<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from:
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Commission file number 0-27094
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FIRST AMERICAN SCIENTIFIC CORP.
(Exact name of Registrant as specified in its charter.)
NEVADA 88-0338315
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification
No.)
409 Granville Street, Suite 303
Vancouver, British Columbia V6C 1T2
(Address of principal executive offices, including zip code.)
(604) 681-8656
Registrant's telephone number, including area code.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES NO x
The number of shares outstanding of the Registrant's Common
Stock, no par value per share, at December 31, 1996 was 10,914,493
shares.
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<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS.
FIRST AMERICAN SCIENTIFIC CORP.
FINANCIAL STATEMENTS
Unaudited - See Notes to Financial Statements
DECEMBER 31, 1996
<PAGE> 3
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
BALANCE SHEET
<TABLE>
<CAPTION>
Six Months
Ending Year ending
12/31/96 06/30/96
<S> <C> <C>
ASSETS
Current Assets
Bank $ (97,138) $ (5,339)
Accounts receivable 163,756 -
Inventory - raw materials 14,427 -
Prepaid expenses 18,907 9,103
----------- -----------
99,952 3,764
----------- -----------
Other Assets
Technology license 1,905,000 1,905,000
Ultrasound equipment 872,246 864,260
Plant assets and equipment 1,466,368 139,929
Leasehold Improvements 5,476 5,476
Security deposit 15,568 8,510
----------- -----------
4,264,768 2,923,175
----------- -----------
$ 4,364,720 $ 2,926,939
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Account payable $ 359,718 $ 75,415
Accrued interest payable - 12,762
Agreement payable 30,000 -
License agreement payable 563,500 1,230,000
----------- -----------
989,218 1,318,177
----------- -----------
Stockholders' Equity
Common Stock - $0.001 par value
50,000,000 shares authorized
10,914,493 shares issued 16,607 8,505
Additional paid in capital 2,786,520 1,400,818
Deficit accumulated during the
development stage (801,072) (473,421)
----------- ----------
Total Stockholders' Equity 2,002,100 935,902
----------- ----------
$ 4,364,720 $ 2,926,939
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-1
<PAGE> 4
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
STATEMENT OF LOSS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Six Months
Ending Year ending
12/31/96 06/30/96
<S> <C> <C>
INCOME $ - $ -
OPERATING EXPENSES (327,651) (473,421)
---------- ----------
NET INCOME (LOSS) $ (327,651) $ (473,421)
========== ==========
NET INCOME (LOSS) PER SHARE $ (0.032) $ (0.06)
========== ==========
</TABLE>
The Company is in the development stage and has not commenced
operations. Said operations will commence in January 1997.
See accompanying notes to financial statements.
F-2
<PAGE> 5
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(In order to transmit these documents to the SEC via EDGAR, First
American Scientific Corp., a development stage enterprise, Statement
of Stockholders' Equity has been formatted to fit on two pages. This
is page 1 of page 2.)
<TABLE>
<CAPTION>
Six
Months Year
Common Stock Ending ending
Shares Amount 12/31/96 06/30/96
<S> <C> <C> <C> <C>
BALANCE
Inception 04/12/95 0 0 $ 0 $ 0
ADD
Sale of 6,000,000 6,000,000 6,000 94,000 0
shares of Common
Stock on 05.02095 for
$100,000 cash.
Sale of 250,000 250,000 250 174,750 0
shares of Common
Stock on 06/22/95 for
$175,000 payment
on license agreement
Sale of 600,000 600,000 600 269,400 0
shares of Common
Stock on 09/18/95
for $270,000
Sale of 200,000 200,717 200 99,800 0
shares of Common
Stock on 10/20/95
in lieu of $100,000
payment on a
management contract
Sale of 380,717 380,717 381 170,942 0
shares of Common
Stock on 03/25/96
in settlement of
debt conversion
for Canadian and
U.S. dollar loans
Private Placement 74,400 74 92,926 0
sale of 74,000 shares
Common Stock at $1.25
See accompanying notes to financial statements.
F-3
<PAGE> 6
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(In order to transmit these documents to the SEC via EDGAR, First
American Scientific Corp., a development stage enterprise, Statement
of Stockholders' Equity has been formatted to fit on two pages. This
is page 2 of page 2.)
Six
Months Year
Common Stock Ending ending
Shares Amount 12/31/96 06/30/96
<S> <C> <C> <C> <C>
Sale of 1,000,000 1,000,000 1,000 499,000 0
shares of Common Stock
on 02/29/96 regarding
the purchase of one
Gypsum SDM and the
related technology,
per agreement
Sale of 1,000,000 1,000,000 1,000 499,000 0
shares of Common Stock
on 07/10/96 regarding
purchase of technology
covering all materials,
per agreement
Sale of 452,376 452,376 403 201,046 0
shares of Common Stock
on 07/03/96 in settlement
of debt conversion for
Canadian and U.S. dollar
loans
Sale of 957,000 957,000 6,699 663,201 0
shares of Common Stock
in Private Placement
financing, in 09/96
Net Loss for period (327,651)
---------- ------ --------- ---------
Balance 12/31/96 10,914,493 16,607 2,764,065 (327,651)
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 7
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Months Year
Ending ending
12/31/96 06/30/96
<S> <C> <C>
CASH FLOWS PROVIDED (USED) IN OPERATIONS
Net Income (loss) $ (327,651) $ (473,421)
Adjustment to reconcile net loss to
net cash used by operations:
Management fees paid by issuance of stock - 100,000
(Increase) in accounts receivable (163,756) -
(Increase) in inventory (14,427) -
(Increase) in prepaid expenses (9,805) (9,103)
Increase in accounts payable 320,303 75,415
Increase in accrued interest payable (12,761) 12,761
Increase in agreement payable 30,000 -
Payment on license agreement payable (166,500) (127,000)
---------- ----------
CASH FLOWS PROVIDED (USED) IN INVESTING ACTIVITIES
Payment for technology license - (248,000)
Purchase of equipment (1,334,535) (629,188)
Leaseholder improvements - (5,476)
Security deposits (7,058) (8,510)
Proceeds from loans 901,991 844,183
---------- ----------
(439,602) (46,991)
---------- ----------
692,400 463,000
---------- ----------
CASH FLOWS PROVIDED (USED) IN FINANCING ACTIVITIES
Proceeds from sale of stock $ (91,799) $ (5,339)
========== ==========
</TABLE>
NET INCREASE IN CASH
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 0
Income tax $ 0
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES
Issued 957,000 shares of Common Stock in private placement
financing.
Issued 1,000,000 shares of Common Stock to Spectrasonic Corp. On
the purchase of worldwide rights to all industrial minerals re SDM
machine. Transaction value is $500,000 in common stock plus cash of
$730,000.
Issued 452,376 shares of Common Stock in settlement of debt
conversion for $201,449 with LCM Equity Inc.
See accompanying notes to financial statements.
F-4
<PAGE> 8
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996
1. Organization and Summary of Significant Accounting Policies:
Organization: First American Scientific Corp. (the Company) was
incorporated on April 12, 1995 under the laws of the State of Nevada,
has a year end of June 30. The Company, originally organized to
become a manufacturer of rubber powder for industrial fillers, has
acquired the rights to process and sell industrial products such as
gypsum, limestone, and sulphur. Because of the speculative nature of
the Company, there are significant risks which are summarized as
follows:
* Newly formed company with no sales or operating history.
* Limited funds available for expansion or operations or debt
repayment.
* Assets principally consisting of technology, licenses and
related equipment, which are not patented.
The Company is considered to be in the development stage as defined
in Statement of Financial Accounting Standards No. 7. There have
been no operations since incorporation.
Summary of Significant Accounting Policies: Depreciation will begin
when the Company's property, plant and equipment are placed in
service. The cost of property, plant and equipment will be
depreciated over the estimated useful lives of the related assets.
The cost of leasehold improvements will be depreciated over the less
of the length of the related assets or the estimated useful lives of
the assets. Depreciation will be computed on the straight-line
method for financial reporting purposes and for income tax purposes.
Amortization of the Company's technology licenses will begin when the
Company's property, plant and equipment (which directly originate
from the licensed technology) are placed in service. The cost of the
Company's technology licenses will be amortized over the estimated
economic life of fifteen years.
Organization costs were expensed when paid.
2. Stockholders' Equity
Common Stock: All shares have been adjusted for a 6 for 10 reverse
stock split on August 14, 1995.
F-5
<PAGE> 9
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996
3. Offices and Employees
The Company owns no real property. It leases 1,000 square feet of
office space at Suite 303 - 409 Granville Street, Vancouver, British
Columbia V6C 1T2 from L.C.M. Equities Inc. The current lease is
unwritten and is month-to-month. The Company also leases 3,000
square feet of plant space at 4500 Vanguard Road, Richmond, British
Columbia V6X 2P4 from Spectrasonic Corp., pursuant to a written lease
agreement dated December 1, 1995. The lease is for a three year
period commencing December 1, 1995 and ending November 30, 1998.
Monthly rental is $2,775 per month for the first two years, and
increases 10% in the third year.
In May 1996, the Company signed a lease to rent facilities in
Bakersfield, California, for the industrial processing business for
gypsum, limestone and specialty products. The lease, which requires
payments of US$2,000 per month, expires on May 14, 1997.
The Company has eight employees at December 31, 1996.
4. Technology License
On June 22, 1995, the Company entered into a license agreement with
Spectrasonic Corp. for the worldwide license to its unpatented Sonic
Disintegration Equipment 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 and the license rights
are valued at $250,000. Since this initial agreement, modifications
were made to the first SDM bringing its cost to $440,740, at December
31, 1996.
On February 22, 1996, the Company entered into an additional license
agreement with Spectrasonic Corp. 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 SDM Machine for gypsum-related use was $775,000 with the parties
agreeing that the technology license is valued at $425,000 and the
gypsum SDM machine is valued at $350,000. Certain modifications have
been made to the machine, bringing its cost at December 31, 1996 to
$431,616.
On May 17, 1996, the Company executed another agreement with
Spectrasonic Corp. for the worldwide license to equipment developed
by Spectrasonic for use in disintegration, disposal, recycling,
manufacturing and remanufacturing of "any and all kinds of materials"
for a period of ninety-nine years. The purchase price of this
license was $1,230,000, which consisted of the Company issuing to
F-6
<PAGE> 10
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1996
4. Technology License continued
Spectrasonic 1,000,000 shares of First American common stock (with an
aggregate deemed value of US$500,000 and agreeing to pay
CDN$1,000,000 (US$730,000) in varying amounts between June 30, 1996
and January 2, 1997. This agreement has been amended to defer final
payment until later in 1997.
5. Translation of Foreign Currency.
The Company has adopted Financial Accounting Standard No. 52. The
Canadian foreign exchange rate has remained approximately the same
since inception. Accordingly, a small transaction gain has been
recorded in the Statement of Loss. Since the exchange rate has
remained approximately the same since inception, there is no
translation adjustment to be reflected in the Statement of
Stockholders' Equity.
Common stock issued for the payment of the license agreement was
recorded in U.S. dollars.
6. Earnings (Loss) Per Share
The net income (loss) per share is computed using the weighted
average number of shares outstanding and amounts to ($0.03) per
share.
7. Stock Compensation Plans
The Company has adopted a consultant and employees stock compensation
plan. The total number of shares included in the Plan is 350,000.
Any shares issued as a result of the exercise of option thereunder
will be "restricted securities." Options may only be granted to
employees and consultants of the Company. The Board of Directors is
vested with authority and discretion to prescribe, amend and rescind
rules and regulations relating to the plan. No options have been
issued as of June 30, 1996.
The Company has also adopted a directors and officers' stock option
plan. Directors have approved a plan wherein 1,000,000 shares are
eligible for distribution. To date there has been no allotment to
eligible directors and officers.
F-7
<PAGE> 11
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1996
8. Impairment of Long-Lived Assets
Management of the Company intends to review annually events or
changes in circumstances that indicate the carrying amount of an
asset may not be recoverable. Statement of Financial Accounting
Standard No. 121 will be applied to long-lived assets for the year
beginning after June 30, 1996.
9. Related Party Transaction
Spectrasonic Corp. (see note 4 above) and Westmoreland Capital Corp.
are owned and controlled by John Sand and Jon Martin, each of whom
50% of the outstanding common stock of each entity.
10. Loans
On March 1, 1996, the Company entered into a loan agreement with LCM
Equity Inc. The lender agreed to provide a revolving line or credit
up to $500,000 until February 16, 1997. Principal and interest at 9%
shall become due and payable on February 16, 1997. The principal
balance owning at December 31, 1996 is $72,692. This balance will
be converted in 1997. LCM Equity has also advanced additional sums of
$415,260 which will also be converted to common shares in 1997.
The Company on April 30, 1996, also entered into a loan agreement
with Knowlton Capital, Inc. wherein the lender agreed to provide a
revolving line of credit up to $800,000 which matures on June 30,
1997. Knowlton Capital, Inc. has the option of renewing the loan,
converting to common stock, or redemption. The balance owning to
Knowlton Capital, Inc. at December 31, 1996 was $769,737.
11. Royalty Agreement
On October 15, 1995, the Company entered into a gross royalty
agreement with Strategic International, Inc. The agreement grants to
Strategic International, Inc. a gross perpetual royalty of $0.015 per
pound on all glass and rubber which is processed through, by or under
license granted on June 22, 1995, to First American Scientific Corp.
by Spectrasonic Corp. Strategic International, Inc. was instrumental
in arranging the licensing agreements with Spectrasonic Corp. No
royalties were payable at December 31, 1996.
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company is considered to be in the development stage as
defined in Statement of Accounting Standards No 7. There have been no
operations since incorporation on April 12, 1995 and all funds required
to maintain liquidity and finance the construction of the plant in
Bakersfield have been raised through sale of stock and loans. The
Company intends to continue to raise funds through the sale of stock,
and from loans arranged through Knowlton Capital Corp and through LCM
Equity Inc, until it becomes operational, and can generate its own
capital requirements.
At December 31, 1996, the Company had an overdraft of $97,000.
This was retired early in January 1997 by additional loans injected
into the Company. The Company has sufficient liquidity to maintain its
operation through its startup stage. The Company has completed its
capital construction program and the plant is now operational. Partial
operation commences in January 1997 and full production starts February
3, 1997. During the quarter ending December 31, 1996, the Company
raised in excess of $400,000 through loans and sale of stock. Most of
these funds were used to finalize construction of the plant in
Bakersfield, California.
Results of Operations
During the second quarter ending December 31, 1996, the Company
incurred an operating loss of $98,000 thus bringing the loss for the
year to date to $327,000. These losses are the result of plant
construction and not being in a position to generate revenue.
Concurrently with this, the Company incurred operating expenses for
equipment rental, freight, contract labor, consulting fees, office and
utility expenses. This fully completed plant consists of two (2) SDM
machines, bagging equipment, bulk hoppers, extensive electrical panels
and component equipment, various conveyor systems, and sundry other
items. This equipment, in addition to the 2 SDM machines, has been
installed at a cost in excess of $1,500,000. This expansion of
facilities has been financed through sale of stock, and through loans
provided primarily by Knowlton Capital Corp and through LCM Equity Inc.
Some funding was also arranged through Monarch Consulting Services in
Manila, Philippines. This plant is now fully completed and will be in
full production February 3, 1997.
This quarter saw the Company commence sale of bulk gypsum from its
mine site directly to its customers. This product does not require
processing through its SDM machines and can be delivered directly from
the mine site to the customer's storage area. These sales amounted to
$197,000, and will increase appreciably in the first quarter of 1997.
Because of these sales, it was necessary to commence purchasing of
raw materials and to incur the rail cost of shipment of the product to
the customer.
<PAGE> 13
During the quarter ending December 31, 1996, the Company raised in
excess of $400,000 through loans and sale of stock. These funds were
used to pay for fixed asset additions to the plant and in reduction of
the balance owing on the license agreement.
During the quarter ending December 31, 1996, the Company reduced
its obligations to Spectrasonic from $620,500 to $563,500. The Company
intends to retire this remaining debt by mid 1997.
The Company has been advised by LCM Equity Inc. and another lender
that they intend to convert their loans to stock in the first quarter
of 1997. These loans amount to almost $400,000.
Inflation
Inflation has not been a factor in the quarter ending December 31,
1996. This is consistent with the previous quarter and for the fiscal
year ending June 30, 1996 wherein inflation has not been a factor.
Construction costs were not adversely affected by inflation, nor has
inflation had any adverse affect on operating costs to date.
Quarter Ended December 31, 1996
The Company rents premises at 4100 Burr Street in Bakersfield,
California, for the sum of $2,000 per month. These premises are rented
for a one year period with the option to renew for an additional 2
years. The plant consists of two (2) SDM machines which are currently
leased, which in turn generate processed industrial minerals at the
rate of 10 to 12 tons per hour for both machines. These machines are
supplemented by approximately $1,500,000 in additional equipment, such
as conveyors, bagging equipment, large bulk hoppers, various and sundry
electrical equipment, weigh scales and receiving docks and sundry other
items.
During the quarter ending December 31, 1996, the largest single
expenditure was $25,000 for research and development at the Richmond,
British Columbia research center. This development work was primarily
directed to rubber applications but some expenditure was incurred
regarding the biowaste (sludge) process.
All results are reflected in U.S. dollars and any foreign exchange
loss or gain is nominal in that the value of the Canadian dollar to the
U.S. dollar has changed very little during the past year.
Foreign Operations
The Company has rented facilities in Richmond, British Columbia
Canada, a suburb of Vancouver, British Columbia Canada. At these
facilities, the Company carries out research and development work on
all three group applications, rubber, biowaste, and industrial
minerals. The majority of its efforts in the quarter ending December
31, 1996 was directed toward rubber. The changes made in the rubber
process have allowed for much improved throughput and the Company feels
it will soon be introducing this process to the commercial market.
<PAGE> 14
The Company intends to continue to conduct basic research and
development at this center in order to realize its goal of obtaining
commercial applications for all three group applications.
This research and development is conducted in a wholly owned
subsidiary (a British Columbia company) of First American Scientific
Corp. No revenues have been generated at this facility.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated this 4th day of April, 1997.
FIRST AMERICAN SCIENTIFIC CORP.
(the "Registrant")
BY: /s/ Jack Lovelock, Chief Executive Officer
and a member of the Board of Directors.
BY: /s/ Robert G. Dinning, Secretary/Treasurer,
Chief Financial Officer and a Member of
the Board of Directors.
<PAGE> 16
EXHIBIT INDEX
Exhibit
No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at December 31, 1996 (Unaudited) and the
Statement of Income for the six months ended December 31, 1996 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 99,952
<PP&E> 2,359,768
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,364,720
<CURRENT-LIABILITIES> 989,218
<BONDS> 0
0
0
<COMMON> 16,652
<OTHER-SE> 2,786,520
<TOTAL-LIABILITY-AND-EQUITY> 4,364,720
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 327,651
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (327,651)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (327,651)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
