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 SEPTEMBER 30, 2010OR[   ]
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 [   ]
 
 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 December 7, 2010.
 
  
  
 TABLE OF CONTENTS
 
 PagePART I.Item 1.
Financial Statements.
2Financial Statements:Consolidated Balance Sheets as of September 30, 2010 (unaudited) and June 30, 2010 (audited)
F-1Unaudited Consolidated Statements of Operations for the three month periods ended September 30, 2010 and September 30, 2009
F-2Unaudited Consolidated Statements of Cash Flows for the three month periods ended September 30, 2010 and September 30, 2009
F-3Condensed Notes to Financial Statements
F-4Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
13Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
18Item 4.
Controls and Procedures.
18PART II.Item 1.
Legal Proceedings.
18Item 1A.
Risk Factors.
18Item 6.
Exhibits.
19Signatures
21Exhibit Index
22
 
 
 
 
 
 
 
 
 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.
 
  - 2 -
  
 FIRST AMERICAN SCIENTIFIC CORP.CONSOLIDATED BALANCE SHEETSSeptember 30,

June 30,2010

2010ASSETS

(unaudited)CURRENT ASSETSCash
$
--
$
3,274Accounts receivable, net of allowance

15,983

30,432Sales tax refunds

4,012

3,660Prepaid expenses

1,023

993Inventory

123,429

119,844TOTAL CURRENT ASSETS

144,447

158,204PROPERTY AND EQUIPMENTProperty and equipment

261,515

267,815Less: accumulated depreciation

(184,080))

(181,497))TOTAL PROPERTY AND EQUIPMENT

77,435

86,318OTHER ASSETSTechnology rights and patents, net of amortization

278,780

315,076TOTAL OTHER ASSETS

278,780

315,076TOTAL ASSETS
$
500,662
$
559,597LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses
$
478,823
$
445,037Band overdraft

917Salaries payable - related parties (See Note 6)

1,235,000

1,145,000Current portion of Capital Lease obligation

10,018

10,018Advances payable to related parties

198,900

159,665TOTAL CURRENT LIABILITIES

1,923,658

1,759,720LONG-TERM LIABILITIESCapital lease obligations

19,983

19,886TOTAL LIABILITIES

1,942,724

1,779,606COMMITMENTS AND CONTINGENCIES

-

-STOCKHOLDERS' EQUITY (DEFICIT)Common stock - $.001 par value, 200,000,000 sharesauthorized; 199,952,195 and 199,952,195 shares issuedand outstanding respectively

199,952

199,952Stock Options

380,400

253,600Additional paid-in capital

13,255,636

13,255,636Accumulated deficit

(15,262,968))

(14,929,198))TOTAL STOCKHOLDERS' EQUITY(DEFICIT)

(1,442,980))

(1,220,010))TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
$
500,662
$
559,596
 
 The accompanying condensed notes are an integral part of these financial statements
 F-1
  - 3 -
  
 FIRST AMERICAN SCIENTIFIC CORP.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSThree months endedSeptember 302010

2009(unaudited)

(unaudited)REVENUESRevenues from equipment and machine sales
$
801
$
382,368COST OF SALES

-

222,608GROSS PROFIT

801

159,760OPERATING EXPENSESAmortization and depreciation

43,161

47,609Marketing

9,090

312Professional services

24,832

22,653Wages

13,131

24,515Management Compensation

216,800

201,800Research and development

17,754

25,610General and administration

14,919

18,118Rent

3,087

1,898Total Operating Expenses

342,774

342,515LOSS FROM OPERATIONS

(341,973)

(182,755)OTHER INCOME (EXPENSE)Gain on sale of asset

6,609

-Foreign Exchange Gains (Losses)

(14,404))

(11,646))Total Other Income (Expense)

(7,795)

(11,646))LOSS BEFORE INCOME TAXES

(349,768))

(194,401))INCOME TAX  PROVISION

-

-NET INCOME (LOSS)
$
(349,768))
$
(194,401))NET LOSS PER COMMON SHARE, BASIC AND DILUTED
$
nil
$
nilWEIGHTED AVERAGE NUMBER OF COMMON SHARESOUTSTANDING, BASIC AND DILUTED

199,952,195

199,952,195
 
 
 
 
 The accompanying condensed notes are an integral part of these financial statements
 F-2
  - 4 -
  
 FIRST AMERICAN SCIENTIFIC CORP.CONSOLIDATED STATEMENTS OF CASH FLOWSThree months endedSeptember 302010

2009(unaudited)

(unaudited)CASH FLOWS FROM OPERATING ACTIVITIESNet loss
$
(349,768)
$
(194,401)Adjustments to reconcile net loss to net cash used by operationsDepreciation and amortization

43,161

47,609Stock and options issued for services and compensation

126,800

126,800Gain on sale of asset

(6,609)

-Decrease (increase) in:Accounts receivable

14,449

39,488Sales tax refund receivable

(352)

8,115Prepaid expenses

(30)

3,315Inventory

(3,585)

(27,004)Increase (decrease) in:Salaries payable - related parties

90,000

10,000Accounts payable & accrued expenses

33,786

26,691Bank overdraft

917

-Customer deposits

-

32,803Net cash provided (used) by operating activities

(51,231)

73,416CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of fixed assets

7,241

-Net cash provided by investing activities

7,241

-CASH FLOWS FROM FINANCING ACTIVITIESProceeds from related party advances

31,613

3,200Principal payment on capital leases

(5,302)

-Net cash provided by financing activities

26,311

3,200NET INCREASE (DECREASE) IN CASH

(17,679)

76,616Foreign exchange (gains) losses

14,404

11,646CASH - Beginning of period

3,274

33,891CASH - End of period
$
-
$
122,153Supplemental Disclosure:Non-cash investing and financing activities:Transfer of Equipment to Inventory (net)

-

37,825
 
 
 
 
 The accompanying condensed notes are an integral part of these financial statements
 F-3
  - 5 -
  FIRST AMERICAN SCIENTIFIC CORP.
 Condensed Notes To Consolidated Financial Statements
 September 30, 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 Delta, British Columbia, Canada and a demonstration and sales site in Abbotsford, British Columbia, Canada. The Company’s year-end is June 30th.
 
 The foregoing unaudited interim financial statements of 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 June 30, 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 three month period ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011.
 
 
 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.
 
 Use of Estimates
 
 The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
 
 
 F-4
  - 6 -
  FIRST AMERICAN SCIENTIFIC CORP.
 Condensed Notes To Consolidated Financial Statements
 September 30, 2010
 
 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
  Going Concern
  The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of operations.
   As shown in the accompanying financial statements, the Company has incurred an accumulated deficit of approximately $15.2 million through September 30, 2010, has limited cash resources and generated a net loss for the year to date three month period of $349,768. These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management plans to substantially increase sales through current channels and develop new sales opportunities.  Management has also established plans designed to increase the sales of the Company’s products by continued research and development and combining technology and sales resources with its joint venture partners and with its Licensees.
  Additionally, management plans include seeking new capital from new equity securities offerings which may, if successful, provide funds needed to increase liquidity, fund internal growth and fully implement its business plan.  However, there is no assurance that the Company will raise the required capital.  If the Company is unable to raise the required capital, then it will assess its future business viability.
  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
  Impairment of Long-Lived Assets
  The carrying value of our long-lived assets, such as property and equipment and amortized intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in accordance with guidance on the accounting for impairment or disposal of long-lived assets (Topic 360). We look to current and future profitability, as well as current and future undiscounted cash flows, excluding financing costs, as primary indicators of recoverability. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposal is less than the carrying amount. If impairment is determined to exist, any related impairment loss is calculated based on fair value. In complying with this standard, the Company reviews its long-lived assets annually.
  As of September 30, 2010 no impairments were deemed necessary.
  Principles of Consolidation
  The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary First American Scientific (Canada) Ltd.  All significant inter-company transactions and balances have been eliminated in consolidation.
   
 
 
 
 F-5
  - 7 -
  FIRST AMERICAN SCIENTIFIC CORP.
 Condensed Notes To Consolidated Financial Statements
 September 30, 2010
 
 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
 
 Revenue and Cost Recognition
 
 Revenues from the sale of KDS machines are recognized when there is a sales contract, all terms of the contract have been completed, collectability is reasonably assured and the products are shipped.
 
 Revenue from licensing fees and royalties are recorded when they are received.
 
 KDS machine costs include applicable direct material and labor costs and related indirect costs.  Changes in job performance, job conditions and estimated profitability may result in revisions to product costs, which are recognized in the period in which the revisions are determined.
 
 Reclassifications
 
 Certain prior year amounts in the accompanying financial statements have been reclassified to conform to the current presentation.
 
 Recent Accounting Pronouncements
 
 In April 2010, the FASB issued ASU No. 2010-17, “Revenue Recognition – Milestone Method (Topic 605).” This ASU provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. This update will be affective in the second quarter of 2010. Adoption of this update is not anticipated to have a material impact on the Company’s consolidated results of operation or financial position.
 
 In February 2010, the FASB issued ASU No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-09”), which amends ASC Topic 855, “Subsequent Events.” The amendments to ASC Topic 855 do not change existing requirements to evaluate subsequent events, but: (i) defines a “SEC Filer,” which we are; (ii) removes the definition of a “Public Entity”; and (iii) for SEC Filers, reverses the requirement to disclose the date through which subsequent events have been evaluated. ASU 2010-09 was effective for us upon issuance. This guidance did not have a material impact on our financial position and results of operations.
 
 In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” This ASU requires additional disclosures about significant unobservable inputs and transfers within Level 1 and 2 measurements. Adoption of this update did not have any impact on the Company’s consolidated results of operation or financial position.
 
 Management believes the impact of other recently issued standards and updates, which are not yet effective, will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows upon adoption.
   NOTE 3 – PROPERTY AND EQUIPMENT
  Depreciation expense for the three month periods ended September 30, 2010 and 2009 were $43,161 and $47,609 respectively.
  
 
 F-6
  - 8 -
  FIRST AMERICAN SCIENTIFIC CORP.
 Condensed Notes To Consolidated Financial Statements
 September 30, 2010
   NOTE 4 – COMMON STOCK
  
 During the three months ended September 30, 2010, the Company did not issue any shares of common stock of the Company.
 
 
 NOTE 5 – STOCK OPTIONS
 
 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 applies the Black-Scholes model using a market value of $0.037, a strike price of $0.02, a ten year term and a 1 % annual interest rate and a volatility factor of 79%.  An amount of $126,800 was recorded as an expense in the quarter ended September 30, 2010, and $380,400 is recorded as the total value of outstanding obligations to grant stock options.
 
 As of September 30, 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.
 
 
 NOTE 6 – RELATED PARTIES
 
 At September 30, 2010, the Company owed its senior executives and its directors a total of $1,235,000 for unpaid accrued salary and $198,900 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.
 
 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

Total2010
$
4,204
$
504
$
648
$
1,885
$
7,2412011
$
5,605
$
672
$
864
$
2,513
$
9,6542012
$
5,605
$
672
$
864
$
2,513
$
9,6542013
$
5,605
$
672
$
864
$
2,513
$
9,6542014
$
1,401
$
168
$
216
$
628
$
2,413
 
 F-7
  - 9 -
  FIRST AMERICAN SCIENTIFIC CORP.
 Condensed Notes To Consolidated Financial Statements
 September 30, 2010
 
 
 NOTE 8 – SUBSEQUENT EVENTS
 
 The Company evaluated its September 30, 2010 financial statements for subsequent events through the date the financial statements were issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 F-8
  - 10 -
  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 three month periods ended September 30, 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
  - 11 -
  “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.
 
  - 12 -
  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 has been translated.  We expect to have the agreement signed by February 2011.
 
 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 three month period ended September 30, 2010 the Company was focused on overseeing pilot operations, the expansion of marketing activities and research and development activities.
 
  - 13 -
  Net Losses
 
 Net losses for the three month period ended September 30, 2010 increased to $349,768 from $194,401 for the comparable period ended September 30, 2009, an increase of 80%. 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.
 
 Revenue
 
 Revenue for the three month period ended September 30, 2010 decreased to $801 from $382,368 for the comparable period ended September 30, 2009, a decrease of 99%. 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 three month period ended September 30, 2010 decreased to $0 from $222,608 for the comparable period ended September 30, 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 for the three month period ended September 30, 2010 increased to $342,774 from $342,515 for the comparable period ended September 30, 2009, an increase of less than 1%. The Company expects operating expenses to remain relatively consistent over the near term.
 
 Depreciation and amortization expenses for the three month periods ended September 30, 2010, and September 30, 2009 were $43,161 and $47,609 respectively.
 
 Income Tax Expense
 
 As of June 30, 2009 the Company had a net operating loss (NOL) carry forwards of approximately $5,000,000. 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.
 
 Liquidity and Capital Resources
 
 The Company had a working capital deficit of $1,779,211, current assets of $144,447 and total assets of $500,662 at September 30, 2010. The Company had current liabilities of $1,923,658 that consisted of accounts payable, accrued payroll, the current portion of lease obligations and advances payable to related parties. Current liabilities include amounts owed to officers of the Company in the amount of $1,235,000 and $198,900.  The Company had total liabilities of $1,942,724 that consisted of current liabilities and capital lease obligations at September 30, 2010.
 
  - 14 -
  The Company’s shareholder deficit was $1,442,980 as of September 30, 2010.
 
 Cash flow used in operations for the three month period ended September 30, 2010 was $52,148 as compared to cash flow provided by operations of $96,708 for the comparable period ended September 30, 2009. The transition to cash flow used in operations in the current period can be primarily attributed to the increase in net losses, the loss on the sale of an asset and the decrease customer deposits held over the comparative periods. The Company expects that cash flow will continue to be used in operations until such time as it can return net income from operations.
 
 Cash flow provided by investing activities for the three month period ended September 30, 2010 was $7,241 as compared to $0 for the comparable period ended September 30, 2009. The Company expects to use cash flow in investing activities in future periods as it purchases additional equipment for the testing and manufacture of KDS systems.
 
 Cash flow provided by financing activities for the three month period ended September 30, 2010 was $26,311 as compared to $3,200 for the comparable period ended September 30, 2009. Cash flow provided by financing activities in the current three month period was the result of related party advances offset by $5,302 in payments on capital leases. The Company expects to continue to realize cash flow from financing activities in order to sustain business operations in the near term.
 
 The Company’s current assets are insufficient to conduct its business over the next twelve (12) months. We will have to realize at least $500,000 in debt or equity financing over the next twelve months to fund our continued operations.  The Company has no current commitments or arrangements with respect to, or immediate sources of this funding. Furthermore, no assurances can be given that such funding is available. The Company’s officers and shareholders are the most likely source of new funding in the form of loans or equity placements though none have made any commitment for future investment and the Company has no such agreement formal or otherwise. The Company’s inability to obtain funding will have a material adverse affect on its ability to remain in business.
 
 Cash dividends are not expected to be paid in the foreseeable future.
 
 The Company had no lines of credit or other bank financing arrangements as of September 30, 2010.
 
 Commitments for future capital expenditures were not material as of September 30, 2010.
 
 The Company has contractual commitments with certain of its officers as of September 30, 2010.
 
 The Company had no current plans for the purchase or sale of any plant or equipment as of September 30, 2010.
 
 The Company has no plans to make any changes in the number of employees as of September 30, 2010.
 
 Off Balance Sheet Arrangements
 
 As of September 30, 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
  - 15 -
  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.
 
 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.
  - 16 -
  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.
 
 Recent Accounting Pronouncements
 
 Please see Note 2 to the accompanying financial statements for recent accounting pronouncements.
 
 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.
 
 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.
 
 
 
 
  - 17 -
  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.
 
 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.
 
 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
 
 There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period ended September 30, 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.
  - 18 -
  ITEM 6.          EXHIBITS.
 
 Incorporated by referenceExhibit
Document Description
Form
Date
Number
Filed herewith3.1
Articles of Incorporation.
10-SB
10/26/95
3.13.2
Bylaws.
10-SB
10/26/95
3.23.3
Articles of Incorporation.
10-KSB
4/29/98
3.33.4
Amended Articles of Incorporation.
10-KSB
3/16/99
3.43.5
Amended Articles of Incorporation.
S-8
6/27/00
3.510.1
1996 Nonqualified Stock Option Plan.
S-8
6/26/96
10.110.2
1998 Nonqualified Stock Option Plan.
S-8
9/08/98
10.110.3
1999 Nonqualified Stock Option Plan.
S-8
9/13/99
10.1110.4
2001 Nonqualified Stock Option Plan.
S-8
6/27/00
10.110.5
2001A Nonqualified Stock Option Plan.
S-8
5/01/01
10.1510.6
2003 Nonqualified Stock Option Plan.
S-8
1/17/03
10.110.7
2004 Nonqualified Stock Option Plan.
S-8
12/11/03
10.110.8
2004A Nonqualified Stock Option Plan.
S-8
7/22/04
10.110.9
2005 Nonqualified Stock Option Plan.
S-8
2/14/05
10.110.10
Termination Agreement with Zeo-Tech Enviro Corp., C2C Zeolite Corp., Thelon Ventures Ltd. and United Zeolite Products Ltd.
10-QSB
1/30/06
10.110.11
2006 Nonqualified Stock Option Plan.
S-8
10/30/06
10.110.12
Technology License Agreement – Malaysia.
10-KSB
9/28/06
10.110.13
Technology License Agreement – Japan.
10-KSB
9/28/06
10.210.14
Technology License Agreement – Korea.
10-KSB
9/28/06
10.310.15
Technology License Agreement - Alternative Green Energy Systems, Inc.
10-KSB
9/28/06
10.410.16
Joint Venture & Shareholders’ Agreement with Ulimec Sdn. Bhd. and Itfx Sdn. Bhd.
10-K
10/01/09
10.110.17
Joint Venture & Shareholders’ Agreement with Hae Sung Chang and Park Jae Kwon.
10-K
10/01/09
10.2
  - 19 -
  
 10.18
Employment Agreement with J. Brian Nichols.
10-K
10/01/09
10.310.19
Employment Agreement with Calvin L. Kantonen.
10-K
10/01/09
10.410.20
Technology License Agreement - Korea. (Supersedes Exhibit 10.3 filed with Form 10-KSB on September 28, 2006).
10-K
10/01/09
10.514.1
Code of Ethics.
10-KSB
6/30/03
14.128.1
Consultant and Employee Stock Compensation Plan.
10-SB

28.131.1
Certification of Principal Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.



X31.2
Certification of Principal Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.



X32.1
Certification of Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.



X32.2
Certification of Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.



X99.1
Representative Agreement with Environmental Management Systems Institute Inc.
10-KSB
6/30/03
99.199.2
Audit Committee Charter.
10-KSB
6/30/03
99.299.3
Disclosure Committee Charter.
10-KSB
6/30/03
99.3
 
 
 
 
 
 
 
  - 20 -
  
 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 13th day of December, 2010.
 
 FIRST AMERICAN SCIENTIFIC CORP.(Registrant)BY:
J. BRIAN NICHOLSJ. Brian NicholsPresident, Principal Executive Officer and a member of the Board of DirectorsBY:
CALVIN L. KANTONENCalvin L. KantonenPrincipal Financial Officer, Treasurer, and Chairman of the Board Of Directors
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  - 21 -
  
 EXHIBIT INDEX
 
 Incorporated by referenceExhibit
Document Description
Form
Date
Number
Filed herewith3.1
Articles of Incorporation.
10-SB
10/26/95
3.13.2
Bylaws.
10-SB
10/26/95
3.23.3
Articles of Incorporation.
10-KSB
4/29/98
3.33.4
Amended Articles of Incorporation.
10-KSB
3/16/99
3.43.5
Amended Articles of Incorporation.
S-8
6/27/00
3.510.1
1996 Nonqualified Stock Option Plan.
S-8
6/26/96
10.110.2
1998 Nonqualified Stock Option Plan.
S-8
9/08/98
10.110.3
1999 Nonqualified Stock Option Plan.
S-8
9/13/99
10.1110.4
2001 Nonqualified Stock Option Plan.
S-8
6/27/00
10.110.5
2001A Nonqualified Stock Option Plan.
S-8
5/01/01
10.1510.6
2003 Nonqualified Stock Option Plan.
S-8
1/17/03
10.110.7
2004 Nonqualified Stock Option Plan.
S-8
12/11/03
10.110.8
2004A Nonqualified Stock Option Plan.
S-8
7/22/04
10.110.9
2005 Nonqualified Stock Option Plan.
S-8
2/14/05
10.110.10
Termination Agreement with Zeo-Tech Enviro Corp., C2C Zeolite Corp., Thelon Ventures Ltd. and United Zeolite Products Ltd.
10-QSB
1/30/06
10.110.11
2006 Nonqualified Stock Option Plan.
S-8
10/30/06
10.110.12
Technology License Agreement – Malaysia.
10-KSB
9/28/06
10.110.13
Technology License Agreement – Japan.
10-KSB
9/28/06
10.210.14
Technology License Agreement – Korea.
10-KSB
9/28/06
10.310.15
Technology License Agreement - Alternative Green Energy Systems, Inc.
10-KSB
9/28/06
10.410.16
Joint Venture & Shareholders’ Agreement with Ulimec Sdn. Bhd. and Itfx Sdn. Bhd.
10-K
10/01/09
10.110.17
Joint Venture & Shareholders’ Agreement with Hae Sung Chang and Park Jae Kwon.
10-K
10/01/09
10.2
  - 22 -
  
 10.18
Employment Agreement with J. Brian Nichols.
10-K
10/01/09
10.310.19
Employment Agreement with Calvin L. Kantonen.
10-K
10/01/09
10.410.20
Technology License Agreement - Korea. (Supersedes Exhibit 10.3 filed with Form 10-KSB on September 28, 2006).
10-K
10/01/09
10.514.1
Code of Ethics.
10-KSB
6/30/03
14.128.1
Consultant and Employee Stock Compensation Plan.
10-SB

28.131.1
Certification of Principal Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.



X31.2
Certification of Principal Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.



X32.1
Certification of Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.



X32.2
Certification of Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.



X99.1
Representative Agreement with Environmental Management Systems Institute Inc.
10-KSB
6/30/03
99.199.2
Audit Committee Charter.
10-KSB
6/30/03
99.299.3
Disclosure Committee Charter.
10-KSB
6/30/03
99.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  - 23 -