First American Scientific Corp. Form 10-KSB for the period ended June 30, 2004

10KSB 1 fascf10ksb2004.htm First American Scientific Corp. Form 10-KSB for the period ended June 30, 2004 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-KSB

[ x ]

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

For the fiscal year ended June 30, 2004

[ ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number 000-27094

FIRST AMERICAN SCIENTIFIC CORP.
(Name of small business issuer in its charter)

Nevada
State or other jurisdiction of
incorporation or organization

88-0338315
(I.R.S. Employer Identification No.)

811 - 100 Park Royal South
West Vancouver, British Columbia
Canada V7T 1A2
(Address of principal executive offices, including postal code.)

(604) 913-9035
(Registrant's telephone number, including area code)

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

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by referenced in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [ ]

State issuer's revenues for its most fiscal year June 30, 2004: $373,569

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of September 24, 2004: $8,478,250

State the number of shares outstanding of each of the issuer's classes of common equity, as of September 24, 2004: 169,564,976

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, and 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. Biomass to Green Energy

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.

To this end, the Company has designed a complete system that will economically convert waste horse bedding (sawdust and manure) into electrical energy by creating and burning the micronized powder in combination with conventional boilers and power generating systems. The design will also accommodate any type of waste biomass as a feedstock, making it suitable for any operation which produces large quantities of waste biomass, such as racetracks, farming operations, poultry operations, sawmills, palm plantations, or furniture factories and others where feedstock is less than 60% moisture content. In July 2004, one machine was sold to a newly formed Malaysian company (of which FASC owns 50 %), to be used to process palm tree waste in Malaysia. Operation of that machine is expected to commence in September 2004.

2. 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. Trials and testing are being conducted by Alternative Green Energy Systems Inc (of which FASC owns 40%) at Atlantic Packaging Ltd's pulp mill in Whitby, Ontario.

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3. 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 "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.

Recent testing has been done processing and combusting munincipal secondary sludge with promising results. Further work on this application in conjunction with the local munincipality will continue into next fiscal year.

4. Commination (pulverizing) of mineral rock

When micronizing mineral rock, the process reduces the rock to a consistent fine dry powder as small as -600 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.

In March 2004, one machine was sold and delivered to a mining company in Utah. It is currently on site and expected to commence production in September 2004. In June 2004, another machine was sold and delivered to an mining company in Poland where it is currently being assembled. This machine is also expected to be operational by September 2004.

The company is a 25 % shareholder in a BC company ( United Zeolite Products Ltd. ) that has a contract to supply Halliburton Group Canada with CDN$5,000,000 of micronized zeolite over three years for Halliburton's oil well capping program. Two machines will be installed to service this contract in the fall 2004.

5. Re-cycling 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.

6. Recycling 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. Three machines were sold into this industry last year and are currently in operation.

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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.

Patents
Device and Method for Comminution - US Patent #6,024,307

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 pending in Canada, Europe, Malaysia and Japan.

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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 Vancouver, British Columbia, in Montreal and Whitby, Ontario by Alternative Green Energy Systems, Inc ("AGES"). Significant progress has been made converting biomass to a fine dry fuel which can be combusted in the dust burning system and some progress has been made processing pulp sludge at the Atlantic Packaging installation, but commercially viable production levels have not been achieved. Testing of hardened beater bar systems with various coatings and alloys for added strength has resulted increased bar life. Tests for the dewatering of food waste, municipal sewage, and animal wasted and the grinding of other materials continues. 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

Manufacturing of the KDS is contracted out to Vancouver Blower and Sheet Metal Fabrication Limited (VBS) in Vancouver, British Columbia. When needed, the Company sub- contracts VBS to construct a machine on a fixed price basis. . Two other backup manufacturers have been identified should demand increase beyond the capacity of VBSMF or if VBSMF is unwilling or unable to manufacture the KDS machine. Since the Company's inception, the Company has manufactured or subcontracted twelve KDS machines and to date, has sold nine.

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.

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On July 2, 1997, the Company purchased from Spectrasonic Corp all patents to be issued or pending, including all data pertaining to the patent process with respect to the KDS. Final payment to Spectrasonic of 1,000,000 common shares of the Company's stock valued at $0.25 per share was made on December 1, 1999 when unencumbered title to the patents passed to the Company.

Technology Licenses granted
Alternative Green Energy Systems Inc. - (40 % owned by FASC )

In February 2002, the Company granted a conditional license to AGES to manufacture and sell the KDS equipment for applications using biomass and/or pulp sludge. On February 21, 2004, that license expired. On February 23, 2004, the Company granted AGES a modified exclusive license for 21 years, 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.

FASC (Malaysia) SDN. BHD

In July 2004 the Company signed an agreement to form a joint venture within two Malaysian companies to construct a fully operational palm waste processing plant to be 100 % financed by the Malayian partners. Upon completion, the joint venture will be granted exclusive license for 21 years, to market the KDS equipment in Malaysia. In addition to earning royalties for all KDS equipment sold in Malaysia, FASC will share equally in the operating profits of the joint venture. A machine was purchased by the joint venture and shipped to Malaysia in August 2004.

Summary of Agreements
Green Leaf Fibre Company Ltd (Ireland)

In 1998, the Company entered into a research agreement with Green Leaf Fibre Company Ltd. of Northern Ireland and continued its research into sludge and animal waste processing at GLF's research site. The project was funded by Green Leaf and the Irish government under the Radian Award Program. Some progress was made with animal waste and with rubber, but not sufficient to meet economical viability. The KDS Model 150 has been stored in a warehouse in Castleblaney, Ireland and is being shipped to Vancouver for refurbishing. This contract has expired.

Organic Waste Returns Inc (Ireland)

In March 2002, we announced an agreement for the sale of two systems to Organic Waste Returns Inc., in Ireland. The first machine was delivered but not put into operation pending upgrades. Upgrades were made to a second machine in Vancouver. To date the second machine has not been delivered, and the first machine has not been put into production. We delayed delivery when it became apparent that the purchaser was unable to raise sufficient funds to meet final payment under the agreement. This sale did not close as the purchaser subsequently advised us that they were unable to raise sufficient funds to complete the project. This contract has expired

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Hollywood Park Racetrack (California)

In June 2002 our subsidiary AGES, received a request to prepare a detailed proposal to install a turnkey power generating system for Hollywood Park Racetrack of Inglewood California which would be fueled by horse manure processed through our KDS system. The preliminary report was successfully presented in August 2002, and the final quotation was presented in November 2002. Hollywood Park has considered our proposal and has indicated that they are still interested in purchasing and installing the equipment once they can arrange a suitable location and meet local government regulations.

Beaupre Explorations Ltd (Canada)

In August 2000, the Company entered into an agreement with Beau Pre Explorations Ltd, a Canadian mining company, to process ore from their mine through a KDS. Preliminary work to increase durability of chain system to handle hard rock was required. The Company hired Robert Salter Ph.D. to develop a new impact system, to protect the process with a new patent, and if successful, implement the program on Beaupre's mineral claims on Valentine Mountain. The re-design and patent process was completed with patent pending status obtained in May 2001, and testing continued throughout the summer of 2001. The patent was allowed on September 4, 2003, however, this project has not proceeded due to Beaupre's inability to raise the required funding. Therefore, the KDS machine was returned to the Company in June 2004. Should funding be procured, then this project will be re-opened. Beaupre advises that they are making new plans which, if realized, could reactivate the project.

Honeywell Inc. ( Canada )

In March 2001, the Company signed a letter of interest with Honeywell to determine how the KDS could fit into Honeywell's overall business plans for creation of energy from alternative green fuel sources. To date some work has been done with product provided by Honeywell's clients and initial tests have proven the systems ability to produce a useable end product, but not at sufficient volumes to be economically viable. Last year we announced our discussions with Honeywell had been put on hold pending more accurate scientific analysis of our process and completion of cost/benefit feasibility analysis. To date, no further discussions have been opened up with Honeywell.

Mikuniya Environmental Management Systems (Japan)

In 2002, we made two visits to Japan to present our equipment to interested purchasers. As a result, on December 5, 2002, we signed a one year agreement with Mikuniya Environmental Management Systems Institute Inc of Tokyo, Japan to represent the Company in developing a market for its KDS equipment in Japan. In January 2003, we hosted a delegation of five Japanese companies who have expressed serious interest in importing our equipment to Japan. In December 2003, the agreement with EMSI was not renewed, but EMSI advise that they remain interested in working with the us on an ad hoc basis.

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Alternative Green Energy Systems Inc. (Canada)

In October 2001, the Company signed an agreement with Thermix Combustion Systems Inc, a designer and manufacturer of computer controlled dust burning furnaces and systems. Under the agreement, the Company and Thermix Combustion combined their respective technologies for micronizing and burning wood waste/powder and jointly formed a corporation named the Alternative Green Energy Systems Inc. ("AGES"). AGES goal is 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.

In January 2002, a KDS machine was shipped to Montreal where it has been enhanced to adapt to the processing of biomass and pulp sludge. Subsequently, in March 2003, it was moved to Atlantic Packaging's pulp & paper recycling plant in Whitby, Ontario for testing on a trial basis. Scientific advancements were made, but commercially viable throughput volumes were not achieved with this small scale model.

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. The initial payment of CDN$600,000 was received in March 2002 and the balance of CDN$400,000 was received in March 2003.

Despite the inability to achieve sufficient volume with the small machine, on February 23, 2004, the Company granted AGES a modified license for the exclusive rights, 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.

Under the license agreement with AGES, the Company retains ownership of all patents for the KDS technology, and owns rights to all the research conducted by AGES. AGES must sell one machine per year or pay $25,000 in lieu to maintain the exclusive rights granted in the agreement.

The Company owns 40 % of the outstanding shares of AGES.

Mitsui Engineering & Shipbuilding Co. Ltd (Japan)

In July 2004, subsequent to the date of these statements, the Company entered into a collaboration agreement with Mitsui Engineering to evaluate the opportunity of Mitsui entering into a license agreement to introduce the KDS technology to Japan. Mitsui's review and analysis of the technology and the market is now underway.

Halliburton Group Canada

In March 2004, United Zeolite Products Ltd. received a purchase order from Halliburton Group Canada for the supply of CDN$5,000,000 worth of micronized zeolite over a three years period. The product is to be produced at UZP's facility in Princeton, BC which is currently under construction. The first delivery of product out of Princeton is expected in the fall of 2004.

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US Department of Energy Grant and USDA Grant

In 2003, the Company was awarded US$100,000 Phase I STTR grant by the US Dept of Energy and completed research for improving the drying component of its equipment. This research was successfully completed this year resulting in several significant advances being made to the technology. In 2004, the Company was also selected for a US$750,000 Phase II STTR research grant, but subsequent to the date of these statements, this grant was not awarded as the Company was determined not to be small US business pursuant to the rules of the Small Business Administration Act. However, the Company will be participating in a US Department of Agriculture funded project in conjunction with the University of Tennessee in the coming year.

The Waste and Resources Action Programme - UK (WRAP)

Subsequent to the date of these statements, on September 1, 2004, the Company signed a US$1,000,000 contract with WRAP, a UK government funded programme to support and improve markets for recycled materials in the UK. The contract provides for the purchase and installation on one complete "waste to energy KDS system" to be located at a soon to be identified industrial site in England. Funds will be provided by WRAP for equipment and its installation, market research, scientific research, re-design and adaptation of the equipment and supplementary systems for specific applications. Both FASC and AGES engineering staff will contribute to the project which will run for 18 months. 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.

Market

The KDS machine is 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 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.

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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 and demonstration site moved to 6473 64^th Street, 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

Alternative Green Energy Systems Inc (AGES) - 40 % owned

The Company owns 40% of the outstanding shares of common stock of Alternative Green Energy Systems Inc., a Canadian federally incorporated corporation ("AGES")

United Zeolite Products Ltd. (UZP) - 25 % owned

In February 2004, FASC became a 1/3 rd 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. The plant is currently under construction and expected to be operational this fall. UZP has a CDN$5,000,000 contract to supply of micronized zeolite to Halliburton Group Canada. Subsequent to the date of these statements, Thelon Ventures Ltd. committed CDN$450,000 in cash to UZP and became the fourth partner in UZP, thereby by reducing each of the partner's equity position to 25 % each of UZP's outstanding shares. The funds are to be used to complete the construction of the Princeton facility.

First American Power Corp. - 100 % owned

The Company owns 100% of the outstanding shares of common stock of First American Power Corp. FAPC was formed for the purpose of providing research and development services exclusively to the Company that are eligible for Canadian research and development credits.

FASC (Malaysia) Bhd. Sdn.

In July 2004, the Company signed an agreement to form a joint venture within two Malaysian companies to construct a fully operational palm waste processing plant to be 100 % financed by the Malayian partners. Upon completion, the joint venture will be granted exclusive license for 21 years, to market the KDS equipment in Malaysia. In addition to earning royalties for all KDS equipment sold in Malaysia, FASC will share equally in the operating profits of the joint venture. A machine was purchased by the joint venture and shipped to Malaysia in August 2004.

VMH VideoMovieHouse.com Inc - 0% owned as of September 1, 2002

On September 1, 2002, the Company spun off its wholly owned subsidiary VMH VideoMovieHouse.com Inc ("VMH") a British Columbia corporation, to holders of the Company's common stock on June 30, 2002. Each Company shareholder received one share of VMH's common stock for each ten shares of the Company's common stock held on June 30, 2002. The Company shareholders did not receive cash in lieu of fractional shares, but fractional shares were rounded up to the next whole share. The Company has no further interest in VMH.

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Pending Contracts
Atlantic Packaging Ltd

During the quarter ended December 31, 2002, AGES entered into a contingent sales agreement and delivered one machine to Atlantic Packaging Ltd. in which it gave a six-month trial period of the KDS machine. The trial period has been extended indefinitely. Atlantic Packaging have advised us that they will not purchase this small machine, but that they remain open to the possible purchase of a large scale machine when it becomes available. In the meantime, the machine remains at Atlantic Packaging's plant for further testing.

Employees

The Company currently has six full-time employees, including Messrs. Nichols and Kantonen members of the board of directors, and retains outside consultants when necessary.

Other

During the fiscal period ending June 30, 2004, 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.

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.

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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, 2004, there were 169,564,976 shares of common stock or 84.7 % of the 200,000,000 authorized shares of Common Stock of the Company outstanding and 30,435,024 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.

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.

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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 engaged in transactions with its Officers, Directors and principal shareholders. Such transactions may be considered as not having occurred at arms length. The Company will be engaged in transactions with management and others involving conflicts of interest, including conflicts on salaries and other payments to such parties.

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 annual basis. The rent is US$1,100 per month which has been pre-paid until March 2005.

In July 2003, the Company leased a new sales office at 6473 64 ^thStreet, Delta, British Columbia, Canada containing 900 square feet plus a 1000 square feet covered area for the KDS equipment. The sales office is sub-leased from Aquadine Industries Ltd under a two year sub-lease agreement. The monthly rental is US$700 which has been pre-paid until June 2005.

On June 30, 2004, the Company owned four KDS machines. One machine is being stored in Northern Ireland. Two machines are located at Vancouver Blower as inventory. One machine is located at the Delta demonstrations center and is being used as a test and demonstration machine. A fifth machine is owned by AGES and is housed at Atlantic Packaging Ltd in Whitby, Ontario, Canada where it is being used for testing and for demonstrations. Subsequent to the date of these statements, in August 2004, one of the machines in inventory was sold to our Malaysian subsidiary for cash. Two of the other machines are destined to be installed in Princeton to process zeolite for Halliburton, leaving one machine remaining in inventory. Two new machines will be built this quarter, of which one is sold and will go to England under our contract with WRAP.

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The Company had other fixed assets located in Bakersfield, California. The net book value of these assets was US$112,176 and consisted of bagging equipment, hoppers, electrical paneling, site preparation, paving, construction of building, and general storage bins. At June 30, 2002, these were totally impaired. The Company has office furniture and equipment costing $47,874 located in Delta British Columbia, Canada and West Vancouver, British Columbia, Canada.

The Company's registered office is # 700 - 101 Convention Center Drive, Las Vegas, Nevada 89109.

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 $3,549.96, plus attorneys' fees and costs for failure to pay on a lease executed by the Company. No trial date has been set and discovery has been propounded by plaintiff. Management would like to settle this matter prior to trial. Plaintiff has made an offer to settle for $3,549.96, 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.

Interface Consultants Ltd. commenced an action in the Supreme Court of BC in July 2004 to collect CDN$28,555 they claim is owed for services they rendered to the Company in 1998. The Company denies any liability and counter-claims for costs stating that the services were never performed and that the action is frivolous.

The Company has a number of other commercial creditors who have the ability to bring actions to recover money due them. Some of these claims will entitle the creditor to attorneys' fees spent in recovering these funds. The Company offered settlements on approximately $24,000 of trade payables which were outstanding for more than five years. None of these creditors have initiated lawsuits or further claims. There are currently no further discussions or actions contemplated concerning these disputed trade payables.

ITEM 4. SUBMISSION OR MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of shareholders in the fourth quarter of 2004.

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:

-15-

Quarter ended		High	Low
2002	September 30 December 31	0.085 0.05	0.06 0.085

2003	March 31 June 30 September 30 December 31	0.075 0.07 0.06 0.07	0.051 0.034 0.04 0.04

2004	March 31 June 30	0.06 0.11	0.04 0.05

The Company has no outstanding options or warrants, or other securities convertible into, common equity other than as disclosed herein. Of the 169,564,976 shares of common stock outstanding as of June 30, 2004, all are free trading with the exception of 13,084,400 shares which may only be resold in compliance with Rule 144 of the Securities Act of 1933.

At September 2, 2004, the Company had 5,674 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.

-16-

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.

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 or expired, 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 or expired, 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 7,055,600 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 9,918,600 shares have been granted, leaving 81,400 shares available for issuance under the Plan.

-17-

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	2001 2001A	None -0- -0-	None -0- -0-	None -0- -0-
not approved by securities holders	2003 2004	-0- 3,364,600	-0- $0.05	-0- 81,400
Total		6,309,000		81,400

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 and are now entering our marketing phase. We are the owner of the KDS disintegration technology which is patented in the USA, Canada, UK, Europe, Mexico, Australia, and New Zealand. During the year, applications for two new process patents, one for the cryogenic freezing and shattering scrap rubber and one for extraction of precious metals from hard rock using our equipment have been issued. One other patent application for drying and recovery of fuel and clay from biomass using our equipment has been submitted and is pending status.

On June 30, 2004, we had current assets of $345,757 and current liabilities of $77,618 compared to June 30, 2003, when we had current assets of $306,696 and current liabilities of $178,315. Our working capital ratio on June 30, 2004 was 4.45:1 compared to June 30, 2003 when it was 1.72:1. Cash on hand as of June 30, 2004 was $59,822 down from $64,762 on June 30, 2003. This represents a significant improvement.

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 has met this minimum sales target of two sales for 2004, and has already as of the date of writing this report sold two additional machines for the first quarter of 2005, well ahead of this minimum.

In February 2004, AGES was granted a new 21 year exclusive license to design, manufacture and sell a large scale KDS machine for exclusive use in the pulp & paper industry in Canada, the USA and Europe. The Model 250 test machine remains at Atlantic Packaging Ltd.'s paper recycling facility in Whitby, Ontario as a for demonstration purposes. It will not be purchased by AP as it has proved to be too small for there needs, however, AP remains interested in working with us in developing a large scale machine which is currently on the drawing board. New funding will have to be obtained before construction can proceed. Several avenues are under consideration. FASC owns 40 % of the outstanding shares of AGES and holds two out of five seats on its Board of Directors.

-18-

In February 2004, FASC became a one third 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. The plant is currently under construction and expected to be operational this fall. UZP has a $5,000,000 Cdn contract to supply of micronized zeolite to Halliburton Group Canada. Subsequent to the date of these statements, Thelon Ventures Ltd. committed CDN$450,000 in cash to UZP and became the fourth partner in UZP, thereby by reducing each of the partner's 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 first delivery of product out of Princeton is expected in the fall of 2004.

Our auditors have issued a going concern statement because they believe that we have not proven sufficient cash flow for us to maintain our operation for the next year. Consequently, our management may have to seek additional capital from new equity securities offerings, loans, or other fund raising activities to maintain our operation should sales and receipt of receivables not materialize. In the short term, some relief has come from loans from our officers and by the deferment of payment of officers' salaries. This cannot be expected to continue indefinitely.

As of June 30, 2004, there were 169,564,976 shares issued and outstanding.

Results of Operations - Year ending June 30, 2004

Revenue for the year ended June 30, 2004 was $373,569 compared to $200,834 for last year. This year's sales included the sale of two machines.

Net losses for the year ending June 30, 2004 were $886,688 or $0.01 per share compared to the year ending June 30, 2003 when they were $1,371,252 or $0.01 per share. Continued efforts to control and reduce operating costs and increase sales are being made. We sold two systems in the fourth quarter of 2004, and an additional two systems in the first quarter of 2005. Other sales are in the discussion stage.

The forming of a joint venture corporation (UZP) and the acceptance of the fourth partner ensures they will be in a position to service the requirements of the Halliburton contract while retaining a share of the profits in addition to our royalties. We believe this is the best business model to benefit from the technology.

The sale of equipment and license granted to First American Scinetific Corp's joint venture partners represents our first entry into the Asian market. If successful, we could sell a significant number of systems to the palm industry there, and form a base to enter other countries in that region. By retaining a 50 % interest in the Malaysian joint venture, we ensure control over use of our patents and will share in profits generated from the project in addition to receiving royalties.

-19-

The collaboration agreement with Mitsui Engineering is the result of two years of work developing relationships in Japan. We believe Mitsui's expertise and stature in the world markets can be particularly valuable to us in Japan and in other countries where Mitsui has a presence.

Despite AGES inability to achieve sufficient volume with the small machine to satisfy their clients, we granted them a modified license for the exclusive right 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. They are continuing with their efforts to commercialize the equipment for the pulp industry.

We continue to focus on improving the KDS equipment's processing capacity and commercial viability 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 much needed sales.

Research and testing of animal waste, food waste, sewage, mineral rock, alluvial clay, zeolite, and glass continues. We have achieved economically viable production levels with chicken and horse manures, and are currently seeking suitable candidates interested in purchasing our equipment. We were received a research grant by the US Department of Energy, the "Small Business Technology Transfer (STTR) - Phase I Award." for US$84,000 and have completed all research with ONRL Some new and valuable data was discovered. Even though selected, we did not qualify to receive the Phase II award as we do not have a primary place of business in the USA. We intend to remedy this deficiency and re-apply next year.

We also received a CDN$13,250 research grant from the Canadian National Research Council which was spent testing coatings for improving hardness of our beater bars. Some useful new data was obtained from hardness testing at the University of BC and at our own facility.

We have closed our files on Beaupre Explorations Ltd, Hollywood Park Racetrack, Organic Waste Returns Ltd, and Honeywell Inc, as there has been no activity on them for quite sometime and because the agreements have expired. If interest resumes, we will re-open our discussions with these Customers. We are returning the Model 150 machine currently stored in Ireland to Vancouver for refurbishing which will be added to inventory ready to be sold.

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 serve as administrative and rent a sales offices and demonstration facility in Delta, British Columbia. AGES rents office space in Montreal, Quebec.

-20-

Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" (hereinafter "SFAS No. 150"). SFAS No. 150 establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those instruments were classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has not yet determined the impact of the adoption of this statement.

In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (hereinafter "SFAS No. 149"). SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 is not expected to have a material impact on the financial position or results of operations of the Company.

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (hereinafter "SFAS No. 148"). SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of the statement effective for financial statements for fiscal years ending after December 15, 2002, are not expected to impact the Company's financial statements.

The Company currently reports stock issued to employees under the rules of SFAS No. 123. Accordingly, there is no change in disclosure requirements due to SFAS No. 148.

In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (hereinafter "SFAS No. 146"). SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS No. 146 also addresses recognition of certain costs related to terminating a contract that is not a capital lease, costs to consolidate facilities or relocate employees, and termination benefits provided to employees that are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract.

SFAS No. 146 was issued in June 2002 and is effective for activities after December 31, 2002. There has been no impact on the Company's financial position or results of operations from adopting SFAS No. 146.

-21-

In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 145, "Rescission of SFAS Statements No. 4, 44 and 64, Amendment of SFAS Statement No. 13, and Technical Corrections" (hereinafter "SFAS No. 145"), which updates, clarifies and simplifies existing accounting pronouncements. SFAS No. 4, which required all gains and losses from the extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related tax effect was rescinded. As a result, SFAS No. 64, which amended SFAS No. 4, was rescinded, as it was no longer necessary. SFAS No. 145 amended SFAS No. 13 to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Company adopted SFAS No. 145 which did not have a material effect on the financial statements of the Company.

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (hereinafter "SFAS No. 144"), "Accounting for the Impairment of Long-Lived Assets", which requires a single accounting model to be used for long-lived assets to be sold and broadens the presentation of discontinued operations to include a "component of an entity" (rather than a segment of a business). A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. A component of an entity that is classified as held for sale, or has been disposed of, is presented as a discontinued operation if the operations and cash flows of the component will be (or have been) eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations of the component.

The Company adopted SFAS No. 144 effective August 1, 2001. Consequently, the operating results of VideoMovieHouse.com Inc. which was spun off in 2002 and are included in discontinued operations. Assets and liabilities of VideoMovieHouse.com Inc. are included in net assets distributed to subsidiary at June 30, 2002.

In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (hereinafter "SFAS No. 143"). SFAS No. 143 establishes guidelines related to the retirement of tangible long-lived assets of the Company and the associated retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived assets. This statement is effective for financial statements issued for the fiscal years beginning after June 15, 2002. The Company adopted SFAS No. 143 and the adoption did not have a material impact on the financial statements of the Company at June 30, 2003.

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (hereinafter "SFAS No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (hereinafter "SFAS No. 142"). SFAS No. 141 provides for the elimination of the pooling-of-interests method of accounting for business combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142 prohibits the amortization of goodwill and other intangible assets with indefinite lives and requires periodic reassessment of the underlying value of such assets for impairment. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. On June 30, 2001, the Company adopted SFAS No. 142. Application of the nonamortization provision of SFAS No. 142 resulted in no change to reported earnings in fiscal 2003 or 2002 as the Company does not have recorded assets with indeterminate lives.

-22-

ITEM 7. FINANCIAL STATEMENTS
Table of contents

Independent Auditor's Report	F-1
Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations and Comprehensive Income (Loss) Consolidated Statement of Stockholders' Equity Consolidated Statements of Cash Flows	F-2 F-3 F-4 F-5
Notes to Consolidated Financial Statements	F-6

-23-

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, 2004 and 2003, 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 audit.

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, 2004 and 2003 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.

/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
July 22, 2004

F-1

-24-

FIRST AMERICAN SCIENTIFIC CORP.
CONSOLIDATED BALANCE SHEETS

June 30,

June 30,

ASSETS

2004

2003

CURRENT ASSETS

Cash

$

59,822

$

64,762

Accounts receivable, net of allowance

78,626

3,019

Sales tax refunds

-

24,876

Prepaid expenses

16,867

23,597

Inventory

190,442

190,442

TOTAL CURRENT ASSETS

345,757

306,696

PROPERTY AND EQUIPMENT

Property and equipment

170,785

306,473

Less: Accumulated depreciation

(85,651)

(145,867)

TOTAL PROPERTY AND EQUIPMENT

85,134

160,606

OTHER ASSETS

Technology rights, net of amortization

1,025,742

1,152,743

Patents and manufacturing rights, net of amortization

160,394

171,884

Research and development refund receivables

-

83,085

Deposits

71

166

TOTAL OTHER ASSETS

1,186,207

1,407,878

TOTAL ASSETS

$

1,617,098

$

1,875,180

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable and accrued expenses

$

77,618

$

178,315

TOTAL CURRENT LIABILITIES

77,618

178,315

LONG-TERM LIABILITIES

Notes and wages payable to related parties

230,584

110,276

TOTAL LONG-TERM LIABILITIES

230,584

110,276

COMMITMENTS AND CONTINGENCIES

-

MINORITY INTEREST IN SUBSIDIARY

-

225,116

STOCKHOLDERS' EQUITY

Common stock - $.001 par value,

200,000,000 shares authorized; 169,564,976 and

152,646,376 shares issued and outstanding, respectively

169,565

152,646

Additional paid-in capital

11,972,976

11,200,120

Stock options

254,291

204,831

Accumulated deficit

(11,077,014)

(10,190,326)

Accumulated other comprehensive loss

(10,922)

(5,798)

TOTAL STOCKHOLDERS' EQUITY

1,308,896

1,361,473

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,617,098

$

1,875,180

The accompaning 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,
				2004		2003
REVENUES			$	373,569	$	200,834
COST OF SALES				178,971		150,000
GROSS PROFIT (LOSS)				194,598		50,834

OPERATING EXPENSES
	Advertising			43,962		37,214
	Amortization and depreciation			189,861		205,995
	Consulting			151,561		136,332
	Professional services			164,783		156,116
	Wages			542,535		536,060
	Research and development			126,867		109,531
	General and administration			99,969		177,973
	Bad debt expense			-		119,046
	Rent			22,441		32,668
	Loss on impairment of assets			-		152,732
		Total Operating Expenses		1,341,979		1,663,667

LOSS FROM CONTINUING OPERATIONS				(1,147,381)		(1,612,833)

OTHER INCOME (EXPENSE)
	Government grant			91,908		-
	Interest expense			(9,130)		-
	Income from change in accounting for AGES			177,915		-
		Total Other Income (Expense)		260,693		-

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES				(886,688)		(1,612,833)
INCOME TAXES				-		-
NET LOSS FROM CONTINUING OPERATIONS BEFORE
	ALLOCATION TO MINORITY INTEREST			(886,688)		(1,612,833)
ALLOCATION OF LOSS TO MINORITY INTEREST				-		318,463
LOSS FROM DISTRIBUTED SUBSIDIARY				-		(76,882)
NET LOSS				(886,688)		(1,371,252)

OTHER COMPREHENSIVE INCOME (LOSS)
	Foreign currency translation gain (loss)			(5,124)		4,045

COMPREHENSIVE NET LOSS			$	(891,812)	$	(1,367,207)
	NET LOSS PER COMMON SHARE,
		BASIC AND DILUTED FROM CONTINUING OPERATIONS	$	(0.01)	$	(0.01)
	NET LOSS PER COMMON SHARE,
		BASIC AND DILUTED FROM DISTRIBUTED SUBSIDIARY	$	nil	$	nil
	WEIGHTED AVERAGE NUMBER OF COMMON SHARES
		OUTSTANDING, BASIC AND DILUTED		164,934,976		147,600,687

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

F-3

-26-

FIRST AMERICAN SCIENTIFIC CORP. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
											Accumulated Other
				Additional							Comprehensive			Total
	Common Stock			Paid-in		Stock		Accumulated			Income			Stockholders'
	Shares	Amount		Capital		Options		Deficit			(Loss)			Equity
Balance, June 30, 2002	142,213,018	$	142,213	$	11,105,694	$	195,780		$	(9,151,400)		$	(9,843)	$	2,282,444

Distribution to shareholders of VideoMovieHouse.com Inc.,
a former wholly owned subsidiary	-		-		(523,827)		-			332,326			-		(191,501)

Options issued for compensation	-		-		-		56,870			-			-		56,870

Common stock issued for cash at $0.06 per share	505,747		506		29,494		-			-			-		30,000

Common stock issued for consulting services at $0.06 per share	1,529,489		1,529		95,296		-			-			-		96,825

Common stock issued as compensation at $0.06 per share	5,558,455		5,558		352,603		(47,819)			-			-		310,342

Common stock issued for legal fees at $0.05 per share	750,000		750		37,000		-			-			-		37,750

Common stock issued for professional services at $0.05 per share	225,000		225		10,825		-			-			-		11,050

Common stock issued for prepaid rent at $0.05 per share	400,000		400		19,600		-			-			-		20,000

Common stock issued for prepaid lease at $0.06 per share	166,667		167		9,833		-			-			-		10,000

Common stock issued for debt at $0.05 per share	1,298,000		1,298		63,602		-			-			-		64,900

Foreign currency translation gain	-		-		-		-			-			4,045		4,045

Net loss for the year ended June 30, 2003	-		-		-		-			(1,371,252)			-		(1,371,252)
Balance, June 30, 2003	152,646,376		152,646		11,200,120		204,831			(10,190,326)			(5,798)		1,361,473

Common stock issued for cash at $0.04 per share	800,000		800		45,200		-			-			-		46,000
Options issued for expenses, compensation & consulting	-		-		-		83,060			-			-		83,060

Common stock issued and exercise of options
for services at $0.04 per share	6,560,000		6,560		260,380		(12,600)			-			-		254,340

Common stock issued as repayment of debt	400,000		400		39,600		-			-			-		40,000

Common stock issued for services at $0.048 per share	455,000		455		20,410		-			-			-		20,865

Common stock issued for services at $0.05 per share	1,850,000		1,850		90,650		-			-			-		92,500

Common stock issued and options exercised
as compensation at $0.04 per share	6,213,600		6,214		287,256		(21,000)			-			-		272,470

Common stock issued for rent expense at $0.05 per share	340,000		340		14,660		-			-			-		15,000

Common stock issued in payment of financing
expense at $0.05 per share	300,000		300		14,700		-			-			-		15,000

Foreign currency translation loss	-		-		-		-			-			(5,124)		(5,124)

Net loss for the year ended June 30, 2004	-		-		-		-			(886,688)			-		(886,688)
Balance, June 30, 2004	169,564,976	$	169,565	$	11,972,976	$	254,291		$	(11,077,014)		$	(10,922)	$	1,308,896

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

F-4

-27-

FIRST AMERICAN SCIENTIFIC CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS
			Year Ended June 30,
				2004		2003
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss		$	(886,688)	$	(1,371,252)
	Discontinued operations			-		76,882
	Loss allocated to minority interest			-		(318,463)
				(886,688)		(1,612,833)
	Depreciation and amortization			172,424		205,995
	Impairment and disposal of assets			-		7,758
	Impairment of inventory			-		150,000
	Bad debt expense			-		119,046
	Stock and options issued for services and compensation			723,235		310,342
	Stock issued for services			-		145,625
	Stock issued for rent			15,000		20,000
	Stock issued for services and current debt			-		64,900
	Stock issued for interest expense			15,000		-
	Options issued for compensation			49,460		-
	Options issued for services			-		56,870
	Income for change in accounting for AGES			(177,915)		-
	Adjustments to reconcile net loss to net cash
		provided (used) by operations:
		Decrease (increase) in accounts receivable		(75,607)		8,867
		Decrease (increase) in taxes and tax credits		107,961		3,081
		Increase (decrease) in deposits for sales		-		100
		Decrease (increase) in inventory		87,081		150,000
		Decrease (increase) in deposits and prepaid expenses		95		(12,331)
		Increase (decrease) in accounts payable		(139,277)		50,435
		Increase (decrease) in commitments		-		(6,127)
		(Decrease) increase in payable to related parties		37,981		70,000
Net cash provided (used) by operating activities				(71,250)		(268,272)
CASH FLOWS FROM INVESTING ACTIVITIES
		Purchase of equipment		(40,846)		(9,359)
		Investments		(44,950)		-
		Investment in technology rights and patents		(6,503)		(16,224)
		Investment in discontinued operations		-		14,143
Net cash provided (used) in investing activities				(92,299)		(11,440)
CASH FLOWS FROM FINANCING ACTIVITIES
		Repayment of debt, related party		(9,184)		(20,315)
		Proceeds from borrowing		40,000		51,415
		Proceeds from borrowing, related parties		86,091		54,176
		Cash provided by minority interest		-		101,531
		Proceeds from sales of stock		46,000		30,000
Net cash provided by financing activities				162,907		216,807
NET INCREASE (DECREASE) IN CASH				(642)		(62,905)
Other comprehensive gain (loss) - foreign currency translation				(4,298)		1,523
CASH - Beginning of year				64,762		126,144
CASH - End of period			$	59,822	$	64,762
SUPPLEMENTAL CASH FLOW DISCLOSURES:
	Interest expense		$	-	$	-
	Income taxes		$	-	$	-
NON-CASH FINANCING AND INVESTING TRANSACTIONS:
	Common stock issued for services and compensation		$	723,235	$	310,342
	Common stock issued for rent		$	15,000	$	20,000
	Common stock issued for services		$	-	$	145,625
	Distribution of VMH VideoMovieHouse in spin-off		$	-	$	(191,501)
	Stock issued for accounts payable and current debt		$	-	$	64,900
	Options issued for services		$	49,460	$	-
	Options issued for compensation		$	-	$	56,870
	Common stock issued for interest expense		$	15,000	$	-
	Common stock issued for equipment lease		$	-	$	10,000

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

F-5

-28-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004
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 West Vancouver, British Columbia, Canada and a demonstration and sales office in Cloverdale, British Columbia, Canada.

During the year ended June 30, 2004, the Company entered into an agreement with Zeo-Tech Enviro Corp, ("ZEO") United Zeolite Products Ltd. ("United") and CZC Zeolite Corporation Ltd. ("CZC") to restructure United Zeolite Products Ltd. so that FASC, CZC and ZEO each own one-third of United. See Note 10.

The Company formed Alternative Green Energy Systems, Inc. (hereinafter "AGES") in 2002 for the purpose of using FASC's licensed technology and patents to manufacture, sell, operate and use KDS machines in combination with available expertise in wood dust burning technology. The Company reported financial information from AGES on a consolidated basis due to its control of AGES. During the three months ended March 31, 2004, the Company sold the use of its technology and a KDS machine to AGES thereby giving up control in AGES. Accordingly, the Company after that quarter reports its investment in AGES using the equity method. See Note 10.

In September 1999, the Company entered into an agreement with VMH VideoMovieHouse.com Inc., (hereinafter "VMH"), a British Columbia company, whereby the Company acquired 100% of the common shares and the technology of VMH in return for a cash consideration of $250,000. VMH possesses domain names, a web page, and technology for the sale of videos, DVD's, and CD's through the internet. In 2001, the Company elected to spin-off VMH into its own separate entity, which became a fully reporting OTC publicly traded company in August 2002. See Notes 7 and 11.

The Company formed First American Power Corp., formerly 521345 BC Ltd., a wholly owned subsidiary, in 1998 in order to provide research and development services eligible for Canadian research and development credits exclusively to FASC and, when feasible, to operate a profitable production facility in Canada.

The Company's year-end is June 30^th.

F-6

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FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

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.

Impairment of Long-Lived Assets
In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (hereinafter "SFAS No. 144"). SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." This standard establishes a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations. SFAS No. 144 requires that these long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. This statement is effective beginning for fiscal years after December 15, 2001.

In complying with this standard, the Company reviews its long-lived assets quarterly to determine if any events or changes in circumstances have transpired which indicate that the carrying value of its assets may not be recoverable. The Company determines impairment by comparing the present value of future cash flows estimated to be generated by its assets to their respective carrying amounts.

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 $11,077,014 through June 30, 2004 and has limited cash resources. The Company recorded increased sales during the year ended June 30, 2004, but generated a net loss of $886,688. 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 with AGES.

F-7

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FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

Management intends to seek new capital from new equity securities offerings that will, 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.

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

Advertising Expenses
Advertising expenses consist primarily of costs incurred in the design, development, and printing of Company literature and marketing materials. The Company expenses all advertising expenditures as incurred. The Company's advertising expenses were $43,962 and $37,214, for the years ended June 30, 2004 and 2003, respectively.

Derivative Instruments
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" and SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". These statements establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value.

If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.

Historically, the Company has not entered into derivatives contracts to hedge existing risks or for speculative purposes.

At June 30, 2004, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities.

F-8

-31-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

Loss Per Share
In June 1999, the Company adopted Statement of Financial Accounting Standards Statement No. 128, "Earnings Per Share." Basic earnings (loss) per share is computed using the weighted average number of common shares outstanding. Diluted net loss per share for FASC is the same as basic net loss per share, as the inclusion of common stock equivalents would be antidilutive.

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.

Historically, FASC has owned 40% of the outstanding shares of AGES, as well ownership of all AGES technology. AGES's license to use the technology was conditional upon it meeting certain conditions. Because, as of June 30, 2003, these conditions had not been met, FASC was deemed to be in a position of control and AGES was treated as a majority owned subsidiary of FASC with its financial statements consolidated with FASC.

During the year ended June 30, 2004, the agreement between FASC and AGES was renegotiated. Under the new agreement, AGES purchased the aforementioned technology and a KDS machine for $100,000. As a consequence of this transaction, it was determined that FASC no longer controlled AGES and that FASC will in this and future financial statements report its investment in AGES using the equity method. Its investment in AGES has been offset against net losses generated by AGES. See Note 10.

Minority Interest
At December 31, 2003, minority shareholders held a 60% interest in AGES. The related minority interest is shown on the accompanying consolidated balance sheet at June 30, 2003 when FASC had financial and management control of AGES. See Note 10.

Cash and Cash Equivalents
For purposes of its statement of cash flows, the Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents.

Prepaid Expenses
Prepaid expenses consist of facility rent paid in advance and at June 30, 2003 also included an equipment operating lease paid one year in advance. These prepaid expenses will be amortized as used.

Fair Value of Financial Instruments
The carrying amounts for cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair value.

F-9

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FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

Concentration of Risk
The Company maintains its cash accounts in primarily one commercial bank in Vancouver, British Columbia, Canada. The Company's cash accounts are business checking accounts in Canadian and United States dollars. The United States dollar account which had a balance of $26,361 at June 30, 2004 is not insured.

Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are translated into U.S. dollars at the period-end exchange rates, and revenue and expenses are translated at the average exchange rates during the period. Exchange differences arising on translation are disclosed as a separate component of shareholders' equity. Realized gains and losses from foreign currency transactions are reflected in the Company's results of operations.

Provision for Taxes
Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (hereinafter "SFAS No. 109"). Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the "more likely than not" standard imposed by SFAS No. 109 to allow recognition of such an asset. At June 30, 2004, the Company had net deferred tax assets of approximately $2,377,000 principally arising from net operating loss carryforwards, at an expected rate of 34%, for income tax purposes. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been established at June 30, 2004. The change in the deferred tax asset valuation allowance from June 30, 2003 to June 30, 2004 was $346,000.

The significant components of the deferred tax asset at June 30, 2004 and June 30, 2003 were as follows:

		June 30, 2004		June 30, 2003
Net operating loss carryforward	$	6,990,000	$	5,975,000
Stock options issued under a non-qualified plan:
For the year ended June 30, 2004	$	49,460		-
For the year ended June 30, 2003		-	$	203,000

Deferred tax asset	$	2,377,000	$	2,031,000
Deferred tax asset valuation allowance	$	(2,377,000)	$	(2,031,000)

F-10

-33-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

At June 30, 2004, the Company has net operating loss carryforwards of approximately $6,990,000, which expire in the years 2015 through 2024. The Company recognized approximately $49,460 of expenses from issuance of stock options for services in fiscal 2004, which are not deductible for tax purposes and are not included in the above calculation of deferred tax assets.

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.

Compensated Absences
Employees of the Company are entitled, by Canadian law, for paid time off equal to four percent of their wages. At June 30, 2004, the accrued amount is approximately $19,000.

Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (hereinafter "SFAS No. 131") during the second quarter of 1999. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available, evaluated regularly by the chief operating decision makers, or a decision making group, in deciding how to allocate resources and in assessing performance. At August 2002, because of the spin-off of VMH, the Company no longer has more than one operating segment.

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

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.

Accounts Receivable
The Company carries its accounts receivable at cost less an allowance for doubtful accounts. At June 30, 2004, accounts receivable were $78,626 with no allowance for doubtful accounts.

F-11

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FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

The Company's policy is to accrue interest on trade receivables 30 days after invoice date. A receivable is considered past due if payments have not been received by the Company for 90 days. Every effort is made to collect on the accounts or to take possession of the equipment.

During the year ended June 30, 2004, the Company had $373,569 in revenue from the sale of two machines and related services.

During the year ended June 30, 2003, the Company sold three used KDS machines for $178,000 plus tax. These machines were all delivered and paid for by June 30, 2003. A receivable from one sale recorded in the year ended June 30, 2002 was fully reserved at June 30, 2003.

Reimbursements for Research and Development
The Canadian Government offers incentives to taxpayers carrying out scientific research and experimental development. The Canadian Government encourages Canadian companies to investigate ways of providing better products and better processing using advanced technologies. A 35% research and development reimbursable credit is available for Canadian owned companies with less than $200,000 taxable income in the previous year. AGES prepared the forms and submitted to Revenue Canada for its reimbursement of $83,085 for the year ended June 30, 2002. The research and development expenses attributed to this reimbursement are included in the Company's net loss for the U.S. income tax calculation. During the year ended June 30, 2004, the Company received cash reimbursement of $82,840 from the Canadian Government for the year ended June 30, 2002.

Sales Tax Refunds
The Canadian Government taxes goods and services when purchased. These taxes, when paid, can be offset against taxes due from the sales of goods and services by the Company. Any sale outside of Canada is not taxed for this purpose. At the end of each quarter, all taxes paid on goods and services purchased are netted against the taxes due on sales of goods and service sold. If the Company has paid more tax than it owes, then the Company is due a refund.

Inventory
Inventories are stated at the lower of average cost or net realizable value. The cost of finished goods includes the cost of raw material, direct and indirect labor and other indirect manufacturing costs.

The components of inventory are as follows:

	June 30, 2004		June 30, 2003
Finished goods - KDS machines	$	190,442	$	190,442
	$	190,442	$	190,442

F-13

-35-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

Machines sold during the year ended June 30, 2004 were reclassified from equipment to inventory at cost.

During the year ended June 30, 2003, the Company determined that the value of the three used KDS machines should be further reduced to $50,000 each, thereby resulting in an aggregate impairment charge of $150,000. See Note 3. There were no further impairments for the year ended June 30, 2004.

Recent Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" (hereinafter "SFAS No. 150"). SFAS No. 150 establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those instruments were classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company determined that there was no impact on the Company's financial statements from the adoption of this statement.

Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (hereinafter "SFAS No. 130"). SFAS 130 establishes standards for reporting and displaying comprehensive income, its components and accumulated balances. SFAS No. 130 is effective for periods beginning after December 15, 1997. The Company adopted this accounting standard and its adoption is reflected in the accompanying financial statements.

Reclassifications
Certain prior year amounts in the accompanying financial statements have been reclassified to conform to the fiscal 2003 presentation. See Note 11.

NOTE 3 - PROPERTY AND EQUIPMENT

In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (hereinafter "SFAS No. 143"). SFAS No. 143 establishes guidelines related to the retirement of tangible long-lived assets of the Company and the associated retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived assets. This statement is effective for financial statements issued for the fiscal years beginning after June 15, 2002. The Company adopted SFAS No. 143 and the adoption did not have a material impact on the financial statements of the Company.

F-14

-36-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (hereinafter "SFAS No. 144"), "Accounting for the Impairment of Long-Lived Assets," which requires a single accounting model to be used for long-lived assets to be sold and broadens the presentation of discontinued operations to include a "component of an entity" (rather than a segment of a business). A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. A component of an entity that is classified as held for sale, or has been disposed of, is presented as a discontinued operation if the operations and cash flows of the component will be (or have been) eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations of the component. The Company adopted SFAS No. 144 effective August 1, 2001. Consequently, the operating results of VMH, which was spun off in 2002, are included in discontinued operations.

Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. The useful lives of property, plant and equipment for purposes of computing depreciation is five years.

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

	June 30, 2004			June 30, 2003
Kinetic disintegration equipment (KDS)	$	81,993	$	240,865
Plant assets and equipment		56,424		24,359
Office equipment		32,368		41,249
Total assets		170,785		306,473
Less accumulated depreciation		(85,651)		(145,867)
	$	85,134	$	160,606

Depreciation expense for the year ended June 30, 2004 and the year ended June 30, 2003 was $46,870 and $62,320, respectively. The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired. The Company determines impairment by comparing the present value of future cash flows estimated to be generated by these assets to their respective carrying amounts. Maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. The cost and related reserves of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in results of operations.

In the second quarter of 2003, the Company's management changed the estimated value of three machines to a net realizable value of $50,000 each based on the final physical assessment of the machines upon arrival in Vancouver, British Columbia. These machines needed substantially more reconditioning prior to sale or needed to be sold "as is" at a much lower price. Since the Company's inventory is recorded at the lower of cost or net realizable value, the write-down of these machines prior to their sale was included in other expenses. This treatment is consistent with the write-down of the same equipment in the prior year in an attempt to correctly value the machines for sale and for comparative purposes in connection to the transfer from plant to inventory classification. The Company recognized an impairment expense at June 30, 2003 of $152,732.

F-15

-37-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

NOTE 4 - TECHNOLOGY RIGHTS AND PATENTS

Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (hereinafter "SFAS No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (hereinafter "SFAS No. 142"). SFAS No. 141 provides for the elimination of the pooling-of-interests method of accounting for business combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142 prohibits the amortization of goodwill and other intangible assets with indefinite lives and requires periodic reassessment of the underlying value of such assets for impairment. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. On June 30, 2001, the Company adopted SFAS No. 142. Application of the nonamortization provision of SFAS No. 142 resulted in no change to reported earnings in the years ended June 30, 2004 and June 30, 2003, as the Company does not have recorded assets with indeterminate lives.

Technology Licenses
On June 22, 1995, the Company entered into a license agreement with Spectrasonic Corp. (hereinafter "Spectrasonic"), a related party, for the worldwide license to its unpatented Kinetic Disintegration Equipment ("KDS") for use in rubber and glass recycling and disposal, for a period of ninety-nine years. The purchase price of this license and one SDM machine was $550,000, with license rights valued at $250,000.

On February 22, 1996, the Company entered into an additional license agreement with Spectrasonic for the worldwide license to its unpatented Ultrasound Equipment for exclusive use in gypsum disintegration, disposal, recycling, remanufacturing or manufacturing of used or new raw materials. The purchase price of this license and one KDS machine for gypsum-related use was $775,000, with the parties agreeing that the technology license was valued at $425,000 and the gypsum KDS machine was valued at $350,000.

On May 17, 1996, the Company executed another agreement with Spectrasonic for the worldwide licenses to equipment (as yet unpatented) developed by Spectrasonic for use in disintegration, disposal, recycling, remanufacturing or manufacturing "any and all kinds of materials" for a period of ninety-nine years. The purchase price of this license was $1,047,000, which the Company paid by issuing to Spectrasonic 5,500,000 shares of First American common stock (with an aggregate deemed value of $802,000) and paying $168,000 in varying installment amounts between September 30, 1996 and January 2, 1997. The Company also recognized $77,000 in forgiveness of debt, which was recorded as additional paid-in capital.

On July 2, 1997, the Company finalized negotiations with Spectrasonic for all patents to be issued or pending, including all data pertaining to the patent process with respect to the Kinetic Disintegration Machine ("KDS Machine"), whose worldwide rights had been previously acquired by the Company. In the negotiations, the Company acquired all manufacturing rights applicable to the KDS Machine technology. The Company has sole right and responsibility for manufacturing the machinery. Consideration to Spectrasonic was 1,000,000 common shares of the Company's stock at a deemed value of $0.25 per share issued on December 1, 1999.

Technology licenses, patents and manufacturing rights are stated at cost. Amortization is provided using the straight-line method over the estimated useful lives of the assets, which is fifteen years.

The following is a summary of technology licenses, patents and manufacturing rights and accumulated amortization:

F-16

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FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

	June 30, 2004			June 30, 2003
Technology licenses and rights	$	1,905,000	$	1,905,000
Patents and manufacturing rights		272,699		266,224
		2,177,699		2,171,224
Less accumulated amortization		(991,563)		(846,597)
	$	1,186,136	$	1,324,627

Amortization expense for the year ended June 30, 2004 and the year ended June 30, 2003 was $142,991 and $143,667, respectively.

The Company has determined that the carrying value of its technology rights and patents is fairly stated, based upon the estimated present value of cash flows and the Company's estimated ability to sell two machines each year through the year ended June 30, 2006.

The following is a summary of the costs of patents approved for the years ended June 30, 2004 and June 30, 2003:

		Cost		Accumulated Amortization		Net Amount

Balance, June 30, 2002	$	250,000	$	(94,340)	$	155,660
2003 Activity		16,224		-		16,224
Balance, June 30, 2003		266,224		(94,340)		171,884

2004 Activity		6,475		(17,964)		(11,849)
Balance, June 30, 2004	$	272,699	$	(112,304)	$	160,395

F-17

-39-

FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004
NOTE 5 - COMMON STOCK

Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (hereinafter "SFAS No. 148"). SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of the statement effective for financial statements for fiscal years ending after December 15, 2002 are not expected to impact the Company's financial statements. The Company currently reports stock issued to employees under the rules of SFAS No. 123. Accordingly, there is no change in disclosure requirements due to SFAS No. 148.

During the year ended June 30, 2004, the Company issued stock upon the exercise of options as follows: 8,865,000 shares of common stock as payment for services with a fair market value of $367,705; 6,213,600 shares of common stock for compensation with a fair market value of $272,470; 340,000 shares of common stock in payment of rent with a fair market value of $15,000; 300,000 shares of common stock in payment of financing expenses of $15,000; 800,000 shares of common stock for cash of $46,000 and 400,000 shares as repayment of debt with a fair market value of $40,000.

During the year ended June 30, 2003, the Company issued stock upon the exercise of options as follows: 1,529,489 shares of common stock as payment for consulting services with a fair market value of $96,825; 5,558,455 shares of common stock as compensation with a fair market value of $358,161; 975,000 shares of common stock for professional services with a fair market value of $48,800; and 1,298,000 common stock shares in payment of debt of $64,900; 400,000 common stock shares for prepaid rent in the amount of $20,000 and 166,667 shares of common stock for prepaid lease of equipment in the amount of $10,000; and 255,747 common stock shares for cash of $17,500. In addition the Company issued 250,000 shares of common stock for cash of $12,500.

NOTE 6 - STOCK OPTIONS

The Company's board of directors approved the First American Scientific Corp. 2004 and 2004A Non-qualified Stock Option Plan. This plan allows the Company to distribute up to 20,000,000 shares of common stock options at a maximum share price of $0.05 to persons employed or associated with the Company. This plan was not approved by the Company's security holders.

During the year ended June 30, 2004, the Company granted 19,918,600 options of which 16,918,600 were immediately exercised. The remaining 3,000,000 stock options were granted at the fair market value of the common stock at the date of grant. These options were granted for compensation, services and operating expenses at the average exercise price of $0.05.

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FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

The fair value of each option granted during the year ended June 30, 2004 was estimated on the grant date using the Black-Scholes Option Price Calculation. The following assumptions were made in estimating fair value: risk-free interest of 5%, volatility of 71%, expected life of 1 to 5 years, and no expected dividends. The value of these options granted during the year ended June 30, 2004 in the amount of $83,060 was included in operating expense in the financial statements.

The Company's board of directors approved the First American Scientific Corp. 2003 Non-qualified Stock Option Plan. This plan allows the Company to distribute up to 10,000,000 shares of common stock options at a maximum share price of $0.075 to persons employed or associated with the Company. This plan was not approved by the Company's security holders.

During the year ended June 30, 2003, the Company granted 13,130,249 common stock options at the fair market value of the common stock at the date of grant. These options were granted for compensation, services and operating expenses at the average exercise price of $0.05.

During the year ended June 30, 2002, the Company granted 10,505,000 options for compensation, services, expenses and cash at an average exercise price of $0.09. All options were exercised immediately. The options were granted at the fair market value of the stock on each grant date.

The fair value of each option granted during the year ended June 30, 2003 was estimated on the grant date using the Black-Scholes Option Price Calculation. The following assumptions were made in estimating fair value: risk-free interest of 4%, volatility of 73%, expected life of 1 to 5 years, and no expected dividends. The value of these options granted during the year ended June 30, 2003 in the amount of $56,870 was included in operating expense in the financial statements.

There is no express termination date for the options, authorized by the two plans, although the Company's board may vote to terminate either plan. The exercise price of the options will be determined at the date of grant.

The following is a summary of the Company's open stock option plans:

Equity compensation plans not approved by security holders	Number of securities to be issued upon exercise of outstanding options		Weighted-average exercise price of outstanding options	Number of securities remaining available for future issuance under equity compensation plans
2003 Stock Option Plan		2,944,400	$0.05	-

2004 Stock Option Plan		3,364,600	$0.05	81,400

Total		6,309,000		81,400

F-19

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FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

The following is a summary of stock option activity:

		Number of Shares		Weighted Average Exercise Price

Option outstanding at July 1, 2002		2,650,000	$	0.12
Cancelled		(2,037,891)		0.12
Granted		13,130,249		0.05
Exercised		(10,433,358)		0.06
Options outstanding and exercisable at June 30, 2003		3,309,000	$	0.05

Options outstanding at July 1, 2003		3,309,000	$	0.05
Granted		19,918,600		0.05
Exercised		(16,918,600)		0.05
Options outstanding and exercisable at June 30, 2004		6,309,000	$	0.05

Weighted average fair value of options granted during the year ended June 30, 2004	$	0.01

NOTE 7 - RELATED PARTIES

At June 30, 2004, the Company owes three of its shareholders $90,000 for accrued wages and $140,584 for loans made to the Company.

During the year ended June 30, 2003, the Company borrowed $54,176 from two of its officers and accrued $70,000 in wages for these same officers. Periodically, loans and accrued wages are repaid, at the Company's discretion, by the issuance of its common stock options. During the year ended June 30, 2003, $170,000 of related party wages were paid with stock options. In addition the Company owes these two officers $40,276 for notes payable.

An officer of the Company was the former sole shareholder of VMH, a firm which was purchased for $250,000 in 2000 and became a wholly owned subsidiary of FASC. In August 2002, the Company completed a spin-off of VMH, which then became a separate reporting entity. See Note 11.

NOTE 8 - NOTES PAYABLE

During the year ended June 30, 2003, the Company repaid $51,415 of notes from a private investor by issuing $45,000 of its common stock and repaying the balance in cash.

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FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004
NOTE 9 - COMMITMENTS AND CONTINGENCIES

Lease Commitments

On May 29, 2003, the Company signed a two-year lease to rent a test facility in Delta, British Columbia commencing on June 1, 2003. Upon inception of the lease, two years of rent were prepaid by the issuance of 240,000 shares of Company stock.

NOTE 10 - JOINT VENTURES

United Zeolite Products Ltd.
During the year ended June 30, 2004, the Company entered into an agreement with Zeo-Tech Enviro Corp, ("ZEO") United Zeolite Products Ltd. ("United") and CZC Zeolite Corporation Ltd. ("CZC") to restructure United Zeolite Products Ltd. so that FASC, CZC and ZEO each own one-third of United. Under this agreement, FASC will deliver two KDS machines to United on a five year lease to be used to micronize zeolite. The lease is for five years with a lump sum payment of approximately $375,000 due at the end of the lease. United will pay FASC a royalty of $6 for each ton of zeolite processed. United has the right to terminate the lease during the first three months of the term. At June 30, 2004, there was no royalty receivable owed to FASC.

Beau Pre Explorations Ltd.
In August 2000, the Company entered into a joint venture agreement with Beau Pre Explorations Ltd., a Canadian mining company, to process ore from Beau Pre's mine using a KDS machine.

The KDS machine required modifications to increase the durability of the chain system to handle hard rock. The Company hired Robert Salter, Ph.D. to develop a new impact system, which it could then protect with a new patent. When the modifications to the KDS machine were successful, implementation of the process commenced on Beau Pre's mineral mining claims on Valentine Mountain. The redesign and patent process was completed, with patent pending status obtained, in May 2001, and testing continued throughout the summer of 2001. The equipment was moved to a staging site near the Valentine Mountain mining site in 2002 to begin the final testing. The patent was allowed on September 4, 2003. The testing of various new beater bar alloys and coatings is continuing, and progress is being made, however, there is no certainty that commercially viable levels of production can be met. The Company's investment consists of costs incurred for equipment improvements and upgrades for the processing of gold-bearing quartz mineral rock found on the Valentine Mountain mine site.

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FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

AGES
In January 2002, FASC entered into a joint venture agreement with Thermix Combustion Systems Inc. to combine FASC's KDS System and Thermix's suspension dust burning technology and engineering expertise specifically for the processing of biomass pulp sludge. A new company called AGES was incorporated to manage the agreement. Under the original joint venture agreement, FASC retained ownership of all existing KDS technology and all new AGES developed intellectual property which was to be licensed to AGES for use in its designated territories. The license agreement was conditional upon AGES achieving pre-defined sales results, the purchase of one test machine, and the payment of royalties before the end of AGES's second year of business. In March 2002, Hydro Quebec Capitech Inc. was admitted as a shareholder in AGES after agreeing to invest $1,000,000 CDN in the joint venture. By March 1, 2003, Hydro Quebec Capitech Inc.'s full investment had been received.

In February 2003, FASC deferred the payment terms of the joint venture agreement with AGES for one additional year, until February 21, 2004.

In February 2004, the Company finalized its agreement with AGES by granting AGES exclusive rights to the KDS technology for 20 years for applications in the pulp and paper industry in North America and the European Economic Community ("EEC") at which point FASC relinquished management control over AGES. AGES agreed to purchase the existing test machine in its possession for $100,000 to be paid in four equal installments payable upon closing of the first four sales made by AGES. In addition, AGES agreed to pay a minimum of $500,000 in royalties at $25,000 per machine sold, a minimum of one per year, to maintain the exclusive rights in the territory. During the year ended June 30, 2004, FASC changed its accounting for AGES to the equity method. The balance of its investment in AGES has been netted with its share of accumulated losses from AGES resulting in a zero balance.

In July 2004, the Company finalized an agreement with two Malaysian companies to market and sell the KDS Micronex Machine. See Note 12.

NOTE 11 - SPIN-OFF OF VMH VIDEOMOVIEHOUSE.COM INC.

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FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

On June 11, 2001, the Company's board of directors recommended and approved a motion that the Company would spin off its subsidiary, VMH, into its own separate fully reporting OTC publicly traded company. At that time, management under the discretion of the board of directors began the necessary actions to accomplish the spin-off in a timely manner.

In August 2002, VMH finalized its registration with the Securities and Exchange Commission to become a separate reporting entity. In September 2002, the Company issued 14,221,750 shares of common stock in accordance with the spin-off agreement.

The assets distributed to VMH were as follows as of August 31, 2002:

Cash in bank	$	12,842
Accounts receivable		60,457
Inventory		70,832
Property, plant and equipment		33,081
Technology and website, net of amortization		229,989
Deposits		10,000
Total Assets	$	417,201

The liabilities distributed to VMH were as follows as of August 31, 2002:

Accounts payable and accrued expenses	$	107,183
Accounts payable, related parties		118,517

Total Liabilities	$	225,700

Assets in excess of liabilities	$	191,501

Costs associated with the spin-off of VMH were accounted for in discontinued operations.

In accordance with generally accepted accounting principles, the financial results for VMH are reported as discontinued operations or "distributions to subsidiary" and the Company's financial results of prior periods were restated. Condensed results of the discontinued operations "loss from distributed subsidiary" were as follows for the years prior to its spin-off:

		June 30, 2002		June 30, 2001
Net Sales	$	286,869	$	4,222
Loss Before Income Taxes	$	(193,377)	$	(23,151)
Income Tax Expense		-		-
Net Loss	$	(193,377)	$	(23,151)

F-23

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FIRST AMERICAN SCIENTIFIC CORP.
Notes to Consolidated Financial Statements
June 30, 2004

The loss on distribution of subsidiary reflects expenses related to the distribution of the assets, common stock and certain expenses associated with establishing a capital structure of VMH.

The total assets of VideoMovieHouse.com Inc. at the date of distribution to the shareholders totaled $417,201. The net assets distributed were $191,501 after allowing for liabilities of $225,700 being allocated to the distributed subsidiary. VideoMovieHouse.com Inc. had equity of $523,827 prior to separation, with $332,326 being allocated to deficits accumulated up to the period of separation, leaving net assets of $191,501. The above transaction summarizes the effect of the distribution of the subsidiary. The $332,326 accumulated deficit is the deficit of the subsidiary which is separated from the prior consolidated filing information. With the aforementioned spin-off accounting being consistent with the circumstances described and consistent with historically recorded costs and balances, the Company believes that its accounting for the separation of a subsidiary entity from its parent is consistent with generally accepted accounting principles and properly reported.

NOTE 12 - SUBSEQUENT EVENTS

On July 8, 2004, the Company entered into a joint venture agreement with two Malaysian companies, to sell and market the KDS Micronex Machine. Under the terms of the agreement, the joint venture ordered one KDS Micronex Machine from FASC at a cost of $140,000 and set up a demonstration plant in Malaysia for the KDS System utilizing the KDS Micronex Machine acquired from the Company. At September 9, 2004, this KDS machine has been sold, shipped and paid for.

On August 6, 2004, the Company entered into a agreement with The Waste and Resources Action Programme (hereinafter "WRAP") which is a UK Government funded program that supports research to improve markets for recycled materials and products in the UK. WRAP intends to fund the cost of research and development (R&D), as WRAP determines appropriate, to determine the possibilities for the Company's KDS Technology and KDS Micronex Machine and ancillaries. In addition, WRAP will conduct R&D to develop a production scale ancillary sludge separation system which can be used with the KDS Micronex Machine to reduce the costs and environmental impact of the sludge produced by the paper industry. Under the terms of the agreement, WRAP will purchase a KDS Micronex Machine at a price of $175,000. Also, WRAP will provide agreed funding in the amount of ^540,000 (approximately $968,700 on the agreement date), to be disbursed at WRAP's sole discretion for R&D purposes.

F-24

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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 8A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures: Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.

(b) Changes in Internal Control over Financial Reporting: There were no changes in the Company's internal control over financial reporting identified in connection with the Company evaluation of these controls as of the end of the period covered by this report that could have significantly affected those controls subsequent to the date of the evaluation referred to in the previous paragraph, including any correction action with regard to significant deficiencies and material weakness.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Officers and Directors

The directors and officers of the Company are:

Name	Age	Position

John Brian Nichols	67	President, Chief Executive Officer and member of the Board of Directors

Cal Kantonen	53	Treasurer, Chief Financial Officer and Chairman of the Board of Directors

David Gibson	62	Secretary and member of the Board of Directors

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John Brian Nichols - President, Chief Executive Officer and a member of the Board of Directors.

Since April 2001, Mr. Nichols has been the President, Chief Executive Officer and a member of the Board of Directors. For the past 32 years, Mr. Nichols has been a self-employed producer and marketer of a live entertainment show and circus which plays in over in 260 cities annually in Canada and the United States.

Calvin L. Kantonen,CGA - Chairman of the Board of Directors, Treasurer and Chief Financial Officer.

Since February 2000, Mr. Kantonen has been the chairman of the Board of Directors, Treasurer and Chief Financial Officer of the Company. From September 1999 to August 2002, Mr. Kantonen was the President, Secretary/Treasurer and sole member of the Board of Directors of VMH VideoMovieHouse.com Inc., a subsidiary of the Company. Prior to joining the Company in 1999, Mr. Kantonen spent five years as a commercial lender with one of Canada's largest financial institutions. Mr. Kantonen, CGA has been a member in good standing of the Certified General Accountants of British Columbia since 1984, during which time he practiced in the field of public accounting for ten years providing taxation and business advice to small business.

David L. Gibson, BA, LLB - Secretary and member of the Board of Directors

Since April 2001, Mr. Gibson has been the Secretary and a member of the Board of Directors. Mr. Gibson received a BA in Economics and Political Science in 1968 and obtained his law degree from the University of British Columbia in 1971. Mr. Gibson is retired from the practice of law in Canada after 30 years specializing in the areas of corporate law, commercial practices and estate planning.

Indemnification of Officers and Directors

The Nevada Revised Statues and certain provisions of the Company's Bylaws under certain circumstances provide for indemnification of the Company's Officers, Directors and controlling persons against liabilities which they may incur in such capacities. A summary of the circumstances in which such indemnification is provided for is contained herein, but this description is qualified in its entirety by reference to the Company's Bylaws and to the statutory provisions.

In general, any Officer, Director, employee or agent may be indemnified against expenses, fines, settlements or judgments arising in connection with a legal proceeding to which such person is a party, if that person's actions were in good faith, were believed to be in the Company's best interest, and were not unlawful. Unless such person is successful upon the merits in such an action, indemnification may be awarded only after a determination by independent decision of the Board of Directors, by legal counsel, or by a vote of the shareholders, that the applicable standard of conduct was met by the person to be indemnified.

The circumstances under which indemnification is granted in connection with an action brought on behalf of the Company is generally the same as those set forth above; however, with respect to such actions, indemnification is granted only with respect to expenses actually incurred in connection with the defense or settlement of the action. In such actions, the person to be indemnified must have acted in good faith and in a manner believed to have been in the Company's best interest, and have not been adjudged liable for negligence or misconduct.

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Indemnification may also be granted pursuant to the terms of agreements which may be entered in the future pursuant to a vote of shareholders or directors. The statutory provision cited above also grants the power to the Company to purchase and maintain insurance which protects its officers and directors against any liabilities incurred in connection with their service in such a position, and such a policy may be obtained by the Company.

The Company's President and Chief Executive Officer, Mr. Nichols, and Chief Financial Officer and Treasurer, Mr. Kantonen are employed full time. Mr. Nichols oversees marketing, research and development and plant operations. Mr. Kantonen oversees all financial reporting and legal and regulatory matters.

Audit Committee and Charter

We have an audit committee and audit committee charter. Our audit committee is comprised of all of our officers and directors. None of directors are deemed independent. All directors also hold positions as our officers. A copy of our audit committee charter is filed as an exhibit to this report. Our audit committee is responsible for: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by our employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) funding for the outside auditory and any outside advisors engagement by the audit committee.

Audit Committee Financial Expert

We have no financial expert. We believe the cost related to retaining a financial expert at this time is prohibitive. Further, because of our limited operations, we believe the services of a financial expert are not warranted.

Code of Ethics

We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.

Disclosure Committee and Charter

We have a disclosure committee and disclosure committee charter. Our disclosure committee is comprise of all of our officers and directors. The purpose of the committee is to provide assistance to the Chief Executive Officer and the Chief Financial Officer in fulfulling their responsibilities regarding the identification and disclosure of material information about us and the accuracy, completeness and timeliness of our financial reports.

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Compliance with Section 16 (a) of the Exchange Act

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us pursuant to Rule 16a-3(e) under the Securities Exchange Act of 1934 during our most recent fiscal year and Forms 5 and amendments thereto furnished to us with respect to our most recent fiscal year, our officers, directors and owners of 10% or more of our outstanding shares have not filed all Forms 3, 4 and 5 required by Section 16(a) of the Securities Exchange Act of 1934.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid by the Company for each officer and director of the Company during the past three years. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any.

Summary Compensation Table

Long Term Compensation

Annual Compensation

Awards

Payouts

(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)
Name and Principal Position [1]	Year	Salary ($)	Bonus ($)	Other Annual Compensation ($)	Restricted Stock Award(s) ($)	Securities Underlying Options / SARs (#)	LTIP Payouts ($)	All Other Compensation ($)

Brian Nichols President, CEO	2004 2003 2002	120,000 120,000 120,000	50,000 0 0	0 0 0	0 0 0	0 0 1,809,000	0 0 0	0 0 0

Cal Kantonen CFO, Treasurer	2004 2003 2002	120,000 120,000 120,000	50,000 0 0	0 0 0	0 0 0	0 0 1,500,000	0 0 0	0 0 0

David Gibson Secretary	2004 2003 2002	0 0 0	0 0 0	0 0 0	0 0 0	0 0 250,000	0 0 0	0 0 0

[1] All compensation received by the officers and directors has been disclosed.

Future Compensation of Our Officers

The Company plans to pay the following salaries in 2005, subject to the Company beginning profitable operations and generating sufficient revenues to pay the same:

Cal Kantonen
Brian Nichols

Treasurer and CFO
President and CEO

2005
2005

$
$

150,000
150,000

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Option/SAR Grants

There are no stock option, retirement, pension, or profit sharing plans for the benefit of the Company's officers and directors, other than three incentive stock option plans. Under each Plan, the board of directors is vested with discretionary authority to grant options to persons furnishing services to the Company.

The 2001 Plan registered 30,000,000 shares. All shares have been issued as a result of the exercise of options. No shares remain in the Plan.

The 2001A Plan registered 20,000,000 shares. All shares have been issued as a result of the exercise of options. No shares remain in the Plan.

The 2003 Plan registered 10,000,000 shares. All shares have been issued as a result of the exercise of options. No shares remain in the Plan.

The 2004 Plan registered 10,000,000 shares. 3,700,000 options have been granted and 6,300,000 shares remain in the Plan.

Information concerning individual grants of stock options, whether or not in tandem with stock appreciation rights ("SARs"), and freestanding SARs made during fiscal 2004 to each of the named executive officers is reflected in the table below.

Option/SAR Grants in Fiscal 2004

Individual Grants
Name	Number of Securities Underlying Options/SARs Granted (#)	Percent of Total Options/SARs Granted to Employees in Fiscal Yr	Exercise or Base Price	Expiration Date
Brian Nichols [1]	2,000,000	50%	$0.05	Sept. 30, 2005
Cal Kantonen [1]	2,000,000	50%	$0.05	Sept. 30, 2005

Aggregated Option/SAR Exercises and Fiscal 2004 Year-End Option/SAR Value Table.

The following table sets forth certain information with respect to each exercise of stock options and SARs during fiscal 2004 by each of the named executive officers, and the fiscal 2004 year-end value of unexercised options and SARs. The dollar values are calculated by determining the difference between the exercise or base price of the options and the fair market value of the underlying stock at the time of exercise and at fiscal year-end if unexercised, respectively. The unexercised options, some of which may be exercisable, have not been exercised and it is possible they might never be exercised. Actual gains realized, if any, on stock option exercises and common stock holdings are dependent on the future performance and value of the common stock and overall stock market conditions. There can be no assurance that the projected gains and values shown in this Table will be realized.

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Aggregated Option/SAR Exercises in Fiscal 2004 and Option/SAR Values at June 30, 2004

Name	Shares Acquired on Exercise (#)	Value Realized	Number of Securities Underlying Unexercised Options/SARs at FY-End (#)		Value of Unexercised In-the-Money Options/SARs at FY-End ($)
			Exercisable	Unexercisable	Exercisable	Unexercisable
Brian Nichols	4,331,800	Nil	900,000	nil	$6,250	nil
Cal Kantonen	4,331,800	Nil	1,500,000	nil	nil	nil

Long-Term Incentive Plan Awards.

The Company does not have any formalized long-term incentive plans, excluding restricted stock, stock option and SAR plans, which provide compensation intended to serve as incentive for performance to occur over a period longer than one fiscal year, whether such performance is measured by reference to financial performance of the Company or an affiliate, the Company's stock price, or any other measure.

Compensation of Directors

The Company does not have any plans to pay its directors any money. The directors did not receive any other compensation for serving as members of the board of directors. There are no contractual arrangements with any member of the board of directors.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following schedule sets forth the common stock ownership of each person known by the Company to be the beneficial owner of five percent or more of the Company's common stock, each director individually, and all officers and directors of the Company as a group. Each person has sole voting and investment power with respect to the shares of common stock shown, and all ownership is of record and beneficial.

Name of owner	Number of Shares	Position	Percent of Class

Brian Nichols	5,259,300	President, Principal Executive Officer and a Director	3.10 %

Cal Kantonen	7,061,600	Chairman of Board of Directors, Treasurer and Principal Financial Officer	4.16 %

David Gibson	450,000	Secretary and a Director	0.26 %
All officers and directors as a group (3)	12,770,900		7.52%

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Changes in Control

To the knowledge of management, there are no present arrangements or pledges of securities of our company which may result in a change in control of our company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the year ended June 30, 2004, $150,000 of related party wages were paid with stock options to Mr. Kantonen and Mr. Nichols.

At June 30, 2004, the Company owed its officers a total of $140,584 for loans and $90,000 for unpaid salaries.

During the year ended June 30, 2004, the Company issued stock options to acquire up to 8,762,000 shares of common stock to its officers and employees at exercise prices ranging from $0.04 to $0.055 which were equal to the fair market value of the stock on the date of grant.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K.

No Form 8-Ks have been filed during the fourth quarter of 2003.

Exhibits

The following Exhibits are incorporated herein by reference from the Registrant's Form 10SB Registration Statement filed with the Securities and Exchange Commission, SEC file #000-27094, Such exhibits are incorporated herein by reference pursuant to Rule 12b-32:

Exhibit No.	Description
3.1 3.2 4.1 28.1	Articles of Incorporation of First American Scientific Corporation. Bylaws of First American Scientific Corporation. Specimen Stock Certificate Consultant and Employee Stock Compensation Plan.

The following Exhibits are incorporated herein by reference from the Registrant's Form S-8 Registration Statement filed with the Securities and Exchange Commission, SEC file #333-06851 on June 26, 1996. Such exhibits are incorporated herein by reference pursuant to Rule 12b-32:

Exhibit No.	Description
10.1	The 1996 Nonqualified Stock Option Plan.

The following documents are incorporated by reference from the Company's Form 10-KSB for the period ending June 30, 1997:

Exhibit No.	Description
3.3	Articles of Incorporation of First American Power Corp ( formerly 521345 B.C. Ltd.)

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The following documents are incorporated by reference from the Company's Form 10-KSB for the period ending June 30, 1998:

Exhibit No.

Description

3.4

Amended Articles of Incorporation.

The following Exhibits are incorporated herein by reference from the Registrant's Form S-8 Registration Statement filed with the Securities and Exchange Commission, SEC file #333-63041 on September 8, 1998. Such exhibits are incorporated herein by reference pursuant to Rule 12b-32:

Exhibit No.	Description
10.1	1998 Nonqualified Stock Option Plan.

The following Exhibits are incorporated herein by reference from the Registrant's Form S-8 Registration Statement filed with the Securities and Exchange Commission, SEC file #333-86995 on September 13, 1999. Such exhibits are incorporated herein by reference pursuant to Rule 12b-32:

Exhibit No.	Description
10.11	1999 Nonqualified Stock Option Plan.

The following Exhibits are incorporated herein by reference from the Registrant's Form S-8 Registration Statement filed with the Securities and Exchange Commission, SEC file #333-40234 on June 27, 2000. Such exhibits are incorporated herein by reference pursuant to Rule 12b-32:

Exhibit No.

Description

3.5
10.14

Amendment Articles of Incorporation as at June 12, 2000.
2001 Nonqualified Stock Option Plan.

The following documents are incorporated herein by reference from the Company's Form 10-KSB for the period ended June 30, 2000:

Exhibit No.	Description
10.15	Conditional Agreement with Henry Stritek

The following Exhibits are incorporated herein by reference from the Registrant's Form S-8 Registration Statement filed with the Securities and Exchange Commission, SEC file #333-59926 on May 1, 2001. Such exhibits are incorporated herein by reference pursuant to Rule 12b-32:

Exhibit No.	Description
10.16	2001A Nonqualified Stock Option Plan.

The following documents are incorporated herein by reference from the Company's Form 10-KSB for the period ended June 30, 2002:

Exhibit No.	Description
10.17 10.18 10.19	Alliance between Honeywell Ltd. and the Company Agreement between Beau Pre Explorations Ltd. and the Company Agreement between The Rubber Black Corporation and the Company

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The following Exhibits are incorporated herein by reference from the Registrant's Form S-8 Registration Statement filed with the Securities and Exchange Commission, SEC file #333-102560 on January 17, 2003. Such exhibits are incorporated herein by reference pursuant to Rule 12b-32:

Exhibit No.	Description
10.1	2003 Nonqualified Stock Option Plan.

The following documents are incorporated herein by reference from the Company's Form 10-KSB and amendments thereto for the period ended June 30, 2003:

Exhibit No.	Description
14.1	Code of Ethics
99.1	Representative Agreement Between Environmental Management Systems Institute Inc. and the Company
99.2	Audit Committee Charter
99.3	Disclosure Committee Charter

The following exhibits are filed with this report:

Exhibit No.	Description
23.1	Consent of Williams & Webster, P.S., independent certified public accountants.
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-15 and Rule 15d-15(a), promulgated under the Securities and Exchange Act of 1934, as amended.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-15 and Rule 15d-15(a), promulgated under the Securities and Exchange Act of 1934, as amended.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Williams and Webster, P.S., Certified Public Accountants, are the Company's independent auditors to examine the financial statements of the Company for the fiscal year ending June 30, 2003. Williams & Webster, P.S. has performed the following services and has been paid the following fees for these fiscal years.

Audit Fees

Williams & Webster, P.S. was paid aggregate fees of approximately $52,400 for the fiscal year ended June 30, 2003 and approximately $42,200 for the fiscal year ended June 30, 2004 for professional services rendered for the audit of the Company's annual financial statements and for the reviews of the financial statements included in the Company's quarterly reports on Form 10-QSB during these fiscal years.

Audit-Related Fees

Williams & Webster P.S. was not paid additional fees for the fiscal year ended June 30, 2003 and June 30, 2004 for assurance and related services reasonably related to the performance of the audit or review of the Company's financial statements.

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Tax Fees

Williams & Webster, P.S. was paid approximately $3,800 any aggregate fees for the fiscal year 2003 and approximately $5,900 for the fiscal year ended June 30, 2004 for professional services rendered for tax compliance, tax advice and tax planning. This service was for the preparation of Form 1120 for the Company's subsidiary.

All Other Fees

Williams & Webster, P.S. was paid no other fees for professional services during the fiscal years ended June 30, 2003 and June 30, 2004.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 28^th day of September, 2004.

FIRST AMERICAN SCIENTIFIC CORP.


	BY:	/s/ John Brian Nichols
		John Brian Nichols, President, Principal Executive Officer and member of the Board of Directors

	BY:	/s/ Calvin L. Kantonen
		Calvin L. Kantonen Treasurer, Principal Financial Officer and Chairman of the Board of Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities.

SIGNATURES	TITLE	DATE

/s/ John Brian Nichols
John Brian Nichols	President, Principal Executive Officer and member of the Board of Directors	September 28, 2004

/s/ Calvin L. Kantonen
Calvin L. Kantonen	Treasurer, Principal Financial Officer and Chairman of the Board of Directors	September 28, 2004

/s/ David Gibson
David Gibson	Secretary and member of the Board of Directors	September 28, 2004

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[ x ]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended June 30, 2004
[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from

FIRST AMERICAN SCIENTIFIC CORP. CONSOLIDATED BALANCE SHEETS
				June 30,		June 30,
ASSETS				2004		2003

CURRENT ASSETS
	Cash		$	59,822	$	64,762
	Accounts receivable, net of allowance			78,626		3,019
	Sales tax refunds			-		24,876
	Prepaid expenses			16,867		23,597
	Inventory			190,442		190,442
		TOTAL CURRENT ASSETS		345,757		306,696

PROPERTY AND EQUIPMENT
	Property and equipment			170,785		306,473
	Less: Accumulated depreciation			(85,651)		(145,867)
		TOTAL PROPERTY AND EQUIPMENT		85,134		160,606

OTHER ASSETS
	Technology rights, net of amortization			1,025,742		1,152,743
	Patents and manufacturing rights, net of amortization			160,394		171,884
	Research and development refund receivables			-		83,085
	Deposits			71		166
		TOTAL OTHER ASSETS		1,186,207		1,407,878

TOTAL ASSETS			$	1,617,098	$	1,875,180

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
	Accounts payable and accrued expenses		$	77,618	$	178,315
		TOTAL CURRENT LIABILITIES		77,618		178,315

LONG-TERM LIABILITIES
	Notes and wages payable to related parties			230,584		110,276
		TOTAL LONG-TERM LIABILITIES		230,584		110,276

COMMITMENTS AND CONTINGENCIES						-

MINORITY INTEREST IN SUBSIDIARY				-		225,116

STOCKHOLDERS' EQUITY
	Common stock - $.001 par value,
		200,000,000 shares authorized; 169,564,976 and
		152,646,376 shares issued and outstanding, respectively		169,565		152,646
	Additional paid-in capital			11,972,976		11,200,120
	Stock options			254,291		204,831
	Accumulated deficit			(11,077,014)		(10,190,326)
	Accumulated other comprehensive loss			(10,922)		(5,798)
		TOTAL STOCKHOLDERS' EQUITY		1,308,896		1,361,473

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY			$	1,617,098	$	1,875,180

Exhibit No.	Description
3.4	Amended Articles of Incorporation.

Exhibit No.	Description
3.5 10.14	Amendment Articles of Incorporation as at June 12, 2000. 2001 Nonqualified Stock Option Plan.