<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended - June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission file number 0-27094
FIRST AMERICAN SCIENTIFIC CORP.
(Exact name of Company as specified in its charter)
Nevada 88-0338315
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
409 Granville Street
Suite 303
Vancouver, British Columbia V6C 1T2
(Address of principal executive offices, including postal code.)
(604) 681-8656
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Common Stock
Securities registered pursuant to Section 15(d) of the Act:
Title of each class None
Indicate by check mark whether the Company (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Company was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. YES [ ] NO [ x ]
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares outstanding each of the Registrant's
classes of Common Stock, as of March 7, 1998 was 19,806,198.
Documents Incorporated by Reference
1. Form S-8 Registration Statement filed with the Securities and
Exchange Commission on June 26, 1996.
2. Solicitation of Consent of Shareholder Statement, sent to
shareholders on or about July 15, 1996.
3. Form 8-K filed with the Securities and Exchange Commission on
or about September 25, 1996.
4. Form 8-K filed with the Securities and Exchange Commission on
or about April 21, 1997.
5. Form 8-K filed with the Securities and Exchange Commission on
or about August 27, 1997.
6. Form 8-K filed with the Securities and Exchange Commission on
or about November 3, 1997.
7. Form 8-K filed with the Securities and Exchange Commission on
or about March 9, 1998.
8. Form 10-Q filed with the Securities and Exchange Commission
for the period ending September 30, 1996.
9. Form 10-Q filed with the Securities and Exchange Commission
for the period ending December 31, 1996.
10. Form 10-Q filed with the Securities and Exchange Commission
for the period ending March 31, 1997.
<PAGE> 3 PART I
ITEM 1. BUSINESS
General
FIRST AMERICAN SCIENTIFIC CORP. (the "Company") was formed
under the laws of the State of Nevada on April 12, 1995. The
initial purpose of the Company was to use an exclusive license to
develop, market, distribute, manufacture and sell equipment,
technology, products and services worldwide, using the Kinetic
Disintegration System (KDS), a process using standing sound waves
and kinetic energy technology to disintegrate industrial materials
such as gypsum, phosphates, sulfates, nitrates, glass and sludge.
The Company also acquired the rights to develop, market and
distribute the KDS for micronizing any and all products.
In connection with the foregoing, the Company entered into
three licensing agreements for the micronizing process. The first
agreement was entered into June 1995 and, dealt with processing of
rubber and glass. The second agreement was entered into in
February 1996 and, covered gypsum and the third agreement was
entered into May 1996 and, covered any and all other applications.
In 1996, the Company constructed a facility in Bakersfield,
California for the purpose of processing various industrial
minerals and for "prescription-blend" mineral processing.
Prescription blend is the process of
of mixing a blend of industrial materials for use on a particular
agriculture crop.
Business
The Company produces extremely fine powders (MICROFINE Tm)
comparable to talcum powder from a wide variety of recycled and raw
materials. The Kinetic Disintegrator System (KDS) is exclusively
licensed to the Company by Spectrasonic Corp. ("Spectrasonic") and
utilizes a highly refined process of standing sound waves and
kinetic energy technology for disintegrating materials. MICROFINE
Tm powders demand a higher market price because they can be used as
cost effective, high performance fillers and additives in a wide
variety of compounds and emulsions.
The initial objective of the Company was to produce fine
rubber powder. Because additional research was needed to enhance
the production, the Company decided to focus its efforts on
industrial minerals and delay production of fine rubber until the
other applications are generating profits and funds would then be
available for additional rubber research.
Accordingly, the Company identified the agricultural industry
and specifically the San Joaquin Valley, California as representing
a significant, viable current business opportunity.
The San Joaquin Valley (the "Valley") is one of the largest
agriculture areas in the United States. The Valley growers rely
heavily on water from the Sierra Mountains for irrigation. The
<PAGE> 4
water has a high sodium content and along with the other minerals,
tends pack the soil and prevent water and other mineral nutrients
from permeating below the surface. As a result, it is becoming
more expensive to irrigate with Sierra Mountain water.
Accordingly, there is a market for solution grade soil amendment
minerals, e.g. gypsum, lime and sulphur magnesium, that can be
distributed through automated irrigation systems instead of being
disbursed manually. These soil amendments allow water to permeate
the soil more efficiently. This method conserves water, is more
effective in terms of application and is generally less expensive
overall.
To take advantage of this method and implement soil amendment
programs, growers require that the minerals be available in a very
fine powder that will stay suspended in water, pass through the
irrigation systems and not clog sprinkler heads.
This is the market the Company is developing. As a result,
the Company leased a building in Bakersfield, California, for its
first milling operation. Construction commenced in July 1996, and
was completed in April 1997. Testing of the plant facility was
carried out in April and May 1997, and full production commenced in
late May 1997. The plant is designed to accommodate two (2) KDS
machines along with the necessary bulk feed system, hoppers,
conveyors and bagging systems. Total capital costs for this plant
are in excess of $2.4 million dollars. This was financed by
private placements of common stock and private loans.
During the month of June 1997, the plant produced processed
material at the rate of 10 tons per hour. Depending on the shift
lengths and number of days worked per month, production can vary
between 1,000 tons and 6,000 tons per month. Product processed in
June was gypsum. The product produced is a very fine mesh, of at
least minus 250 mesh. Mesh is a standard term for definition of
particle size. The higher the number, the smaller the particle.
The anticipated size of product described above of minus 250 mesh
is similar in size to talcum powder.
The Company's micronizing system can cost effectively process
any of the industrial minerals such as gypsum, limestone, sulphur,
dolomite, and various phosphates and nitrates into MICROFINE Tm
powders and has the capability of being able to "prescription-blend"
any combination of minerals for more optimal results.
Summary of Exclusive Agreements with Spectrasonic Corp.
On June 22, 1995, the Company entered into an initial
Exclusive License Agreement with Spectrasonic Corp. The contract
is for a period of 99 years. Spectrasonic has developed and is the
sole proprietary owner of all of the proprietary rights to the KDS.
On July 2, 1997, the Company acquired a license to all patents
issued, to be issued, or pending, as well as all manufacturing
rights, drawings, blueprints, CAD drawings, for the total
<PAGE> 5
consideration of 1,000,000 shares at US$0.15 per share of the
Company's Common Stock plus $500,000, payable on the basis of
$50,000 per machine sold, until the Company has sold 10 machines.
When this happens, the debt is considered to be paid in full. On
August 22, 1997, Spectrasonic advised the Company that a patent had
been issued. The Company has no documentation to support the
foregoing.
Under the terms of the foregoing agreement, Spectrasonic
granted the Company the exclusive license to develop, market,
manufacture distribute and sell equipment, technology, products and
services worldwide using the KDS system as it relates to rubber and
glass disposal.
The total contract price for this license was US$550,000. The
Company issued 250,000 common shares to Spectrasonic at an
aggregate value of US$175,000. In addition, the Company paid a
total of US$375,000 in various payments bringing the total payout
to US$550,000.
On February 22, 1996, the Company executed a second License
Agreement with Spectrasonic for a period of 99 years, whereby the
Company acquired the exclusive rights to exploit, develop, use,
manufacture, market, distribute and sell KDS systems as they relate
to gypsum disintegration, disposal, recycling, remanufacturing or
manufacturing, using new or used raw materials.
The total consideration for this license was US$775,000,
consisting of 1,000,000 common shares at US$0.50 each, valued at
US$500,000 plus cash payments totaling US$275,000, which has been
fully paid. This license agreement is exclusive except for one
operator located in the state of Washington, who has one machine,
and has the rights to use this machine in four states. The
Washington operator will not have any significant impact on the
operation of the Company.
On May 17, 1996, the Company executed a third License
Agreement with Spectrasonic wherein it acquired the world wide
rights to all and any kinds of materials not covered in previous
agreements. This agreement covers both new and used materials, and
covers disintegration, disposal, recycling, remanufacturing or
manufacturing or any and all kinds of materials using the KDS
equipment and/or technology. One Canadian operator has a license
which covers feed and fertilizer, however, his license will not
have a significant impact on the operation of the Company.
The third license agreement is for a period of 99 years and
the total consideration for it was US$1,250,000 consisting of
1,000,000 shares of the Company's Common Stock at US$0.50 per share
for a total of US$500,000 plus a payment of $1,000,000 Canadian
funds (converts to US$740,000) by January 2, 1997. During the
fiscal year, payments totaling $174,250 were made to Spectrasonic,
<PAGE> 6
leaving a balance at June 30, 1997 of $537,000. A supplementary
agreement dated October 24, 1996 provided for a revised payout
schedule for the balance owing on this Agreement.
Market
The Company believes that its geographical market will be
initially limited to California. The total cropland in the state
of California is over eleven (11) million acres with 8.6 million
acres irrigated. The average agricultural usage is two tons of
gypsum per acre of irrigated cropland. The Central Valley of
California is the largest user of gypsum in the USA.
Competition
The Company competes with other producers of gypsum and gypsum
powder who have superior financial and manufacturing capabilities.
Because the demand for gypsum in California is great, the Company
believes that superior competition will not effect the Company's
operations.
Western Gypsum and U.S. Gypsum are established companies in
the industry with greater financial resources than the Company.
Western Gypsum's mill is located in Nevada and its mine is located
in the northeastern corner of Arizona. It also incurs additional
shipping costs being over 300 miles from the San Joaquin Valley.
U.S. Gypsum is primarily in the wallboard and plaster market with
the agricultural industry as a tertiary market.
Advantages/Disadvantages
The Company believes that the advantages of its operation
include: 1) The location of the Company's plant in relation to the
San Joaquin Valley; 2) the ability to produce fine ground gypsum
that can be disbursed through the irrigation system as opposed to
being manually mixed with the soil; 3) more favorable prices to
purchasers; and 4) the ability to procure other solution grade
minerals such as limestone, dolomite, and sulphur magnesium.
The Company believes that the disadvantages of its operations
include: 1) An unproven start-up corporation that has not generated
any revenues or sales of its products; 2) the need for additional
financing; and, 3) the Company has not entered into any agreements
with anyone to purchase its Amendments.
Company's Facilities
The Company's corporate offices are located at Suite 303 - 409
Granville Street, Vancouver, British Columbia, Canada V6C 1T2. The
phone number of the Company is (604) 681-8656 and the fax number is
(604) 844-7572. The Company's research facility which was located
at 4500 Vanguard Road, Richmond, British Columbia, Canada V6X 2P4,
has now been closed and the lease terminated. There was no cost
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regarding the termination of the lease. The Company also has a
branch office located at 4100 Burr Street, Bakersfield California
93308. This is the location of the Company's plant for industrial
minerals. The premises consist of about 3 acres of land and a
5,000 square foot building. The Company has leased the foregoing
facilities over a two year period with options to renew.
Employees
The Company currently has fourteen (14) employees other than
Officers and Directors. The Company also engaged consultants,
attorneys and accountants as necessary in the completion of its
facility in Bakersfield. Employment will vary depending on the
number of shifts in operation at the plant.
Other
The Company entered into a loan agreement with LCM Equity,
Inc. ("LCM Equity"), located at 7811 Angus Drive, Vancouver,
British Columbia, Canada V6P 5K7, wherein LCM Equity agreed to lend
the Company up to US$500,000 by way of a revolving line of credit.
This line of credit was available until February 16, 1997 at which
time it was terminated by agreement. At June 30, 1996, the loan
balance outstanding was US$274,141. In July 1996, loans totaling
US$201,449 were converted to 452,376 shares of common stock,
leaving a balance outstanding of US$72,692. On November 30, 1996,
the balance of US$72,692 was converted into 181,730 shares of
common stock in full satisfaction of the debt. LCM Equity also
lent the Company the sum of US$192,260, which was repaid by the
issuance of 480,650 shares of common stock. At June 30, 1997, the
Company had no outstanding loans with LCM Equity.
On April 30, 1996, the Company entered into a loan agreement,
with Knowlton Capital, Inc. ("Knowlton"), a proprietorship carrying
on business in the Province of Quebec, and having its offices at
329 Brill Road, Foster, Quebec J0E 1R0. Pursuant to thereto,
Knowlton agreed to loan the Company up to US$800,000 with interest
payable at 10% per annum. Currently there is an outstanding
balance and repayment of thereof has been extended to June 30,
1998. In consideration of the extension of loans, Knowlton
received 398,836 shares of Common Stock by directors resolution
dated April 2, 1997. By agreeing to extend the loan, Knowlton also
has the option of converting any amount of the loan and interest
outstanding to common shares at US$0.33 per share. The loan is
secured by all of the Company's plant and equipment located in
Bakersfield, California. The balance the loan outstanding at June
30, 1997 was US$790,229. Additional loans from Jacqueline
Lovelock, the daughter of the Company's Chief Executive Officer and
Chairman of the Board, Jack Lovelock in the amount of US$82,000 and
Meraloma Club, a private investment concern of Vancouver, British
Columbia in the amount of US$36,500 were obtained during the year.
Both loans carry interest at 10% per annum and are repayable on
June 30, 1998.
<PAGE> 8
In April 1997, Magic Trading, Inc. ("Magic"), a foreign
controlled investment company, agreed to provide certain loans to
the Company. As consideration for the Loan, Magic received the
option of either repayment by December 31, 1997 or conversion into
common stock at the price of US$0.33 per share. At June 30, 1997,
the loan outstanding amounted to US$171,414. Currently there is an
outstanding balance due of $171,414. This debt was settled
subsequent to the year end by issuance of 1,278,414 shares of
Common Stock.
On July 26, 1996, the Company entered into an agreement with
Eco Solutions, L.L.C. and Pacific Gypsum Products, Inc., whereby
the Company acquired exclusive rights to gypsum used for
agricultural purposes from the mine site at Blythe, California for
fifteen (15) years. Eco Solutions L.L.C. was unable to perform
according to the contract and have been, by mutual agreement of all
parties, have been released from performance thereof. The Company
presently has exclusive marketing rights to the gypsum and intends
to commence sale of gypsum from the Blythe, California site in
April 1998. Financing of the foregoing agreement was assisted by a
loan from Huntington, Inc., a foreign controlled investment
company, in the amount of $100,000. The repayment terms are
negotiable.
ITEM 2. PROPERTIES
The Company owns no real property. It leases 1,000 square
feet of office space at #303 - 409 Granville Street, Vancouver,
British Columbia V6C 1T2 from LCM Equities. The cost of the space,
plus any administrative costs, is approximately $1,000 per month.
The lease is verbal and is on a month-to-month basis.
The Company leases industrial land at 4100 Burr Street,
Bakersfield, California 93303, for the operation of its plant. The
lease was for 12 months, commencing April 15, 1996 and expiring
April 14, 1997. The lease has been extended by one year, expiring
April 14, 1998. The land consists of 100,000 square feet. The
rent for the premises is US$2,000 per month with a security deposit
of US$2,500.
The Company owns two KDS systems at June 30, 1997 and leases
an additional two machines. The first two KDS systems were
acquired as part of its licensing agreement with Spectrasonic and
are recorded at a cost of US$872,246. In the fiscal period ending
June 30, 1997, US$8,000 was expended on these systems as part of
its continuing research and development. The two other KDS
machines will be used for the processing of sludge.
The Company has other fixed assets at its proposed
Bakersfield, California plant. The value of these assets at June
30, 1997 is totaling US$1,521,477 consist of hoppers, bagging
equipment, electrical paneling and extensive site preparation,
paving, construction of a building, and general storage bins.
<PAGE> 9
The Company also has a cost of $1,905,000 in regard to the
Technology License.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are pending to which the Company
is a party or of which any of the Company' property is the subject
matter other than as described below. Further no legal proceedings
are known to be contemplated by governmental authorities and no
officer or director of the Company is a party to any litigation.
PRIMECO V. FIRST AMERICAN SCIENTIFIC CORP., Kern County
Municipal Court, Bakersfield Judaical District Case No. 139650,
filed on approximately September 19, 1998. This complaint claims
breach of contract and accompanying causes of action seeking
payment for rental equipment. The claim is in the amount
$21,231.54. The complaint has been answered and a settlement
agreement has been proposed and accepted. The settlement will be
for the amount of the claim paid out over 10 months to be paid in
full by August 30, 1998. The Company is now in arrear on the
payment plan and plaintiff has notified the Company that they
intend to file the stipulated judgment that was entered into at the
time of settlement.
DARCO EQUIPMENT VS. FIRST AMERICAN SCIENTIFIC CORP., Orange
County Superior Court, Case No. 786408, filed on approximately
November 4, 1997. However, in June 1997, plaintiff attempted to
settle the matter with the help of another attorney, but failed to
pursue the settlement. This complaints claims breach of contract
and accompanying causes of action seeking payment for equipment
purchased. Management has attempted settlement of the matter and
as of December 9, 1997, plaintiff has requested a settlement of the
matter for approximately $11,500. The total claim is approximately
$14,000 and this is the total potential for loss to the Company.
The matter is now set for trail and discovery is continuing.
KERN ROCK V. FIRST AMERICAN SCIENTIFIC CORP., Kern County
Municipal Court, Bakersfield Judicial District, Case No. 137938,
filed on approximately July 24, 1997. This complaint claims breach
of contract and accompanying causes of action seeking payment for
labor performed. A settlement was reached in this matter whereby
the Company agreed to pay $2,000 per month until a total of
$11,634.96 is paid to plaintiff. The parties entered into a
stipulation for entry of judgment to be filed only if the Company
defaults on the payment plan.
TERRAIN TECHNOLOGY V. FIRST AMERICAN SCIENTIFIC CORP., Kern
County Municipal Court, Bakersfield Judicial District, Case No.
140950, filed on approximately October 8, 1997. This complaint
claims breach of contract and accompanying causes of action seeking
payment for roadwork improvement. The total amount of the claim is
$6,194.93. An answer has been filed for the Company and management
<PAGE> 10
has elected to attempt to settle the matter out of court.
Negotiations are currently taking place regarding settlement for
the amount claimed. An attorney's fees provisions exists in the
contract and would add to the potential liability of the Company in
this matter. A request to set this matter for trial has been made
and discovery continues.
GAHVEJJAN ENTERPRISES, INC. V. FIRST AMERICAN SCIENTIFIC
CORP., Fresno Municipal Court, Consolidated Fresno Judicial
District, Case No. C97908858-4, filed on approximately November
17, 1997. This complaint claims breach of contract and
accompanying causes of action seeking payment for goods delivered
to the Company. An answer has yet to be filed in this matter and
no settlement negotiations have taken place, however, management
has decided to attempt to settle this matter. For an amount up to
the claim of approximately $9,000. This figure represents the
approximate total loss potential. An answer has been filed and the
matter is set for trial on April 4, 1998. Management has chosen
not to defend this matter and it can be assumed that a judgment in
favor of plaintiff will be rendered in the approximate amount of
$9,000.
Summan Material asserted a claim for $22,204 by demand letter
of February 12, 1997. The claim arises out of the processing of
material for Summa and the claim that product was lost and not
delivered in accordance with the time and size specifications set
forth in the contract.
On October 1, 1997, Scientific American, Inc. sent a letter to
the Company claiming the it infringed on federal service marks
belonging to Scientific American, Inc. No claim for any dollar
figure accompanied the demand to cease and desist from doing
business under the name First American Scientific Corp. However, a
claim may include damages, profits and attorneys' fees. No
assessment of this claim is possible at this time and further
research must be undertaken to determine the validity of this
claim.
At June 30, 1997, a litigation reserve of $62,061 was recorded
for outstanding litigation issues.
In the event all parties are successful in their claims, the
Company may be forced into bankruptcy, receivership and/or forced
to cease operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following two proposals were submitted to the Company's
shareholders by proxy on July 15, 1996:
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Proposal No. 1. Amend the Company's Certificate of
Incorporation to create a new class of stock consisting
of 5,000,000 shares, $0.001 par value, of Non-voting,
Cumulative, Convertible Preferred Stock and 20,000,000
shares, $0.001 par value, Class B Common Stock. Further,
reclassify its existing Common Stock and Class A Common
Stock.
Proposal No. 2. Change the name of the Company from
First American Scientific Corp. to Microsonics
International Corporation.
Both proposals passed, however, the Articles of Incorporation
have not been amended to reflect the foregoing.
Since the foregoing, no other proposals have been submitted to
the Company's shareholders.
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
At March 23, 1998, the Company had 292 shareholders of record
of its Common Stock.
The Company has not paid any dividends since its inception and
does not anticipate paying any dividends on its Common Stock in the
foreseeable future.
The Company's securities are traded over-the-counter on the
Bulletin Board operated by the National Association of Securities
Dealers, Inc. under the symbol "FASC". The table shows the high
and low bid of the Company's Common Stock since February 29, 1996,
when the Company's securities began trading.
Quarter Ended Bid
High Low
March 31, 1996 2.125 1.625
June 30, 1996 1.90625 0.875
September 30, 1996 0.71 0.71
December 31, 1996 0.20 0.18
March 31, 1997 0.16 0.12
June 30, 1997 0.175 0.15
September 30, 1997 0.20 0.18
December 31, 1997 0.10 0.085
March 31, 1998 0.055 0.065
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below has been derived
from the financial statements of the Company. The following table
summarizes certain financial information and should be read in
conjunction with "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and the Financial Statements
and related notes included elsewhere in this Statement.
Statement of Operations and Accumulated Deficit Data:
<TABLE>
Year ended Year ended Year ended
June 30, 1997 June 30, 1996 June 30, 1995
<S> <C> <C> <C>
Income $ 347,721 $ - $ -
Cost of Sales $ 157,974 - -
------------ ----------- -----------
Gross Profit $ 189,747 - -
------------ ----------- -----------
Operating Expenses 1,514,381 473,369 52
------------ ----------- -----------
Net Loss $ (1,324,634) $ (473,369) (52)
------------ ----------- -----------
Accumulated Deficit,
End of Period $ (1,798,055) $ (473,421) $ (52)
============ =========== ===========
Net Loss per share $ (0.12) $ (0.07) NIL
============ =========== ===========
Weighted Average
Number of Common
Shares Outstanding 11,325,635 6,168,954 6,000,000
============ =========== ===========
Balance Sheet Data:
Working Capital $ (2,320,026) $ (1,987,273) $ (525,052)
Total Assets $ 4,422,427 $ 2,932,278 $ 1,034,948
Long-term debt $ -0- $ -0- $ -0-
Shareholders'
Equity $ 1,947,038 $ 935,902 $ 274,948
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Liquidity and Capital Resources
The Company completed construction in April 1997, and commenced
operations in late May 1997. The Company recognizes that it will
have to obtain additional cash through the issuance of debt or
equity securities to assist in start-up costs as the operation
accelerates to full production. The Company entered into a new
loan agreement with LCM Equity dated March 1, 1996. The original
loan agreement dated October 30, 1995 was terminated and replaced
<PAGE> 13
by the March 1, 1996 agreement. This agreement provided financing
up to US$500,000 to be repayable or converted into common stock.
At June 30, 1996, a balance of $274,141 was outstanding to LCM
Equity and all of these loans were converted to common stock in the
current fiscal year. The funds raised through LCM Equity were used
to finance the construction of a plant in Bakersfield and pay down
the debt to Spectrasonic. All loans received from LCM Equity have
been converted into common stock and there is nothing owing to LCM
Equity at June 30, 1997.
The Company also entered into a loan agreement with Knowlton on
April 30, 1996, wherein Knowlton provided financing up to
US$800,000. The loan is repayable December 31, 1996, but can be
extended to June 30, 1998. Interest will be chargeable at 10% per
annum. Security to be provided is a collateral mortgage on the
fixed assets (a U.C.C. filing) at the Bakersfield plant. The
balance outstanding at June 30, 1997 was $790,229 and the funds
were used to assist in the construction of the Bakersfield plant,
and provide working capital to the operation.
Additional loans were also received from J. Lovelock for $82,000
and Meraloma Club, for $36,500. Both loans are due June 30, 1998
and carry interest at 10% per annum.
The Company conducted extensive marketing research in the field
of industrial minerals prior to commencing construction of the
plant in Bakersfield. It was determined that there was a need for
a fine grind product, especially gypsum, limestone and sulphur. As
the KDM machines produce a very fine grind finished product, it
passes through the sprinkler systems without clogging and allows
for an automated distribution of these products over a wide area.
These products are used as soil additives because of the acid level
in the water in the San Joaquin valley. The Company anticipates
that it can produce 5-6 tons of finished product per hour and that
it will probably operate a two shift operation of 10 hours each,
and work six days per week. This will allow for production of
about 1400 tons of finished product per week. When the demand is
high, the Company will work three shifts, seven days per week. The
Company has secured a guaranteed supply of gypsum from Blythe
California at a guaranteed price. The raw material is shipped by
rail to Bakersfield to be processed at the plant. Plant operating
expenses are well defined and operating profits before tax when in
full operation, should be in excess of 30%. Because of losses
incurred in the start up of the plant, the tax liability in the
first year will be nil.
Marketing, strategic planning, expansion, financial planning and
general corporate management will be carried out by officers and
outside consultants where necessary. Remuneration will commence at
the same time the plant becomes fully operational. Stock option
plans have been established for the following officers and
consultants:
<PAGE> 14
Jack Lovelock 300,000 common shares
Richard Camuso 200,000 common shares
Robert Dinning 200,000 common shares
David Annett 50,000 common shares
These options, at a price of $0.001 were approved by the Board of
Directors April 15, 1997.
The Company leases space at 4100 Burr Street, Bakersfield,
California 93303, for the operation of its plant. The lease is for
24 months, commencing April 15, 1996 and expiring April 14, 1998.
The land consists of 100,000 square feet. The rent for the
premises is US$2,000 per month with a security deposit of $2,500.
Results of Operations - July 1, 1996 through June 30, 1997
The Company became operational in March 1997, encountered some
setup problems and eventually became fully operational in late May
1997. During the fiscal year ending June 30, 1997, the Company had
operating revenues of $347,720 and had operating expenses of
$1,514,381 for a loss for the year of $1,324,624. These losses
include interest and financing costs of $203,866 and research and
development costs of $91,897. While the Company has not yet
generated a profit, its market analysis and the response of
customers has clearly demonstrated that processed industrial
minerals will continue to be in demand and will be very saleable at
competitive prices. In the fiscal period ending June 30, 1997, the
Company had only one month of production, because the plant was
not completed until the latter part of May 1997. Expenses for the
past year included numerous start-up costs which will not continue
in the coming year. As well, certain lease agreements for
equipment have been re-negotiated to lease/purchase agreements,
resulting in lower monthly charges. The current year's operations
did not include the sale of any broadcast gypsum because of
unforeseen problems with a proposed partner. This partner is no
longer involved and the Company expects to process significant
broadcast gypsum orders over the next fiscal year.
Foreign Operations
The Company has a foreign subsidiary, 521345 B.C. LTD.,
("521345") British Columbia corporation, which is located in
Vancouver, British Columbia. Its operations are restricted to
research and development only. The directors are Jack Lovelock and
Robert Dinning. Its officers are Jack Lovelock, President, and
Robert Dinning, Secretary. Its operations are in the United States
and its expansion activities are also in the United States.
Exchange rates in the past year have varied very little and there
has been no impact on the financial statements because of foreign
exchange losses. In the future, such foreign exchange transactions
will be recorded in the Statement of Stockholders' Equity.
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FIRST AMERICAN SCIENTIFIC CORP.
Audited Financial Statements
TABLE OF CONTENTS
AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Operations and Accumulated Deficit F-3
Statement of Stockholders' Equity F-4
Statements of Cash Flows F-6
NOTES TO FINANCIAL STATEMENTS F-8
<PAGE> 16
Board of Directors
First American Scientific Corp.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of First American
Scientific Corp. as of June 30, 1997 and 1996, and the related
statements of operations, shareholders' equity, and cash flows for
the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements
referred to above present fairly, in all material respects, the
financial position of First American Scientific Corp. at June 30,
1997 and 1996, and the results of its operations, changes in
stockholders' equity and its cash flows for the years then ended,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 2 to the financial statements, as of June 30, 1997 the Company
was in default under its worldwide technology license agreement
with Spectrasonic Corp. Additionally, the Company's working
capital deficit of $2,320,026 at June 30, 1997 raises substantial
doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Williams & Webster, P.S.
Certified Public Accountants
January 5, 1998
F-1
<PAGE> 17
FIRST AMERICAN SCIENTIFIC CORP.
BALANCE SHEETS
<TABLE>
ASSETS June 30, 1997 June 30, 1996
------------ -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 8,211 $ 0
Accounts receivable 72,940 -
Inventory 55,376 -
Prepaid expenses 18,836 9,103
---------- -----------
155,363 9,103
---------- -----------
PROPERTY AND EQUIPMENT
Ultrasound equipment 872,246 864,260
Plant assets and equipment 1,512,561 139,929
Office equipment 8,916 -
Leasehold improvements 5,476 5,476
---------- -----------
2,399,199 1,009,665
Less: Accumulated depreciation (31,536) -
---------- -----------
2,367,663 1,009,665
---------- -----------
OTHER ASSETS
Technology licenses net
of amortization 1,883,833 1,905,000
Deposits 15,568 8,510
---------- -----------
1,899,401 1,913,510
---------- -----------
$4,422,427 $ 2,932,278
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2a
<PAGE> 18
FIRST AMERICAN SCIENTIFIC CORP.
BALANCE SHEETS
<TABLE>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 4,754 $ 5,339
Accounts payable and
accrued expenses 406,272 75,415
Litigation reserve 62,061 -
Accrued interest 85,159 12,762
Short term loans payable 589,914 -
Loan payable - LCM Equity, Inc. - 274,141
Loan payable -
Knowlton Capital Inc. 790,229 398,719
License agreement payable
Spectrasonic Corp. 537,000 1,230,000
---------- ----------
2,475,389 1,996,376
---------- ----------
STOCKHOLDERS' EQUITY
Common stock - $.001 par value
50,000,000 shares authorized,
13,622,448 and 8,505,117 shares
issued, respectively 13,622 8,505
Additional paid-in capital 3,731,471 1,400,818
Accumulated deficit (1,798,055) (473,421)
---------- ----------
1,947,038 935,902
---------- ----------
$4,422,427 $2,932,278
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2b
<PAGE> 19
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
Inception
(April 12, 1995)
Year Ended Year Ended Through
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- --------------
<S> <C> <C> <C>
REVENUES $ 347,721 - -
COST OF SALES 157,974 - -
----------- ---------- ----------
GROSS PROFIT 189,747 - -
GENERAL AND
ADMINISTRATIVE
EXPENSES 1,514,381 473,369 52
----------- ---------- ----------
LOSS BEFORE INCOME
TAXES (1,324,634) (473,369) (52)
PROVISION FOR INCOME
TAXES - - -
----------- ---------- ----------
NET LOSS (1,324,634) (473,369) (52)
ACCUMULATED DEFICIT
BEGINNING OF
PERIOD (473,421) (52) -
----------- ---------- ----------
ACCUMULATED DEFICIT
END OF PERIOD $ (1,798,055) $ (473,421) $ (52)
============ ========== ==========
NET LOSS PER
COMMON SHARE $ (0.12) $ (0.07) $ NIL
============ ========== ==========
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES
OUTSTANDING 11,325,635 7,168,954 6,000,000
============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 20
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
June 30, 1997
<TABLE>
Additional
Common Stock Paid-in
Shares Amount Capital
-------- ------- ---------
<S> <C> <C> <C>
BALANCE - Inception
April 12, 1995 - $ - $ -
Issuance of stock at $0.1667
per share for cash 6,000,000 6,000 94,000
Issuance of stock at $0.70
per share for payment on
license agreement 250,000 250 174,750
Net loss for the period - - -
--------- ------- -----------
BALANCE
June 30, 1995 6,250,000 6,250 268,750
Issuance of stock at $0.45
per share for cash 600,000 600 269,400
Issuance of stock at $0.50 per
share in lieu of payment on a
management contract 200,000 200 99,800
Issuance of stock at $0.50
per share for purchase of
one Gypsum SDM and
the related technology,
per agreement 1,000,000 1,000 499,000
Private placement sale of
stock at $1.25 per share
for cash 74,400 74 92,926
Issuance of stock at $0.45
per share in settlement of
debt conversion 380,717 381 170,942
Net loss for the year - - -
--------- ------- -----------
BALANCE
June 30, 1996 8,505,117 $ 8,505 $ 1,400,818
--------- ------- -----------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4a
<PAGE> 21
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
June 30, 1997
<TABLE>
Total
Deficit Stockholders'
Accumulated Equity
----------- -------------
<S> <C> <C>
BALANCE - Inception
April 12, 1995 $ - $ -
Issuance of stock at $0.1667
per share for cash - 100,000
Issuance of stock at $0.70
per share for payment on
license agreement - 175,000
Net loss for the period (52) (52)
--------- ----------
BALANCE
June 30, 1995 (52) 274,948
Issuance of stock at $0.45
per share for cash - 270,000
Issuance of stock at $0.50 per
share in lieu of payment on a
management contract - 100,000
Issuance of stock at $0.50
per share for purchase of
one Gypsum SDM and
the related technology,
per agreement - 500,000
Private placement sale of
stock at $1.25 per share
for cash - 93,000
Issuance of stock at $0.45
per share in settlement of
debt conversion - 171,323
Net loss for the year (473,369) (473,369)
--------- ----------
BALANCE
June 30, 1996 $(473,421) $ 935,902
--------- ----------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4b
<PAGE> 22
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
June 30, 1997
<TABLE>
Additional
Common Stock Paid-in
Shares Amount Capital
-------- ------- ---------
<S> <C> <C> <C>
BALANCE
June 30, 1996 8,505,117 $ 8,505 $ 1,400,818
Issuance of stock at $0.50
per share for payment
on technology license
agreement 1,000,000 1,000 499,000
Issuance of stock at
$0.0875 per share
for financing fees 107,440 107 9,293
Issuance of stock at
$0.4453 per share
for loan payment 452,376 452 200,997
Issuance of stock at $.40
per share for cash 957,000 957 668,943
Issuance of stock at $.225
per share for cash 100,000 100 22,400
Issuance of stock
at $.40 per share for
loan payment 912,380 912 364,040
Issuance of stock
at $0.40 per share
for services 229,808 230 91,693
Issuance of stock at
$0.33 per share for
loan extensions 598,382 599 193,867
Issuance of stock
at $0.37 per share
for loan payment 759,945 760 280,420
Net loss for the year - - -
---------- -------- -----------
BALANCE
June 30, 1997 13,622,448 $ 13,622 $ 3,731,471
========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5a
<PAGE> 23
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
June 30, 1997
<TABLE>
Total
Deficit Stockholders'
Accumulated Equity
----------- -------------
<S> <C> <C>
BALANCE
June 30, 1996 $ (473,421) $ 935,902
Issuance of stock at $0.50
per share for payment
on technology license
agreement - 500,000
Issuance of stock
at $0.0875 per share
for financing fees - 9,400
Issuance of stock
at $0.4453 per share
for loan payment - 201,449
Issuance of stock at $.40
per share for cash - 669,900
Issuance of stock at $.225
per share for cash - 22,500
Issuance of stock
at $.40 per share
for loan payment - 364,952
Issuance of stock at $0.40
per share for services - 91,923
Issuance of stock
at $0.33 per share
for loan extensions - 194,466
Issuance of stock
at $0.37 per share
for loan payment - 281,180
Net loss for the year (1,324,634) (1,324,634)
------------ -----------
BALANCE
June 30, 1997 $ (1,798,055) $ 1,947,038
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5b
<PAGE> 24
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
Inception
(April 12, 1995)
Year Ended Year Ended Through
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED (USED) IN
OPERATING ACTIVITIES
Net income (loss) $ (1,324,634) $ (473,369) $ (52)
Depreciation and
amortization 52,703 - -
Adjustment to reconcile net
loss to net cash used by
operations:
Management fee paid by
issuance of stock - 100,000 -
Financing fees paid by
issuance of stock 203,867 - -
Office services paid by
issuance of stock 91,923 - -
Increase in accounts
receivable (72,940) - -
Increase in
inventory (55,376) - -
Increase in prepaid
expenses (9,733) (9,103) -
Increase in accounts payable and
accrued expenses 330,857 75,415 -
Increase in litigation
reserve 62,061 - -
Increase in accrued
interest 72,397 12,761 -
Payment on license agreements
payable (193,000) (92,000) (35,000)
------------ ---------- ---------
(841,875) (386,296) (35,002)
------------ ---------- ---------
CASH FLOWS PROVIDED (USED) IN
INVESTING ACTIVITIES
Payment for technology
license - (248,000) -
Purchase of plant, property
and equipment (1,389,534) (629,188) -
Leasehold improvements - (5,476) -
Deposits (7,058) (8,510) -
Proceeds from loan
agreement - 844,183 -
------------ ---------- ---------
(1,396,592) (46,991) -
------------ ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-6a
<PAGE> 25
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
Inception
(April 12, 1995)
Year Ended Year Ended Through
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- --------------
<S> <C> <C> <C>
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 692,400 427,415 35,585
------------ ---------- ---------
2,247,263 427,415 35,585
------------ ---------- ---------
NET INCREASE (DECREASE)
IN CASH $ 8,796 $ (5,872) $ 533
============ ========== =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-6b
<PAGE> 26
FIRST AMERICAN SCIENTIFIC CORP.
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
Inception
(April 12, 1995)
Year Ended Year Ended Through
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- --------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH
(Balance forward) $ 8,796 $ (5,872) $ 533
CASH - Beginning
of Period (5,339) 533 -
---------- --------- ---------
CASH -
End of period $ 3,457 $ (5,339) $ 533
========== ========= =========
SUPPLEMENTAL CASHFLOW DISCLOSURES
Interest $ 21,314 $ - $ -
Income Taxes $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued
for payment on technology
license $ - $ - $ 175,000
Common stock issued for
ultra-sound equipment
and technology
license $ - $ 500,000 $ -
Common stock issued
for services
rendered $ 91,923 $ 100,000 $ -
Common stock issued
for exchange
of debt $ 847,581 $ 171,323 $ -
Common stock issued
for payment on
worldwide technology
license $ 500,000 $ 500,000 $ -
Common stock issued
for financing
fees $ 203,867 $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-7
<PAGE> 27
FIRST AMERICAN SCIENTIFIC CORP
June 30, 1997
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
- ------------
First American Scientific Corp. (the Company) incorporated on April
12, 1995 under the laws of the State of Nevada, with 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 or debt
repayment.
* Assets principally consisting of technology, licenses and
related equipment, which are not patented.
The Company was formed on 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 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 is being
depreciated over the lesser of the length of the related leases 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 is being
amortized over the estimated economic life of fifteen years.
Organizational costs, which are deemed immaterial, were expensed
when paid.
F-8
<PAGE> 28
FIRST AMERICAN SCIENTIFIC CORP
June 30, 1997
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
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 forwards 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 concluded 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 - 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 ends June 30, 1996 and 1997.
The Company has reported a loss of $1,324,634 for the year ended
June 30, 1997, and as of that date a working capital deficit of
$2,320,026. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
F-9
<PAGE> 29
FIRST AMERICAN SCIENTIFIC CORP
June 30, 1997
Notes to Financial Statements
NOTE 2 - GOING CONCERN (Continued)
Management's plans are summarized as follows:
Management has taken a number of actions to increase the sales of the
Company's gypsum products. Management intends to seek new capital,
both from borrowings and new equity securities issuances that will
provide funds needed to increase liquidity, make strategic
acquisitions or fund internal growth and fully implement its business
plans.
NOTE 3 - 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 1T2 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 lease 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 4 - TECHNOLOGY LICENSE
On June 22, 1995, the Company entered into a license agreement with
Spectrasonic Corp. (hereinafter "Spectrasonic") for the worldwide
license to its unpatented Sonic Disintegration Equipment (SDM) 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, with license rights valued at $250,000. Since
this initial agreement, modifications have been made to the first SDM
machine, bringing its total cost to $440,740 at June 30, 1997.
F-10
<PAGE> 30
FIRST AMERICAN SCIENTIFIC CORP
June 30, 1997
Notes to Financial Statements
NOTE 4 - TECHNOLOGY LICENSE (Continued)
On February 22, 1996, the Company entered into an additional license
agreement with Spectrasonic 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.
On May 17, 1996, the Company executed another agreement with
Spectrasonic for the worldwide licenses to equipment (as yet
unpatented) developed by Spectrasonic for use in disintegration,
disposal, recycling, remanufacturing or manufacturing "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 $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 stock 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.
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 Micronizing
Machine (SDM Machine) whose worldwide rights had been previously
acquired by the Company. In addition the Company acquired all
manufacturing rights applicable to the SDM 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 per share
plus the 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 rate has 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-11
<PAGE> 31
FIRST AMERICAN SCIENTIFIC CORP
June 30, 1997
Notes to Financial Statements
NOTE 6 - EARNINGS (LOSS) PER SHARE
The net income (loss) per share is computed using the weighted
average number of shares outstanding and amounts to $(0.12) and
$(0.07) per share for the years ending June 30, 1997 and 1996,
respectively.
NOTE 7 - 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 June 30, 1997.
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. As of June 30, 1997, 550,000 options have
been issued to officers and directors, none of which have been
exercised.
NOTE 8 - LOANS
On November 15, 1996, the Company entered into a loan agreement with
Huntington 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 June 30, 1997, the Company owed a total of $107,000 on
this loan, which includes $7,000 of accrued interest. The loan is
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 $200,000. This short-term note
is payable, interest only, at prime plus 5% until its due date of
August 20, 1997, at which time the loan was paid off.
During the year ended June 30, 1997, the Company entered into a
short-term loan agreement with Magic Trading in the amount of
$171,414. This uncollateralized loan was due in October 1997, and
was converted to 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-12
<PAGE> 32
FIRST AMERICAN SCIENTIFIC CORP
June 30, 1997
Notes to Financial Statements
NOTE 8 - LOANS (Continued)
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 loan 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. wherein the lender agreed to provide a
revolving line of credit which matures upon the Company's completion
of a preferred share offering. The loan agreement gave Knowlton
Capital, Inc. the option of converting its loan into First American
common stock at a deemed value of $0.075 per share on or before
December 31, 1996. During the year ended June 30, 1997, the Company
obtained an extension on this loan by the 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 June
30, 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%. The first interest
payment was due ninety days after the date of the loan. The entire
amount of this note was due after six months. This 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 9 - RELATED PARTY TRANSACTIONS
Spectrasonic, Corp. is owned and controlled by Mr. John Sand and Mr.
John Martin, each of whom own 50% of its outstanding stock.
Spectrasonic, a shareholder in the Company with 1,250,000 shares at
June 30, 1997, 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
in the Company (see Note 3).
During the year ended June 30, 1997, the Company borrowed money from
Jacqueline Lovelock (see Note 8). Ms. Lovelock is a related party to
the Chairman and Chief Executive Officer of the Company.
F-13
<PAGE> 33
FIRST AMERICAN SCIENTIFIC CORP
June 30, 1997
Notes to Financial Statements
NOTE 9 - RELATED PARTY TRANSACTIONS
During the year ended June 30, 1997, the Company issued common shares
to Huntington Limited, 834968 Ontario, Inc., Meraloma Club, and
Knowlton Capital, Inc. as incentives for lending funds to the
Company.
NOTE 10 - STOCKHOLDERS' EQUITY
Common Stock
- ------------
All shares issued prior to August 14, 1995 have been adjusted for a
6-for-10 reverse stock split at that date.
NOTE 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 or 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 12 - 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 in 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.
F-14
<PAGE> 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
(a) At its board meeting on September 16, 1996, the Board of
Directors of the Company engaged William & Webster, P.S., Certified
Public Accountants, as its independent auditor for 1996.
(b) The accounting firm of Robert Moe & Associates, P.S. was
replaced as a result of their resignation. There were no
disagreements with Robert Moe & Associates, P.S. on any matter of
accounting principles or practices, financial disclosure, or auditing
scope or procedure or any reportable events.
(c) Since inception of the Company, Robert Moe & Associates's
reports on the financial statements have contained no adverse opinion
or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.
(d) Robert Moe & Associates has provided a letter addressed to
the Securities and Exchange Commission stating its reason for
resignation. A copy of which was filed as an Exhibit to the
Company's Form 8-K filed on September 25, 1996.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS
Officers and Directors
The officers and directors of the Company are as follows:
Name Age Position
Jack E. Lovelock 66 Chairman of Board of
Directors, and Chief
Executive Officer
Robert G. Dinning 58 Chief Financial Officer and
Secretary
David R. Annett 50 Member of the Board of
Directors
All directors hold office until the next annual meeting of
shareholders and until their successors have been elected and
qualified. The Company's officers are elected by the Board of
Directors at the annual meeting after each annual meeting of the
Company's shareholders and hold office until their death, or until
they resign or have been removed from office.
<PAGE> 33
Jack E. Lovelock - Chairman of the Board of Directors and Chief
Executive Officer.
Mr. Lovelock was a private consultant to financial and corporate
entities prior to joining the Board of Directors of the Company.
Since July 15, 1995, Mr. Lovelock has been Chairman of the Board of
Directors and Chief Executive Officer of the Company. From August
1991 to August 1994, Mr. Lovelock was a director of TMM, Inc., a
electronic publishing firm located in Thousand Oaks, California and
from March 1991 to October 15, 1994, Mr. Lovelock was Chairman of the
Board of Directors and Chief Executive Officer of Total Multimedia
(Canada) Ltd. Total Multimedia (Canada) Ltd was located in
Vancouver, British Columbia and engaged in the business of electronic
publishing. From June 1987 to June 1989, Mr. Lovelock was President
of Roddy Resources Inc, a corporation whose securities were listed
for trading on the Toronto Stock Exchange. Roddy Resources Inc. was
engaged in the business of mining. Prior to this, Mr. Lovelock was
Director, Business Development - Bell Canada and Director, Corporate
Planning & Acquisitions, Tele-Direct (Yellow Pages).
Robert G. Dinning - Chief Financial Officer and Secretary.
Since April 5, 1996, Mr. Dinning has been Chief Financial
Officer and Secretary of the Company. Since 1977, Mr. Dinning has
been a business consultant providing management and financial advice
to a wide range of clients, including those engaged in mining and
forestry, and the hospitality and leisure industry. Prior to 1977,
Mr. Dinning was Vice President of Finance and Secretary of Western
Broadcasting Ltd, a Canadian public broadcasting company. Mr.
Dinning is a Chartered Accountant.
David R. Annett - Director
Since October 1995, Mr. Annett has been a Director of the
Company. Since March 1995, Mr. Annett has been President of Annett
& Associates, which was incorporated on October 7, 1997, as Aark
Leadership Inc. Mr. Annett provides Business Engineering Services to
clients in the area of strategic planning and leadership development.
From June 1994 to March 1995, Mr. Annett served as President of
Environmental Waste Management Corp, a company with a specialized
application of microwave technology to reduce whole tires to
commercial carbon, oil and steel plus the complete reduction of
medical waste. From November 1992 to February 1994, Mr. Annett
worked as Business Development Manager for the Jamieson/Williams
Group which sold an International Human Resource Management System to
International clients.
Richard A. Camuso.
From July 15, 1995 to January 1, 1998, Richard A. Camuso was
President and a member of the Board of Directors of the Company. At
the time Mr. Camuso resigned as President and a Director of the
Company, Mr. Camuso did not have any disagreements with management
<PAGE> 36
regarding the policies of the Company. From January 1993 to July
1995, Mr. Camuso has been affiliated with R.A. Camuso Associates
which supplies financial, business, planning and marketing consulting
services to private businesses. From November 1989 to December 1992,
Mr. Camuso held positions with Computer Sciences Corporation, a
California based corporation engaged in the business of system
integration. The two positions held by Mr. Camuso included: Chief
Executive Officer for Belgian operations and Chief Financial Officer
for CSC Consulting Group.
Indemnification of Officers and Directors
The Nevada Revised Statues and certain provisions of the
Company's Bylaws under certain circumstances provide for
indemnification of the Company's Officers, Directors and controlling
persons against liabilities which they may incur in such capacities.
A summary of the circumstances in which such indemnification is
provided for is contained herein, but this description is qualified
in its entirety by reference to the Company's Bylaws and to the
statutory provisions.
In general, any Officer, Director, employee or agent may be
indemnified against expenses, fines, settlements or judgments arising
in connection with a legal proceeding to which such person is a
party, if that person's actions were in good faith, were believed to
be in the Company's best interest, and were not unlawful. Unless
such person is successful upon the merits in such an action,
indemnification may be awarded only after a determination by
independent decision of the Board of Directors, by legal counsel, or
by a vote of the shareholders, that the applicable standard of
conduct was met by the person to be indemnified.
The circumstances under which indemnification is granted in
connection with an action brought on behalf of the Company is
generally the same as those set forth above; however, with respect to
such actions, indemnification is granted only with respect to
expenses actually incurred in connection with the defense or
settlement of the action. In such actions, the person to be
indemnified must have acted in good faith and in a manner believed to
have been in the Company's best interest, and have not been adjudged
liable for negligence or misconduct.
Indemnification may also be granted pursuant to the terms of
agreements which may be entered in the future pursuant to a vote of
Shareholders or Directors. The statutory provision cited above also
grants the power to the Company to purchase and maintain insurance
which protects its Officers and Directors against any liabilities
incurred in connection with their service in such a position, and
such a policy may be obtained by the Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities and Exchange Act of 1934 requires
certain defined persons to file reports of and changes in benefical ownership
of a registered security with the Securities and Exchange Commission in
accordance with the rules and regulations promulgated by the Commission to
implement the provisions of Section 16. Under the regulatory prrocedure,
officers, directors and persons who ownn more than ten percent of a registered
class of a company's securities are also required to furnish the Company with
copies of all Section 16(a) forms they file.
<PAGE> 37
Based soly upon representations by the Company's officers have filed
all reports which were required to be filed under Section 16(a) of the
Exchange Act with the Commission for the period beginning July 1, 1996
and ending June 30, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The Company has not as yet entered into employment agreements
with its officers or proposed executives. The Company anticipates
entering into employment agreements with its officers and other
consultants in the near future, the terms of which are undecided at
the present time. Directors do not receive compensation for their
services as directors and are not reimbursed for expenses incurred in
attending board meetings. The Company has not paid salaries in the
current fiscal year but intends to do so once production has
commenced at its plant.
The Company has adopted a consultant and employee stock
compensation plan (the "Plan"). The total number of shares included
in the Plan is 350,000. Shares issued as a result of the exercise of
options granted thereunder will be "restricted securities" as that
term is defined in Reg 144 promulgated under the Securities Act of
1933, as amended. To date there have been no allotments to
consultants, employees, officers or directors.
The Company has adopted a directors and officers' stock option
plan (the "Plan") which has been registered on Form S-8 with the
Securities and Exchange Commission on June 26, 1996. The total
number of shares included in the Plan is 1,000,000. To date there
have been no allotments to eligible directors or officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following schedule sets forth the Common Stock ownership of
each person known by the Company to be the beneficial owner of five
percent or more of the Company's Common Stock, each director
individually, and all officers and directors of the Company as a
group. Each person has sole voting and investment power with respect
to the shares of Common Stock shown, and all ownership is of record
and beneficial.
Name and address Number of Percent
of owner Shares Position of Class
[S] [C] [C] [C]
Jack E. Lovelock [1] 79,000 Chairman of Board 0.93%
PH 1906 Nelson St of Directors and Chief
Vancouver, B.C. Executive Officer
Canada V6G 1N2
Richard A. Camuso [5] 50,000 Former President and a 0.59%
9 Deer Hill Drive Member of the Board of
Ridgefield, CT 06877 Director
<PAGE> 38
Robert Dinning 0 Chief Financial Officer 0.00%
3910 Indian River Drive and Secretary
North Vancouver, B.C.
Canada V7G 2G7
David R. Annett 0 Member of the Board of 0.00%
51 Brimwood Court Directors
Pickering, Ontario
Canada L1V 6L1
All officers and
directors as a group
[4] 129,000 0.69%
John Sand [2][3] 625,000 [4] 3.32%
11719 Machrina Way
Richmond, B.C.
Canada V7A 4V3
Jon Martin [2][3] 625,000 [4] 3.32%
Suite 1400, 1500
Georgia Street
Vancouver, B.C.
Canada V6G 2Z6
[1] Includes 39,500 shares owned by Mr Lovelock's wife, Betty Lovelock.
[2] John Sand and Jon Martin each own 50% of the outstanding shares of
common stock of Spectrasonic. Spectrasonic at June 30, 1997 held
1,250,000 common shares of the Company and because of the ownership
of Spectrasonic, Messrs. Sand and Martin may be considered the
beneficial owners of the foregoing shares.
[3] Messrs. Sand and Martin also each own 50% of the outstanding shares
of common stock of Microsonic Disintegration, Ltd. ("Microsonic").
Microsonic at June 30, 1997 held 1,000,000 common shares of the
Company and because of the ownership of Microsonic, Messrs. Sand and
Martin may be considered the beneficial owners of the foregoing
shares. Microsonic is an associated company of Spectrasonic.
[4] Reflects 250,000 pre-split shares/150,000 post-split shares and an
additional 100,000 post-split shares issued September 18, 1995.
[5] Mr. Camuso resigned as President and a Director of the Company on
January 1, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 23, 1995, Jack Lovelock, Chairman of the Board of Directors of
the Company, purchased 39,500 shares of the Company's stock for $17,775.00,
in an open market transaction in Manila, Republic of the Philippines. The
transaction was no more favorable than could be obtained by a non-
affiliated third party.
On June 23, 1995, Betty Lovelock, the wife of Jack Lovelock, purchased
39,500 shares of the Company for $17,775.00 in an open market transaction
in Manila, Republic of the Philippines. The transaction was no more
favorable than could have been obtained by a non-affiliated third party.
<PAGE> 39
On July 27, 1995, Richard A. Camuso, then the President of the Company,
purchased 50,000 common shares of the Company's common stock for $22,500 in
an open market transaction in Manila, Republic of the Philippines. The
transaction was no more favorable than could have been obtained by a non-
affiliated third party.
On June 25, 1995, the Company entered into an Exclusive License Agreement
for rubber and glass, with Spectrasonic. The contract is for a period of
99 years. Spectrasonic has developed and is the sole proprietary owner of
all of the proprietary rights to the SDM. Spectrasonic has not made any
patent applications as of the date hereof and has further advised the
Company that: "Applications for protection of assets of (Spectrasonic)
under laws for the protection of intellectual property in Canada, and the
United States of America, and any other country in which Spectrasonic does
business will be made at such time as Spectrasonic shall determine is in
its best interests." This transaction was no more favorable than could
have been obtained by a non-affiliated third party.
On February 22, 1996, the Company entered into an Exclusive License
Agreement, with Spectrasonic. The contract is for a period of 99 years and
covers the right to exploit, develop, manufacture, market, distribute and
sell the ultrasound equipment as it relates exclusively to gypsum. Any
patent or other protection required will be the responsibility of the
Company and to date, the Company has not made any patent application. This
transaction was no more favorable than could have been obtained by a non-
affiliated third party.
On May 17, 1996, the Company entered into an Exclusive License Agreement
with Spectrasonic. The contract is for a period of 99 years and covers the
production and operation of its disintegration machines for any and all
materials not previously licensed. Spectrasonic reserve the right to
manufacture the equipment. Any patent or other protection is the
responsibility of the Company and to date, they have not made any patent
application. This transaction was no more favorable than could have been
obtained by a non-affiliated third party.
The original contract price for one KDS and the license was $550,000.
The Company issued 250,000 common shares to Spectrasonic at an aggregate
value of $175,000. The balance of the debt was settled by cash payments at
varying times up to March 31, 1996. There are no other payments due under
this exclusive license. Payments were made from the proceeds of a
financing.
The License Agreement regarding Gypsum required cash payments of $275,000
to Spectrasonic plus the issuance by the Company of 1,000,000 shares of its
common stock at $0.50 per share, for an aggregate value of $500,000. The
total purchase price, for this fully paid license was $775,000 with the
parties mutually agreeing that the value of the Technology license was
$425,000 and the KDS was $350,000.
The License Agreement dated May 17, 1996 requires payment of
CDN$1,000,000 (US$750,000) between June 30, 1996 and January 2, 1997. The
payments due January 2, 1997 have been deferred by mutual consent of the
parties involved.
<PAGE> 40
The payment due June 30, 1996 was made subsequent to the year end and
$175,000 of the $450,000 was paid. By letter of understanding on October
24, 1996, Spectrasonic deferred cash payments owing until a private
placement financing is completed sometime in 1997. This has not happened
yet.
On October 30, 1995, the Company entered into an agreement with LCM
Equity to provide a line of credit up to a maximum of CDN$600,000 for a
period of one year. This agreement was subsequently terminated and
replaced with a new agreement with LCM Equity dated March 1, 1996. This
agreement provided a revolving line of credit of a maximum of US$500,000 to
be available until February 16, 1997. LCM Equity converted all of its'
outstanding loans to common stock in the Company. The conversion price was
US$0.37 per share.
On April 1996, the Company entered into an agreement with Knowlton, a
private venture capital concern, located at 329 Brill Road, Foster, Quebec
JOE 1RO. Knowlton agreed to provide financing up to US$800,000 until
December 31, 1996. This agreement was extended to December 31, 1997.
Interest was payable at 10% per annum. This loan could be repaid at any
time or convertible into common stock of the Company at US$0.75 per share.
The lender has the right to take a collateral mortgage on the assets owned
by the borrower. At June 30, 1997, the loan outstanding was US$790,229.
Recent Sales of Unregistered Securities
On May 2, 1995, the Company sold 6,000,000 post-split shares (10,000,000)
pre-split shares) of its common stock in consideration of $100,000 in cash
to 12 individuals in the Republic of the Philippines pursuant to Reg. 504
promulgated under the Securities Act of 1933, as amended. The sales of the
foregoing shares in the Republic of the Philippines was in accordance with
Philippines laws and regulations.
On June 22, 1995, the Company sold 150,000 post-split shares (250,000
pre-split shares) of its common stock to Spectrasonic as partial
consideration for the execution of the exclusive licensing agreement. See
"Item 1 - Summary of Exclusive Agreement with Spectrasonic." The shares
were valued at $175,000. The sale of the foregoing securities was made
pursuant to Reg. 504 promulgated under the Securities Act of 1933, as
amended.
On August 14, 1995, the Company effected a 6 for 10 reverse stock-split.
On September 18, 1995, the Company issued 600,000 shares of common stock
to two individuals who were residents of the Republic of the Philippines in
consideration of $270,000 in cash. The foregoing individuals were not
affiliates of the Company, Spectrasonic, or Westmoreland Capital Corp.
("Westmoreland"). The sale of the foregoing stock in the Republic of the
Philippines was in accordance with Philippine laws and regulations. On the
same date the Company issued an additional 100,000 shares of common stock
to Spectrasonic in consideration of $50,000. The foregoing shares were
sold pursuant to Reg. 504 promulgated under the Securities Act of 1933, as
amended.
<PAGE> 41
On October 20, 1995, the Company issued 200,000 "restricted" shares of
its common stock to Westmoreland, a British Columbia corporation, as
partial consideration for the execution of its agreement to supply
management services, pursuant to Reg. 701 promulgated under the Securities
Act of 1933, as amended. See "Item 1 - Employees." The 200,000 shares
were valued at $100,000.
On February 29, 1996, the Company issued 1,000,000 "restricted" shares
of its common stock to Spectrasonic as partial consideration re License
Agreement, Gypsum, dated February 22, 1996. The shares were valued at
$0.50 per share for a total consideration of $500,000.
On March 20, 1996, the Company issued 74,400 shares of its common stock
to Astaire & Partners, in London England. The shares were valued at $1.25
per share for a total consideration of $93,000. The shares were issued
pursuant to a private placement.
On March 25, 1996, the Company issued 380,717 shares of its common shares
to LCM Equity, in consideration of debt conversion, at $0.45 per share for
a total consideration of $171,323.
On July 3, 1996, the Company issued 452,376 shares of its common stock
to LCM Equity, regarding conversion of loans outstanding. This stock was
valued at $0.45 per share for loans of US$124,069 and loans of CDN$106,000
(US$77,300) at $0.60 per share.
On July 10, 1996, the Company issued 1,000,000 shares of its common stock
to Microsonic Disintegration regarding a May 17, 1996 agreement for the
purchase of rights. This stock was valued at $0.50 per share.
On July 10, 1996, the Company issued 7,440 shares of its common stock to
Astaire & Partners as settlement of a commission of $9,300. The stock was
issued at $1.25 per share.
On September 12, 1996, the Company issued 654,000 shares of its common
stock to Swan Alley (Nominees) in consideration of US$457,800. The stock
was sold under Reg. "S" of the Act at a price of $0.70 per share.
On September 25, 1996, the Company issued 303,000 shares of its common
stock to Gerlach & Co. for the sum of $212,100. The stock was sold under
Reg. "S" of the Act at a price of $0.70 per share.
On October 24, 1996, the Company issued 100,000 shares of its common
stock to Gerlach & Co. for the sum of $22,500. The stock was sold under
Reg. "S" of the Act at a price of $0.225 per share.
On November 30, 1996, the Company issued a total of 1,142,188 in
consideration of US$479,719 shares of its common stock to:
Monarch Consulting 337,083 common shares
LCM Equity, Inc. 181,730 common shares
Somerst Co. 480,650 common shares
LCM Equity, Inc. 142,725 common shares
On April 4, 1997 the Company issued a total of 759,945 shares of its
common stock to Magic Trading, Inc. in settlement of loans advanced in the
amount of $281,180. The loans were converted to common stock at $0.37 per
share.
<PAGE> 42
On April 30, 1997, the Company issued a total of 598,382 shares of its
common stock in consideration of US$194,466 to:
834968 Ontario Inc. 100,000 common shares
Huntington Inc 45,455 common shares
Knowlton Capital Inc. 398,836 common shares
Meraloma Club 16,818 common shares
Jacqueline Lovelock 37,273 common shares
On or about the 8th day of May, 1997, the Company sold 650,000
shares of Common Stock in consideration of $80,600 pursuant to
Regulation S of the Securities Act of 1933, as amended (the "Act");
the name of the non-U.S. purchaser was Huntingdon Limited and its
address is 12/13 Hill Street, Douglas, Isle of Man, British Isles
IM9 IBW. The applicable restricted period as to the shares under
Regulation S was forty (40) days since the Company is required to
file reports with the Securities and Exchange Commission.
On or about the 8th day of May, 1997, the Company sold
100,000 shares of Common Stock in consideration of $12,400 pursuant
to Regulation S of the Act; the name of the non-U.S. purchaser was
F. J. Rigney Resources Ltd. and its address is 2200 - 609
Granville, Vancouver, British Columbia, Canada V7Y 1T2. The
applicable restricted period as to the shares under Regulation S was
forty (40) days since the Company is required to file reports
with the Securities and Exchange Commission.
On or about the 8th day of May, 1997, the Company sold
187,000 shares of Common Stock in consideration of $23,188 pursuant
to Regulation S of the Act; the name of the non-U.S. purchaser was
Magic Trading Limited and its address is P. O. Box 107, Oceanic
House, Duke Street, Grand Turk, Turks and Caicos Islands, British
West Indies. The applicable restricted period as to the shares
under Regulation S was forty (40) days since the Company is
required to file reports with the Securities and Exchange
Commission.
On or about the 26th day of June 1997, the Company sold
516,250 shares of Common Stock in consideration of $66,378 pursuant
to Regulation S of the Securities Act of 1933, as amended (the
"Act"); the name of the non-U.S. purchaser was Huntingdon Limited
and its address is 12/13 Hill Street, Douglas, Isle of Man, British
Isles 1M9 1BW. The applicable restricted period as to the shares
under Regulation S was forty (40) days since Company is required
to file reports with the Securities and Exchange Commission.
On or about the 26th day of June, 1997, the Company sold
762,500 shares of Common Stock in consideration of $98,144 pursuant
to Regulation S of the Act; the name of the non-U.S. purchaser was
Magic Trading Limited and its address is P.O. Box 107, Oceanic
House, Duke Street, Grand Turk, Turks and Caicos Islands, British
West Indies. The applicable restricted period as to the shares
under Regulation S was forty (40) days since Company is required
to file reports with the Securities and Exchange Commission.
<PAGE> 43
On or about the 2nd day of July, 1997, the Company sold
225,000 shares of Common Stock in consideration of $38,025 pursuant
to Regulation S of the Securities Act of 1933, as amended (the
"Act"); the name of the non-U.S. purchaser was Cavendish Investments
International Ltd. and its address is Abbey Business Center, Digby
Road, Sherborne Dorset, United Kingdom, DT9 3NL. The applicable
restricted period as to the shares under Regulation S was forty (40)
days since the Company is required to file reports with the
Securities and Exchange Commission.
On or about the 2nd day of July, 1997, the Company sold
500,000 shares of Common Stock in consideration of $75,000 pursuant
to Regulation S of the Act; the name of the non-U.S. purchaser was
Bentley Financial Inc. and its address is P. O. Box 107, Oceanic
House, Duke Street, Grand Turk, Turks and Caicos Islands, British
West Indies. The applicable restricted period as to the shares
under Regulation S is forty (40) days since the Company was
required to file reports with the Securities and Exchange
Commission.
On or about the 18th day of July, 1997, the Company sold
500,000 shares of Common Stock in consideration of $75,000 pursuant
to Regulation S of the Act; the name of the non-U.S. purchaser was
Cavendish Investments Ltd. and its address is Abbey Business
Center, Digby Road, Sherborne Dorset, United Kingdom DT9 3NL. The
applicable restricted period as to the shares under Regulation S was
forty (40) days since the Company is required to file reports
with the Securities and Exchange Commission.
On August 18, 1997 the Company sold 1,100,000 shares of common stock to
Magic Trading Limited in consideration of US$220,092.00. The foregoing
shares were issued pursuant to Reg. S of the Act.
On or about the 1st day of February, 1998, the Company sold 295,000
shares of Common Stock in consideration of $34,498.00 pursuant to
Regulation S of the Securities Act of 1933, as amended (the "Act"); the
name of the non-U.S. purchaser was Knowlton Capital, Inc. and its address
is 329 Brill Road, Foster, Quebec. The applicable restricted period as to
the shares under Regulation S was forty (40) days since the Company is
required to file reports with the Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements are contained in Item 8.
(b) Reports on Form 8-K
A Form 8-K was filed with the Commission on or about September 25, 1996.
The purpose of the Form 8-K was to notify the Commission of a change in the
Company's auditor.
A Form 8-K was filed with the Commission on or about April 21, 1997. The
purpose of the Form 8-K was to notify the Commission of sales of securities
pursuant to Reg. S of the Securities Act of 1933 (the "Act").
<PAGE> 44
A Form 8-K was filed with the Commission on or about August 27, 1997.
The purpose of the Form 8-K was to notify the Commission of sales of
securities pursuant to Reg. S of the Act.
A Form 8-K was filed with the Commission on or about November 3, 1997.
The purpose of the Form 8-K was to notify the Commission of the sales of
securities pursuant to Reg. S of the Act.
A Form 8-K was filed with the Commission on or about March 9, 1998. The
purpose of the Form 8-K was to notify the Commission of the sale of
securities pursuant to Reg. S of the Act.
(c) Exhibits.
Exhibit
No. Description
The following documents are incorporated herein by reference from the
Company's Form 10, as filed with the Securities and Exchange Commission.
3.1 Articles of Incorporation of First American Scientific
Corporation.
3.2 Bylaws of First American Scientific Corporation.
4.1 Specimen Stock Certificate.
10.1 License Agreement with Spectrasonic Corp.
10.2 Westmoreland Capital Corp. Agreement.
10.3 Gross Royalty Agreement between Strategic International Inc. and
the Company.
10.4 Lease between the Company and Spectrasonic.
10.5 Agreement between L.C.M. Equity, Inc. and the Company.
28.1 Consultant and Employee Stock Compensation Plan.
The following documents are incorporated herein by reference from the
Company's Form S-8, as filed with the Securities and Exchange Commission.
10.1 Nonqualifying Stock Option Plan.
The following documents are incorporated herein by reference from the
Company's Form 10-K for the period ending June 30, 1996.
10.1. Loan Agreement between Knowlton Capital, Inc. and the Company dated
April 30, 1996 incorporated by reference from the Company's Form
10-K for the period ending June 30, 1996.
10.2 License Agreement between the Company and Spectrasonic Corp. dated
May 17, 1996 incorporated by reference from the Company's Form 10-k
for the period ending June 30, 1996.
The following documents are filed as part of this June 30, 1997 Form 10-K.
3.3 Articles of Incorporation of 521345 B.C. Ltd.
<PAGE> 45
SIGNATURE PAGE
Pursuant to the requirements of Section 12 of the Exchange Act of 1934,
the Registrant has duly caused this Form 10-K to be signed on its behalf by
the undersigned, thereunto duly authorized, in Vancouver, British Columbia,
on this 15th day of April, 1998.
FIRST AMERICAN SCIENTIFIC CORP.
(Company)
BY: /s/ Jack E. Lovelock, Chairman, Chief Executive Officer
and member of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
Company and in the capacities and on this 15th day of April, 1998.
SIGNATURES TITLE DATE
/s/ Jack E. Lovelock Chairman of the Board April 15, 1998
of Directors and Chief
Executive Officer.
/s/ Robert Dinning Chief Financial Officer April 15, 1998
and Secretary.
/s/ David R. Annett Member of the Board April 20, 1998
of Directors
<PAGE> 46
COMPANY ACT
CANADA
PROVINCE OF BRITISH COLUMBIA
CERTIFICATE OF INCORPORATION
I Hereby Certify that
521345 B.C. LTD.
has this day been incorporated under the Company Act
Issued under my hand at Victoria, British Columbia
on June 05, 1996
[SEAL] /s/ J. S. Powell
John S. Powell
Registrar of Companies
<PAGE> 47
FORM 1
(SECTION 5)
COMPANY ACT
MEMORANDUM
I wish to be formed into a Company with limited liability
under the Company Act pursuant to this Memorandum.
1. The name of the Company is 52,1345 B.C. LTD.
2. The authorized capital of the Company consists of 23,000
shares divided into the following: ONE THOUSAND (1,000)
Class "A" Common Voting Shares without par value; ONE
THOUSAND (1,000) Class "B" Common Voting Shares without par
value; ONE THOUSAND (1,000) Class "C" Common Non-Voting
Shares without par value; TEN THOUSAND (10,000) Class "D"
Preference Shares with a par value of ONE HUNDRED ($100.00)
DOLLARS each; TEN THOUSAND (10,000) Class "E" Preference
Shares without par value.
3. The shares of the Company shall have attached thereto the
Special Rights and Restriction more particularly set out in
the Articles of the Company.
4. I agree to take the number and kind of shares in the Company
set opposite my name.
FULL NAME, RESIDENT ADDRESS NUMBER AND KIND OF SHARES
AND OCCUPATION OF SUBSCRIBER TAKEN BY SUBSCRIBER
Neil William Vallance One Hundred (100) Class
2159 Quimper Street "A" Common Voting Shares
Victoria, B.C. Without Par Value
V85 2H7
Barrister and Solicitor
TOTAL SHARES TAKEN: One Hundred (100) Class
"A" Common Voting Shares
Without Par Value
Dated this 29th day of May, 1996, at the City of Victoria, in the
Province of British Columbia.
SUBSCRIBERS SIGNATURE:
/s/ Neil William Vallance
Neil William Vallance
<PAGE> 48
PROVINCE OF BRITISH COLUMBIA
INDEX TO
ARTICLES OF
521345 B.C. LTD.
PART 1 - INTERPRETATION . . . . . . . . . . . . . . - 1 -
PART 2 - SHARES . . . . . . . . . . . . . . . . . - 1 -
PART 3 - TRANSFER AND TRANSMISSION OF SHARES . . . . . . - 2 -
PART 4 - REDEMPTION AND PURCHASE OF SHARES BY THE COMPANY - 3 -
PART 5 - ALTERATION OF CAPITAL AND SHARES . . . . . . . - 3 -
PART 6 - BORROWING POWERS . . . . . . . . . . . . . - 3 -
PART 7 - GENERAL MEETINGS . . . . . . . . . . . . . - 4 -
PART 8 - PROCEEDINGS AT GENERAL MEETINGS . . . . . . . - 4 -
PART 9 - VOTES OF MEMBERS . . . . . . . . . . . . . - 6 -
PART 10 - DIRECTORS . . . . . . . . . . . . . . . - 7 -
PART 11 - RETIREMENT AND ELECTION OF DIRECTORS . . . . . - 7 -
PART 12 - PROCEEDINGS OF DIRECTORS . . . . . . . . . - 8 -
PART 13 - OFFICERS . . . . . . . . . . . . . . . . - 9 -
PART 14 - EXECUTION OF INSTRUCTION . . . . . . . . . . - 9 -
PART 15 - DIVIDENDS . . . . . . . . . . . . . . . - 9 -
PART 16 - ACCOUNTS . . . . . . . . . . . . . . . . -10 -
PART 17 - NOTICES . . . . . . . . . . . . . . . . -10 -
PART 18 - FEES . . . . . . . . . . . . . . . . . -11 -
PART 19 - LIMITATIONS ON MEMBERSHIP AND
OFFERING OF SECURITIES . . . . . . . . . . . . . . -11 -
PART 20 - SPECIAL RIGHTS AND RESTRICTIONS . . . . . . . -11 -
<PAGE> 49
"COMPANY ACT"
ARTICLES OF
521345 B.C. LTD.
PART 1 - INTERPRETATION
1.1 In these Articles, unless the context otherwise requires,
(a) "directors" means the directors of the Company for the
time being;
(b) "Company Act" means the Company Act of the Province of
British Columbia from time to time in force and all
amendments thereto;
(c) "register" means the register of members to be kept
pursuant to the Company Act;
(d) "registered address" of a director means his address as
recorded in the Company's register of directors to be
kept pursuant to the Company Act.
1.2 Words importing the singular include the plural and vice
versa, and words importing a male person include a female person
and a corporation.
1.3 The definitions in the Company Act on the date these
Articles become effective shall, with the necessary changes and
so far as are applicable, apply to these Articles.
PART 2 - SHARES
2.1 Before allotting any shares the directors shall first offer
those shares pro rata to the members, but if there are classes of
shares, the directors shall first offer the shares to be allotted
pro rata to the members holding shares of the class proposed to
be allotted, and if any shares remain, the directors shall then
offer the remaining shares pro rata to the other members. The
offer shall be made by notice specifying the number of shares
offered and limiting a time for acceptance. After the expiration
of the time for acceptance or on receipt of written confirmation
from the person to whom the offer is made that he declines to
accept the offer, and if there are no other members holding
shares who should first receive an offer, the directors may for
three months thereafter offer the shares to such persons and in
such manner as they think most beneficial to the Company, but the
offer to those persons shall not be at a price less than or on
terms more favorable than the offer to the members.
<PAGE> 50
2.2 Every share certificate issued by the Company shall be in
such form as the directors approve and shall comply with the
Company Act.
2.3 If any share certificate is worn out or defaced, then, upon
production of that certificate to the directors, they may order
the same to be cancelled and may issue a new certificate in place
of that certificate; and if any share certificate is lost or
destroyed, then, upon proof of the loss or destruction to the
satisfaction of the directors, upon paying the Company the fee
prescribed in Article 18.1, and upon giving such indemnity as the
directors deem adequate, a new certificate in place of the lost
or destroyed certificates shall be issued to the party entitled
to it.
2.4 A share certificate registered in the names of two or more
persons shall be delivered to the person first named on the
register.
2.5 No shares without par value shall be allotted or issued at a
price or for a consideration less than the price or consideration
determined by the directors.
2.6 The Company may pay a commission or allow a discount to any
person in consideration of his subscribing of agreeing to
subscribe, or procuring or agreeing to procure subscriptions,
whether absolutely or conditionally, for shares with par value,
but so long as the Company is not a specially limited company,
the commission and discount in aggregate shall not exceed twenty-
five percent of the amount of the subscription price.
PART 3 - TRANSFER AND TRANSMISSION OF SHARES
3.1 The instrument of transfer of any share shall be in writing
in the following form or in any usual or common form or any other
form that the directors may approve:
I/WE, ________________________ in consideration of $________
paid to me/us by ___________________ (the "transferee"),
hereby transfer to the transferee ("number and class, if
any") shares in ("name of Company") to hold unto the
transferee, his executors, administrators, and assigns,
subject to the several conditions on which I held the same
at the time of the execution of this assignment; and the
transferee, by acceptance of this assignment, agrees to take
those shares subject to those conditions.
Signed this _____ day of __________ 19___.
Signature of transferor(s)
Witness to the signature of the transferor(s)
<PAGE> 51
If the directors so require, each instrument of transfer shall
be in respect of only one class of shares.
3.2 Every instrument of transfer shall be executed by the
transferor and left at the registered office of the Company
together with the share certificate for the shares to be
transferred and such other evidence, if any, as the directors may
require to prove the title of the transferor or his right to
transfer the shares. All instruments of transfer which are
registered shall be retained by the Company but any instrument of
transfer that the directors decline to register shall be returned
to the person depositing the same, together with the share
certificate which accompanied the same when tendered for
registration. The transferor shall remain the holder of the
share until the name of the transferee is entered on the register
in respect of that share.
3.3 The signature of the registered owner of any shares or of
his duly authorized attorney upon the form of transfer
constitutes an authority to the Company to register the share
specified in the form of transfer in the name of the person named
in that form as transferee or, if no person is so named, then in
any name designated in writing by the person depositing the share
certificate and the form of transfer with the Company.
3.4 Neither the Company nor any director, officer, or agent is
bound to inquire into the title of the transferee of those shares
to be transferred or is liable to the registered or any
intermediate owner of those shares, for registering the transfer.
3.5 Except in the case of a transmission, no transfer of shares
shall be registered without the consent of the directors.
3.6 In the case of the death of a member the legal personal
representative of the deceased shall be the only person
recognized by the Company as having any title to or interest in
the shares registered in the name of the deceased. Before
recognizing any legal personal representative, the directors may
require him to take out a grant of probate or letters of
administration in British Columbia.
3.7 Any person who becomes entitled to a share as a result of
the death or bankruptcy of any member upon producing the evidence
required by Section 61 of the Company Act, or who becomes
entitled to a share as a result of an order of the court of
competent jurisdiction or a statute, upon producing such evidence
as the directors think sufficient that he is so entitled, may be
registered as holder of the share or may transfer the share.
<PAGE> 52
PART 4 - REDEMPTION AND PURCHASE OF SHARES BY THE COMPANY
4.1 Subject to the special rights or restriction attached to any
class of shares, the Company may, by resolution of the directors,
purchase any of its shares at a price and upon the terms set out
in the resolution, but no purchase shall be made if the Company
is insolvent or if the purchase would render the Company
insolvent. Except where the Company is purchasing shares from a
dissenting member pursuant to the Company Act, the Company shall
make an offer to purchase pro rata from every member who holds
shares of the class proposed to be purchased. Any shares of the
Company purchased by the Company shall not be voted while owned
or held by the Company and no dividends shall be declared or paid
in respect of such shares.
4.2 The Company may, by resolution of the directors and with the
written consent of the members holding all of the issued shares
of a class or kind of redeemable shares, make a redemption of
some of those shares other than pro rata and other than among
every member who holds those shares.
PART 5 - ALTERATION OF CAPITAL AND SHARES
5.1 Except as otherwise provided by conditions imposed at the
time of creation of any new shares by these Articles, any
addition to the authorized capital resulting from the creation of
new shares shall be subject to the provisions of these Articles.
PART 6 - BORROWING POWERS
6.1 The directors may from time to time at their discretion
authorize the Company to borrow any sum of money for the purposes
of the Company and may raise or secure the repayment of that sum
in such manner and upon such terms and conditions, in all
respects, as they think fit, and in particular, and without
limiting the generality of the foregoing, by the issuance of
bonds or debentures, or any mortgage or charge, whether specific
or floating, or other security on the undertaking or the whole or
any part of the property of the Company, both present and future.
6.2 The directors may make any debentures, bonds, or other debt
obligations issued by the Company, by their terms, assignable
free from any equities between the Company and the person to whom
they may be issued, or any other person who lawfully acquires the
same by assignment, purchase or otherwise, however.
6.3 The directors may authorize the issue of any debentures,
bonds, or other debt obligations of the Company at a discount,
premium or otherwise, and with special or other rights or
privileges as to redemption, surrender, drawings, allotment of,
or conversion into shares, attending at general meetings of the
Company, and otherwise as the directors may determine at or
before the time of issue.
<PAGE> 53
PART 7 - GENERAL MEETINGS
7.1 The general meetings of the Company shall be held at such
time and place, in accordance with the Company Act, as the
directors appoint.
7.2 Every general meeting, other than an annual general meeting,
shall be called an extraordinary general meeting.
7.3 The directors may, whenever they think fit, convene an
extraordinary general meeting.
7.4 Notice of a general meeting shall specify the place, the
day, and the hour of meeting and, in case of special business,
the general nature of that business. The accidental omission to
give notice of any meeting to, or the non-receipt of any notice
by any of the members entitled to receive notice shall not
invalidate any proceedings at that meeting.
7.5 If any special business includes the presenting,
considering, approving, ratifying or authorizing the execution of
any document, then the portion of any notice relating to that
document is sufficient if it states that copy of the document or
proposed document is or will be available for inspection by
members at any office of the Company in the Province of British
Columbia or at one or more designated places in the Province
during business hours on any specified or unspecified working day
or days prior to the date of the meeting and at the meeting.
7.6 Where a sole or last surviving director dies any member or
personal representative of a deceased member (including an
executor of a deceased member who has not yet received a grant of
letters probate), may convene an extraordinary general meeting to
appoint a director or directors to hold office until the next
annual general meeting.
7.7 Where a sole or last surviving director who was also the
only member or only voting member of the Company dies, his
personal representative may, before any of the deceased member's
shares are transmitted, appoint a director or directors to hold
office until the next annual general meeting, and for the
purposes of this Article, where such a member dies intestate, the
Public Trustee whose office is nearest to the registered office
of the Company shall be deemed to be the personal representative
until an administrator is appointed by the Court of competent
jurisdiction.
PART 8 - PROCEEDINGS AT GENERAL MEETINGS
8.1 The following business at a general meeting shall be deemed to
be special business:
<PAGE> 54
(a) All business at an extraordinary general meeting;
(b) All business that is transacted at any annual general
meeting with the exception of the consideration of the
financial statement and the report of the directors and
auditors, the election of directors, the appointment of the
auditors and such other business as, under these Articles,
ought to be transacted at an annual general meeting, or any
business which is brought under consideration by the report
of the directors issued with the notice convening the
meeting.
8.2 No business, other than the election of a chairman and the
adjournment or termination of the meeting, shall be conducted at
any general meeting at any time when a quorum is not present. If at
any time during a general meeting there ceases to be a quorum
present, any business than in progress shall be suspended until
there is a quorum present or until the meeting is adjourned or
terminated, as the case may be.
8.3 If within a half an hour from the time appointed for a general
meeting a quorum is not present, the meeting, if convened upon the
requisition of member, shall be terminated, but in any other case,
it shall stand adjourned to the same day in the next week, at the
same time and place, and if, at the adjourned meeting, a quorum is
not present within half an hour from the time appointed from the
meeting, the members present shall be a quorum.
8.4 Subject to Article 8.5, the President of the Company, or in
his absence, one of the directors present, shall preside as
Chairman of every general meeting.
8.5 If any general meeting there is no president or director
present within fifteen minutes after the time appointed for holding
the meeting or if the President and all the directors present are
unwilling to act as Chairman, the members present shall choose
someone of their number to be Chairman.
8.6 The Chairman of a general meeting may, with the consent of any
meeting at which a quorum is present, and shall, if so directed by
the meeting, adjourn the meeting from time to time and from place
to place, but no business shall be transacted at any adjourned
meeting other than the business left unfinished at the meeting from
which the adjournment took place. When a meeting is adjourned for
ten days or more, notice of the adjourned meeting shall be given as
in the case of the original meeting. Except as aforesaid, it is
not necessary to give any notice of an adjournment or of the
business to be transacted at an adjourned general meeting.
8.7 No resolution proposed at a meeting need be seconded, and the
Chairman of any meeting is entitled to move or propose a
resolution.
<PAGE> 55
8.8 In the case of an equality of votes the Chairman shall not,
either on a show of hands or on a poll, have a casting or second
vote in addition to the vote or votes to which he may be entitled
as a member.
8.9 In the case of any dispute as to the admission or rejection of
a vote, the Chairman shall determine the same, and his
determination made in good faith is final and conclusive.
8.10 A member entitled to vote than one vote need not, if he votes,
use all his votes or cast all the votes he uses in the same way.
8.11 Subject to the provisions of Article 8.12, if a poll is duly
demanded, it shall be taken in such manner and at such time, within
seven days after the date of the meeting, and place as the Chairman
directs. The result of the poll shall be deemed to the resolution
of the meeting at which the poll is demanded. A demand for a poll
may be withdrawn.
8.12 A poll demanded on a question of adjournment shall be taken at
the meeting without adjournment.
8.13 The demand for a poll shall not, unless the Chairman so rules,
prevent the continuance of a meeting for the transaction of any
business other than the question on which the poll has been
demanded.
8.14 Where the Company has more than one member, unless otherwise
determined by ordinary resolution, a quorum for the transaction of
business at a general meeting is two persons present and entitled
to vote.
PART 9 - VOTES OF MEMBERS
9.1 Subject to any rights or restrictions for the time being
attached to any class or classes of shares, on a show of hands
every member present in person has one vote, and on a poll every
member, present in person or by proxy, has one vote for each share
he holds.
9.2 Any person who is not registered as a member, but is entitled
to vote at any general meeting in respect of a share, may vote the
share in the same manner as if he were a member, but unless the
directors have previously admitted his right to vote at that
meeting in respect of the share, he shall satisfy the directors of
his right to vote the share before the time for holding the
meeting, or adjourned meeting, as the case may be, at which he
proposes to vote.
9.3 Where there are joint members registered in respect of any
share, any one of the joint members may vote at any meeting, either
personally or by proxy, in respect of the share as if he were
<PAGE> 56
solely entitled to it. If more than one of the joint members is
present at any meeting, personally or by proxy, the joint member
present whose name stands first on the register in respect of the
share shall alone be entitled to vote in respect of that share.
Several executors or administrators of a deceased member in whose
sole name any share stands shall, for the purpose of this Article,
be deemed joint members.
9.4 Subject to Section 183 of the Company Act, a corporation which
is a member may vote by its duly authorized representative who is
entitled to speak and vote either in person or by proxy, and in all
other respects exercise the rights of a member, and that
representative shall be reckoned as a member for all purposes in
connection with any meeting of the Company.
9.5 A member for whom a committee has been duly appointed may
vote, whether on a show of hands or on a poll, by his committee,
and that committee may appoint a proxy holder.
9.6 Unless the directors otherwise determine, the instrument
appointing a proxy holder and the power of attorney or other
authority, if any, under which it is signed or a notarially
certified copy thereof shall be deposited at a place specified for
that purpose in the notice convening the meeting not less than
forty-eight hours before the time for holding the meeting at which
the proxy holder proposes to vote, or shall be deposited with the
Chairman of the meeting prior to commencement of the meeting.
9.7 A vote given in accordance with the terms of an instrument of
proxy is valid notwithstanding the previous death or incapability
of the member or revocation of the proxy or of the authority under
which the proxy was executed, or the transfer of the share in
respect of which the proxy was given, provided no intimation in
writing of the death, incapability, revocation or transfer has been
received at the registered office of the Company or by the Chairman
of the meeting or adjourned meeting before the vote is given.
9.8 Unless, in the circumstances, the Company Act requires any
other form of proxy, an instrument appointing a proxy holder,
whether for a specified meeting or otherwise, shall be in the form
following, or in any other form that the directors shall approve:
"Name of Company"
The undersigned hereby appoints ________________ of
_________________________ (or failing him,
_______________________ of ___________________ ) as proxy for
the undersigned to attend at and vote for and on behalf of the
undersigned at the general meeting of the Company to be held
on the _____ day of ________, 19___.
(Signature of Member)
<PAGE> 57
PART 10 - DIRECTORS
10.1 The directors may exercise all such powers and do all such
acts and things as the Company may exercise and do, and which are
not by these Articles or by statute or otherwise lawfully directed
or required to be exercised or done by the Company in general
meeting, but subject nevertheless to the provisions of all laws
affecting the Company of these Articles and to any rules, not being
inconsistent with these Articles, which are made from time to time
by the Company in general meeting; but no rule, made by the Company
in general meeting, shall invalidate any prior act of the directors
that would have been valid if that rule had not been made.
10.2 The number of directors shall be the number of Subscribers to
these Articles, unless otherwise determined by resolution of the
Shareholders. The Subscribers shall be the first directors of the
Company.
10.3 A director is not required to have any share qualification.
10.4 A director may be remunerated by the Company for services
rendered to it by him as a director and the remuneration of
directors shall be as determined by ordinary resolution or as set
by themselves if authorized by ordinary resolution or if all
members are directors and they shall be reimbursed by the Company
for reasonable expenses incurred in and about the business of the
Company.
10.5 A director may hold any office or position of employment in
the Company other than auditor. Subject to the Company Act no
director shall be disqualified by his office from, or from his
office by contracting with the Company as Vendor, Purchaser or
otherwise and subject to the Company Act, no contract or
transaction entered into by or on behalf of the Company in which a
director is in any way interest shall be void or voidable on the
ground of his interest only.
PART 11 - RETIREMENT AND ELECTION OF DIRECTORS
11.1 At the first annual general meeting, and at every succeeding
annual general meeting, all the directors shall retire from
office, but are eligible for re-election. At every annual general
meeting the members shall fill up the vacated offices by electing
a like number of directors and whenever the number of retiring
directors is less than the maximum number for the time being
required by or determined pursuant to Article 10.2, they may also
elect such further number of directors, if any, as the Company
then determines, but the total number of directors elected shall
not exceed that maximum.
<PAGE> 58
11.2 If, at any general meeting at which an election of directors
ought to take place, the places of the retiring directors are not
filled up, such of the retiring directors as may be requested by
the newly elected directors shall, if willing, continue in office
until further new directors are elected either at an
extraordinary general meeting specially convened for that purpose
or at the annual general meeting in the next or some subsequent
year, unless it is determined to reduce the number of directors.
If no directors are elected at an annual general meeting the
retiring directors shall be deemed to have been re-elected.
11.3 If the Company removes any director before the expiration of
his period of office and appoints another person in his stead,
the person so appointed shall hold office only during such time
as the director in whose place he is appointed would have held
the office if he had not been removed.
11.4 The directors have power at any time and from time to time
to appoint any person as a director to fill a casual vacancy in
the directors. Any director so appointed holds office only until
the conclusion of the next annual general meeting of the Company,
but is eligible for reelection at that meeting.
PART 12 - PROCEEDINGS OF DIRECTORS
12.1 The directors may meet together at such places as they think
fit for the dispatch of business, adjourn, and otherwise regulate
their meetings and proceedings, as they see fit. The directors
may from time to time fix the quorum necessary for the
transaction of business and unless so fixed the quorum shall be a
majority of the directors then in office. The President of the
Company shall be Chairman of all meetings of the directors, but
if at any meeting the President is not present within thirty
minutes after the time appointed for holding the meeting, the
directors present may choose some one of their number to be
Chairman at that meeting. A director may at any time, and the
secretary, upon the request of a director, shall convene a
meeting of the directors. A director who is, in any way,
directly or indirectly, interested in a proposed contract or
transaction with the Company shall be counted in the quorum at
any meeting of the directors at which the proposed contract or
transaction is approved.
12.2 The directors, or any committee of directors, may take any
action required or permitted to be taken by them and may exercise
all or any of the authorities, power, and discretion for the time
being vested in or exercisable by them by resolution either
passed at a meeting at which a quorum is present or consented to
in writing under Section 149 of the Company Act.
<PAGE> 59
12.3 The directors may delegate any, but not all, of their powers
to committees consisting of such director or directors as they
think fit. Any committee so formed in the exercise of the powers
so delegated shall conform to any rules that may from time to
time be imposed on it by the directors, and shall report every
act or thing done in exercise of those powers to the earliest
meeting of the directors to be held next after it has been done.
12.4 A committee may elect a chairman of its meetings; if no
chairman is elected, or if at any meeting the Chairman is not
present within thirty minutes after the time appointed for
holding the meeting, the directors present who are members of the
committee may choose one of their number to be Chairman of the
meeting.
12.5 The members of a committee may meet and adjourn as they
think proper. Questions arising at any meeting shall be
determined by a majority of votes of the members present, and in
case of an equality of votes the Chairman shall have a second or
casting vote.
12.6 For the first meeting of the directors to be held
immediately following the appointment or election of a director
or directors at an annual general meeting of shareholders, or for
a meeting of the directors at which a director is appointed to
fill a vacancy in the directors, it is not necessary to have
given notice of the meeting to the newly elected or appointed
director or directors for the meeting to be duly constituted,
provided that quorum of the directors is present.
12.7 Any director of the Company who may be absent temporarily
from the Province of British Columbia may file, at the registered
office of the Company, a waiver of notice which may be by letter,
telegram, telex or cable of any meeting of the directors and may
at any time withdraw the waiver, and until the waiver is
withdrawn, no notice of meetings of directors shall be sent to
that director; and any and all meetings of the directors shall,
provided a quorum of the directors is present, be valid and
effective.
12.8 Questions arising at any meeting of the directors shall be
decided by a majority of votes. In case of an equality of votes
the Chairman shall not have a second or casting vote.
12.9 No resolution proposed at a meeting of directors need be
seconded, and the Chairman of any meeting is entitled to move or
propose a resolution.
PART 13 - OFFICERS
13.1 All appointments of officers shall be made at such
remuneration, whether by way of salary, fee, commission,
participation in profits or otherwise as the directors think fit.
<PAGE> 60
PART 14 - EXECUTION OF INSTRUMENT
14.1 The directors may provide a common seal for the Company.
14.2 Subject to the provisions of the Company Act, the directors
may provide for use in any other province, state, territory, or
country an official seal, which shall be a facsimile of the
common seal of the Company, with the addition on its face of the
name of the province, state, territory, or country where it is to
be used.
14.3 No seal of the Company shall be affixed to any instrument
except in the presence of:
(a) the President and Secretary, or
(b) two directors, or
(c) such other person or persons as may be prescribed from
time to time by the directors,
provided the President or Secretary may affix the common seal
of the Company to any certified extract from or copy of any
instrument of the Company required for the business of the
Company.
14.4 Any instrument, contract, note or other document may be
executed on behalf of the Company by affixing the signature of
any duly authorized signatory for the Company.
PART 15 - DIVIDENDS
15.1 The directors may declare dividends and fix the date of
record therefor and the date from payment thereof.
15.2 Subject to the terms of shares with special rights or
restrictions, all dividends shall be declared according to the
number of shares held.
15.3 Dividends may be declared to be payable out of the profits
of the Company. No dividend shall bear interest against the
Company.
15.4 A resolution declaring a dividend may direct payment of the
dividend wholly or partly by the distribution of specific assets
or of paid-up shares, bonds, debentures, or other debt
obligations of the Company, or in any one or more of those ways,
and, where any difficulty arises in regard to the distribution,
the directors may settle the same as they think expedient, and in
particular may fix the value for distribution of specific assets,
and may determine that cash payments shall be made to a member
upon the basis of the value so fixed in place of fractional
<PAGE> 61
shares, bonds, debentures, or other debt obligations in order to
adjust the rights of all parties, and may vest any of those
specific assets in trustees upon such trusts for the persons
entitled as may seem expedient to the directors.
15.5 Any dividend or other moneys payable in cash in respect of a
share may be paid by check sent through the post to the member in
a prepaid letter, envelope, or wrapper addressed to the member at
his registered address, or in the case of joint members, to the
registered address of the joint member who is the first named on
the register, or to such person and to such address as the member
or joint members, as the case may be, in writing direct. Any one
of two or more joint members may give effectual receipts for any
dividend or other moneys payable or assets distributable in
respect of a share held by them.
15.6 No notice of the declaration of a dividend need be given to
any member.
15.7 The directors may, before declaring any dividend, set aside
out of the profits of the Company such sums as they think proper
as a reserve or reserves which shall, at the discretion of the
directors, be applicable for meeting contingencies, or for
equalizing dividends, or for any other purpose to which the
profits of the Company may be properly applied, and pending that
application may, at the like discretion, either be employed in
the business of the Company of be invested in such investments,
other than shares of the Company, as the directors may from time
to time think fit.
PART 16 - ACCOUNTS
16.1 The directors shall cause records and books of accounts to
be kept as necessary to record properly the financial affairs and
conditions of the Company and to comply with the provisions of
statutes applicable to the Company.
PART 17 - NOTICES
17.1 A notice may be given to any member or director, either
personally or by sending it by post to him in a prepaid letter,
envelope, or wrapper addressed to the member or director at his
registered address.
17.2 A notice may be given by the Company to joint members in
respect of a share registered in their names by giving the notice
to the joint member first named in the register of members in
respect of that share.
17.3 A notice may be given by the Company to the persons entitled
to a share in the consequence of the death or bankruptcy of a
member by sending it through the post in a prepaid letter,
<PAGE> 62
envelope, or wrapper addressed to them by name, or by the title
or by any like description, at the address, if any, supplied for
the purpose by the persons claiming to be so entitled, or, until
that address has been so supplied, by giving the notice in any
manner in which the same might have been given if the death or
bankruptcy had not occurred.
17.4 Any notice or document sent by post to, or left at, the
registered address of any member shall, notwithstanding that
member is then deceased and whether or not the Company has notice
of his death, be deemed to have been duly served in respect of
any registered shares, whether held solely or jointly with other
persons by that deceased member, until some other person is
registered in his stead as the member or joint member is respect
of those shares, and that service shall for all purposes of these
Articles be deemed a sufficient service of such notice or
document on his personal representatives and all persons, if any,
jointly interested with him in those shares.
17.5 Any notice sent by post shall be deemed to have been served
on the second day following that on which the letter, envelope,
or wrapper containing the same is posted, and in proving service
it is sufficient to prove that the letter, envelope, or wrapper
containing the notice was properly addressed and put in a
Canadian Government post office, postage prepaid.
17.6 A notice of every general meeting shall be given in any
manner hereinbefore authorized to:
(a) every member holding a share or shares carrying the right
to vote at such meetings on the record date or, if no
record date was established by the directors, on the date
of the meeting;
(b) every person upon whom the ownership of a share devolves
by reason of his being a legal personal representative or
a trustee in bankruptcy of a member where the member but
for his death or bankruptcy would be entitled to receive
notice of the meeting.
No other person is entitled to receive notices of general
meetings.
PART 18 - FEES
18.1 The Company shall charge the following fees:
(a) To issue a new certificate in exchange for a defaced or
worn Out certificate or to replace a lost or destroyed
certificate under Section 54 of the Company Act, per new
certificate:
$1.00
<PAGE> 63
(b) To issue new certificates for an existing certificate
under Section 50 of the Company Act, per new certificate:
$1.00
PART 19 - LIMITATIONS ON MEMBERSHIP AND OFFERING OF SECURITIES
19.1 No invitation shall be extended to the public to subscribe
for shares or debentures of the Company, unless the Company has
complied with all applicable companies and securities
legislation.
PART 20 - SPECIAL RIGHTS AND RESTRICTIONS
Class Dividend Voting Liquidation Redeemable Retractable Redemption
Entitlement Rights Entitlement Amount
A Participating Yes 5th No No N/A
B Participating Yes 4th No No N/A
C Participating No 3rd No No N/A
D Participating No 1st Yes Yes $100.00
E Participating No 2nd Yes Yes $100.00
20.1 The shares of the Company shall have attached thereto the
preferences, priorities, special rights, privileges, limitations,
prohibitions, restrictions and conditions set out below.
Voting
20.2 The Class "C" Common Non-Voting Shares do not confer any
right to notice of nor voting at any general meeting of the
Company.
20.3 The Class "D" Preference Shares and the Class "E" Preference
Shares do not confer any right to notice of nor voting at any
general meeting of the Company.
Dividends
20.4 The Holders of each of the Class "D" and Class "E"
Preference Shares shall in each year, at the discretion of the
directors, but always in preference and priority to the payment
of dividends on any of the Class "A", Class "B" or Class "C"
Common Shares, be entitled out of any and all profits or surplus
available for dividends to non-cumulative dividends at a rate to
be determined by the directors in their unfettered discretion
from time to time, such dividend to be calculated on the greater
of the redemption or par value of the said Preference shares as
set out herein.
20.5 If in any year after providing for the full dividend
declared on each class of Preference shares as referred to above
there shall remain any profits or surplus available for
dividends, such profits or surplus or any part thereof may, in
the discretion of the directors, be applied to dividends on the
Class "A," Class "B" and Class "C" Common Shares.
<PAGE> 64
20.6 The Holders of Class "D" or Class "E" Preference Shares
shall not be entitled to any dividend other than or in excess of
the non-cumulative dividend at the rate hereinbefore provided for
by the directors.
20.7 With respect to the Class "D" and Class "E" Preference
Shares, dividends may be paid on either Class to the exclusion of
the other Class and no dividend payable with respect to one Class
shall entitle the holders of the other of such Class to any
dividend.
20.8 With respect to the Class "A," Class "B" and Class "C"
Common Shares, dividends may be paid on any of the aforesaid
Class or Classes to the exclusion of any other class of Common
Shares (whether voting or non-voting) and no dividend payable
with respect to one Class shall entitle the holders on any other
Class or Classes to any dividend.
Participation
20.9 The Class "D" and Class "E" Preference Shares shall rank,
both as regards dividends and return of capital, in priority to
all other shares of the Company and as between the two Classes
the Class "D" Preference Shares shall be paid in full before any
amounts are paid on the Class "E" Preference Shares. On a
liquidation or windingup of the Company or on redemption the
greater of the paidup value or redemption value of such shares
shall, notwithstanding the amount paid therefore, in all cases be
the redemption value as hereinafter stipulated. Subject to
payment of the redemption value of such shares as aforesaid, the
said Class "D" and Class "E" Preference Shares do not confer any
further right to participate in profits or assets of the Company.
20.10 The Company may upon giving notice as hereinafter
provided, redeem the whole or any part of the Class "D"
Preference Shares on payment for each of the shares to be so
redeemed of the par value of such shares, together with all
dividends declared thereon and unpaid, at least SEVEN (7) DAYS
notice of any such redemption shall be given to the registered
holders of the shares to be redeemed specifying the date and time
of redemption.
20.11 The Company may upon giving notice as hereinafter
provided, redeem the whole or any part of the Class "E"
Preference Shares on payment for each of the sum of ONE HUNDRED
($100.00) DOLLARS, together with all dividends declared thereon
and unpaid, at least SEVEN (7) DAYS notice of any such redemption
shall be given to the registered holders of the shares to be
redeemed, specifying the date and time of redemption.
<PAGE> 65
Retraction
20.12 The Holder of the of the Class "D" Preference Shares may
require the Company to redeem the whole or any part of the Class
"D" Preference Shares on payment for each of the shares to be
redeemed of the par value thereof, together with all dividends
declared thereon and unpaid, at least THIRTY (30) DAYS notice of
such redemption shall be given to the Company at its registered
office, specifying the date and time of redemption.
20.13 The Holder of any of the Class "E" Preference Shares may
require the Company to redeem the whole or any part of the Class
"E" Preference Shares on payment for each of the shares to be
redeemed of the sum of ONE HUNDRED ($100.00) DOLLARS, together
with all dividends declared thereon and unpaid, at least THIRTY
(30) DAYS notice of such redemption shall be given to the Company
at its registered office, specifying the date and time of
redemption.
20.14 In the event of the liquidation, dissolution or winding-
up of the Company, whether voluntary or involuntary, the holders
of the Class "D" and Class "E" Preference Shares shall be
entitled to receive the greater of the par value or redemption
value of their shares as set out in subparagraphs 20.10 and 20.11
hereof together with any declared and unpaid dividends before any
distribution of any part of the assets of the Company among the
holders of any Class of Common Shares.
FULL NAME, ADDRESS, AND OCCUPATION
OF SUBSCRIBER(S)
Neil William Valiance
2159 Quimper Street
Victoria, B.C.
V85 2H7
Barrister and Solicitor
Dated this 29th day of May, 1996, at the City of Victoria, in the
Province of British Columbia.
SIGNATURE OF SUBSCRIBER(S):
/s/ Neil William Vallance
Neil William Vallance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheets at June 30, 1997 (Audited) and the Statement of Operations
and Accumulated Deficit for the twelve months ended June 30, 1997 (Audited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,211
<SECURITIES> 0
<RECEIVABLES> 72,940
<ALLOWANCES> 0
<INVENTORY> 55,376
<CURRENT-ASSETS> 155,363
<PP&E> 2,399,199
<DEPRECIATION> (31,536)
<TOTAL-ASSETS> 4,422,427
<CURRENT-LIABILITIES> 2,475,389
<BONDS> 0
0
0
<COMMON> 13,622
<OTHER-SE> 3,731,471
<TOTAL-LIABILITY-AND-EQUITY> 4,422,427
<SALES> 347,721
<TOTAL-REVENUES> 347,721
<CGS> 157,974
<TOTAL-COSTS> 157,974
<OTHER-EXPENSES> 1,420,670
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,711
<INCOME-PRETAX> (1,324,634)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,324,634)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,324,634)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
