SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 for the transition
period from ____ to _____
Commission File Number 0-28392
HARVARD SCIENTIFIC CORP.
(Exact Name of Small Business Issuer as specified in its Charter)
Nevada 88-0226455
State or other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.)
1601 E. Flamingo Road, Suite 18, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
(702) 796-1173
(Issuer's telephone number)
Check whether the Issuer (1) 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 Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of Common Equity, as of the latest practicable date.
Common Stock, $.001 par value 9,289,379
- ---------------------------------- ----------------
Title of Class Number of Shares
outstanding at
November 1, 1996
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
Current Assets:
<S> <C> <C>
Cash (Note 2) $ 96,231 $ 799,466
Accounts Receivable 56,647
Prepaid expense (Note 7) 138,232 425,094
------- -------
Total Current Assets 291,110 1,224,560
----------- ------------
Equipment and Leasehold Improvements,
at cost, less accumulated depreciation of
$9,789 in 1996 and $6,637 in 1995 (Note 3) 15,107 10,861
--------- ---------
Intangible Assets:
Intellectual property, net of accumulated amortization
of $3,323 in 1996 and $1,771 in 1995 (Notes 4 and 7) 7,012 8,563
Organizational cost, net of accumulated amortization
of $97,009 in 1996 and $70,754 in 1995 (Note 7) 78,541 104,796
--------- -------
85,553 113,359
Other Assets:
Deposits 300 300
-------- -----
$ 392,070 $ 1,349,080
========= ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
Current Liabilities:
<S> <C> <C>
Accounts payable $ 33,457 $ 105,791
Accrued expenses (Notes 5 and 10) 59,950 84,380
Due to related parties (Note 7) 170,308 406,881
Note payable to related parties (Note 6) 37,275 67,675
Notes payable (Note 13) 250,000 -
------------------------
Total Current Liabilities 550,990 664,727
----------- ------------
Contingencies (Note 10) - -
Stockholders' Equity:
Common stock, $.001 par value, 100,000,000 shares authorized; 9,289,379 and
8,749,125 shares issued and outstanding at September 30, 1996 and
December 31, 1995,
respectively (Note 12) 9 289 8 749
Additional paid-in capital 2 416 905 1 902 445
Deficit accumulated during the development stage (2 585 114) (1 226 841)
-----------------------
Total Stockholders' Equity (158 920) 684 353
------------- -------------
Total Liabilities and Stockholders' Equity $ 392 070 $1 349 080
=========== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(Unaudited)
For the Period
1/13/87
(Inception)
For the Quarter For the Nine Months through
Ended September 30, Ended September 30, September 30,
1996 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $ 100,000 $ -- $ 181,000 $ -- $ 187,387
Cost of Sales 77,244 -- 216,870 -- 221,557
Gross Profit 22,756 -- (35,870) -- (34,170)
Operating Expenses:
General and administrative
expenses 602,262 160,088 1,214,176 304,741 2,010,775
Research and development
(Notes 7 and 9) 25,078 -- 66,947 -- 386,278
Depreciation and
amortization (Note 7) 10,462 9,836 30,959 29,509 110,118
Total Operating Expenses 637,802 169,924 1,312,082 334,250 2,507,171
Loss from Operations (615,046) (169,924) (1,347,952) (334,250) (2,541,341)
Other Income (Expense):
Interest Income -- -- -- -- 397
Interest Expense 6,019 1,245 10,321 3,696 (19,668)
Loss on disposition of
marketable securities -- -- -- -- (24,500)
6,019 1,245 10,321 3,696 (43,771)
Net Loss $ (621,065) $ (171,169) $ (1,358,273) $ (337,946) $ (2,585,112)
Loss per Common Share $ (0.07) $ (0.09) $ (0.15) $ (0.18) $ (1.60)
Weighted Average Shares
Outstanding 9,133,398 1,868,431 8,941,735 1,860,830 1,614,560
</TABLE>
The accompanying notes are an integral part of these financial
statements
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
January 13,
1987
(Inception) to
Nine Months September 30,
Ended September 30, 1996
1996 1995
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Cash received from customers $ 131,000 $ $ 131,000
Cash paid to suppliers and employees (1,294,825) (29,214) (1,617,058)
Cash paid for interest (1,612) - (1,612)
--------- ------ -----------
Net Cash Used in Operating
Activities (1,165,437) (29,214) (1,487,670)
----------- -------- -----------
Cash Flows from Investing Activities:
Purchase of equipment (7,398) - (24,896)
Capitalized organization costs - - (150,924)
Purchase of marketable securities - - (24,500)
--------- -------- --------
Net Cash Used in Investing
Activities (7,398) - (200,320)
--------- -------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of capital stock,
net of offering costs 250,000 - 1,496,946
Proceeds from debt 250,000 31,719 317,675
Principal payments on debt (30,400) - (30,400)
-------- -------- ----------
Net Cash Provided by Financing
Activities 469,600 31,719 1,784,221
-------- -------- ----------
Net Increase (Decrease) in Cash (703,235) 2,505 96,231
Cash, at beginning of period 799,466 724 -
-------- -------- ------
Cash, at end of period $ 96,231 $ 3,229 $ 96,231
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these
financial statements
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
January 13,
1987
(Inception) to
Nine Months September 30,
Ended Sepember 30, 1996
1996 1995
---------------- -----------
<S> <C> <C> <C>
Reconciliation of Net Loss to Net Cash
Used in Operating Activities:
Net Loss $ (1,358,273) $ (337,946) $(2,585,114)
------------ ---------- -----------
Adjustments to Reconcile Net Loss to
Net Cash Provided by (Used in)
Operating Activities:
Loss on disposition of marketable
securities - - 24,500
Depreciation and amortization 30,959 20 509 110,121
Issuance of stock for director's fees
and services 265,000 71,975 894,288
(Increase) decrease in assets:
Prepaid expenses 286,859 4,000 (138,232)
Accounts Receivable (56,647) (56,647)
Deposits - - (300)
Increase (decrease) in liabilities:
Accounts payable (72,331) 23,175 33,457
Accrued expenses (24,430) 1,999 59,950
Due to related parties (236,574) 178,074 170,307
-------- ---------- -----------
Total Adjustments (192,836) 308,732 1,097,444
--------- ----------- -------------
Net Cash Used in Operating Activities $ (1,165,437) $ (29,214) $(1,487,670)
============= ========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
January 13,
1987
Nine Months (Inception) to
Ended September 30, September 30,
1996 1995 1996
<S> <C> <C> <C>
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Issuance of stock for director's
services, salaries, consultants and
rent $ 285 000 $ 71 975 $ 1,099,433
Issuance of stock for intellectual
properties - - 10,335
Issuance of stock for organization
costs - - 24,625
----------------- ----------------- --------------
Total $ 285,000 $ 71,975 $ 1,134,393
========= ============== ==============
</TABLE>
The accompanying notes are an integral part of these
financial statements
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Note 1 - The Company and Significant Accounting Policies
The Company
Harvard Scientific Corp. (the Company), is a majority owned subsidiary
of Bio-sphere Technology, Inc. (the Parent). The Company was incorporated in
Nevada on January 13, 1987, under the name of Witch Doctors Bones, Inc. On June
17, 1988, the name of the Company was changed to Carey Ward, Inc., pursuant to
an Amendment to the Articles of Incorporation. On October 6, 1993, pursuant to
an Agreement and Plan of Reorganization and an Agreement of Merger, Grant City
Corporation, a Nevada corporation, was merged into the Company and the name was
changed to Grant City Corporation. In January, 1994, pursuant to an Articles of
Amendment, the name of the Company was changed to The Male Edge, Inc. In May,
1994, the name was changed to Harvard Scientific Corp.
The Company's primary business operations consist of the research and
development, registration, commercialization, marketing and distribution of
products relating to Prostaglandin E-1 (PGE-1) in Liposomes, utilized in the
treatment of male erectile dysfunction. The Company has reached the development
stage in which preliminary data is available, indicating the possible benefits
of such a therapy. PGE-1 in Liposomes is considered a drug and therefore
approval is required from the Food and Drug Administration.
The Company shares resources with the Parent and costs are allocated
between the Companies based on a pre-determined percentage. Certain members of
the Parent's management and directors serve the Company in various roles.
The Company has 100,000,000 shares of common stock authorized with
9,289,379 and 8,749,125 shares of common stock issued as of September 30, 1996
and December 31, 1995, respectively.
Among the outstanding common stock of the Company are 50,000 units
issued and outstanding. Each unit consists of one common share, four Class A
warrants and four Class B warrants. Each Class A and Class B warrant was
exercisable for one year commencing on the effective date of registration with
the Securities and Exchange Commission at an exercise price of $8.00 and $10.00
per common share, respectively. The Company has not registered these warrants to
date. The Company determined that it has no intention, nor is required to
register these warrants. The Company, therefore exercised its rights under the
warrant agreement to effectively cancel the warrants.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 1 - The Company and Significant Accounting Policies (Continued)
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Expenditures
for additions, renewals and betterments are capitalized, expenditures for
maintenance and repairs are charged to expenses as incurred. Upon retirement or
disposal of assets, the cost and accumulated depreciation are eliminated from
the account and any resulting gain or loss is included in expense.
Equipment and leasehold improvements are depreciated using the
straight-line method over their estimated useful lives of five years.
Intellectual Properties
Intellectual properties costs are amortized using the straight-line
method over their estimated useful lives of five years.
Organizational Costs
Organizational costs are amortized using the straight-line method over
their estimated useful lives of five years.
Loss Per Share
Net loss per common share is based on weighted average number of shares
of common stock outstanding in each period.
Income Tax Status
Income taxes are provided based on the liability method of accounting
pursuant to Statement of Financial Accounting Standard (SFAS) No. 109,
Accounting for Income Taxes. SFAS No. 109 allows deferred income taxes to be
recorded to reflect the tax consequences on future years of differences between
the tax basis of assets and liabilities and their financial reporting amounts at
each year-end.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 2 - Concentration of Credit Risk
The Company currently maintains cash balances at one financial
institution. Cash accounts at financial institutions are federally insured for
up to $100,000. However, cash balances at various times have exceeded this
amount. Management has determined the amount of risk is minimal, based on the
financial strength of the institution.
Note 3 - Equipment and Leasehold Improvements
Equipment and building improvements at September 30, 1996 and December
31, 1995, consist of the following:
September 30, December 31,
1996 1995
Equipment $ 19,080 $ 11,682
Leasehold improvements 5,816 5,816
24,896 17,498
Less accumulated depreciation (9,789) (6,637)
$ 15,107 $ 10,861
Note 4 - Intellectual Properties
On January 7, 1994, the Company exchanged 2,856,000 shares (714,000
after considering the effect of the four-for-one reverse split) of common stock
with the Parent for the intellectual rights to patent, develop, manufacture and
market the Parent's PGE-1 product for the treatment of male sexual dysfunction.
The Company has recorded the transfer of intellectual properties at the par
value of stock transferred to the Parent which amounted to $2,856.
On July 6, 1994, the Company exchanged 1,340,000 shares (335,000 after
considering the effect of the four-for-one reverse split) of common stock with
an affiliated group, which included the President and a family member of the
President, that maintained property rights for technology related to the
development of a home HIV test kit. The Company has recorded the transfer of
technology at the par value of stock transferred to the individuals which
amounted to $1,340.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 4 - Intellectual Properties (Continued)
On November 16, 1995, The Company exchanged 6,138,500 shares of common
stock with the Parent for assistance in raising working capital, patent
application, management assistance and distribution agreements associated with
the PGE-1 product. The Company has recorded the transfer from the Parent at the
par value of stock transferred which amounted to $6,139.
Note 5 - Accrued Expenses
Accrued expenses at September 30, 1996 and December 31, 1995, consist
of the following:
September 30, December 31,
1996 1995
Settlement costs (Note 10) $ - $ 50,000
Payroll 54,000 32,000
Payroll taxes 676 1,680
Interest 5,274 -
Transfer fees - 700
$ 59,950 $ 84,380
Note 6 - Notes Payable to Related Party
The Company had the following notes payable at September 30, 1996, and December
31, 1995:
September 30, December 31,
1996 1995
8% note, payable to former director, due on demand,
unsecured (Note 7) $ 37,275 $ 62,675
8% note, payable to a related party, due on
demand, unsecured (Note 7) - 5,000
$ 37,275 $ 67,675
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 7 - Related Party Transactions
The Company entered into three significant transactions with the Parent
and an affiliated group for the acquisition of intellectual rights, technology
and distribution agreements (Note 4).
The Company has a payable to the Parent of $167,450 and $270,592 as of
September 30, 1996 and December 31, 1995. The payable is related to costs
incurred by the Parent on the Company's behalf for research and development of
the PGE-1 product.
The Company has notes payable to related parties as of September 30,
1996 and December 31, 1995 (Note 6). The amount of accrued interest associated
with the notes payable at September 30, 1996 and December 31, 1995 was $5,674
and $8,097, respectively.
On March 1, 1994 , the Company entered into an agreement with an
individual (Landlord) to rent office space located in Las Vegas, Nevada. The
agreement was for a two-year period ending February 29, 1996. In exchange for
the right to occupy the space, the Company issued 12,000 shares of common stock
(3,000 after considering the effect of the four-for-one reverse split) for the
first year of the lease. The Company recorded the transaction at $24,000 or $2
per share, which represents the fair value of the rent received. On December 29,
1995, the Company paid the Landlord $24,000 cash for rent for the second year.
Included in prepaid expenses is $4,000 as of December 31, 1995.
During November 1995, the Company entered into a two-year agreement with
a consultant to provide an array of business services to enhance the Company's
asset base and further the development of the Company's business plan. The
contracted services include public/investor relations, marketing and sales
plans, identifying strategic partnership arrangements, and other opportunities
that would enhance the market value and viability of the Company. In December
1995, the Company issued the consultant 350,000 shares of its common stock in
consideration of the services to be provided for the two year duration. The
Company has valued the transaction at $1.3125 per share, which represents fifty
percent of the market value at the date the agreement was entered into. The
amount has been capitalized and is included as a prepaid as of December 31,
1995.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 7 - Related Party Transactions (Continued)
In July, 1996, the Company entered suit in Nevada and Florida seeking
to void the agreement for non-performance, and a return of the shares issued
thereunder. The suit is currently pending in both jurisdictions.
While the Company believes its position will eventually be upheld, it
has written off the remaining amount of $421,094, reflected a prepaid expense,
for the consultant future services.
The Company compensated a member of the Company's scientific advisory
board with 10,000 shares of stock in exchange for research and development
conducted by the individual. The Company placed a two-year selling restriction
on the stock given to the individual. At the conclusion of the two-year period,
the restriction may be lifted and the individual may sell the stock.
Note 8 - Income Taxes
The Company has federal net operating loss carryforwards for financial
statement purposes of approximately $1,600,000 at December 31, 1995, which will
be used to offset future earnings of the Company. The loss carryforwards expire
from 2002 to 2011 if not used. The Company has not recorded any tax benefit
related to the net operating loss carryforwards, as the ultimate use of the
carryforwards is uncertain as of September 30, 1996.
Note 9 - Agreements
In conjunction with the agreements entered into by the Parent and the
Company on November 16, 1995, (Note 4), the Parent transferred all distribution
agreements to the Company related to the PGE-1 product. Below is a summary of
the agreements.
The Parent and Aerobic Life Industries (Aerobic) entered into an
agreement on December 16, 1994, whereas the Parent granted Aerobic the sole and
exclusive right to market, distribute and sell the PGE-1 product within the
Country of Mexico. The term of the agreement is for a initial five year period
and automatically renews at the expiration of the initial term. The minimum
monthly quota for the term of the agreement is 25,000 units. As of September 30,
1996, Aerobic has not purchased any units of the product.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 9 - Agreements (Continued)
The Parent and Sae Han Pharmaceutical Company, Ltd., (Sae Han) entered
into an agreement on January 9, 1995, whereas the Parent granted Sae Han the
exclusive right to market, distribute and sell the PGE-1 product within the
territory of North and South Korea. The term of the agreement shall remain in
effect for a period of five years. The minimum monthly quota for the term of the
agreement is 15,000 units. During the nine months ended September 30, 1996, Sae
Han accepted delivery of the product to perform clinical trials to obtain
marketing authority.
The Parent and Pharma Maehle (Pharma) entered into an agreement on
November 3, 1995, whereas the Parent granted Pharma the right to manufacture the
PGE-1 product within the territory of Western and Eastern Europe. The term of
the agreement shall remain in effect for the life of the patent, which is twenty
years.
The Parent and Commercial Science, Inc. (CSI), entered into a sale and
distribution agreement, which was subsequently amended to an agreement between
the Company and CSI effective November 30, 1995, whereby the Company grants CSI
the authority to identify and qualify prospective distributors and manufacturers
on a world-wide basis to market the Company's PGE-1 product on a non-exclusive
basis. Should the Company accept a distribution and/or manufacturing agreement
through the efforts of CSI, the Company shall pay CSI a royalty based upon
sales. The term of this agreement shall remain in effect for the entire twenty
year life of the patent.
The above agreements require the distributor, at their cost, to obtain
marketing authority for their respective territories. Marketing authority may
require regulatory approval from the governmental agency that monitors
pharmaceutical distribution. To date, only Sae Han has purchased the product for
clinical trials. The Company has no indication from the other contracts when, if
ever, they will be ordering the product. The Company may choose to terminate the
inactive contracts if the distributor cannot demonstrate progress in obtaining
marketing authority within their territory. All the assignments of the above
agreements were agreed to bi-laterally to transfer from the Parent to the
Company.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 10 - Contingencies
The Company has been named as a defendant in certain lawsuits arising
in the ordinary course of business. No accrual, except as discussed below, for
potential contingent liabilities is reflected in the accompanying financial
statements.
The Company reached a mutual release and agreement with another party
for which the Company was named as a defendant. The dispute was related to the
Distribution Agreement entered into by the Company to manufacture, market and
distribute HIV test kits. The settlement agreement calls for a $50,000 payment.
The $50,000 payment has been expensed and is included in accrued expenses as of
December 31, 1995. The $50,000 payment was made in full by the Company during
the nine months ended September 30, 1996.
Note 11 - Uncertainty - Going Concern
The Company's continued existence is dependent upon its ability to
resolve its liquidity problems, principally by obtaining additional equity
capital and through the sale of the PGE-1 product, while pursuing regulatory
approval for the sale of the product. The Company must continue to operate on
limited cash flows. The Company has experienced a net loss for the nine months
ended September 30, 1996 of $1,358,273.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 12 - Issuance of Common Stock
During 1995, the Company completed the sale of 200,000 shares of common
stock at $5.00 per share. The net proceeds of the sale, after deducting
applicable issuance costs and expenses, was $831,300. The proceeds were used to
fund existing operations of the Company.
During the nine months ended September 30, 1996, the Company entered
into to three one-year agreements for legal services to the Company. The Company
issued 220,000 shares of its restricted common stock earned in equal monthly
installments over the 12 month period ending between March and May, 1997. The
Company valued the services at $21,666 per month and the recipiants accepted
their shares as compensation. The unamortized balance as of September 30, 1996
is $138,232 and is reflected as a prepaid.
Note 13 - Notes Payable - Convertible to Stock
On June 9, 1996, the Company issued $500,000 of 7% convertible notes
due on December 7, 1996. The notes are convertible into shares of the Company's
common stock at a conversion price of 50% of the market price pursuant to
registration under a non-United States resident subscription agreement through
Regulation S promulgated under the Securities Act of 1933, as amended. The notes
are redeemable at the holder's option 41 days after the closing date until
maturity. The Company has the right to force the redemption of the notes 60 days
from the closing date. The proceeds were used to fund existing operations of the
Company.
As of September 30, 1996, notes totalling $250,000 had been converted
into 310,254 shares of common stock of the Company.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations.
The Company's activities for the nine months ended September 30, 1996
consisted primarily of raising working capital, solidifying organizational
personnel, furthering the commercialization of its product and pursuing
territorial corporate alliances to assist in the regulatory process and
distribute our product through established distribution channels. Revenues are
derived solely from the sales of its erectile disfunction product to a licensee
for use in clinical trials to obtain marketing approval in their territory.
For the three month period ended Sept. 30, 1996 compared to the three
month period
ended Sept. 30, 1995:
Gross Revenues from the erectile dysfunction treatment were $ 100,000
for the three
month period ended Sept. 30, 1996, compared with $ 0 revenues for the three
months ended September 30, 1995. Revenues were derived solely from sales of
clinical trial samples of our product.
Little can be ascertained from comparison of operations between these
three month periods. Third quarter operations in 1995 were limited to
adminstrative activities, with expenditures totaling $ 171,169 during this
quarter. But the Company pushed on with little cash, and research and
development activities continued with suppliers performing with the knowledge
that payment for services would be deferred.
Gross Profits (Losses) are comprised of Net Sales less Direct Costs of
products, packaging, and services. The Cost of Sales of the erectile dysfunction
product for the three month period ended Sept. 30, 1996 was $ 77,244 which
provided a gross profit of $ 22,756.
The Cost of Sales was high due to the relatively small amount of the product
produced. No long term inference should be drawn between the relationship of
sales and the cost of sales.
The General and Administrative expenses at the Company headquarters
include the salaries of corporate officers and office staff; accounting, legal
and other professional expenses; and rent and occupancy costs. Research and
Development expenses consist primarily of clinical testing costs and include
expenses associated with the production of clinical materials and clinical
investigators. General and Administrative expenses were $ 602,262 for the three
month period ended Sept. 30, 1996, an increase of $ 431,093 over the three month
period ended Sept., 1995. These costs increased substantially due to personnel
expansion, operational and administrative activities and the decision to expense
the costs of consultant services contracted for in the amount of $ 306,250.
For the nine month period ended Sept. 30, 1996 compared to the
nine month
period ended Sept. 30, 1995:
Gross revenues were $ 181,000 for the nine month period ended Sept. 30,
1996 compared to $ 0 in 1995. Revenues were derived solely from the sales of
clinical trial samples of our product. Cost of sales during the nine months
ended Sept. 30, 1996 were $ 216,870. Cost of sales was unusually high due to
problems incurred in first time production runs and those associated
<PAGE>
with producing relatively small amounts of the product. The Company believes
that it has resolved its start-up problems, but the higher cost of small
production runs may continue in the future. No long term inference should be
drawn about the relationship of sales and cost of sales as presented.
General and Administrative expenses for the nine months ended Sept.
30, 1996 were
$ 1,214,176 compared to $ 308,437 during the prior year. This increase is due
primarily to
personnel expansion, operational and administrative activities, and the decision
to expense the costs of consultant services contracted for in the amount of $
421,094.
Net loss for the nine month period ended Sept. 30, 1996 was
($1,358,273), principally as a result of normal general and administrative
expenses. The net loss for the nine month period ended Sept. 30, 1995 was
($337,946). During this period, the Company had limited operations and its
primary objective was to raise capital and, therefore, the periods are not
readily comparable.
Net loss per common share was ($ 0.15) for the nine month period ended
Sept. 30, 1996 and ($0.18) for the nine month period of the prior year. The
weighted average shares of Common Stock outstanding and net income per common
share have been adjusted to reflect the issuance of Common Stock of the Company,
to date.
Income taxes for Federal purposes were not recorded due to the net
operating loss in accordance with Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes." The statement requires the use of an
asset and liability approach for financial reporting for income taxes. Income
taxes are recognized when their realization is assured. Accordingly, future
income tax benefits resulting from Net Operating Losses incurred to date are
recognized as taxable income becomes available to absorb them.
For the fiscal year ended December 31, 1995, the Company incurred
losses of aproximately $ 1,200,000 for both financial statement and tax
purposes. For the nine month period ended Sept. 30, 1996 the Company has a net
operating loss for tax purposes of approximately $1,350,000. The net operating
loss carryforward may be used to reduce Federal income through the year 2010.
The carryforward amounts may be subject to audit and adjustment.
The company believes that its Net Loss for the nine month period ended
Sept. 30, 1996, is consistent with the initial development of the Company and
it's activities to further the commercialization of the male erectile
dysfunction product.
The Company does not believe that there are indications that inflation
would have a material effect on operations.
Liquidity and Capital Resources.
At Sept. 30, 1996, the Company had cash and short term investments on
hand of
$ 96,231, down substantially from $ 799,466 at December 31, 1995. The
decrease is due
primarily to the cash used in operating activities of the Company.
<PAGE>
Accounts receivable increased to $ 56,647 at Sept 30, 1996. This
increase was due primarily to increased sales of samples to be used in clinical
trials.
Expenditures were significant and primarily as a result of making
payments ($ 72,331) on accounts payable and expanding the product development
and administrative personnel and activities during the period. Cash flow is
anticipated to increase as a result of expanding the product development and
administrative personnel and activities in the coming periods.
The Company received $500,000 debt proceeds in June, 1996. The debt
carries a 7% interest rate and conversion rights to common stock at noteholders'
option. To date, $ 250,000 has been converted into 310,256 shares of common
stock.
During the current nine month period ended Sept. 30, 1996, the Company
paid back $ 30,400 of the loans payable to certain shareholders and, no
additional debt was incurred to the stockholders in this period. The remaining
balance is expected to be paid during the next twelve months.
Since its inception, the Company has primarily financed its operations
through the sale of common stock. The Company expects to incur substantial costs
in the future to continue the development and commercialization of its treatment
for male erectile dysfunction. The Company, currently, does not have sufficient
cash on hand to meet anticipated future expenditures before revenues are
sufficient to maintain operations. The Company expects to issue additional
equity or debt securities in the future, as well as pursue other capital funding
sources generated through a collaborative partnership within the pharmaceutical
industry. At this time, there can be no assurance that any capital will be
available through equity, debt, or corporate alliance arrangements that is
either sufficient or under terms acceptable to the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
NONE.
Item 2. Changes in Securities
NONE.
<PAGE>
Item 3. Defaults Upon Senior Securities
NONE.
Item 4. Submission of Matters to a Vote of Security Holders
NONE.
Item 5. Other Information.
NONE.
Item 6. Exhibits and Reports on Form 8-K
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 11, 1996
By:/s/ Neal Armstrong
President and Chief Financial Officer
By:/s/ Jackie R. See
Chairman and duly authorized officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE
STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
AND AS OF SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001006598
<NAME> HARVARD SCIENTIFIC CORP.
<MULTIPLIER> 1
<CURRENCY> US dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jul-01-1996
<PERIOD-END> Sep-30-1996
<EXCHANGE-RATE> 1
<CASH> 96,231
<SECURITIES> 0
<RECEIVABLES> 56,647
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 291,110
<PP&E> 15,107
<DEPRECIATION> 9,789
<TOTAL-ASSETS> 392,070
<CURRENT-LIABILITIES> 500,989
<BONDS> 0
0
0
<COMMON> 9,289
<OTHER-SE> (168,209)
<TOTAL-LIABILITY-AND-EQUITY> 392,070
<SALES> 181,000
<TOTAL-REVENUES> 181,000
<CGS> 216,870
<TOTAL-COSTS> 1,312,082
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,321
<INCOME-PRETAX> (1,358,273)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,358,273)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,358,273)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
