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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 March 31, 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 March 33, 2000 was 98,821,018
shares.
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PART I
ITEM 1. FINANCIAL STATEMENTS.
Board of Directors
First American Scientific Corp.
Vancouver, British Columbia
CANADA
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying consolidated balance sheet of First
American Scientific Corp. as of March 31, 2000, and the related
consolidated statements of operations and comprehensive income (loss),
shareholders' equity, and cash flows, for the three months and nine months
then ended, in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of First American Scientific Corp.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. 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.
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. Management's plans regarding those matters are described in
Note 2. 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.
Spokane, Washington
May 11, 2000
1
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED BALANCE SHEETS
March 31, 2000
ASSETS (Unaudited) June 30, 1999
CURRENT ASSETS
Cash $ 172,313 $ 25,690
Accounts receivable 9,007 9,007
Prepaid expenses 34,047 -
------------ ------------
TOTAL CURRENT ASSETS 215,367 34,697
------------ ------------
PROPERTY AND EQUIPMENT
Property and equipment 1,693,346 1,589,519
Less: Accumulated depreciation (447,032) (327,567)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 1,246,314 1,261,952
------------ ------------
OTHER ASSETS
Technology licenses and rights - net
of amortization 1,788,791 1,629,775
Patents and manufacturing
rights - net of amortization 218,265 218,265
Deposits 21,431 11,431
------------ ------------
TOTAL OTHER ASSETS 2,028,487 1,859,471
------------ ------------
TOTAL ASSETS $ 3,490,168 $ 3,156,120
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 189,056 $ 268,061
Short term loans payable 216,724 -
License agreement
payable - Spectrasonic Corp. - 302,000
------------ ------------
TOTAL CURRENT LIABILITIES 405,780 570,061
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - $.001 par value,
100,000,000 shares authorized;
98,821,018 and 66,146,018 shares
issued and outstanding, respectively 98,821 66,146
Additional paid-in capital 7,301,789 6,399,031
Accumulated deficit (4,316,757) (3,882,072)
Accumulated other comprehensive income 535 2,954
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,084,388 2,586,059
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,490,168 $ 3,156,120
============ ============
See accompanying notes and accountant's review report.
2
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
03/31/00 03/31/99 03/31/00 03/31/99
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues $ - $ 51,390 $ - $ 289,678
---------- ----------- ---------- ---------
Cost of Sales - 28,553 - 106,041
---------- ---------- ---------- ---------
Gross Profit - 22,837 - 183,637
---------- ---------- ---------- ---------
Operating
Expenses 382,774 35,767 494,025 231,409
---------- ---------- ---------- ---------
Net Loss from
Operations (382,774) (12,930) (494,025) (47,772)
---------- ---------- ---------- ---------
Income Taxes - - - -
---------- ---------- ---------- ---------
Income before
Extraordinary
Item (382,774) (12,930) (494,025) (47,772)
---------- ---------- ---------- ---------
Extraordinary Item
Gain on debt
forgiveness - - 59,340 -
---------- --------- ---------- ---------
Net Loss (382,774) (12,930) (434,685) (47,772)
Other Comprehensive
Income Foreign
currency translation
loss (2,419) - (2,419) -
---------- --------- ---------- ---------
Comprehensive Net
Income (Loss) $ (385,193) $ (12,930) $ (437,104) $ (47,772)
========== ========= ========== =========
Basic and diluted
net loss per
common share $ (0.005) $ NIL $ (0.005) $ (0.001)
========== ========== ========== ==========
Weighted average
number of basic
and diluted
common stock
shares
outstanding 82,483,518 57,736,018 82,483,518 57,736,018
========== ========== ========== ==========
See accompanying notes and accountant's review report.
3
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Additional Subscriptions
Common Stock Paid-in & Options
Shares Amount Capital Receivable
Beginning balance,
June 30, 1998 49,326,018 $ 49,326 $ 6,027,370 $ (45,500)
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 - - - 45,500
Net loss for year
ended 06/30/99 - - - -
Foreign currency
translation gain - - - -
---------- -------- ----------- ---------
Balance,
June 30, 1999 66,146,018 66,146 6,399,031 -
---------- -------- ----------- ---------
Issuance of stock for
debt settlement at
$0.025 per share 5,600,000 5,600 134,808 -
Issuance of stock for
settlement of debt
at $0.05 per share 6,000,000 6,000 294,000 -
Issuance of stock for
purchase of KDS
machines at $0.05
per share 2,000,000 2,000 98,000 -
Issuance of stock
for cash at $0.015
per share 3,000,000 3,000 42,000 -
Issuance of stock
for cash at $0.01
per share 1,000,000 1,000 9,000 -
Issuance of stock
for cash at $0.025
per share 5,500,000 5,500 132,000 -
Issuance of stock
for cash at $0.05
per share 1,000,000 1,000 49,000 -
Issuance of stock
for services at
$0.001 - $0.034 8,575,000 8,575 143,950 -
Net loss for nine
months ending
March 31, 2000 - - - -
Foreign currency
translation loss - - - -
---------- -------- ----------- ---------
Balance, 03/31/00
(Unaudited) 98,821,018 $ 98,821 $ 7,301,789 $ -
========== ======== =========== =========
See accompanying notes and accountant's review report.
4-a
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Other Total
Accumulated Comprehensive Stockholders'
Deficit Income Equity
Beginning balance,
June 30, 1998 $ (2,870,977) $ - $ 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 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
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
------------ --------- -----------
Issuance of stock for debt
settlement at $0.025
per share - - 140,408
Issuance of stock for
settlement of debt at $0.05
per share - - 300,000
Issuance of stock for purchase
of KDS machines at $0.05
per share - - 100,000
Issuance of stock for cash
at $0.015 per share - - 45,000
Issuance of stock for cash
at $0.01 per share - - 10,000
Issuance of stock for cash
at $0.025 per share - - 137,500
Issuance of stock for cash
at $0.05 per share - - 50,000
Issuance of stock for
services at $0.001 - $0.03 - - 152,525
Net loss for nine months
ending March 31, 2000 (434,685) - (434,685)
Foreign currency
translation loss - (2,419) (2,419)
------------ --------- -----------
Balance, March 31, 2000
(Unaudited) $ (4,316,757) $ 535 $ 3,084,388
============ ========= ===========
See accompanying notes and accountant's review report
4-b
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Nine Months
Ended Ended
03/31/00 03/31/99
(Unaudited) (Unaudited)
CASH FLOWS PROVIDED (USED) IN
OPERATING ACTIVITIES
Net income (loss) $ (437,104) $ (47,772)
Depreciation and amortization 211,168 -
Debt forgiveness (59,380) -
Stock exchanged for accounts payable 140,409 -
Adjustments to reconcile net loss
to net cash used by operations:
Services paid by issuance of stock 118,478 -
Decrease (increase) in accounts receivable - 78,415
Decrease (increase) in inventory - 5,500
Decrease (increase) in prepaid expenses - -
Decrease (increase) in deposits (10,000) -
(Decrease) increase in accounts payable (79,005) (28,848)
---------- ---------
Net cash provided (used) by
operating activities (115,434) 7,295
---------- ---------
CASH FLOWS PROVIDED (USED) IN
INVESTING ACTIVITIES
Purchase of technology rights (250,219) -
Purchase of assets (3,827) -
---------- ---------
Net cash provided (used) in
investing activities (254,046) -
---------- ---------
CASH FLOWS PROVIDED (USED)
IN FINANCING ACTIVITIES
Borrowings 275,603 19,645
Retirement of debt - (80,000)
Payments on borrowings (2,000) (41,061)
Proceeds from sales of stock 242,500 97,250
---------- ---------
Net cash provided by financing activities 516,103 (4,166)
---------- ---------
NET INCREASE (DECREASE) IN CASH $ 146,623 $ 3,129
---------- ---------
See accompanying notes and accountant's review report.
5
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Nine Months
Ended Ended
March 31, 2000 March 31, 1999
(Unaudited) (Unaudited)
NET INCREASE (DECREASE) IN CASH
(Balance forward) $ 146,623 $ 3,129
CASH - Beginning of year 25,690 1,133
--------- --------
CASH - End of year $ 172,313 $ 4,262
========= ========
SUPPLEMENTAL CASHFLOW DISCLOSURES
Interest paid in cash $ - $ -
========= ========
Income taxes paid in cash $ - $ -
========= ========
NON-CASH INVESTING ACTIVITIES
Common stock issued for payment on
fixed assets $ 100,000 $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for
services rendered $ 118,478 $ -
Common stock issued for
prepaid services $ 34,047 $ -
Common stock issued for
exchange of debt $ 140,409 $ 83,750
Common stock issued for payment on
worldwide technology license $ 300,000 $ -
Common stock issued for commissions $ - $ 13,500
See accompanying notes and accountant's review report.
6
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
March 31, 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 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 $4,316,757 through March 31, 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.
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.
7
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
March 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 new 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 March 31, 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.
Provision for Taxes
At March 31, 2000, the Company had net operating accumulated losses of
approximately $4,300,000. 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.
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.
<PAGE> 11
FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
March 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
The Company has reviewed its technology, including software and
hardware, and has determined that there have been 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 2000,
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.
Interim Financial Statements
The interim financial statements for the period ended March 31, 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.
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.
9
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
March 31, 2000
NOTE 3 - PROPERTY AND EQUIPMENT (Continued)
March 31, June 30,
2000 1999
Ultrasound equipment $ 872,246 $ 872,246
Plant assets and equipment 790,248 687,881
Office equipment 25,376 23,916
Leasehold improvements 5,476 5,476
----------- -----------
Total assets 1,693,346 1,589,519
Less accumulated depreciated (447,032) (327,567)
----------- -----------
$ 1,246,314 $ 1,261,952
=========== ===========
Depreciation and amortization expense for the nine month period ended
March 31, 2000 was $211,168. 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 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. 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:
March 31, June 30
2000 1999
Technology license and rights $ 2,155,219 $ 1,905,000
Patents and manufacturing rights 250,000 250,000
----------- -----------
2,405,219 2,155,000
Less accumulated amortization (398,163) (306,960)
----------- -----------
$ 2,007,056 $ 1,848,040
=========== ===========
NOTE 4 - COMMON STOCK AND WARRANTS
At March 31, 2000, the Company issued 5,600,000 common stock shares in
settlement of accounts payable of $140,409; 6,000,000 common stock
shares in settlement of the balance due on the technology licenses of
$300,000; 2,000,000 common stock shares for the purchase of two KDS
machines; and 8,575,000 common stock shares for services of $152,525,
of which $34,047 was considered prepaid.
10
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
March 31, 2000
NOTE 4 - COMMON STOCK AND WARRANTS (Continued)
During the period ended March 31, 2000, the Company issued 10,500,000
common stock shares for cash totaling $242,500.
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.
Stock subscriptions and options receivable of $45,500 at June 30, 1998
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.
11
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
March 31, 2000
NOTE 5 - STOCK OPTIONS
The following is a summary of stock option activity:
Weighted
Average
Number Exercise
Of Shares Price
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 $ 0.19
=========
Outstanding at July 1, 1999 - -
--------- ------
Granted - -
Exercised - -
--------- ------
Outstanding at March 31, 2000 - -
========= ======
Options exercisable at 03/31/00 - -
========= ======
NOTE 6 - RELATED PARTIES
At March 31, 2000 the Company has short term loans payable with two of
its shareholders in the amount of $216,724.
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, 2,000,0000 shares were
issued to members of board of directors who provided services to the
Company.
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.
12
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FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
March 31, 2000
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Lease Commitments (Continued)
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.
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.
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.
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. The parties subsequently agreed to
settlement of the balance by the Company's issuance of 6,000,000 shares
of its common stock and $2,000 cash to Spectrasonic.
13
<PAGE> 16
FIRST AMERICAN SCIENTIFIC CORP.
Notes to the Consolidated Financial Statements
March 31, 2000
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Technology License (Continued)
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 in increments of $50,000 per machine as
manufactured and sold by the Company.
NOTE 8 - EXTRAORDINARY GAIN
Forgiveness of Debt
During the period ended March 31, 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 $59,340.
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. 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.
14
<PAGE> 17
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 operation at the Bakersfield site.
Since the Company irrevocably acquired all patent rights to the
technology in December 1999, it has continued its research and
development of the KDS system as its research site in Ireland. The
research center us 100% funded by our Joint Venture partner in
conjunction with the Irish government under their Radian Award program.
The cost of this research has no impact on the Companies financial
position.
Development of the internet site VideoMovieHouse.com is
continuing, however, due to financial priorities, limited funding has
been directed to this venture until new working capital can be
arranged.
The Company continues to focus on strengthening its balance sheet.
During the quarter, it has settled past accounts payable and short term
debt of $100,764 by reducing outstanding accounts payable from $265,004
to $189,056 and retiring amounts due to an ex-director of $24,820.
Capital for these expenditures and for ongoing expenses came from short
term loans provided by several individuals. These loans, which carry
no interest and no terms of repayment, will likely be converted to
equity in the next quarter.
The company currently has $172,313 cash on hand and has sufficient
liquidity to maintain its operation. It will however, will continue to
have a need for capital fo advance its project and plans to actively
pursue fund raising activities, either by way of loans, sale of stock
or a combination of both.
On March 7, 2000, the Board of Directors passed a resolution to
increase its authorized capital from 100 million to 200 million common
shares. The resolution requires consent of a clear majority of all
shareholders (50.1%) to be ratified. Polling of the shareholders is
now underway.
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 2000
The Company generated $53,380 in revenue during the quarter,
mainly as a result of gains realized through settlement of old debt.
The Company continues to f9ocus on strengthening its balance sheet,
resolving outstanding legal issues and developing its marketing
strategy and business plan. The Company is conscious of its operating
expenses an dis carefully managing its resources.
<PAGE> 18
Phase II of the research and development funded by the "Radian
Award Program" in Ireland is well underway with the development of a
computer simulation model which will, when completed, be used to
enhance system design and customize components for specific processes
and materials.
The KDS machine previously located in Tonasket, Washington was
moved to Vancouver and is currently undergoing a complete retrofit and
being made ready for use at the new Cloverdale demonstration site and
sale office.
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 will come from our Czech partners. The Company's solicitors
are currently legalizing the agreement and attending to registering the
KDS patents in the Czech Republic.
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
Vancouver demonstration site and sales office is currently under
construction and will be open during the fourth quarter.
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. 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
<PAGE> 19
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.
The parties have agreed to settle this cast for $3,000.
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. The judgment has been paid in full.
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.
<PAGE> 20
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. The plaintiff's claim has been satisfied in full
by the Company.
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
and has been paid in full.
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. The parties have agreed to settle this matter for $15,000.
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 for $18,000 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. This matter was settled and paid in full.
<PAGE> 21
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 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 March 31, 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 March 31, 2000.
<PAGE> 22
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 May, 2000.
FIRST AMERICAN SCIENTIFIC CORP.
BY: /s/ C. L. Kantonen
C. L. Kantonen, Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at March 31, 2000 (Unaudited) and
the Consolidated Statement of Income for the nine months ended March 31, 2000
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 172,313
<SECURITIES> 0
<RECEIVABLES> 9,007
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 215,367
<PP&E> 1,693,346
<DEPRECIATION> 447,032
<TOTAL-ASSETS> 3,490,168
<CURRENT-LIABILITIES> 405,780
<BONDS> 0
0
0
<COMMON> 98,821
<OTHER-SE> 2,985,568
<TOTAL-LIABILITY-AND-EQUITY> 3,490,168
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 494,025
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (494,025)
<INCOME-TAX> 0
<INCOME-CONTINUING> (494,025)
<DISCONTINUED> 0
<EXTRAORDINARY> 59,340
<CHANGES> 0
<NET-INCOME> (434,685)
<EPS-BASIC> (0.005)
<EPS-DILUTED> (0.005)
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