<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, 1997.
[ ] 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, 1997 was
18,063,198 shares.
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<PAGE> 2 PART I
ITEM 1. FINANCIAL STATEMENTS.
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
BALANCE SHEETS
<TABLE>
<CAPTION> Six Months Year
Ending Ending
ASSETS 12/31/97 06/30/97
<S> <C> <C>
CURRENT ASSETS
Cash $ 21,105 $ 8,211
Accounts receivable 37,904 72,940
Inventory 85,779 55,376
Prepaid expenses 27,411 18,836
---------- ----------
172,199 155,363
PROPERTY AND EQUIPMENT ---------- ----------
Kinetic Disintegrator equipment 872,246 872,246
Plant assets and equipment 1,558,156 1,512,561
Office equipment 24,740 8,916
Leasehold Improvements 8,510 5,476
---------- ----------
2,463,652 2,399,199
Less: Accumulated deprecation (31,536) (31,536)
---------- ----------
$2,432,116 $2,367,663
OTHER ASSETS ---------- ----------
Technology license -
net of amortization 2,133,833 1,883,833
Investment in Joint Venture 34,000 -
Deposits 17,759 15,568
---------- ----------
2,185,592 1,899,401
---------- ----------
$4,789,907 $4,422,427
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 23,600 $ 4,754
Accounts payable 456,590 406,272
Accrued interest payable 45,159 85,159
Litigation reserve 62,061 62,061
Short term loans payable 303,100 589,914
Loans payable - Knowlton Capital Inc. 790,229 790,229
License agreement payable 537,000 537,000
---------- ----------
2,217,739 2,475,389
---------- ----------
STOCKHOLDERS' EQUITY
Common stock - $.001 par value
50,000,000 shares authorized,
18,063,198 issued 18,510 13,622
Additional paid-in capital 4,546,894 3,731,471
Deficit accumulated during
the development stage (1,993,236) (1,798,055)
---------- ----------
Total Stockholders Equity 2,572,168 1,947,038
---------- ----------
$4,789,907 $4,422,427
========== ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-1
<PAGE> 3
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Six Months Ending Year Ending
December 31, 1997 June 30, 1997
<S> <C> <C>
INCOME $ 596,052 $ 347,721
COST OF SALES 240,962 157,974
---------- ------------
GROSS PROFIT 355,090 189,747
OPERATING EXPENSES 541,242 1,514,381
---------- -----------
NET INCOME (LOSS) $ (186,152) $ (1,324,634)
========== ============
NET INCOME (LOSS)
PER SHARE $ (0.01) $ (0.12)
========== ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-2
<PAGE> 4
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
Six Months Ending December 31, 1997
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
BALANCE
June 30, 1997 13,622,448 $ 13,622 $ 3,731,471 $ (1,807,084)
ADD:
Settlement of debt
of $116,188 for 937,000
shares of common stock
July 28, 1997 937,000 937 115,251
Settlement of debt of
$164,522 for 1,278,750
shares of common stock
July 28, 1997 1,278,750 1,278 163,244
Private placement of
1,000,000 shares of
common stock
August 5, 1997 1,000,000 1,000 199,000
Purchase of patent and
manufacturing rights
for 1,000,000 shares
of common stock
July 2, 1997 1,000,000 1,000 249,000
Settlement of debt of
$35,441 for 225,000 shares
of common stock - August
5, 1997 225,000 225 35,216
Purchase of fixed
assets for $16,600
for 73,000 shares of
common stock 73,000 73 16,527
Purchase of fixed
assets for $15,00
for 150,000 shares
of common stock 150,000 150 14,850
Settlement of debt
of $22,560 for
225,000 shares of
common stock 225,000 225 22,335
Net Loss for the period ending
December 31, 1997 (186,152)
---------- -------- ----------- ------------
18,511,198 $ 18,510 $ 4,546,894 $ (1,993,236)
========== ======== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 5
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Ending Year Ending
12/31/97 06/30/97
<S> <C> <C>
CASH FLOWS PROVIDED (USED) IN
OPERATIONS
Net income (loss) $ (186,152) $(1,324,634)
Adjustment to year end deficit (9,029)
Depreciation and amortization - 52,703
Adjustment to reconcile net loss
to net cash used by operations:
Financing fees paid by issuance
of stock - 203,867
Office services paid by issuance
of stock 35,036 91,923
Increase in accounts receivable - (72,940)
Increase in inventory (30,403) (55,376)
Increase in prepaid expenses (8,575) (9,733)
Increase in accounts payable and
accrued expenses 50,318 330,857
Increase in litigation reverse - 62,061
Increase in accrued interest (40,000) 72,397
Decrease in loans payable (286,814) (193,000)
---------- -----------
(475,619) (841,875)
---------- -----------
CASH FLOWS PROVIDED (USED) IN
INVESTING ACTIVITIES
Payment for technology license (250,000) -
Purchase of plant, property
and equipment (64,453) (1,389,534)
Investment in Joint Venture (34,000) -
Deposits (2,191) (7,058)
Proceeds from loans agreement -
---------- -----------
(350,644) (1,396,592)
---------- -----------
CASH FLOWS PROVIDED (USED)
IN FINANCING ACTIVITIES
Short term borrowings - 1,664,863
Payment on short-term borrowings - (110,000)
Proceeds from sales of stock 820,311 692,400
---------- -----------
820,311 2,247,263
---------- -----------
NET INCREASE (DECREASE) IN CASH $ (5,952) $ 8,796
CASH - Beginning of period 3,457 (5,339)
---------- -----------
CASH - End of period $ (2,495) $ 3,457
========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Financing fees $ 0 $ 194,466
Income taxes $ 0 $ 0
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-4
<PAGE> 6
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
December 31, 1997
NOTES TO FINANCIAL STATEMENTS
NOTE 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 sulfur. Because of the speculative
nature of the Company, there are significant risks, some of which
are summarized as follows:
* Newly formed company with limited sales and operating
history.
* Limited funds available for expansion, operations and debt
repayment.
* Assets principally consisting of technology, licenses and
related equipment, with patents granted.
The Company was formed April 12, 1995 and was in the development
stage (as defined in Statement of Financial Accounting Standards
No. 7) through the year ended June 30, 1996. Operations
commenced May 1, 1997. The year ending June 30, 1997 is the
first year in which First American Scientific Corp. is considered
an operating company.
Summary of Significant Accounting Principles
Depreciation will began May 1, 1997 when the Company's property,
plant and equipment were placed in service. The cost of
property, plant and equipment is being depreciated over the
estimated useful lives of the related assets. The cost of
leasehold improvements will be depreciated over the lesser 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 began May
1, 1997 when the Company's property, plant and equipment (which
directly originate from the licensed technology) were placed in
service. The cost of the Company's technology licenses will be
amortized over the estimated economic life of fifteen years.
F-5
<PAGE> 7
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
December 31, 1997
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Summary of Significant Accounting Policies . . . con't
Organizational costs were expensed when paid.
Provision for Taxes
At June 30, 1997, the Company had net operating loss carry
forwards of approximately $1,798,000 that may be offset against
future taxable income. No tax benefit has been reported in the
financial statements as the Company believes there is a 50% or
greater chance the net operating loss carry forward will expire
unused. Accordingly, the potential tax benefits of the net
operating loss carry forwards are offset by a valuation allowance
of the same amount.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued a
new statement titled "Accounting for Impairment of Long-Lived
Assets." This new standard is effective for years beginning
after December 15, 1995. In complying with this new standard,
the Company has reviewed its long-lived assets at June 30, 1997
and conclude that no events or changes in circumstances have
transpired which indicate that the carrying value of its assets
may not be recoverable. The Company does not believe that
adoption of the new standard will have a material effect on its
financial statements in the current fiscal year.
In October 1995, the Financial Accounting Standards Board issued
a new statement titled "Accounting for Stock Based Compensation"
(FAS 123). The new statement is effective for fiscal years
beginning After December 15, 1995. FAS 123 encourages, but does
not require, companies to recognize compensation expense for
grants of stock, stock options, and other equity instruments to
employees based on fair value. The Company has adopted the fair
value accounting rules to record all transactions in equity
instruments for goods and services.
NOTE 2 - STOCKHOLDERS' EQUITY
Common Stock
All shares have been adjusted for a 6-for-10 reverse stocks split
on August 14, 1995.
F-6
<PAGE> 8
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
December 31, 1997
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - GOING CONCERN
The Company's financial statements have been presented on a going
concern basis that contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The liquidity of the Company has been adversely affected by net
losses in fiscal year end June 30, 1996 and 1997.
The Company has reported a loss of $186,152 for the six months
ended December 31, 1997. In the year ending June 30, 1997, the
Company reported a loss of $1,324,634. At December 31, 1997, the
Company had a working capital deficit of $2,045,540.
Management has taken a number of actions to increase the sales of
the Company's industrial mineral products. Management intends to
seek new capital, either by increased borrowings or new equity
securities issuances that will provide funds needed to increase
liquidity, make strategic acquisitions or fund internal growth
and implement its business plans in regard to sludge and rubber
processing.
NOTE 4 - TECHNOLOGY LICENSE
On June 22, 1995, the Company executed a license agreement with
Spectrasonic Corp. (hereinafter "Spectrasonic") for the
worldwide license to its now patented kinetic disintegrator
systems (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 KDS machine was $550,000 and the license rights
valued at $250,000. Since this initial agreement, modifications
have been made to the machine, bringing its total cost to
$440,740 at December 31, 1997.
On February 22, 1996, the Company entered into an additional
license agreement with Spectrasonic for the worldwide license to
its now patented kinetic disintegrator systems (KDS) for
exclusive use in gypsum disintegration, and 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 is valued at $425,000 and the gypsum KDS
machine is valued at $350,000. Certain modifications have been
made to the machine, bringing its costs at December 31, 1997 to
$431,506.
F-7
<PAGE> 9
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
December 31, 1997
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - TECHNOLOGY LICENSE . . . con't
On May 17, 1996, the Company executed another agreement with
Spectrasonic for the worldwide license to equipment developed by
Spectrasonic use in disintegration, disposal, recycling,
remanufacturing or manufacturing of "any 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 $730,000 in varying installment amounts between June 30, 1996
and January 2, 1997. The Company issued 1,000,000 common shares
to Spectrasonic in July 1996. The Company has made payments to
Spectrasonic in the amount of $193,000, but is in default on this
agreement by its failure to make the remaining installments
totaling $537,000 before January 2, 1997. Spectrasonic has
agreed to amending this agreement but to date no amendment
agreement has been signed.
On July 2, 1997, the Company finalized negotiations with
Spectrasonic for all patents issued, to be issued or pending
including all data pertaining to the patent process with respect
to the KDS machine whose worldwide rights had been previously
acquired by the Company. In addition, 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 will be the
issuance of 1,000,000 common shares of the Company's stock at
$0.25 share plus payment of $500,000. The Cash payment to
Spectrasonic will be made at $50,000 per machine manufactured and
sold by the Company.
NOTE 5 - TRANSLATION OF FOREIGN CURRENCY
The Company has adopted Financial Accounting Standard No. 52.
Because the Canadian foreign exchange remained approximately the
same since inception, there are no material exchange rate
transaction gains or losses.
Common stock issued for payment on license agreements was
recorded in U.S. dollars.
F-8
<PAGE> 10
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
December 31, 1997
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - STOCK COMPENSATION PLANS
The Company has adopted a consultant and employee stock
compensation plan. The total number of shares eligible for
inclusion in the Plan is 350,000. Any shares issued as a result
of the exercise 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 December 31, 1997.
The Company had also adopted a directors and officers' stock
option plan. Directors have approved a plan wherein 1,000,000
shares are eligible for distribution. As of December 31, 1997,
550,000 options have been approved for issuance to officers and
directors but none have been exercised at December 31, 1997.
NOTE 7 - LOANS
On November 15, 1996, the Company entered into a loan agreement
with Huntingdon Limited in the amount of $100,000. This short-
term note is subject to simple interest, which adds to the note,
at 1% per month. At December 31, 1997, the Company owed a total
of $107,000 on this loan, which includes $7,000 of accrued
interest. The loan collateralized by an option to purchase
interest in mining claims and agreement.
On February 20, 1997, the Company entered into a loan agreement
with 834968 Ontario, Inc. in the amount of $20,000. This short-
term loan was fully retired on August 20, 1997.
During the year ended June 30, 1997, the Company entered into a
short-term loan agreement with Magic Trading, Inc. In the amount
of $171,414. This uncollateralized loan was due in October 1997
and was converted into common stock prior to that time.
During the year ended June 30, 1997, the Company entered into a
short-term loan agreement with Meraloma Club in the amount of
$36,500. The Company issued 16,818 shares of stock to Meraloma
Club as an incentive for providing the loan. This loan is
collateralized by the Company's Bakersfield plant and other
assets.
F-9
<PAGE> 11 FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
December 31, 1997
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LOANS . . . con't
On March 1, 1996, the Company entered into a loan agreement with
LCM Equity, Inc. The lender agreed to provide an unsecured
revolving line of credit up to $500,000, with interest at 9%, and
a maturity of February 16, 1997. The agreement gives the lender
the option of converting all or part of its loans into First
American common stock at a deemed value of $0.45 per share at any
time prior to February 28, 1997. This line of credit, which
amounted to $281,180 was paid off during the year ending June 30,
1997, with the issuance of 759,945 shares of common stock.
On April 30, 1996, the Company entered into a loan agreement with
Knowlton Capital, Inc., where the lender agreed to provide a
revolving line of credit. The loan agreement gave Knowlton
Capital, Inc., the option of converting its loan into First
American common stock at a deemed value of $0.75 per share on or
before December 31, 1996. During the year ended June 30, 1997,
the Company obtained an extension on this loan by issuance of
398,836 shares of common stock, valued at $131,617. This loan,
with an interest rate of 10% and an outstanding principal balance
of $790,229 at December 31, 1997, is secured by a collateral
mortgage on the Company's Bakersfield plant and other assets.
On January 21, 1997, the Company entered into a loan agreement
with Jacqueline Lovelock in the amount of $82,000. This short-
term note is subject to interest only at prime plus 3%. This
first interest payment was due ninety days after the date of this
loan. The entire amount of the note was due after six months.
The loan has been extended, and is considered a demand note.
This loan is collateralized, in a second position, by the
Bakersfield plant and other assets.
NOTE 8 - RELATED PARTY TRANSACTION
Spectrasonic Corp. is owned and controlled by Jon Martin and John
Sand, each of whom own 50% of its outstanding stock.
Spectrasonic, a shareholder in the Company with 1,250,000, is a
creditor of the Company (See Note 4.)
The Company leases office space at Suite 303 - 409 Granville
Street, Vancouver, British Columbia V6C 1T2 from LCM Equities, a
shareholder of the Company.
During the year ended June 30, 1997, the Company borrowed money
from Jacqueline Lovelock (See Note 7). Ms. Lovelock is a related
party to the Chairman and CEO of the Company.
F-10
<PAGE> 12 FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
December 31, 1997
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTION . . . con't
During the year ended June 30, 1997, the Company issued common
shares to Huntingdon Limited, 834968 Ontario Meraloma Club and
Knowlton Capital Inc., as incentives for lending funds to the
Company.
NOTE 9 - LEASES
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 1V5 from LCM Equities, Inc. The current
lease is unwritten, payable at $500 per month and is month-to-month.
In May 1996, the Company signed a lease to rent facilities in
Bakersfield, California for the industrial processing of gypsum,
limestone and specialty products. The lease, which requires
payments of $2,000 per month, expires on April 14, 1998.
In October 1996, the Company signed a three year for a 1996 Ford
truck. The lease, which requires monthly payments of $766, is
being recorded as an operating lease.
The Company is obligated under its lease arrangements to make
lease payments subsequent to June 30, 1997, as follows:
Year Ended
June 30 Amount
1998 29,192
1999 9,192
2000 2,298
------
TOTAL 40,682
======
NOTE 10 - 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 the 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
June 30, 1997.
F-11
<PAGE> 13 FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
December 31, 1997
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - LITIGATION RESERVE
During the year ended June 30, 1997, the Company agreed to out-of-
court settlements resulting from alleged breach of contracts
suits by equipment and labor providers against the Company in the
amount of $44,366. This amount has been set aside as a
litigation reserve and is included in the Company's general and
administrative expenses.
The Company is currently involved in two lawsuits resulting from
alleged breach of contracts with two suppliers for payment of
goods and services. The Company is in the process of settling
these claims in the amount of $17,695. This amount has been set
aside as a litigation reserve and is included in the Company's
general and administrative expenses.
NOTE 12 - EARNINGS (LOSS) PER SHARE
The net income (loss) per share is computed using the weighted
average number of shares outstanding and amounts to ($0.01) and
($0.12) per share for the six months ending December 31, 1997 and
the year ending June 3, 1997.
F-12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company was incorporated on April 12, 1995, and commenced
construction of a plant in Bakersfield, California in July 1996.
Initial funding for the startup was achieved by way of sale of
common stock and by borrowing funds on varying terms and
conditions. This allowed the Company to complete construction of
the facility in Bakersfield and continue with the research and
development of the technology as it is applicable in the sludge
processing industry.
The Company was a development stage company until May 1997 when
the Bakersfield plant commenced full production. In the first
six months of operation this fiscal year (to December 31, 1997)
sales amounted to $596,000.
At December 31, 1997, the Company had a bank overdraft of $2,500.
It also had inventories, receivables, and other current assets of
$150,000. Its current accounts payable of $456,000 means the
Company will continue to raise funds from sale of common stock,
and from private loans, until it can generate its cash
requirements internally. The Company recognizes a need for
additional working capital as well as restructuring some of its
current debt in order to achieve better ratios.
In the first six months of operation, the Company has raised
$820,000 from the sale of common stock. These funds were used to
retire existing loans, acquire additional fixed assets, and for
general working capital purposes.
The Company has sufficient liquidity to maintain its operation
while it continues to seek additional funding.
Results of Operations
During the quarter ending December 31, 1997, the Company incurred
an operating loss of $26,000, bringing its loss for the first six
months of the fiscal year to $186,152. Wages and benefits
continue to be the major expense with labor costs in the quarter
amounting to $90,000, bringing the labor cost for the first six
months to $220,000. Lease to purchase has also been a major
expense but management has taken steps to reduce these costs by
divesting itself of the trucking part of the business. In the
first six months, lease to purchase costs charged to the income
statement amounted to $77,000. These costs in the future will be
reduced to less than $1,000 per month. Management has also taken
steps to streamline the operation by marketing primarily milling
services, thus avoiding costly transportation and raw material
inventory costs. The cost reductions implemented should be
<PAGE> 15
reflected in the next quarterly statement. Revenue in the second
quarter was derived from sale of processed gypsum and potash.
There is a potash contract in place which will show results in
the next quarter. This customer has given the Company a contract
for 8,000 tons of product to be processed by the end of March
1998.
The plant became fully operational in May 1997 and the Company
operated two shifts per day, during July and part of August. 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.
While revenue was derived only from gypsum and potash during the
quarter ending December 31, 1997, the Company expects to expand
its markets in the next quarter and commence selling broadcast as
well as solution grade gypsum. The gypsum mine in Blythe,
California is expected to be in full production by March 1, 1998.
The Company expects to sell Broadcast gypsum to both the farming
industry and the cement industry.
The Company advises that LCM Equity, Inc. converted all
outstanding loans into common stock. All loans to Magic Trading
have been converted to common stock. A loan in the amount of
$200,000 due to 834968 Ontario, Inc. has been retired during the
quarter ending September 30, 1997.
Inflation
Inflation continues to be a non factor in the quarter ending
December 31, 1997. This is consistent with the previous fiscal
year ending June 30, 1997. Construction costs were not adversely
affected by inflation, nor has inflation had any adverse affect
on operating costs to date.
QUARTER ENDED DECEMBER 31, 1997
The Company rents premises at 4100 Burr Street, 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.
<PAGE> 16
During the quarter ending December 31, 1997, the largest single
expenditure was $90,000 for payroll and $33,000 in lease costs
related to the lease/purchase of equipment. The Company also
spends funds on a marketing program to promote the technology as
it relates to industrial minerals, rubber and biowaste (sludge).
The Company has reconfigured the machine for biowaste and
completed onsite testing program for biowaste. Test results from
the biowaste test site were very good and the Company was very
pleased with the Pathogen count and the moisture reduction in the
test site. It is expected that a more extensive test will be
conducted in early 1998 prior to proceeding to its first
commercial application.
All operating 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. The conversion rate over the past year has varied
between US$0.70 to US$0.73 to CAN$1.00.
Foreign Operations
The Company is conducting its biowaste testing at Chilliwack,
British Columbia, Canada. At these facilities, the Company
carries out research and development work on biowaste, and
industrial minerals. The focus of its efforts in the quarter
ending December 31, 1997 was directed toward biowaste. An
administrative office is maintained in Vancouver, British
Columbia, Canada.
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.
EXHIBIT INDEX
Exhibit
No. Description
27 Financial Data Schedule
<PAGE> 17
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 7th day of May, 1998.
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of Financial Condition at December 31, 1997
(Unaudited) and the Consolidated Statement of Income for the six months
ended December 31, 1997 (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-31-1997
<CASH> 21,105
<SECURITIES> 0
<RECEIVABLES> 37,904
<ALLOWANCES> 0
<INVENTORY> 85,779
<CURRENT-ASSETS> 172,199
<PP&E> 2,463,652
<DEPRECIATION> (31,536)
<TOTAL-ASSETS> 4,789,652
<CURRENT-LIABILITIES> 2,217,739
<BONDS> 0
0
0
<COMMON> 4,565,404
<OTHER-SE> (1,993,236)
<TOTAL-LIABILITY-AND-EQUITY> 4,789,907
<SALES> 596,052
<TOTAL-REVENUES> 596,052
<CGS> 240,962
<TOTAL-COSTS> 782,204
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (186,152)
<INTEREST-EXPENSE> 17,917
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186,152)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
