<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 March 31, 1998.
[ ] 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 March 31, 1998 was 46,151,018
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>
Nine Months Year
Ending Ending
ASSETS 03/31/98 06/30/97
<S> <C> <C>
CURRENT ASSETS
Cash $ 7,865 $ 8,211
Accounts receivable 24,343 72,940
Inventory 114,373 55,376
Advance Royalties 98,498 0
Prepaid expenses 9,203 18,836
---------- ----------
254,271 155,363
---------- ----------
PROPERTY AND EQUIPMENT
Kinetic Disintegrator equipment 872,246 872,246
Plant assets and equipment 1,558,172 1,512,561
Office equipment 24,740 8,916
Leasehold Improvements 8,510 5,476
---------- ----------
2,463,688 2,399,199
Less: Accumlated Depreciation (31,536) (31,536)
---------- ----------
2,432,132 2,367,663
OTHER ASSETS
Technology license -
net of amortization 2,133,833 1,883,833
Deposit 17,759 15,568
---------- ----------
2,151,592 1,899,401
---------- ----------
$4,837,995 $4,422,427
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 0 $ 4,754
Accounts payable 473,936 406,272
Accrued interest payable 11,154 85,159
Litigation reserve 62,061 62,061
Short term loans payable 0 589,914
Loans payable - Knowlton Capital Inc. 0 790,229
License agreement payable 537,000 537,000
---------- ----------
1,084,151 2,475,389
---------- ----------
STOCKHOLDERS' EQUITY
Common stock - $.001 par value
50,000,000 shares authorized,
46,151,018 issued 46,151 13,622
Additional paid-in capital 5,939,544 3,731,471
Deficit accumulated during
the development stage (2,231,851) (1,798,055)
---------- ----------
Total Stockholders' Equity 3,753,844 1,947,038
---------- ----------
$4,837,995 $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>
Nine Months Ending Year Ending
March 31, 1998 June 30, 1997
<S> <C> <C>
INCOME $ 645,133 $ 347,721
COST OF SALES 260,607 157,974
---------- -----------
GROSS PROFIT 384,526 189,747
OPERATING EXPENSES 809,293 1,514,381
--------- ------------
NET INCOME (LOSS) $(424,767) $ (1,324,634)
========= ============
NET INCOME (LOSS)
PER SHARE $ (0.009) $ (0.12)
========= ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-2
<PAGE> 4
(The statement of Stockholders' Equity has been divided unto two
pages for transmission via EDGAR. This is page one of two.)
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
Nine Months Ending March 31, 1998
<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 $15,000 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
Settlement of debt of
$24,475 for 448,500 shares
of common stock - March
1998 448,500 449 24,026
<PAGE> 5
(The statement of Stockholders' Equity has been divided unto two pages for
transmission via EDGAR. This is page two of two.)
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
Nine Months Ending March 31, 1998
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
Settlement of debt of
$10,000 for 200,000 shares
of common stock - March
1998 200,000 200 9,800
Settlement of debt of
$44,000 for 550,000 shares
of common stock - February
1998 550,000 550 43,450
Settlement of secured debt
$1,171,501 for 23,430,000
shares of common stock
March 1998 23,430,000 23,430 1,148,071
Settlement of royalty
agreement debt $135,816.76
by issuance of 2,716,320
shares of common stock
March 1998 2,716,320 2,717 133,100
Settlement of royalty
payment $34,498 by
issuance of 295,000
shares of common stock
February 1998 295,000 295 34,203
Net Loss for the period ending
March 31, 1998 (424,767)
---------- -------- ----------- ----------
46,151,018 $ 46,151 $ 5,939,544 $(2,231,851)
========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 6
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Ending Year Ending
03/31/98 06/30/97
<S> <C> <C>
CASH FLOWS PROVIDED (USED) IN
OPERATIONS
Net income (loss) $ (424,767) $(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 - 91,923
(Increase) in accounts receivable 48,597 (72,940)
Increase in inventory (58,997) (55,376)
(Increase) in prepaid expenses 9,633 (9,733)
Increase in Royalties paid (98,498) -
Increase in accounts payable
and accrued expenses 67,664 330,857
Increase in litigation reserve - 62,061
(Increase) in accrued interest (74,005) 72,397
Decrease in loans payable (1,380,143) (193,000)
---------- -----------
(1,919,545) (841,875)
---------- -----------
CASH FLOWS PROVIDED (USED) IN
INVESTING ACTIVITIES
Payment for technology license (250,000) -
Purchase of plant,
property and equipment (64,469) (1,389,534)
Deposits (2,191) (7,058)
Proceeds from loans -
---------- -----------
(316,660) (1,396,592)
---------- -----------
CASH FLOWS PROVIDED (USED)
IN FINANCING ACTIVITIES
Short term borrowings - 1,664,863
Payments on short-term borrowings - (110,000)
Proceeds from sales of stock 2,240,602 692,400
---------- -----------
2,240,602 2,247,263
---------- -----------
NET INCREASE (DECREASE) IN CASH $ 4,397 $ 8,796
CASH - Beginning of period 3,457 (5,339)
---------- -----------
CASH - End of period $ 7,854 $ 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> 8 FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
March 31, 1998
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 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> 8
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
March 31, 1998
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Summary of Significant Accounting Policies . . . con't
Organizational costs, which are deemed immaterial, were expensed
when paid.
Provision for Taxes
At June 30, 1997, the Company had net operating loss carry
forwards of approximately $1,807,000 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> 9
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
March 31, 1998
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 $424,767 for the nine months
ended March 31, 1998 bringing the accumulated losses to
$2,231,851. At March 31, 1998, the Company had a working capital
deficit of $898,378. This deficit is a significant reduction
from December 31, 1997, but additional refinancing is required.
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 March 31, 1998.
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 March 31, 1998 to
$431,506.
F-7
<PAGE> 10
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
March 31, 1998
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> 11
FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
March 31, 1998
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 March 31, 1998.
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 March 31, 1998,
550,000 options have been approved for issuance to officers and
directors but none have been exercised at March 31, 1998.
NOTE 7 - LOANS
On November 15, 1996, the Company entered into a loan agreement
with Huntingdon Limited in the amount of $100,000. In March
1998, this loan plus accrued interest was converted into shares
of common stock in the Company.
On February 20, 1997, the Company entered into a loan agreement
with 834968 Ontario, Inc. in the amount of $200,000. 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 plus additional plus
additional loans during the year were converted into common stock
in the Company.
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. This loan, plus accrued interest was converted into
shares of Common Stock of the Company.
F-9
<PAGE> 12 FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
March 31, 1998
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LOANS . . . con't
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 has been extended
over the past two years, and in March 1998, the Knowlton Capital
Inc. loan of $521,851 was converted into shares of Common Stock.
On January 21, 1997, the Company entered into a loan agreement
with Jacqueline Lovelock in the amount of $82,000. This was a
secured loan, whose terms have been extended and the amounts
increased. These loans of $160,000 were converted into shares of
Common Stock in the Company.
During the year, certain loans totalling $135,816 were obtained
in regard to the financing of the mine site in Blythe,
California. These loans were to have been repaid by a royalty
arrangement but in March 1998, all royalty agreements in the
amount of $135,816 were converted into shares of Common Stock in
the Company.
Additional sundry loans obtained during the year have also been
converted to shares of Common Stock and at March 31, 1998, the
Company had no loans outstanding.
NOTE 8 - RELATED PARTY TRANSACTION
Spectrasonic Corp. is owned and controlled by Mssr's Martin and
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.
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.
F-10
<PAGE> 13 FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
March 31, 1998
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - LEASES . . . con't
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.
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.
F-11
<PAGE> 14 FIRST AMERICAN SCIENTIFIC CORP.
(A Development Stage Enterprise)
March 31, 1998
NOTES TO FINANCIAL STATEMENTS
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 ($0.009) and
($0.12) per share for the six months ending March 31, 1998 and
the year ending June 3, 1997.
F-12
<PAGE> 15
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.
The Company was a development stage company until May 1997 when
the Bakersfield plant commenced full production. In the nine
months ending March 31, 1998, sales amounted to $645,000.
At March 31, 1998, the Company had a bank balance of $2,500.
Accounts receivable and Inventories totaled $$138,000. The
Company has also made advance royalty payments regarding its
Blythe, California Gypsum operation in the amount of $98,000.
Accounts payable at March 31, 1998 amount to $473,000, meaning
the Company will continue to raise funds either from sale of
common stock or from private loans, until it can generate its
cash requirements internally. The Company recognizes a need for
additional working capital as it also has a current obligation in
regard to the balance owing on its acquisition of the patent
rights etc attached to its technology in the amount of $537,000.
In the first nine months of operation, the Company has raised
$2,240,602 from the sale of common stock. These funds were used
to retire all loans outstanding at June 30, 1997 plus those
incurred during the current fiscal year. These loans amounted to
$1,715,000. As well, funds in the amount of $250,000 were
expended to acquire manufacturing rights, $64,000 regarding
additional fixed assets, and the balance for general working
capital purposes. While its working capital position has improved
significantly from June 30, 1997 to the present, its current
deficiency of approximately $800,000 requires that management
continue to seek additional financing to correct this imbalance.
The Company has sufficient liquidity to maintain its operation
while it continues to seek additional funding.
Results of Operations.
During the quarter ending March 31, 1998, the Company incurred an
operating loss of $238,615, bringing its loss for the first nine
months of the fiscal year to $424,767. This quarter included one
time interest charges on loans outstanding which were converted
to common stock. This interest amounted to $101,000. Business
volume and expense was somewhat modest during the past quarter
because of weather conditions, and the slow season for product.
The operating loss at the Bakersfield plant during the past
quarter was $70,000. Wages and benefits during the quarter
amounted to $40,000. Lease to purchase expense has been a major
item but management has eliminated the hauling portion of the
business and lease costs during the quarter amounted to only
<PAGE> 16
$9,000. In the first nine months, lease to purchase costs
charged to the income statement amounted to $87,000. These costs
in the future will not be significant. Management has also taken
steps to streamline the operation by marketing primarily milling
services, thus avoiding costly transportation and raw material
inventory costs. Revenue in the third quarter was derived from
sale of processed gypsum and potash. The Company continues to
fulfil a contract for the milling of potash.
The plant became fully operational in May 1997 and the Company
operated two shifts per day, during July and part of August. The
two KDS 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 March 31, 1998, 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 commenced production April 1998 and expects to sell
Broadcast gypsum to both the farming industry and the cement
industry.
As indicated earlier, the Company reached agreement with its
secured debt holders to convert all outstanding loans into common
stock at $0.05 per share. In addition to this, the Company has
also negotiated with all holders of Royalty Agreements regarding
gypsum production at Blythe, California to convert their holdings
to common shares. This debt of $135,817 has been converted at
$0.05 per share into common shares of the Company. A loan in the
amount of $200,000 due to 834968 Ontario, Inc. was retired during
the quarter ending September 30, 1997.
Inflation
Inflation continues to be a non factor in the quarter ending
March 31, 1998. This is consistent with the previous fiscal year
ending June 30, 1997. Construction costs have been completed and
were not adversely affected by inflation, nor has inflation had
any adverse affect on operating costs to date.
Quarter Ended March 31, 1998
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) KDS 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
<PAGE> 17
$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, 1998, the largest single
expenditure was $40,000 for payroll and $9,000 in lease costs
related to the cancellation of lease/purchase contracts. 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 are very positive 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 June 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 March 31, 1998 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> 18
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 March 31, 1998
(Unaudited) and the Consolidated Statement of Income for the nine months
ended March 31, 1998 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1998
<CASH> 7,854
<SECURITIES> 0
<RECEIVABLES> 24,343
<ALLOWANCES> 0
<INVENTORY> 114,373
<CURRENT-ASSETS> 254,271
<PP&E> 2,463,668
<DEPRECIATION> (31,536)
<TOTAL-ASSETS> 4,837,995
<CURRENT-LIABILITIES> 1,084,151
<BONDS> 0
0
0
<COMMON> 5,985,695
<OTHER-SE> (2,231,851)
<TOTAL-LIABILITY-AND-EQUITY> 4,837,995
<SALES> 645,133
<TOTAL-REVENUES> 645,133
<CGS> 260,607
<TOTAL-COSTS> 1,069,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (424,767)
<INTEREST-EXPENSE> 27,517
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (424,767)
<EPS-PRIMARY> (0.009)
<EPS-DILUTED> (0.009)
</TABLE>
