-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RpUAB8dlgbOkuXp5vwKDGVPZoOJDAFdWRXvIdUqY92Z6W/L7FkOIlLWMvf9SCEWE ULgSphQxdbNPr+5MtVl2yg== /in/edgar/work/0001002014-00-000146/0001002014-00-000146.txt : 20001013 0001002014-00-000146.hdr.sgml : 20001013 ACCESSION NUMBER: 0001002014-00-000146 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20001012 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST AMERICAN SCIENTIFIC CORP \NV\ CENTRAL INDEX KEY: 0001002822 STANDARD INDUSTRIAL CLASSIFICATION: [3060 ] IRS NUMBER: 880338315 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-27094 FILM NUMBER: 738752 BUSINESS ADDRESS: STREET 1: 470 GRANVILLE ST STREET 2: STE 1122 CITY: VANCOUVER BRITISH CO STATE: A1 BUSINESS PHONE: 6046818656 10KSB 1 0001.txt 1 ================================================================= FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 [ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended - June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission file number 0-27094 FIRST AMERICAN SCIENTIFIC CORP. (Exact name of Company as specified in its charter) Nevada 88-0338315 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 409 Granville Street Suite 1003 Vancouver, British Columbia V6C 1V5 (Address of principal executive offices, including postal code.) (604) 681-8656 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class None Securities registered pursuant to Section 12(g) of the Act: Title of each class Common Stock Securities registered pursuant to Section 15(d) of the Act: Title of each class None Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] ===================================================================== 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The number of shares outstanding each of the Registrant's classes of Common Stock, as of June 30, 2000 was 100,821,018 . Documents Incorporated by Reference 1. Form S-8 Registration Statement filed with the Securities and Exchange Commission on June 26, 1996. 2. Form 10-K for the period ending June 30, 1996. 3. Form 10-K for the period ending June 30, 1997. 4. Form 10-K for the period ending June 30, 1998. 5. Form 10-K for the period ending June 30, 1999. 6. Form S-8 Registration Statement filed with the Securities and Exchange Commission on September 13, 1999. 7. Form S-8 Registration Statement filed with the Securities and Exchange Commission on June 8, 2000 3 PART I Item 1. BUSINESS General FIRST AMERICAN SCIENTIFIC CORP. (the "COMPANY") was incorporated under the laws of Nevada on April 12, 1995. Soon after incorporation, the Company acquired licensing rights to the KINETIC DISINTEGRATION SYSTEM (KDS), which is a highly refined micronizing process utilizing kinetic energy to disintegrate non-ferrous material such as rubber, glass, and various industrial minerals. The initial purpose of the Company was to develop, market, manufacture, distribute, and sell KDS equipment. The areas of interest were rubber, sludge and industrial minerals, including minerals such as gypsum, phosphates, sulfates, and nitrates. Other areas of interest were wallboard recycling, and recovery of precious metals from mineral deposits. While the initial thrust of the Company was in the area of rubber recycling and bio-waste processing, the Company has decided to focus on developing a profitable business operation based on industrial mineral recovery and processing. To this end, the Company is in the process of reconstituting three of its four KDS systems to be put back into profitable operation. Further, subsequent to the date of these statements, the Company has contracted to build two additional machines which it intends to sell and/or put into production as part of a planned joint venture operation.The Company is actively seeking operational partners for its California plant, and has conditional agreements to process product in the Vancouver area, and on the Beau Pre Explorations Inc gold property near Victoria, British Columbia. Technology Rights and Patents In June 1995, the Company executed three licensing agreements with the original owners of the technology. This first agreement licensed the processing rubber and glass. A second agreement signed in February 1996 licensed gypsum, and a third agreement in May 1996, licensed all other applications. In June 1997 the Company agreed to acquire the rights to all patents (either issued and or pending) and all other data pertaining to the technology and its patented process. The purchase was subject only to settlement of payments terms as agreed. The Company was unable to meet these payment conditions and the agreement fell into default. On May 31, 1999 the Company entered into new Amended Memorandum of Agreement with Ashford Holdings Ltd. wherein Ashford again agreed to deliver all legal and beneficial ownership of the technology, free and clear of all liens, charges and encumbrances. In return the Company agrees to pay US$150,000 plus 500,000 common shares (restricted as Reg. S stock with a one year hold period) plus 1,000,000 in stock options at $0.025 per share and a $200,000 debenture. On October 7, 1999, the parties agreed to a further amendment whereby the Company will issue 4,000,000 shares in cancellation of the debenture of $200,000. These payment terms were met in full on December 1, 1999 and clear title ownership of the rights and patents passed irrevocably to the Company. 4 The KDS patent, issued on November 24, 1998, under U.S. patent number is 5,839,671. The patents rights extend to the following regions: Canada, United States of America, Mexico, New Zealand, United Kingdom, European Economics Community and Australia. The KDS Process The KDS system produces extremely fine powders, from any number of raw materials or recycled product. The KDS system utilizes a highly refined process using kinetic energy technology and standing sound waves for the disintegration of materials. These fine powders referred to as MICROFINE (TM ) normally have a higher market value and are used as high performance fillers and additives in a variety of compounds and emulsions. The product produced is a extremely fine, like a talcum powder, and the process can add significant value to the host material. Testing at the Company's research center in Ireland has shown that the system can process bio-waste and sludge into the fine powders, and at the same time eliminate virtually all bacteria while preserving the nutrients which can then be used as a basis for making fertilizer. Further research is needed to increase throughput volumes to economically viable levels for fertilizer production, but notwithstanding the above, the process also has the potential of significant environmanal value. The KDS machine weighs approximately five (5) tons and measures sixteen (16) feet (H), x ten (10) feet (L) eight (8) feet (W). The feed material is typically one inch in diameter and carried by a pneumatic lift and material grading system, passing through the KDS system within seconds. The life span of the KDS is greater than ten (10) years. Ongoing service is minimal and requires less than thirty minutes per day and twenty-four hour servicing twice a year. Manufacturing of the KDS will be contracted out. Operations The Company opened a plant in California in1996 to process industrial gypsum but closed this operation in June 1998 because of lack of supply of gypsum, a resultant lack of working capital, and a dispute with its joint venture partner. The operation was not profitable at the then current gypsum market price. During the fiscal year ending June 30, 1999, sales were $285,000 from the sale of one KDS system. There were no sales during the year ending June 30, 2000 as the company is still in the development stage. The Company has now hired a full time Business Development Manager, and expects that, in conjunction with the opening of the demonstration site on June 29, 2000, it will be aggressively entering the marketing phase of its operations. 5 Development of the Internet site VideoMovieHouse.com is continuing, with an expected launch date sometime before the end of the year 2000. The site will initially offer catalogue merchandise for sale over the Internet, and develop into a full-scale sales and rental operation as advancement in technology permits. The project is expected to produce modest positive cash flow in its first year of operation. On March 25, 2000, the Company entered into a conditional Agreement in Principle to form a joint venture to distribute and manufacture the KDS System in the Czech Republic. Under the proposed agreement, a joint venture, which will be known as First American Scientific (Europe) Corp., will be 60 % owned and controlled by FASC. All funding for the venture will come from our Czech investors. Legal work with respect to registering the KDS patents in the Czech Republic and finalizing the agreement is now under review. However, unless FASC is assured of total patent protection, it will not permit its technology to be placed in an unprotected jurisdiction Research & Development The Company entered into an agreement in September 1998 with The Green Leaf Fibre Company Ltd. (hereinafter "GlF") of Northern Ireland for GLF to conduct research and development testing within the United Kingdom, on the commercial viability of the Company's KDS system. This research continues primarily for sludge and, secondarily, for rubber processing. All costs of research in Ireland are paid for by GLF and by the Irish government under their Radian Award program . Research carried out in Vancouver has been with special minerals, gold tailings, wood chips, zeolite, and gyproc. All test results have been positive and have confirmed the capabilities of the equipment within the specified parameters. Improvements to the design are ongoing. Summary of Agreements with Spectrasonic Corp. and Ashford Holdings Ltd. On June 22, 1995 the Company entered into an Exclusive License Agreement with Spectrasonic. The contract is for a period of 99 years. Under the terms of the June 22, 1995 agreement, Spectrasonic granted the Company the exclusive license to develop, market, manufacture, distribute, and sell equipment, technology products, and services worldwide using the KDS system as it relates to rubber and glass disposal. The contract price for this license was $550,000. The Company issued 250,000 common shares to Spectrasonic at an aggregate value of US$175,000 plus cash of $375,000. This contract has been fully paid. On February 22, 1996 the Company executed a License Agreement with Spectrasonic Corp for the exclusive rights to exploit, develop, use, manufacture, market, distribute and sell KDS systems as it relates to gypsum disintegration, disposal, recycling, remanufacturing or manufacturing, using used or raw materials. The license is for a period of 99 years. The contract price for this was US$775,000, consisting of 1,000,000 common shares at $0.50 per share, plus cash payments of 6 US$275,000. This contract was exclusive except for a small operator in the State of Washington who has certain rights to continue his operation. This operation has not nor will not have any significant impact on the operation of the Company. On May 17, 1996, the Company executed a further License Agreement with Spectrasonic Corp wherein it acquired the worldwide rights to all and any kinds of materials not covered in previous agreements with Spectrasonic. This agreement covers both used and new materials, and covers disintegration, disposal, recycling, remanufacturing or manufacturing or any kinds of materials using the KDS equipment or technology. This agreement is for a period of 99 years. The consideration is 1,000,000 shares of common stock at $0.50 per share plus payment of $1,000,000 in Canadian funds (US$680,000) by January 2, 1997.This payout schedule was amended on October 24, 1996, and the balance outstanding at June 30, 1999 was $302,000. Subsequent to this agreement, Spectrasonic advised the Company that its interests had been assigned to Ashford Holdings Ltd. On July 2, 1997 the Company acquired all patents issued, to be issued, or pending, as well as all manufacturing rights, drawings, blueprints, CAD drawings, for a total consideration of 1,000,000 common shares at $0.25 per share plus US$500,000 payable on the basis of US$50,000 per KDS machine sold, until 10 machines are sold. A patent was issued on November 24, 1998, and its U.S. patent number is 5,839,671. On May 31, 1999 the Company entered into a Memorandum of Agreement with Ashford Holdings Ltd. wherein Ashford agrees to deliver all legal and beneficial ownership of certain technology, free and clear of all liens, charges and encumbrances. In return the Company agrees to pay US$150,000 plus 500,000 common shares (legended as Reg. S stock with a one year hold period) plus 1,000,000 in stock options at $0.025 per share. On October 7, 1999, the parties agreed to an amendment whereby the Company will issue 4,000,000 shares in cancellation of the debenture of $200,000. These payment terms were met in full on December 1, 1999 when all the above licensing agreements were cancelled and clear title ownership of the rights and patents passed irrevocably to the Company. Market At June 30, 2000 the Company was not producing any KDS machines, but subsequent to that date has begun construction of two new heavy duty systems to be designed for processing mineral rock. The Company believes that testing will continue to show the system's ability to liberate precious metals from rock without the use of environmentally harmful chemicals. If successful at economically viable levels, then the Company expects a high demand for its equipment from the mining sector. 7 Testing has shown that the equipment can efficiently reduce zeolite rock to a fine powder, and that such reduction significantly increases the end value of the host rock. The Company is currently discussing opportunities with several zeolite suppliers, with the view to set up a full scale production and bagging operation at the Company's Bakersfield plant. Competition The Company has competition from other producers of microfine powders using various other methods of materials reduction, however, the Company believes its KDS System is superior to other systems, more efficient and less costly to operate. Company Facilities The Company's corporate offices are located at 1003-409 Granville St, Vancouver BC Canada, V6C 1T2. The phone number of the Company is (604) 681-8656 and the fax number is (604) 685-0698. The premises are leased for a three-year period commencing August 1, 1998 at a monthly rental of US$1,000. The Company is in the process of negotiating a new lease at 4100 Burr Street, Bakersfield, CA. 93308. where two of its KDS systems are located. The premises consist of 3 acres of land and a 5,000 square foot building. The plant is expected to re-open in October or November 2000. The Company is currently sub-leasing space within the confines of its equipment manufacturer's fabrication facility located at 7399 River Rd, Delta BC. The space contains a fully operational KDS system which is being used for testing new improvements and for sales demonstrations. The equipment will likely remain at that location until the new facility planned for Cloverdale, BC is ready for occupation. Employees The Company currently has four full time employees, including the CEO, and several hired outside consultants who are providing legal, accounting and professional advice, technical and engineering services and investor relations services. To minimize drain on working capital, some outside consultants and the CEO are paid through stock options. Other On September 1, 1999, the Company entered into a formal agreement with VMH VideoMovieHouse.com Inc. whereby the Company will purchase all of the shares of said company for US$250,000.The purchase was completed in November 1999. Web-site development was delayed due lack of working capital, but has since recommenced work on the site with the launching of the Company's internet site expected before the end of year 2000. 8 On September 1, 1999, the Company acquired 100,000 shares of common stock of Lynx Express for US$1,000, but in January 2000, returned those shares to the outgoing president in lieu of canceling his shareholder advances of $ 37,500. During the fiscal period ending June 30, 2000, the Company settled various accounts owing by issuance of common stock. Ashford Holdings Ltd. $302,000 4,500,000 common shares Spectrasonic Corp $100,000 2,000,000 common shares J. Lovelock $ 50,000 2,000,000 common shares Jon Martin $ 50,000 1,000,000 common shares C.L.Kantonen $ 68,000 2,000,000 common shares Gary Burnie $120,000 3,000,000 common shares Harold Bergman $ 3,750 75,000 common shares Peter Matousek $ 50,000 1,000,000 common shares Ian Scott-Moncrieff $ 8,500 850,000 common shares Kanno Group Holdings Ltd $ 7,500 150,000 common shares RISK FACTORS 1. Going Concern Opinion. During the fiscal year ended June 30, 2000 the Company had a net loss of US$651,125 compared to a net loss of US$1,008,141 at June 30, 1999. This significant improvement in results from operations at the plant in Bakersfield CA. was terminated. During the past year the Company concentrated on research and machine sales, both of which require far less overhead expenses. The loss in the current year has reduced the shareholders equity to $3,063,015 Total liabilities of the Company have been reduced to $196,196 compared to $570,061 at June 30, 1999. During the year, agreements were reached with Ashford Holdings Ltd. wherein their debt of $302,000 has been settled, leaving only the trade payables outstanding. While significant improvement has been achieved, the Company needs to raise new capital to cover its ongoing expenses. The Company has $59,642 held as a litigation reserve which is expected to be sufficient to settle outstanding accounts payable. 2. Development and Market Acceptance of New Products. The Company's success and growth will depend upon its ability to improve and market its existing products and to successfully develop, manufacture and market new products, and to find and prove new uses for its equipment.. 3. Liquidity; Need for Additional Financing. The Company believes that it will need additional cash during the next twelve months. If the Company is unable to generate a positive cash flow before its cash is depleted, it will need to seek additional capital. There is no assurance that the Company will be able to obtain additional capital if required, or obtain the capital on terms and conditions acceptable to it. The Company is currently suffering from a lack of liquidity although its current obligations are not significant. In spite of this, the Company continues its sales efforts while it continuously seeks out additional capital. The Company's auditors have also issued a going concern opinion. See "Financial Statements". 9 4. Dependence on Suppliers. The Company relies on a number of suppliers to provide certain raw materials it may be processing through its equipment. The interruption of certain sources of supply or the failure to adapt materials to the Company's changing technological requirements could impair the Company's ability to process products or cause the Company to incur costs associated with the development of alternative sources, either of which could adversely affect the Company's financial performance. 5. Technology Risk. All manufacturers, including the Company, utilize different applications of known technology. Should a competitor develop a technology breakthrough that cannot be adapted to the Company's systems or develop a more effective application of existing technology, the Company's products would be at risk of becoming obsolete. 6. Competition. Most of the competition are Companies with substantially greater financial, technical and marketing resources than the Company. As the market for the Company's products expand, the Company expects that additional competition will emerge and that existing competitors may commit more resources to those markets. See "Business Competition." 7. Issuance of Additional Shares. At June 30, 2000, there were 100,821,018 shares of common stock issued or 50.45% of the 200,000,000 authorized shares of Common Stock of the Company. The Board of Directors has the power to issue such shares, subject to shareholder approval, in some instances. Although the Company presently has no commitments, contracts, or intentions to issue any additional shares to other persons, other than in the exercise of options, the Company may in the future attempt to issue shares to acquire products, equipment, or properties, or for other corporate purposes. Any additional issuance by the Company, from its authorized but unissued shares, would have the effect of diluting the interest of existing shareholders. See "Description of Securities". 8. Indemnification of Officers and Directors for Securities Liabilities. The Articles of Incorporation of the Company provide that any Director, Officer, agent and /or employee will be indemnified as to those liabilities and on those terms and conditions as are specified in the Company Act of the State of Nevada. Further, the Company may purchase and maintain insurance on behalf of any such persons whether or not the Corporation would have the power to indemnify such person against the liability insured against. The foregoing could result in substantial expenditures by the Company and prevent any recovery from such Officers, Directors, agents and employees for losses incurred by the Company as a result of their actions. Further, the Company has been advised that in the opinion of the Securities and Exchange Commission, indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. 10 9. Cumulative Voting, Preemptive Rights and Control. There are no preemptive rights in connection with the Company's Common Stock. Shareholders may be further diluted in their percentage ownership of the Company in the event additional shares are issued by the Company in the future. Cumulative voting in the election of Directors is not provided for. Accordingly, the holders of a majority of the shares of Common Stock, present in person or by proxy, will be able to elect all of the Company's Board of Directors. See "Description of the Securities" 10. No Dividends Anticipated. At the present time the Company does not anticipate paying dividends, cash or otherwise, on its Common Stock in the foreseeable future. Future dividends will depend on earnings, if any, of the Company, its financial requirements and other factors. See "Dividend Policy" 11. Lack of Current Operations. The Company did not produce any KDS machines during the year, but has a contract in place to manufacture two new heavy-duty KDS machines which are expected to be delivered in November 2000. 12. Lack of Market Research. The Company has neither conducted nor has the Company engaged other entities to conduct market research such that management has assurance market demand exists for the transactions contemplated by the Company. See "Business" 13. No Cash Dividends and None Anticipated. The Company has not paid any cash dividends, nor does it contemplate or anticipate paying any cash dividends upon its securities in the foreseeable future. The Company anticipates that it will use all earnings generated from operations to finance the growth of the Company. See "Description of Securities" and "Dividends" 14. Product Liability. The Company could incur liability for product defects, which result in damage from the use of its equipment and products. Any such claims, if successful, could result in substantial losses to the Company. 15. No Insurance Coverage. The Company, like other companies in its industry, is finding it increasingly difficult to obtain adequate insurance coverage against possible liabilities that may be incurred in conducting its business activities. At present, the Company has not secured any liability insurance. The Company has potential liability from its general business activities, and accordingly, it could be rendered insolvent by serious error omission. 16. Non-arms Length Transactions and Conflicts of Interest. The Company has engaged in transactions with its Officers, Directors and principal shareholders. Such transactions may be considered as not having occurred at arms length. The Company will be engaged in transactions with management and others involving conflicts of interest, including conflicts on salaries and other payments to such parties. See "Business" 11 17. Reliance Upon Current Management. The Company's current operations and future success are greatly dependent upon the participation of its sole officer and director, C Kantonen. The death or absence of Mr. Kantonen in all likelihood would result in an impairment of operations until a successor was appointed. The Company has an employment agreement with Mr. Kantonen 18. Lack of Key Man Insurance. The Company has not obtained key man life insurance on the life of its sole officer and director. The death or unavailability of its sole officer and director could have a material adverse impact on the operation of the Company. See "Management" ITEM 2. PROPERTIES The Company owns no real property. It leases 1,000 square feet of office space at 409 Granville Street, Suite 1003, Vancouver, British Columbia V6C 1T2. The cost of this space is approximately $1,000 per month. The lease is for three years and was effective August 1, 1998. The Company is negotiating a lease at 4100 Burr Street, Bakersfield, California 93303, for the operation of its plant. These discussions have resulted in a conditional lease agreement that is being reviewed by our solicitor. The land consists of 100,000 square feet and the rent will be $2,000 per month. The Company owns four KDS machines. The first two KDS systems located in California, were acquired as part of the licensing agreement with Spectrasonic. In the fiscal year ending June 30, 2000, $ 100,000 was expended to clear all claims against the two Bakersfield units. The two other KDS systems, one in Ireland and one in Vancouver, are being used for testing, demonstrations, and in research and development. The Company has other fixed assets located in California including bagging equipment, hoppers, electrical paneling, site preparation, paving, construction of building, and general storage bins. These assets are part of the leasehold improvements located in Bakersfield which are currently the subject of lease negotiations. Total equipment is recorded on the balance sheet at $ 1,168,969 net of depreciation The Company also has office equipment costing $23,916 located in Vancouver. The Company's Technology and Patents have a recorded net book value of $ 1,952,750 USD. ITEM 3. LEGAL PROCEEDINGS No material legal proceedings are pending to which the Company is a party or of which any of the Company's property is the subject matter other than as described below. Further no legal proceedings are known to be contemplated by governmental authorities and no officer or director of the Company is a party to any litigation other than as described below: 12 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 $4,000.00 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 $5,060.15 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 $5,799.92 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 $2,969.18 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 $3,359.15 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 $4,860.00 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. SETTLEMMENT 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 $6,000.00 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 13 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 $2,000.00. 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 OF $7,000 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 next fiscal year. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The company submitted the matter of increasing the authorized capital from 100 million shares to 200 million shares. The proposal was passed by 54 % of the outstanding shareholders. ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. At June 30, 2000, the Company had 443 shareholders of record of its Common Stock. The Company has not paid any dividends since its inception and does not anticipate paying any dividends on its Common Stock in the foreseeable future. The Company's securities are traded over-the-counter on the Bulletin Board operated by the National Association of Securities Dealers, Inc. under the symbol "FASC". The table shows the high and low bid of the Company's Common Stock since February 29, 1996, when the Company's securities began trading. 14 Quarter ended High Low 1996 March 31 2.13 1.63 June 30 1.90 0.88 September 30 0.71 0.71 December 31 0.20 0.18 1997 March 31 0.16 0.12 June 30 0.175 0.15 September 30 0.20 0.18 December 31 0.10 0.085 1998 March 31 0.065 0.055 June 30 0.07 0.06 September 30 0.0275 0.0225 December 31 0.02 0.018 1999 March 31 0.021 0.021 June 30 0.055 0.055 September 30 0.0525 0.0525 December 31 0.042 0.042 2000 March 31 0.540 0.540 June 30 0.150 0.150 ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below has been derived from the financial statements of the Company. The following table summarizes certain financial information and should be read in conjunction with Management's Discussion and Analysis of Results of Operations and Financial Condition " and the Financial Statements and related notes included elsewhere in this Statement. Year ended Year ended Year ended Year ended Year ended 06/30/00 06/30/99 06/30/98 06/30/97 06/30/96 Income $ 73,486 $ 319,166 $ 665,638 $ 347,721 $ - Cost of Sales $ - $ 106,595 $ 290,086 $ 157,974 $ - Gross Profit $ 73,486 $ 212,571 $ 375,552 $ 189,747 $ - Operating Expenses 724,611 $ 594,993 $ 1,290,783 $ 1,514,381 $ 473,369 Other expenses $ - $ - $ 157,691 $ - $ - Net Loss $ 654,292 $ 1,008,141 $ 1,072,922 $ 1,324,634 $ 473,369 Accumulated Deficit: Beginning Period $3,882,072 $ 2,870,977 $ 1,798,055 $ 473,421 $ - End of Period $4,533,197 $ 3,882,072 $ 2,870,977 $ 1,798,055 $ 473,421 Net loss per share (0.01) $ (0.001) $ (0.05) $ (0.12) $ (0.07) Shares outstanding 100,821,018 66,146,018 49,326,018 13,622,448 8,505,117 Balance Sheet Data: Working Capital $ (60,134) $ (535,365) $ (863,909) $(2,320,026) $(1,987,273) Total Assets $3,259,212 $ 4,098,493 $ 4,314,959 $ 4,422,427 $ 2,932,278 Long-term Debt $ - $ - $ - $ - $ - Shareholders' Equity $3,063,015 $ 2,586,057 $ 3,160,219 $ 1,947,038 $ 935,902 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES The Company was incorporated April 12, 1995 as a development stage company. From May 1997 until 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 property. There are two fully operational KDS machines and complete material handling systems and bagging equipment belonging to FASC on the site. which are is expected to be put back into operation before the end of calendar year 2000. The operation is expected to begin generating revenue in the early part of 2001. The Company irrevocably acquired all patent rights to the KDS technology in December 1999, free and clear of all encumbrances or royalty obligations. This break through has allowed the company to move forward in developing its plans for future exploitation of the technology. In June 2000, the company reclaimed one of its KDS systems and relocated to Vancouver, BC, where it is now being used for sales demonstrations and for testing of improvements to the technology. As soon as City permits are received, the equipment will be moved to a permanent home where it will participate in a joint venture revenue generating operation. Research and development of the KDS system continues at the company's research facility in Ireland. The center is 100% funded by our Joint Venture partner in conjunction with the Irish government under their Radian Award program. The primary focus of the research is de-watering and processing of bio-waste and sludge. The process has proven successful processing low volumes of material. Research continues with a view to increasing through put up to commercially viable levels. The cost of this research has no impact on the Companies financial position, and if proven successful will create significant financial opportunity for the company. Development of the Internet site VideoMovieHouse.com is continuing, with an expected launch date sometime before the end of the year 2000. The site will initially offer catalogue merchandise for sale over the Internet, and develop into a full-scale sales and rental operation as advancement in technology permits. The project is expected to produce modest positive cash flow in its first year of operation. The Company continues to focus on strengthening its balance sheet and has reduced total liabilities from $570,061 at June 30, 1999 to $196,196, by the end of this fiscal period. This has increased the Company's working capital ratio from .06:1 at the end of 1999 to .7:1 at June 30, 2000. The Company continues to strive to eliminate all old trade liabilities before the end of the next fiscal year. 16 The Company currently has sufficient funds on hand to maintain its operation over the short term, however, it will continue to have a need to raise capital to advance its projects 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 which was subsequently ratified by a clear majority of all shareholders. As of June 30, 2000 there were 100,821,018 shares issued. RESULTS OF OPERATIONS - YEAR ENDED JUNE 30, 2000 The Company generated US$73,486 in revenue during the year, mainly as a result of gains realized through settlement of old debt. (down from $319,166 in 1999 when one machine was sold). Operating losses for the years 2000 were $654,292, mainly incurred to re-establish its operation on a sounder footing. Despite no sales in the year, this is an improvement over 1999 losses which were $1,008,141. The Company continues to focus on strengthening its balance sheet, resolving outstanding legal issues, settling old debt, and developing its marketing strategy and business plan as it moves into the next phase of its operation. The Company is conscious of its operating expenses and is carefully managing its resources. 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 sales 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 FASC. All funding for the venture will come from our Czech partners. The Company's solicitors are currently reviewing the agreement and dealing with legal issues with respect 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. 17 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 expected to be open during the fourth quarter. ITEM 8. FINANCIAL STATEMENTS FIRST AMERICAN SCIENTIFIC CORP. Consolidated Financial Statements TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORT F-1 FINANCIAL STATEMENTS Consolidated Balance Sheets F-2 Consolidated Statements of Operations and Comprehensive Income (Loss) F-3 Consolidated Statement of Stockholders' Equity F-4 Consolidated Statements of Cash Flows F-5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 18 First American Scientific Corp. Vancouver, British Columbia CANADA INDEPENDENT AUDITOR'S REPORT We have audited the accompanying balance sheet of First American Scientific Corp., a Nevada corporation, as of June 30, 2000 and the related statements of operations and comprehensive income (loss), stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimated made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First American Scientific Corp. as of June 30, 2000 and the results of its operations and its cash flows for the year then ended 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. Certified Public Accountants September 27, 2000 F-1 19 FIRST AMERICAN SCIENTIFIC CORP. CONSOLIDATED BALANCE SHEETS ASSETS June 30, 2000 June 30, 1999 CURRENT ASSETS Cash $ 42,420 $ 25,690 Accounts receivable - 9,007 Trust account 59,642 - Prepaid expenses 34,000 - ------------ ----------- TOTAL CURRENT ASSETS 136,062 34,697 ------------ ----------- PROPERTY AND EQUIPMENT Property and equipment 1,693,261 1,589,519 Less: Accumulated depreciation (524,292) (327,567) ------------ ----------- TOTAL PROPERTY AND EQUIPMENT 1,168,969 1,261,952 ------------ ----------- OTHER ASSETS Technology rights - net of amortization 1,751,152 1,629,775 Patents and manufacturing rights - net of amortization 201,598 218,265 Deposits 1,430 11,430 ------------ ----------- TOTAL OTHER ASSETS 1,954,180 1,859,470 ------------ ----------- TOTAL ASSETS $ 3,259,211 $ 3,156,119 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 196,196 $ 268,061 License agreement payable - Spectrasonic Corp. - 302,000 ------------ ----------- TOTAL CURRENT LIABILITIES 196,196 570,061 ------------ ----------- COMMITMENTS AND CONTINGENCIES - - ------------ ----------- STOCKHOLDERS' EQUITY Common stock - $.001 par value,200,000,000 shares authorized; 100,821,018 and 66,146,018 shares issued and outstanding, respectively 100,821 66,146 Additional paid-in capital 7,495,604 6,399,030 Stock options and subscriptions receivable - - Accumulated deficit (4,533,197) (3,882,072) Accumulated other comprehensive income (213) 2,954 ------------ ----------- TOTAL STOCKHOLDERS' EQUITY 3,063,015 2,586,058 ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,259,211 $ 3,156,119 ============ =========== The accompanying notes are an integral part of these financial statements. F-2 20 FIRST AMERICAN SCIENTIFIC CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) Year Ended Year Ended June 30, 2000 June 30, 1999 REVENUES $ - $ 285,399 COST OF SALES - 106,595 -------------- ------------- GROSS PROFIT - 178,804 Operating Expenses 724,611 594,993 -------------- ------------- Loss from Operations (724,611) (416,189) Other Income (Expense) Miscellaneous - 445 Loss on impairment of assets - (629,118) -------------- ------------ Total Other Income (Expense) - (628,673) -------------- ------------ Loss Before Extraordinary Items (724,611) (1,044,862) Extraordinary Item Gain on debt forgiveness 73,486 33,767 -------------- ------------ Loss before Income Taxes (651,125) (1,011,095) Income Taxes - - -------------- ------------ NET LOSS (651,125) (1,011,095) Other Comprehensive Income (loss) Foreign currency translation gain (loss) (3,167) 2,954 -------------- ------------ Comprehensive Net Loss $ (654,292) $ (1,008,141) ============== ============ Basic and diluted net loss per common share $ (0.01) $ (0.01) ============== ============ Weighted average number of basic and diluted common stock shares outstanding 88,512,685 55,876,015 ============== ============ The accompanying notes are an integral part of these financial statements. F-3 21 FIRST AMERICAN SCIENTIFIC CORP. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Additional Common Stock Paid-in Options Shares Amount Capital Balance, June 30, 1998 49,326,018 $ 49,326 $ 6,027,370 $ Issuance of stock for services at $0.001 - $0.025 per share 8,010,000 8,010 25,230 Issuance of stock for repayment of debt at $0.01 - $0.025 per share 3,160,000 3,160 96,506 Issuance of stock for partial payment of license agreement at $0.05 per share 1,000,000 1,000 49,000 Issuance of stock for cash at $0.04 per share 4,650,000 4,650 200,924 Stock subscriptions collected - - - Net loss for year ended June 30, 1999 - - - Foreign currency translation gain - - - ----------- --------- ------------ ------- Balance, June 30, 1999 66,146,018 66,146 6,399,030 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 $ - =========== ========= ============ ======= The accompanying notes are an integral part of theses financial statements. F-4a 22 FIRST AMERICAN SCIENTIFIC CORP. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Accumulated Total Other Stock- Subscriptions Accumulated Comprehensive holders' Receivable Deficit Income (loss) Equity Balance, June 30, 1998 Issuance of stock for services at $0.001 - $0.025 per share $ (45,500) $(2,870,977) $ - $3,160,219 Issuance of stock for repayment of debt at $0.01 - $0.025 per share - - - 33,240 Issuance of stock for repayment of debt at $0.01 - $0.025 per share - - - 99,666 Issuance of stock for partial payment of license agreement at $0.05 per share - - - 50,000 Issuance of stock for cash at $0.04 per share - - - 205,574 Stock subscriptions collected 45,500 - - 45,500 Net loss for year ended June 30, 1999 - (1,011,095) - (1,011,095) Foreign currency translation gain - - 2,954 2,954 --------- -------------- ----------- ---------- Balance, June 30, 1999 - (3,882,072) 2,954 2,586,058 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 - (651,125) - (651,125) Foreign currency translation gain (loss) - - (3,167) (3,167) --------- ------------- ---------- ----------- Balance, June 30, 2000 $ - $ (4,533,197) $ (213) $3,063,015 ========= ============= ========== ========== The accompanying notes are an integral part of theses financial statements. F-4b 23 FIRST AMERICAN SCIENTIFIC CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended Year Ended June 30, 2000 June 30, 1999 CASH FLOWS PROVIDED (USED) IN OPERATING ACTIVITIES Net loss $ (651,125) $ (1,011,095) Depreciation and amortization 340,393 313,255 Impairment of assets - 629,118 Adjustments to reconcile net loss to net cash used by operations: Forgiveness of debt (73,486) - Services paid by issuance of stock 122,750 33,240 Non-cash expenses 9,007 - Services paid by issuance of options 4,500 - Amounts used from trust for accounts payable 19,121 - Decrease (increase) in accounts receivable - 23,908 Decrease (increase) in inventory - 5,500 Decrease (increase) in deposits - 2,304 (Decrease) increase in accounts payable 0 (60,355) (Decrease) increase in litigation reserve (49,642) - Payment on license agreements payable - (185,000) ------------ ------------- Net cash (used) in operating activities (278,482) (249,125) ------------ ------------- CASH FLOWS PROVIDED (USED) IN INVESTING ACTIVITIES Purchase of property, plant and equipment (3,742) - Investment in technology (248,379) - ------------ ------------- Net cash provided (used) in investing activities (252,121) - ------------ ------------- CASH FLOWS PROVIDED (USED) IN FINANCING ACTIVITIES Borrowings - 80,467 Payments on borrowings - (12,360) Proceeds from sales of stock 550,500 205,575 ------------ ------------- Net cash provided by financing activities 550,500 273,682 ------------ ------------- NET INCREASE (DECREASE) IN CASH $ 19,897 $ 24,557 ============ ============= The accompanying notes are an integral part of these financial statements. F-5 24 FIRST AMERICAN SCIENTIFIC CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Year Ended Year Ended June 30, 2000 June 30, 1999 NET INCREASE (DECREASE) IN CASH (Balance forward) $ 19,897 $ 24,557 Other comprehensive income (3,167) - ------------ ------------ CASH - Beginning of year 25,690 1,133 ------------ ------------ CASH - End of year $ 42,420 $ 25,690 ============ ============ SUPPLEMENTAL CASHFLOW DISCLOSURES Interest $ - $ - ============ ============ Income Taxes $ - $ - ============ ============ NON-CASH TRANSACTIONS Common stock issued for services rendered $ 122,750 $ 33,240 Common stock issued for exchange of debt $ - $ 209,060 Common stock issued for payment on worldwide technology license $ 302,000 $ 50,000 Common stock issued for commissions $ - $ 3,300 Common stock issued as prepaid consulting fees $ 34,000 $ - Common stock issued for equipment $ 100,000 $ - Common stock issued for payment of accounts payable $ 17,500 $ - The accompanying notes are an integral part of these financial statements. F-6 25 FIRST AMERICAN SCIENTIFIC CORP. Notes to the Consolidated Financial Statements June 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 $4,533,197 through June 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. F-7 26 FIRST AMERICAN SCIENTIFIC CORP. Notes to the Consolidated Financial Statements June 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 June 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. F-8 27 FIRST AMERICAN SCIENTIFIC CORP. Notes to the Consolidated Financial Statements June 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. Foreign Currency Translation Assets and liabilities of the Company's foreign operations are translated into U.S. dollars at the year-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 June 30, 2000, the Company had net operating accumulated losses of approximately $4,500,000. 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. 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. F-9 28 FIRST AMERICAN SCIENTIFIC CORP. Notes to the Consolidated Financial Statements June 30,2000 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, 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, (see Note 9) is non- operational as of June 30, 2000. The Company has no segments engaged in business activities, at June 30, 2000, and therefore no segment reporting is required. NOTE 3 - PROPERTY AND EQUIPMENT 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. 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: F-10 29 FIRST AMERICAN SCIENTIFIC CORP. Notes to the Consolidated Financial Statements June 30,2000 NOTE 3 - PROPERTY AND EQUIPMENT (Continued) June 30, June 30, 2000 1999 Kinetic disintegration equipment $ 972,246 $ 872,246 Plant assets and equipment 687,881 687,881 Office equipment 27,658 23,916 Leasehold improvements 5,476 5,476 ------------ ----------- Total assets 1,693,261 1,589,519 Less accumulated depreciation (524,292) (327,567) ------------ ----------- $ 1,168,969 $ 1,261,952 ============ =========== Depreciation and amortization expense for the year ended June 30, 2000 was $340,393. 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: June 30, June 30, 2000 1999 Technology license and rights $ 2,153,380 $ 1,905,000 Patents and manufacturing rights 250,000 250,000 ------------ ------------ 2,403,379 2,155,000 Less accumulated amortization (450,628) (306,960) ------------ ------------ $ 1,952,751 $ 1,848,040 ============ ============ F-11 30 FIRST AMERICAN SCIENTIFIC CORP. Notes to the Consolidated Financial Statements June 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. 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. 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. F-12 31 FIRST AMERICAN SCIENTIFIC CORP. Notes to the Consolidated Financial Statements June 30,2000 NOTE 5 - STOCK OPTIONS (Continued) 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, 1998 - - Granted 3,300,000 $ 0.001 7,650,000 0.06 Exercised (9,750,000) 0.019 ----------- -------- Outstanding at June 30, 1999 1,200,000 $ 0.019 =========== ======== Options exercisable at June 30, 1999 1,200,000 $ 0.019 =========== ======== Weighted average fair value of options granted during year ending June 30, 1999 $ 0.019 =========== 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 $ 0.032 =========== ======== Options exercisable at June 30, 2000 3,300,000 $ 0.032 Weighted average fair value of options granted during year ended June 30, 2000 $ 0.032 =========== F-13 32 FIRST AMERICAN SCIENTIFIC CORP. Notes to the Consolidated Financial Statements June 30,2000 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. See Note 5. In 1999, certain consultants which received common stock under the Company's non-qualified stock option plan are Company directors and stockholders. Of the 3,300,000 shares issued to consultants, 2,000,000 shares were issued to members of 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 with 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. 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. F-14 33 FIRST AMERICAN SCIENTIFIC CORP. Notes to the Consolidated Financial Statements June 30,2000 NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued) 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. 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. F-15 34 FIRST AMERICAN SCIENTIFIC CORP. Notes to the Consolidated Financial Statements June 30,2000 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. 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. NOTES 10 - SUBSEQUENT EVENTS The Company has issued 3,300,000 shares of common stock for $87,500 in cash subsequent to June 30, 2000. F-16 35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS Officers and Directors The director and officer of the Company is: Name Age Position Calvin L Kantonen 49 President, CEO, Secretary and member of the Board of Directors John Brian Nichols 62 Director and Secretary (appointed August 1, 2000) Mr Kantonen has been CEO since December 10, 1999, and upon the resignation of Gary Burnie on February 8, 2000, Mr. Kantonen became President, Secretary, Director, and Chairman of the Board. On August 1, 2000, Mr Nichols was appointed as a director and assumed the responsibility of Secretary. Indemnification of Officers and Directors The Nevada Revised Statues and certain provisions of the Company's Bylaws under certain circumstances provide for indemnification of the Company's Officers, Directors and controlling persons against liabilities which they may incur in such capacities. A summary of the circumstances in which such indemnification is provided for is contained herein, but this description is qualified in its entirety by reference to the Company's Bylaws and to the statutory provisions. In general, any Officer, Director, employee or agent may be indemnified against expenses, fines, settlements or judgments arising in connection with a legal proceeding to which such person is a party, if that person's actions were in good faith, were believed to be in the Company's best interest, and were not unlawful. Unless such person is successful upon the merits in such an action, indemnification may be awarded only after a determination by independent decision of the Board of Directors, by legal counsel, or by a vote of the shareholders, that the applicable standard of conduct was met by the person to be indemnified. The circumstances under which indemnification is granted in connection with an action brought on behalf of the Company is generally the same as those set forth above; however, with respect to such actions, indemnification is granted only with respect to expenses actually incurred in connection with the defense or settlement of the action. In 36 such actions, the person to be indemnified must have acted in good faith and in a manner believed to have been in the Company's best interest, and have not been adjudged liable for negligence or misconduct. Indemnification may also be granted pursuant to the terms of agreements which may be entered in the future pursuant to a vote of Shareholders or Directors. The statutory provision cited above also grants the power to the Company to purchase and maintain insurance which protects its Officers and Directors against any liabilities incurred in connection with their service in such a position, and such a policy may be obtained by the Company. ITEM 11. EXECUTIVE COMPENSATION Summary Compensation. The following table sets forth the compensation paid by the Company from inception through December 31, 2000, for each officer and director of the Company. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. SUMMARY COMPENSATION TABLE Long-Term Compensation Annual Compensation Awards Payouts Names Other Under Restricted Other Executive Annual Options/ Shares or Annual Officer and Compen- SARs[1] Restricted LTIP[2] Compen- Principal Year Salary Bonus sation Granted Share Payouts sation Position Ended (US$) (US$) (US$) (#) Units (US$) (US$) Cal Kantonen 2000 68,000 0 0 1.725MM 0 0 0 President/CEO Gary Burnie 1999 20,000 0 0 3MM 0 0 0 (Resigned) 1998 0 0 0 0 0 0 0 Jack Lovelock 1999 0 0 0 3MM 0 0 0 (Resigned) 1998 35,000 0 0 0 0 0 0 1997 35,000 0 0 0 0 0 0 Robert Dinning 1999 0 0 0 1MM 0 0 0 (Resigned) 1998 35,000 0 0 0 0 0 0 1997 25,000 0 0 0 0 0 0 Richard Camuso 1999 0 0 0 0 0 0 0 (Resigned) 1998 0 0 0 0 0 0 0 1997 0 0 0 0 0 0 0 David Camuso 1999 0 0 0 0 0 0 0 (Deceased) 1998 0 0 0 0 0 0 0 1997 0 0 0 0 0 0 0 The Company anticipates paying the following salaries in 2000, subject to the Company generating sufficient cashflow to pay the same: Mr. Kantonen has agreed to accepting stock options in lieu of cash. 37 Cal Kantonen President/CEO $ 68,000 The Company has adopted three non-qualified incentive stock option plans. There are no other stock option plans, retirement, pension, or profit sharing plans for the benefit of the Company's officers and directors other than as described herein. Option/SAR Grants. The following grants of stock options, whether or not in tandem with stock appreciation rights ("SARs") and freestanding SARs have been made to officers and/or directors: Number of Number of Securities Securities Underlying Underlying Options/SARs Options Granted Exercise Number of Expir- SARs During Last or Base Options ation Name Granted 12 Months[1] Price ($/Sh) Exercised Date Cal Kantonen 1,725,000 1,725,000 $0.034 Gary Burnie 1,000,000 1,000,000 $0.001 1,000,000 05/14/2004 Jack Lovelock 1,000,000 1,000,000 $0.001 1,000,000 05/14/2004 300,000 $0.001 300,000 05/14/2003 Robert Dinning 1,000,000 1,000,000 $0.001 1,000,000 05/14/2004 250,000 $0.001 250,000 05/14/2003 Long-Term Incentive Plan Awards. The Company does not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. Compensation of Directors. During the year, the Directors did not receive any compensation for serving as members of the Board of Directors. On July 25, the Board has adopted a plan to award 250,000 options at $ 0.025 cents and 250,000 at $ 0.10 cents to each Director and 250,000 at $0.025 plus 250,000 options at$ 0.10 to the Chairman. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following schedule sets forth the Common Stock ownership of each person known by the Company to be the beneficial owner of five percent or more of the Company's Common Stock, each director individually, and all officers and directors of the Company as a group. Each person has sole voting and investment power with respect to the shares of Common Stock shown, and all ownership is of record and beneficial. Name and address of owner Shares Position Percent Cal Kantonen 4,075,000 Chairman of Board of 4.0% 1492 Frederick Rd Directors, President, N Vancouver, B.C. Secretary/Treasurer Canada V7K 1J 7 and Chief Executive Officer All officers and directors as a group (1) 4,075,000 4.0% ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On June 23, 1995, Jack Lovelock, Chairman of the Board of Directors of First American, purchased 39,500 shares of the Company's stock for $17,775.00, in an open market transaction in Manila, Republic of the Philippines. The transaction was no more favorable than could be obtained by a non-affiliated third party. On June 23, 1995, Betty Lovelock, the wife of Jack Lovelock, purchased 39,500 shares of the Company for $17,775.00 in an open market transaction in Manila, Republic of the Philippines. The transaction was no more favorable than could have been obtained by a non-affiliated third party. On July 27, 1995, Richard A. Camuso, the former President of the Company, purchased 50,000 common shares of the Company's common stock for $22,500 in an open market transaction in Manila, Republic of the Philippines. The transaction was no more favorable than could have been obtained by a non-affiliated third party. On June 25, 1995, the Company entered into an Exclusive License Agreement for rubber and glass, with Spectrasonic. The contract is for a period of 99 years. Spectrasonic has developed and is the sole proprietary owner of all of the proprietary rights to the SDM. Spectrasonic has not made any patent applications as of the date hereof and has further advised the Company that: "Applications for protection of assets of (Spectrasonic) under laws for the protection of intellectual property in Canada, and the United States of America, and any other country in which Spectrasonic does business will be made at such time as Spectrasonic shall determine is in its best interests." This transaction was no more favorable than could have been obtained by a non- affiliated third party. On February 22, 1996, the Company entered into an Exclusive License Agreement, with Spectrasonic. The contract is for a period of 99 years and covers the right to exploit, develop, manufacture, market, distribute, and sell the ultrasound equipment as it relates exclusively to gypsum. Any patent or other protection required will be the responsibility of the Company and to date, the Company has not made any patent application. This transaction was no more favorable than could have been obtained by a non-affiliated third party. 39 On May 17, 1996, the Company entered into an Exclusive License Agreement with Spectrasonic. The contract is for a period of 99 years and covers the production and operation of its disintegration machines for any and all materials not previously licensed. Spectrasonic reserve the right to manufacture the equipment. Any patent or other protection is the responsibility of the Company and to date, they have not made any patent application. This transaction was no more favorable than could have been obtained by a non-affiliated third party. The original contract price for one KDS and the license was $550,000. The Company issued 250,000 common shares to Spectrasonic at an aggregate value of $175,000. The balance of the debt was settled by cash payments at varying times up to March 31, 1996. There are no other payments due under this exclusive license. Payments were made from the proceeds of a financing. The License Agreement for gypsum required cash payments of $275,000 to Spectrasonic plus the issuance by the Company of 1,000,000 shares of its common stock at $0.50 per share, for an aggregate value of $500,000. The total purchase price, for this fully paid license was $775,000 with the parties mutually agreeing that the value of the Technology license was $425,000 and the KDS was $350,000. The License Agreement dated May 17, 1996 requires payment of CDN$1,000,000 (US$750,000) between June 30, 1996 and January 2, 1997. The payments due January 2, 1997 have been deferred by mutual consent of the parties involved. The payment due June 30, 1996 was made subsequent to the year end and $175,000 of the $450,000 was paid. By letter of understanding on October 24, 1996, Spectrasonic deferred cash payments owing until a private placement financing is completed sometime in 1997. On October 30, 1995 the Company entered into an agreement with L.C.M. Equity, of Vancouver, British Columbia to provide a line of credit up to a maximum of CDN$600,000 for a period of one year. This agreement was subsequently terminated and replaced with a new agreement with LCM dated March 1, 1996. This agreement provided a revolving line of credit of a maximum of US$500,000 to be available until February 16, 1997. LCM converted all of its outstanding loans to common stock in the Company. The conversion price was US$0.37 per share. On April 1996, the Company entered into an agreement with Knowlton Capital Corp, ("Knowlton") a private venture capital concern, located at 329 Brill Road, Foster, Quebec, JOE 1RO. Knowlton agreed to provide financing up to US$800,000 until December 31, 1996. This agreement was extended to December 31, 1997. Interest was payable at 10% per annum. This loan could be repaid at any time or convertible into common stock of the Company at US$0.75 per share. The lender has the right to take a collateral mortgage on the assets owned by the borrower. At June 30, 1997, the loan outstanding was US$790,229. 40 On or about May 14, 1999, the Company issued 1,000,000 shares of common stock to Gary Burnie, President as compensation upon the exercise of certain stock options issued pursuant to the Company's Form S-8 registration statement. The shares were issued pursuant to Section 5 of the Securities Act of 1933. Recent Sales of Unregistered Securities On May 2, 1995, the Company sold 6,000,000 post-split shares (10,000,000 pre-split shares) of its common stock in consideration of $100,000 in cash to 12 individuals in the Republic of the Philippines pursuant to Reg 504 promulgated under the Securities Act of 1933, as amended. The sales of the foregoing shares in the Republic of the Philippines was in accordance with Philippines laws and regulations. On June 22, 1995, the Company sold 150,000 post-split shares (250,000 pre-split) shares of its common stock to Spectrasonic as partial consideration for the execution of the exclusive licensing agreement. See "Item 1. - Summary of Exclusive Agreement with Spectrasonic." The shares were valued at $175,000. The sale of the foregoing securities was made pursuant to Reg 504 promulgated under the Securities Act of 1933, as amended. On August 14, 1995, the Company effected a 6 for 10 reverse stock-split. On September 18, 1995, the Company issued 600,000 shares of common stock to two individuals who were residents of the Republic of the Philippines in consideration of $270,000 in cash. The foregoing individuals were not affiliates of the Company, Spectrasonic, or Westmoreland. The sale of the foregoing stock in the Republic of the Philippines was in accordance with Philippine laws and regulations. On the same date the Company issued an additional 100,000 shares of common stock to Spectrasonic in consideration of $50,000. The foregoing shares were sold pursuant to Reg. 504 promulgated under the Securities Act of 1933, as amended. On October 20, 1995, the Company issued 200,000 "restricted" shares of its common stock to Westmoreland Capital Corp, a British Columbia corporation as partial consideration for the execution of its agreement to supply management services, pursuant to Reg 701 promulgated under the Securities Act of 1933, as amended. See "Item 1. Business - Employees." The 200,000 shares were valued at $100,000. On February 29, 1996, the Company issued 1,000,000 "restricted" shares of its common stock to Spectrasonic as partial consideration of a license agreement, Gypsum, dated February 22, 1996. The shares were valued at $0.50 per share for a total consideration of $500,000. On March 20, 1996, the Company issued 74,400 shares of its common stock to Astaire & Partners, in London, England. The shares were valued at $1.25 per share for a total consideration of $93,000. The shares were issued pursuant to a private placement. 41 On March 25, 1996, the Company issued 380,717 shares of its common shares to LCM Equity Inc, in settlement of debt conversion, at $0.45 per share for a total consideration of $171,323. On July 3, 1996, the Company issued 452,376 shares of its common stock to LCM Equity Inc, regarding conversion of loans outstanding. This stock was valued at $0.45 per share for loans of US$124,069 and loans of CDN$106,000 (US$77,300) at $0.60 per share. On July 10, 1997, the Company issued 1,000,000 shares of its common stock to Microsonic Disintegration regarding May 17, 1996 agreement for the purchase of rights. This stock was valued at $0.50 per share. On July 10, 1996, the Company issued 7,440 shares of its common stock to Astaire & Partners as settlement of a commission of $9,300. The stock was issued at $1.25 per share. On September 12, 1996, the Company issued 654,000 shares of its common stock to Gerlach & Co. for the sum of $457,800. The stock was sold under Reg "S" at a price of $0.70 per share. On September 25, 1996, the Company issued 303,000 shares of its common stock to Gerlach & Co for the sum of $212,100. The stock was sold under Reg "S" at a price of $0.70 per share. On October 24, 1996, the Company issued 100,000 shares of its common stock to Gerlach & Co for the sum of $22,500. The stock was sold under Reg "S" at a price of $0.225 per share. On November 30, 1996, the Company issued a total of 1,142,188 shares of its common stock to: Monarch Consulting 337,083 common shares LCM Equity, Inc. 181,730 common shares Somers & Co. 480,650 common shares LCM Equity, Inc. 142,725 common shares Total 1,142,188 common shares All of the above stock was issued at $0.42 per share for a total of $479,719. On April 4, 1997, the Company issued a total of 759,945 shares of its common stock to Magic Trading, Inc, in settlement of loans advanced in the amount of $281,180. The loans were converted to common stock at $0.37 per share. On April 30, 1997, the Company issued a total of 598,382 shares of its common stock to: 834968 Ontario, Inc. 100,000 common shares Huntington, Inc. 45,455 common shares Knowlton Capital, Inc. 398,836 common shares Meraloma Club 16,818 common shares Jacqueline Lovelock 37,273 common shares 43 On or about the 2nd day of July, 1997, the Company sold 500,000 shares of Common Stock in consideration of $75,000 pursuant to Regulation S of the Act; the name of the non-U.S. purchaser was Bentley Financial Inc. and its address is P.O. Box 107, Oceanic House, Duke Street, Grand Turk, Turks and Caicos Islands, British West Indies. The applicable restricted period as to the shares under Regulation S was forty (40) days since the Company is required to file reports with the Securities and Exchange Commission. On or about the 18th day of July, 1997, the Company sold 500,000 shares of Common Stock in consideration of $75,000 pursuant to Regulation S of the Act; the name of the non-U.S. purchaser was Cavendish Investments International Ltd and its address is Abbey Business Center, Digby Road, Sherborne Dorset, United Kingdom, DT9 3NL. The applicable restricted period as to the shares under Regulation S was forty (40) days since the Company is required to file reports with the Securities and Exchange Commission. On August 18, 1997 the Company sold 1,100,000 shares of common stock to Magic Trading Limited in consideration of US$ 220,092. The foregoing shares were issued pursuant to Reg S of the Act. On or about the 1st day of February 1998, the Company sold 295,000 shares of Common Stock in consideration of $34,498 pursuant to Regulation S of the Act; the name of the non-U.S. purchaser was Knowlton Capital, Inc. and its address is 329 Brill Road, Foster, Quebec. The applicable restricted period as to the shares under Regulation S was forty (40) days since the Company is required to file reports with the Securities and Exchange Commission During the fiscal year July 1, 1998 to June 30, 1999, the Company issued 16,820,000 shares of common stock pursuant to Section 4(2) of the Securities Act of 1933. The shares were issued for services, property and cash. During the fiscal year July 1, 1999 to June 30, 2000, the Company issued 34,575,000 shares of common stock pursuant to Section 4(2) of the Securities Act of 1933. The shares were issued for services, debt settlement, property and cash. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Reports on Form 8-K. None (b) Exhibits The following documents are incorporated herein by reference from the Company's Form 10 as filed with the Securities and Exchange Commission (SEC #0-27094). 44 Exhibit No. Description 3.1 Articles of Incorporation of First American Scientific Corporation. 3.2 Bylaws of First American Scientific Corporation. 4.1 Specimen Stock Certificate 10.1 License Agreement with Spectrasonic Corp. 10.2 Westmoreland Capital Corp Agreement. 10.3 Gross Royalty Agreement between Strategic International Inc. and the Company. 10.4 Lease between the Company and Spectrasonic. 10.5 Agreement between LCM Equity, Inc and the Company. 28.1 Consultant and Employee Stock Compensation Plan. The following documents are incorporated herein by reference from the Company's Form S-8 as filed with the Securities and Exchange Commission (SEC #333-06851). 10.1 Nonqualifying Stock Option Plan. The following documents are incorporated herein by reference from the Company's Form 10-K for the period ending June 30, 1996. 10.1 Loan Agreement between Knowlton Capital, Inc and the Company dated April 30, 1996 incorporated by reference from the Company's Form 10-K for the period ending June 30, 1996. 10.2 License Agreement between the Company and Spectrasonic Corp dated May 17, 1996 incorporated by reference from the Company's Form 10-K for the period ending June 30, 1996. The following documents are incorporated by reference from the Company's Form 10-K for the period ending June 30, 1997: 3.3 Articles of Incorporation of 521345 B.C. Ltd. The following documents are incorporated by reference from the Company's Form 10-K for the period ending June 30, 1998: 3.4 Amended Articles of Incorporation. 10.9 Agreement with Green Leaf Fibre Company Ltd. (GLF) The following documents are incorporated herein by reference from the Company's Form S-8 as filed with the Securities and Exchange Commission (SEC #333-86995). 10.10 Nonqualifying Stock Option Plan 1999. The following documents are filed as part of this June 30, 1999 Form 10-K: 10.10 Agreement with Ashford Holdings, Ltd. 10.11 Agreement regarding acquisition of VMH Video MovieHouse.com, Inc. 10.12 Letter of Intent with Fortune Resources Corporation 45 The following documents are incorporated herein by reference from the Company's Form S-8 as filed with the Securities and Exchange Commission (SEC #333-40234). 3.5 Amendment to the Articles of Incorporation as at June 12, 2000. 10.14 2000 Nonqualifying Stock Option Plan. The following documents are filed as part of this June 30, 2000 Form 10-K: 10.15 Conditional agreement with Henry Skritek, Czech Republic 27 Financial Data Schedule. 46 SIGNATURE PAGE Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 11th day of October, 2000. FIRST AMERICAN SCIENTIFIC CORP. BY: /s/ C. Kantonen C. Kantonen President, Chief Financial Officer, and Chairman of the Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on this 11th day of October, 2000. SIGNATURES TITLE DATE /s/ C. Kantonen C. Kantonen Chairman of the Board of October 11, 2000 Directors, President, Secretary/Treasurer and Chief Financial Officer. EX-10 2 0002.txt 47 EXHIBIT 10.15 AGREEMENT IN PRINCIPLE March 25, 2000 Between : First American Scientific Corp ( FASC ) And Henry and Antonin Skritek (Skritek) Whereas : FASC is the owner of the patented KDS technology and Skritek are experienced businessmen operating in the Czech Republic, And : Both parties are interested in marketing the technology through a jointly owned Czech company which will be incorporated to build, market, operate, and sub-licence the KDS technology in the Czech Republic, Then: Both parties agree, upon good faith and subject to the approval of their respective solicitors, on the following: 1. A company will be formed in the Czech Republic (Newco) which will be owned 60 % by FASC and 40 % by Skritek. FASC will be entitled to a majority of directors on the Board. 2. FASC will obtain a patent, at Skritek expense, for the technology in the Czech Republic 3. FASC will grant a licence to Newco to manufacture, market, and operate the KDS technology/machine in the Czech Republic for all applications at no charge, save and except royalties as outlined in #7 below, and except where said licence would conflict with our agreement with Green Leaf Fibre Company Ltd who have already been granted rights within the geographical boundries of Europe for "rubber" and any other applications for continental Europe. 4. Newco will build/purchase one KDS system, provide all related plant and equipment and install it to full operation in the Czech Republic. The system is to be used for demonstration purposes and for generating revenue. 5. With FASC s concurrence, Skritek will manage the day to day operation of Newco in the Czech Republic at no charge save and except bona fide expenses. 48 6. FASC will provide technical support at no charge save and except bona fide expenses which will be paid for by Skritek. 7. Skritek will be solely responsible for and pay for all costs incurred for the above. The anticipated expenditure shall be approx. $500,000 USD These funds are not refundable and FASC shall assume no responsiblty for any debts incurred as a result of this venture. 8 Newco will pay a royalty to FASC of $ 25,000 USD for each machine manufactured and/or sold by Newco. 9. Newco may grant sub-licences in Czech Republic, the terms of which must be acceptable to both FASC and Skritek 10. Upon receipt of satisfactory evidence that Skritek has expended the sum of approx. $ 500,000 USD in Newco and provided the management skills required to achieve the results anticipated above, all to FASCs satisfaction, FASC will, acting reasonably and in the spirit of this agreement and subject to SEC rules, grant to Skritek: - stock options for 500,000 free trading shares, exercisable at $0.25 USD each provided that Items 1 thhrough 4 above have been met, but not before 6 months from signing this agreement, and; - additional stock options for 500,000 free trading shares excercisable at $ 0.25 USD each provided items 5 through 8 have been met, but no later than 1 year after the signing of this agreement. Skritek must provide bona fide evidence of expenditures regarding the above all to FASC s satisfaction. 11. If items 1 through 8 are all completed to the satisfaction of both parties, then Skritek shall have the right to enter into 4 new agreements, all of which contain terms and conditions similar to this agreement, those being one for each of the following countries: 1. Poland 2. Hungary 3. Ukraine 4. Slovak Republic except that the options excersiable therein will be at $0.25 USD each only if excersable and excercised within 2 years of the signing of this agreement, otherwise the excersice price will be 50 % of the closing market price the day the options are excersiced. 49 12. All parties, their principals, employees and contractors must agree to keep confidential the proprietary information regarding the technology and each will be required to so covenant by signing a confidentiality agreement with respect to the technology. 13. This agreement cannot be assigned withiout written consent at FASC at its sole discretion. 14. It is acknowledged that FASC must obtain shareholder approval to increase its authorized capital in order to issue the shares contemplated herein, and that FASC will make its best effort to do so before April 30, 2000. 15. The initial term of this agreement shall be one year, with provision for extension for satisfactory performance. All covenants herein shall survive the term of this agreement. 16. This agreement shall be interpreted in accordance with the laws of British Columbia and Canada. AGREED to this ______ day of March, 2000 as witnessed by the signatures below. _______________________ _______________________ Henry Skritek First American Scientific Corp _______________________ Antonin Skritek Witness to all signatures : _____________________ George Tupy EX-27 3 0003.txt
5 This schedule contains summary financial information extracted from the Consolidated Statement of Financial Condition at June 30, 2000 and the Consolidated Statement of Income for the year ended June 30, 2000 and is qualified in its entirety by reference to such financial statements. YEAR JUN-30-2000 JUN-30-2000 42,420 0 0 0 0 93,642 1,693,261 (524,292) 3,259,211 196,196 0 0 0 100,821 2,296,194 3,259,211 0 0 0 724,611 0 0 0 0 0 0 0 73,486 0 (651,125) (0.01) (0.01)
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