<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 TO 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
June 30, 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
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Par Value $0.001 Per Share
----------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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, as of the latest practicable date:
<TABLE>
<S> <C>
Common Stock, Par
Value $0.001 Per Share 19,244,688
---------------------- --------------------------------
(TITLE OF CLASS) (NUMBER OF SHARES OUTSTANDING AT
AUGUST 20, 1997)
</TABLE>
<PAGE> 2
PART I
ITEM NO. 1. FINANCIAL STATEMENTS
<PAGE> 3
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,440,973 $ --
Prepaid expenses (Note 7) 165,000 1,565
Deferred debt issue costs (Note 12) 451,627 --
------------ ------------
TOTAL CURRENT ASSETS 3,057,600 1,565
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
at cost, less accumulated depreciation of
$7,305 at June 30, 1997 and $3,491 at
December 31, 1996 (Note 3) 50,062 5,925
------------ ------------
INTANGIBLE ASSETS:
Intellectual Property, net of accumulated amortization
of $1,454 at June 30, 1997 and $1,048 at
December 31, 1996 (Notes 4 and 7) 7,541 7,948
Organizational cost, net of accumulated amortization
of $119,827 at June 30, 1997 and $105,760
at December 31, 1996 (Note 7) 55,723 69,789
------------ ------------
63,264 77,737
------------ ------------
OTHER ASSETS:
Deposits 6,300 300
Deferred interest expense 6,263 --
------------ ------------
TOTAL OTHER ASSETS 12,563 300
------------ ------------
TOTAL ASSETS $ 3,183,489 $ 85,527
============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE> 4
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 21,966 $ 36,625
Accrued expenses (Note 5) 101,890 20,329
Bank overdraft -- 134
Obligation under capital lease - current 20,113 --
Due to related parties 193,035 190,860
Note payable to related parties (Notes 6 and 7) -- 37,275
Debentures payable - Convertible (Note 11) 5,000,000 --
Note payable - Convertible (Note 6) 125,000 250,000
------------ ------------
TOTAL CURRENT LIABILITIES 5,462,004 535,223
------------ ------------
LONG-TERM LIABILITIES:
Obligation under capital lease - non-current 16,761 --
------------ ------------
CONTINGENCIES: (NOTE 10) -- --
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value; 100,000,000 shares authorized;
18,025,129 and 9,883,129 shares issued and outstanding at
June 30, 1997 and December 31, 1996, respectively (Note 1) 18,025 9,883
Additional paid-in capital 5,759,587 3,206,207
Deficit accumulated during the development stage (8,072,888) (3,665,786)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (2,295,276) (449,696)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,183,489 $ 85,527
============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE> 5
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED 1/13/87
---------------------------- ---------------------------- (INCEPTION)
JUNE 30, JUNE 30 JUNE 30 TO
1997 1996 1997 1996 6/30/97
(UNAUDITED) (AUDITED) (UNAUDITED) (AUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ -- $ 54,041 $ -- $ 26,959 $ 187,387
COST OF SALES -- 53,951 -- 85,675 221,557
------------ ------------ ------------ ------------ ------------
GROSS PROFIT -- 90 -- (58,716) (34,170)
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and administrative expenses (Note 7) 842,664 324,767 2,698,818 287,148 4,739,688
Research and development (Note 7) 192,839 3,340 193,216 38,529 622,100
Depreciation and amortization (Note 3) 169,329 10,247 190,326 10,247 310,960
------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,204,832 338,354 3,082,360 335,924 5,672,748
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,204,832) (338,264) (3,082,360) (394,640) (5,706,918)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Settlements (Note 10) -- -- -- -- (494,813)
Interest Income 191 -- 191 -- 588
Dividend Income 18,188 -- 18,188 -- 18,188
Interest Expense (79,781) (2,690) (1,343,121) (1,612) (1,365,433)
Loss on disposition of marketable securities -- -- -- -- (24,500)
------------ ------------ ------------ ------------ ------------
TOTAL OTHER INCOME AND EXPENSE (61,402) (2,690) (1,324,742) (1,612) (1,865,970)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (1,266,234) $ (340,954) $ (4,407,102) $ (396,252) $ (7,572,888)
============ ============ ============ ============ ============
LOSS PER COMMON SHARE $ (0.11) $ (0.04) $ (0.37) $ (0.05) $ (7.08)
============ ============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 2) 11,801,462 8,935,944 11,801,462 8,757,903 1,069,527
============ ============ ============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE> 6
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Restated Deficit
Common Stock Additional From
--------------------------- 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> 7
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Restated Deficit
Common Stock Additional From
------------------------------ 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
Discount on 7% Convertible Debentures 500,000 500,000
Net (loss) for the year ended
December 31, 1996 -- -- -- (2,438,944) (2,438,944)
------------ -------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 9,883,129 9,883 3,206,207 (3,665,785) (449,695)
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
Discount on 6% Convertible Debentures 1,250,000 1,250,000
Net (loss) for the Quarter ended
March 31, 1997 -- -- -- (3,140,868) (3,140,868)
------------ -------------------------------------------------------------------
BALANCE MARCH 31, 1997 11,403,129 $ 11,403 $ 5,626,287 $ (6,806,653) $ (1,168,963)
</TABLE>
<PAGE> 8
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Restated Deficit
Common Stock Additional From
------------------------------ Paid-in Inception
Shares Amount Capital To Date Total
------------ ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, 1997 BALANCE FORWARD 11,403,129 $11,403 $5,626,287 $(6,806,653) $(1,168,963)
Issuance of shares for fees and services 6,172,000 6,172 -- 6,172
Issuance of shares in conversion of debt 450,000 450 133,300 133,750
Net (loss) for the Quarter ended
June 31, 1997 -- -- -- (1,266,234) (1,266,234)
---------- ---------------------------------------------------------------
BALANCE JUNE 30, 1997 18,025,129 $18,025 $5,759,587 $(8,072,887) $(2,295,275)
========== ===============================================================
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE> 9
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS 1/13/87
ENDED JUNE 30 (INCEPTION)
-------------------------- TO
1997 1996 6/30/97
(UNAUDITED) (UNAUDITED) (UNAUDITED)
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers 181,000
Cash paid to employees (339,970)
Cash paid to suppliers (2,178,703) (3,550,600)
Cash paid for interest (1,069) (4,236)
Cash paid for settlement (50,000)
---------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $(2,005,612) $ -- $(3,763,806)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash from sale (purchase) of equipment (46,617) (2,103) 24,897
Capitalized organization costs -- -- 150,924
Purchase of marketable securities -- -- 24,500
---------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES: (46,617) (2,103) 200,321
---------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from sale of capital stock 125,000 1,371,946
Proceeds from debt converted to capital stock -- 250,000
Proceeds from debt 30,611 500,000 415,444
Proceeds from debentures, net of costs 4,375,000 4,375,000
Principal payments on debt (37,275) (30,400) (128,169)
---------- ----------- -----------
NET CASH PROVIDED BY FINANCING 4,493,336 469,600 6,277,557
ACTIVITIES ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 2,441,107 467,497 2,440,973
-----------
CASH AT BEGINNING OF PERIOD (134) 799,466 --
---------- ----------- -----------
CASH AT END OF PERIOD 2,440,973 1,266,963 2,440,973
========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE> 10
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS 1/13/87
ENDED JUNE 30 (INCEPTION)
-------------------------- TO
1997 1996 6/30/97
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
NET LOSS $(4,407,102) $ (737,206) $(8,072,887)
----------- ----------- -----------
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 190,326 20,494 310,960
Accrued interest converted to stock 8,750
Issuance of stock for director's fees
and services 1,052,772 185,000 1,742,147
Issuance of stock in legal settlement -- -- 494,813
Discount on Convertible Bonds 1,250,000 -- 500,000
(Increase) decrease in assets:
Prepaid expenses (163,435) (17,721) (165,000)
Deposits (6,000) -- (6,300)
Increase (decrease) in liabilities:
Accounts payable (14,659) (67,510) 21,965
Accrued expenses 81,561 (56,700) 101,889
Due to related parties 2,175 (222,444) 193,035
----------- ----------- -----------
TOTAL ADJUSTMENTS 2,401,490 (158,881) 3,224,492
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $(2,005,612) $ (896,087) $(3,589,645)
=========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE> 11
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1996
AND 1995
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-l"). 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 its operations 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 $.001 par value common stock authorized,
with 9,883,129 shares issued and outstanding as of December 31, 1996. The
Company had 8,749,124 shares issued and outstanding on December 31, 1995. BTI
owned approximately 63% and 78% of the Company's shares at December 31, 1996 and
December 31, 1995, respectively.
The Company had 18,025,129 shares issued and outstanding as of June 30, 1997.
BTI owned approximately 51.5% of the Company's shares at June 30, 1997.
<PAGE> 12
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1996
AND 1995
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.
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 expenses 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:
In order 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: 9,022,404 shares in 1996 and 2,333,839
shares in 1995.
Unaudited earnings per share at June 30, 1997, was based on the weighted average
number of shares outstanding during the period (11,801,462 shares), which
included the estimated number of shares that would have been outstanding,
assuming conversion of the 6% convertible debenture.
INCOME TAX:
Because of losses sustained since inception, no provision has been made for
income tax.
NOTE 3 - EQUIPMENT
Equipment and building improvements at December 31, 1996 and 1995, consist of
the following:
<TABLE>
<CAPTION>
JUNE 30, 1997
(UNAUDITED) 1996 1995
----------- ---- ----
<S> <C> <C> <C>
Equipment $53,061 $9,416 $11,682
Leasehold Improvements 4,306 - 5,816
------- ------ -------
57,367 9,416 17,498
Less: accumulated depreciation 7,305 3,491 6,637
------- ------ -------
$50,062 $5,925 $10,861
------- ------ -------
</TABLE>
<PAGE> 13
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1996
AND 1995
NOTE 3 - EQUIPMENT (CONTINUED)
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.
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 December 31, 1996 and 1995, consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1997
(UNAUDITED) 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Settlement costs (Note IO) $ - $ - $50,000
Payroll - 9,680 32,000
Payroll taxes 9,021 1,000 1,680
Interest on notes 92,869 9,649 -
Transfer fees - - 700
-------- ------- -------
$101,890 $20,329 $84,380
-------- ------- -------
</TABLE>
Also see Notes 9 and 10.
<PAGE> 14
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1996
AND 1995
NOTE 6 - NOTES PAYABLE
The Company had the following notes payable at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
JUNE 30, 1997
(UNAUDITED) 1996 1995
----------------------------------------------
<S> <C> <C> <C>
8% note, payable to former director
on demand, unsecured (Note 7) - $37,275 $62,675
8% note, payable to a related party
on demand, unsecured - - 5,000
7% convertible debentures, convertible at
50% of the market price of the stock on the
day before the conversion date 125,000 250,000 -
-------- -------- -------
$125,000 $287,275 $67,675
-------- -------- -------
</TABLE>
In June 1996, the Company issued $500,000 worth of 7% convertible debentures to
three non-US residents. The debentures were to be converted into shares of
common stock in December 1996, at 50% of the current market value of the stock.
By December 31, 1996, $250,000 of the debentures had been converted to equity. A
total discount of $500,000 was reflected in interest expense and paid-in capital
in the current year. June 12, 1997, an additional $125,000 was converted. A
total discount of $500,000 was reflected in interest expense and paid-in capital
in the 1996 year. See also Notes 9, 10 and 12.
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 and $130,000 as of December 31,
1996 and 1995, respectively. 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 Company has a note payable to a former director as of December 31, 1996 and
1995 (Note 6). The amount of accrued interest associated with the note at
year-end in 1996 and 1995 was $6,419 and $8,097, respectively. This note was
paid May 7, 1997.
<PAGE> 15
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1996
AND 1995
NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED)
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.
See also discussions regarding agreements, intellectual properties, and
subsequent events in Notes 4, 9 and 12
NOTE 8 - INCOME TAXES
The Company has federal net operating loss carryforwards for financial statement
purposes of approximately $3,200,000 at December 31, 1996, 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.
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. The agency will create and carry out a financial public relations
program in exchange for costs and an option on 50,000 shares of free-trading
stock, exercisable at $1.25 per share. This agreement has been terminated.
On August 4, 1997, the Company entered into an agreement with I.W. Miller & Co.,
Inc., the consultant will carry out an investor relations program on behalf of
the company. For the services provided to the Company the consultant is to be
paid an initial retainer of $10,000, with subsequent monthly retainer payments
of $10,000. Additionally a retainer payment of 50,000 share common stock is to
be paid, with 25,000 common shares paid in months two through six.
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.
These financial statements reflect the way in which the Company resolved three
lawsuits:
<PAGE> 16
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1996
AND 1995
NOTE 10 - CONTINGENCIES (CONTINUED)
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
these financial statements at $494,813.
c. The Company reached a mutual settlement with Alouris
converting $125,000 of 7% Debentures in to 450,000 shares of
common stock on June d12, 1997.
One additional act may impact the Company in the future, although no
determination can be made at this time. 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 the change.
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
on $1,250,000 as additional interest expense and paid in capital in the first
quarter of 1997.
<PAGE> 17
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1996
AND 1995
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 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.
If additional capital is not secured, then there is substantial doubt about the
Company's ability to continue as a going concern. See also Note 12 regarding the
Company's plans to issue 6% Convertible Debentures in 1997.
The Company intends to obtain additional capital through public and private
financing or from other sources, such as collaboration agreements. Although the
Company sold $5,000,000 principal amount of 6% convertible debentures (Note 12)
and has an undertaking, subject to various conditions, to sell an additional
$10,000,000 principal amount of 6% convertible debentures, there can be no
assurance that this additional funding will occur, or be sufficient. If
additional funding does not occur or is insufficient, there is no assurance that
other required funds 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. See also Note 12.
During 1997, the Company authorized a transfer of 7,222,000 shares of common
stock to related parties in exchange for services previously rendered.
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 12.
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.
<PAGE> 18
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1996
AND 1995
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
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 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.
On August 4, 1997, the Company entered into a consulting agreement with I.W.
Miller & Co., Inc. ("Miller"), for the provision of business planning, long-term
financial planning, investor relations and other services. Under this agreement,
which is for a term of six months, Miller will receive a retainer of $10,000 and
50,000 shares of the Company's Common Stock. Additional retainer payments of
$10,000 and 25,000 shares of the Company's Common Stock are to be paid monthly
for the remainder of the term of the contract. Miller also could receive a
performance bonus of 100,000 shares of the Company's Common Stock at the
conclusion of the contract.
<PAGE> 19
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 aggregate principal amount of 6% Convertible
Debentures, which are at the heart of the transaction which is the subject of
the Registrant's Registration Statement on Form SB-2, filed on April 21, 1997,
as amended. The issuance of such Debentures brought a net amount of $4,375,000
into the Registrant's general operating account. Indeed, almost 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 June 30, 1997, with the three month
period ended June 30, 1996
The Registrant had no net sales during the second quarter of 1997, and,
accordingly, had no cost of sales during that period. The second quarter of 1996
saw net sales of $54,041 and cost of sales of $53,951. Accordingly, gross profit
in the second quarter of 1996 was a $90. The difference in the sales figures for
the second quarters of 1997 and 1996 is attributable primarily to the
Registrant's focus on raising investment capital in 1997, for the purpose of
completing the required regulatory review process for its erectile dysfunction
product, as opposed to promotions of the Registrant's products in 1996.
During the second quarter of 1997, the Registrant also experienced a
significant increase in operating expenses over what was experienced in the
second quarter of 1996. For the second quarter of 1997, total operating expenses
were $1,204,832 while in the same quarter in 1996 such expenses were $338,264.
The primary difference in operating expenses between these two periods
comes in general and administrative expenses. General and administrative expense
in the second quarter of 1997 were $842,664 while in the same quarter of 1996,
they were $324,767. General and administrative expense increased in 1997 due to
amortization of the issuance costs on the 6% Convertible Debentures dated March
21, 1997 and increased consultant fees for clinical studies.
All of the general and administrative expenses incurred in the second
quarter of 1997 represent significant increases over such expenses incurred in
the second 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
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
On March 21, 1997, the Registrant sold $5,000,000 aggregate principal
amount of 6% Convertible Debentures ("Debentures") to an investor. This
transaction is the primary subject of the above-mentioned Registration Statement
on Form SB-2. As a result of the sale of the Debentures, at the end of the first
quarter of 1997, the Registrant reported total assets of $4,404,989. This
compares with total assets at December 31, 1996 of $85,527. The primary reason
for the increase in assets 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. See Note 12 to Financial Statements.
The Registrant's total current liabilities for the second quarter of
1997 also increased significantly over the total current liabilities at December
31, 1996. Total current liabilities in the second quarter of 1997 were
$5,462,004 compared with $535,223 at December 31, 1996. Again, the difference
comes primarily from the issuance of the $5,000,000 in 6% Debentures in March
1997.
The Registrant also issued shares of its common stock during the second
quarter of 1997. During this time, the Registrant issued a total of 7,442,000
shares 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.
<PAGE> 20
PART II - OTHER INFORMATION
ITEM NO. 1. LEGAL PROCEEDINGS.
Registrant incorporates herein by this reference the description of
legal proceedings contained in the Registrant's Amendment No. 4 to Form SB-2
filed with the Securities and Exchange Commission on or about August 14, 1997.
ITEM NO. 2. CHANGES IN SECURITIES.
Any changes regarding the securities of the Registrant are described in
the Registrant's Amendment No. 4 to Form SB-2 filed with the Securities and
Exchange Commission on or about August 14, 1997. Such information is contained
in the section captioned "Description of Securities" in Amendment No. 4 to Form
SB-2 and such description is incorporated herein by this reference.
ITEM NO. 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM NO. 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter have been submitted to a vote of the security holders during
the period covered by this report through the solicitation of proxies or
otherwise.
ITEM NO. 5. OTHER INFORMATION.
None.
ITEM NO. 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
(2) Plan of acquisition, reorganization, liquidation or
succession: None.
(3) (i) Articles of Incorporation*
(ii) By-laws*
(10) Materials contracts: Securities Purchase Agreement dated March
21, 1997 between the Registrant and Springrange Investment
Group, Ltd.**
(27) Financial Data Schedule.
* Incorporated by reference from the Registrant's Form 10-SB.
**Incorporated by references from the Registrant's Amendment No. 4 to Form SB-2
filed on or about August 14, 1997.
<PAGE> 21
B. Reports on Form 8-K.
The Registrant filed a Form 8-K on or about July 3, 1997 and an Amended Form 8-K
on or about July 28, 1997. Such filings are incorporated herein by this
reference.
<PAGE> 22
SIGNATURES
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: August 22, 1997.
HARVARD SCIENTIFIC CORP.
By: /s/Don Steffens
---------------------------
Don Steffens
Secretary
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