<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
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
September 30, 1997 0-28392
HARVARD SCIENTIFIC CORP
-----------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0226455
- ----------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation)
100 North Arlington Avenue, 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 day.
(1) Yes _____ No __X___ (2) Yes _____ No ___X___
Indicate the number of shares outstanding of each of the Issuer's classes of
Common Equity, as of the latest practicable date:
Common Stock, Par
Value $0.001 Per Share 20,219,755
---------------------- ----------
(TITLE OF CLASS) (NUMBER OF SHARES
OUTSTANDING ON November 13,
1997)
<PAGE>
HARVARD SCIENTIFIC CORP.
INDEX
Balance Sheet - Assets
Balance Sheet - Liabilities and Stockholders' Equity
Statement of Operations
Statement of Stockholders' Equity (3 pages)
Statement of Cash Flows
Notes to the Financial Statements (7 pages)
Management's Discussion and Analysis or Plan of Operation
Other Information (including Report on Form 8-K)
Signatures
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
September 30, December 31,
1997 1996
(Unaudited) (Audited)
----------- -----------
Current Assets:
Cash and cash equivalents $1,619,339 $ -
Prepaid expenses - 1,565
Accounts Receivable 700 -
Deferred debt issue costs (Note 11) 312,500 -
----------- -----------
Total Current Assets 1,932,539 1,565
----------- -----------
Equipment and Leasehold Improvements:
at cost, less accumulated depreciation of
$8,891 at September 30, 1997 and $3,491 at
December 31, 1996 (Note 3) 53,336 5,925
----------- -----------
Intangible Assets:
Intellectual Property, net of accumulated
amortization of $1,550 at September 30,
1997 and $1,048 at December 31, 1996
(Notes 4) 7,445 7,948
Organizational cost, net of accumulated
amortization of $130,257 at September 30,
1997 and $105,760 at December 31, 1996
(Note 7) 45,293 69,789
----------- -----------
52,738 77,737
----------- -----------
Other Assets:
Deposits 6,000 300
TOTAL ASSETS $2,044,613 $ 85,527
=========== ===========
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
September 30, December 31,
1997 1996
(Unaudited) (Audited)
----------- -----------
Current Liabilities:
Accounts payable $ 14,211 $ 36,625
Accrued expenses (Note 5) 188,781 20,329
Bank overdraft - 134
Obligation under capital lease - current 3,748 -
Due to related parties 183,535 190,860
Note payable to related parties
(Notes 6 and 7) - 37,275
Debentures payable - Convertible (Note 11) 3,750,000 -
Note payable - Convertible (Note 6) 125,000 250,000
----------- -----------
Total Current Liabilities 4,265,275 535,223
----------- -----------
Long-Term Liabilities:
Obligation under capital lease - non-current 23,295 -
----------- -----------
Stockholders' Equity:
Common Stock, $.001 par value;
100,000,000 shares authorized;
19,615,454 and 9,883,129 shares issued
and outstanding at September 30, 1997
and December 31, 1996, respectively. 19,615 9,883
Additional paid-in capital 5,989,390 2,706,207
Deficit accumulated during the
development stage (8,252,962) (3,165,786)
----------- -----------
Total Stockholders' Equity (2,243,957) (449,696)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,044,613 $85,527
=========== ===========
The accompanying Notes are an integral part of these financial statements.
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended 1/13/87
-------------------------- -------------------------- (Inception)
September 30 September 30 September 30 September 30 to
1997 1996 1997 1996 9/30/97
(Unaudited) (Audited) (Unaudited) (Audited) (Unaudited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ - $ 154,041 $ - $ 181,000 $ 187,387
Cost of Sales - 131,195 - 216,870 221,557
------------ ------------ ------------ ------------ ------------
Gross Profit - 22,846 - (35,870) (34,170)
------------ ------------ ------------ ------------ ------------
Operating Expenses:
General and administrative
expenses (732,310) 923,333 1,966,508 1,210,481 4,007,378
Research and development
(Note 7) 701,185 28,419 894,401 66,948 1,323,285
Depreciation and amortization 152,573 20,712 342,899 30,959 463,533
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 121,449 972,463 3,203,809 1,308,387 5,794,197
------------ ------------ ------------ ------------ ------------
Loss from Operations (121,449) (949,617) (3,203,809) (1,344,257) (5,828,367)
------------ ------------ ------------ ------------ ------------
Other Income (Expense):
Settlements (Note 10) (10,000) (3,696) (10,000) (3,696) (504,813)
Interest Income 26 - 217 - 614
Dividend Income 19,523 - 37,711 - 37,711
Interest Expense (68,175) (508,710) (1,411,296) (510,322) (1,933,608)
Loss on disposition of
marketable securities - - - - (24,500)
------------ ------------ ------------ ------------ ------------
Total Other Income
and Expense (58,626) (512,405) (1,383,368) (514,017) (2,424,596)
------------ ------------ ------------ ------------ ------------
Net Loss $ (180,075) $(1,462,022) $(4,587,177) $(1,858,274) $(8,252,963)
============ ============ ============ ============ ============
Loss per Common Share $ (0.01) $ (0.16) $ (0.33) $ (0.21) $ (4.32)
============ ============ ============ ============ ============
Weighted Average Shares
Outstanding (Note 2) 19,041,019 9,133,397 14,108,388 8,941,734 1,911,813
============ ============ ============ ============ ============
The accompanying Notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997 (UNAUDITED)
<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)
The accompanying Notes are an integral part of these financial statements.
<PAGE>
<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 - - - (2,438,945) (2,438,945)
----------- ----------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1996 9,883,129 9,883 3,206,207 (3,665,786) (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 - 1,270
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 $4,580,957 $(6,806,654) $(2,214,294)
The accompanying Notes are an integral part of these financial statements.
<PAGE>
<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 $4,580,957 $(6,806,654) $(2,214,294)
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 - - - (1,266,233) (1,266,233)
----------- ----------- ----------- ----------- -----------
BALANCE JUNE 30, 1997 18,025,129 $ 18,025 $4,714,257 $(8,072,887) $(3,340,605)
Issuance of shares in conversion
of debt 1,446,325 1,446 1,275,133 1,276,579
Issuance of shares for fees
and services 144,000 144 - 144
Net (loss) for the Quarter ended
September 30, 1997 - - - (180,075) (180,075)
----------- ----------- ----------- ----------- -----------
BALANCE SEPTEMBER 30, 1997 19,615,454 $ 19,615 $5,989,390 $(8,252,962) $(2,243,957)
=========== =========== =========== =========== ===========
The accompanying Notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months 1/13/87
Ended September 30 (Inception)
-------------------------- to
1997 1996 9/30/97
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Reconciliation of Net Loss to Net Cash
Used in Operating Activities:
Net Loss $(4,587,177) $(1,858,274) $(8,252,963)
------------ ------------ ------------
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 342,899 30,960 453,198
Issuance of stock for director's fees
and services 7,586 265,000 697,107
Issuance of stock for Property Rights - - 50,337
Issuance of stock in legal settlement - - 494,813
Discount on Convertible Debentures 1,250,000 500,000 1,750,000
Interest Expense converted to Stock 35,329 - 35,329
(Increase) decrease in assets:
Prepaid expenses 1,565 286,862 0
Deposits (5,700) - (6,000)
Other Assets (700) - (700)
Increase (decrease) in liabilities: (56,647)
Accounts payable (22,414) (72,334) 14,210
Accrued expenses 168,452 (24,429) 188,780
Due to related parties (7,325) (236,574) 183,535
------------ ------------ ------------
Total Adjustments 1,769,692 692,838 3,891,592
------------ ------------ ------------
Net Cash Used in Operating Activities $(2,817,485) $(1,165,437) $(4,361,371)
============ ============ ============
Cash Flows from Investing Activities:
Cash from sale (purchase) of equipment (52,810) (7,399) (77,707)
Capitalized organization costs - - (175,550)
------------ ------------ ------------
Net Cash Used in Investing Activities (52,810) (7,399) (253,257)
------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of capital stock,
net of offering costs 125,000 - 1,331,924
Proceeds from debt converted to capital stock - 500,000 250,000
Proceeds from debt, net of costs 27,043 442,487
Proceeds from debentures, net of costs 4,375,000 - 4,375,000
Principal payments on debt (37,275) (30,400) (165,444)
------------ ------------ ------------
Net Cash Provided by Financing
Activities 4,489,768 469,600 6,233,967
------------ ------------ ------------
Net Increase (Decrease) in Cash 1,619,473 (703,235) 1,619,339
Cash at beginning of period (134) 799,466 -
------------ ------------ ------------
Cash at end of period $ 1,619,339 $ 96,231 $ 1,619,339
============ ============ ============
The accompanying Notes are an integral part of these financial statements.
</TABLE>
<PAGE>
HARVARD SCIENTIFIC CORP
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Unaudited Financial Statements at September 30, 1997
and Audited Financial Statements at 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
19,615,454 shares issued and outstanding as of September 30, 1997, and
9,883,129 issued and outstanding on December 31, 1996. BTI owned
approximately 29% and 63% of the Company's shares on September 30, 1997 and
on December 31, 1996, respectively, of which Jackie R. See M.D. is
Director of the Company and a controlling person of all the shares of BTI.
<PAGE>
HARVARD SCIENTIFIC CORP
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Unaudited Financial Statements at September 30, 1997
and Audited Financial Statements at December 31, 1996
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 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:
In order to prepare the 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 calculations were based on the weighted average
number of shares outstanding during the period: 14,108,388 and 8,941,734
shares for the nine months ending September 30, 1997 and September 30, 1996,
19,041,019 and 9,133,397 shares for the three months ending September 30,
1997 and September 30, 1996, and 1,911,813 shares outstanding from
inception to September 30,1997. Fully dilutive earnings per share are not
reflective because they are anti-dilutive.
INCOME TAX:
Because of losses sustained since inception, no provision has been made for
income tax.
NOTE 3 - EQUIPMENT & LEASEHOLD IMPROVEMENTS
Equipment and building improvements at September 30, 1997 and December 31,
1996, consists of the following:
September 30, 1997 December 31, 1996
(unaudited)
------------------ ------------------
Equipment & Leasehold Improvements $ 62,227 $ 9,416
Less: accumulated depreciation 8,891 3,491
------------------ ------------------
$ 53,336 $ 5,925
------------------ ------------------
During December 1996, the Company relocated to Reno, Nevada. 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.
2
<PAGE>
HARVARD SCIENTIFIC CORP
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Unaudited Financial Statements at September 30, 1997
and Audited Financial Statements at 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 September 30, 1997 and December 31, 1996 consist of the
following:
September 30, 1997 December 31, 1996
(unaudited)
------------------ ------------------
Payroll $ 15,714 $ 9,680
Payroll taxes 4,377 1,000
Interest on notes and debentures 132,998 9,649
Other - Legal & Professional Fees 35,692
------------------ ------------------
$ 188,781 $ 20,329
------------------ ------------------
Also see Notes 11 for interest on debentures.
NOTE 6 - NOTES PAYABLE
The Company had the following notes payable at September 30, 1997 and
December 31, 1996:
September 30, 1997 December 31, 1996
(unaudited)
------------------ ------------------
8% note, payable to former
director on demand, unsecured
(Notes 7) $ 0 $ 37,275
7% convertible debenture with
Wood Gundy, convertible at
50% of the market price of the
common stock on the day before
the conversion date. 125,000 250,000
------------------ ------------------
$ 125,000 $ 287,275
------------------ ------------------
3
<PAGE>
HARVARD SCIENTIFIC CORP
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Unaudited Financial Statements at September 30, 1997
and Audited Financial Statements at December 31, 1996
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 of $500,000 was reflected as a discount and recorded to
interest expense and paid-in-capital in 1996. June 12, 1997, an additional
$125,000 was converted into 450,000 shares of common stock (see note10).
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 September 30, 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 to be an
open intercompany account, which does not accrue interest.
On September 30, 1997, BTI owned approximately 29% of the Company's shares
of which Dr. Jackie See is a controlling person of all the shares of BTI.
Jackie R. See M.D. is a Director of the Company and may be considered a
promoter of the Company.
As of December 31, 1996, the Company had a note payable with a former
director (Note 6). The amount of accrued interest associated with the note
at December 31, 1996 was $6,419. This note was paid in full on May 7th,
1997.
The Company often pays for services, fees, and salaries by issuing shares of
common stock. Most of this stock issued for services, must be held for
investment to satisfy the exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended. Rule 144 under the statute requires
that such stock be held for a year, before it can be sold. The Company
registration statement was effective August 14, 1997, at which time the two-
year restriction was lifted for the 6% debenture holder only.
During the first three quarters of 1997, the Company issued a total of
6,652,000 shares to officers and directors of the Company for prior and
current services rendered. These shares were valued at par value.
Also see discussions regarding intellectual properties, agreements, and
subsequent events in Notes 4, 9, and 13.
4
<PAGE>
HARVARD SCIENTIFIC CORP
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Unaudited Financial Statements at September 30, 1997
and Audited Financial Statements at December 31, 1996
NOTE 8 - INCOME TAXES
The Company has federal net operating loss carryforwards for financial
statement purposes of approximately $6,000,000 at September 30, 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.
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 has terminate a fourth agreement
with its European licensor, Pharma Maehle unless Pharma Maehle. There has
been no response from Pharma Maehle.
In December 1996, the Company entered into an agreement with Martin E. Janis
& Company, Inc., a public relations agency which has been terminated. 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.
On September 18, 1997, the Company entered into a consulting agreement with
I.W. Miller & Co. ("Miller"), which supersedes the prior agreement dated
August 4, 1997. Miller will provide consulting services and carry out an
investor relations program utilizing a business plan strategy, long-term
financial planning and other services. Under this agreement, which is for a
term of six months, Miller will receive $10,000 a month. At September 30,
1997 $40,000 has been paid to the consultant. See Note 13.
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 financial statements reflect the manner in which the Company has
resolved certain litigations:
(a) 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.
(b) 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.
5
<PAGE>
HARVARD SCIENTIFIC CORP
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Unaudited Financial Statements at September 30, 1997
and Audited Financial Statements at December 31, 1996
(c) The D. Weckstein & Co., Inc. ("Weckstein") lawsuit was settled on
April 23, 1997, with the issuance of 35,000 shares of the Company's common
stock Weckstein. 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.
(d) On June 12, 1997, the Company reached a mutual settlement with
Ailouros Ltd. Converting $125,000 of the 7% Debenture into 450,000 shares of
common stock.
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 12.
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. At September 30,
1997, $1,250,000 of the Debenture plus $26,579 interest on the Debenture had
been converted into 1,446,325 shares of common stock of the Company. At the
time of issuance, the Company accounted for the 20% discount to market of
$1,000,000 as additional interest expense and paid-in-capital.
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 Note
11 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
(see Note 11) 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 not 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.
6
<PAGE>
HARVARD SCIENTIFIC CORP
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Unaudited Financial Statements at September 30, 1997
and Audited Financial Statements at December 31, 1996
NOTE 13 - SUBSEQUENT EVENTS
On October 24, 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 $500,000 of the principal amount plus
$17,506 of interest expense. The conversion at 80% of market price resulted
in the issuance of 404,301 shares of common stock to the investor. The
debenture balance after this conversion is $3,250,000 plus accrued interest.
The Company has a consulting agreement with I.W. Miller & Co. ("Miller")
(see Note 9) whereby Miller provides investor relation consulting services
for the Company. On November 6, 1997, 400,000 shares were issued to I.W.
Miller & Co., for various services on behalf of the Company. The stock is to
be valued at the market value on the date of the agreement less 35% or $1.05
per share.
On October 20, 1997, 200,000 shares of the Company's common stock plus
$10,000 was issued to Neil Armstrong, former President & CEO of the Company,
in settlement of a dispute regarding termination of employment.
In October, 1997, the Company agreed to purchase the rights to Prostaglandin
E-1 Lyophilized Liposomes ("PE-1") used in the treatment of Psoriasis. The
rights to PE-1 is currently owned by the parent and affiliate of the Company
Bio-Sphere. It has been agreed that in exchange for the conveyance of all
rights of the PE-1, that the Company exchange $150,000 in cash plus
2,000,000 shares of the Company's common stock plus Bio-Sphere receives a 3%
override on royalties.
On October 15,1997, the Company became a defendant in a U.S. District Court
action initiated by Wood Gundy ("Gundy"), a 7% debenture holder. Gundy
claims it is entitled to convert its debenture into 258,065 shares of common
stock and/or damages in the amount of $2,000,000. The Company is asking that
any shares issued to Gundy be issued pursuant to the requirements of the
SEC's Regulation S. It is too early to estimate the monetary outcome of this
litigation.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION ANALYSIS AND PLAN OF OPERATION
Results of Operations
- ---------------------
The Company'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 Amendment No. 4 to Form SB-2
filed with the Securities and Exchange Commission effective on August 14,
1997. This issuance brought a net of $4,375,000 into the Company'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 Debenture.
Comparison of the three month period ended September 30, 1997, with the
three month period ended September 30, 1996.
The Registrant had no net sales during the third quarter of 1997, and
accordingly, had no cost of sales during that period. The third quarter of
1996, the Company reported net sales of $154,041 and cost of sales of
$22,846 as a result of selling clinical supplies to Korea. The difference in
the sales figures for the third 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 third quarter of 1997, the Registrant also experienced an overall
decrease in operating expenses over what was experienced in the third
quarter 1996 as a result of consulting fees. For the third quarter of 1997,
total operating expenses were $121,449 as compared to $972,463 in 1996.
With exception to the reclassification discussed above, 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 third
quarter of 1997, the Registrant reported total assets of $2,044,613. 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 $1,619,473 and
the appearance of deferred debt issue costs of $625,000, all in connection
with the Debentures issued in March 1997. See Note 11 in Notes to the
Financial Statements.
The Registrant's total current liabilities for the third quarter of 1997
also increased significantly over the total current liabilities at December
31, 1996. Total current liabilities in the third quarter of 1997 were
$4,265,275 as 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 common stock during the third quarter
of 1977. During this time, the Registrant issued a total of 1,590,000 shares
of common stock, mostly attributed to the Debentures converted during the
third quarter. During the third quarter 1997, $1,250,000 of the Debentures
plus interest were converted into 1,446,325 shares common stock. The
balance of the shares issued were in connection with legal and consulting
services performed for the Company. 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>
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 for Form SB-2
filed with the Securities and Exchange Commission and effective on 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 and effective 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 matters 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 and effective on August 14, 1997.
B. Reports on Form 8-K.
The Registrant filed a Form 8-K on October 31, 1997. Such filings are
incorporated herein by this reference.
<PAGE>
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.
Dated: November 13, 1997
HARVARD SCIENTIFIC CORP
By: /s/ Don Steffens
--------------------------
Don Steffens
President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,619,339
<SECURITIES> 0
<RECEIVABLES> 700
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,932,539
<PP&E> 62,227
<DEPRECIATION> 8,891
<TOTAL-ASSETS> 2,044,613
<CURRENT-LIABILITIES> 4,265,275
<BONDS> 0
0
0
<COMMON> 19,615
<OTHER-SE> 5,989,390
<TOTAL-LIABILITY-AND-EQUITY> 2,044,613
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,203,809
<OTHER-EXPENSES> (27,928)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,411,296
<INCOME-PRETAX> (4,587,177)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,587,177)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
