FIRST AMERICAN SCIENTIFIC CORP. - FORM 10-Q

Attached files

file	filename
EX-31.1 - SARBANES-OXLEY 302 CERTIFICATION FOR PRINCIPAL EXECUTIVE OFFICER AND INTERIM PRINCIPAL FINANCIAL OFFICER. - FIRST AMERICAN SCIENTIFIC CORP.	exh311.htm
EX-32.1 - SARBANES-OXLEY 906 CERTIFICATION FOR CHIEF EXECUTIVE OFFICER AND INTERIM CHIEF FINANCIAL OFFICER. - FIRST AMERICAN SCIENTIFIC CORP.	exh321.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, 2010

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)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [ ] NO [X]

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. (Check one):

Large Accelerated Filer	[ ]	Accelerated Filer	[ ]
Non-accelerated Filer	[ ]	Smaller Reporting Company	[X]
(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicated the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 199,952,195 as of February 17, 2011.

TABLE OF CONTENTS

				Page

PART I.

Item 1.		Financial Statements.		2

		Financial Statements:
			Consolidated Balance Sheets as of December 31, 2010 (unaudited) and June 30, 2010	F-1
			Unaudited Consolidated Statements of Operations for the six month periods ended December 31, 2010 and December 31, 2009	F-2
			Unaudited Consolidated Statements of Cash Flows for the six month periods ended December 31, 2010 and December 31, 2009	F-3
			Condensed Notes to Financial Statements	F-4

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.		15

Item 3.		Quantitative and Qualitative Disclosures About Market Risk.		21

Item 4.		Controls and Procedures.		21

PART II.

Item 1.	Legal Proceedings.			22

Item 1A.	Risk Factors.			22

Item 6.	Exhibits.			22

Signatures				24

Exhibit Index				25

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

As used herein, the terms “Company,” “we,” “our,” and “us” refer to First American Scientific Corp., a Nevada corporation, unless otherwise indicated. In the opinion of management, the accompanying unaudited consolidated financial statements included in this Form 10-Q reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED BALANCE SHEETS

	December 31,			June 30,
	2010			2010
ASSETS	(unaudited)

CURRENT ASSETS
Cash	$	39,371		$	3,274
Accounts receivable, net of allowance		6,334			30,432
Sales tax refunds		8,971			3,660
Prepaid expenses		1,059			993
Inventory		127,788			119,844
TOTAL CURRENT ASSETS		183,523			158,203

PROPERTY AND EQUIPMENT
Property and equipment		261,515			267,815
Less: accumulated depreciation		(191,142	)		(181,497	)
TOTAL PROPERTY AND EQUIPMENT		70,373			86,318

OTHER ASSETS
Technology rights and patents, net of amortization		242,485			315,076
Investments in joint ventures		-			-
TOTAL OTHER ASSETS		242,485			315,076

TOTAL ASSETS	$	496,380		$	559,597

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	554,542		$	445,037
Current portion of wages payable - related parties		1,305,000			1,145,000
Current portion of capital lease obligation		10,018			10,018
Loans payable to related parties		213,906			159,665
TOTAL CURRENT LIABILITIES		2,083,466			1,759,720

LONG-TERM LIABILITIES
Capital lease obligations		17,204			19,886
TOTAL LONG-TERM LIABILITIES		17,204			19,886

COMMITMENTS AND CONTINGENCIES		-			-

TOTAL LIABILITIES		2,100,670			1,779,606

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $.001 par value,
200,000,000 shares authorized;
199,952,195 shares issued and outstanding		199,952			199,952
Stock options		380,400			253,600
Additional paid-in capital		13,255,636			13,255,636
Accumulated deficit		(15,440,278	)		(14,929,198	)
TOTAL STOCKHOLDERS' EQUITY(DEFICIT)		(1,604,290	)		(1,220,009	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)	$	496,380		$	559,597

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

F-1

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FIRST AMERICAN SCIENTIFIC CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)

	Three months ended						Six months ended
	December 31,						December 31,
	2010			2009			2010			2009
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

REVENUES
Revenues from equipment and machine sales	$	521		$	580,447		$	1,321		$	962,815
Royalties		70,364			54,000			70,364			54,000
Expenses recovered		703			31,621			703			31,621
Total Revenue		71,587			666,068			72,388			1,048,436

COST OF SALES		-			376,567			-			599,175

GROSS PROFIT		71,587			289,501			72,388			449,261

OPERATING EXPENSES

Amortization and depreciation		43,161			52,234			86,322			99,843
Commissions		-			4,734			-			4,734
Marketing		909			3,835			9,999			4,147
Professional services		23,751			48,907			48,583			71,536
Salaries and wages		100,742			104,847			330,673			331,162
Research and development		31,824			30,761			49,578			55,116
Rent		2,956			2,953			6,043			4,851
General and administration		10,806			45,459			25,724			64,855
Foreign Exchange Gains ( losses )		18,922			(1,935	)		33,327			9,712
Total Operating Expenses		233,070			291,795			590,250			645,956

LOSS FROM OPERATIONS		(161,483	)		(2,294	)		(517,860	)		(196,695	)

OTHER INCOME (EXPENSE)
Gain on sale of asset		172						6,780			-
Total Other Income (Expense)		172			-			6,780			-

LOSS BEFORE INCOME TAXES		(161,312	)		(2,294	)		(511,080	)		(196,695	)

INCOME TAXES		-			-			-			-

NET LOSS	$	(161,312	)	$	(2,294	)	$	(511,080	)	$	(196,695	)

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			199,952,195

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

F-2

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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six months ended
	December 31
	2010			2009
	(unaudited)			(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(511,082	)	$	(196,695	)

Depreciation and amortization		86,322			94,822
Stock and options issued for services and compensation		126,800			126,800
Gain on sale of asset		(6,780	)		-
Adjustments to reconcile net loss to net cash
used by operations:
Decrease (increase) in accounts receivable		24,099			(8,804	)
Decrease (increase) in sales tax refunds		(5,312	)		(6,993	)
Decrease (increase) in inventory		(7,944	)		156,502
Decrease (increase) in prepaid expenses		(66	)		(13,912	)
Increase (decrease) in customer deposits held		-			(31,696	)
Increase (decrease) in accounts payable & accrued expenses		109,506			(20,421	)
Increase (decrease) in salaries payable to related parties		160,000			10,190
Net cash provided (used) by operating activities	$	(24,457	)	$	109,793


CASH FLOWS FROM INVESTING ACTIVITIES
Disposal (purchase) of equipment		-			(8,447	)
Proceeds from sale of fixed assets		7,241			-
Net cash provided (used) in investing activities	$	7,241		$	(8,447	)


CASH FLOWS FROM FINANCING ACTIVITIES
Principal payment on capital leases		(2,681	)		-
Loans from related parties		55,994			8,493
Net cash used by financing activities	$	53,313		$	8,493

NET INCREASE (DECREASE) IN CASH		36,097			109,839

CASH - Beginning of period		3,274			33,891

CASH - End of period	$	39,371		$	143,730

Non-cash investing and financing activities:

Property acquired through capital lease	$	-		$	22,420

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

F-3

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FIRST AMERICAN SCIENTIFIC CORP.

Notes to Consolidated Financial Statements

December 31, 2010

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 center on the adjacent site. The Company’s year-end is June 30th.

The foregoing unaudited interim financial statements of 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 10-K for the year ended December 31, 2010. 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, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011.

First American Scientific (Canada) Ltd.

The Company owns 100% of the outstanding shares of common stock of First American Scientific (Canada) Ltd, a BC company which was formed for the purpose of providing research, development, and other services to FASC and its Canadian customers and licensees. The Company changed its name from First American Power Corp to First American Scientific (Canada) Ltd. on May 26, 2005.

First American Scientific Corp ( Malaysia ) Bhd. Sdn,

As of December 31, 2010 the Company had a 50% non-controlling joint venture ownership interest in First American Scientific Malaysia Bhd Sdn. The joint venture acts as marketing and manufacturing representative under license for Malaysia, Thailand, Singapore and Indonesia. On June 30, 2009, due to the lack of availability of audited financial reports from Malaysia, it was concluded that there is some doubt regarding the ability of the joint venture to continue as a going concern and we have fully impaired the carrying value of our interest in the Malaysian joint venture.

F-4

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FIRST AMERICAN SCIENTIFIC CORP.

Notes to Consolidated Financial Statements

December 31, 2010

JP FASKorea Co Ltd, - ( South Korea )

As of December 31, 2010 the Company had a 50% non-controlling joint venture ownership interest in JP FASKorea Co. Ltd. The joint venture acts as marketing and manufacturing representative under license for South Korea. On June 30, 2009, due to the lack of availability of audited financial reports, it was concluded that there is some doubt regarding the ability of the joint venture to operate as going concern and we have fully impaired the carrying value of our interest in the Korean joint venture.

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.

Accounting Method

The Company uses the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Accounts Receivable

The Company carries its accounts receivable at cost less an allowance for doubtful accounts. At December 31, 2010 and 2009 accounts receivable were $6,334 and $78,563. Management determined that no allowance for doubtful accounts was required at either date based upon their assessment of individual account balances.

A receivable is considered past due if payments have not been received by the Company for 90 days. Any amounts collected at a later date will be included in income.

Advertising Expenses

Advertising expenses consist primarily of costs incurred in the design, development, and printing of Company literature and marketing materials. The Company expenses all advertising expenditures as incurred.

Cash and Cash Equivalents

For purposes of its 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.

Compensated Absences

Employees of the Company are entitled, by Canadian law, for paid time off equal to four percent of their wages. At December 31, 2010, no amounts were accrued as the amounts were deemed to be immaterial.

Concentration of Risk

The Company maintains its Canadian cash accounts in primarily one commercial bank in Vancouver, British Columbia, Canada. Its US dollars are maintained in a US dollar bank account in Vancouver, British Columbia, Canada and in a US bank in Washington State, USA.

All accounts receivables and sales are booked in US dollars. All manufacturing costs and operating costs are primarily incurred in Canadian dollars.

F-5

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FIRST AMERICAN SCIENTIFIC CORP.

Notes to Consolidated Financial Statements

December 31, 2010

The Company uses the US dollar as its primary currency and records all international contacts in US dollars, except for sales to Canadian customers which are generally recorded in Canadian dollars.

The majority of our operational expenses, are incurred in Canadian dollars. Recent fluctuations of the US dollar vs. the Canadian has given us a foreign exchange loss on our Canadian dollar liabilities and a gain in the value our Canadian assets. The reverse would be true if the US dollar was to strengthen against the Canadian dollar as was the case in recent history. These changes are reported as exchange gains and losses and included in Net Income. Relative to our total financial position, these fluctuations are not considered material at this time.

The Company attempts 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.

The Company contracts primarily with one Canadian manufacturer for the production of the KDS machine for customers in the North American and European markets. To the extent that we rely on them to supply our equipment and provide us with engineering and design assistance locally, we could face delays or cost increases if our relationship with them ceased. In this event, we could utilize the manufacturing facilities of our joint venture partners in Malaysia or Korea as backup while seeking alternate arrangements in North America.

Derivative Instruments

Historically, the Company has not entered into derivatives contracts to hedge existing risks or for speculative purposes. At December 31, 2010, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities.

Fair Value of Financial Instruments

Our financial statements include the following financial instruments: cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses. We believe the carrying amounts of these assets and liabilities in the financial statements approximate the fair values of these financial instruments at December 31, 2010 and June 30, 2010. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

Foreign Currency Translation

Assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at the period-end exchange rates, and revenue and expenses are translated at the average exchange rates during the period. Exchange gains and losses arising on translation are included as a separate component of net income. Any material fluctuations in foreign currency exchange rates could have an impact on our balance sheet as expressed in US dollars.

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 $15,440,278 through December 31, 2010 and has limited cash resources. The Company recorded increased revenues during the year ended June 30, 2010, but generated a net loss of $161,312. As a result, there is substantial doubt about the Company’s ability to continue as a going concern as working capital remains negative.

F-6

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FIRST AMERICAN SCIENTIFIC CORP.

Notes to Consolidated Financial Statements

December 31, 2010

Management plans to increase sales through current channels and develop new sales opportunities. Management has also established plans to increase the sales of the Company’s products by continued research and development and combining technology with its licensees in Canada and Japan, and through its joint ventures in Malaysia and Korea. If the Company is unable to increase revenue, then it will need to re-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 Company reviews its long-lived assets quarterly to determine if any events or changes in circumstances have transpired which indicate that the carrying value of its assets may not be recoverable. The Company determines impairment by comparing the present value of future cash flows estimated to be generated by its assets to their respective carrying amounts. As of December 31, 2010, no impairments were deemed necessary.

Inventory

The Company utilizes a third party contract manufacturer for the production of the KDS machine. The Company has negotiated fixed production costs. Inventory included finished goods and work in progress is based on an estimated percentage of completion for each machine. The value of the inventory is stated at cost and based upon the specific identification of each unit.

As of December 31, inventory included:

	2010		2009
Work in progress	$	127,788	$	-
Finished goods		-		-
Total Inventory	$	127,788	$	-

Net loss per share

Basic net loss per share is computed using the weighted average number of common shares outstanding. Diluted net loss per share for FASC is the same as basic net loss per share, as the inclusion of common stock equivalents would be antidilutive. Loss per share for the quarter ending December 31, 2010 was less than $0.002.

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.

The Company consolidates its financial statements with First American Scientific (Canada) Ltd as it is wholly owned and controlled by FASC.

The Company accounts for its investment in joint ventures using the equity method.

Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary, therefore the Company's share of its equity method investees earnings or losses are included in other income in the accompanying Consolidated Statements of Operations. The Company eliminates its pro rata share of gross profit on sales to its equity method investees for inventory on hand at the investee at the end of the year. Investments in which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.

F-7

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FIRST AMERICAN SCIENTIFIC CORP.

Notes to Consolidated Financial Statements

December 31, 2010

Provision for Taxes

The Company follows the asset and liability method of accounting for income. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment is 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 is five years. Depreciation expense for the six month period ended December 31, 2010 and 2009 were $86,322 and $99,843 respectively.

The following is a summary of property, equipment, and accumulated depreciation:

	December 31, 2010			December 31, 2009
Plant assets and equipment	$	261,515		$	249,665
Total assets		261,515			249,665
Less accumulated depreciation		(191,142	)		(148,517	)
	$	70,373		$	101,148

NOTE 4 – COMMON STOCK

During the year ended June 30, 2009, the Company issued 100,000 shares of its common stock for marketing and website development valued at $3,000.

During the six month period December 31, 2010, no stock was issued.

NOTE 5 – STOCK OPTIONS

The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation-Stock Compensation" which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the award is recognized as an expense over the requisite service periods in the calculation of net loss.

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 market value of $0.037; strike price of $0.02; ten year term; 1 % annual interest rate; and volatility factor of 79%. An amount of $126,800 was recorded as an expense in the quarter ended December 31, 2010, and $380,400 is recorded as the total value of outstanding obligations to grant stock options.

As of December 31, 2010 and June 30, 2010 the Company did not have sufficient authorized capital to meet the obligation to issue the shares granted under the above options. The following is the status of the options at December 31, 2010:

F-8

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FIRST AMERICAN SCIENTIFIC CORP.

Notes to Consolidated Financial Statements

December 31, 2010

Number of securities

remaining available

to be issued upon

Weighted-average

for future issuance

Equity compensation plans not

exercise of

exercise price of

under equity

approved by security holders

outstanding options

compensation plans

2006 Stock Option Plan

0.00

47,805

Future Plans

28,000,000

0.02

28,000,000

Total

28,000,000

28,047,805

The following is a summary of stock option activity:

			Weighted Average
	Number of Shares		Exercise Price
Options outstanding and exercisable at June 30, 2010		8,000,000	$	0.02

Vested		-		-

Options outstanding and exercisable at June 30, 2010		8,000,000	$	0.02

NOTE 6 – RELATED PARTIES

On July 1, 2008 the Company signed an Employment Agreements with two of its senior officers providing for base salaries, grant of annual stock options, an option for the issue of stock in lieu of payment for unpaid salaries and loans, provisions for compensation on termination due to change of control or otherwise, and to provide for collateral for unpaid debts. In case of early termination, these agreements provide for an acceleration of the total contracted amount due until the end of term of the contract, and an immediate vesting of all stock options to be granted therein.

Periodically, loans and accrued wages payable to related parties are paid, at the Company’s discretion, by the issuance of common stock.

At June 30, 2010, the Company owed its officers and director $1,145,000 for unpaid salary and approximately $159,665 for loans made to the Company

At December 31, 2010, the Company owed its senior executives and its directors a total of $1,305,000 for unpaid accrued salary and $213,905 for short term loans 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 remaining lease commitment is $38,624 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.

F-9

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FIRST AMERICAN SCIENTIFIC CORP.

Notes to Consolidated Financial Statements

December 31, 2010

On February 12, 2010, the Company signed a thirty-seven month leasing agreement to finance the acquisition of a bobcat / loader. The total lease commitment is $23,421 including taxes and interest. After the final payment, the Company will have the option to purchase the equipment for $1,800 at the end of the lease term. The lease commitment is personally guaranteed by two of the Company’s officers. The acquisition of the bobcat has been recorded under Property and Equipment net of tax and interest in the amount of $18,150.

Year ended June 30th		Principle		Taxes		Insurance		Interest		Total

2010	$	4,204	$	504	$	648	$	1,885	$	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

Product Warranties

The Company provides a one-year warranty with the sale of new equipment limited to non-electrical components. During the warranty period, the Company will repair or replace, at the Company’s sole option, without charge to purchaser, any defective component part of the KDS Micronex™. The Limited Warranty does not apply to any consumable parts, such as the chains, bars or belts. Upon receipt of a valid claim, the Company will promptly repair or replace the defective product. The warranty is conditional upon proper use of the product by the purchaser as per Customer’s Purchase and Sale Agreement. The Purchaser must document regular maintenance as per Owner’s Manual. The warranty does not cover: (a) defects or damage resulting from accident, misuse, abuse, neglect, unusual physical, electrical or electromechanical stress, modification of the product or use of the product with unauthorized equipment or accessories. Electrical motors and electrical panel are specifically excluded from the warranty.

The Company has an offsetting guarantee from its manufacture to cover any costs caused by a manufacturers’ defect during the warranty period, and consequently does not anticipate any liability to be incurred under the warranty program.

Used equipment over one-year old is covered a 90-day limited warranty, but not the manufacturer’s guarantee. During the year ending June 30, 2010, we sold one used machine and incurred a repair cost under its warranty of $4,866. During the six months ended December 31, 2010, there were no warranty claims.

Performance guarantees

In a special case, the Company sold one machine during the year and received a partial payment. The intent was to allow the customer, with our assistance, to adapt the equipment to their specific use and local conditions. The final payment is contingent upon achieving those certain performance conditions. To date, those conditions have not been met. In the year ended June 30, 2010, the partial payment was included in revenue, and if and when the final payment of $100,000 is collected, it will be included in revenue.

Deposits received on future sales

In May 2007, Company received a deposit of $ 118,764 for the sale of one KDS machine from a customer in Europe. The machine was fabricated and ready for shipment. The balance of the purchase price was never received as the customer was unable to obtain financing and the machine was not delivered to the customer. At this point in time all communications with the customer ceased. Since specialty components were used and we had no further contact with the customer, the deposit was deemed non-refundable and recorded as income in fiscal year 2008. In August 2010, the customer resurfaced and requested a refund. We advised them that the deposit was non-refundable, but agreed to apply the deposit as a credit against a future machine purchase at current market prices. The customer is not prepared to complete the purchase at present, but if they do, we will apply their original deposit and record a settlement amount at that time.

F-10

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FIRST AMERICAN SCIENTIFIC CORP.

Notes to Consolidated Financial Statements

December 31, 2010

During the six months ended December 31, 2010 and 2009, the Company received $70,364 and $54,000 respectively in royalties from our joint ventures. Since the carrying value of the Joint Ventures is zero, we recorded the total amounts received in revenue.

NOTE 8 – INVESTMENT IN JOINT VENTURES

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

As of December 31, 2010 the Company had a 50% non-controlling joint venture ownership interest in First American Scientific Malaysia Bhd Sdn. The joint venture acts as marketing and manufacturing representative under license for Malaysia, Thailand, Singapore and Indonesia. On June 30, 2009, due to the lack of availability of audited financial report from Malaysia, it was concluded that there is doubt regarding the ability of the joint venture to continue a as going concern and we have fully impaired the carrying value of our interest in the Malaysian joint venture.

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

As of December 31, 2010, the Company had a 50% non-controlling joint venture ownership interest in JP FASKorea Co. Ltd. The joint venture acts as marketing and manufacturing representative under license for South Korea. On June 30, 2009, due to the lack of availability of audited financial reports, it was concluded that there is doubt regarding the ability of the joint venture to operate as going concern and we have fully impaired the carrying value of our interest in the Korean joint venture.

NOTE 9 – FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

We use a three-level hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available under the circumstances.

Level 1 – Quoted prices are available in active markets for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

F-11

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FIRST AMERICAN SCIENTIFIC CORP.

Notes to Consolidated Financial Statements

December 31, 2010

Level 3 – Pricing inputs include significant inputs that are generally unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to the Company’s needs.

The following table discloses the fair value the Company’s assets and liabilities measured and reported on the Consolidated Balance Sheet as of December 31, 2010 at fair value on a recurring basis:

Total

Level 1

Level 2

Level 3

Assets:

Investment in joint ventures

nil

There were no changes in level 3 assets measured at fair value on a recurring basis for the year ended June 30, 2010 and the six-months ended December 31, 2010.

The equity securities acquired in 2009 are not actively traded on a stock exchange. Due to lack of reliable financial information, the value of the investment was fully impaired on December 31, 2010.

NOTE 10– SUBSEQUENT EVENTS

First American Scientific (Canada) Ltd., announced that its’ Chairman, Calvin L. Kantonen, CGA passed away Tuesday February 2, 2011. Since February 2000, Mr. Kantonen has been the chairman of the Board of Directors, Treasurer, and Chief Financial Officer of the company. From September 1999 to August 2002, Mr. Kantonen served as the President, Secretary, and Treasurer of the Board of Directors of VMH VideoMovieHouse.com Inc., a previous subsidiary of the Company. Mr. Kantonen spent five years as a commercial lender with one of Canada’s largest financial institutions. Mr. Kantonen served as a member in good standing of the Certified General Accountants (CGA) of British Columbia since 1984.

Pending Litigation

On October 1, 2010, the Company received notice that they had been jointly named as a defendant along with our manufacture in a statement of claim for breach of warranty and compensatory damages. The warranty claims are the responsibility of our manufacturer.

In July 2009 the Company sold a KDS machine to a Canadian customer who wished to process waste wood. When it was determined that the customer’s product was too wet for the machine to process efficiently, the customer demanded we make alterations and repairs to the machine, return of the full purchase price, plus pay them cash in the amount of $350,000 as damages. As additional damages they would keep and operate the machine.

As the Company views these claims as opportunistic and frivolous, we have not provided for any liability arising from this legal action.

The Company has evaluated subsequent events through February 21, 2010 the date the financial statements were available for issue.

F-12

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ITEM 2.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this quarterly report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include but are not limited to those discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition below. The following discussion should be read in conjunction with our financial statements and notes thereto included in this report. Our fiscal year end is June 30. All information presented herein is based on the six month periods ended December 31, 2010.

Discussion and Analysis

The Company owns a patented kinetic disintegration system called the KDS Micronex System and several process patents or patents pending that utilize the technology (“KDS”).

KDS consists of an electrically powered disintegration/drying chamber and feeding system that utilizes kinetic energy and standing sound waves to pulverize various waste materials such as biomass (wood waste), pulp sludge, animal waste, food waste, rubber, glass, and other feed stocks into valuable, fine, dry, talcum-like powders that can be used as a combustible fuel or a high nutrient fertilizer. Our technology is best suited for “waste to resources” industrial applications for which we can manufacture, sell, lease and/or license the KDS system to end users in the pulp and paper industries, agriculture, and recycling.

The Company has proven commercial viability for several of our applications and is now expanding the marketing of KDS. We have sold systems to date in Canada, the United States, Poland, Latvia, Brazil, Malaysia, South Korea, Japan, Mexico, and the UK. Several other prospective sales are in various stages of realization.

Applications of the KDS System

1. Converting Biomass to Combustible Fuel or Fertilizer

The Company’s research and testing to date indicates that the highest potential use for the equipment is found in pulverizing and drying (micronizing) biomass (wood waste) into a fine, dry combustible fuel that can be incinerated in specialized burners to create BTUs (heat energy), which, in turn, can be converted to electrical power through conventional means. For biomass, the critical value of the process is its ability to act as an industrial dryer which can extract water from wood at below boiling temperature at a significantly lower cost than through other conventional methods.

2. Drying and Grinding of Pulp Sludge

The Company has processed wet (80% moisture) pulp sludge, and has shown that potential exists in converting waste pulp sludge to a dry, fiber-like powder and releasing the kaolin clay concurrently, then burning to create BTUs which are recycled back into the paper making process as heat and/or electrical power. This could reduce energy and disposal costs, and environmental problems in the pulp and paper industry.

3. Drying and Grinding Animal Waste/Municipal Sewage/Food Waste

When micronizing animal manures, the system has proven its ability to kill 99% of all pathogens and coliforms during processing earning it an EPA rating as a pesticide device with registered establishment number 73753 CAN - 001 granted to the Company in January 2001. This cleansing of these types of waste products could bring large animal and poultry producers into compliance with EPA regulations as well as create a nutrient rich

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“clean” end product suitable for recycling as fertilizer. When micronizing a mixture of food waste, wood waste and chicken manure, a fine, dry, pathogen-free dry powder is produced which is suitable as a high nutrient fertilizer base, as a filler, or, depending on the content, as cattle feed.

4. Pulverizing of Mineral Rock to Release Precious Metals

When micronizing mineral rock, the process reduces the rock to a consistent fine dry powder as small as -400 mesh which has proven sufficient to separate and release precious and heavy metals mechanically without the use of chemicals. Development work continues to increase the durability of the equipment to withstand the heavy wear imposed when processing hard rock. Although the process has proven to be 97% efficient, commercially viable processing volumes have not yet been achieved. This process has now been patented.

5. Micronizing Scrap Rubber

When micronizing rubber, a cryogenic cooling process can facilitate the recycling of scrap rubber by pre-freezing it in a cooling chamber and injecting it through a pneumatic feed system into a pulverizing chamber. The method has proven that the KDS system can pulverize (shatter) rubber into a fine mesh suitable for re-cycling as a base material for other rubber based products. Commercially viable quantities are not yet proven. This process has now been patented, but no further work has been done due to lack of funding.

6. Micronizing of Recycled Glass

When micronizing glass, the process reduces it to a consistent fine dry powder which can be used as a strengthener in asphalt, concrete and ceramics.

KDS Equipment

KDS uses a patented high speed rotary action to create sufficient kinetic energy to pulverize and dry (micronize) raw materials that are introduced into the chamber without cutting.

The KDS machine weighs approximately five tons and measures sixteen feet high, by ten feet long by eight feet wide. It is powered by a 150 or 250 hp main drive electric motor and uses 5 smaller ancillary motors to move product through the chamber and discharge. The feed material is typically one inch in diameter and carried by a pneumatic lift or conveyor and material grading system, passing through the KDS system at various rates, dependent up product size, moisture content and hardness. The life span of a KDS machine is greater than ten (10) years and requires ongoing service and replacement of consumables. Routine maintenance is minimal and requires less than thirty minutes per day and twenty-four hour servicing twice a year.

We currently have three models and variations thereof available designed for various feedstocks and applications.

Project Updates

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

This joint venture sold two KDS systems in fiscal year ended June 30, 2010 with three more units expected to be delivered in 2011.

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

This joint venture sold one KDS machine in fiscal year ended June 30, 2010 and has a second sale to complete in the current year.

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SIA EHT Engineering – License for Latvia

In October 2009, we signed an exclusive marketing agreement with SIA EHT Engineering 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 customer is has developed a unique algae-based fertilizer which it sells in Northern Africa. The first demonstration machine was delivered in 2009 and is operational. A second machine was delivered in fiscal year ended June 30, 2010.

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. During subsequent negotiations, it was decided to grant a license to the Brazilian group rather than form a joint venture. A new agreement has been reached and is now being translated to Portuguese, which we expect to be signed in the next quarter.

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.

Research and Development

We continue to focus on improving KDS’ processing capacity and efficiencies for several different applications. The Company has determined that processing softer materials such as biomass and pulp sludge is the best use for our technology and the most likely to generate additional 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.

Marketing

The Company has hired new marketing staff to meet the expected growth in demand for KDS as we continue to expand our marketing network throughout the USA, Canada, Mexico, Asia, Europe, and South America.

Results of Operations

The Company’s business is prone to significant risks and uncertainties certain of which can have an immediate impact on its efforts to realize positive net cash flow and deter future prospects of expanding operations. The uncertainties associated with technological obsolescence, patent infringement, and government regulations are all risks associated with “waste to resources” industrial applications. The Company can provide no assurance that current operations will produce sufficient cash flows to maintain its business. Should the Company be unable to generate sufficient cash flow in the near term it may have to sell assets or seek debt or equity financing to continue operations.

During the six month period ended December 31, 2010, the Company was focused on overseeing pilot operations, the expansion of marketing activities and research and development activities.

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Net Losses

Net losses for the six month period ended December 31, 2010 increased to $511,082 from $196,695 for the comparable period ended December 31, 2009. The increase in net losses over the three month comparative periods was due primarily to the decrease in revenue. The Company expects net losses to transition to net income in the near term with increases in revenue going forward from anticipated sales of KDS systems.

Foreign Currency Translation

Assets and liabilities of the company’s foreign operations are translated into U.S. dollars at the period-end exchange rates, and revenue and expenses are translated at the average exchange rates during the period. Exchange gains and losses arising on translation are included as a separate component of net income. Any material fluctuations in foreign currency exchange rates could have an impact on our balance sheet as expressed in U.S. dollars.

Revenue

Total revenue for the six month period ended December 31, 2010 was $72,388 compared to $1,048,436 for the comparable period ended December 31, 2009. Revenue in the current three month period included fees for testing services provided to potential customers but did not include the sale of any KDS equipment or the receipt of royalties from operational KDS units. The Company anticipates revenue to increase in the near term based on projects in process that are expected to lead to the sale of several KDS systems over the next twelve month months.

Cost of Sales

Cost of sales for the six month period ended December 31, 2010 decreased to zero from $ 599,175 for the comparable period ended December 31, 2009. The decrease in cost of sales over the three month comparative periods was due to the lack of KDS sales. The Company expects the cost of sales to increase over the next twelve months with the sale of additional KDS systems.

Operating Expenses

Operating expenses are translated into U.S dollars at the average exchange rates during the six month period, ended December 31, 2010 decreased to $ 590,250 from $645,955 for the comparable period ended December 31, 2009, and decrease of less than 10%. The Company expects operating expenses to remain relatively consistent over the near term.

Depreciation and amortization expenses for the six month periods ended December 31, 2010, and December 31, 2009 were $86,322 and $ 99,843 respectively.

Income Tax Expense

As of December 31, 2010, the Company had a net operating loss (NOL) carry forwards of approximately $15,000,000. Should substantial changes in our ownership occur there would be an annual limitation placed on the amount of NOL carry forward that could be utilized at any given time. The ultimate realization of these carry forwards will be due, in part, to the tax law in effect at the time and future events, which cannot be determined.

Impact of Inflation

The Company believes that inflation has had no effect on operations over the past three years in connection its operations.

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Liquidity and Capital Resources

On December 31, 2010, we had current assets of $183,523 and current liabilities of $2,083,466 compared to December 31, 2009 when we had $241,958 in current assets and $1,461,031 in current liabilities. The current liabilities include amounts owed to its two senior Officers in the amount of $1,305,000. The Company has 29,904 in long term debt under a 48 month capital lease agreement for the purchase of a new generator and a loader. Our working capital ratio on December 31, 2010 remains 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 short term loans and salary deferments from senior management to maintain operations.

Off Balance Sheet Arrangements

As of December 31, 2010, the Company had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to stockholders.

Deposits received on future sales

In May 2007, Company received a deposit of $118,764 for the sale of one KDS machine from a customer in Europe. The machine was fabricated and ready for shipment. The balance of the purchase price was never received as the customer was unable to obtain financing and the machine was not delivered to the customer. At this point in time all communications with the customer ceased. Since specialty components were used and we had no further contact with the customer, the deposit was deemed non-refundable and recorded as income in fiscal year 2008. In August 2010, the customer resurfaced and demanded a refund. We advised them that the deposit was non-refundable, but agreed to apply the deposit as a credit against a future machine purchases at current market prices. The customer is not prepared to complete a new purchase at present, but if they do, we will apply their original deposit and record a settlement amount at that time.

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 affect 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 overall 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.

Going Concern

The Company’s auditors have expressed substantial doubt as to the Company’s ability to continue as a going concern due to a history of operating losses, limited cash resources, negative working capital and dependency on the success of future financing requirements to maintain operations. Our ability to continue as a going concern is subject to realizing a profit and /or obtaining funding from outside sources. Management’s plan to address the Company’s ability to continue as a going concern includes: (i) obtaining funding from the private placement of debt or equity; (ii) realizing increased revenues from sales of the KDS system; and (iii) obtaining loans and grants from financial or government institutions. Management believes that it will be able to obtain funding to allow the Company to remain a going concern through the methods discussed above, though there can be no assurances that such methods will prove successful.

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Forward- Looking Statements and Factors That May Affect Future Results and Financial Condition

The statements contained in the section titled “Results of Operations” and “Description of Business”, with the exception of historical facts, are forward looking statements. A safe-harbor provision may not be applicable to the forward looking statements made in this current report. Forward looking statements reflect our current expectations and beliefs regarding our future results of operations, performance, and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These statements include, but are not limited to, statements concerning:

·	our anticipated financial performance;

·	uncertainties related to the research and development of our technologies;

·	our ability to generate revenues through sales to fund operations;

·	our ability to raise additional capital to fund cash requirements for future operations;

·	the volatility of the stock market; and

·	general economic conditions.

We caution readers that our operating results are subject to various risks and uncertainties that could cause our actual results to differ materially from those discussed or anticipated including the factors set forth in the section entitled “Risk Factors” included elsewhere in this report. We advise readers not to place any undue reliance on the forward-looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other than as required by law.

Stock-Based Compensation

We have adopted Accounting Standards Codification, ASC 718, formerly SFAS No. 123R, Share-Based Payments, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments.

We account for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 505. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable based on the Black-Scholes model. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services.

Critical Accounting Policies and Estimates

In the notes to the audited consolidated financial statements the Company for the years ended June 30, 2010 and 2009, included in the Company’s Form 10-K filed with the Securities and Exchange Commission, the Company discussed those accounting policies that are considered to be significant in determining the results of operations and financial position. The Company’s management believes that their accounting principles conform to accounting principles generally accepted in the USA.

The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.

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Critical Accounting Policies

Intangible Assets

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 sold and delivered.

Revenue Recognition

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 and any performance conditions are met at which time it is recognized as revenue. Generally, deposits received are non-refundable. Revenue is recognized when the equipment is sold and delivered.

Performance guarantees

In a special case, the Company sold one machine during the year and received a partial payment. The intent was to allow the customer, with our assistance, to adapt the equipment to their specific use and local conditions. The final payment is contingent upon achieving those certain performance conditions. To date, those conditions have not been met. In fiscal 2010, the partial payment was included in revenue, and if and when the final payment of $ 100,000 is collected, it will be included in revenue at that time. Payment is expected next quarter.

First American Scientific (Canada) Ltd., Announces Passing of Chairman

First American Scientific (Canada) Ltd., our wholly owned subsidiary corporation, announced that its Chairman, Calvin L. Kantonen, CGA passed away Tuesday February 2, 2011. Since February 2000, Mr. Kantonen has been the chairman of the Board of Directors, Treasurer, and Chief Financial Officer of the company. From September 1999 to August 2002, Mr. Kantonen served as the President, Secretary, and Treasurer of the Board of Directors of VMH VideoMovieHouse.com Inc., a previous subsidiary of the Company. Mr. Kantonen spent five years as a commercial lender with one of Canada’s largest financial institutions. Mr. Kantonen served as a member in good standing of the Certified General Accountants (CGA) of British Columbia since 1984.

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 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.

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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 ineffective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms.

Changes in Internal Control over Financial Reporting

Due to the announcement of death of the company’s Chairman of the board of directors, Calvin L. Kantonen there has been changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period ended December 31, 2010, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On October 1, 2010, the Company’s subsidiary, First American Scientific (Canada) Ltd., received notice that they have been jointly named as a defendant along with our manufacturer in a statement of claim filed in the Supreme Court of Newfoundland and Labrador Action 2010 01 G 4632 for breach of warranty and compensatory damages. The claim is for unspecified general, special, punitive and aggravated damages. The Company denies any wrong doing, and considers the claims to be frivolous. At this time, the Company is unable to determine if any loss is probable or estimate a range of a loss.

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.

		Incorporated by reference
Exhibit	Document Description	Form	Date	Number	Filed herewith
3.1	Articles of Incorporation.	10-SB	10/26/95	3.1
3.2	Bylaws.	10-SB	10/26/95	3.2
3.3	Articles of Incorporation.	10-KSB	4/29/98	3.3
3.4	Amended Articles of Incorporation.	10-KSB	3/16/99	3.4
3.5	Amended Articles of Incorporation.	S-8	6/27/00	3.5
10.1	1996 Nonqualified Stock Option Plan.	S-8	6/26/96	10.1
10.2	1998 Nonqualified Stock Option Plan.	S-8	9/08/98	10.1
10.3	1999 Nonqualified Stock Option Plan.	S-8	9/13/99	10.11
10.4	2001 Nonqualified Stock Option Plan.	S-8	6/27/00	10.1
10.5	2001A Nonqualified Stock Option Plan.	S-8	5/01/01	10.15
10.6	2003 Nonqualified Stock Option Plan.	S-8	1/17/03	10.1
10.7	2004 Nonqualified Stock Option Plan.	S-8	12/11/03	10.1
10.8	2004A Nonqualified Stock Option Plan.	S-8	7/22/04	10.1
10.9	2005 Nonqualified Stock Option Plan.	S-8	2/14/05	10.1
10.10	Termination Agreement with Zeo-Tech Enviro Corp., C2C Zeolite Corp., Thelon Ventures Ltd. and United Zeolite Products Ltd.	10-QSB	1/30/06	10.1
10.11	2006 Nonqualified Stock Option Plan.	S-8	10/30/06	10.1
10.12	Technology License Agreement – Malaysia.	10-KSB	9/28/06	10.1
10.13	Technology License Agreement – Japan.	10-KSB	9/28/06	10.2

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10.14	Technology License Agreement – Korea.	10-KSB	9/28/06	10.3
10.15	Technology License Agreement - Alternative Green Energy Systems, Inc.	10-KSB	9/28/06	10.4
10.16	Joint Venture & Shareholders’ Agreement with Ulimec Sdn. Bhd. and Itfx Sdn. Bhd.	10-K	10/01/09	10.1
10.17	Joint Venture & Shareholders’ Agreement with Hae Sung Chang and Park Jae Kwon.	10-K	10/01/09	10.2
10.18	Employment Agreement with J. Brian Nichols.	10-K	10/01/09	10.3
10.19	Employment Agreement with Calvin L. Kantonen.	10-K	10/01/09	10.4
10.20	Technology License Agreement - Korea. (Supersedes Exhibit 10.3 filed with Form 10-KSB on September 28, 2006).	10-K	10/01/09	10.5
14.1	Code of Ethics.	10-KSB	6/30/03	14.1
28.1	Consultant and Employee Stock Compensation Plan.	10-SB		28.1
31.1	Certification of Principal Executive Officer and interim Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.				X
32.1	Certification of Chief Executive Officer and interim Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.				X
99.1	Representative Agreement with Environmental Management Systems Institute Inc.	10-KSB	6/30/03	99.1
99.2	Audit Committee Charter.	10-KSB	6/30/03	99.2
99.3	Disclosure Committee Charter.	10-KSB	6/30/03	99.3

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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 22nd day of February, 2011.

	FIRST AMERICAN SCIENTIFIC CORP.
	(the "Registrant")

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

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EXHIBIT INDEX

		Incorporated by reference
Exhibit	Document Description	Form	Date	Number	Filed herewith
3.1	Articles of Incorporation.	10-SB	10/26/95	3.1
3.2	Bylaws.	10-SB	10/26/95	3.2
3.3	Articles of Incorporation.	10-KSB	4/29/98	3.3
3.4	Amended Articles of Incorporation.	10-KSB	3/16/99	3.4
3.5	Amended Articles of Incorporation.	S-8	6/27/00	3.5
10.1	1996 Nonqualified Stock Option Plan.	S-8	6/26/96	10.1
10.2	1998 Nonqualified Stock Option Plan.	S-8	9/08/98	10.1
10.3	1999 Nonqualified Stock Option Plan.	S-8	9/13/99	10.11
10.4	2001 Nonqualified Stock Option Plan.	S-8	6/27/00	10.1
10.5	2001A Nonqualified Stock Option Plan.	S-8	5/01/01	10.15
10.6	2003 Nonqualified Stock Option Plan.	S-8	1/17/03	10.1
10.7	2004 Nonqualified Stock Option Plan.	S-8	12/11/03	10.1
10.8	2004A Nonqualified Stock Option Plan.	S-8	7/22/04	10.1
10.9	2005 Nonqualified Stock Option Plan.	S-8	2/14/05	10.1
10.10	Termination Agreement with Zeo-Tech Enviro Corp., C2C Zeolite Corp., Thelon Ventures Ltd. and United Zeolite Products Ltd.	10-QSB	1/30/06	10.1
10.11	2006 Nonqualified Stock Option Plan.	S-8	10/30/06	10.1
10.12	Technology License Agreement – Malaysia.	10-KSB	9/28/06	10.1
10.13	Technology License Agreement – Japan.	10-KSB	9/28/06	10.2
10.14	Technology License Agreement – Korea.	10-KSB	9/28/06	10.3
10.15	Technology License Agreement - Alternative Green Energy Systems, Inc.	10-KSB	9/28/06	10.4
10.16	Joint Venture & Shareholders’ Agreement with Ulimec Sdn. Bhd. and Itfx Sdn. Bhd.	10-K	10/01/09	10.1
10.17	Joint Venture & Shareholders’ Agreement with Hae Sung Chang and Park Jae Kwon.	10-K	10/01/09	10.2
10.18	Employment Agreement with J. Brian Nichols.	10-K	10/01/09	10.3
10.19	Employment Agreement with Calvin L. Kantonen.	10-K	10/01/09	10.4
10.20	Technology License Agreement - Korea. (Supersedes Exhibit 10.3 filed with Form 10-KSB on September 28, 2006).	10-K	10/01/09	10.5
14.1	Code of Ethics.	10-KSB	6/30/03	14.1
28.1	Consultant and Employee Stock Compensation Plan.	10-SB		28.1
31.1	Certification of Principal Executive Officer and interim Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.				X
32.1	Certification of Chief Executive Officer and interim Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.				X
99.1	Representative Agreement with Environmental Management Systems Institute Inc.	10-KSB	6/30/03	99.1
99.2	Audit Committee Charter.	10-KSB	6/30/03	99.2
99.3	Disclosure Committee Charter.	10-KSB	6/30/03	99.3

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