increase) in accounts
receivable 23,908 (5,475)
Decrease (increase) in inventory 5,500 49,876
Decrease (increase) in prepaid
expenses - 18,836
Decrease (increase) in deposits 2,304 1,833
(Decrease) increase in accounts
payable (60,355) (63,683)
(Decrease) increase in litigation
reserve - (62,061)
Payment on license agreements
payable (185,000) -
----------- ------------
Net cash (used) in operating
activities (249,125) 797,055
----------- ------------
CASH FLOWS PROVIDED (USED) IN
INVESTING ACTIVITIES
Net cash provided (used) in
investing activities - -
----------- ------------
CASH FLOWS PROVIDED (USED)
IN FINANCING ACTIVITIES
Borrowings 80,467 789,977
Payments on borrowings (12,360) (200,000)
Proceeds from sales of stock 205,575 200,000
----------- ------------
Net cash provided by financing
activities 273,682 789,977
----------- ------------
NET INCREASE (DECREASE) IN CASH $ 24,557 $ (7,078)
=========== ============
</TABLE>
The accompanying notes are an integral part. of these financial
statements.
F-5
<PAGE> 23
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1999 June 30, 1998
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH
(Balance forward) $ 24,557 $ (7,078)
CASH - Beginning of year 1,133 8,211
---------- ------------
CASH - End of year $ 25,690 $ 1,133
========== ============
SUPPLEMENTAL CASHFLOW DISCLOSURES
Interest $ - $ 8,787
========== ============
Income Taxes $ - $ -
========== ============
NON-CASH INVESTING ACTIVITIES
Common. stock. issued for payment
on fixed assets $ - $ 31,600
Common stock issued for payment on
royalty agreements $ - $ 170,315
NON-CASH FINANCING ACTIVITIES
Common stock. issued, for payment on
patents and manufacturing rights $ - $ 250,000
Common stock issued for services
rendered $ 33,240 $ -
Common stock issued for exchange
of debt $ 209,060 $ 1,634,187
Common stock issued for payment on
worldwide technology license $ 50,000 $ -
Common stock issued for
commissions $ 3,300 $ 13,500
</TABLE>
The accompanying notes are an integral part of these financial
state ments,
F-6
<PAGE> 24
FIRST AMERICAN SCIENTIFIC CORP
Notes to the Financial Statements
June 30, 1999
NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS
First American Scientific Corp., (hereinafter "the Company"), was
incorporated in April 1995 under the laws of the State of Nevada
primarily for the purpose of manufacturing of rubber powder for
industrial fillers, and has acquired the rights to process and sell
industrial products such as gypsum, limestone, and sulfur. The Company
maintains an office in Vancouver, British Columbia, Canada.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of First American
Scientific Corp. is presented to assist in understanding the Company's
financial statements. The financial statements and notes are
representations of the Company's management which is responsible for
their integrity and objectivity. These accounting policies conform to
generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Going Concern
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern.
As shown in the accompanying financial statements, the Company has
incurred an accumulated deficit of $3,882,072 through June 30, 1999,
and has a working capital deficit. The Company currently putting
technology in place which will, if successful, mitigate these factors
which raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in
existence.
Management has established plans designed to increase the sales of the
Company's products. Management intends to seek new capital from new
equity securities offerings that will provide funds needed to increase
liquidity, fund internal growth and fully implement its business plan.
Accounting Method
The Company's financial statements are prepared using the accrual method
of accounting
Earnings (Loss) Per Share
In June 1999, the Company adopted Statement of Financial Accounting
Standards Statement (SFAS) No. 128, Earnings Per Share. Basic earnings
(loss) per share is computed using the weighted average number of
common shares outstanding. Diluted net loss per share is the same as
basic net loss per share as the inclusion of common stock equivalents
would be antidilutive.
F-7
<PAGE> 25
FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Financial Statements
June 30, 1999
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all
short-term debt securities purchased with a maturity of three months or
less to be cash equivalents.
Provision for Taxes
At June 30, 1999, the Company had net operating accumulated losses of
approximately $3,800,000. No provision for taxes or tax benefit has
been reported in the financial statements, as there is not a measurable
means of assessing future profits or losses.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates
and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated
amounts.
Compensated Absences
Employees of the Company are entitled to paid vacation, paid sick days
and personal days off, depending on job classification, length of
service, and other factors. It is impracticable to estimate the amount
of compensation for future absences, and, accordingly, no liability has
been recorded in the accompanying financial statements. The Company's
policy is to recognize the costs of compensated absences when actually
paid to employees., however the Company has no employees and utilizes
consultants only at this time.
Year 2000
The Company, like other firms, could be adversely affected if the
computer systems used by it, its suppliers or customers do not properly
process and calculate date-related information and data from the period
surrounding and including January 1, 2000. This is commonly known as
the "Year 2000" issue. Additionally, this issue could impact non-
computer systems and devices such as production equipment.
At this time, because of the complexities involved in the issue,
management cannot provide absolute assurances that the Year 2000 issue
will not have an impact on the Company's operations.
The Company has reviewed its technology, including software and
hardware, and has determined that there will be no adverse effects to
the Company's operations regarding Year 2000 issues. Management also
believes that Year 2000 issues should not adversely affect the ability
of its clients and customers to conduct business with the Company. Any
costs associated with Year 2000 compliance are expensed when incurred.
F-8
<PAGE> 26
FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Financial Statements
June 30, 1999
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment Reporting
The company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in the fiscal year ended June 30,
1999. SFAS No. 131 requires disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No. 131 did
not affect the Company's results of operation or financial position.
The Company's Bakersfield plant was not in operation during 1999,
therefore there is no segment reporting required.
Revenue and Cost Recognition
Revenues are recognized when products are delivered.
Costs include all direct material and labor costs and those indirect
costs related to the products. Changes in job performance, job
conditions, and estimated profitability may result in revisions to
costs and income and are recognized in the period in which the
revisions are determined.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
using the straight line method over the estimated useful lives of the
assets. The useful lives of property, plant and equipment for purposes
of computing depreciation are five to forty years. The following is a
summary of property, equipment and accumulated depreciation.
June 30, 1999 June 30, 1998
Ultrasound equipment $ 872,246 $ 872,246
Plant assets and equipment 730,043 1,359,161
Office equipment 23,916 29,916
Leasehold improvements 5,476 5,476
----------- -----------
Total assets 1,631,681 2,260,799
Less accumulated depreciated (327,567) (200,142)
-----------
$ 1,304,114 $ 2,060,657
============ ============
Depreciation and amortization expense for the year ended June 30, 1999
and 1998 were $313,255 and $323,041, respectively. The Company
evaluates the recoverability of property and equipment when events and
circumstances indicate that such assets might be impaired. The Company
determines impairment by comparing the undiscounted future cash flows
estimated to be generated by these assets to their respective carrying
amounts. During 1999, the Company suspended operations at its
Bakersfield location and determined that plant assets were impaired by
$629,118.
Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized. The cost and related reserves of assets
sold or retired are removed from the accounts, and any resulting gain
or loss is reflected in results of operations.
<PAGE> 27
FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Financial Statements
June 30, 1999
NOTE 3 - PROPERTY AND EQUIPMENT (Continued)
Technology licenses, patents and manufacturing rights are stated at
cost. Amortization is provided using the straight-line method over the
estimated useful lives of the assets, which is fifteen years. The
following is a summary of technology licenses, patents and
manufacturing rights and accumulated amortization:
June 30, 1999 June 30, 1998
Technology license $ 1,905,000 $ 1,905,000
Patents and manufacturing rights 250,000 250,000
----------- -----------
2,155,000 2,155,000
Less accumulated amortization (306,960) (163,293)
----------- -----------
$ 1,848,040 $ 1,991,707
=========== ============
NOTE 4 COMMON STOCK AND WARRANTS
On June 4, 1998, the Board of Directors authorized and increased common
stock from 50,000,000 to 100,000,000 authorized shares.
During 1999, the Company issued 8,010,000 shares of common stock for
consulting, advertising and other services. The Company valued these
services at $33,240. The Company issued 3,160,000 shares of common
stock for repayment of loans from related parties totaling $99,666 and
another 1,000,000 shares of common stock were issued, valued at
$50,000, for partial payment of license agreements. The Company issued
4,650,000 shares of common stock for cash at $0.04 per share, thereby
raising $205,575.
At June 30, 1998, stock subscriptions and options receivable was
$45,500. This amount was paid during 1999.
NOTE 5 - STOCK OPTIONS
In September 1998, the Company adopted the First American Scientific
Corp. 1998 Directors and Officers Stock Option Plan, a non-qualified
plan. This plan allows the Company to distribute up to 15,000,000
shares of common stock to officers, directors, employees and
consultants through the authorization of the Company's Board of
Directors.
In the year ending June 30, 1999, the Company issued 3,300,000 common
stock shares for the services of consultants. The Company valued these
services at $3,300.
The fair value of each option granted is estimated on the grant date
using the Black-Scholes Option Price Calculation. The following
assumptions were made in estimating fair value: risk-free interest rate
is 5% and expected life is 5 years. During the year ending June 30,
1999, the Company issued 4,750,000 common stock options which were
exercised before year-end at an average price of $.019 per share. The
strike price of these options exceeds the options' minimum
<PAGE> 28
FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Financial Statements
June 30, 1999
NOTE 5 STOCK OPTIONS (CONTINUED)
value calculated using the Black-Scholes model. Accordingly, no
compensation costs have been recognized pursuant to Financial
Accounting Standard No.123.
The following is a summary of the stock options during 1998 and 1999:
Weighted
Average
Number Exercise
of Shares Price
Outstanding at July 1, 1998 800,000 $ .001
Granted 50,000 0.05
Exercised 850,000 -
Outstanding at June 30, 1998 - -
========= =======
Options exercisable at
June 30, 1998 - -
========= =======
Weighted average fair value of
options granted during year
ended June 30, 1998 $ 0.01
=========
Outstanding at July 1, 1998 - -
Granted 3,000,000 $ .001
1,450,000 .06
Exercised 4,750,000 -
--------- -------
Outstanding at June 30, 1999 - -
========= =======
Options exercisable at
June 30, 1999 - -
========= =======
Weighted average fair value of
options granted during year
ending June 30, 1999 $ .019
========
NOTE 6 RELATED PARTIES
Certain consultants which received common stock under the Company's non-
qualified stock option plan are Company directors and stockholders. Of
the 3,300,000 shares issued to consultants, 2,000,000 shares were
issued to members of board of directors who provided services to the
Company.
At June 30, 1998, the Company had a short-term note payable for $80,000
to Jacqueline Lovelock, a related party to the Chairman and Executive
Officer of the Company. In repayment of this loan, the Company issued
1,600,000 shares of common stock.
F-11
<PAGE> 29
FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Financial Statements
June 30, 1999
NOTE 7 COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company owns no real property. It leased 1,000 square feet of
office space at 409 Granville Street, Suite 303, Vancouver, British
Columbia V6C 1T2 from LCM Equities, Inc. This lease expired July 31,
1998. The Company negotiated a new three-year lease for 740 square
feet with Morguard Investments that commenced August 1, 1998 at a
monthly rental of $1,000 at Suite 1003, also at 409 Granville Street in
Vancouver, British Columbia.
In May 1996, the Company signed a lease to rent facilities in
Bakersfield, California for the industrial processing of gypsum,
limestone and specialty products. The lease, which required payments
of $2,000 per month, expired on April 14, 1998. Negotiations with a
proposed joint venture partner to take over this facility are ongoing.
At the present time the Company is not utilizing the facility, except
for storage of equipment. No rental payments have been made since the
expiration of this lease. Although the lease required the Company to
carry insurance on the facility, the Company has elected to self-insure
this location until the facility re-opens.
In October 1996, the Company signed a three-year lease for a 1996 Ford
truck. The lease, which required monthly payments of $766, was
recorded as an operating lease. During 1998, the Company cancelled the
lease and forfeited the deposit of $7,058.
Technology License
On June 22, 1995, the Company entered into a license agreement with
Spectrasonic Corp. (hereinafter "Spectrasonic"), a related party, for
the worldwide license to its unpatented Sonic Disintegration Equipment
(SDM) for use in rubber and glass recycling and disposal, for a period
of ninety-nine years. The purchase price of this license and one SDM
machine was $550,000, with license rights valued at $250,000. Since
this initial agreement, modifications have been made to the first SDM
machine, bringing its total cost to $440,740 at June 30, 1997.
On February 22, 1996, the Company entered into an additional license
agreement with Spectrasonic for the worldwide license to its unpatented
Ultrasound Equipment for exclusive use in gypsum disintegration,
disposal, recycling, remanufacturing or manufacturing of used or new
raw materials. The purchase price of this license and one SDM machine
for gypsum-related use was $775,000, with the parties agreeing that the
technology license is valued at $425,000 and the gypsum SDM machine is
valued at $350,000.
On May 17, 1996, the Company executed another agreement with
Spectrasonic for the worldwide licenses to equipment (as yet
unpatented) developed by Spectrasonic for use in disintegration,
disposal, recycling, remanufacturing or manufacturing "any and all
kinds of materials" for a period of ninety-nine years. The purchase
price of this license was $1,230,000, which consisted of the Company
issuing to Spectrasonic 1,000,000 shares of First American common stock
(with an aggregate deemed value of $500,000) and agreeing to pay
$730,000 in varying installment amounts between June 30, 1996 and
January 2, 1997. The Company issued 1,000,000 common stock shares to
Spectrasonic in July 1996.
F-12
<PAGE> 30
FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Financial Statements
June 30, 1999
NOTE 7 COMMITMENTS AND CONTINGENCIES (Continued)
Technology License (Continued)
The Company made payments to Spectrasonic in the amount of $193,000,
but is in default on this agreement by its failure to make the
remaining installments totaling $537,000 before January 2, 1997.
However, Spectrasonic is a related party and no action has been taken
against the Company and the terms of the agreement have been extended
indefinitely without interest. At June 30, 1999, the balance owing on
this agreement was $302,000 and subsequent tot he year end, a cash
payment reduced the balance to $200,000. The parties agreed on
settlement of the balance of $200,000 for common stock of the Company.
On July 2, 1997, the Company finalized negotiations with Spectrasonic
for all patents issued, to be issued or pending, including all data
pertaining to the patent process with respect to the Micronizing
Machine (SDM Machine) whose worldwide rights had been previously
acquired by the Company. In the negotiations, the Company acquired all
manufacturing rights applicable to the SDM machine technology. The
Company has sole right and responsibility for manufacturing the
machinery. Consideration to Spectrasonic will be the issuance of
1,000,000 common shares of the Company's stock at $0.25 per share plus
the payment of $500,000. The cash payment to Spectrasonic will be made
at $50,000 per machine manufactured and sold by the Company.
NOTE 8 - NOTES PAYABLE
On November 15, 1996, the Company entered into a loan agreement with
Huntingdon Limited in the amount of $100,000. This loan, including
accrued interest of $10,000, was settled for 2,200,000 shares of common
stock on March 20, 1998.
On April 30, 1996, the Company entered into a loan agreement with
Knowlton Capital, Inc. wherein the lender agreed to provide a revolving
line of credit, which matures upon the Company's completion of a
preferred share offering. The loan agreement gave Knowlton Capital,
Inc. the option of converting its loan into First American common stock
at a deemed value of $0.075 per share on or before December 31, 1996.
During the year ended June 30, 1997, the Company obtained an extension
on this loan by the issuance of 398,836 shares of common stock, valued
at $131,617. This loan, with an interest rate of 10% and an
outstanding principal balance of $790,229 at June 30, 1997, was secured
by a collateral mortgage on the Company's Bakersfield plant and other
assets. During the year ended June 30, 1998, all debt to Knowlton
Capital, Inc. was converted to stock.
NOTE 9 - EXTRAORDINARY GAIN
Forgiveness of Debt
During 1999, the Company negotiated debt settlement agreements with
various suppliers and vendors whereby the terms of the original
agreements were amended. These transactions resulted in an
extraordinary gain of $33,767.
F-13
<PAGE> 32
FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Financial Statements
June 30, 1999
NOTE 10 - SUBSEQUENT EVENTS
In September 1999, the Company entered into an agreement with Video
Movie House.com Inc, ("VMH") a British Columbia company whereby the
Company acquired 100% of the common shares of VMH in return for a cash
consideration of $250,000. The sum of $125,000 was paid to VMH and the
balance is expected to paid November 30, 1999. VMH possesses domain
names, a web page, and technology for the sale of videos, DVD's, and
CD's through the Internet. VMH will become a wholly owned subsidiary
of the Company .
F-14
<PAGE> 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
(a) At its board meeting on September 16, 1996, the Board of
Directors of the Company engaged William & Webster, P.S., Certified
Public Accountants, as its independent auditor for 1996.
(b) The accounting firm of Robert Moe & Associates, P.S. was
replaced as a result of their resignation. There were no disagreements
with Robert Moe & Associates, P.S. on any matter of accounting
principles or practices, financial disclosure, or auditing scope or
procedure or any reportable events.
(c) Since inception of the Company, Robert Moe & Associates's
reports on the financial statements have contained no adverse opinion
or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.
(d) Robert Moe & Associates has provided a letter addressed to
the Securities and Exchange Commission stating its reason for
resignation. A copy of which was filed as an Exhibit to the Company's
Form 8-K filed on September 25, 1996.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
Officers and Directors
The sole director and sole officer of the Company is:
Name Age Position
Gary Burnie 49 President, CEO and member of the Board
of Directors
Gary Burnie - President, Secretary, Treasurer, Chief Financial Officer
and Director
Since May 1998, Mr. Burnie has been President, Secretary,
Treasurer, Chief Financial Officer and the sole Director of the
Company. Since January 1, 1994, Mr. Burnie has owned and operated G &
D Management, a sole proprietorship engaged in the business of buying
and selling securities for Mr. Burnie.
Indemnification of Officers and Directors
The Nevada Revised Statues and certain provisions of the Company's
Bylaws under certain circumstances provide for indemnification of the
Company's Officers, Directors and controlling persons against
liabilities which they may incur in such capacities. A summary of the
circumstances in which such indemnification is provided for is
contained herein, but this description is qualified in its entirety by
reference to the Company's Bylaws and to the statutory provisions.
<PAGE> 33
In general, any Officer, Director, employee or agent may be
indemnified against expenses, fines, settlements or judgments arising
in connection with a legal proceeding to which such person is a party,
if that person's actions were in good faith, were believed to be in the
Company's best interest, and were not unlawful. Unless such person is
successful upon the merits in such an action, indemnification may be
awarded only after a determination by independent decision of the Board
of Directors, by legal counsel, or by a vote of the shareholders, that
the applicable standard of conduct was met by the person to be
indemnified.
The circumstances under which indemnification is granted in
connection with an action brought on behalf of the Company is generally
the same as those set forth above; however, with respect to such
actions, indemnification is granted only with respect to expenses
actually incurred in connection with the defense or settlement of the
action. In such actions, the person to be indemnified must have acted
in good faith and in a manner believed to have been in the Company's
best interest, and have not been adjudged liable for negligence or
misconduct.
Indemnification may also be granted pursuant to the terms of
agreements which may be entered in the future pursuant to a vote of
Shareholders or Directors. The statutory provision cited above also
grants the power to the Company to purchase and maintain insurance
which protects its Officers and Directors against any liabilities
incurred in connection with their service in such a position, and such
a policy may be obtained by the Company.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation.
The following table sets forth the compensation paid by the
Company from inception through December 31, 1998, for each officer and
director of the Company. This information includes the dollar value of
base salaries, bonus awards and number of stock options granted, and
certain other compensation, if any.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
Names Other Under Restricted Other
Executive Annual Options/ Shares or Annual
Officer and Compen- SARs[1] Restricted LTIP[2] Compen-
Principal Year Salary Bonus sation Granted Share Payouts sation
Position Ended (US$) (US$) (US$) (#) Units (US$) (US$) (US$)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary Burnie 1999 20,000 0 0 0 0 0 0
President 1998 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
Jack Lovelock 1999 0 0 0 0 0 0 0
(Resigned) 1998 35,000 0 0 0 0 0 0
1997 35,000 0 0 0 0 0 0
Robert Dinning 1999 0 0 0 0 0 0 0
(Resigned) 1998 35,000 0 0 0 0 0 0
1997 25,000 0 0 0 0 0 0
Richard Camuso 1999 0 0 0 0 0 0 0
(Resigned) 1998 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
<PAGE> 34
David Camuso 1999 0 0 0 0 0 0 0
(Deceased) 1998 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
</TABLE>
The Company anticipates paying the following salaries in 1999,
subject to the Company beginning profitable operations and generating
sufficient revenues to pay the same:
Gary Burnie President 1999 $ 25,000
The Company has adopted two non-qualified incentive stock option
plans. There are no other stock option plans, retirement, pension, or
profit sharing plans for the benefit of the Company's officers and
directors other than as described herein.
Option/SAR Grants.
The following grants of stock options, whether or not in tandem
with stock appreciation rights ("SARs") and freestanding SARs have been
made to officers and/or directors:
<TABLE>
<CAPTION>
Number of
Number of Securities
Securities Underlying
Underlying Options/SARs
Options Granted Exercise Number of
SARs During Last or Base Options Expiration
Name Granted 12 Months[1] Price ($/Sh) Exercised Date
<S> <C> <C> <C> <C> <C>
Gary Burnie 1,000,000 1,000,000 $0.001 1,000,000 05/14/2004
Jack Lovelock 1,000,000 1,000,000 $0.001 1,000,000 05/14/2004
300,000 $0.001 300,000 05/14/2003
Robert Dinning 1,000,000 1,000,000 $0.001 1,000,000 05/14/2004
250,000 $0.001 250,000 05/14/2003
</TABLE>
Long-Term Incentive Plan Awards.
The Company does not have any long-term incentive plans that
provide compensation intended to serve as incentive for performance.
Compensation of Directors.
Directors do not receive any compensation for serving as members
of the Board of Directors. The Board has not implemented a plan to
award options to any Directors. There are no contractual arrangements
with any member of the Board of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following schedule sets forth the Common Stock ownership of
each person known by the Company to be the beneficial owner of five
percent or more of the Company's Common Stock, each director
individually, and all officers and directors of the Company as a group.
Each person has sole voting and investment power with respect to the
shares of Common Stock shown, and all ownership is of record and
beneficial.
<PAGE> 35
Name and address Number of Percent
of owner Shares Position of Class
Gary Burnie 1,000,000 Chairman of Board of 1.37%
1906 Nelson Street Directors, President,
Vancouver, B.C. Secretary/Treasurer
Canada V6G 1N2 and Chief Financial Officer
All officers and
directors as
a group (1) 1,000,000 1.37%
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 23, 1995, Jack Lovelock, Chairman of the Board of
Directors of First American, purchased 39,500 shares of the Company's
stock for $17,775.00, in an open market transaction in Manila, Republic
of the Philippines. The transaction was no more favorable than could be
obtained by a non-affiliated third party.
On June 23, 1995, Betty Lovelock, the wife of Jack Lovelock,
purchased 39,500 shares of the Company for $17,775.00 in an open market
transaction in Manila, Republic of the Philippines. The transaction was
no more favorable than could have been obtained by a non-affiliated
third party.
On July 27, 1995, Richard A. Camuso, the former President of the
Company, purchased 50,000 common shares of the Company's common stock
for $22,500 in an open market transaction in Manila, Republic of the
Philippines. The transaction was no more favorable than could have been
obtained by a non-affiliated third party.
On June 25, 1995, the Company entered into an Exclusive License
Agreement for rubber and glass, with Spectrasonic. The contract is for
a period of 99 years. Spectrasonic has developed and is the sole
proprietary owner of all of the proprietary rights to the SDM.
Spectrasonic has not made any patent applications as of the date hereof
and has further advised the Company that: "Applications for
protection of assets of (Spectrasonic) under laws for the protection of
intellectual property in Canada, and the United States of America, and
any other country in which Spectrasonic does business will be made at
such time as Spectrasonic shall determine is in its best interests."
This transaction was no more favorable than could have been obtained by
a non-affiliated third party.
On February 22, 1996, the Company entered into an Exclusive
License Agreement, with Spectrasonic. The contract is for a period of
99 years and covers the right to exploit, develop, manufacture, market,
distribute, and sell the ultrasound equipment as it relates exclusively
to gypsum. Any patent or other protection required will be the
responsibility of the Company and to date, the Company has not made any
patent application. This transaction was no more favorable than could
have been obtained by a non-affiliated third party.
<PAGE> 36
On May 17, 1996, the Company entered into an Exclusive License
Agreement with Spectrasonic. The contract is for a period of 99 years
and covers the production and operation of its disintegration machines
for any and all materials not previously licensed. Spectrasonic
reserve the right to manufacture the equipment. Any patent or other
protection is the responsibility of the Company and to date, they have
not made any patent application. This transaction was no more favorable
than could have been obtained by a non-affiliated third party.
The original contract price for one KDS and the license was
$550,000. The Company issued 250,000 common shares to Spectrasonic at
an aggregate value of $175,000. The balance of the debt was settled by
cash payments at varying times up to March 31, 1996. There are no other
payments due under this exclusive license. Payments were made from the
proceeds of a financing.
The License Agreement for gypsum required cash payments of
$275,000 to Spectrasonic plus the issuance by the Company of 1,000,000
shares of its common stock at $0.50 per share, for an aggregate value
of $500,000. The total purchase price, for this fully paid license was
$775,000 with the parties mutually agreeing that the value of the
Technology license was $425,000 and the KDS was $350,000.
The License Agreement dated May 17, 1996 requires payment of
CDN$1,000,000 (US$750,000) between June 30, 1996 and January 2, 1997.
The payments due January 2, 1997 have been deferred by mutual consent
of the parties involved.
The payment due June 30, 1996 was made subsequent to the year end
and $175,000 of the $450,000 was paid. By letter of understanding on
October 24, 1996, Spectrasonic deferred cash payments owing until a
private placement financing is completed sometime in 1997. This has not
happened yet.
On October 30, 1995 the Company entered into an agreement with
L.C.M. Equity, of Vancouver, British Columbia to provide a line of
credit up to a maximum of CDN$600,000 for a period of one year. This
agreement was subsequently terminated and replaced with a new agreement
with LCM dated March 1, 1996. This agreement provided a revolving line
of credit of a maximum of US$500,000 to be available until February 16,
1997. LCM converted all of its outstanding loans to common stock in
the Company. The conversion price was US$0.37 per share.
On April 1996, the Company entered into an agreement with Knowlton
Capital Corp, ("Knowlton") a private venture capital concern, located
at 329 Brill Road, Foster, Quebec, JOE 1RO. Knowlton agreed to provide
financing up to US$800,000 until December 31, 1996. This agreement was
extended to December 31, 1997. Interest was payable at 10% per annum.
This loan could be repaid at any time or convertible into common stock
of the Company at US$0.75 per share. The lender has the right to take
a collateral mortgage on the assets owned by the borrower. At June
30, 1997, the loan outstanding was US$790,229.
On or about May 14, 1999, the Company issued 1,000,000 shares of
common stock to Gary Burnie, President as compensation upon the
exercise of certain stock options issued pursuant to the Company's Form
S-8 registration statement. The shares were issued pursuant to
Section 5 of the Securities Act of 1933.
<PAGE> 37
Recent Sales of Unregistered Securities
On May 2, 1995, the Company sold 6,000,000 post-split shares
(10,000,000 pre-split shares) of its common stock in consideration of
$100,000 in cash to 12 individuals in the Republic of the Philippines
pursuant to Reg 504 promulgated under the Securities Act of 1933, as
amended. The sales of the foregoing shares in the Republic of the
Philippines was in accordance with Philippines laws and regulations.
On June 22, 1995, the Company sold 150,000 post-split shares
(250,000 pre-split) shares of its common stock to Spectrasonic as
partial consideration for the execution of the exclusive licensing
agreement. See "Item 1. - Summary of Exclusive Agreement with
Spectrasonic." The shares were valued at $175,000. The sale of the
foregoing securities was made pursuant to Reg 504 promulgated under the
Securities Act of 1933, as amended.
On August 14, 1995, the Company effected a 6 for 10 reverse
stock-split.
On September 18, 1995, the Company issued 600,000 shares of common
stock to two individuals who were residents of the Republic of the
Philippines in consideration of $270,000 in cash. The foregoing
individuals were not affiliates of the Company, Spectrasonic, or
Westmoreland. The sale of the foregoing stock in the Republic of the
Philippines was in accordance with Philippine laws and regulations. On
the same date the Company issued an additional 100,000 shares of common
stock to Spectrasonic in consideration of $50,000. The foregoing
shares were sold pursuant to Reg. 504 promulgated under the Securities
Act of 1933, as amended.
On October 20, 1995, the Company issued 200,000 "restricted"
shares of its common stock to Westmoreland Capital Corp, a British
Columbia corporation as partial consideration for the execution of its
agreement to supply management services, pursuant to Reg 701
promulgated under the Securities Act of 1933, as amended. See "Item 1.
Business - Employees." The 200,000 shares were valued at $100,000.
On February 29, 1996, the Company issued 1,000,000 "restricted"
shares of its common stock to Spectrasonic as partial consideration of
a license agreement, Gypsum, dated February 22, 1996. The shares were
valued at $0.50 per share for a total consideration of $500,000.
On March 20, 1996, the Company issued 74,400 shares of its common
stock to Astaire & Partners, in London, England. The shares were valued
at $1.25 per share for a total consideration of $93,000. The shares
were issued pursuant to a private placement.
On March 25, 1996, the Company issued 380,717 shares of its common
shares to LCM Equity Inc, in settlement of debt conversion, at $0.45
per share for a total consideration of $171,323.
On July 3, 1996, the Company issued 452,376 shares of its common
stock to LCM Equity Inc, regarding conversion of loans outstanding.
This stock was valued at $0.45 per share for loans of US$124,069 and
loans of CDN$106,000 (US$77,300) at $0.60 per share.
<PAGE> 38
On July 10, 1997, the Company issued 1,000,000 shares of its
common stock to Microsonic Disintegration regarding May 17, 1996
agreement for the purchase of rights. This stock was valued at $0.50
per share.
On July 10, 1996, the Company issued 7,440 shares of its common
stock to Astaire & Partners as settlement of a commission of $9,300.
The stock was issued at $1.25 per share.
On September 12, 1996, the Company issued 654,000 shares of its
common stock to Gerlach & Co. for the sum of $457,800. The stock was
sold under Reg "S" at a price of $0.70 per share.
On September 25, 1996, the Company issued 303,000 shares of its
common stock to Gerlach & Co for the sum of $212,100. The stock was
sold under Reg "S" at a price of $0.70 per share.
On October 24, 1996, the Company issued 100,000 shares of its
common stock to Gerlach & Co for the sum of $22,500. The stock was sold
under Reg "S" at a price of $0.225 per share.
On November 30, 1996, the Company issued a total of 1,142,188
shares of its common stock to:
Monarch Consulting 337,083 common shares
LCM Equity, Inc. 181,730 common shares
Somers & Co. 480,650 common shares
LCM Equity, Inc. 142,725 common shares
Total 1,142,188 common shares
All of the above stock was issued at $0.42 per share for a total
of $479,719.
On April 4, 1997, the Company issued a total of 759,945 shares of
its common stock to Magic Trading, Inc, in settlement of loans advanced
in the amount of $281,180. The loans were converted to common stock at
$0.37 per share.
On April 30, 1997, the Company issued a total of 598,382 shares of
its common stock to:
834968 Ontario, Inc. 100,000 common shares
Huntington, Inc. 45,455 common shares
Knowlton Capital, Inc. 398,836 common shares
Meraloma Club 16,818 common shares
Jacqueline Lovelock 37,273 common shares
All of the above stock was issued at $0.33 per share for a total
cost of $194,466.
On or about the 8th day of May, 1997, the Company sold 650,000
shares of Common Stock in consideration of $80,600 pursuant to
Regulation S of the Securities Act of 1933, as amended (the "ACT"); the
name of the non-U.S. purchaser was Huntingdon Limited and its address
is 12/13 Hill Street, Douglas, Isle of Man, British Isles 1M9 IBW. The
applicable restricted period as to the shares under Regulation S was
forty (40) days since the Company is required to file reports with the
Securities and Exchange Commission.
<PAGE> 39
On or about the 8th day of May, 1997, the Company sold 100,000
shares of Common Stock in consideration of $12,400 pursuant to
Regulation S of the Act; the name of the non-U.S. purchaser was F.J
Rigney Resources Ltd; and its address is 2200-609 Granville Street,
Vancouver, British Columbia, Canada V7Y 1T2. The applicable restricted
period as to the shares under Regulation S was forty (40) days since
the Company is required to file reports with the Securities and
Exchange Commission.
On or about the 8th day of May, 1997, the Company sold 187,000
shares of Common Stock in consideration of $23,188 pursuant to
Regulation S of the Act; the name of the non-U.S. purchaser was Magic
Trading Limited and its address is P.O. Box 107, Oceanic House, Duke
Street, Grand Turk, Turks and Caicos Islands, British West Indies. The
applicable restricted period as to the shares under Regulation S was
forty (40) days since the Company is required to file reports with the
Securities and Exchange Commission
On or about the 26th day of June, 1997, the Company sold 516,250
shares of Common Stock in consideration of $66,378 pursuant to
Regulation S of the Act; the name of the non-U.S. purchaser was
Huntingdon Limited and its address is 12/13 Hill Street, Douglas, Isle
of Man, British Isles 1M9 1BW. The applicable restricted period as to
the shares under Regulation S was forty (40) days since the Company is
required to file reports with the Securities and Exchange Commission.
On or about the 26th day of June, 1997, the Company sold 762,500
shares of Common Stock in consideration of $98,144 pursuant to
Regulation S of the Act; the name of the non-U.S. purchaser was Magic
Trading Limited and its address is P.O. Box 107, Oceanic House, Duke
Street, Grand Turk, Turks and Caicos Islands, British West Indies. The
applicable restricted period as to the shares under Regulation S was
forty (40) days since the Company is required to file reports with the
Securities and Exchange Commission.
On or about the 2nd day of July, 1997, the Company sold 225,000
shares of Common Stock in consideration of $38,025 pursuant to
Regulation S of the Act; the name of the non-U.S. purchaser was
Cavendish Investments International Ltd and its address is Abbey
Business Center, Digby Road, Sherborne Dorset, United Kingdom, DT9 3NL
. The applicable restricted period as to the shares under Regulation S
was forty (40) days since the Company is required to file reports with
the Securities and Exchange Commission.
On or about the 2nd day of July, 1997, the Company sold 500,000
shares of Common Stock in consideration of $75,000 pursuant to
Regulation S of the Act; the name of the non-U.S. purchaser was Bentley
Financial Inc. and its address is P.O. Box 107, Oceanic House, Duke
Street, Grand Turk, Turks and Caicos Islands, British West Indies. The
applicable restricted period as to the shares under Regulation S was
forty (40) days since the Company is required to file reports with the
Securities and Exchange Commission.
<PAGE> 40
On or about the 18th day of July, 1997, the Company sold 500,000
shares of Common Stock in consideration of $75,000 pursuant to
Regulation S of the Act; the name of the non-U.S. purchaser was
Cavendish Investments International Ltd and its address is Abbey
Business Center, Digby Road, Sherborne Dorset, United Kingdom, DT9 3NL.
The applicable restricted period as to the shares under Regulation S
was forty (40) days since the Company is required to file reports with
the Securities and Exchange Commission.
On August 18, 1997 the Company sold 1,100,000 shares of common
stock to Magic Trading Limited in consideration of US$ 220,092. The
foregoing shares were issued pursuant to Reg S of the Act.
On or about the 1st day of February 1998, the Company sold 295,000
shares of Common Stock in consideration of $34,498 pursuant to
Regulation S of the Act; the name of the non-U.S. purchaser was
Knowlton Capital, Inc. and its address is 329 Brill Road, Foster,
Quebec. The applicable restricted period as to the shares under
Regulation S was forty (40) days since the Company is required to file
reports with the Securities and Exchange Commission
During the fiscal year July 1, 1998 to June 30, 1999, the Company
issued 15,820,000 shares of common stock pursuant to Section 4(2) of
the Securities Act of 1933. The shares were issued services, property
and cash.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) Financial Statements are contained in Item 8.
(b) Reports on Form 8-K.
None
(c) Exhibits
The following documents are incorporated herein by reference from
the Company's Form 10 as filed with the Securities and Exchange
Commission.
Exhibit No. Description
3.1 Articles of Incorporation of First American Scientific
Corporation.
3.2 Bylaws of First American Scientific Corporation.
4.1 Specimen Stock Certificate
10.1 License Agreement with Spectrasonic Corp.
10.2 Westmoreland Capital Corp Agreement.
10.3 Gross Royalty Agreement between Strategic International
Inc. and the Company.
10.4 Lease between the Company and Spectrasonic.
10.5 Agreement between LCM Equity, Inc and the Company.
28.1 Consultant and Employee Stock Compensation Plan.
<PAGE> 41
The following documents are incorporated herein by reference from
the Company's Form S-8 as filed with the Securities and Exchange
Commission in 1996.
10.1 Nonqualifying Stock Option Plan.
The following documents are incorporated herein by reference from
the Company's Form 10-K for the period ending June 30, 1996.
10.1 Loan Agreement between Knowlton Capital, Inc and the
Company dated April 30, 1996 incorporated by reference
from the Company's Form 10-K for the period ending June
30, 1996.
10.2 License Agreement between the Company and Spectrasonic
Corp dated May 17, 1996 incorporated by reference from
the Company's Form 10-K for the period ending June 30,
1996.
The following documents are incorporated by reference from the
Company's Form 10-K for the period ending June 30, 1997:
3.3 Articles of Incorporation of 521345 B.C. Ltd.
The following documents are incorporated by reference from the
Company's Form 10-K for the period ending June 30, 1998:
3.4 Amended Articles of Incorporation.
10.9 Agreement with Green Leaf Fibre Company Ltd. (GLF)
The following documents are incorporated herein by reference from
the Company's Form S-8 as filed with the Securities and Exchange
Commission in 1999.
10.1 Nonqualifying Stock Option Plan.
The following documents are filed as part of this June 30, 1999
Form 10-K:
10.10 Agreement with Ashford Holdings, Ltd.
10.11 Agreement regarding acquisition of VMH Video MovieHouse.com,
Inc.
10.12 Letter of Intent with Fortune Resources Corporation
27 Financial Data Schedule.
<PAGE> 42
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized on this 10th day of November 1999.
FIRST AMERICAN SCIENTIFIC CORP.
BY: /s/ Gary Burnie
Gary Burnie,
President, Chief Financial
Officer, and Chairman of the
Board of Directors
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities and on this 10th day of
November, 1999.
SIGNATURES TITLE DATE
/s/ Gary Burnie
Gary Burnie Chairman of the Board of Directors, November 10, 1999
President, Secretary/Treasurer
and Chief Financial Officer.
<PAGE> 42
EXHIBIT 10.10
ASHFORD HOLDINGS LTD.
c/o Suite 358-800, 15355 24th Avenue
Surrey, BC V4A 2H9
(Facsimile: 604-535-7270)
(the "Company")
October 20, 1999
First American Scientific Corp.
Suite 303, 409 Granville Street
Vancouver, BC V6C 1T2
(Facsimile: 604-685-0698
Attention: The President
Re: Transfer of the Kinetic Disintegrating Technology (the
"Technology")
We are writing to confirm the agreement (the "Agreement")
between the Company and First American Scientific Corp.(FASC) in
connection with the obligation to buy-back up to 5,000,000 common
shares of FASC owned by the Company, its affiliates or assigns in
the event that FASC completes any subdivision, consolidation,
conversation or exchange of its common shares. The parties hereto
acknowledge and agree that this Agreement forms part of the sale
and transfer of the Technology by the Company to FASC. The terms of
the Agreement are as follows:
1. In the event that the common shares of FASC are, within
six months of the date of this Agreement, subdivided,
consolidated, converted of exchanged for a greater number of shares
of the same of another class (the "Change in Capital"), FASC hereby
agrees that it will purchase from the Company, its affiliates or
assigns up to 5,000,000 common shares of FASC, with the number of
common shares to purchased by FASC to be determined by the Company
in its sole discretion, at a purchase price per common share which
is the greater of:
(a) $0.05 per common share; or
<PAGE> 43
(b) the average of the closing bid and asked prices per
common share of the FASC common shares on any over-the-counter
bulletin board, other electronic quotation systems or the National
Quotation Bureau's Pink Sheets for the day prior to the effective
date of the Change in Capital (or if no such prices were reported
on that date, on the last date on which such prices were reported),
in each case, as reported in The Wall Street Journal.
2. The Company will, within 10 days of becoming aware of the
Change in Capital, deliver a notice (the "Notice") to FASC
specifying the number of common shares to be purchased by FASC.
3. FASC will within 10 days of receipt of the Notice, pay
the Company the amount of money ( the "Purchase Proceeds") which is
equal to the number of common shares, as specified by the Company
in the Notice, times the applicable price per common share as it is
determined in accordance with section 1 of this Agreement.
4. Upon receipt of the Purchase Proceeds, the Company will
cause to be delivered and transferred to FASC the number of common
shares specified in the Notice.
5. Any notice to be given to one party to the other shall be
sufficient if delivered by hand, deposited in any Post Office in
Canada, registered, postage prepaid, or sent by means of electronic
transmission (in which case any message so transmitted shall be
immediately confirmed in writing and mailed as provided above)
addressed as specified above or at such other address of which
notice is given by the parties pursuant to the provisions of this
section. Such notice shall be deemed to have been received when
delivered, if delivered, and if mailed, on the fifth business day
(exclusive of Saturdays, Sundays, and statutory holidays) after the
date of mailing. Any notice sent by means of electronic
transmission shall be deemed to have been given and received on the
day it was transmitted, provided that if such day is not a business
day then the notice shall be deemed to have been given and received
on the next business day following. In case of an interruption of
the postal service, all notices or other communications shall be
delivered or sent by means of electronic transmission as provided
above, except that it shall not be necessary to confirm in writing
and mail an notice electronically transmitted.
<PAGE> 44
6. This Agreement shall be governed by and construed in
accordance with the laws of the Province of British Columbia and
all disputes arising under this Agreement shall be referred to and
the parties hereto irrevocably attorn to the jurisdiction of the
courts of British Columbia.
7. The parties hereto agree that they shall do all such
further acts, deeds or things and execute and deliver all such
further documents, instruments or certificates as may be necessary
or advisable for the purpose of giving effect to and carrying our
the intention or facilitating the performance of the terms of this
Agreement.
8. This Agreement may be signed in counterparts, in writing
or by electronic facsimile transmission or by other means of
electronic communication capable of producing a printed copy, each
of which will be deemed to be an original and all such counterparts
together will constitute one and the same instrument and
notwithstanding the date of execution, will be deemed to be
effective as the date set forth above.
Enclosed is our cheque in the amount of $10.00. Please sign and
return a copy of this letter as your agreement and acknowledgement
of the above terms.
Yours truly,
ASHFORD HOLDINGS LTD.
Per: __________________________________
Authorized Signatory
Acknowledged and agreed to this 28th day of October, 1999.
FIRST AMERICAN SCIENTIFIC CORP.
Per: /s/ Gary Burnie
Authorized Signatory
<PAGE> 45
EXHIBIT 10.11
FIRST AMERICAN SCIENTIFIC CORPORATION
SUITE 1003 - 409 GRANVILLE STREET
VANCOUVER BC V6C IT2
MEMORANDUM OF AGREEMENT
This Agreement made this 20th day of September, 1999
BETWEEN:
First American Scientific Corp., a company duty incorporated
in the State of Nevada, USA, at suite 1003-409 Granville
Street Vancouver BC, V6C 1T2, in the Province of British
Columbia. (referred to as "FASC")
AND:
C.L. Kantonen, ( Kantonen )owns 100% of the outstanding shares
of VMH Video MovieHouse.com Inc. a company duly incorporated
in the Province of British Columbia, and whereas VMH is the
owner of the Domain Names, VideoMovieHouse.com,
VideoMovieHouse.org and VideoMovieHouse.net, along with their
respective web pages and related Internet Technology which can
be used in the sales of Videos, DVD's CD's and all related
products, plans, rights to develop a Virtual Video Rental
Store using Video on demand Technology, at 1492 Frederick Rd.,
North Vancouver BC. (referred to as "Kantonen")
WHEREAS; FASC has agreed to buy all the outstanding shares
from Kantonen,
AND WHEREAS; Kantonen has agreed to sell all the outstanding
shares of VMH VideoMovieHouse.com Inc.
AND WHEREAS; FASC, and Kantonen have agreed once these shares
are transferred, VMH will become a subsidiary of FASC.
NOW THEREFORE THIS AGREEMENT WITNESSETH, that in consideration
of the premises set forth herein and the payment of $10.00 (ten
dollars) now paid by each other to the other, the receipt and
sufficiency whereof is hereby acknowledged, the parties agree and
covenant as follows:
<PAGE> 46
Kantonen and FASC have reached an agreement that reflects the
terms described herein:
1 . FASC and Kantonen agree the purchase price is $250,000,00
(two hundred and fifty thousand dollars, US Funds)
2. FASC and Kantonen agree the shares "I be owned by FASC and
VMH will be a subsidiary of FASC and a representative from each
company will complete the board for the subsidiary company know as
VideoMovieHouse.com.
3. Kantonen is the sole legal and beneficial owner of all
Technology.
4. Kantonen is free and clear of all liens, mortgages, claims,
charges, and encumbrances of every kind and nature whatsoever.
5. Kantonen has no agreement for the purchase of the
Technology to any person, firm, corporation or government or agency
whatsoever
6. Kantonen has no indebtedness to any person, firm,
corporation which might hereafter become a liability of FASC or
constitute a lien, charge, upon the technology.
Purchase and Sale Kantonen agrees to transfer and assign to FASC
all legal and beneficial ownership, free and clear of all liens,
charges and encumbrances.
Payment of Purchase Price. FASC agrees to deliver the
following to Kantonen at the closing dates;
(a) $ 125,000 due and payable by Sept 30th, 1999
(b) $125,000 due and payable by Oct 30th, 1999
(c) the terms up to Oct 30th, 1999 for any principal
remaining unpaid, then the parties will mutually agree to
extend terms with a amended agreement, which will be
acceptable to, FASC, and Kantonen.
Good Faith, Each of the parties hereto convenant and agree to
act in. good faith to carry out the transactions contemplated
herein and in addition will act diligently in performing all acts
which ate contemplated to be performed by such party.
<PAGE> 47
Currency All dollar amounts referred to in this Memorandum of
Agreement are in lawful money of the United States of America.
Governing Law This Memorandum of Agreement shall be governed
by and construed in accordance with the laws of the province of
British Columbia.
Dated at Vancouver, British Columbia, this 20th day of
September, 1999.
Signed,
C.L. Kantonen (VENDOR) First American Scientific Corp.
/s/ C.L. Kantonen /s/ Gary Burnie, President
<PAGE> 47
EXHIBIT 10.12
Letter of intent
Between: Fortune Resources Corporation
6715- 3rd Avenue
Delta, B.C. V4L IB2
And First American Scientific Corp.
1003-409 Granville St.
Vancouver, B.C. V6C 1T2
Whereas
FASC is the owner of proprietary technology and equipment that is
used in the rocessing and extraction of metals from Ore and that FRC
is the owner of five claims comprising 80 acres in Winnemucca, Nevada.
FASC and FRC enter this letter that they agree to equally share
costs of establishing a test facility on the Stormy claims and that
they will equally share any revenues after costs from production of
said property. FASC will supply existing equipment it owns.
This letter will be replaced by a formal agreement reflecting
the intent of this letter.
/s/ Tom Croft, President /s/ Gary Burnie, President
Fortune Resources Corp. First American Scientific Corp.
August 6, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at June 30, 1999 and the Statement of Income
for the year ended June 30, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 25,690
<SECURITIES> 0
<RECEIVABLES> 9,007
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,697
<PP&E> 1,589,519
<DEPRECIATION> (327,567)
<TOTAL-ASSETS> 3,156,120
<CURRENT-LIABILITIES> 570,061
<BONDS> 0
0
0
<COMMON> 66,146
<OTHER-SE> 2,519,913
<TOTAL-LIABILITY-AND-EQUITY> 3,156,120
<SALES> 285,399
<TOTAL-REVENUES> 285,399
<CGS> (106,595)
<TOTAL-COSTS> (594,993)
<OTHER-EXPENSES> (628,673)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,044,862)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,044,862)
<DISCONTINUED> 0
<EXTRAORDINARY> 33,767
<CHANGES> 0
<NET-INCOME> (1,011,095)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
