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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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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, 2000.
[ ] 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, $0.001 par value per share, at September 30, 2000 was
111,671,018 shares.
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<PAGE> 2
Board of Directors
First American Scientific Corp.
Vancouver, B.C.
CANADA
Accountant's Review Report
We have reviewed the accompanying consolidated balance sheet of First
American Scientific Corp. as of September 30, 2000 and the related
consolidated statements of operations and comprehensive income (loss),
stockholders' equity and cash flows for the three months ended September
30, 2000. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them
to be in conformity with generally accepted accounting principles.
The financial statements for the year ended June 30, 2000 were audited by
us and we expressed an unqualified opinion on them in our report dated
September 24, 2000, but we have not performed any auditing procedures
since that date.
As discussed in Note 2, the Company has sustained losses since inception
and has negative working capital. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Realization
of a major portion of the assets is dependent upon the Company's ability
to meet its future financing requirements and the success of future
operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, WA
November 13, 2000
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
2000 2000
ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 61,125 $ 42,420
Trust account 59,642 59,642
Prepaid expenses 92,000 34,000
------------ ------------
TOTAL CURRENT ASSETS 212,767 136,062
------------ ------------
PROPERTY AND EQUIPMENT
Property and equipment 1,693,261 1,693,261
Less: Accumulated depreciation (573,681) (524,292)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 1,119,580 1,168,969
------------ ------------
OTHER ASSETS
Technology rights - net of amortization 1,720,763 1,751,152
Patents and manufacturing
rights - net of amortization 197,397 201,598
Deposits 1,430 1,430
------------ ------------
TOTAL OTHER ASSETS 1,919,590 1,954,180
------------ ------------
TOTAL ASSETS 3,251,937 $ 3,259,211
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 244,494 $ 196,196
------------ ------------
TOTAL CURRENT LIABILITIES 244,494 196,196
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - $.001 par value,
200,000,000 shares authorized; 111,671,018
and 100,821,018 shares issued and
outstanding, respectively 111,671 100,821
Additional paid-in capital 7,959,404 7,495,604
Stock Options 155,680 -
Accumulated deficit (5,218,148) (4,533,197)
Accumulated other comprehensive income (1,164) (213)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,007,443 3,063,015
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 3,251,937 $ 3,259,211
============ ============
See accompanying notes and accountant's review report.
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three Months Three Months
Ended Ended
09/30/00 09/30/99
REVENUES $ - $ -
COST OF SALES - -
----------- ----------
GROSS PROFIT - -
Operating Expenses 684,951 52,235
----------- ----------
Loss before Income Taxes (684,951) (52,235)
Income Taxes - -
----------- ----------
NET LOSS (684,951) (52,235)
Other Comprehensive Income (loss)
Foreign currency translation
gain (loss) (951) -
----------- ----------
Comprehensive Net Loss $ (685,902) $ (52,235)
=========== ==========
Basic and diluted net loss
per common share $ (0.006) $ (0.001)
=========== ==========
Weighted average number of
basic and diluted common
stock shares outstanding 107,654,566 55,876,015
=========== ==========
See accompanying notes and accountant's review report.
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-in Stock
Shares Amount Capital Options
Balance,
June 30, 1999 66,146,018 $ 66,146 $ 6,399,030 $ -
Issuance of options
for consulting
services - - - 4,500
Exercise of stock
options for cash
at an average of
$0.03 per share 10,600,000 10,600 319,400 (4,500)
Issuance of stock
for cash at an
average of $0.03
per share 7,500,000 7,500 217,500 -
Common stock issued
from options for
equipment at $0.05
per share 2,000,000 2,000 98,000 -
Common stock issued
from options for
services at $0.02
per share 9,075,000 9,075 147,675 -
Common stock issued
from options for
accounts payable
at $0.02 1,000,000 1,000 16,500 -
Common stock issued
from options for
payment of long-term
debt at $0.05 per
share 4,500,000 4,500 297,500 -
Net loss for year
ended June 30, 2000 - - - -
Foreign currency
translation gain
(loss) - - - -
----------- --------- ----------- ---------
Balance,
June 30, 2000 100,821,018 100,821 7,495,604 -
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Other Total
Accumulated Comprehensive Stockholders'
Deficit Income (loss) Equity
Balance, June 30, 1999 $ (2,923,212) $ 2,954 $ 3,544,918
Issuance of options for
consulting services - - 4,500
Exercise of stock options
for cash at an average
of $0.03 per share - - 325,500
Issuance of stock for cash
at an average of $0.03
per share - - 225,000
Common stock issued from
options for equipment
at $0.05 per share - - 100,000
Common stock issued from
options for services at
$0.02 per share - - 156,750
Common stock issued from
options for accounts
payable at $0.02 - - 17,500
Common stock issued from
options for payment of
long-term debt at $0.05
per share - - 302,000
Net loss for year ended
June 30, 2000 (1,609,985) - (1,609,985)
Foreign currency
translation gain (loss) - (3,167) (3,167)
------------ -------- -----------
Balance, June 30, 2000 (4,533,197) (213) 3,063,015
See accompanying notes and accountant's review report.
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-in Stock
Shares Amount Capital Options
Issuance of options
for compensation and
consulting services - - - 309,680
Common stock issued
from options for
compensation and
services at an
average of $0.03
per share 6,750,000 6,750 326,100 (100,400)
Common stock issued
from options for
cash and compensation
at an average of
$0.14 per share 400,000 400 53,600 (53,600)
Common stock issued
from options for cash
at $0.04 per share 2,500,000 2,500 62,500 -
Common stock issued
for cash at $0.02
per share 1,200,000 1,200 21,600 -
Net loss for the three
months ended
September 30, 2000 - - - -
Foreign currency
translation gain
(loss) - - - -
----------- --------- ----------- ---------
Balance,
September 30, 2000
(Unaudited) 111,671,018 $ 111,671 $ 7,959,404 $ 155,680
=========== ========= =========== =========
See accompanying notes and accountant's review report.
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Other Total
Accumulated Comprehensive Stockholders'
Deficit Income (loss)Equity
Issuance of options for
compensation and
consulting services - - 309,680
Common stock issued from
options for compensation
and services at an
average of $0.03 per
share - - 232,450
Common stock issued from
options for cash and
compensation at an
average of $0.14
per share - - 400
Common stock issued from
options for cash at
$0.04 per share - - 65,000
Common stock issued for
cash at $0.02 per share - - 22,800
Net loss for the three
months ended
September 30, 2000 (684,951) - (684,951)
Foreign currency
translation gain
(loss) - (951) (951)
------------ -------- -----------
Balance,
September 30, 2000
(Unaudited) $ (5,218,148) $ (1,164) $ 3,007,443
============ ======== ===========
See accompanying notes and accountant's review report.
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Three Months
Ended Ended
09/30/00 09/30/99
(Unaudited) (Unaudited)
CASH FLOWS PROVIDED (USED) BY
OPERATING ACTIVITIES
Net loss $ (684,951) $ (52,235)
Depreciation and amortization 85,601 -
Adjustments to reconcile net loss
to net cash used by operations:
Services paid by issuance of stock 542,130 -
Decrease (increase) in prepaid
expenses (58,000) -
(Decrease) increase in accounts
payable 48,298 (3,000)
---------- ----------
Net cash (used) in operating activities (66,922) (55,235)
---------- ----------
CASH FLOWS PROVIDED (USED) BY
INVESTING ACTIVITIES
Investment in technology (1,622) (125,723)
---------- ----------
Net cash provided (used) in
investing activities (1,622) (125,723)
---------- ----------
CASH FLOWS PROVIDED (USED)
BY FINANCING ACTIVITIES
Payments on borrowings - 171,808
Proceeds from sales of stock 88,200 -
---------- ----------
Net cash provided by
financing activities 88,200 171,808
---------- ----------
NET INCREASE (DECREASE) IN CASH $ 19,656 $ (9,150)
---------- ----------
Other comprehensive income (951) -
---------- ----------
CASH - Beginning of year 42,420 25,690
---------- ----------
CASH - End of period $ 61,125 $ 16,540
========== ==========
SUPPLEMENTAL CASHFLOW DISCLOSURES
Interest $ - $ -
========== ==========
Income Taxes $ - $ -
========== ==========
NON-CASH TRANSACTIONS
Common stock issued for
services rendered $ 542,130 $ -
See accompanying notes and accountant's review report.
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
September 30, 2000
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 and operating equipment
referred to as the KDS Micronex System. This patented process has the
capability of reducing industrial material such as limestone, gypsum,
zeolite, wood chips, bio-waste, rubber and ore containing precious metals
to a fine talcum-like powder. The process can significantly increase the
end value of the host material. The Company maintains an office in
Vancouver, British Columbia, Canada.
The Company, through its wholly owned subsidiary, is developing an
internet sales site to be known as VideoMovieHouse.com. The site, which
is designed to sell videos, CDs and books, and as technology advancements
permit, become a virtual video rental store, is expected to be ready for
launch before the year end 2000. See Note 9.
The Company's year-end is June 30th.
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 $5,218,148 through September 30, 2000,
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.
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Derivative Instruments
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This standard establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the consolidated balance sheet and
measure those instruments at fair value.
At September 30, 2000 the Company has not engaged in any transactions
that would be considered derivative instruments or hedging activities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant inter-company transactions and
balances have been eliminated in consolidation.
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.
Trust Account
The Company has $59,642 on deposit with an attorney in California. This
amount was set aside to pay negotiated settlements with vendors and
suppliers.
Fair Value of Financial Instruments
The carrying amounts for cash, the trust account, marketable securities,
accounts receivable, accounts payable, notes payable and accrued
liabilities approximate their fair value.
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration of Risk
The Company maintains its cash accounts in primarily one commercial bank
in Vancouver, British Columbia, Canada. The Company's cash account,
which is not insured, is a business checking account maintained in United
States dollars.
Interim Financial Statements
The interim financial statements for the period ended September 30, 2000
included herein have not been audited at the request of the Company.
They do reflect all adjustments, which are, in the opinion of management,
necessary to present fairly the results of operations for the period.
All such adjustments are normal recurring adjustments. The results of
operations for the period presented is not necessarily indicative of the
results to be expected for the full fiscal year.
Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are translated
into U.S. dollars at the period-end exchange rates, and revenue and
expenses are translated at the average exchange rates during the period.
Exchange differences arising on translation are disclosed as a separate
component of shareholders' equity. Realized gains and losses from foreign
currency transactions are reflected in the results of operations.
Provision for Taxes
At September 30, 2000, the Company had net operating accumulated losses
of approximately $5,200,000. 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.
Impairment of Long-lived Assets
The Company evaluates the recoverability of long-lived assets 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.
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. 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.
Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in the fiscal year ended September
30, 2000. 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 operations or financial
position. The Company's Bakersfield plant was not engaged in any
business activity. VHM, the Company's subsidiary is non-operational as
of September 30, 2000. (See Note 9). The Company has no segments
engaged in business activities at September 30, 2000 and, therefore, no
segment reporting is 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:
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 3 - PROPERTY AND EQUIPMENT (Continued)
September 30, June 30,
2000 2000
Kinetic disintegration equipment $ 972,246 $ 972,246
Plant assets and equipment 687,881 687,881
Office equipment 27,658 27,658
Leasehold improvements 5,476 5,476
----------- -----------
Total assets 1,693,261 1,693,261
Less accumulated depreciation (573,681) (524,292)
----------- -----------
$ 1,119,580 $ 1,168,969
=========== ===========
Depreciation and amortization expense for the three months ended
September 30, 2000 was $85,601. 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. In
1999, the Company suspended operations at its Bakersfield location and
recorded a loss of $629,118 on impairment of plant assets. 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. See Note 7. 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:
September 30, June 30,
2000 2000
Technology license and rights $ 2,155,000 $ 2,153,380
Patents and manufacturing rights 250,000 250,000
----------- -----------
2,405,000 2,403,379
Less accumulated amortization (486,840) (450,628)
----------- -----------
$ 1,918,160 $ 1,952,751
=========== ===========
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 4 - COMMON STOCK AND WARRANTS
At June 30, 2000, the Company issued 1,000,000 common stock shares in
settlement of accounts payable of $17,500; 4,500,000 common stock shares
in a settlement agreement of the balance due on the technology licenses
for $225,000 (see Note 7); 2,000,000 common stock shares for the purchase
of two KDS machines valued at $100,000; and 9,075,000 common stock shares
for services and expenses of $156,750, of which $34,000 was considered
prepaid.
During the period ended June 30, 2000, the Company issued 18,100,000
common stock shares for cash totaling $550,500.
On June 4, 1998, the Board of Directors authorized and increased common
stock from 50,000,000 to 100,000,000 authorized shares.
In June 2000, an amendment to the Articles of Incorporation was approved,
which increased the authorized capital to 200,000,000 shares of common
stock at a par value of $0.001 per share.
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.
Stock subscriptions and options receivable of $45,500 at June 30, 1998
was paid during 1999.
During the three months ended September 30, 2000, the Company issued
6,750,000 shares of common stock from options valued at $326,100 for
services and compensation; 400,000 shares of common stock from options
valued at $54,000 of which $53,600 was for services and $400 cash;
2,500,000 shares of common stock from options for cash of $65,000 and
1,200,000 shares of common stock for cash of $22,800.
NOTE 5 - STOCK OPTIONS
On June 8, 2000, the Company's board of directors approved the First
American Scientific Corp. 2000 non-qualifying Stock Option Plan. This
plan allows the Company to distribute up to 30,000,000 shares of common
stock at $0.10 per share to persons employed or associated with the
Company.
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 5 - STOCK OPTIONS (Continued)
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 9,750,000 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 stock option activity:
Weighted
Average
Number of Exercise
Shares Price
Outstanding at July 1, 1999 1,200,000 $ 0.019
Granted 29,275,000 0.032
Exercised (27,175,000) 0.033
----------- -------
Outstanding at June 30, 2000 3,300,000 $ 0.027
=======
Options exercisable at June 30, 2000 3,300,000 $ 0.027
=========== =======
Weighted average fair value of
options granted during year
ended June 30, 2000 $ 0.032
===========
Options outstanding at July 1, 2000 3,300,000 $ 0.027
Granted 10,242,000 0.135
Exercised (9,650,000) 0.030
----------- -------
Options outstanding at
September 30, 2000 3,892,000 $ 0.124
=========== =======
Options exercisable at
September 30, 2000 3,892,000 $ 0.124
=========== ========
Weighted average fair value of
options granted during the three
months ended September 30, 2000 $ 0.05
===========
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 5 - STOCK OPTIONS (continued)
During the three months ended September 30, 2000, the Company granted
10,242,000 options of which 7,742,000 were issued for services and
2,500,000 were issued for cash.
The fair value of each option granted is estimated on the grant date was
Black-Scholes Option Price Calculation. The following assumptions were
made in estimating fair value; risk-free interest is 5%, volatility is
30% and expected life is 5 years. The value of these options in the
amount of $309,680 is included in operating expense in the accompanying
financial statements.
NOTE 6 - RELATED PARTIES
In 2000, the Company's president and his spouse were issued 3,225,000
common stock options, of which 1,725,000 were issued for services valued
at $58,650 and 1,500,000 were issued for $37,500 in cash. All options
were exercised. During the three months ended September 30, 2000, the
president was granted another 342,000 options which has been recorded as
an operating expense. See Note 5.
Certain consultants which received common stock in 1999 under the
Company's non-qualified stock option plan were Company directors and
stockholders. Of the 3,300,000 shares issued to consultants, 2,000,000
shares were issued to members of the board of directors who provided
services to the Company.
The president of the Company was the former sole shareholder of Video
Movie House.com Inc., a firm which was purchased for $250,000 in 2000 and
is now the wholly owned subsidiary of First American Scientific Corp.
See Note 9.
During the year ended June 30, 2000, the Company purchased 100,000 share
of Lynx Express, Ltd. common stock for $1,000. This investment was given
to satisfy a debt of the Company owed to its former president during
2000. The excess of the debt over the book value of the investment, in
the amount of $5,220 was recorded in the financial statements as a
portion of the forgiveness of debt. See Note 8.
At June 30, 2000, the Company's president was the sole director of the
Company's board of directors. On August 1, 2000 another board member was
appointed. The new board member was also appointed secretary of the
Company and granted 450,000 options.
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company owns no real property. The Company negotiated a 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 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 operate 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.
Technology Patent
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 Kinetic Disintegration Equipment
(KDS) 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 KDS 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 KDS machine for
gypsum-related use was $775,000, with the parties agreeing that the
technology license is valued at $425,000 and the gypsum KDS 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 the Company paid by 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.
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Although the Company issued 1,000,000 common stock shares to Spectrasonic
in July 1996, the Company subsequently defaulted on this agreement by its
failure to make the remaining installments totaling $537,000. Although
the June 30, 1999 balance owing on this agreement was $302,000, the
parties subsequently agreed to the settlement of the balance by the
Company's issuance of 4,500,000 shares of its common stock to
Spectrasonic. The Company recognized $77,000 in forgiveness of debt
which has been recorded as additional paid-in capital.
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 Kinetic
Disintegration Machine (KDS Machine) whose worldwide rights had been
previously acquired by the Company. In the negotiations, the Company
acquired all manufacturing rights applicable to the KDS machine
technology. The Company has sole right and responsibility for
manufacturing the machinery. Consideration to Spectrasonic was 1,000,000
common shares of the Company's stock at $0.25 per share issued on
December 1, 1999.
NOTE 8 - EXTRAORDINARY GAIN
Forgiveness of Debt
During the year ended June 30, 2000, 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 $73,486. See Note 7 for information
on forgiveness of debt recorded as additional paid-in capital.
NOTE 9 - SUBSIDIARY
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. (See Note 6). The sum of $125,000 was paid to
VMH and the balance was paid in November 1999. VMH possesses domain
names, a web page, and technology for the sale of videos, DVD's, and CD's
through the internet. VMH is a wholly owned subsidiary of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
First American Scientific (the Company) was incorporated April 12,
1995 as a development stage company. From May 1997 to June 1998 it
operated a pilot project in Bakersfield which confirmed that the
technology worked for industrial minerals, primarily gypsum. A joint
venture to operate the plant ended in dispute between the parties and
operation of the plant ceased. Steps are now nearing conclusion to
resolve the legal issues surrounding the matter and to regain control of
the at the Bakersfield equipment. Unfortunately, negotiations in October
2000 resulted in an impass and the Company is now taking legal action to
enforce its legal right to recover its equipment and for damages.
Since the Company acquired all patent rights to the technology in
December 1999, research and development of the KDS system has continued
at its research site in Ireland, as well as at the newly established
demonstration/testing center in Delta, BC. Testing at the Delta site is
ongoing and has resulted in significant improvements to the KDS machine.
Two new KDS machines are currently under construction which will
incorporate all the new features.
Development of the internet site VideoMovieHouse.com is nearing
completion and currently employs three full time programmer/technicians
and a project manager. The site is expected to be ready for launch before
the end of the year. In August 2000, a 3000 square foot office/warehouse
in Clearbrook, BC was leased to house the operation and an initial
inventory was purchased.
The Company has shifted its focus to developing and improving its
products.During the quarter, approximately $ 39,000 was spent on KDS
upgrades and $ 34,000 on VideoMovieHouse.com development. No further debt
settlements were made, however the Company still has $59,000 set aside
for that purpose. Accounts payable rose from $196,196 to $ 244,493, but
all newly incurred payables are current. Capital for these expenditures
and for ongoing expenses came from short term loans provided by several
individuals and from outstanding options that were exersiced .
The company currently has $120,767 cash on hand and has sufficient
liquidity to maintain its operation. It will however, will continue to
have a need for capital for advance its project and plans to actively
pursue fund raising activities, either by way of loans, sale of stock or
a combination of both.
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RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 2000
The Company generated no revenue during the quarter, the same as in
the previous year, but continues to strengthen its balance sheet, resolve
outstanding legal issues, improve its products and technology and develop
its marketing strategy and business plan. The Company is conscious of
its operating expenses and is carefully managing its resources, while at
the same time investing developing its technologies. Total operating and
development expenses for the quarter were $ 363,502, compared to $
724,661 for all of last year. The increase in spending is attributable to
costs related to revitalization of its equipment, expenditures for new
design and product improvements, set up costs and development of
VideoMovieHouse.com and legal and professional fees incurred resolving
outstanding legal issues.
Phase II of the research and development funded in part by the
"Radian Award Program" in Ireland is continuing with enhancements to
system design for the dewatering and processing of bio-waste. Progress
is slow, but encouraging.
The KDS machine previously located in Tonasket, Washington has been
moved to Vancouver and has undergone a complete retrofit. To date, it
has processed over 100 test samples of various products. From these
tests design improvements have been made, and the KDS system is now able
to successfully process products wood waste, mineral rock, zeolite, and
gyproc of varying moisture content into desired sizes ranging from 1
millemetre to -400 mesh.
In addition, two new improved machines are being built machines and
being made ready for use, one for testing and sales demonstrations, and
one to be used for processing ore from the BeauPre mine site.
On March 25, 2000, the Company entered into an Agreement in
Principle to form a joint venture to distribute and manufacture the KDS
system in the Czech Republic. Under the agreement the joint venture
which will be known as First American Scientific (Europe) Corp., will be
60% owned and controlled by the Company. All funding for the venture was
to come from the Czech partners, however the project was stalled by the
inability to adequately secure patent rights in the Czech Republic, and
no funds have been received to date. Therefore, the Company's solicitors
are reviewing the documentation, and the project will only move forward
if patent and financial issues are resolved.
On August 8, 2000, the company signed an agreement in principle with
Beau Pre Exploratins Ltd, wherein FASC agreed to bench test ore delivered
from the BeauPre gold claims through the KDS machine, and if testing
proved successful, then a KDS machine would be installed on the Beau Pre
mine site and any profit derived therefrom would be shared equally
(50/50) by FASC and BeauPre. All initial testing has proved successful,
a new machine is under construction and a final decision will be made
before the end of the year.
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INFLATION
Inflation has not been a factor effecting current operations, and is
not expected to have any material effect on operations in the near
future.
FOREIGN OPERATIONS
The Company rents office space in Vancouver, British Columbia,
Canada which serve as the corporate and administrative offices. The
temporary demonstration site and sales office is in use under a month to
month sub-lease agreement, and negotiations to establish a permanent
location are under consideration. In August 2000, the Company entered
into a one year lease to rent 3000 square feet of office/warehouse space
in Clearbrook BC to house the operation of VideoMovieHouse.com.
PART II. OTHER INFORMATION
Item 1. 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. The claim is in the amount
$21,231.54. SETTLED for $ 16,231.54
DARCO EQUIPMENT VS. FIRST AMERICAN SCIENTIFIC CORP., Orange County
Superior Court, Case No. 786408, filed on approximately November 4, 1997.
The claim was for the amount of $ 13,960.58. SETTLED for $ 4000.00
KERN ROCK V. FIRST AMERICAN SCIENTIFIC CORP., Kern County Municipal
Court, Bakersfield Judicial District, Case No. 137938, filed on
approximately July 24, 1997. The claim was for the amount of $11,634.96.
SETTLED for $ 5060.15
TERRAIN TECHNOLOGY V. FIRST AMERICAN SCIENTIFIC CORP., Kern County
Municipal Court, Bakersfield Judicial District, Case No. 140950, filed
on approximately October 8, 1997. This claim was for $10,199. SETTLED
for $ $ 5799.92
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 t claims is
in the amount $9,980.41. SETTLED for $ 2969.18
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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 claim was for $17,353.76. SETTLED for $
3359.15
WOOD V. FIRST AMERICAN SCIENTIFIC CORP., Kern County Municipal
Court, Bakersfield Judicial District, Case No. 146901, filed on August 7,
1998. This claim was for $16,200. SETTLED for $ 4860.00
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.
SETTLEMENT OFFER REJECTED
HARTWICK & HAND V. FIRST AMERICAN SCIENTIFIC CORP., Kern County
Municipal Court, Bakersfield Judicial District, Case No. 146948, filed on
August 10, 1998. This claim was for $18,246.44. SETTLED for $ 6000.00
SMALL V. FIRST AMERICAN SCIENTIFIC CORP., Kern County Superior, Case
No. 235377 RA, filed on December 26, 1997. This claim was in the amount
of $29,235.48. SETTLED for $ 15,000.00
H. LIMA CO. V. FIRST AMERICAN SCIENTIFIC CORP., Kern County Superior
Court, Case No. 235647 AEW, filed on February 6, 1998. This claim was
for $69,133.62. SETTLED for $ 18,000.00
L.A. COMMERCIAL V. FIRST AMERICAN SCIENTIFIC CORP., Kern County
Municipal Court, Bakersfield Judicial District, Case No. 144246, filed on
March 26, 1998. This claim was in the amount of $6,885.00. SETTLED for
$ 2000.00
ITO PACKING CO. V. FIRST AMERICAN SCIENTIFIC CORP., Fresno County
Municipal Court, Case No. C98906111-0, filed on August 10,1998. This
claim was for $9,513.34. SETTLEMENT OFFER UNDER CONSIDERATION.
QUINN CO. V. FIRST AMERICAN SCIENTIFIC CORP., Fresno County
Municipal Court, Case No. 613896-0, filed on July 16, 1998. This claim
was for $35,523.90. SETTLED for $ 17,000.00
The Company has a number of other commercial creditors who have the
ability to bring actions to recover money due them. Some of these claims
will entitle the creditor to attorneys' fees spent in recovering these
funds. Settlement discussions are ongoing. The company expects to settle
all remaining outstanding claims during the
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In the event all parties are successful in their claims, the Company
could be forced into bankruptcy, receivership and/or forced to cease
operations. The Company believes this to be unlikely and is holding $
59,000 in reserve to cover settlement of these old debts.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended September 30, 2000.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are attached hereto:
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company has not filed any Reports on Form 8-K for the period
ending September 30, 2000.
SIGNATURES
In accordance with 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 15th day of November, 2000.
FIRST AMERICAN SCIENTIFIC CORP.
BY: /s/ C. L. Kantonen
C. L. Kantonen, Chief Executive
Officer
