FIRST AMERICAN SCIENTIFIC CORP. - FORM 10-Q

Attached files

file	filename
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - FIRST AMERICAN SCIENTIFIC CORP.	exh321.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - FIRST AMERICAN SCIENTIFIC CORP.	exh312.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - FIRST AMERICAN SCIENTIFIC CORP.	exh322.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - FIRST AMERICAN SCIENTIFIC CORP.	exh311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009.

OR

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-27094

FIRST AMERICAN SCIENTIFIC CORP.

(Exact name of registrant as specified in its charter)

NEVADA

(State or other jurisdiction of incorporation or organization)

#201 – 30758 South Fraser Way

Abbotsford, Columbia

Canada V2T 6L4

(Address of principal executive offices, including zip code.)

(604) 850-8959

(telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. YES [X] NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large Accelerated Filer	[ ]	Accelerated Filer	[ ]
	Non-accelerated Filer	[ ]	Smaller Reporting Company	[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES [ ] NO[X]

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 199,952,195 as of February 11, 2010.

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

	Consolidated Balance Sheets	F-1
	Consolidated Statements of Operations	F-2
	Consolidated Statements of Cash Flows	F-3
	Notes to Financial Statements	F-4

FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED BALANCE SHEETS
					December 31,
					2009		June 30,
ASSETS					(unaudited)		2009
CURRENT ASSETS
	Cash			$	143,730	$	33,891
	Accounts receivable, net of allowance				78,563		69,759
	Sales tax refunds				15,108		8,115
	Prepaid expenses				4,557		4,457
	Inventory				-		156,502
			TOTAL CURRENT ASSETS		241,958		272,724

PROPERTY AND EQUIPMENT
	Property and equipment				249,665		218,798
	Less: accumulated depreciation				(148,517)		(159,010)
			TOTAL PROPERTY AND EQUIPMENT		101,148		59,788

OTHER ASSETS
	Technology rights and Patents, net of amortization				387,666		460,256
	Investments in joint ventures				-		-
			TOTAL OTHER ASSETS		387,666		460,256

TOTAL ASSETS				$	730,772	$	792,768

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
	Accounts payable and accrued expenses			$	189,386	$	209,804
	Current portion of wages payable - related parties				1,056,100		1,027,000
	Current portion of Capital lease Obligation				5,605		-
	Loans payable to related parties				90,545		82,053
	Deposits on Future Sales				125,000		156,697
			TOTAL CURRENT LIABILITIES		1,466,636		1,475,554

LONG-TERM LIABILITIES
	Capital lease Obligations				16,815		-
			TOTAL LONG-TERM LIABILITIES		16,815		-

TOTAL LIABILITIES					1,483,451		1,475,554

COMMITMENTS AND CONTINGENCIES					-		-

STOCKHOLDERS' EQUITY (DEFICIT)
	Common stock - $.001 par value,
		200,000,000 shares authorized; 199,952,195 and
		199,952,195 shares issued and outstanding, respectively			199,952		199,952
	Stock Options				253,600		126,800
	Additional paid-in capital				13,255,636		13,255,636
	Accumulated deficit				(14,461,867)		(14,265,175)
			TOTAL STOCKHOLDERS' EQUITY(DEFICIT)		(752,679)		(682,786)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)				$	730,772	$	792,768

The accompanying condensed notes are an integral part of these consolidated financial statements

F-1

FIRST AMERICAN SCIENTIFIC CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
				Three months ended				Six months ended
				December 31,				December 31,
				2009		2008		2009		2008
				(unaudited)		(unaudited)		(unaudited)		(unaudited)
REVENUES
	Revenues from equipment and machine sales		$	580,447	$	232,000	$	962,815	$	232,000
	Royalties			54,000		-		54,000		-
	Expenses recovered			3,700		712		3,700		712
		Total Revenue		638,147		232,712		1,020,515		232,712

COST OF SALES				376,567		104,689		599,175		104,689

GROSS PROFIT				261,580		128,023		421,340		128,023

OPERATING EXPENSES

	Amortization and depreciation			52,234		46,572		99,843		94,785
	Bad debt expense			-		1,152		-		2,296
	Commissions			4,734		-		4,734		-
	Marketing			3,835		2,500		4,147		7,551
	Professional services			48,907		56,310		71,536		70,778
	Salaries and wages			104,847		92,276		331,162		187,468
	Research and development			30,761		11,642		55,116		23,091
	Rent			2,953		1,615		4,851		5,649
	General and administration			45,459		13,958		64,855		26,059
		Total Operating Expenses		293,730		226,026		636,244		417,677

LOSS FROM OPERATIONS				(32,150)		(98,003)		(214,904)		(289,654)

OTHER INCOME (EXPENSE)
	Settlement of trade payable			27,921		-		27,921		5,500
	Foreign Exchange Gains ( losses )			1,935		-		(9,712)		-
		Total Other Income (Expense)		29,856		-		18,209		5,500

LOSS BEFORE INCOME TAXES				(2,294)		(98,003)		(196,695)		(284,154)

INCOME TAXES				-		-		-		-

NET LOSS				(2,294)		(98,003)		(196,695)		(284,154)

OTHER COMPREHENSIVE INCOME (LOSS)
	Comprehensive Income (loss)			-		13,532		-		16,633

COMPREHENSIVE NET LOSS			$	(2,294)	$	(98,003)		(196,695)		(284,154)

	NET LOSS PER COMMON SHARE,
		BASIC AND DILUTED	$	nil	$	nil	$	nil	$	nil

	WEIGHTED AVERAGE NUMBER OF
		COMMON SHARES OUTSTANDING,
		BASIC AND DILUTED		199,952,195		199,952,195		199,952,195		199,905,195

The accompanying condensed notes are an integral part of these consolidated financial statements

F-2

FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS

				Six months ended
				December 31
				2009		2008
				(unaudited)		(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss		$	(196,695)	$	(284,154)

	Depreciation and amortization			94,822		94,785
	Stock and options issued for services and compensation			126,800		-
	Adjustments to reconcile net loss to net cash
	used by operations:
	Decrease (increase) in accounts receivable			(8,804)		49,796
	Decrease (increase) in sales tax refunds			(6,993)		12,598
	Decrease (increase) in inventory			156,502		(77,561)
	Decrease (increase) in prepaid expenses			(13,912)		(3,884)
	Increase (decrease) in customer deposits held			(31,696)		16,537
	Increase (decrease) in accounts payable & accrued expenses			(20,421)		61,690
	Increase (decrease) in salaries payable to related parties			10,190		150,000
Net cash provided (used) by operating activities			$	109,793	$	19,807

CASH FLOWS FROM INVESTING ACTIVITIES
		Disposal (purchase) of equipment		(30,867)		-
Net cash provided (used) in investing activities			$	(30,867)	$	-

CASH FLOWS FROM FINANCING ACTIVITIES
		Settlement of debt		-		5,500
		Capital Lease Obligation		22,420		-
		Loans from related parties		8,493		36,666
Net cash used by financing activities			$	30,913	$	42,166

NET INCREASE (DECREASE) IN CASH				109,839		61,973

Other comprehensive gain (loss) - foreign currency translation				-		17,624

CASH - Beginning of period				33,891		6,901

CASH - End of period			$	143,730	$	86,498

The accompanying condensed notes are an integral part of these consolidated financial statements

F-3

FIRST AMERICAN SCIENTIFIC CORP.

Condensed Notes to Consolidated Financial Statements

December 31, 2009

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

First American Scientific Corp. (hereinafter “the Company” or “FASC”) 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 Abbotsford, British Columbia, Canada and a demonstration and sales site in Abbotsford, British Columbia, Canada. The Company’s year-end is June 30th.

The foregoing unaudited interim financial statements of First American Scientific Corp. (hereinafter “FASC” or “the Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-K as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10K for the year ended June 30, 2009 In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.

The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Company’s financial position and results of operations.

Operating results for the six month period ended December 31, 2009 are not necessarily indicative of the results that may be expected for the year ending June 30, 2010.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of FASC 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 accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

F-4

FIRST AMERICAN SCIENTIFIC CORP.

Condensed Notes to Consolidated Financial Statements

December 31, 2009

Use of Estimates

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of operations.

As shown in the accompanying financial statements, the Company has incurred an accumulated deficit of approximately $14,462,00, through December 31, 2009 has limited cash resources and continues to operate at a net loss. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management plans to substantially increase sales through current channels and develop new sales opportunities. Management has also established plans designed to increase the sales of the Company’s products by continued research and development and combining technology and sales resources with its joint venture partners and with its Licensees. Additionally, management plans include seeking new capital from new equity securities offerings which may, if successful, provide funds needed to increase liquidity, fund internal growth and fully implement its business plan. However, there is no assurance that the Company will raise the required capital. If the Company is unable to raise the required capital, then it will assess its future business viability.

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.

Impairment of Long-Lived Assets

The carrying value of our long-lived assets, such as property and equipment and amortized intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in accordance with guidance on the accounting for impairment or disposal of long-lived assets (Topic 360). We look to current and future profitability, as well as current and future undiscounted cash flows, excluding financing costs, as primary indicators of recoverability. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposal is less than the carrying amount. If impairment is determined to exist, any related impairment loss is calculated based on fair value.

In complying with this standard, the Company reviews its long-lived assets annually. As of December 31, 2009, no impairments were deemed necessary. Amortization of $36,395 and $72,590 was recognized in the three and six month periods ended December 31, 2009.

F-5

FIRST AMERICAN SCIENTIFIC CORP.

Condensed Notes to Consolidated Financial Statements

December 31, 2009

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary First American Scientific (Canada) Ltd. All significant inter-company transactions and balances have been eliminated in consolidation.

Revenue and Cost Recognition

Revenues from the sale of KDS machines are recognized when there is a sales contract, all terms of the contract have been completed, collectibility is reasonably assured and the products are shipped.

Revenue from license fees and royalties are recorded when they are received.

KDS machine costs include applicable direct material and labor costs and related indirect costs. Changes in job performance, job conditions and estimated profitability may result in revisions to product costs, which are recognized in the period in which the revisions are determined.

Reclassifications

Certain prior year amounts in the accompanying financial statements have been reclassified to conform to the current presentation.

In September 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This Update provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). The amendments in this Update are effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. The adoption of this Update will have no material effect on the Company’s financial condition or results of operations.

In August 2009, the FASB issued Accounting Standards Update 2009-05, Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value. This update provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. The guidance provided in this Update is effective for the first reporting period beginning after issuance. The adoption of this statement will have no material effect on the Company’s financial condition or results of operations

NOTE 3 – PROPERTY AND EQUIPMENT

The Company refurbished and sold its demonstration machine to a customer during the quarter ended September 30, 2009. At the time of sale, the equipment sold was transferred to inventory at cost of $ 60,398 less the accumulated depreciation taken to date in the amount of $22,573. The resultant net cost was expensed as cost of goods sold.

F-6

FIRST AMERICAN SCIENTIFIC CORP.

Condensed Notes to Consolidated Financial Statements

December 31, 2009

On October 1, 2009, the Company signed a forty eight month leasing agreement to finance the acquisition of a new diesel generator. The total lease commitment is $ 38,624 including principle, taxes, insurance and interest. The acquisition of the generator has been recorded under Property and Equipment net of tax and interest in the amount of $27,709 USD.

Depreciation expense for the six month period ended December 31, 2009 and 2008 were $27,252 and $21,696 respectively.

NOTE 4 – COMMON STOCK

During the three months ended December 31, 2009, the Company did not issue any shares of common stock of the Company.

NOTE 5 – STOCK OPTIONS

The Company’s board of directors approved the First American Scientific Corp. 2006 Non-qualified Stock Option Plan. This plan allows the Company to distribute up to 5,000,000 shares of common stock options at a maximum share price of $0.04 to persons employed or associated with the Company. This plan was not approved by the Company’s security holders. There is no express termination date for the options, authorized by the Company’s plans, although the Company’s board may vote to terminate any existing plan. The exercise price of the options will be determined at the date of grant.

On July 1, 2008, pursuant to the Employment Agreements with two senior officers, the Company was obligated to grant options to purchase 4,000,000 at an exercise price of $ 0.02.

On July 1, 2009, pursuant to the Employment Agreements with two senior officers, the Company was obligated to grant options to purchase 4,000,000 at an exercise price of $ 0.02.

As of September 30, 2009, the Company was obligated to grant a total of 8,000,000 options to its senior officers.

In determining the fair value of options vested, the Company applied the Black-Scholes model using a market value of $0.037, a strike price of $0.02, a ten year term and a 1 % annual interest rate and a volatility factor of 79%. As a result, an amount of $ 126,800 was recorded as an expense in the quarter ended December 31, 2009, and an amount of $ 253,600 is recorded as the total value of outstanding obligations to grant stock options.

As of December 31, 2009 the Company did not have sufficient authorized capital to meet the obligation to issue the shares granted under the above options.

F-7

FIRST AMERICAN SCIENTIFIC CORP.

Condensed Notes to Consolidated Financial Statements

December 31, 2009

NOTE 6 – RELATED PARTIES

On June 30, 2009 the Board of Directors committed to pay outstanding amounts due to two of its senior officers by way of the grant of stock options to purchase shares at the fair market value on June 30, 2009. The options will be issued upon the registration of a new Stock Option Plan.

At December 31, 2009, the Company owed its senior executives and its directors a total of $1,056,100 for unpaid accrued salary and $ 90,545 for short term loans they made to the Company.

NOTE 7 – COMMITMENTS AND CONTINGENCIES

On October 1, 2009, the Company signed a forty eight month leasing agreement to finance the acquisition of a new diesel generator. The total lease commitment is $38,616 including taxes and interest. After the final payment, the Company will have the option to purchase the equipment for $10 at the end of the lease term. The lease commitment is personally guaranteed by two of the Company’s Officers. The acquisition of the generator has been recorded under Property and Equipment net of tax and interest in the amount of $27,709 USD.

Year ended June 30	Principle	Taxes	Insurance	Interest	Total

2010	$4,204	$504	$648	$1885	$7,241
2011	$5,605	$672	$864	$2,513	$9,654
2012	$5,605	$672	$864	$2,513	$9,654
2013	$5,605	$672	$864	$2,513	$9,654
2014	$1,401	$168	$216	$ 628	$2,413

NOTE 8 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through to February 11, 2010, the date the financial statements were available for issue.

F-8

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Liquidity and Capital Resources

We were incorporated April 12, 1995 as a development stage company. We are the owner of the KDS disintegration technology which is patented in the USA, Canada, UK, Europe, Mexico, Australia, and New Zealand. Patents applications are pending in Malaysia, Korea and Japan.

We have now reached commercial viability for several of our applications and have entered our marketing phase. To date, we have sold systems in Canada, the United States, Poland, Latvia, Brazil, Malaysia, South Korea, Japan, Mexico, and the UK.

On December 31, 2009 we had current assets of $241,958 and current liabilities of $1,466,636 compared to June 30, 2009 when we had $272,724 in current assets and $1,475,554 in current liabilities.. The current liabilities include amounts owed to its two senior Officers in the amount of $1,146,645. The Company has $ 16,815 in long term debt under a 48 month capital lease for the purchase of a new generator. Our working capital ratio on December 31, 2009 was negative, and the decline in working capital over time has been straining the Company’s ability to progress. The Company has no secured outside sources of liquidity and has been relying upon the loans and salary deferments from senior management to maintain operations.

Accounting issues

Management believes that the carrying value of its technology licenses, patents and manufacturing rights are fairly stated at cost less amortization based upon the estimated present value of cash flows. Revenue is recognized when the equipment is delivered.

The Company generally requires its customers to pay a 50% deposit on all orders prior to the commencement of fabrication. These monies are reported as a current liability until the equipment is delivered at which time it is recognized as revenue. Generally, deposits received are non-refundable. As of December 31, 2009, the Company held deposits on one machine in the amount of $ 125,000.

Method of Accounting for our Interest in Joint Ventures

In the year ended June 30, 2008 the Company changed its method of accounting for its investment in the Malaysian joint venture to the equity method. Consequently, the carrying value of the asset was reduced by its share of the accumulated losses incurred to date. As of June 30, 2009, due to the lack of availability of audited financial reports, we concluded that there is doubt regarding the ability of the joint venture to continue as a going concern, and consequently, we reduced the carrying value of our interest in the Malaysian joint venture to zero.

During the year ended June 30, 2009, we entered into an agreement to form a joint venture in Korea. As of September 30, 2009, due to the lack of availability of audited financial reports, we concluded that there is doubt regarding the ability of the joint venture to operate as going concern, and consequently, we have reduced the carrying value of our interest in the Korean joint venture to zero.

Going Concern

As shown in the accompanying financial statements, we have incurred significant losses since inception. The future of our Company is dependent upon our ability to obtain sufficient financing and upon achieving future profitable operations. These factors, among others, raise substantial doubt about our Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As of December 31, 2009, there were 199,952,195 shares of our common stock issued and outstanding; unchanged from the previous quarter.

Results of Operations – quarter and six months ended December 31, 2009

Revenue from equipment sales for the quarter was $ 638,147 compared to $ 232,712 for the same quarter last year. Sales this quarter were for the sale of two KDS machines and royalties received from four sales from licensees in Asia. Net losses for the quarter were $2,294 compared to a net loss of $ 98,003 for the same quarter last year.

Revenue from equipment sales for the six months period ending December 31, 2009 were $ 1,020,515 compared to $ 232,712 for the same period last year. Net losses for the six month period were $196,695 compared to a net loss of $ 284,154 for the same period last year.

Generally, sales have been increasing as our marketing efforts system wide are gaining momentum and our products are achieving market acceptance.

The company anticipates future revenue to come from equipment sales, as well as its share in future profits from joint ventures, and from royalties and license fees. With the current orders in process, we anticipate recognizing one sale next quarter. Sales are recorded when the equipment is shipped as per our revenue recognition policy.

Project Updates

First American Scientific Corp ( Malaysia ) Bhd. Sdn, 50/50 joint venture

The joint venture sold two KDS machines during the current fiscal year and has an order for four more machines to be completed next quarter. Royalties received last fiscal fiscal year amounted to $ 40,291 USD on two sales.

JP FASKorea Co Ltd, 50/50 - joint venture – South Korea

The joint venture sold one KDS machines last year, has a second sale completing this year. Royalties received this quarter from Korean sales were $ 13,500 USD.

JP Steelplantech Company - License for Japan

On September 26, 2005, the Company signed an exclusive license agreement for manufacturing and marketing the KDS System in Japan with JP Steelplantech Company of Yokohama, Japan. As part of the agreement JP Steel has paid an up front licensing fee and purchased and installed a fully operational KDS at its facility in Yokohama to be used for sales demonstrations and research purposes. JP Steel must also pay a royalty to FASC for each machine manufactured and sold in Japan. Two machines were sold last year and three were sold this year for a total of five sales so far under this agreement. Royalties received this quarter from Japanese sales was $ 40,500 USD.

Sodif S..A. de C.V. – License for Mexico

In June 2007 we signed an exclusive marketing agreement with a group in Mexico. One condition of exclusivity was that they purchase a demonstration machine and adapt it to the local market conditions. The machine has been delivered and is operational. The customer is now developing a unique food product which it plans to launch early next year. No other KDS machines have been sold so far under this agreement.

Cover Technologies Inc – License for eastern USA

In October 2008, we signed an exclusive marketing license with this group for eastern USA. One condition of exclusivity was that they purchase a demonstration machine and adapt it to the local market conditions. The machine has now been set up and is operational. The customer is now developing applications for the paper and biomass industries on the eastern seaboard of the USA. No other KDS machines have been sold so far under this agreement.

SIA EHT Engineering – License for Latvia

In October 2009 we signed an exclusive marketing agreement with this company for Latvia, Lithuania, and Estonia. One condition of exclusivity was that they purchase a demonstration machine and adapt it to the local market conditions. The first machine has been delivered and is operational. The customer is has developed a unique algae/fertilizer product which it sells in Northern Africa. One additional KDS machine has been sold under this agreement.

Other contracts and agreements:

Agreement in Principle - Brazil

On November 11, 2008, the Company signed an agreement to form a joint venture to be named First American Scientific Brazil Ltda. for the manufacture, marketing, and operation of KDS equipment in Brazil. This agreement, which is expected to be formalized in the coming months, will result in the forming of a new Brazilian joint venture corporation named FAS Brazil Ltda. As of December 31, 2009, we were still considering legal strategies concerning foreign ownership in Brazil, and consequently a final agreement has not yet been reached. There is one machine now operational as a demonstration unit in Brazil.

Marketing Agreements

We offer our products for sale worldwide using non-exclusive marketing representatives and local companies who promote and sell our equipment to their customers in their regions.

Employment Agreements with Senior Management

On July 1, 2008 the Company signed an Employment Agreement with two of its senior officers providing an option for the issue of stock in lieu of payment for unpaid salaries and loans, grant of annual stock options, and provisions for compensation on termination due to change of control or otherwise, and to provide for collateral for unpaid debts. These agreements also provide for an acceleration of the total contracted amounts due until the end of term of the contract in case of early termination or due to change of control.

Tabular Disclosure of Contractual Obligations:

	Payments due by period
	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years
Contractual Obligation
BC Capital	$38,616	$7,241	$19,308	$12,067	nil

Research and Development

We continue to focus on improving the KDS equipment’s processing capacity and improve efficiencies for several different applications. We have determined that processing of softer materials such as biomass and pulp sludge currently represent the highest and best use for our technology and the most probable to generate sales. A fully equipped demonstration facility is set up in Abbotsford, Canada, to perfect the sludge application and improve the KDS machine drying capabilities. Progress will be announced as it materializes, but, presently, due to cash flow limitations, new research is moving ahead only as funds become available.

Inflation

Inflation has not been a factor affecting current operations, and is not expected to have any material effect on operations in the near future.

Foreign Operations

We rent office space in Abbotsford, British Columbia, Canada, and our demonstration facility is located on the adjacent property.

Foreign exchange exposure:

The Company uses the US dollar as its functional currency and records all international contracts in US dollars, except for sales to Canadian customers which are recorded in Canadian dollars and then translated to US dollars. These translations are reported as exchange gains and losses and included in Net Income.

The majority of our operational expenses, including fabrication costs, are incurred in Canadian dollars. Fluctuations in the value of the US dollar vs. the Canadian dollar affects our Canadian dollar based assets and liabilities. These changes are reported as exchange gains and losses and are included in Net Income. Relative to our total financial position, these changes are not considered material at this time.

We attempt to, whenever practical, meet our Canadian obligations with our Canadian dollars, and meet our US obligations with our US dollars which we hold in separate accounts. This minimizes our exposure to currency fluctuations as much as possible.

Trends

Sales efforts are beginning to bring results. The Company sold two systems this quarter and has a third sale completing next quarter. The Company also received royalties on four sales booked this quarter by licensees and has four more royalties pending orders in progress to complete in the next quarter ending March 31, 2010.

With six sales system-wide last fiscal year, and a total of thirteen so far this year, the Company’s sales program is beginning to produce results, particularly in the waste to green energy sector, a sector where international government support and funding is growing. To meet the expected growth in demand, we continue to expand our marketing network throughout the USA, Canada and Mexico, and are working with several prospects in Asia, Europe, and South America.

Based upon recent sales and current prospects, we anticipate revenue for the fiscal year ending June 30, 2010 to be in the range of $ 1,300,000 to $ 2,000,000.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Internal Controls

a) Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the chief executive officer and the chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms, and that such information was accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

b) Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period ended December 31, 2009, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company has not remediated the material weakness disclosed in our June 30, 2009 Form 10K.

PART II. OTHER INFORMATION

ITEM 1A.

RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 6.

EXHIBITS.

The following documents are included herein:

Exhibit No.	Document Description

31.1	Certification of Principal Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Principal Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 16th day of February, 2010.

	FIRST AMERICAN SCIENTIFIC CORP.
	(Registrant)

	BY:	BRIAN NICHOLS
		J. Brian Nichols
		President, Principal Executive Officer and a member of the Board of Directors

	BY:	CALVIN KANTONEN
		Calvin L. Kantonen
		Principal Financial Officer, Treasurer, and Chairman of the Board Of Directors

EXHIBIT INDEX

Exhibit No.	Document Description
31.1	Certification of Principal Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Principal Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.

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