SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDED FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended Commission File Number
March 31, 1997 0-28392
- --------------------- ----------------------
HARVARD SCIENTIFIC CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0226455
- ---------------------------- -----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
100 N. Arlington Ave., Suite 23P, Reno, Nevada 89501
- ----------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (702) 796 1173
--------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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. (1) Yes X
No (2) Yes X No
Indicate the number of shares outstanding of each of the Issuer's classes of
Common Equity, a of the latest practicable date.
Common Stock,
Par Value $0.001 Per Share 11,703,129
- -------------------------- -----------------
(Title of Class) (Number of Shares
Outstanding at
May 21, 1997)
<PAGE>
PART I
Item No. 1. Financial Statements
-2-
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
----------- ------------
Current Assets:
<S> <C> <C>
Cash $3,497,023 $ --
Prepaid expenses (Note 7) 220,000 1,565
Deferred debt issue costs (Note 11) 625,000 --
----------- ------------
Total Current Assets 4,342,023 1,565
Equipment:
at cost, less accumulated depreciation of
$3,874 at March 31, 1997 and $3,491 at
December 31, 1996 (Note 3) 5,542 5,925
----------- ------------
Intangible Assets:
Intellectual Property, net of accumulated amortization
of $1,357 at March 31, 1997 and $1,048 at
December 31, 1996 (Notes 4 and 7) 7,638 7,948
Organizational cost, net of accumulated amortization
of $109,397 at March 31, 1997 and $105,760
at December 31, 1996 (Note 7) 66,153 69,789
----------- ------------
73,791 77,737
----------- ------------
Other Assets
Deposits 300 300
----------- ------------
TOTAL ASSETS $4,421,656 $ 85,527
=========== ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
----------- -----------
Current Liabilities:
<S> <C> <C>
Accounts payable $ 5,226 $ 36,625
Accrued Expenses (Note 5) 97,917 20,329
Bank overdraft -- 134
Due to related parties (Note 7) 183,535 190,860
Note payable to related parties (Notes 6 and 7) 37,275 37,275
Debentures payable - Convertible (Note 11) 5,000,000 --
Note Payable-Convertible (Note 6) 250,000 250,000
----------- -----------
Total Current Liabilities 5,573,953 535,223
----------- -----------
Contingencies: (Note 10) -- --
Stockholders' Equity:
Common Stock, $.001 par value; 100,000,000
shares authorized; 11,403,129 and 9,883,129
shares issued and outstanding at March 31, 1997
and December 31, 1996, respectively (Note 1) 11,403 9,883
Additional paid-in capital 3,876,287 2,706,207
Deficit accumulated during the development stage (5,039,988) (3,165,786)
----------- -----------
Total Stockholders' Equity (Deficit) (1,152,298) (449,696)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,421,656 $ 85,527
=========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Inception
March 31, March 31, to
1997 1996 3/31/97
(Unaudited) (Audited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales $ -- $ 26,959 $ 187,387
Cost of Sales -- 85,675 221,557
------------ ------------ ------------
Gross Profit -- (58,716) (34,170)
------------ ------------ ------------
Operating Expenses:
General and administrative expenses (Note 7) 1,856,154 287,148 3,897,024
Research and development (Note 7) 377 38,529 429,261
Depreciation and amortization (Note 3) 4,330 10,247 124,964
------------ ------------ ------------
Total Operating Expenses 1,860,861 335,924 4,451,249
------------ ------------ ------------
Loss from Operations (1,860,861) (394,640) (4,485,419)
------------ ------------ ------------
Other Income (Expense):
Settlements (Note 10) -- -- (494,813)
Interest Income -- -- 397
Interest Expense (13,341) (1,612) (35,653)
Loss on disposition of marketable securities -- -- (24,500)
------------ ------------ ------------
Total Other Income and Expense (13,341) (1,612) (554,569)
------------ ------------ ------------
Net Loss $ (1,874,202) $ (396,252) $ (5,039,988)
============ ============ ============
Loss per Common Share $ (0.18) $ (0.05)
============ ============
Weighted Average Shares Outstanding (Note 2) 10,308,240 8,757,903
============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995, AND THE PERIOD
FROM INCEPTION DATE JANUARY 13, 1987 TO MARCH 31, 1997
<TABLE>
<CAPTION>
Deficit
Restated Additional From
Common Stock Paid-in Inception
Shares Amount Capital To Date Total
-------- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of shares for cash on
January 13, 1987 (inception) 103,000 $ 103 $ 2,097 $ -- $ 2,200
Issuance of shares for cash,
net of offering costs 51,000 51 19,223 19,274
Issuance of shares for services 146,000 146 -- 146
Issuance of shares to acquire
Grant City Corporation 50,000 50 39,827 39,877
----------- ----------------------------------------------------
Balance December 31, 1993 350,000 350 61,147 -- 61,497
Issuance of shares to effect a
four-for-one split 1,050,000 1,050 (1,050) --
Issuance of shares for
intellectual property rights 4,196,000 4,196 -- 4,196
Issuance of shares for
corporation property rights 394,000 394 24,231 24,625
Issuance of shares for fees
and services 1,045,000 1,045 96,893 97,938
Issuance of shares for cash,
net of offering costs 393,500 393 353,757 354,150
Adjustment of shares to effect a
four-for-one reverse split (5,571,375) (5,571) 5,571 --
Cumulative (loss) from inception
to December 31, 1994 -- -- -- (550,386) (550,386)
----------- -----------------------------------------------------
Balance December 31, 1994 1,857,125 1,857 540,549 (550,386) (7,980)
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Deficit
Restated Additional From
Common Stock Paid-in Inception
Shares Amount Capital To Date Total
-------- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 balance forward 1,857,125 1,857 540,549 (550,386) (7,980)
Issuance of shares for fees
and services 553,500 553 530,796 531,349
Issuance of shares at par value for
intellectual property rights 6,138,500 6,139 -- 6,139
Issuance of shares for cash,
net of offering costs 200,000 200 831,100 831,300
Net (loss) for the year ended
December 31, 1995 -- -- -- (676,455) (676,455)
------------- ----------------------------------------------------
Balance December 31, 1995 8,749,125 8,749 1,902,445 (1,226,841) 684,353
Issuance of shares for services 255,000 255 59,828 60,083
Issuance of shares in conversion
of debt 310,254 310 249,690 250,000
Issuance of shares for legal settlement 568,750 569 494,244 494,813
Net (loss) for the year ended
December 31, 1996 -- -- -- (1,938,945) (1,938,945)
------------- ----------------------------------------------------
Balance December 31, 1996 9,883,129 9,883 2,706,207 (3,165,786) (449,696)
Issuance of shares for cash,
net of offering costs 250,000 250 124,750 125,000
Issuance of shares for fees
and services 1,270,000 1,270 1,045,330 1,046,600
Net (loss) for the Quarter ended
March 31, 1997 -- -- -- (1,874,202) (1,874,202)
------------- ----------------------------------------------------
Balance March 31, 1997 11,403,129 $ 11,403 $ 3,876,287 $(5,039,988) $(1,152,298)
============= ====================================================
</TABLE>
The accompanying Notes are an integral part of these financial statenments.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Inception
March 31, March 31, to
1997 1996 3/31/97
(Unaudited) (Audited) (Unaudited)
------------- ----------- -------------
Cash Flows form Operating Activities:
<S> <C> <C> <C>
Cash received from customers $ - $ 26,959 $ 181,000
Cash paid to suppliers and employees (1,002,843) (772,300) (2,714,710)
Cash paid for interest -- (1,612) (3,167)
Cash paid for settlement -- -- (50,000)
----------- ------------ ------------
Net Cash Used in Operating Activities (1,002,843) (746,953) (2,586,877)
----------- ------------ ------------
Cash Flows from Investing Activities:
Cash from sale (purchase) of equipment -- (2,103) (24,897)
Capitalized organization costs -- -- (150,924)
Purchase of marketable securities -- -- (24,500)
----------- ------------ ------------
Net Cash Used in Investing Activities -- (2,103) (200,321)
----------- ------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of capital stock, 125,000 -- 1,371,946
Proceeds from debt converted to stock -- -- 250,000
Proceeds from debt -- -- 415,444
Proceeds from debentures, net of costs 4,375,000 -- 4,375,000
Principal payments on debt -- (30,400) (128,169)
----------- ------------ ------------
Net Cash Provided by Financing
Activities 4,500,000 (30,400) 6,284,221
----------- ------------ ------------
Net Increase (Decrease) in Cash 3,497,157 (779,456) 3,497,023
Cash at beginning of period (134) 799,466 --
----------- ------------ ------------
Cash at end of period $ 3,497,023 $ 20,010 $ 3,497,023
=========== ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended Inception
March 31, March 31, to
1997 1996 3/31/97
(Unaudited) (Audited) (Unaudited)
----------- ----------- -----------
Reconciliation of Net Loss to Net Cash
Used in Operating Activities:
<S> <C> <C> <C>
Net Loss $(1,874,202) $ (396,252) $(5,039,988)
------------ ------------ ------------
Adjustments to Reconcile Net Loss to
Net Cash Provided by (Used in)
Operating Activities:
Book value of assets sold -- -- 6,483
Loss on disposition of marketable securities -- -- 24,500
Depreciation and amortization 4,330 10,247 124,964
Issuance of stock for director's fees
and services 1,046,600 5,000 1,735,975
Issuance of stock in legal settlement -- -- 494,813
(Increase) decrease in assets:
Prepaid expenses (218,435) 57,105 (220,000)
Deposits -- (10,000) (300)
Increase (decrease) in liabilities:
Accounts payable (31,399) (70,780) 5,225
Accrued expenses 77,588 (84,080) 97,916
Due to related parties (7,325) (258,193) 183,535
------------ ------------ ------------
Total Adjustments 871,359 (350,701) 2,453,111
------------ ------------ ------------
Net Cash Used in Operating Activities $(1,002,843) $ (746,953) $(2,586,877)
============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 and December 31, 1996
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION
Nature of Business:
Harvard Scientific Corp. (the "Company") is a development stage company. The
Company's primary business operations consist of development, commercialization,
marketing, and distribution of products relating to prostaglandin/microsphere
delivery and the manner in which the product is applied in treating male sexual
dysfunction. The Company has preliminary data available, indicating the possible
benefits of such a therapy.
On February 13, 1996, the Company received an assignment of an application for a
patent entitled "PGE-1 Containing Lyophilized Liposomes For Use In The Treatment
of Erectile Dysfunction" and identified as United States Application No.
08/573,408 ("PGE-1"). The assignment was made by the holder of the application,
Bio-Sphere Technology, Inc. ("BTI"), the Company's majority shareholder. The
Company plans to focus on PGE-1 to bring the product to the marketplace.
Organization:
The Company was incorporated under the laws of the State of Nevada on January
13, 1987, under the name of Witch Doctors Bones, Inc. On August 12, 1987, the
Company qualified a public offering under Rule 504 of Regulation D of the
Securities Act of 1933, as amended, with the Secretary of State of Nevada. On
June 17, 1988, the Company changed its name to Carey Ward, Inc.
On October 18, 1993, the Company acquired Grant City Corporation by merger,
changed its name to Grant City Corporation, and issued 50,000 shares of stock
carrying two classes of warrants. Class A warrants entitled the holder to
purchase stock at $8.00 per share and the Class B warrants entitled the holder
to purchase stock for $10.00 per share. The warrants could only be exercised if
a registration statement was filed with the United States Securities and
Exchange Commission ("SEC") pursuant to the Securities Act of 1933 as amended.
The warrants were redeemable by written notice of twenty (20) days at a
redemption price of $.001 per warrant. During 1996, before the warrants could be
exercised, the Company gave the required notice and redeemed both classes of
warrants.
On January 18, 1994, the Company changed its name to The Male Edge, Inc. On May
10, 1994, the Company changed its name to Harvard Scientific Corp.
The Company has 100,000,000 shares of common stock authorized with 11,403,129
shares issued and outstanding as of March 31, 1997, and 9,883,129 issued and
outstanding on December 31, 1996. BTI owned approximately 56% and 63% of the
Company's shares on March 31, 1997 and on December 31, 1996, respectively.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organizational Costs:
Organization costs are being amortized over a five-year period using the
straight-line method. Also see the discussion contained in Note 7.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 and December 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Equipment:
Equipment is stated at cost. Depreciation is incorporated on a double declining
balance basis over periods of 5 to 7 years. Expenditures for maintenance and
repairs are charged to expense as incurred. Upon retirement or disposal of
assets, the cost and accumulated depreciation are eliminated from the accounts
and any resulting gain or loss is included in expense. See Note 3.
Use of Estimates:
To prepare financial statements in conformity with generally accepted accounting
principals, management must make estimates and assumptions that affect certain
reported accounts and disclosures. Actual results could differ from these
estimates.
Intellectual Properties:
The costs of intellectual properties are amortized using the straight-line
method over a period of fifteen years. See Note 4.
Earnings per share:
The earnings per share calculation was based on the weighted average number of
shares outstanding during the period: 10,308,240 shares at March 31, 1997 (which
includes the estimated number of shares that would have been outstanding,
assuming conversion of the 6% convertible debenture) (See Note 13), and
8,757,903 shares at March 31, 1996.
Income Tax:
Because of losses sustained since inception, no provision has been made for
income tax.
NOTE 3 - EQUIPMENT
Equipment at March 31, 1997 and December 31, 1996, consists of the following:
March 31, 1997 December 31, 1996
----------------- ------------------
Equipment $ 9,416 $ 9,416
Less: accumulated depreciation 3,874 3,491
----------------- ------------------
$ 5,542 $ 5,925
----------------- ------------------
The Company relocated to Reno, Nevada, during December 1996. By relocating, the
Company reduced its need for certain equipment and leasehold improvements. The
Company does not own manufacturing equipment for its product. The product has
been and will continue to be manufactured by third-party manufacturers according
to the Company's specifications.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 and December 31, 1996
NOTE 4 - INTELLECTUAL PROPERTIES
On January 7, 1994, the Company exchanged 2,856,000 shares of common stock with
BTI for the intellectual rights to patent, develop, manufacture, and market
PGE-1. The Company recorded the transfer of intellectual properties at the par
value of stock transferred, which amounted to $2,856. BTI's largest shareholder,
the originator of PGE-1, holds a 2% royalty interest in the Company's gross
proceeds.
On November 16, 1995, the Company exchanged 6,138,500 shares of common stock
with BTI for assistance in raising working capital and patent application and
for management assistance and distribution agreements associated with the PGE-1
product. The Company recorded the transfer at the par value of stock
transferred, which amounted to $6,139.
During 1996, the Company expensed the unamortized cost of acquiring technology
relating to the development of an HIV home test kit. The Company, which
originally acquired the rights in exchange for 335,000 shares of common stock,
ceased product development in connection with a settlement accrued in 1995 (Note
10).
NOTE 5 - ACCRUED EXPENSES
Accrued expenses at March 31, 1997 and December 31, 1996 consist of the
following:
March 31, 1997 December 31, 1996
----------------- ------------------
Payroll $ 63,640 $ 9,680
Payroll taxes 4,869 1,000
Interest on notes and debentures 29,408 9,649
----------------- ------------------
$ 97,917 $ 20,329
----------------- ------------------
Also see Notes 6, 7, and 11.
NOTE 6 - NOTES PAYABLE
The Company had the following notes payable at March 31, 1997 and December 31,
1996:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------- -----------------
<S> <C> <C>
8% note, payable to former director on demand,
unsecured (Notes 7 and 14) $ 37,275 $ 37,275
7% convertible debentures, convertible at 50%
of the market price of the common stock on
the day before the conversion date (Note 14) 250,000 250,000
--------------- -----------------
$ 287,275 $ 287,275
--------------- -----------------
</TABLE>
Also see Notes 7, 10, and 11.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 and December 31, 1996
NOTE 7 - RELATED PARTY TRANSACTIONS
During 1994, the Company paid $150,000 to related parties for work performed in
completing a merger (described in Note 1). Of this amount, $100,000 was paid to
BTI. The remaining $50,000 was paid to individuals affiliated with BTI. These
amounts have been capitalized, and are included in organizational costs.
Additional organizational costs of $24,625 were capitalized in 1994. The Company
transferred 246,000 shares of common stock to former owners and directors in
return for corporation property rights and 148,000 shares to individuals for
assistance in acquiring the rights. These shares were valued at $.0625 per
share, as determined by a 1994 appraisal.
During 1994 and 1995, the Company entered into three significant transactions
with related parties for the acquisition of intellectual rights, and for the
provision of technological, management, fundraising and marketing assistance.
Note 4 describes the valuation of these transactions.
The Company has a payable to BTI of $183,535 as of March 31, 1997 and December
31, 1996. The payable is related to costs incurred by BTI, on the Company's
behalf, for consultation and rent, and for research and development of the PGE-1
product. The terms of the payable are open intercompany account, which does not
accrue interest.
The Company holds a note payable to a former director as of March 31, 1997 and
December 31, 1996 (Note 6). The amount of accrued interest associated with the
note at March 31, 1997 and December 31, 1996 was $7,164 and $6,419,
respectively. Also see Note 13.
The Company often pays for services, fees, and salaries by issuing shares of
common stock. Most of this stock is issued with a two-year selling restriction.
After the Company files its registration statement in 1997, the two-year
restriction may be lifted. The shares are valued at a discount of free-trading
stock, if market valuation is available. Several material transactions of this
type occurred during 1995 and 1996, during which time the Company issued
1,188,754 shares, recorded at $841,432.
On March 18, 1997, the Company issued 420,000 shares of its common stock to four
individuals for prepaid legal fees through March of 1998 and for past consulting
services, and 850,000 shares to officers and directors of the Company for prior
services rendered.
Also see discussions regarding intellectual properties, agreements, and
subsequent events in Notes 4, 9, and 13.
NOTE 8 - INCOME TAXES
The Company has federal net operating loss carryforwards for financial statement
purposes of approximately $5,000,000 at March 31, 1997, which will be used to
offset future earnings of the Company. The loss carryforwards will expire during
the years ending 2002 through 2012 if not used.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 and December 31, 1996
NOTE 9 - AGREEMENTS
In conjunction with the agreement of November 16, 1995, between BTI and the
Company (Note 4), BTI transferred four agreements to the Company related to the
manufacture, marketing, and distribution of the PGE-1 product overseas. The
Company terminated two of these agreements during 1996 for nonperformance. A
third agreement for distribution in Korea was terminated in 1996 by mutual
agreement. The Company is prepared to terminate a fourth agreement with its
European licensor, Pharma Maehle unless Pharma Maehle can resolve the Company's
concerns (Note 10).
In December 1996, the Company entered into an agreement with Martin E. Janis &
Company, Inc., a public relations agency. The agency was to carry out a
financial public relations program for the Company through June of 1997 in
exchange for out-of-pocket costs and an option on 50,000 shares of free-trading
common stock, exercisable at $1.25 per share.
NOTE 10 - CONTINGENCIES
The Company has been named as a party in certain pending or threatened legal,
governmental, administrative, or judicial proceedings that arose in the ordinary
course of business. These pending or threatened proceedings may affect the
Company in a material way.
The December 31, 1996 financial statements reflect the manner in which the
Company has resolved two litigations:
a. The Company reached a mutual release regarding a Distribution
Agreement, which provided for the manufacturing, marketing, and
distribution of HIV test kits. The mutual release called for a $50,000
payment, which accrued during 1995 and was paid in full during the
first quarter of 1996.
b. The Company amicably settled an action with Thomas E. Waite &
Associates regarding a contract under which Waite was to provide an
array of business services. The Company issued 568,750 shares of common
stock in settlement, which accrued in the December 31, 1996 financial
statements at $494,813.
In February 1997, two noteworthy legal actions transpired:
a. In an action concerning $150,000 in 7% Convertible Debentures, the
Company became a defendant in a U.S. District Court action initiated by
Ailouros Ltd. Ailouros claims that it is entitled to 263,225 shares of
common stock and/or damages in the amount of $2,000,000. The Company
had previously initiated a lawsuit in the Nevada courts respecting the
same claim, and both matters were removed to Federal court. The Company
is asking that any shares issued to Ailouros be issued pursuant to the
requirements of the SEC's Regulation S. See Note 13.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 and December 31, 1996
NOTE 10 - CONTINGENCIES (CONTINUED)
b. The Company filed an action for damages due to negligence and breach of
contract by D. Weckstein and Co., Inc. and Donald Weckstein. The
contract at issue was an agreement to obtain financing in exchange for
Company stock. The Weckstein defendants subsequently filed a lawsuit in
New York against the Company respecting the same contract, and asked
for damages against a third party for tortuous interference with the
contract. The Weckstein plaintiffs seek damages on their contract claim
in the amount of $250,000 and $400,000, and damages in excess of
$10,000 on an abuse of process claim. However, this litigation was
settled in April 1997 (See Note 13).
One additional act may impact the Company in the future. The Company is prepared
to terminate its licensing agreement with Pharma Maehle, the holder of the
Company's distribution rights in a portion of its overseas market. The Company
is negotiating to resolve the contract issues to benefit business operations,
but the ultimate resolution and its impact upon the Company cannot be estimated.
The Company experienced a management change in December 1996 as it moved its
headquarters to Reno, Nevada, but expects no negative impact from that change.
The ultimate effect of other proceedings cannot be estimated
NOTE 11 - CONVERTIBLE DEBENTURES
In March 1997, pursuant to a private placement, the Company (a) sold to one
investor $5,000,000 principal amount of 6% Convertible Debentures (the
"Debentures") due March 30, 1998 and (b) received a commitment from that
investor, subject to various conditions, to purchase additional Debentures in
the aggregate principal amount of up to $10,000,000 in two tranches of
$5,000,000 each, also to be due March 30, 1998. The Debentures will be
convertible into shares of common stock at the lesser of the market price on
March 21, 1997 or 80% of the market price on the conversion date. The Company
has the right to require, by written notice to the holder of this debenture at
any time on or before ten days prior to the maturity date, that the holder of
this debenture exercise its right of conversion with respect to all or that
portion of the principal amount and interest outstanding on the maturity date.
The Company's intention is to require conversion. See Note 13.
Issuance costs of $625,000 related to the first $5,000,000 principal amount of
6% Convertible Debentures sold in March 1997 were deferred, and will be
amortized on a straight-line basis through March 30, 1998. In addition, and in
anticipation of a possible conversion to common stock at 80% of the market price
on the conversion date, the Company is accounting for the 20% discount to market
of $1,000,000 as additional interest expense to be accrued on a straight-line
basis through March 30, 1998.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 and December 31, 1996
NOTE 12 - UNCERTAINTY - GOING CONCERN
The financial statements of the Company have been prepared assuming that the
Company will continue as a going concern. The Company's future success is
dependent upon its ability to raise additional funds to complete the
commercialization process for its erectile dysfunction treatment product. The
Company intends to obtain these funds through public and private financing or
from other sources, such as collaboration agreements. Although the Company has
sold $5,000,000 principal amount of Debentures (Note 11), and has an
undertaking, subject to various conditions, to raise an additional $10,000,000
principal amount of Debentures, there can be no assurance that this additional
funding will occur or be sufficient and that, if this additional funding does
not occur or is sufficient, other required funds will be available or will be
available on terms satisfactory to the Company. Failure to obtain adequate
financing could cause a delay or termination of the Company's product
development and marketing efforts.
NOTE 13 - SUBSEQUENT EVENTS
Relative to the Company's undertaking to issue $15,000,000 in 6% Convertible
Debentures, on April 14, 1997, the Company filed with the Securities and
Exchange Commission a registration statement on Form SB-2 (together with all
amendments thereto), under the Securities Act with respect to the securities
offered thereby. The registration relates to an aggregate of 12,064,344 shares
of Common Stock, $.001 par value per share, which is approximately 300% of the
4,021,448 shares issuable if the proposed $15,000,000 principal amount of
Debentures had been outstanding on April 14, 1997, and all the Debentures had
been converted on that date. See Note 9.
The lawsuits involving D. Weckstein and Co., Inc. and Donald Weckstein, and the
Company and a third party, were settled on April 23, 1997, with the issuance of
35,000 shares of the Company's common stock to D. Weckstein & Co., Inc.
As of June 16, 1997, Ailouros and the Company agreed in principle to settle all
litigation between the parties. The settlement agreement is currently being
drafted and will require the parties to maintain confidentiality regarding the
settlement terms, although in anticipation of such agreement, 450,000 shares of
the Company's common stock have been issued to Ailouros.
On May 15, 1997, the litigation between Rex Morden (a former officer of the
Company) and the Company was amicably settled and is no longer pending. Under
the terms of the settlement agreement, the Company paid Morden $43,775.
On April 2, 1997, the Company entered into a consulting agreement with David E.
Jordan for the provision of financial public relations and other services.
According to the terms of this agreement, Mr. Jordan received 200,000 shares of
the Company's common stock, as well as a monthly fee of $8,000. Mr. Jordan was
also entitled to all agency fees which public relations and/or advertising firms
receive when preparing material or placing advertising. Such fees were in
addition to the monthly consulting fee. In addition, 1,000,000 shares of the
Company's common stock were issued to Mr. Jordan and parties related to Mr.
Jordan. The Company terminated this agreement on June 17, 1997, and cancelled
the 1,000,000 shares that had been issued to Mr. Jordan and parties related to
Mr. Jordan.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 and December 31, 1996
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
On July 14, 1997, the investor who purchased the initial $5,000,000 principal
amount of 6% Convertible Debentures in March 1997, served a conversion notice
for the sum of $700,000 of the principal amount plus interest. The conversion at
80% of market price resulted in the issuance of 864,523 shares of common stock
to the investor.
<PAGE>
Item No. 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
The Registrant's major transaction during the first quarter of 1997 was
the issuance of $5,000,000 in 6% Convertible Debentures. This issuance brought a
net of $4,375,000 into the Registrant's general operating account. Indeed, all
of the cash generated by the Registrant's operations during the first quarter of
1997 came from the issuance of the Debentures.
Comparison of the three month period ended March 31, 1997, with the three month
period ended March 31, 1996.
The Registrant reported no net sales during the first quarter of 1997,
and, accordingly, reported no cost of sales during that period. The first
quarter of 1996 saw net sales of $26,959 and cost of sales of $85,675, resulting
in a negative gross profit of ($58,716). The difference in the sales figures
between the two quarters was attributable to the Registrant's complete focus on
raising capital in 1997 for the purpose of completing the required regulatory
review process on its erectile dysfunction product by the FDA and other
regulatory agencies, as opposed to limited promotions of the Registrant's
products in 1996.
During the first quarter of 1997, the Registrant also experienced a
significant increase in operating expenses over those recorded in the first
quarter of 1996. Total operating expenses for the first quarter of 1997 were
$1,860,861, an increase of $1,524,937 over the $335,924 incurred during the same
quarter of 1996.
The primary difference in operating expenses between the two quarters
occurred in general and administrative expenses, i.e., an increase of
$1,569,006. This increase resulted primarily from the issuance of the $5,000,000
in 6% Convertible Debentures in March 1997. The Registrant paid finders' fees of
approximately $750,000 in connection with the investment capital transferred to
it in exchange for the Debentures. Also, the Registrant incurred legal,
accounting and public relations expenses of approximately $576,000 during the
first quarter of 1997, almost all of which were in connection with, or as a
result of, the issuance of the Debentures in March 1997.
All of the general and administrative expenses incurred in the first
quarter of 1997 represent significant increases over such expenses incurred in
the first quarter of 1996. Management anticipates that such general and
administrative expenses will continue to be incurred in similar amounts
throughout 1997 as the Registrant obtains additional investment capital and
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<PAGE>
expands its operations. The Registrant also continues to incur legal expenses in
connection with litigation in which the Registrant is involved.
Liquidity and Capital Resources
At the end of the first quarter of 1997, the Registrant reported total
assets of $4,421,656. This compares with total assets at December 31, 1996 of
$85,527. The primary reason for the increase was the increase in cash of
$3,497,023 and the appearance of deferred debt issue costs of $625,000; all in
connection with the Debentures issued in March 1997.
The Registrant's total current liabilities for the first quarter of 1997
also increased significantly over the total current liabilities at December 31,
1996. Total current liabilities at the end of March 31, 1997 were $5,573,953,
compared with $535,223 at December 31, 1996. Again, the difference resulted from
the issuance of the $5,000,000 in 6% Convertible Debentures in March 1997.
The Registrant also issued shares of its common stock during the first
quarter of 1997. A total of 1,520,000 shares were issued in connection with
legal and consulting services and for services rendered by officers and
directors of the Registrant. The Registrant anticipates that it will continue
the practice of issuing shares of its common stock as compensation for services
rendered to the Registrant.
PART II - OTHER INFORMATION
Item No. 1. Legal Proceedings.
The Registrant incorporates herein by this reference the description of
Legal Proceedings contained in the Registrant's Form 10-Q filed with the
Securities and Exchange Commission on or about May 23, 1997.
Item No. 2. Changes in Securities.
The Registrant incorporates herein by this reference the description of
Changes in Securities contained in the Registrant's Form 10-Q filed with the
Securities and Exchange Commission on or about May 23, 1997.
Item No. 3. Defaults Upon Senior Securities.
The Registrant incorporates herein by this reference the description of
Defaults Upon Senior Securities contained in the Registrant's Form 10-Q filed
with the Securities and Exchange Commission on or about May 23, 1997.
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<PAGE>
Item No. 4. Submission of Matters to a Vote of the Security
Holders.
The Registrant incorporates herein by this reference the description of
Submission of Matters to a Vote of the Security Holders contained in the
Registrant's Form 10-Q filed with the Securities and Exchange Commission on or
about May 23, 1997.
Item No. 5. Other Information.
The Registrant incorporates herein by this reference the description of
Other Information contained in the Registrant's Form 10-Q filed with the
Securities and Exchange Commission on or about May 23, 1997.
Item No. 6. Exhibits and Reports on Form 8-K.
A. Exhibits
The Registrant incorporates herein by this reference the description of
Exhibits contained in the Registrant's Form 10-Q filed with the Securities and
Exchange Commission on or about May 23, 1997.
B. Reports on Form 8-K
The Registrant incorporates herein by this reference the description of
Reports on Form 8-K contained in the Registrant's Form 10-Q filed with the
Securities and Exchange Commission on or about May 23, 1997.
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<PAGE>
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SIGNATURES
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In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: July 18, 1997.
HARVARD SCIENTIFIC CORP.
By /s/ Don Steffens
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Don Steffens
Secretary
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