<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 March 31, 1997
Commission File Number 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>
<CAPTION>
--------------------------------------------------------------------
Common Stock, Par
Value $0.001 Per Share 18,889,652
--------------------------------------------------------------------
<S> <C>
(TITLE OF CLASS) (NUMBER OF SHARES OUTSTANDING AT
AUGUST 8, 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>
MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
(Unaudited) (Audited) (Audited)
---------- ---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $3,497,023 - $ 799,466
Prepaid expenses (Note 7) 220,000 1,565 425,094
Deferred debt issue costs (Note 11) 608,333 - -
---------- ---------- ----------
TOTAL CURRENT ASSETS 4,325,356 1,565 1,224,560
EQUIPMENT:
at cost, less accumulated depreciation of
$3,874 at March 31, 1997, $3,491 at December 31,
1996 and $6,637 at December 31, 1995 (Note 3) 5,542 5,925 10,861
---------- ---------- ----------
INTANGIBLE ASSETS:
Intellectual Property, net of accumulated amortization
of $1,357 at March 31, 1997, $1,048 at December 31,
1996 and $1,771 at December 31, 1995 (Notes 4 and 7) 7,638 7,948 8,563
Organizational cost, net of accumulated amortization of
$109,397 at March 31, 1997, $105,760 at December 31,
1996 and $70,754 at December 31, 1995 (Note 7) 66,153 69,789 104,796
---------- ---------- ----------
73,791 77,737 113,359
---------- ---------- ----------
OTHER ASSETS
Deposits 300 300 300
---------- ---------- ----------
TOTAL ASSETS $4,404,989 $ 85,527 $1,349,080
========== ========== ==========
</TABLE>
The accompanying Notes are an integral part of these balance sheets.
-3-
<PAGE> 4
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
(Unaudited) (Audited) (Audited)
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 5,226 $ 36,625 $ 105,791
Accrued Expenses (Note 5) 97,917 20,329 84,380
Bank overdraft - 134 -
Due to related parties (Note 7) 183,535 190,860 406,881
Note payable to related parties (Notes 6 and 7) 37,275 37,275 67,675
Debentures payable-Convertible (Note 11) 5,000,000 - -
Note Payable-Convertible (Note 6) 250,000 250,000 -
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 5,573,953 535,223 664,727
----------- ----------- -----------
CONTINGENCIES: (NOTE 10) - - -
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value; 100,000,000 shares authorized; 11,403,129,
9,883,129 and 8,749,125 shares issued and outstanding at March 31,
1997, December 31, 1996 and December 31, 1995,
respectively (Note 1) 11,403 9,883 8,749
Additional paid-in capital 5,626,287 3,206,207 1,902,445
Deficit accumulated during the development stage (6,806,654) (3,665,786) (1,226,841)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,168,964) (449,696) 684,353
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,404,989 $ 85,527 $ 1,349,080
=========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these balance sheets.
-4-
<PAGE> 5
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED YEARS ENDED DECEMBER 31,
MARCH 31, 1997 MARCH 31, 1996 ------------------------------------------
(UNAUDITED) (UNAUDITED) 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ - $ 26,959 $ 181,000 $ - $ -
COST OF SALES - 85,675 216,870 - -
------------ ------------ ------------ ------------ ------------
GROSS PROFIT - (58,716) (35,870) - -
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and administrative expenses (Note 7) 1,856,154 287,148 1,244,272 434,320 324,699
Research and development (Note 7) 377 38,529 109,553 194,965 124,366
Depreciation and amortization (Note 3) 20,997 10,247 41,472 39,550 38,872
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,877,528 335,924 1,395,297 668,835 487,937
------------ ------------ ------------ ------------ ------------
(LOSS) FROM OPERATIONS (1,877,528) (394,640) (1,431,167) (668,835) (487,937)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Settlements (Note 10) - - (494,813) - -
Interest income - - - - -
Interest expense (1,263,340) (1,612) (512,964) (7,620) (1,727)
Loss on disposition of marketable securities - - - - -
------------ ------------ ------------ ------------ ------------
TOTAL OTHER INCOME AND EXPENSE (1,263,340) (1,612) (1,007,777) (7,620) (1,727)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (3,140,868) $ (396,252) $ (2,438,944) $ (676,455) $ (489,664)
============ ============ ============ ============ ============
LOSS PER COMMON SHARE (Note 2) $ (0.30) $ (0.05) $ (0.27) $ (0.29) $ (0.34)
============ ============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 10,308,240 8,757,903 9,022,404 2,333,839 1,421,563
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
INCEPTION INCEPTION
TO TO
3/31/97 12/31/96
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
NET SALES $ 187,387 $ 187,387
COST OF SALES 221,557 221,557
------------ ------------
GROSS PROFIT (34,170) (34,170)
------------ ------------
OPERATING EXPENSES:
General and administrative expenses (Note 7) 3,897,024 2,040,870
Research and development (Note 7) 429,261 428,884
Depreciation and amortization (Notes 3) 141,631 120,634
------------ ------------
TOTAL OPERATING EXPENSES 4,467,916 2,590,388
------------ ------------
(LOSS) FROM OPERATIONS (4,502,086) (2,624,558)
------------ ------------
OTHER INCOME (EXPENSE):
Settlements (Note 10) (494,813) (494,813)
Interest income 397 397
Interest expense (1,785,652) (522,312)
Loss on disposition of marketable securities (24,500) (24,500)
------------ ------------
TOTAL OTHER INCOME AND EXPENSE (2,304,568) (1,041,228)
------------ ------------
NET LOSS $ (6,806,654) $ (3,665,786)
============ ============
LOSS PER COMMON SHARE (Note 2)
WEIGHTED AVERAGE SHARES OUTSTANDING
</TABLE>
The accompanying Notes are an integral part of the statements of operations.
-5-
<PAGE> 6
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995, AND THE PERIOD
FROM JANUARY 13, 1987(DATE OF INCEPTION) TO MARCH 31, 1997
<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 - 46
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 the
statements of stockholders equity.
-6-
<PAGE> 7
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995, AND THE PERIOD
FROM JANUARY 13, 1987(DATE OF INCEPTION) TO MARCH 31, 1997
<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(UNAUDITED) 11,403,129 $ 11,403 $ 5,626,287 ($6,806,653) ($1,168,964)
========== =========== =========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of the
statements of stockholders equity.
-7-
<PAGE> 8
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED YEARS ENDED DECEMBER 31,
MARCH 31, 1997 MARCH 31, 1996 -------------------------------------------
(UNAUDITED) (UNAUDITED) 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ - $ 26,959 $ 181,000 $ - $ -
Cash paid to employees - (84,800) (237,911) (8,804) (93,255)
Cash paid to suppliers (Note 13) (1,002,843) (687,500) (1,151,723) (30,154) (158,108)
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) (1,261,801) (38,958) (251,363)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash from sale (purchase) of equipment - (2,103) (7,399) - (17,498)
Capitalized organization costs - - - - (150,000)
Purchase of marketable securities - - - - -
----------- ----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES - (2,103) (7,399) - (167,498)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of capital stock 125,000 - - 831,300 354,149
Proceeds from debt converted to capital stock - - 250,000 - -
Proceeds from debt - - 251,100 80,719 83,625
Proceeds from debentures, net of costs 4,375,000 - - - -
Principal payments on debt - (30,400) (31,500) (74,319) (22,350)
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 4,500,000 (30,400) 469,600 837,700 415,424
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 3,497,157 (779,456) (799,600) 798,742 (3,437)
CASH AT BEGINNING OF PERIOD (134) 799,466 799,466 724 4,161
----------- ----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 3,497,023 $ 20,010 ($ 134) $ 799,466 $ 724
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INCEPTION INCEPTION
TO TO
3/31/97 12/31/96
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 181,000 $ 181,000
----------- -----------
Cash paid to employees (339,970) (339,970)
Cash paid to suppliers (Note 13) (2,374,740) (1,371,897)
Cash paid for interest (3,167) (3,167)
Cash paid for settlement (50,000) (50,000)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,586,877) (1,584,034)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash from sale (purchase) of equipment (24,897) (24,897)
Capitalized organization costs (150,924) (150,924)
Purchase of marketable securities (24,500) (24,500)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (200,321) (200,321)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of capital stock 1,371,946 1,246,946
Proceeds from debt converted to capital stock 250,000 250,000
Proceeds from debt 415,444 415,444
Proceeds from debentures, net of costs 4,375,000 -
Principal payments on debt (128,169) (128,169)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 6,284,221 1,784,221
----------- -----------
NET INCREASE (DECREASE) IN CASH 3,497,023 (134)
CASH AT BEGINNING OF PERIOD - -
----------- -----------
-----------
CASH AT END OF PERIOD $ 3,497,023 ($ 134)
=========== ===========
</TABLE>
The accompanying Notes are an integral part of the statement of cash flows.
-8-
<PAGE> 9
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED YEARS ENDED DECEMBER 31,
MARCH 31, 1997 MARCH 31, 1996 --------------------------------------------
(UNAUDITED) (UNAUDITED) 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
NET LOSS $(3,140,868) $ (396,252) $(2,438,944) $ (676,455) $ (489,664)
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 - - - - -
Depreciation and amortization 20,997 10,247 41,472 39,550 38,872
Issuance of stock for director's fees
and services 1,046,600 5,000 485,129 71,974 97,938
Issuance of stock in legal settlement - - 494,813 - -
Discount on Convertible Bonds 1,250,000 500,000
(Increase) decrease in assets:
Prepaid expenses (218,435) 57,105 (1,565) 38,281 (4,000)
Deposits - (10,000) - - (300)
Increase (decrease) in liabilities:
Accounts payable (31,399) (70,780) (69,116) 100,962 1,268
Accrued expenses 77,588 (84,080) (64,051) 82,779 1,600
Due to related parties (7,325) (258,193) (216,021) 303,951 102,923
----------- ----------- ----------- ----------- -----------
TOTAL ADJUSTMENTS 2,138,026 (350,701) 1,177,144 637,497 238,301
----------- ----------- ----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $(1,002,842) $ (746,953) $(1,261,800) $ (38,958) $ (251,363)
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INCEPTION INCEPTION
TO TO
3/31/97 12/31/96
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
NET LOSS $(6,806,654) $(3,665,786)
----------- -----------
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Book value of assets sold 6,483 6,483
Loss on disposition of marketable securities 24,500 24,500
Depreciation and amortization 141,630 120,634
Issuance of stock for director's fees
and services 1,735,975 689,375
Issuance of stock in legal settlement 494,813 494,813
Discount on Convertible Bonds 1,750,000 500,000
(Increase) decrease in assets:
Prepaid expenses (220,000) (1,565)
Deposits (300) (300)
Increase (decrease) in liabilities:
Accounts payable 5,225 36,624
Accrued expenses 97,916 20,328
Due to related parties 183,535 190,860
----------- -----------
TOTAL ADJUSTMENTS 4,219,777 2,081,752
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $ (2,586,877) $(1,584,034)
=========== ===========
</TABLE>
The accompanying Notes are an integral part of the statement of cash flows.
-9-
<PAGE> 10
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-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 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 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% of the Company's shares at March 31, 1997 and 63% at December 31, 1996,
respectively.
<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 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: 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 debentures) (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 and building improvements at December 31, 1996 and 1995, consist of
the following:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
--------------- -----------------
<S> <C> <C>
Equipment $9,416 $ 9,416
Leasehold Improvements -- --
------ -------
9,416 9,416
Less: accumulated depreciation 3,874 3,491
------ -------
$5,542 $ 5,925
------ -------
</TABLE>
<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 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 March 31, 1997 and December 31, 1996, consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Settlement costs (Note 10) $ -- $ --
Payroll 63,640 9,680
Payroll taxes 4,869 1,000
Interest on notes 29,408 9,649
Transfer fees -- --
------- -------
$97,917 $20,329
------- -------
</TABLE>
Also see Notes 6, 7 and 11.
<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 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
-------------- -----------------
<C> <C>
8% note, payable to former director
on demand, unsecured (Notes 7 and 14) $ 37,275 $ 37,275
8% note, payable to a related party
on demand, unsecured -- --
7% convertible debentures, convertible at
50% of the market price of the stock on the
day before the conversion date (Note 14) 250,000 250,000
-------- --------
$287,275 $287,275
-------- --------
</TABLE>
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 has 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.
<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 7 - RELATED PARTY TRANSACTIONS (CONTINUED)
The Company often pays for services, fees, and salaries by issuing shares of
common stock. 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.
See also discussions regarding agreements, intellectual properties, 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 $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.
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 two
lawsuits:
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.
<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 10 - CONTINGENCIES (CONTINUED)
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.
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 has 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.
b. The Company filed an action for damages due to negligence and
breach of contract by D. Weekstein 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 tortious 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, 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.
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.
Isssuance 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> 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 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 insufficient, 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 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.
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> 17
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 March 31, 1997, with the three month
period ended March 31, 1996
The Registrant had no net sales during the first quarter of 1997, and,
accordingly, had 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. Accordingly, gross profit
in the first quarter of 1996 was a negative $58,716. The difference in the sales
figures for the first 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 first quarter of 1997, the Registrant also experienced a
significant increase in operating expenses over what was experienced in the
first quarter of 1996. For the first quarter of 1997, total operating expenses
were $1,860,861, while in the same quarter in 1996 such expenses were $335,942.
The primary difference in operating expenses between these two periods
comes in general and administrative expenses. General and administrative expense
in the first quarter of 1997 were $1,856,154, while in the same quarter of 1996,
they were $287,148. General and administrative expense increased in 1997 due to
the issuance of the 6% Convertible Debentures in March 1997. The Registrant paid
finders' fees of approximately $750,000 in connection with the investment
capital transferred to the Registrant in exchange for the Debentures. Also, the
Registrant paid legal, accounting and public relations fees of approximately
$576,000 during the first quarter of 1997, almost all of which were incurred 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
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 first quarter of
1997 also increased significantly over the total current liabilities at December
31, 1996. Total current liabilities in the first quarter of 1997 were
$5,573,953, 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.
<PAGE> 18
The Registrant also issued shares of its common stock during the first
quarter of 1997. During this time, the Registrant issued a total of 1,520,000
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> 19
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, with the following
modifications:
Harvard Scientific Corp. v. Ailouros Ltd., Case No. CV-N-97-00088-HDM,
Second Judicial District Court of the State of Nevada, County of Washoe, filed
February 6, 1997, removed to United States District Court for the District of
Nevada; and Ailouros Ltd. v. Harvard Scientific Corp., Case No.
CV-N-97-00089-ECR, United States District Court for the District of Nevada,
filed February 13, 1997: On or about June 16, 1997, Ailouros and the Registrant
agreed in principle to settle all litigation between the parties. As of July 28,
1997, the settlement agreement is still being drafted, although it will require
the parties to maintain confidentiality regarding the settlement terms. In
anticipation of such agreement, 450,000 shares of the Registrant's common stock
have been issued to Ailouros.
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.
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
<PAGE> 20
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.
<PAGE> 21
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 11, 1997.
HARVARD SCIENTIFIC CORP.
By: /s/ Don Steffens
-----------------------------------
Don Steffens
Secretary
