<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from:
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Commission file number 0-27094
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FIRST AMERICAN SCIENTIFIC CORP.
(Exact name of Registrant as specified in its charter.)
NEVADA 88-0338315
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
409 Granville Street, Suite 1003
Vancouver, British Columbia V6C 1T2
(Address of principal executive offices, including zip code.)
(604) 681-8656
Registrant's telephone number, including area code.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES NO x
The number of shares outstanding of the Registrant's Common
Stock, no par value per share, at September 30, 1999 was 66,146,018
shares.
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<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS.
FIRST AMERICAN SCIENTIFIC CORP
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September
ASSETS 30, 1999 June 30,1999
<S> <C> <C>
CURRANT ASSETS
Cash $ 16,540 $ 25,690
Accounts receivable 9,007 9,007
Inventory - -
----------- -----------
TOTAL CURRANT ASSETS 25,547 34,697
----------- -----------
INVESTMENTS:
Securities 1,000 -
Other 124,722 -
----------- -----------
125,722 -
----------- -----------
PROPERTY AND EQUIPMENT
Property and equipment 1,589,519 1,589,519
Less: Accumulated depreciation (327,567) (327,567)
------------ -----------
1,261,952 1,261,952
------------ -----------
OTHER ASSETS
Technology licenses-net of
amortization 1,629,775 1,629,775
Patents and manufacturing rights -
net of amortization 218,265 218,265
Deposits 11,431 11,431
------------ -----------
1,859,471 1,859,471
------------ -----------
TOTAL ASSETS $ 3,272,692 $ 3,156,120
============ ===========
The accompanying notes are an integral part of these financial
statements.
1-a
<PAGE> 3
FIRST AMERICAN SCIENTIFIC CORP
BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRANT LIABILITIES
Bank overdraft $ - $ -
Accounts payable and
accrued expenses 265,060 268,061
Short term loans payable 171,808 -
License agreement payable -
Spectrasonic Corp. 302,000 302,000
------------- -----------
TOTAL LIABILITIES 738,868 570,061
------------- -----------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock-$.001 par value
100,000,000 shares authorized,
66,146,018 shares issued 66,146 66,146
Additional paid-in capital 6,399,031 6,399,031
Stock options receivable - -
Accumulated deficit (3,934,307) (3,882,072)
Accumulated other comprehensive
income 2,954 2,954
------------- -----------
2,533,824 2,586,059
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 3,272,692 $ 3,156,120
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
1-b
<PAGE> 4
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Period Ended Year Ended
Sept. 30, 1999 June 30, 1999
<S> <C> <C>
Revenues $ - $ 285,399
Cost of sales - 106,595
-------------- ------------
Gross - 178,804
Operating expenses 52,235 594,993
-------------- ------------
(52,235) (416,189)
Net loss from operations (52,235) (416,289)
Other income (expense)
Miscellaneous - 445
Loss on impairment of assets - (629,118)
-------------- -----------
(52,235) (1,011,095)
Extraordinary income
Gain on debt forgiveness - 33,767
------------- -----------
Net loss (52,235) (1,011,095)
Other comprehensive
Foreign currency translation gain - 2,954
Comprehensive income $ (52,235) $(1,008,141)
============= ===========
Basic and diluted net loss per
common share $ 0.001 $ 0.01
============= ===========
Weighted average number of
common stock shares outstanding 66,146,018 55,876,015
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
2
<PAGE> 5
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<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 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 royalty 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 - - -
----------- -------- -----------
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 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 receivable - - -
Net loss - - -
Foreign currency translation
gain - - -
----------- -------- -----------
Balance September 30, 1999 66,146,018 $ 66,146 $ 6,399,031
=========== ======== ===========
The accompanying notes are an integral part of these financial
statements.
3-a
<PAGE> 6
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF STOCKHOLDER'S EQUITY
(Unaudited)
Accumulated
Subscriptions Other Total
& Options Accumulated Comprehensive Stockholders'
Receivable Deficit Income Equity
<S> <C> <C> <C> <C>
Balance, June 30,1997 $ - $ (1,798,055) $ - $ 1,947,039
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 - (1,072,922) - (1,072,922)
--------- ------------ -------- -----------
Balance, June 30, 1998 (45,500) (2,970,977) - 3,160,219
Issuance of stock 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
license agreement
at $.05 per share - - - 50,000
Issuance of stock for
cash at $.04 per share - - - 205,575
Stock subscriptions
receivable 45,500 - - 45,500
Net loss - (1,011,095) - (1,011,095)
Foreign currency
translation gain - - 2,954 2,954
--------- ------------ -------- -----------
Balance,
September 30, 1999 $ - $ (3,882,072) $ 2,954 $ 2,586,059
========= ============ ======== ===========
</TABLE>
3-b
<PAGE> 7
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period Ending
ending Year Ending
September 30, June 30
1999 1999
<S> <C> <C>
CASH FLOWS PROVIDED (USED) IN OPERATIONS
Net Income (loss) $ (52,235) $ (1,011,095)
Depreciation and amortization - 313,255
Impairment of assets - 629,118
Adjustment to reconcile net loss to net
cash used by operations;
Services paid by issuance of stock - 33,240
Decrease (Increase) in account receivable - 23,908
Decrease (Increase) in inventory - 5,500
Decrease (Increase) in prepaid expenses - -
Deposits - 2,304
(Decrease) Increase in accounts payable (3,000) (60,355)
(Decrease) Increase in litigation reserve - -
Payment for shares in VMH/sundry (125,723) -
Payment on license agreement payment - (185,000)
---------- ------------
Net cash (used) in operating activities (180,958) (249,125)
---------- ------------
CASH FLOWS PROVIDED (USED) IN INVESTING ACTIVITIES
Net cash provided (used) in investing
activities - -
---------- ------------
CASH FLOWS PROVIDED (USED) IN FINANCING ACTIVITIES
Borrowings 171,808 80,467
Payment of borrowings - (12,360)
Proceeds from sale of stock - 205,575
---------- ------------
Net cash provided by financing activities 171,808 273,682
---------- ------------
NET INCREASE (DECREASE) IN CASH $ (9,150) $ 24,557
---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial
statements
4
<PAGE> 8
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period Ending
ending Year Ending
September 30, June 30
1999 1999
<S> <C> <C>
NET INCREASE (DECREASE IN CASH
(Balance Forward) $ (9,150) $ 24,557
CASH - Beginning of year 25,690 1,133
--------- -----------
CASH - End of period $ 16,540 $ 25,690
========= ===========
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 an
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 $ - $ -
Common stock issued for exchange
of debt $ - $ 1,634,187
Common stock issued for payment on
worldwide technology license
Common stock issued for commissions $ - $ 13,500
</TABLE>
The accompanying notes are an integral part of these financial
statements.
5
<PAGE> 9
FIRST AMERICAN SCIENTIFIC CORP
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
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 $3,934,307 through Sept 30, 1999,
and has a working capital deficit. The Company is 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
6
<PAGE> 10
FIRST AMERICAN SCIENTIFIC CORP
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 Sept 30, 1999, the Company had net operating accumulated losses of
approximately $3,900,000. 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. 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.
<PAGE> 11
FIRST AMERICAN SCIENTIFIC CORP
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 information 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.
8
<PAGE> 12
FIRST AMERICAN SCIENTIFIC CORP
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 3 - PROPERTY AND EQUIPMENT (continued)
Sept 30, 1999 June 30, 1999
Ultrasound equipment $ 872,246 $ 872,246
Plant assets and equipment 687,881 687,881
Office equipment 23,916 23,916
Leasehold improvements 5,476 5,476
Total assets 1,589,519 1,589,519
Less accumulated depreciation (327,567) (327,567)
$ 1,261,952 $ 1,261,952
Depreciation and amortization expense for the year ended June 30, 1999
was $313,255. No depreciation has been taken in the first quarter. 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.
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.
Sept 30, 1999 June 30, 1999
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) (306,960)
$ 1,848,040 $ 1,848,040
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.
9
<PAGE> 13
FIRST AMERICAN SCIENTIFIC CORP
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 4 - COMMON STOCK AND WARRANTS
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. No stock has been issued in the current year.
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 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:
10
<PAGE> 14
FIRST AMERICAN SCIENTIFIC CORP
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 5 - STOCK OPTIONS (continued)
Weighted
Number Average
of Exercise
Shares Price
Outstanding at July 1, 1997 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 $ 0.001
1,450,000 0.06
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 who 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.
11
<PAGE> 15
FIRST AMERICAN SCIENTIFIC CORP
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
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
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.
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.
12
<PAGE> 16
FIRST AMERICAN SCIENTIFIC CORP
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)
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.
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 to the 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, 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.
13
<PAGE> 17
FIRST AMERICAN SCIENTIFIC CORP
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 8 - NOTES PAYABLE (continued)
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.
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 for a cash
consideration of $250,000. The sum of $125,000 was paid to the VMH and
the balance will be 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.
NOTE 11 - INVESTMENTS
In August, 1999, the Company agreed to acquire 100% of the shares of
Video MovieHouse.com Inc. a company using video on demand technology
for videos, DVD's, CD's and related products. Terms included a payment
of $125,000 down payment and the balance due November 30, 1999. The
down payment has been made.
14
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Quarter - Ending September 30, 1999
LIQUIDITY AND CAPITAL RESOURCES
First American Scientific (the "Company") was incorporated April
12, 1995 as a development stage company. In May 1997, it completed its
pilot plant in Bakersfield, California and commenced processing of
industrial minerals. The primary industrial processed was gypsum and
this continued until June 30, 1998 when the Company ceased the
processing because of insufficient working capital to successfully
operate a plant. The operating experience confirmed that the
technology worked, and the Company decided to concentrate on improving
the technology and to look at other applications for its use.
This process has continued throughout 1999, with research being
carried out in Northern Ireland and in the state of Washington. The
Company has also pursued sales of its KDS system, and completed its
first sale in early 1999. This system is being used for the processing
of contaminated wood products and has performed extremely well for the
company who acquired the first system.
The Company continues to explore marketing opportunities for the
KDS system and intends to establish a KDS system in the resource
industry in the near future. Negotiations are underway with a mining
concern whereby the system will be used for recovery of precious
metals, previously unrecoverable.
At September 30, 1999, the Company had $16,000 in its bank account
and intends to raise additional funds by loans and/or sale of common
stock. The Company intends to raise funds in this manner until such
time as the operations will be self-sustaining.
The Company has raised a total of $171,808 in private loans since
its year-end at June 30,1999. These funds were used to invest in a new
video movie house company, which the Company has agreed to acquire for
$250,000. To date, $125,000 has been paid for the company and the
balance is due November 30, 1999.
The balance of the funds raised also allowed the company to pay
down its debt to Ashford Holdings Inc and to sustain its operations.
Agreement has been reached with Ashford Holdings Inc whereby the
balance owing will be settled by issuance of common stock. This will
remove the liability from the balance sheet and provide the Company
with all patent and related materials.
<PAGE> 19
The Company continues to settle its accounts payable resulting
from its operation in Bakersfield California. These debts presently
amount to $265,000 and the Company intends to settle these to the best
of its ability. The Company is currently negotiating with several
creditors regarding settlement.
The working capital of the Company continues to improve as it
settles its debts. Accounts payable have been reduced to $265,000 and
this will represent the only debt outstanding when the Ashford Holdings
Inc balance is settled. This is expected to complete by November 30,
1999.
Management intends to settle the outstanding loans by issuance of
common shares. This matter should be resolved before December 31,
1999. The Company has sufficient liquidity to maintain its operation
while it continues to seek additional financing.
RESULTS OF OPERATIONS
The Company incurred an operating loss of $52,234 for the three
months ending September 30, 1999. The Company is conscious of its
operating expenses and is carefully managing its resources. In the
fiscal year ending June 30, 1999, the Company spent $32,000 on research
plus approximately $20,000 in travel related to its research. In the
quarter ending September 30, 1999, the Company has spent approximately
$6,000 in research related matters. The Company continues to identify
uses for its KDS systems and is currently negotiating a joint venture
with a resource company for processing of precious metals.
While the Bakersfield plant operation has been suspended, the Company
has identified a location in the suburbs of Vancouver, B.C. Canada
whereby it can relocate much of its equipment from Bakersfield. The
Company feels it can better supervise the operation if it is closer to
its administrative offices. At June 30, 1999, the Company took a
write-down on some of its plant equipment in the amount of $586,955.
Some of this equipment related to processing of gypsum, which the
Company does not intend to carry out in the relocation of the balance
of its equipment.
While the Company continues to require additional funds to carry
out its program, it continues to pursue capital, either by way of
loans, sale of common stock, or a combination of both.
INFLATION
In the quarter ending September 30, 1999, inflation has not been
a factor. While inflationary forces are moderately higher now than
earlier in the year, the actual inflation is immaterial and is not
considered a factor in any modest capital expenditure contemplated in
the near future.
<PAGE> 20
QUARTER ENDED SEPTEMBER 30, 1999
The Company had a lease on premises in Bakersfield Ca, which
expired in April 1998. As there were interested parties exploring joint
venture opportunities at the site, subsequent rent obligations were
paid by other parties. At the moment, discussions are underway with the
owner of the property in regard to movement of the assets from the
property. The landowner has been most co-operative and the Company
expects no problems when movement of the equipment occurs.
Arrangements are currently being made for the movement of the
Bakersfield equipment. It will be relocated to the lower mainland of
Vancouver B.C. Canada. At this location, the Company will be able to
demonstrate various products for customers and reduce significantly its
costs in undertaking research and development.
The loss for the first quarter ending September 30, 1999 amounted
to $52,234. Research and Development costs, consulting fees and legal
fees constituted the majority of these expenses.
The Company rents office space in Vancouver B.C. Canada for
approximately $1,000 per month. This is based on a lease expiring
August 31, 2001.
All operating losses are reflected in U.S. dollars and any foreign
exchange loss or gain is nominal and amounted to less than $500US. The
Canadian dollar continues to trade around $0.68US and has varied only
modestly over past year.
The Company had no revenue in the first quarter but is actively
pursuing KDS system sales on a variety of fronts.
FOREIGN OPERATIONS
The Company currently has its biowaste testing site in the State
of Washington and intends to move this testing to Vancouver B.C.
The Company also intends to move its assets located in
Bakersfield, California to the same testing site in Vancouver B.C.
All corporate and administrative functions are conducted in its
leases premises in Vancouver B.C.
EXHIBIT INDEX
Exhibit
No. Description
27 Financial Data Schedule
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated this 12th day of November, 1999.
FIRST AMERICAN SCIENTIFIC CORP.
(the "Registrant")
BY: /s/ Gary Burnie
Gary Burnie. President, Secretary/Treasurer,
Chief Financial Officer and a Member of
the Board of Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at September 30, 1999 (Unaudited) and the
Statement of Income for the three months ende September 30, 1999 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
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