<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
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 March 31, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from:
------------------------------
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 March 31, 1997 was 13,081,092 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
MARCH 31, 1997
<PAGE> 3 FIRST AMERICAN SCIENTIFIC CORP.
BALANCE SHEET - See Notes to Financials
<TABLE>
<CAPTION> Nine Months
Ending Year ending
03/31/97 06/30/96
<S> <C> <C>
ASSETS
Current Assets
Bank $ 21,384 $ (5,339)
Accounts receivable 40,951 -
Inventory - raw materials 18,535 -
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 1,515,533 139,929
Leasehold Improvements 5,476 5,476
Security deposit 15,568 8,510
----------- -----------
4,313,823 2,923,175
----------- -----------
$ 4,413,600 $ 2,926,939
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Account payable $ 279,281 $ 75,415
Accrued interest payable - 12,762
License agreement payable 547,000 1,230,000
----------- -----------
826,281 1,318,177
----------- -----------
Other Liabilities
Loans payable 1,216,631 672,177
___________ ___________
Stockholders' Equity
Common Stock - $0.001 par value
50,000,000 shares authorized
13,081,092 shares issued 13,031 8,505
Additional paid in capital 3,692,662 1,400,818
Deficit accumulated during the
development stage (1,335,005) (473,421)
----------- ----------
Total Stockholders' Equity 2,370,688 935,902
----------- ----------
$ 4,413,600 $ 2,926,939
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-1
<PAGE> 4 FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF LOSS AND ACCUMULATED
DEFICIT
See Notes to Financials
<TABLE>
<CAPTION>
Nine Months
Ending Year ending
03/31/97 06/30/96
<S> <C> <C>
INCOME $ 154,690 $ -
OPERATING EXPENSES 1,016,274 (473,421)
---------- ----------
NET INCOME (LOSS) $ (861,584) $ (473,421)
========== ==========
NET INCOME (LOSS) PER SHARE $ (0.06) $ (0.06)
========== ==========
</TABLE>
The Company commenced operations in March 1997. Prior to
that,
they were a development stage company.
See accompanying notes to financial statements.
F-2
<PAGE> 5 FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
See Notes to Financials
(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 3.)
<TABLE>
<CAPTION>
Nine
Months Year
Common Stock Ending ending
Shares Amount 03/31/97 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 05/02/95 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.
STATEMENT OF STOCKHOLDERS' EQUITY
See Notes to Financials
(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 3.)
Nine
Months Year
Common Stock Ending ending
Shares Amount 03/31/97 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
Sale of 100,000 shares 100,000 100 22,400
of Common Stock in
Private Placement
financing, in 09/96
Sale of 1,142,188 1,142,188 1,142 455,733
shares of loan
conversions and
settlement of debt by
issuance of common shares
Sale of 924,411 shares 942,411 942 444,722
in settlement of debt
conversion and settlement
of financing fees
F-3
<PAGE> 7
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
See Notes to Financials
(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 3.)
Nine
Months Year
Common Stock Ending ending
Shares Amount 03/31/97 06/30/96
<S> <C> <C> <C> <C>
Net Loss for period (861,584)
---------- ------ --------- ---------
Balance 03/31/97 13,081,092 13,031 3,692,662 (861,584)
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 8
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF CASH FLOWS
See Notes to Financials
<TABLE>
<CAPTION>
Nine
Months Year
Ending ending
03/31/97 06/30/96
<S> <C> <C>
CASH FLOWS PROVIDED (USED) IN OPERATIONS
Net Income (loss) $ (861,584) $ (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 (40,951) -
(Increase) in inventory (18,535) -
(Increase) in prepaid expenses (9,805) (9,103)
Increase in accounts payable 203,867 75,415
Increase in accrued interest payable (12,761) 12,761
Payment on license agreement payable (500,000) (127,000)
---------- ----------
(1,239,769) (421,348)
CASH FLOWS PROVIDED (USED) IN INVESTING ACTIVITIES
Payment for technology license (183,000) (248,000)
Purchase of equipment (1,334,535) (629,188)
Leaseholder improvements - (5,476)
Security deposits (7,058) (8,510)
Proceeds from loans 543,771 844,183
---------- ---------
(1,029,878) (46,991)
---------- ---------
2,296,370 463,000
---------- ---------
NET INCREASE IN CASH $ 26,723 $ (5,339)
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 0
Income tax $ 0
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES
Issued 3,123,599 shares of Common Stock in private placement
financing and financing fees paid in Common Stock.
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
See accompanying notes to financial statements.
F-4
<PAGE> 9
FIRST AMERICAN SCIENTIFIC CORP.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1997
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. This status
ceased when operations commenced in February 1997.
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> 10 FIRST AMERICAN SCIENTIFIC CORP.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1997
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. By mutual agreement, this lease is
being terminated effective April 30, 1997. There are no additional
fees regarding cancellation.
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$1,000 per month, expires on May 14, 1999.
The Company has ten employees at March 31, 1997.
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 March
31, 1997.
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 March 31, 1997 to
$431,506.
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> 11 FIRST AMERICAN SCIENTIFIC CORP.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1997
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 and no specific
terms for repayment presently exit.
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 ($0.06) 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 March 31, 1997.
The Company has also adopted a directors and officers' stock option
plan. Directors have approved a plan wherein 2,000,000 shares are
eligible for distribution. To date there has been no allotment to
eligible directors and officers.
F-7
<PAGE> 12
FIRST AMERICAN SCIENTIFIC CORP.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1997
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. All loans arranged with LCM
Equity Inc. As at March 31, 1997 have been converted into common
shares of equity in the Company.
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 March 31, 1997 was $876,194.
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 March 31, 1997.
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company was considered to be in the development stage as defined
in Statement of Accounting Standards No 7. until February, 1997 when
the Company commenced selling processed industrial mineral
materials. Prior to this, there had been no operations since
incorporation on April 12, 1995, and all funds required to maintain
liquidity, finance the construction of the plant in Bakersfield, and
the startup process, had been raised through private loans and the
sale of common stock. The Company continues to raise funds from
private loans, and the sale of common stock until it can generate
its cash requirements by internal means. As the Company has now
entered full production, it anticipates that its requirements for
additional capital will be minimal , as the business becomes cash
flow positive. The financing anticipated will be a restructuring of
its existing debt, and the Company intends to pursue this course of
action.
At March 31, 1997, the Company had cash on hand of $21,000. It
also had inventory and accounts receivable of an additional $60,000,
but this is offset by accounts payable of $279,000. The Company
recognizes that it requires more working capital and is addressing
the issue. It anticipates raising either long term debt or equity in
the next quarter to help correct the imbalance in the working capital
position.
The Company has sufficient liquidity to maintain its operation
through its production startup stage. During the past quarter, the
Company obtained an additional $350,000 in loans and sale of common
shares. These funds were used to pay down accounts payable, and
assist in acquisition of raw materials for the commencement of
production. The Company has completed its capital construction
program and requires only nominal additions in the year ahead.
Production started in February, 1997 and the Company had sales of
$154,000 in the quarter ending March 31, 1997.
RESULTS OF OPERATIONS
During the third quarter ending March 31, 1997, the Company incurred
an operating loss of $534,000 thus bringing the loss for the year to
date to $861,584. These losses included financing costs of
$165,000 and some startup marketing and promotional expenditures of
$35,000. These costs were incurred in the third quarter. As well,
the Company incurred additional equipment leasing costs in the third
quarter of $65,000. These lease obligations have been renegotiated
and the contracts have been converted to a lease to purchase, with
lower monthly charges.
<PAGE> 14
The plant became fully operational in March, 1997 and the Company is
presently operating two shifts per day, on a five day working week.
The two SDM machines, along with the bagging equipment, bulk hoppers,
conveyor systems, and the extensive electrical system, are
functioning as anticipated and production levels are in line with
budgeted projections. Plant costs of $1,515,000 are in excess of
original estimates and resulted in additional financing costs. These
additional costs have been financed through sale of debt and equity
financing of $350,000.
This quarter saw the Company commence sale of industrial minerals,
being mainly processed gypsum. The Company has also completed
testing on potash, limestone, anticipates sales of said products in
the next quarter. As well, the Company anticipates blending of
products which will be sold at higher profit margins than unblended
products.
During the third quarter, weather conditions were quite poor and this
sharply curtailed the sale of broadcast or bulk gypsum material.
While the Company has not abandoned this market, it will focus its
efforts in the next six months in the sale of processed industrial
minerals.
The Company advises that LCM Equity Inc converted all outstanding
loans into common stock.
INFLATION
Inflation continues to be a non-factor in the quarter ending March
31, 1997. This is consistent with the previous quarter and for the
fiscal year ending June 30, 1996. Construction costs were not
adversely affected by inflation, nor has inflation had any adverse
affect on operating costs to date.
QUARTER ENDED MARCH 31, 1997
The Company rents premises at 4100 Burr Street in Bakersfield,
California, for the sum of $1,000 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 March 31, 1997, the largest single
expenditure was $165,000 for financing costs related to the various
private placements, and loans arranged over the past nine months. The
Company also started a marketing program ($35,000) to create a better
awareness for the technology as it relates to industrial minerals,
rubber and biowaste (sludge). During the third quarter, the Company
<PAGE> 15
continues to spend funds ($25,000) on research and development for
rubber and biowaste (sludge) and is optimistic that an onsite
testing program for biowaste will be implemented in the next three to
six months.
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 focus of its efforts in the quarter ending March 31,
1997 was directed toward biowaste. As indicated above, a test
program will be implemented regarding biowaste in the near future.
The Company is evaluating its basic research and development center
and hopes to soon reach a conclusion as to the best method of
conducting this research. Its alternative is to consider conducting
this research at an onsite production facility.
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> 16
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 12th day of May, 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> 17
EXHIBIT INDEX
Exhibit
No. Description
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at March 31, 1997 (Unaudited) and the
Statement of Income for the nine months ended March 31, 1997 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 21,384
<SECURITIES> 0
<RECEIVABLES> 40,951
<ALLOWANCES> 0
<INVENTORY> 18,535
<CURRENT-ASSETS> 99,777
<PP&E> 18,907
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,313,823
<CURRENT-LIABILITIES> 826,281
<BONDS> 0
0
0
<COMMON> 3,705,693
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,413,600
<SALES> 154,690
<TOTAL-REVENUES> 154,690
<CGS> 1,016,274
<TOTAL-COSTS> 1,016,274
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (861,584)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
