<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 September 30, 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 September 30, 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
SEPTEMBER 30, 1996
<PAGE> 3
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
BALANCE SHEET
<TABLE>
<CAPTION>
Three Months
Ending Year ending
09/30/96 06/30/96
<S> <C> <C>
ASSETS
Current Assets
Bank $ 82,427 $ (5,339)
Sundry accounts receivable 3,000 -
Prepaid expenses 6,415 9,103
----------- -----------
91,842 3,764
----------- -----------
Other Assets
Technology license 1,905,000 1,905,000
Ultrasound equipment 872,246 864,260
Plant assets and equipment 825,717 139,929
Leasehold Improvements 5,476 5,476
Security deposit 16,068 8,510
----------- -----------
3,624,507 2,923,175
----------- -----------
$ 3,716,349 $ 2,926,939
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Account payable $ 63,415 $ 75,415
Accrued interest payable 12,762 12,762
Loans payable 941,680 672,860
License agreement payable 620,500 1,230,000
----------- -----------
1,638,357 1,991,037
----------- -----------
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 2,764,065 1,400,818
Deficit accumulated during the
development stage (702,680) (473,421)
----------- ----------
Total Stockholders' Equity 2,077,992 935,902
----------- ----------
$ 3,716,349 $ 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>
Three Months
Ending Year ending
09/30/96 06/30/96
<S> <C> <C>
INCOME $ - $ -
OPERATING EXPENSES 229,259 473,421
---------- ----------
NET INCOME (LOSS) $ (229,259) $ (473,421)
========== ==========
NET INCOME (LOSS) PER SHARE $ (0.02) $ (0.06)
========== ==========
</TABLE>
The Company is in the development stage and has not commenced
operations.
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>
Three
Months Year
Common Stock Ending ending
Shares Amount 09/30/96 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
</TABLE>
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.)
<TABLE>
<CAPTION>
Three
Months Year
Common Stock Ending ending
Shares Amount 09/30/96 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 (229,259)
---------- ------ --------- ---------
Balance 09/30/96 10,914,493 16,607 2,764,065 (229,259)
</TABLE>
F-3
<PAGE> 7
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year
Ending ending
09/30/96 06/30/96
<S> <C> <C>
CASH FLOWS PROVIDED (USED) IN OPERATIONS
Net Income (loss) $ (229,259) $ (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 (3,000) -
(Increase) Decrease in prepaid expenses 2,688 (9,103)
Increase in accrued interest payable - 12,761
Increase (Decrease) in accounts payable (12,000) 75,415
Payment on license agreement payable (109,500) (127,000)
---------- ----------
CASH FLOWS PROVIDED (USED) IN INVESTING ACTIVITIES
Payment for technology license - (248,000)
Purchase of equipment (693,775) (629,188)
Leaseholder improvements - (5,476)
Security deposits (7,558) (8,510)
Proceeds from loans 420,270 844,183
---------- ----------
(231,063) (46,991)
---------- ----------
699,900 463,000
---------- ----------
CASH FLOWS PROVIDED (USED) IN FINANCING ACTIVITIES
Proceeds from sale of stock $ 87,766 $ (5,339)
========== ==========
NET INCREASE IN CASH
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 0
Income tax $ 0
</TABLE>
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
September 30, 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.
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.
<PAGE> 9
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 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 September 30, 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
September 30, 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 $425,000and the
gypsum SDM machine is valued at $350,000.
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
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.
<PAGE> 10
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1996
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 $0.02) 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 September 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.
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.
<PAGE> 11
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1996
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 September 30, 1996 is $72,692. This balance will
be converted in the second quarter of the fiscal year.
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.
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 September 30, 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 have been raised through sale of stock and loans.
The Company intends to continue to raise funds from sale of stock, and
from loans arranged through LCM Equity, Inc., and Knowlton Capital
Corp. until it becomes operational and generates its own capital
requirements.
At September 30, 1996, the Company had cash on hand of $82,000, and has
sufficient liquidity to complete its plant construction in October
1996. All equipment necessary to commence operations has been received
at the Bakersfield plant. The month of October will be spent finalizing
construction and testing the system.
Results of Operations
During the first quarter ending September 30, 1996, the Company
incurred losses of $229,259. These losses are primarily the result of
no revenue, and expenses in equipment rental, contract labor, and
consulting fees. These losses have been financed by a combination of
sale of stock and loan agreements. The Bakersfield plant, consisting of
two SDM machines, conveyors, bulk hoppers, bagging equipment, and
numerous other items, was completed during the month of October 1996.
At September 30, 1996, all equipment necessary was on hand and October
was devoted to finalizing extensive electrical work, and final assembly
of equipment. Full production will commence sometime in November 1996.
During the quarter ending September 30, 1996, almost $700,000 was
expended on fixed assets at the Bakersfield plant. Private placement
financing for 957,000 common shares raised $670,000 while the remaining
funds necessary to operate were received from Knowlton Capital Corp.
During this same quarter, LCM Equity converted loans totaling $201,449
into 452,376 shares of common stock.
The Company issued 1,000,000 common shares to Spectrasonic Corp.
pursuant to the License Agreement dated May 17, 1996. As a result of
this issuance plus the private placement financing above, plus the
conversion of LCM loans to equity, the Company at September 30, 1996
had 10,914,493 shares outstanding.
The Company reduced its obligations to Spectrasonic Corp. regarding the
May 17, 1996 Agreement to $620,500 at September 30, 1996. An agreement
is in place with Spectrasonic Corp. in regard to payment of the balance
of funds outstanding.
<PAGE> 13
Inflation
Inflation has not and is not a factor during the quarter ending
September 30, 1996. None of the costs incurred during construction
have been adversely, affected by inflation.
The Company has not generated any revenue to date, and the effects of
inflation have not been felt.
Quarter Ended September 30, 1996
The Company occupies premises in Bakersfield, California where it
operates two SDM machines capable of producing up to 6,000 tons of
product per month. These premises are rented at $2,000 per month and
the lease is for one year but is renewable.
The largest single expense incurred in the quarter from an operations
point of view is the $55,000 spent on consultants. These consultants
included general contracting on the plant site plus sourcing of
material supply for resale. As well, the Company has a research and
development branch in Richmond, British Columbia Canada, where it spent
$35,000 during the quarter ending September 30, 1996.
The Company has not generated any revenues in the quarter ending
September 30, 1996. If fully expects to be in full production in
November 1996.
All results are reflected in U.S. dollars and any foreign exchange loss
or gain is nominal as the value of the Canadian dollar to the U.S.
dollar has changed very little during the past fiscal year.
Foreign Operations
The Company has rented facilities in Richmond, British Columbia Canada,
a suburb of Vancouver, British Columbia wherein it conducts basic
research on rubber, glass, industrial minerals, and sludge. It intends
to continue using this facility for research and development. The
Company has a wholly owned subsidiary in the Province of British
Columbia where it carries out its research operation. No revenues have
been generated at this location.<PAGE>
<PAGE> 14
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 2nd 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> 14
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 September 30, 1996 (Unaudited) and
the Statement of Income for the year ended September 30, 1996 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 91,842
<PP&E> 1,703,439
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,716,349
<CURRENT-LIABILITIES> 1,638,357
<BONDS> 0
0
0
<COMMON> 16,607
<OTHER-SE> 2,077,992
<TOTAL-LIABILITY-AND-EQUITY> 3,716,349
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 229,259
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (229,259)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (229,259)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
