State the number of shares outstanding of each of the issuer's classes of common equity, as of September 10, 2006: 189,843,955
We make forward-looking statements in this document. Our forward-looking statements are subject to risks and uncertainties. You should note that many factors, some of which are described in this section or discussed elsewhere in this document, could affect our company in the future and could cause our results to differ materially from those expressed in our forward-looking statements. Forward-looking statements include those regarding our goals, beliefs, plans or current expectations and other statements regarding matters that are not historical facts. For example, when we use the words "believe," "expect," "anticipate" or similar expressions, we are making forward-looking statements. We are not required to release publicly the results of any revisions to these forward-looking statements we may make to reflect future events or circumstances.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
FIRST AMERICAN SCIENTIFIC CORP. (the "Company") was incorporated under the laws of Nevada on April 12, 1995. The Company owns the patented kinetic disintegration system called the KDS Micronex System and two additional process patents using the equipment. One other process patent application is pending. The System 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. The goal of the Company is to identify and develop commercially viable " waste to resources" industrial applications for the KDS System, then market, manufacture, sell, lease and/or license it to end users in the forest and pulp and paper industries, in agriculture, in recycling, and others.
Applications
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 also processed wet (80% moisture) pulp sludge, and has shown that potential exists in converting waste pulp sludge to a dry, fibre-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 costs, disposal costs, and environmental problems in the pulp and paper industry.
3. Drying and grinding animal waste/munincipal 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 "clean" end product suitable for recycling as fertilizer.
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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 and the company is seeking a joint venture partner who will participate in the development of this application to commercial viability. No further work has been done this year, and the application is dormant.
6. Micronizing of recycled Glass
When micronizing glass, the process reduces it to a consistent fine dry powder as small as 20 microns which has proven valuable as a strengthener in asphalt, concrete and ceramics.
The KDS Equipment
The 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 though the chamber and out through the taurus. 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 the KDS machine is greater than ten (10) years and requires ongoing service and replacement of consumables on a daily basis. Maintenance is minimal and requires less than thirty minutes per day and twenty-four hour servicing twice a year.
There are currently three models and variations thereof available designed for various feedstocks and applications.
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Patents issued and pending
Device and Method for Comminution - US Patent #6,024,307 and Canadian patent # 2,218,429
A patent was issued for the KDS as for a "device for comminution" on November 24, 1998, and its U.S. patent number is 6,024,307 with additional patent applications filed in Australia, Canada, Europe (EEC), Finland, France, Germany, Ireland, Italy, Mexico, New Zealand, Spain, Sweden, Switzerland, and the United Kingdom.
Cryogenic Comminution of Rubber - US Patent # 6,655,167 B2
On April 20, 2001, the Company filed a patent application in the United States to protect its research into developing a process for cryogenically freezing non-tire scrap rubber and processing in into a micro-fine powder using the KDS equipment. This patent has now been issued.
Method of Recovery of Precious Metal and Heavy Minerals - US Patent # 6,682,005 B2
On May 4, 2001, the Company filed a patent application in the United States to protect its research into developing a process for disintegrating and separating precious metal from hard rock without the use of chemicals. This patent has now been issued.
Method and apparatus for Recovery of Fuel and Clay from Biomass - (pending)
In November 2002, the Company filed a provisional patent application in the United States to protect its research for the processing wet biomass through the KDS equipment. This application is still pending.
Acquisition of / Ownership of Patents
On June 22, 1995, the Company entered into a license agreement with Spectrasonic Corp. (hereinafter "Spectrasonic"), a related party, for the worldwide license to its unpatented KDS for use in rubber and glass recycling and disposal, for a period of ninety-nine years.
On February 22, 1996, the Company entered into an additional license agreement with Spectrasonic for the worldwide license to its unpatented Ultrasound Equipment for exclusive use in gypsum disintegration, disposal, recycling, remanufacturing or manufacturing of used or new raw materials.
On July 2, 1997, the Company purchased from Spectrasonic Corp all rights to the technology and its patents, whether issued or pending, including all data pertaining to the patent process with respect to the KDS Disintegration System. Upon the final payment to Spectrasonic of 1,000,000 common shares of the Company's stock valued at $0.25 per share which was made on December 1, 1999 , unencumbered right and title to all patents was irrevocably transferred to the Company.
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Research and Testing
The Company continues research with various materials to improve operating efficiencies; increase volume throughput to economically viable levels; and identify markets where profitable operation of the equipment can be achieved. Of particular interest is adapting the equipment to dry out heavily moisture laden materials such as biomass from the forest industry, and pulp sludge. In this regard, testing is being carried out in Canada by FASC and AGES, in Kuala Lumpur, Malaysia by FASCM, in London, England by WRAP, in Japan by JP Steelplantech, and in Korea by JNK Heaters Ltd. Significant progress has been made converting biomass to a fine dry fuel which can be combusted in the dust burning system. All research on rubber processing has been discontinued until a suitable research partner can be identified.
Government/Environment Regulation
The Company is subject to various federal, provincial and local environmental laws and regulations. Management believes that the Company' s operations currently comply in all material respects with applicable laws and regulations. Management believes the trend in environmental litigation and regulation is toward stricter standards, and that these stricter standards may result in higher costs for the Company and its competitors. Such changes in the laws and regulations may require the Company to make additional capital expenditures which, while not presently estimable with certainty, are not presently expected to be material. Costs for environmental compliance and waste disposal have not been material in the past. In the future, stricter regulations may increase the demand for our products which offer solutions to some environmental problems.
Manufacturing
Canadian manufacturing of the KDS machine is sub-contracted to Mainland Machinery Limited (MML) in Abbotsford, British Columbia at a fixed price on a case by case basis. Engineering and design assistance are also provided by MML. Our licenses in Malaysia, Brazil, Japan, and Korea provide for local manufacturing in those countries subject to certain conditions.
Technology Licenses granted as of June 30, 2005
Canada - Alternative Green Energy Systems Inc
In October 2001, the Company signed an agreement with Thermix Combustion Systems Inc, to form a jointly owned corporation named the Alternative Green Energy Systems Inc. ("AGES"). AGES goal was to adapt the KDS system to create a continuous flow of suitable micronized hog fuel/ wood dust that will be used as a fuel for Thermix's specialized dust burners. FASC and Thermix contributed their respective technologies to design a complete micronizing and dust burning system to be marketed to the Thermix's contacts in the pulp industry.
In February 2002, the Company granted a conditional license to AGES to manufacture and sell the KDS equipment for all applications using biomass in Canada, the USA, and the European Union. In February 2002, AGES signed an agreement with Hydro Quebec Capitech Inc. wherein Hydro Quebec Capitech agreed to invest CDN$1,000,000 equity in AGES's for research and development. On February 21, 2004, that license expired when conditions were not met.
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On February 23, 2004, the Company granted AGES a modified exclusive license to design, manufacture and sell a large scale version of the KDS machine to be used in the pulp and paper industry in Canada, the USA, and the European Union.
AGES has not sold the required one machine per year, but has paid $25,000 annually in lieu of a sale to maintain its exclusive rights granted under the agreement
By mutual agreement, in July 2006, the license was modified to reduce the territory licensed to Canada and the USA.
Under the all license agreements with AGES, the Company retains ownership of all patents for the KDS technology, and owns rights to all the research conducted by AGES.
As of June 30, 2006 , FASC owns 12 % of the outstanding shares of AGES, but does not participate in the management of AGES.
Malaysia - FASC ( Malaysia ) SDN. BHD.
On July 8, 2004, the Company granted an exclusive license for 21 years to First American Scientific Corp (Malaysia) Bhd. Sdn., to market the KDS system in Malaysia, Thailand, Singapore and Indonesia. The agreement required FASCM to purchase one KDS machine and set up a fully operational demonstration plant in Malaysia. This requirement was met in September 2004.
As of June 30, 2006 , FASC owns 50 % of the outstanding shares of FASCM.
Japan - JP Steelplantech Co. Ltd
On September 26, 2005, the Company granted an exclusive license for manufacturing and marketing the KDS System in Japan to JP Steelplantech Company of Yokohama, Japan. As part of the licensing agreement, JP Steel 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 will also pay a royalty for each machine manufactured and sold in Japan. Marketing efforts are now underway.
JP Steel Plantech Co. is a well established engineering and equipment manufacturing company owned by four Japanese steel industry companies ; Kawasaki Heavy Industries (KHI), Hitachi Zosen (HITZ), JFE Engineering (JFE) and Sumitomo Heavy Industries (SHI).
Korea - JNK Heaters Co. Ltd dba FASC - Korea
On December 14, 2005, the Company signed an exclusive license agreement for the marketing of the KDS System in Korea with JNK Heaters Co. Ltd. of Seoul, Korea. As part of the agreement JNK has paid an up front deposit for a licensing fee and machine purchase, and has purchased and and installed a fully operational KDS at its facility in Seoul. JNK may also earn the right to manufacture machines in Korea after meeting certain contractual conditions and will also pay a royalty for each machine manufactured and sold in Korea. FASC Korea has sold one machine to a customer in the limestone industry and has purchased a second machine to be installed at a local sewage plant on a trial basis. The license requires a minimum sales quota be met each year commencing in year 2 to maintain exclusivity.
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Brazil - South American Bio-Energy Corp
On April 18, 2006 the company announced the anticipated signing of an Agreement in Principle to form a joint venture to be named First American Scientific Brazil Ltda. with South American Bio-Energy Corp Ltda of Uruguay and Bruno Industrial Ltda of Brazil for the manufacture, marketing, and operation of KDS equipment in Brazil, Uruguay and Argentina. Finalization of the documentation is expected to be completed in the next quarter.
On finalization, FASC will own 50 % of the outstanding shares of SABECo.
Summary of Agreements
Other material contracts or agreements:
The Waste and Resources Action Programme - UK (WRAP )
In September 2004, we signed an agreement wherein WRAP has agreed to provide funding to develop "value enhanced end-products" from the output of the KDS machine. WRAP has agreed to provide $1,000,000 USD for the purchase and installation of one complete KDS system to be located at a local pulp & paper mill in England. The fund will also pay for market research, scientific research, re-design and adaptation costs for the equipment and supplementary systems for industry-specific applications. The goals of the project are to demonstrate the KDS technology in a working environment, optimize ancillary equipment to improve its efficiency, and identify markets for recycled end products. In December 2004, a KDS Model S-4 was shipped to Aylesford Newsprint in London, England for trial runs and evaluation. The testing is now complete and a final report is expected in the next quarter.
City of Prince George, Canada
FASC has signed a Memorandum of Understanding the City of Prince George, BC, Canada to assist in solving its environmental cleanup problems with sewage sludge using the KDS Micronex system. This will be the first operation of its kind in the world where the strictly regulated Class B municipal sludge can now be cleaned, bagged and profitably sold to the public as a soil amendment" The initial runs will be monitored for two months, and if satisfactory, the city will establish a permanent facility and purchase up to 4 KDS Micronex machines. To date all trial runs have been satisfactory and many adjustments have been made to accommodate the efficient processing of the City' s sewage sludge. Expected date for completion of the evaluation has been extended to November 2006.
Minnesota Valley Alfalfa Producers Association
On April 28, 2006, the company received a purchase order for the sale of two machines to Minnesota Valley Alfalfa Producers. The machines were delivered in June 2006. Adaptations to the equipment to accommodate local conditions are now underway with positive results.
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AGES agreement with Sustainable Development Technology Canada (SDTC)
In October 2004, Sustainable Development Technology Canada (SDTC) awarded a research grant to AGES to construct and install a complete waste to energy KDS 3000 system at a pulp mill in Eastern Canada. Subsequent to the award, AGES signed a Contribution Agreement for $600,000 Cdn with SDTC to construct a "Wet Wood Waste to Energy" project to be hosted by Flakeboard Company Limited (FCL), at their St. Stephen, New Brunswick pulp mill. SDTC is mandated to act as the primary catalyst in building a sustainable development technology infrastructure in Canada and help meet the Kyoto accords. All funding has since been received and expended by AGES.
AGES agreement with Flakeboard Company Limited
Flakeboard Company Limited has installed all infrastructure equipment to handle wood waste to the project and to convey and store the fuel dust after it has been processed. The FCL total investment includes a reclaimer, silo, various conveyors, a major area electric upgrade, DCS modifications and a civil engineering project to site and enclose all the equipment. Further adaptations to the equipment are being made to meet the customer's requirements.
United Zeolite Products Ltd agreement with Halliburton Group Canada
In February 2004, FASC became a 1/3rd partner, along with C2C Zeolite Corp and Zeotech Enviro Corp, in United Zeolite Products Ltd, a BC company formed to build and operate a specialty zeolite processing plant in Princeton, B.C. UZP has a $5,000,000 Cdn contract to supply of micronized zeolite to Halliburton Group Canada. In August 2004, Thelon Ventures Ltd., a Canadian company committed $450,000 Cdn in cash to UZP as a condition to become a fourth equal partner in UZP, thereby by reducing each of the existing partners' equity position to 25 % each of UZP's outstanding shares, but providing the balance of funds needed to complete the construction of the Princeton facility. The building construction was completed and KDS equipment was delivered, commissioned and fully operational. Delays at the Zeotech mine in Princeton resulted in no raw material being delivered for processing and no micronized product was ever delivered to Halliburton Group Canada from UZP' s Princeton processing facility.
US Dept of Agriculture Grant - University of Tennessee
In July 2004, we were selected to participate with the University of Tennessee in a Biomass Research Initiative project funded by the US Dept of Agriculture. First American Scientific Co. was identified as a key industry partner for its history of developing novel size reduction and separation processes. The research is ongoing. Results will be announced as they become available.
Market
The KDS machine has proven viable for softer industrial rock, such as gypsum and zeolite, wood chips or chicken manure (embedded in sawdust), and any biomass at moisture levels below 60%. The Company continues to research and seek potential markets where operation of the equipment is economically viable. Improvements to the equipment continue and we are constantly experimenting to find solutions that increase throughput on various types of products. Each situation presents unique hurdles to be overcome. In the case of rubber, feedstock becomes elastic with rise in temperature and
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must be pre-frozen before processing to maintain efficient shattering. In the case of biomass and pulp sludge, the product must not exceed 60% moisture content to avoid clogging of the equipment. In the case of minerals rock, chains must be replaced with hardened steel bars to avoid rapid wear and breakage. In the case of human and animal waste, a de-watering is required prior to processing. Some of these adaptations require additional research and until implemented, there is no certainty that the equipment will be accepted in all the proposed markets.
Competition
The Company has competition from other producers of microfine powders, most of who must use a series of equipment to achieve similar results. Some have much greater financial resources than the Company, but the Company believes its system is more cost effective than these competitors and that we can reasonably expect to attract a share of the marketplace.
Company Facilities
The Company's corporate offices are located at 811 - 100 Park Royal, West Vancouver, British Columbia, Canada, V7T 1A2 and the Company's sales office is located at #26 - 7621 Vantage Way, Delta, British Columbia, Canada V4K 4E2. The phone numbers are (604) 913-9035 and (604) 940-6220, respectively. Fax numbers are (604) 925-1118 and (604) 940-6221.
Subsidiaries and other equity positions
Canada - First American Scientific ( Canada ) Ltd.. - 100 % owned by FASC
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.
Malaysia - FASC (Malaysia) Bhd. Sdn. - 50 % owned by FASC
The Company owns 50% of the outstanding shares of common stock of First American Scientific ( Malaysia ) Bhd. Sdn. (FASCM) , a Malaysian company incorporated for the purpose of manufacturing and marketing the KDS system in Malaysia, Thailand, Singapore, and Indonesia primarily to the palm oil industry.
Brazil - South American Bio-Energy Corp - proposed 50 % ownership by FASC
The Company will own 50% of the outstanding shares of common stock of South American Bio-Energy Corp, a Brazilian company ( when finalized) to be incorportated for the purpose of manufacturing, operating and marketing the KDS system in Brazil, Argentina and Uraguay , primarily to the sugar cane industry.
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Canada - Alternative Green Energy Systems Inc (AGES) - 12 % owned by FASC
The Company owns 12% of the outstanding shares of common stock of Alternative Green Energy Systems Inc., a Canadian federally incorporated corporation ("AGES") which is licensed to design, manufacture, operate, and market a large scale the KDS system for the pulp & paper industry in Canada and the USA.
Canada - United Zeolite Products Ltd - 0 % ownership ( withdrew )
In Feb 2006 , due to irreconcilable differences between the joint venture partners, the Company withdrew from this joint venture. The Company has subsequently relinquished all its shares of UZP and removed all of its equipment from the UZP site. The Company has no further interest in UZP and has received a full and final release and indemnification from all claims and liability resulting therefrom from all parties involved.
Employees
FAS ( Canada) Ltd currently has four full-time employees in Canada. Messrs, Nichols and Kantonen are officers of, and members of the boards of directors of both FASC and FAS ( Canada ) Ltd. The company also retains outside consultants when necessary.
Other
During the fiscal period ending June 30, 2006, the Company settled various accounts owing by issuance of common stock.
Risk Factors
1. Going Concern Opinion. At this time, the Company cannot be sure that it will be successful in its operations. Therefore the Company's independent certified public accountants have issued an opinion that there is substantial doubt about the Company's ability to continue in business as a going concern.
2. Development and Market Acceptance of New Products. The Company's success and growth will depend upon its ability to improve and market its KDS machines and KDS processes and to successfully develop, and generate revenues from its processes. To date the Company has been unable to achieve the foregoing.
3. Liquidity; Need for Additional Financing. The Company believes that it will need additional cash during the next twelve months. If the Company is unable to generate a positive cash flow before its cash is depleted, it will need to seek additional capital. There is no assurance that the Company will be able to obtain additional capital if required, or obtain the capital on terms and conditions acceptable to it. The Company is currently suffering from a lack of liquidity although its current obligations are not significant, in spite of this, the Company continues its sales efforts while it continuously seeks out additional capital. The Company's auditors have also issued a going concern opinion.
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4. Dependence on Suppliers. The Company relies on a number of suppliers to provide certain raw materials for its products. The interruption of certain sources of supply or the failure to adapt materials to the Company's changing technological requirements could disrupt the Company's ability to manufacture products or cause the Company to incur costs associated with the development of alternative sources, either of which could adversely affect the Company's financial performance.
5. Technology Risk. All manufacturers, including the Company, utilize different applications of known technology. Should a competitor develop a technology breakthrough that cannot be adapted to the Company's systems or develop a more effective application of existing technology, the KDS and its processes would be at risk of becoming obsolete.
6. Competition. Most of the competition are companies with substantially greater financial, technical and marketing resources than the Company. If the market for the KDS or its process are established, the Company expects that additional competition will emerge and that existing competitors may commit more resources to those markets.
7. Issuance of Additional Shares. At June 30, 2006, there were 189,843,955 shares of common stock or 95 % of the 200,000,000 authorized shares of common stock of the Company outstanding and 10,156,045 shares remain unissued. The board of directors has the power to issue such shares, subject to shareholder approval, in some instances. Although the Company presently has no commitments, contracts, or intentions to issue any additional shares to other persons, other than in the exercise of options, the Company may in the future attempt to issue shares to acquire products, equipment, or properties, or for other corporate purposes. Any additional issuance by the Company, from its authorized but unissued shares, would have the effect of diluting the interest of existing shareholders.
8. Indemnification of Officers and Directors for Securities Liabilities. The Articles of Incorporation of the Company provide that any director, officer, agent and /or employee will be indemnified as to those liabilities and on those terms and conditions as are specified in the Company Act of the State of Nevada. Further, the Company may purchase and maintain insurance on behalf of any such persons whether or not the Corporation would have the power to indemnify such person against the liability insured against. The foregoing could result in substantial expenditures by the Company and prevent any recovery from such officers, directors, agents and employees for losses incurred by the Company as a result of their actions. Further, the Company has been advised that in the opinion of the Securities and Exchange Commission, indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.
9. Cumulative Voting, Preemptive Rights and Control . There are no preemptive rights in connection with the Company's common stock. Shareholders may be further diluted in their percentage ownership of the Company in the event additional shares are issued by the Company in the future. Cumulative voting in the election of Directors is not provided for. Accordingly, the holders of a majority of the shares of common stock, present in person or by proxy, will be able to elect all of the Company's board of directors.
10. No Dividends Anticipated. At the present time the Company does not anticipate paying dividends, cash or otherwise, on its Common Stock in the foreseeable future. Future dividends will depend on earnings, if any, of the Company, its financial requirements and other factors.
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11. Lack of Market Research. The Company has neither conducted nor has the Company engaged other entities to conduct market research such that management has assurance market demand exists for the transactions contemplated by the Company.
12. Product Liability. The Company could incur liability for product defects, which result in damage from the use of its equipment and products. Any such claims, if successful, could result in substantial losses to the Company.
13. No Insurance Coverage. The Company, like other companies in its industry, is finding it increasingly difficult to obtain adequate insurance coverage against possible liabilities that may be incurred in conducting its business activities. At present, the Company has not secured any liability insurance. The Company has potential liability from its general business activities, and accordingly, it could be rendered insolvent by serious error omission.
14. Non-arms Length Transactions and Conflicts of Interest. The Company has not engaged in any transactions with its officers, directors and principal shareholders except for accepting non-interest bearing loans from two of its officers. Such transactions may be considered as not having occurred at arms length. The Company will be engaged in transactions with management and others involving conflicts of interest, including conflicts on salaries and other payments to such parties.
15. Reliance Upon Current Management. The Company's current operations and future success are greatly dependent upon the participation of its officers, Cal Kantonen and Brian Nichols.
16. Lack of Key Man Insurance. The Company has not obtained key man life insurance on the life of its officers and directors. The death or unavailability of any one of them could have a material adverse impact on the operation of the Company.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company owns no real property. It leases a 300 square feet of office space at 811 - 100 Park Royal, West Vancouver, West Vancouver, British Columbia V6T 1A2. The office is leased from Smythe Ratcliffe, Chartered Accountants, on an month to month basis. The rent is US$1,100 per month which includes full reception and office services.
In July 2005, the Company leased a new sales office at # 26 - 7621 Vantage Way in Delta, British Columbia, Canada containing 800 square feet of office space for a monthly rental of US$600. A new temporary demo facility has been set up in Abbotsford, BC, Canada adjacent to our fabricator.
As of June 30, 2006, the Company owns two KDS machines. One machine is installed in Prince George on a trial basis, and one is used for demonstration and testing at the Company's test facility in Abbotsford, BC, Canada.
The Company has tools, test equipment, office furniture and office equipment costing at total of $218,534 located in Delta, British Columbia, Canada Abbotsford, British Columbia, Canada and West Vancouver, British Columbia, Canada.
The Company's registered office is # 700 - 101 Convention Center Drive, Las Vegas, Nevada 89109.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending litigation and none is contemplated or threatened other than as described below:
Ford Motor Credit Company vs. First American Scientific Corp. , Kern County Municipal Court, Bakersfield Judicial District, Case No. 148129, filed on October 10, 1998. This complaint seeks $3,549, plus attorneys' fees and costs for failure to pay on a lease executed by the Company. No trial date has been set and discovery has been propounded by plaintiff. Management would like to settle this matter prior to trial. Plaintiff has made an offer to settle for $3,549, but this offer was not accepted by the Company's management. It is likely that plaintiff will prevail at trial and thus out of court settlement is sought. As of the date hereof, the case has not been settled.
The Company has a number of commercial creditors in the state of California who had the ability to bring actions to recover money due them resulting from the close of operation of the Bakersfield plant in 1997. Some of these claims will entitle the creditor to attorneys' fees spent in recovering these funds. The Company offered settlements on approximately $24,000 for these trade payables which have been outstanding for more than six years. The company disputes the amounts owing. None of these creditors have initiated lawsuits or further claims. There are currently no further discussions or actions contemplated concerning these disputed payables and the company has cancelled these debts on its books.
ITEM 4. SUBMISSION OR MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of shareholders in the year ending June 30, 2006.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
The Company's securities are traded over-the-counter on the Bulletin Board operated by the National Association of Securities Dealers, Inc. under the symbol "FASC." The table shows the high and low bid of the Company's Common Stock for the past two years:
|
Quarter ended |
High
|
Low
|
|
|
2003 |
March 31 |
0.075 |
0.051 |
|
June 30 |
0.07 |
0.034 |
|
|
September 30 |
0.06 |
0.04 |
|
|
December 31 |
0.07 |
0.04 |
|
|
2004 |
March 31 |
0.06 |
0.04 |
|
June 30 |
0.11 |
0.05 |
|
|
September 30 |
0.05 |
0.043 |
|
|
December 31 |
0.043 |
0.031 |
|
|
|
|
|
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|
2005 |
March 31 |
0.041 |
0.032 |
|
June 30 |
0.040 |
0.021 |
|
|
Sept 30 |
0.034 |
0.03 |
|
|
|
Dec 30 |
0.031 |
0.03 |
|
2006 |
Mar 31 |
0.032 |
0.031 |
|
June 30 |
0.052 |
0.049 |
Of the 189,843,955 shares of common stock outstanding as of June 30, 2006, all are free trading with the exception of approximately 11,000,000 shares which may only be resold in compliance with Rule 144 of the Securities Act of 1933.
At September 10, 2006, the Company had approximately 5,000 shareholders of record of its common stock.
Dividends
The Company has not declared any cash dividends, nor does it intend to do so. The Company is not subject to any legal restrictions respecting the payment of dividends, except that dividends may not be paid to render the Company insolvent. Dividend policy will be based on the Company's cash resources and needs and it is anticipated that all available cash will be needed for the Company's operations in the foreseeable future.
Section 15(g ) of the Securities Exchange Act of 1934
The Company's shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser's written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.
Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as "bid" and "offer" quotes, a dealers "spread" and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers rights and remedies in causes of fraud in penny stock transactions; and, the NASD's toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.
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Securities authorized for issuance under equity compensation plans
The Company currently has one equity compensation plan. Prior to 2000, the Company had three additional stock option plans. All shares which were authorized under those plans have been exhausted.
The 2001 Incentive Stock Option Plan provides for the issuance of stock options for services rendered to the Company. The board of directors is vested with the power to determine the terms and conditions of the options. The Plan included 30,000,000 shares. To date options to purchase 30,000,000 shares have been granted and all options have been exercised, leaving no shares available for issuance under the Plan.
The 2001A Incentive Stock Option Plan provides for the issuance of stock options for services rendered to the Company. The board of directors is vested with the power to determine the terms and conditions of the options. The Plan includes 20,000,000 shares. To date options to purchase 20,000,000 shares have been granted and all options have been exercised, leaving no shares available for issuance under the Plan.
The 2003 Incentive Stock Option Plan provides for the issuance of stock options for services rendered to us. The board of directors is vested with the power to determine the terms and conditions of the options. The Plan includes 10,000,000 shares. To date options to purchase 10,000,000 shares have been granted and all options have been exercised, leaving no shares available for issuance under the Plan.
The 2004 Incentive Stock Option Plan provides for the issuance of stock options for services rendered to us. The board of directors is vested with the power to determine the terms and conditions of the options. The Plan includes 10,000,000 shares. To date options to purchase 10,000,000 shares have been granted, leaving no shares available for issuance under the Plan.
The 2005 Incentive Stock Option Plan provides for the issuance of stock options for services rendered to us. The board of directors is vested with the power to determine the terms and conditions of the options. The Plan includes 10,000,000 shares. At June 30, 2006, options to purchase 10,000,000 shares have been granted and exercised, leaving no shares available for issuance under the 2005 Plan.
Number of securities
Number of securities to
Weighted-average
remaining available for future
be issued upon exercise
exercise price of
issuance under equity
of outstanding options,
outstanding options,
compensation plans
warrants and rights
warrants and rights
(excluding securities
Plan category
(a)
(b)
in column (a)) (c)
Equity compensation plans
approved by security holders
None
None
None
Equity compensation plans
2005
6,225,000
$0.04
Nil
not approved by
securities holders
Total
6,225,000
$0.04
Nil
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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. In addition to the core patent, new patents for two new applications, one for the cryogenic freezing and shattering scrap rubber and one for separation of precious metals from mineral rock using our equipment have been granted. One other patent application for drying and recovery of fuel and clay from biomass has been submitted and is pending status. Further new registrations have been submitted in Japan, Malaysia and Korea. 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, Malaysia, South Korea, Japan and the UK.
On June 30, 2006 we had current assets of $ 505,249 and current liabilities of $ 286,152 compared to the previous year on June 30, 2005 when we had $ 333,320 in current assets and $ 176,804 in current liabilities. Our working capital ratio on June 30, 2006 was 2.03 : 1, compared to the working capital ratio of 1.88 : 1 on June 30, 2005. The company continues to maintain a positive working capital position and has no long term debt other than amounts due to two of its directors.
Waste Resources Action Program (WRAP) Research Funding in UK
In September 2004, we signed an agreement wherein WRAP has agreed to provide funding to develop "value enhanced end-products" from the output of the KDS machine. WRAP has agreed to provide $1,000,000 USD for the purchase and installation of one complete KDS system to be located at an industrial site in England. The fund will also pay for market research, scientific research, re-design and adaptation costs for the equipment and supplementary systems for industry-specific applications. All funds have been received and expended under the administration of WRAP. WRAP is a department of the government of the United Kingdom.
University of Tennessee - USDA Funding
In July 2004, we were selected to participate with the University of Tennessee in a Biomass
Research Initiative project funded by the US Dept of Agriculture. First American Scientific Co. was identified as a key industry partner for its history of developing novel size reduction and separation processes. The project is ongoing. No funds were paid or due to FASC in regard to this project.
AGES - Sustainable Development Technology Canada (SDTC) Funding
In October 2004, Sustainable Development Technology Canada (SDTC) awarded a $600,000 Cdn research grant to AGES to construct and install a complete waste to energy KDS 3000 System at a pulp mill in eastern Canada. All money has been received and expended by AGES. FASC did not receive ant funds from SDTC.
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Accounting issues
Management believes that the carrying value of its technology licenses, patents and manufacturing rights are fairly stated at cost less amortization using the straight line method over 15 years based upon the estimated present value of cash flows and the Company's projections to sell at least two machines each year through 2006. The Company exceeded this target in fiscal year 2006, and already has contracts in place for delivery of equipment in fiscal 2007. Sales are booked when the equipment is delivered.
Our auditors have issued a going concern statement because we do not have sufficient cash flow for us to maintain our operation for the next year. Consequently, our management will have to seek additional capital from new equity securities offerings, loans, or other fund raising activities to maintain our operation should new sales and receipt of receivables not materialize. Some relief has come from deferment of payment of salaries and loans due to our senior management which aggregate approximately $ 480,315 as of June 30, 2006.
As of June 30, 2006 there were 189,843,955 shares issued and outstanding.
Results of Operations - Quarter ending June 30, 2006
Revenue for the year ended June 30, 2006 was $ 976,406 compared to $851,817 for last year.
Net losses for the year ended June 30, 2006 were $ 623,918 compared to a loss of $ 429,815 for last year or less than $0.01 per share in each period.
The company anticipates future revenue to come from equipment sales, as well as its share in future profits from joint ventures, and by earning royalties and license fees under the following agreements:
Japan - JP Steelplantech Co. License Agreement
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. Under the agreement, FASC will receive a royalty for each manufactured and machine sold in Japan. Marketing efforts are now underway, but there have been no sales to date.
JP Steel Plantech Co. is a well established engineering and equipment manufacturing company owned by four Japanese steel industry companies ; Kawasaki Heavy Industries (KHI), Hitachi Zosen (HITZ), JFE Engineering (JFE) and Sumitomo Heavy Industries (SHI).
Korea - JNK Heaters Co. Ltd License Agreement
On December 14, 2005, the Company signed an exclusive license agreement for the marketing of the KDS System in Korea with JNK Heaters Co. Ltd. of Seoul, Korea. As part of the agreement JNK has paid an up front licensing fee and has purchased and installed a fully operational KDS at its
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facility in Seoul. JNK may also earn the right to manufacture machines in Korea after meeting certain contractual conditions. Under the agreement, FASC will receive a royalty for each machine sold in Korea. There have been two sales in Korea to date.
Malaysia - FASCM Joint Venture & License Agreement
On July 8, 2004, the Company granted an exclusive license for 21 years to First American Scinetific Corp (Malaysia) Bhd. Sdn., to market the KDS system in Malaysia, Thailand, Singapore and Indonesia. FASCM purchased one KDS machine and set up a fully operational demonstration plant in Malaysia. Under the agreement, FASC will receive a royalty for each machine manufactured and sold in the territory and will share 50 % in any excess profits from the operation. There was one sale in Malaysia to date, but the equipment was recovered when payment was not forthcoming.
Brazil - Proposed Joint Venture & License Agreement
On April 18, 2006 the company announced the signing of an Agreement in Principle to form a joint venture to be named First American Scientific Brazil Ltda. with South American Bio-Energy Corp Ltda of Uruguay and Bruno Industrial Ltda of Brazil for the manufacture, marketing, and operation of KDS equipment in Brazil, Uruguay and Argentina generally in, but not limited to the sugar industry. Finalization of the documentation is expected to be completed in October 2006. Under the proposed agreement, FASC will receive a royalty for each machine manufactured and sold in the territory and will share 50 % in any excess profits from the operation.
Canada - Alternative Green Energy Systems Inc - Joint Venture
In February 2004, AGES was granted an exclusive license to design, manufacture and sell a large scale KDS 3000 machine for exclusive use in the pulp & paper industry in Canada, the USA and Europe. The smaller test machine Model 250 was delivered to Atlantic Packaging Ltd.'s paper recycling facility in Whitby, Ontario for evaluation and testing.
A large scale KDS Model 3000 was fabricated and delivered to the Flakeboard pulp mill site in Nova Scotia, Canada on a trial basis and testing is being conducted. Flakeboard installed all feeding equipment required to deliver wood waste to the KDS equipment and to convey and store the fuel dust after it has been processed. The Flakeboard system includes installation of a reclaimer, silo, various conveyors, a major area electric upgrade, DCS modifications and a civil engineering project to site and enclose all the equipment. Further adaptations to the KDS equipment are being made to determine if it is suitable to meet the Flakeboard's requirements.
In October 2005, AGES received $ 700,000 Cdn in new funding from its shareholders to be used to complete the Flakeboard project. FASC did not participate in the September cash call by AGES thereby reducing its percentage ownership in AGES to 12 %. FASC continues to support AGES in its efforts to make this project a success.
Under the agreement, FASC will receive a royalty for each machine manufactured and sold in the territory and will share 12 % in any excess profits from the operation. AGES must pay FASC at least $ 25,000 USD per annum to maintain the agreement in good standing.
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By mutual agreement, in July 2006, the license was modified to reduce the territory licensed to Canada and he USA.
United Zeolite Products Ltd.
The Company withdrew from this joint venture in February 2006 when it became apparent that raw materials needed for processing would not arrive in a cost effective manner.
Other material contracts:
Canada - City of Prince George, BC
FASC has signed a Memorandum of Understanding the City of Prince George, BC, Canada to assist in solving its environmental cleanup problems with sewage sludge using the KDS Micronex system. This will be the first operation of its kind in the world where the strictly regulated Class B municipal sludge can now be cleaned, bagged and profitably sold to the public as a soil amendment" The initial runs will be monitored for two months, and if satisfactory, the city will establish a permanent facility and purchase up to 4 KDS Micronex machines. To date all trial runs have been satisfactory and many adjustments have been made to accommodate the efficient processing of the City' s sewage sludge. To date, all preliminary results have been positive. Expected date for completion of the final evaluation has been extended to November 2006.
USA - Minnesota Valley Alfalfa Producers Coop
On April 28, 2006, the company received a purchase order for the sale of two machines to Minnesota Valley Alfalfa Producers. The machines were delivered in June 2006. Adaptations to the equipment to accommodate local conditions have been made with positive results.
Waste Resources Action Program - UK
In September 2004, we signed an agreement wherein WRAP has agreed to provide funding to develop " value enhanced end-products" from the output of the KDS machine. WRAP has agreed to provide $1,000,000 USD for the purchase and installation of one complete KDS system to be located at a local pulp & paper mill in England. The fund will also pay for market research, scientific research, re-design and adaptation costs for the equipment and supplementary systems for industry-specific applications over an 18 month period. The goals of the project are to demonstrate the KDS technology in a working environment, optimize ancillary equipment to improve its efficiency, and identify markets for recycled end products. In Dec 2004, a KDS Model S-4 was shipped to Aylesford Newsprint in London, England for trial runs and evaluation. The testing is now complete and a final report is expected in the next quarter.
Ongoing 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. With the funding provided by SDTC, WRAP, the USDA,
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FASCM, JP Steelplantech Co., the City of Prince George, JNK Heaters Co. Ltd , in Korea, an soon in Brazil, our research and testing will continue in developing commercially viable applications for our technology in the various localities.
Inflation
Inflation has not been a factor effecting current operations, and is not expected to have any material effect on operations in the near future.
Foreign Operations
We rent office space in West Vancouver, British Columbia, Canada which serves as an administrative office and rent a sales office in Delta, British Columbia. We moved our demonstration facility to Abbotsford, British Columbia in August 2005. AGES shares office space in Montreal, Quebec with Thermix Combustions Systems.
Trends
Sales efforts are beginning to bring results with five systems sold in the last six quarters and two new license agreements signed this fiscal year. Based upon the sale of a minimum of one machine per quarter, plus royalties and license fees, we have projected sales of at least $ 1,000,000 to $ 2,000,000 next fiscal year .
Accounting Pronouncements
In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, " Accounting for Servicing of Financial Assets -- an amendment of FASB Statement No. 140." This statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: a transfer of the servicer' s financial assets that meets the requirements for sale accounting; a transfer of the servicer' s financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities; or an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. The statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, and permits an entity to choose either the amortization or fair value method for subsequent measurement of each class of servicing assets and liabilities. The statement further permits, at its initial adoption, a one-time reclassification of available for sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available for sale securities under Statement 115, provided that the available for sale securities are identified in some manner as offsetting the entity' s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value and requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity' s fiscal year. Management believes the adoption of this statement will have no immediate impact on the Company' s financial condition or results of operations.
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In February 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 155, "Accounting for Certain Hybrid Financial Instruments, an Amendment of FASB Standards No. 133 and 140" (hereinafter "SFAS No. 155"). This statement established the accounting for certain derivatives embedded in other instruments. It simplifies accounting for certain hybrid financial instruments by permitting fair value remeasurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation under SFAS No. 133 as well as eliminating a restriction on the passive derivative instruments that a qualifying special-purpose entity ("SPE") may hold under SFAS No. 140. This statement allows a public entity to irrevocably elect to initially and subsequently measure a hybrid instrument that would be required to be separated into a host contract and derivative in its entirety at fair value (with changes in fair value recognized in earnings) so long as that instrument is not designated as a hedging instrument pursuant to the statement. SFAS No. 140 previously prohibited a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity's fiscal year. Management believes the adoption of this statement will have no immediate impact on the Company's financial condition or results of operations.
In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, "Accounting Changes and Error Corrections," (hereinafter "SFAS No. 154") which replaces Accounting Principles Board Opinion No. 20, "Accounting Changes", and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion No. 28". SFAS No. 154 requires that changes in accounting principle be applied retrospectively to prior period financial statements and is effective for fiscal years beginning after December 15, 2005. Management does not expect SFAS No. 154 to have an immediate material impact on the Company's financial position, results of operations, or cash flows.
ITEM 7. FINANCIAL STATEMENTS
Table of Contents
|
Independent Auditor's Report |
F-1 |
|
Financial Statements |
|
|
Consolidated Balance Sheets |
F-2 |
|
Consolidated Statements of Operations and Comprehensive Income (Loss) |
F-3 |
|
Consolidated Statement of Stockholders' Equity |
F-4 |
|
Consolidated Statements of Cash Flows |
F-5 |
|
Notes to Consolidated Financial Statements |
F-6 |
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Certified Public Accountants & Business Consultants
First American Scientific Corp.
Vancouver, BC
Canada
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of First American Scientific Corp. as of June 30, 2006 and 2005, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company' s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First American Scientific Corp. as of June 30, 2006 and 2005 and the results of its operations, stockholders' equity and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2, the Company has sustained losses since inception and has limited cash resources. These factors raise substantial doubt about the Company' s ability to continue as a going concern. Realization of a major portion of the assets is dependent upon the Company' s ability to meet its future financing requirements and the success of future operations. Management' s plans regarding those matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
WILLIAMS & WEBSTER, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
September 15, 2006
Member of Private Companies Practice Section, SEC Practice Section, AICPA and WSCPA
Bank of America Center - 601 West Riverside Avenue, Suite 1940 - Spokane, WA 99201
Phone (509) 838-5111 - Fax (509) 838-5114 - www.williams-webster.com
F-1
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The accompanying notes are an integral part of these financial statements.
F-2
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FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Year Ended
June 30,
2006
2005
REVENUES
Revenues from equipment and machine sales
$
724,706
$
549,494
Royalty & Licensing fees
234,901
302,323
Leasing fees
16,799
-
Total Revenue
976,406
851,817
COST OF SALES
360,925
252,018
GROSS PROFIT
615,481
599,799
OPERATING EXPENSES
Stock option expense
33,000
-
Advertising
5,035
11,230
Amortization and depreciation
167,199
173,533
Consulting
-
102,272
Marketing
15,372
-
Professional services
77,191
109,632
Wages
472,424
518,991
Commissions
33,564
-
Research and development
54,106
23,229
General and administration
297,035
188,800
Bad debt expense
123,239
2,313
Rent
27,852
22,300
TOTAL OPERATING EXPENSES
1,306,017
1,152,300
LOSS FROM OPERATIONS
(690,536)
(552,501)
OTHER INCOME
Expenses recovered
59,122
115,486
Government grant
7,496
7,200
TOTAL OTHER INCOME
66,618
122,686
LOSS BEFORE INCOME TAXES
(623,918)
(429,815)
INCOME TAXES
-
-
NET LOSS
(623,918)
(429,815)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign exchange comprehensive income (loss)
(14,837)
2,079
COMPREHENSIVE NET LOSS
$
(638,755)
$
(427,736)
NET LOSS PER COMMON SHARE, BASIC AND DILUTED
$
nil
$
nil