SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number
December 31, 1996 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
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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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
State Registrant's revenues for its most recent fiscal year.
$181,000.
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days: Given the closing price for the Registrant's shares of $4.875 on April 9,
1997, such market value equals approximately $17,074,098.
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
As of December 31, 1996, there were 9,888,629 shares of common stock
outstanding.
Documents incorporated by reference: No annual report to security holders, proxy
or information statement or prospectus filed pursuant to Rule 424(b) or (c) of
the Securities Act of 1933 are incorporated by reference herein.
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS
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(a) Business Development
Harvard Scientific Corp., (the "Registrant") was incorporated under the
laws of the State of Nevada on January 13, 1987 with the name of Witch Doctor
Bones, Inc. On August 12, 1987, the Registrant 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 Registrant changed its name
to Careyward, Inc. and authorized a forward split of ten (10) for one (1).
On October 18, 1993, the Registrant acquired Grant City Corporation by
a merger. As a result thereof, 50,000 shares were issued which carried 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 in effect filed with the United States Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended. No such filing
has been made by the Registrant. Both classes of warrants have been redeemed by
the Registrant at $0.001 per warrant with twenty (20) days written notice. Thus,
the warrants have been canceled.
On January 18, 1994, the name of the Registrant was changed to The Male
Edge, Inc. On May 10, 1994, the name of the Registrant was changed to Harvard
Scientific Corp.
There are outstanding 9,888,629 shares as of December 31, 1996.
To management's knowledge, the Registrant has not been subject to
bankruptcy, receivership or any similar proceedings.
(b) Business of the Issuer
The Registrant's operations consist of the research and development,
registration, commercialization, marketing and distribution of products relating
to prostaglandin E1 (PGE1) in liposomes, utilized in the treatment of male
erectile dysfunction.
The Registrant is in the development stage. During the last three
years, its operations have consisted of the development, commercialization,
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marketing and distribution of product relating to prostaglandin/microsphere
delivery and how it is applied in the treatment of male sexual dysfunction. The
Registrant will continue its operations accordingly in order to bring its
product to the marketplace.
On February 13, 1996, the Registrant received an assignment of an
application for a patent identified as Application Serial No. 08/573408, filed
12/15/95, for an invention PGE-1 Containing Lyophilized Liposomes For Use In The
Treatment of Erectile Dysfunction. The assignment was made by the holder of the
application, Bio-Sphere Technology, Inc. (BTI) BTI owns a majority of the
Registrant's issued and outstanding stock. Dr. Jackie R. See, a director of the
Registrant, is the principal shareholder of BTI.
The business objective of the Registrant is to develop, test, register,
market and distribute its products relating to prostaglandin/microsphere
delivery and how it is applied to the treatment of male sexual dysfunction.
Additionally, the Registrant may pursue the development, marketing and
distribution of other potential products this microsphere delivery system
technology may produce.
The Registrant shall register, market and distribute PGE1 in liposomes
(a process for which a patent has been filed) for the treatment of male erectile
dysfunction--which can occur due to a number of conditions, including but not
limited to, diabetes, psychogenic causes, hypertension, stress, or
prostatectomy. The product has reached Phase I development in which preliminary
efficacy data is available, indicating the possible benefits of such a therapy.
Although this early data suggests product efficacy, there can be no guarantee
that the product will reach the market successfully.
Prostaglandin is already approved for the treatment of male erectile
dysfunction in an injectable formulation by Pharmacia/Upjohn and an intra
urethral insertion of a prostaglandin containing pellet by Vivus. A locally
applied intra-meatal product could be advantageous to patient comfort when
compared with an injectable product. PGE1 is a drug and will therefore require
full registration with the Food and Drug Administration (FDA). An IND was
submitted to the FDA in May 1996. A Phase I clinical trial was implemented and
concluded. The manufacturing procedure is being scaled up, with assay
verification and validation in progress. A New Drug Application will be filed
with the FDA, assuming adequate data is generated upon conclusion of the
clinical trial program. There can be no assurance that the FDA will approve the
product for marketing. It is estimated that the costs of completing the above
procedures will amount to between $10 to $12 million. The FDA review process
could last as long as two (2) years and perhaps even further extended in the
event the FDA requests additional data.
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Competition:
The Registrant is competing in the market for products designed for the
treatment of male erectile dysfunction. Such products include, but may not be
limited to, a needle injection process, insertion delivery systems, penile
implants and vacuum constriction devices. It is known that other competitors are
researching and developing products for the treatment of male erectile
dysfunction. There is, therefore, no guarantee that once FDA approval is
received, if ever, that the product marketed by the Registrant will be
commercially successful.
Also, certain competitors may have advantages over the Registrant in
terms of FDA approval for marketing of their products. For example, management
of the Registrant understands that a competitor which markets a direct needle
injection process received FDA approval for its product in July of 1995. Vivus
Inc., which markets an intra urethral prostaglandin - containing pellet
delivered via their Muse device achieved FDA approval in December 1996.
Despite the time-frames involved with FDA approval, management of the
Registrant believes that its locally applied product will represent a highly
desirable system for the treatment of male erectile dysfunction. That is,
compared to the direct needle injection method and/or other insertion delivery
systems, the Registrant's locally applied, intra-meatal product will be more
desirable to patients. Accordingly, the Registrant is posturing itself in the
marketplace to provide such a product.
Regulation:
The Registrant anticipates that governmental regulation will
significantly impact upon the time in which the Registrant can market its
product in the United States. FDA procedures involve clinical testing which
occurs in three phases to demonstrate safety and efficacy of the product. Phase
I clinical trials consist of testing for the safety and tolerance of the product
with a small group of subjects and may also yield preliminary information about
the effectiveness and dosage levels of the product. Phase II clinical trials
involve testing for efficacy, determination of optional dosage and
identification of possible side effects in a larger patient group. Phase III
clinical trials consist of additional testing for efficacy and safety with an
expanded patent group. After the product has been approved for marketing, Phase
IV post-marketing surveillance studies may be required to provide additional
data to the FDA for longer term follow-up concerns.
Upon successful completion of Phase III testing, a New Drug Application
(NDA) can be filed. Approval requires a review of detailed data of the results
of clinical studies, the composition of the drug or biological, the labeling
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that will be used, information on manufacturing methods, and samples of the
products. After the FDA completes its review of the application, the product is
typically reviewed by a panel of medical experts, and the applicant required to
answer questions on its safety and efficacy. At the recommendation of the panel,
an NDA may be granted and the product may then be marketed.
Production and Manufacturing:
The Registrant's product will be manufactured by 2 third party
manufacturers located in Southern California. The manufacturers will produce the
Registrant's product per the Registrant's directions and specifications and
deliver the product to the Registrant. The Registrant sees no reason to acquire
the equipment necessary for production at this time and anticipates utilizing
its existing current arrangement with outside laboratories for the manufacturing
of its products for distribution.
Marketing:
The Registrant has completed its strategic marketing and distribution
plan for the product. The Korean distributor agreement was canceled in November
of 1996 by mutual agreement. The Registrant is currently negotiating distributor
agreements for North America with suitable companies with a major interest in
urology. The European distributor is ready to commence Phase III clinical trials
and has been put on notice to tighten the terms of the agreement between the
companies.
Employees:
As of December 31, 1996, the Registrant had two (2) full time
employees. These full time employees are engaged in management and
administrative activities. None of the Registrant's employees are subject to a
collective bargaining agreement and the Registrant believes its relations with
its employees are good. From time to time, the Registrant elicits the services
of key management and technical staff from its parent company, Bio-Sphere
Technology, Inc. (BTI). The Registrant reimburses BTI for time contributed
directly by its employees in providing technical and scientific services and
assistance to the Registrant.
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ITEM 2. DESCRIPTION OF PROPERTY
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The Registrant's research and development offices have approximately
3000 square feet and are located at 17791 Fitch, Irvine, California 92614.
Telephone number (714) 252-1942. They are leased on a month-to-month basis.
The Registrant does not own any real estate, nor is the Registrant
engaged in the business of investing in real estate or real estate mortgages.
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ITEM 3. LEGAL PROCEEDINGS
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The following litigation either is pending or was pending during the
year 1996:
1. Harvard Scientific Corp. v. Nevada Agency and Trust Company, A Nevada
Corporation, and Thomas E. Waite & Associates, a Florida Corporation,
Case No. CV96-04945, Filed in the Second Judicial District Court of the
State of Nevada, in and For the County of Washoe.
On August 2, 1996, the Registrant filed a complaint in the above
captioned action naming Thomas E. Waite & Associates, a Florida corporation, and
Nevada Agency and Trust Company, a Nevada corporation, as defendants. This
action involved a dispute over performance of an agreement between the
Registrant and Thomas E. Waite & Associates. Under the terms of that agreement,
the Registrant had issued Thomas E. Waite & Associates 350,000 shares of the
Registrant's common stock in exchange for services to be performed by Thomas E.
Waite & Associates. Those services involved obtaining the financing for the
Registrant. In this action, the Registrant claimed that Thomas E. Waite &
Associates had not performed those services and had breached its agreement with
the Registrant. Nevada Agency and Trust Company, the Registrant's transfer
agent, was included as a defendant in order to enjoin the transfer of the
350,000 shares which had been issued to Thomas E. Waite & Associates. The
Registrant sought to recover damages for Thomas E. Waite & Associate's breach of
contract and obtain a declaratory judgment declaring the agreement between the
Registrant and Thomas E. Waite & Associates null and void, and canceling the
shares issued to Thomas E. Waite & Associates. The action was settled amicably
between the parties and is no longer pending.
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2. Harvard Scientific Corp. v. Ailouros Ltd., a Foreign corporation, CV-N-
97-00088-HDM, Originally Filed in the Second Judicial District Court of
the State of Nevada, in and for the County of Washoe and Removed to the
United States District Court for the District of Nevada.
On February 6, 1997, the Registrant filed the above captioned action in
connection with certain convertible notes the Registrant had executed in favor
of the defendant. In this action, the Registrant claimed the defendant had
breached its contract with the Registrant regarding the terms of such
convertible notes and that the defendant had breached its duty of good faith and
fair dealing in connection with those contract terms. Also, the Registrant
alleged that an accord and satisfaction had been reached between the parties on
their dispute, and that such accord and satisfaction should be enforced by the
Court. Also, the Registrant sought damages for the breach of the underlying
contract terms. The litigation is pending and is related to the litigation
outlined below.
3. Ailouros Ltd. v. Harvard Scientific Corp., CV-N-97-00089-ECR, Filed in
the United States District Court for the District of Nevada.
On February 13, 1997, Ailouros Ltd. filed the above captioned action
naming the Registrant as a defendant. In this action, Ailouros claimed that the
Registrant had breached the contract which is the subject of the action brought
by the Registrant against Ailouros referred to above. In this action, Ailouros
claims it is entitled to 263,225 shares of the Registrant's common stock and/or
is entitled to damages in the amount of $2,000,000. Ailouros sought to have the
State Court action filed by the Registrant referred to in heading 2 above,
removed to Federal Court and that action was in fact then removed to Federal
Court. Ailouros also has sought to have the two Federal Court actions
consolidated.
On or about March 10, 1997, the Registrant filed an amended complaint
in the Federal Court action which added a cause of action not included in the
State Court action. The new cause of action sought to have any shares issued to
Ailouros, issued pursuant to the requirements of Regulation S due to the fact
that at the time the Registrant had entered into its agreement with Ailouros,
the Registrant was not a reporting company. This litigation is still pending.
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4. Harvard Scientific Corp. v. D. Weckstein and Co., Inc., a New York
Corporation, and Donald E. Weckstein, CV97-00806, Filed in the Second
Judicial District Court of the State of Nevada, in and For the County
of Washoe.
On February 10, 1997, the Registrant filed the above captioned action
in connection with disputes between the Registrant and the defendants regarding
an agreement between the parties to the action. Pursuant to the terms of that
agreement, the defendants had agreed to help the Registrant obtain financing in
exchange for 25,000 shares of the Registrant's common stock. In this action, the
Registrant alleges that defendants breached their agreement to help the
Registrant obtain financing and/or were negligent in performing their duties in
helping the Registrant obtain financing. In this action, the Registrant seeks
damages for the defendants' negligence and breach of contract and seeks a
declaratory judgment which declares that the Registrant does not owe the
defendants any of the Registrant's common stock pursuant to the terms of the
agreement between the parties. The action currently is pending.
5. D. Weckstein and Co., Inc. v. Harvard Scientific Corp. and Thomas E.
Waite & Associates, Inc., Index No. 97-103324, Filed in the Supreme
Court of the State of New York, County of New York.
On or about February 18, 1997, the plaintiff in the above captioned
action filed this matter naming the Registrant and Thomas E. Waite & Assoc. as
defendants. In this action, the plaintiff claims that the Registrant breached
the same agreement which is the subject of the action filed by the Registrant
against this plaintiff in the State Court of Nevada. Also, the plaintiff in this
action seeks damages against Thomas E. Waite & Associates, Inc. for what the
plaintiff claims is Thomas E. Waite & Associates, Inc.'s tortious interference
with the agreement between the Registrant and the plaintiff. The plaintiff also
seeks damages for alleged fraud on Thomas E. Waite & Associates, Inc.'s part in
connection with its dealings with the plaintiff.
The complaint in this action also contains a cause of action against
the Registrant for "abuse of process" in connection with the filing of the
Nevada action brought by the Registrant against this plaintiff. In this claim,
the plaintiff asserts that the Nevada Court has no jurisdiction over either
party of the subject matter of the Nevada action, and that the Registrant
brought the action in Nevada simply to inconvenience the plaintiff.
In this action, the plaintiff seeks damages on its breach of contract
claims against the Registrant in the amount of $250,000 and $400,000, and
damages on the abuse of process claim against the Registrant in the amount of
$10,000. This litigation is pending.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation of
proxies or otherwise.
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PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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Market Information:
The capital stock of the Registrant is currently trading on the system
of the National Association of Securities Dealers, Inc. (NASDAQ) known as the
Bulletin Board under the symbol HVSF.
The following table sets forth the range of high and low bid prices for
the Registrant's capital stock for each quarterly period indicated, a reported
by brokers and dealers making a market in the capital stock. Such quotations
reflect inter-dealer prices without retail markup, markdown or commission, and
may not necessarily represent actual transactions:
Capital Stock
Quarter Ended High Bid Low Bid
December 31, 1996 $ 2.62 $ 0.87
September 30, 1996 $ 3.31 $ 1.50
June 30, 1996 $ 7.25 $ 2.19
March 31, 1996 $ 16.63 $ 5.25
December 31, 1995 $ 14.50 $ 2.75
September 30, 1995 $ 3.63 $ 1.69
June 30, 1995 $ 1.88 $ 0.25
March 31, 1995 $ None $ None
December 31, 1994 $ None $ None
September 30, 1994 $ None $ None
June 30, 1994 $ None $ None
Holders:
The approximate number of record holders of the Registrant's capital
stock as of December 31, 1996 was 180.
Dividends:
The Registrant has never paid cash dividends on its capital stock and
does not intend to do so in the foreseeable future. The Registrant currently
intends to retain its earnings for the operation and expansion of its business.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
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The discussion contained in this Item 6 is "forward looking", as that
term is identified in, or contemplated by, Section 27A of the Securities Act and
Section 21E of the Exchange Act. Accordingly, actual results may materially
differ from projections. Additional information concerning factors that could
cause actual results to differ materially is readily available in this item.
Overview:
Harvard Scientific Corp., is a bio-pharmaceutical development company.
The Registrant's corporate objective is to utilize medically researched and
developed drug substances, determine the ability of these substances to be
encapsulated in liposomes and to determine the potential market for such
products. The company will ensure development, regulatory testing and Federal
Drug Administration (FDA) processing to the point of distribution. The
Registrant is currently working on only one product--a therapeutic treatment for
male erectile dysfunction. The Registrant is assembling the results of its Phase
I clinical study for presentation to the FDA in April 1997 as part of its
pre-Phase II clinical trial meeting. During 1994, 1995 and 1996, the
Registrant's activities consisted primarily of raising capital, identifying a
core management team, developing a patent application, concluding manufacturing
scale up and initial clinical trials and formulating both a commercialization
and clinical development strategy.
The Registrant continues to look at other products it can add to its
portfolio that it believes has market potential.
The Registrant's future success is dependent upon its ability to raise
additional funds to complete the commercialization process for its erectile
dysfunction treatment product. The Registrant intends to obtain these funds
through public and private financing or from other sources such as collaboration
agreements. There can be no assurance that such funds will be available or will
be available on satisfactory terms to the Registrant. Failure to obtain adequate
financing could cause a delay or termination of the Registrant's product
development and marketing efforts.
Over the next 12 months, the Registrant's primary focus will be on
continuing clinical trials and product validation to conform to the regulatory
process of the FDA. The Registrant believes that an 18 to 24 month time-line to
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obtain regulatory approval is the current assumption, but there can be no
assurance, if ever, that the product will receive FDA approval in that time
span. Additionally, the Registrant will be identifying and seeking collaborative
arrangements with pharmaceutical distribution concerns and/or licensing
agreements with companies to eventually distribute the erectile dysfunction
product.
The Registrant's success is dependent on its ability to raise
additional capital to effect all aspects of its operations.
In the next twelve months, the Registrant has no plans to purchase or
sell any significant capital assets in the form of either plant or equipment,
with the exception of office equipment and furnishings to effect its
administrative activities.
Result of Operations:
For the Period from January 13, 1987 (Inception) through December 31, 1993:
The Registrant is in the development stages and has had limited
operating revenues since its inception on January 13, 1987. During this period,
the Registrant's activities consisted primarily of reviewing business
opportunities and acquisitions, as well as maintaining the business entity.
During 1987 and 1988, the Registrant realized limited revenues from wholesaling
activities unrelated to its current planned operations. The Registrant had no
operational activity form fiscal years 1989 through 1993 and all expenses
incurred during that period were related solely to maintaining the entity and
reviewing possible business opportunities. Therefore, the Registrant has had a
limited history of operation. From January 13, 1987 through December 31, 1993,
the Registrant had an accumulated deficit of $60,722.
For the Year Ended December 31, 1994:
On January 7, 1994, the Registrant acquired intellectual property
rights from Bio-Sphere Technology, Inc. for the treatment of male erectile
dysfunction. The Registrant issued 2,856,000 shares (714,000 shares as currently
restated) to acquire this technology. Subsequently, the Registrant offered a
private placement memorandum to qualified investors to fund the further
development and commercialization of this product. The capital raised totaled
$354,150 net of issuance cost during this period.
At this same time, the Registrant investigated and eventually acquired
an additional intellectual property and technology related to whole blood rapid
testing for viruses, particularly the HIV virus. At the time, the Registrant
felt the addition of this new product line was valuable to the Registrant in two
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ways. First, the technology was qualified as the best available testing device
for both accuracy and ease of use in the marketplace. Second, it provided the
Registrant with diversity in its potential product line, reducing the risks
associated with a single product company.
In July of 1994, the Registrant purchased the property rights to the
HIV testing technology that would permit the improvement of the existing product
of the Disease Detection International and Trinity Biotech, Ltd. companies. The
Registrant issued 1,340,000 shares (335,000 shares as currently restated) to
three individuals for those property rights. Two of those individuals were
directors and the third was the son of one of the directors of the Registrant.
In July 1994, the Registrant entered into a joint venture research and
development agreement with Disease Detection International, Inc., a Delaware
corporation, and its current parent, Trinity Biotech, Ltd., an Irish
corporation, for the improvement and enhancement of the rapid whole blood HIV
test device. The agreement calls for complimentary marketing rights and a 50/50
split of the profits on any products produced as a result of this agreement.
Subsequently, in August of 1994, the two companies signed a marketing agreement
further defining the manufacturing, pricing and patent rights to the new
product.
After several months of pre-marketing of this rapid detection device,
the Registrant determined that approval by the marketing authority in the United
States was not likely due to adverse psychological reactions by private testing
patients. Trinity Biotech, Ltd. terminated the agreements in February of 1995.
The Registrant contributed $34,470 directly to the research and development cost
of this product. At this time, the Registrant has not taken any action in this
matter and has abandoned the project with Trinity Biotech, Ltd.
The Registrant incurred a net loss for the year ended December 31, 1994
in the amount of $489,664. General and administrative expenses consisted
primarily of salaries of corporate officers, directors fees, office staffing
accounting, legal and marketing- related expenses, rent and occupancy costs.
Research and development cost consisted primarily of reimbursements to our
parent company for expenditures to consultants, patent attorneys, lab costs and
product sampling materials necessary to formulate the treatment for erectile
dysfunction. Inclusive in the Registrant's research and development for 1994 was
the expenditure of $34,470 with regard to the HIV testing research and
development program.
For the Year Ended December 31, 1995:
In 1995, the Registrant experienced an increase in both general and
administrative expenses, as well as research and development expenses. The net
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loss for the year ended December 31, 1995 amounted to $676,455. The total
operating expenditures for the two years ended December 31, 1995 represented
approximately 97% of the total operating expenses from inception, primarily due
to the fact that the Registrant was not operational prior to that time and all
expenses incurred form inception to the end of 1993 were primarily to maintain
the Registrant's status.
In 1995, the Registrant's activities centered around raising capital.
The Registrant started the year with a cash balance of $724. The only capital
available for most of the year was provided through loans from the Registrant's
directors and others. These monies were primarily used to attempt to raise
investment capital and maintain the corporate entity.
In November of 1995, the Registrant exchanged 6,138,500 shares of its
common stock with its parent company, Bio-Sphere Technology, Inc. (BTI) for
patent assignment necessary to strengthen its position on the treatment of male
erectile dysfunction. In addition, BTI assigned licensing and distribution
contracts associated with the Registrant's impotency treatment. BTI agreed to
make scientific and technical, as well as to provide management and marketing
personnel, available for the Registrant's use and to assist in raising working
capital.
As a result of this reorganization, the Registrant raised $831,300, net
of issuance cost, on December 29, 1995. These proceeds were used to fund the
Registrant's existing operations and retire a portion of loans and note payables
incurred earlier in the year.
For the Year Ended December 31, 1996:
The Registrant experienced an increase in administrative and general expenses,
including research and development costs. The Registrant experienced a
management change in December 1996. The net loss for the year ending December
31, 1996 amounted to $1,938,944.
During 1996 the Registrants activities centered around continued fund raising
efforts and development of the product. The Registrant started the year with a
cash balance of $799,466. The Registrant raised funds though a Regulation "S"
debenture in June 1996. The Registrant submitted an IND to the FDA and concluded
a Phase I clinical trial.
Risk Factors:
The Registrant has identified at least two sources as contract
manufacturers for its product. The product under development by the Registrant
has never been manufactured on a commercial scale and there can be no assurance
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that such a product can be manufactured at a cost or in quantities necessary to
make it commercially viable.
The Registrant has engaged a clinical research organization to develop
and strategize on completing the FDA regulatory process. The Registrant's
long-term success is predicated on the strength of its patent position. The
Registrant is the exclusive assignee of a U.S. patent application for the
therapeutic remedy of male erectile dysfunction. The Registrant relies on trade
secrets and unpatented proprietary technology in producing its product.
There is a concern in that there are limited suppliers of the key
pharmaceutical agent in the product.
The competition for the product of the Registrant is primarily Upjohn
and Vivus and secondarily other treatments for male erectile dysfunction,
including penile implants and vacuum systems.
Another uncertainty is the dependence on key personnel familiar with
the manufacturing process. The loss of any of the Registrant's key scientific
personnel could have an adverse effect on the Registrant's continued product
development and business operations.
General:
Industry experts estimate that erectile dysfunction in one form or
another afflicts nearly 50,000,000 men world-wide. This number is expected to
increase as the male population increases its life expectancy and the current
"baby boom" generation ages. Erectile dysfunction becomes more prevalent as men
get older.
If the Registrant's product receives the appropriate regulatory
approvals, which is not certain, the Registrant expects to be able to capitalize
on this trend. Estimates of funding needed to pursue the regulatory process run
as high as $15,000,000. In the short term, this is likely to retard liquidity as
the Registrant's capital needs will increase.
The Registrant expects to obtain capital funds either from the issuance
of common stock or debt. It is expected that external sources will be available
to provide these funds, but there can be no guarantees of such funding.
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ITEM 7. FINANCIAL STATEMENTS
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HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
REPORT ON FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
PAGE NO.
INDEPENDENT AUDITOR'S REPORT
On Financial Statements 1-2
On Supplemental Schedules 16
FINANCIAL STATEMENTS
Balance Sheets 3-4
Statements of Operations 5
Statements of Stockholders' Equity 6-7
Statements of Cash Flows 8-9
Notes to the Financial Statements 10-15
Schedule V -- Property, Plant, and Equipment 17
Schedule VI - Accumulated Depreciation and Amortization
of Property, Plant, and Equipment 18
Letter from Former Independent Accountant 19
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<PAGE>
DALE MCGHIE Town & Country Plaza
CERTIFIED PUBLIC ACCOUNTANT 1539 Vassar St. Reno, Nevada 89502
Tel: 702-323-7744
Fax: 702-323-8288
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Shareholders of
Harvard Scientific Corp.
I have audited the balance sheet of Harvard Scientific Corp. (A Development
Stage Company) as of December 31, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on the financial statements based on my
audit. The financial statements of the Company for the fiscal years ended
December 31, 1995 and 1994, were audited by other auditors whose report thereon
dated March 22, 1996, expressed an unqualified opinion with an explanatory
paragraph discussing its going-concern assumption.
I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Harvard Scientific Corp. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been presented assuming that the
company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
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<PAGE>
Page 2
Independent Auditor's Report
The accompanying statements of operations, stockholders' equity, and cash flows
for the period from January 13, 1987 (inception) to December 31, 1993, were not
audited by me, and accordingly, I do not express an opinion on them.
/s/ Dale McGhie
W. Dale McGhie, CPA
Reno, Nevada
March 20, 1996
<PAGE>
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<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 1996 and 1995
<CAPTION>
1996 1995
-------------------- -------------------
Current Assets:
<S> <C> <C>
Cash $ - $ 799,466
Prepaid expenses (Note 7) 1,565 425,094
-------------------- -------------------
Total Current Assets 1,565 1,224,560
-------------------- -------------------
Equipment and Leasehold Improvements:
at cost, less accumulated depreciation of
$3,491 at December 31, 1996 and $6,637 at
December 31, 1995 (Note 3) 5,925 10,861
-------------------- -------------------
Intangible Assets:
Intellectual property, net of accumulated amortization of $1,048
at December 31, 1996 and $1,771 at December 31, 1995 (Notes 4
and 7) 7,948 8,563
Organizational cost, net of accumulated amortization of $105,760
at December 31, 1996, and $70,754 at December 31, 1995 (Note
7) 69,789 104,796
-------------------- -------------------
77,737 113,359
-------------------- -------------------
Other Assets:
Deposits 300 300
-------------------- -------------------
TOTAL ASSETS $ 85,527 $ 1,349,080
==================== ===================
</TABLE>
The accompanying Notes are an integral part of these financial statements
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<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 1996 and 1995
<CAPTION>
1996 1995
-------------------- -------------------
Current Liabilities
<S> <C> <C>
Accounts payable (Note 7) $ 36,625 $ 105,791
Accrued expenses (Note 5) 20,329 84,380
Bank Overdraft 134
Due to related parties (Note 7) 190,860 406,881
Note payable to related parties (Notes 6 and 7) 37,275 67,675
Note payable -- Convertible (Note 6) 250,000 -
-------------------- -------------------
Total Current Liabilities 535,223 664,727
-------------------- -------------------
Contingencies: (Note 10) - -
Stockholders' Equity:
Common stock, $.001 par value, 100,000,000 authorized; 9,883,129
and 8,749,125 shares issued and outstanding at December 31,
1996 and December 31, 1995 respectively (Note 1) 9,883 8,749
Additional paid-in capital 2,706,207 1,902,445
Deficit accumulated during the development stage (3,165,786) (1,226,841)
-------------------- -------------------
Total Stockholders' Equity (449,696) 684,353
-------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,527 $ 1,349,080
==================== ===================
</TABLE>
The accompanying Notes are an integral part of these financial statements
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<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996,1995 AND 1994
AND THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
<CAPTION>
TO DECEMBER 31, 1996
Inception
to
12/31/96
1996 1995 1994 (Unaudited)
---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Net Sales $ 181,000 $ - $ - $ 187,387
Cost of Sales 216,870 - - 221,557
---------------- -------------- -------------- ----------------
Gross Profit (35,870) - - (34,170)
---------------- -------------- -------------- ----------------
Operating Expenses:
General and administrative 1,244,272 434,320 324,699 2,040,870
Research and development (Notes 7 and 9) 109,553 194,965 124,366 428,884
Depreciation and amortization (Notes 3 and 7) 41,472 39,550 38,872 120,634
---------------- -------------- -------------- ----------------
Total Operating Expenses 1,395,297 668,835 487,937 2,590,388
---------------- -------------- -------------- ----------------
( Loss ) from Operations (1,431,167) (668,835) (487,937) (2,624,558)
---------------- -------------- -------------- ----------------
Other Income (Expenses)
Settlements (Note 10) (494,813) - - (494,813)
Interest income - - -
Interest expense (12,964) (7,620) (1,727) (22,312)
Loss on disposition of marketable securities - - - (24,500)
---------------- -------------- -------------- ----------------
(507,777) (7,620) (1,727) (541,228)
---------------- -------------- -------------- ----------------
Net Loss $ (1,938,944) $ (676,455) $ (489,664) (3,165,786)
================ ============== ============== ================
Loss Per Common Share $ 0.21 $ 0.29 $ 0.34
================ ============== ==============
Weighted Average Shares Outstanding 9,022,404 2,333,839 1,421,563
================ ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
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<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1996
<CAPTION>
Deficit
Restated Additional From
Common Stock Paid-in Inception
-------------------------------
Shares Amount Capital To Date TOTAL
-------------- -------------- -------------- ---------------- ---------------
<S> <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 90,000 90 - 90
Issuance of shares for services 20,000 20 - 20
Issuance of shares for services 36,000 36 - 36
Issuance of shares to acquire
Grant City Corporation 50,000 50 39,827 39,877
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
-------------- -------------- -------------- ---------------
Balance carried forward 7,035,000 7,035 181,221 188,256
-------------- -------------- -------------- ---------------
</TABLE>
The accompanying Notes are an integral part of these financial statements
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<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1996
<CAPTION>
Deficit
Restated Additional From
Common Stock Paid-in Inception
-------------------------------
Shares Amount Capital To Date TOTAL
-------------- -------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance brought forward 7,035,000 7,035 181,221 188,256
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)
Issuance of common stock
for directors' fees and
services 553,500 553 530,796 - 531,349
Issuance of common stock
at par value for
intellectual property rights 6,138,500 6,139 - - 6,139
Issuance of common stock
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 common stock for
services and debt reduction 565,254 565 309,518 - 310,083
Issuance of common stock
for legal settlement 568,750 569 494,244 - 494,813
Net loss for the year ended
December 31, 1996 - - - (1,938,945) (1,938,945)
-------------- -------------- -------------- ---------------- ---------------
Balance December 31, 1996 9,883,129 $ 9,883 $ 2,706,207 $ (3,165,786) $ (449,696)
============== ============== ============== ================ ===============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
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<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1996
<CAPTION>
Inception
to
12/31/96
1996 1995 1994 (Unaudited)
---------------- -------------- -------------- ----------------
Cash Flows from Operating Activities
<S> <C> <C> <C> <C>
Cash received from customers $ 181,000 $ - $ - $ 181,000
Cash paid to suppliers and employees (1,389,634) (38,958) (251,363) (1,711,867)
Cash paid for interest (3,167) - - (3,167)
Cash paid for settlement (50,000) - - (50,000)
---------------- -------------- -------------- ----------------
Net Cash Used in Operating Activities (1,261,801) (38,958) (251,363) (1,584,034)
---------------- -------------- -------------- ----------------
Cash Flows from Investing Activities:
Cash from sale (purchase) of equipment (7,399) - (17,498) (24,897)
Capitalized organization costs - - (150,000) (150,924)
Purchase of marketable securities - - - (24,500)
---------------- -------------- -------------- ----------------
Net Cash Used in Investing Activities (7,399) - (167,498) (200,321)
---------------- -------------- -------------- ----------------
Cash Flows from Financing Activities:
Proceeds from issuance of capital stock,
net of offering costs 250,000 831,300 354,149 1,496,946
Proceeds from debt, net of costs 251,100 80,719 83,625 415,444
Principal payments on debt (31,500) (74,319) (22,350) (128,169)
---------------- -------------- -------------- ----------------
Net Cash Provided by Financing
Activities 469,600 837,700 415,424 1,784,221
---------------- -------------- -------------- ----------------
Net Increase (Decrease) in Cash (799,600) 798,742 (3,437) (134)
Cash at beginning of year 799,466 724 4,161 -
---------------- -------------- -------------- ----------------
Cash at end of year $ (134) $ 799,466 $ 724 $ (134)
================ ============== ============== ================
</TABLE>
The accompanying Notes are an integral part of these financial statements
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<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1996
<CAPTION>
Inception
to
12/31/96
1996 1995 1994 (Unaudited)
---------------- -------------- -------------- ----------------
Reconciliation of Net Loss to Net Cash
Used in Operating Activities
<S> <C> <C> <C> <C>
Net Loss $ (1,938,945) $ (676,455) $ (489,664) $(3,165,786)
---------------- -------------- -------------- ----------------
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
Depreciation and amortization 41,472 39,550 38,872 120,634
Issuance of stock for director's fees
and services 485,129 71,974 97,938 689,375
Issuance of stock in legal settlement 494,813 494,813
(Increase) decrease in assets: -
Prepaid expenses (1,565) 38,281 (4,000) (1,565)
Deposits - (300) (300)
Increase (decrease) in liabilities:
Accounts payable (69,116) 100,962 1,268 36,624
Accrued expenses (64,051) 82,779 1,600 20,328
Due to related parties (216,021) 303,951 102,923 190,860
---------------- -------------- -------------- ----------------
Total Adjustments 677,144 637,497 238,301 1,581,752
---------------- -------------- -------------- ----------------
-
Net Cash (Used) in Operating Activities $ (1,261,801) $ (38,958) $ (251,363) $(1,584,034)
================ ============== ============== ================
</TABLE>
The accompanying Notes are an integral part of these financial statements
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<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 way 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 in order 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 CareyWard, 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 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%
of the Company's shares 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. See also discussion contained in Note 7.
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<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Equipment:
Equipment is stated at cost. Depreciation is incorporated on a straight line
basis over a period 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 account 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 is 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 .
Income Tax:
Because of losses sustained since inception, no provision has been made for
income tax.
NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and building improvements at December 31, 1996 and 1995, consist of
the following:
1996 1995
---- ----
Equipment $ 9,417 $ 11,682
Leasehold Improvements - 5.816
----- -----
9,417 17,498
Less accumulated depreciation 3,491 6,637
----- -----
$ 5,926 $ 10,861
----------- -----------
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.
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<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 4- INTELLECTUAL PROPERTIES
On January 7, 1994, the Company exchanged 2,856,000 shares 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, patent application.,
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:
1996 1995
---- ----
Settlement costs (Note 10) $ - $ 50,000
Payroll 9,680 32,000
Payroll taxes 1,000 1,680
Interest on notes 9,649 -
Transfer fees - 700
----------- ----------
$ 20,329 $ 84,380
----------- -----------
See also Notes 9 and 10.
NOTE 6- NOTES PAYABLE
The Company had the following notes payable at December 31, 1996 and 1995:
1996 1995
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 250,000 -
------- -------
$ 287,275 $ 67,675
---------- ----------
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HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 6 - NOTES PAYABLE (CONTINUED)
See also Notes 9 and 10.
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 to its 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 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, as well as 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.
The Company often pays for services, fees, and salaries by issuing 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 the 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.
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<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
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 a 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 manufacture, 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 the a contract under which Waite was to
provide an array of business services. The Company issued 568,750
shares of stock in settlement which was accrued in these financial
statements at $494,813.
The ultimate effect of other proceedings cannot be estimated at this time. The
Company has noted some possible irregularities pertaining to the June 1996
issuance of its convertible debentures and has taken steps to rectify the
matter. The Company hopes to resolve two pending claims related to the debenture
issuance which aim to force a stock conversion. These claims were filed after
December 31, 1996, and are discussed in Note 12 as subsequent events.
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.
-31-
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 10 - CONTINGENCIES (CONTINUED)
The Company experienced a management change in December 1996 as it moved its
headquarters to Reno, Nevada. The Company expects no negative impact from the
change.
NOTE 11 - 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.
NOTE 12 - SUBSEQUENT EVENTS
In February 1997, the Company became a defendant in a U.S. District Court action
initiated by Ailouros Ltd. Ailouros claims it is entitled to 263,225 shares of
common stock and/or damages in the amount of $2,000,000. The Company had
previously initiated a lawsuit in the Nevada courts respecting the same claim
and both matters were removed to Federal court. The Company is asking that any
shares issued to Ailouros be issued pursuant to the requirements of the SEC's
Regulation S. It is too early to estimate the monetary outcome of this
litigation.
In February 1997, 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 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. It is too early to
estimate the monetary outcome of this litigation.
The Company is preparing to issue $15,000,000 worth of 6% Convertible
Debentures. If issued as planned, 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.
During 1997, the Company authorized a transfer of 1,250,000 shares of common
stock to related parties in exchange for services previously rendered.
As discussed in Note 3, the Company moved its headquarters to Reno, Nevada, in
early 1997. The Company still shares research and development facilities with
BTI in Irvine, California.
-32-
<PAGE>
DALE MCGHIE Town & Country Plaza
CERTIFIED PUBLIC ACCOUNTANT 1539 Vassar St. Reno, Nevada 89502
Tel: 702-323-7744
Fax: 702-323-8288
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Shareholders of
Harvard Scientific Corp.
I have audited the balance sheet of Harvard Scientific Corp. (A Development
Stage Company) as of December 31, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended, and
have issued my opinion thereon dated March 20, 1997. Such financial statements
and opinion are included in your 1987 Annual Report to Stockholders and are
incorporated herein by reference. My examination also comprehended Supplemental
Schedules V and VI of Harvard Scientific Corp. (A Development Stage Company). In
my opinion, Schedules V and VI, when considered in relation to the basic
financial statements, present fairly in all material respects the information
shown therein.
/s/ Sale McGhie
W. Dale McGhie, CPA
Reno, Nevada
March 20, 1996
-33-
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE V -- PROPERTY, PLANT, AND EQUIPMENT
For the Years Ended December 31, 1996 and 1995
====================================================================================================================================
Column A Column B Column C Column D Column E
====================================================================================================================================
<CAPTION>
Other Changes
Balance at Additions Reclassifications Balance at
Classification Beginning of Year at cost Retirements add (deduct) End of Year
---------------- ----------------- --------- ------------- ----------------- -----------
December 31, 1996:
<S> <C> <C> <C> <C> <C>
Furniture and equipment $ 11,682 $ 7,399 $ (9,665) $ - $ 9,416
Intellectual property* 10,335 - (1,340) - 8,995
Leasehold and leasehold
improvements 5,816 - (5,816) - -
----------------- ------------- ----------------- ------------------ --------------
Total $ 27,833 $ 7,399 $ (16,821) $ - $ 18,411
================= ===================================================================
December 31, 1995:
Furniture and equipment $ 11,682 $ - $ - $ - $ 11,682
Intellectual property* 4,196 6,139 - - 10,335
Leasehold and leasehold
improvements 5,816 - - - 5,816
----------------- ------------- ----------------- ------------------ --------------
Total $ 21,694 $ 6,139 $ $ - $ 27,833
================= ============= ================= ================== ==============
</TABLE>
-34-
*Supplemental disclosure
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT, AND EQUIPMENT
For the Years Ended December 31, 1996 and 1995
====================================================================================================================================
Column A Column B Column C Column D Column E
====================================================================================================================================
<CAPTION>
Additions Other Changes
Balance at Charged to Costs Reclassifications Balance at
Classification Beginning of Year and Expenses Retirements add (deduct) End of Year
---------------- ----------------- ---------------- ------------- ----------------- -----------
December 31, 1996:
<S> <C> <C> <C> <C> <C>
Furniture and equipment $ 4,408 $ 3,235 $ (4,152) $ - $ 3,491
Intellectual property* 1,771 2,067 (2,791) - 1,047
Leasehold and leasehold
improvements 2,228 1,163 (3,391) - -
------------------ ---------------- --------------- ----------------- ---------------
Total $ 8,407 $ 6,465 $ (10,334) $ - $ 4,538
================== ======================================================================
December 31, 1995:
Furniture and equipment $ 2,072 $ 2,336 $ - $ - $ 4,408
Intellectual property* 728 1,043 - - 1,771
Leasehold and leasehold
improvements 1,065 1,163 - - 2,228
------------------ ---------------- --------------- ----------------- ---------------
Total $ 3,865 $ 4,542 $ - $ - $
================== ================ =============== ================= ===============
</TABLE>
-35-
*Supplemental disclosure
<PAGE>
Fair, Anderson
& Langerman
A Professional Corporation
Certified Public Accountants
The Board of Directors
Harvard Scientific Corporation
Reno, Nevada
We consent to the inclusion of our report dated March 22, 1996, with respect to
the balance sheets of Harvard Scientific Corp. (A Development State Company) as
of December 31, 1995 and 1994, and the related statements of operations,
stockholders' equity and cash flows for the years then ended, which appears in
the Form 10KSB of Harvard Scientific Corp.
/s/ Fair, Anderson & Langerman
FAIR, ANDERSON & LANGERMAN
Las Vegas, Nevada
March 18, 1997
-36-
<PAGE>
- --------------------------------------------------------------------------------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
- --------------------------------------------------------------------------------
The Registrant has retained W. Dale McGhie, Certified Public
Accountant, 1539 Vasser Street, Reno, Nevada 89502 as the Registrant's
independent accountant. Mr. McGhie was retained for purposes of reviewing the
Registrant's year end financial statements.
The Registrant's former accountant did not resign and did not decline
to stand for re-election. The former accountant was simply replaced as of
December 1996 due to the fact that the Company's headquarters were moved to
Reno, Nevada. The decision to change accountants was recommended and approved by
the Board of Directors.
The principal accountant's report on the financial statements for the
past two (2) years did not contain an adverse opinion or disclaimer of the
opinion, and was not modified as to uncertainty, audit scope, or accounting
principles.
There were no disagreements with the former accountant on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved to the former accountants
satisfaction, would have caused the former accountant to make reference to the
subject matter of any such disagreements in connection with its reports.
-37-
<PAGE>
PART III
- --------------------------------------------------------------------------------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- --------------------------------------------------------------------------------
(a) Directors and Executive Officers
As of December 31, 1996, the directors and executive officers of the
Registrant, their ages, positions in the company, the dates of their initial
election or appointment as director or executive officer, and the expiration of
the terms as directors are as follows:
(3)*
(1) (2) Period Served As
Name Age Position Director
Jackie R. See, M.D. 55 Director of Since 1-6-94
Research
Ian Hicks 45 Chairman of the Since 12-6-96
Board, President
Chief Executive
Officer and Director
Don Steffens 49 Chief Financial Since 12-6-96
Officer, Secre-
tary, Treasurer
And Director
*The Registrant's directors are elected at the annual meeting of stockholders
and hold office until their successors are elected and qualified. The
Registrant's officers are appointed annually by the Board of Directors and serve
at the pleasure of the Board.
(4) Business Experience:
Jackie R. See, M.D., F.A.C.C., age 54, is founder, Head of Research and
Development and a Director of the Registrant. Dr. See is a cardiologist and the
principal investigator of the microsphere technology of "PGE1-EDT". He received
his M.D. from the University of California, College of Medicine (Irvine) in
1968. Dr. See completed his Residency in Internal Medicine at Huntington in
1973. He went on to do research fellowship work in cardiology at Peter Bent
Brigham Hospital, Harvard Medical School (Boston). He was an Associate Director
of the Foundation for Cardiovascular Research (1968-1984) and a Fellow of the
American College of Cardiology since 1980.
-38-
<PAGE>
Dr. See is licensed to practice medicine in the States of California
and Nevada and is Board eligible by the American Board of Cardiovascular
Diseases. He is the author or co-author of more than 60 research articles for
various medical publications.
Ian Hicks, age 45, is the Chairman of the Board, President, Chief
Executive Officer and a Director of the Registrant. Mr. Hicks has significant
experience in the various aspects of pharmaceutical product development,
business development and operations internationally and in the USA. He holds a
Science degree, and marketing qualifications. Mr. Hicks has specialized in niche
market products for treatment of conditions in areas such as neurology, oncology
and infectious diseases. He gained his broad experience during assignments in
South Africa, Sweden and the USA. Mr. Hicks brings more than 20 years of
experience to the company.
Don Steffens, age 49, is the Chief Financial Officer, Secretary,
Treasurer and a Director of the Registrant. He brings more than 20 years of
business management, product development and marketing expertise to the
Registrant. Mr. Steffens has founded companies and assisted Dr. See in the
development and manufacturing process of the product. Mr. Steffens was President
of Marina Systems International, Inc., a software development and marketing
company based in San Francisco, California; Branch Manager, Litton Industries,
Los Angeles, California; and Regional Sales Manager, Victor Business Products,
Chicago, Illinois.
(5) Directors of Other Reporting Companies:
None of the directors is a director of other reporting companies.
(b) Employees:
Messrs. Hicks and Steffens are the only full time employees of the
Registrant. Dr. See is a consultant to the Registrant, but has also acted as an
employee in the past.
(c) Family Relationships:
There are no family relationships between the directors, and executive
officers.
(d) Involvement in Certain Legal Proceedings:
In the past five (5) years, none of the officers and directors of the
Registrant has been:
(1) an officer or partner in any business which has been subject
to bankruptcy proceedings;
-39-
<PAGE>
(2) subject to criminal proceedings or convicted of a criminal
act;
(3) subject to any order, judgment or decree entered by any Court
for violating any laws relating to business, securities or
banking activities; or
(4) subject to any order for violation of federal or state
securities laws or commodities laws.
- --------------------------------------------------------------------------------
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The following table sets forth information about compensation paid or
accrued by the Registrant during the years ended December 31, 1996, 1995 and
1994 to the Registrant's officers and directors. None of the Registrant's
Executive Officers earned more than $110,000 during the years ended December 31,
1996, 1995 and 1994:
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
(e) (g)
Other (f) Securities (i)
(a) Annual Restricted Under- (h) Other
Name and (c) (d) Compen Stock Lying LTIP Compen-
Principal (b) Salary Bonus sation Awards Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- -------- ------ ------ ------ ------ ----- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jackie R. See 1996 $104,000 $ None $ None $350,000 $ None $ None $ None
Director of 1995 $ 16,000 $ None $ None $ 7,000 $ None $ None $ None
Research 1994 $ None $ None $ None $ 790 $ None $ None $ 26,000
Ian Hicks 1996 $ None $ None $ None $250,000 $ None $ None $ 16,440
Chief Execu- 1995 $ None $ None $ None $ None $ None $ None $ None
tive Officer, 1994 $ None $ None $ None $ None $ None $ None $ None
President
Don Steffens 1996 $ None $ None $ None $250,000 $ None $ None $ None
Chief Finan- 1995 $ None $ None $ None $ None $ None $ None $ None
cial Officer, 1994 $ None $ None $ None $ None $ None $ None $ None
Secretary &
Treasurer
</TABLE>
-40-
<PAGE>
- --------------------------------------------------------------------------------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
(a) 5% Shareholders:
The following information sets forth certain information as of March
18, 1997 by each person who is known to the Registrant to be the beneficial
owner of more than five percent (5%) of the Registrant's Common Stock:
<TABLE>
<CAPTION>
(2)
(1) Name and Address (3) (4)
Title of Beneficial Amount and Nature of Percent of
of Class Owner Beneficial Ownership Class
<S> <C> <C> <C>
Common Bio-Sphere Technology, Inc. 6,152,500 53.9%
Stock Suite 23P,100 N. Arlington Ave.,
Reno, NV 89501
Thomas E. Waite & Assoc. 883,750 7.7%
106 Ridge Road
Lake Mary, Florida 32746
<CAPTION>
(b) Security Ownership of Management:
(2)
(1) Name and Address (3) (4)
Title of Beneficial Amount and Nature of Percent of
of Class Owner Beneficial Ownership Class
<S> <C> <C> <C>
Common Dr. Jackie R. See 370,000 3.2%
Stock 17991 Fitch
Irvine, CA 92614
Ian Hicks 250,000 2.2%
17991 Fitch
Irvine, CA 92614
Don Steffens 250,000 2.2%
17991 Fitch
Irvine, CA 92614
All Directors and 870,000 7.6%
Officers as a Group
</TABLE>
(c) Changes in Control:
During 1966, there was no arrangement which may result in a change in control.
-41-
<PAGE>
- --------------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
During the past three (3) years, the Registrant obtained its assets
from Bio-Sphere Technology, Inc., a Nevada corporation. The Chairman of the
Board of Biosphere Technology, Inc., Jackie R. See, M.D., is the principal
stockholder of Bio-Sphere Technology, Inc. Bio-Sphere Technology, Inc. is the
parent of the Registrant owning approximately 60% of the outstanding stock.
The Registrant entered into three (3) significant transactions with the
parent and an affiliated group for the acquisition of intellectual rights,
technology and distribution agreements.
The Registrant has a payable to the parent of $167,450 and $270,592 as
of September 30, 1996 and December 31, 1995. The payable is related to costs
incurred by the parent on the Registrant's behalf for research and development
of the PGE-1
product.
The Registrant has notes payable to related parties as of September 30,
1996 and December 31, 1995. The amount of accrued interest associated with the
notes payable at September 30, 1996 and December 31, 1995 was $5,674 and $8,097,
respectively.
On March 1, 1994, the Registrant entered into an agreement with an
individual (landlord) to rent office space located in Las Vegas, Nevada. The
agreement was for a two-year period ending February 29, 1996. In exchange for
the right to occupy the space, the Registrant issued 12,000 shares of common
stock (3,000 after considering the effect of the four-for-one reverse split) for
the first year of the lease. The Registrant recorded the transaction at $24,000
or $2 per share, which represents the fair value of the rent received. On
December 29, 1995, the Registrant paid the landlord $24,000 in cash for rent for
the second year. Included in prepaid expenses is $4,000 as of December 31, 1995.
During November 1995, the Registrant entered into a two-year agreement
with a consultant to provide an array of business services to enhance the
Registrant's asset base and further the development of the Registrant's business
plan. The contracted services include public/investor relations, marketing and
sales plans, identifying strategic partnership arrangements, and other
opportunities that would enhance the market value and viability of the
Registrant. In December 1995, the Registrant issued the consultant 350,000
shares of its common stock in consideration of the services to be provided for
the two-year duration. The Registrant has valued the transaction at $1.3125 per
share, which represents 50% of the market value at the date the agreement was
-42-
<PAGE>
entered into. The amount has been capitalized and is included asa prepaid as of
December 31, 1995.
In July 1996, the Registrant entered into a lawsuit in Nevada and
Florida seeking to void the agreement for non-performance and a return of the
shares issued thereunder. The lawsuit has been settled to mutual satisfaction.
The Registrant compensated a member of the Registrant's scientific
advisory board with 10,000 shares of stock in exchange for research and
development conducted by the individual. The Registrant placed a two-year
selling period on the stock given to the individual. At the conclusion of the
two-year period, the restriction may be lifted and the individual may sell the
stock.
Dr. Jackie R. See could be considered a promoter of the Registrant.
-43-
<PAGE>
- --------------------------------------------------------------------------------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Exhibits
(2) Plan of acquisition, reorg., arrgmnt, liquid., or succession:
None.
(3) (ii) By-laws: Incorporated by reference from the Registrant's
Forms 10-SB.
(4) Instruments defining the rights of holders, incl. indentures:
None during the time covered by this Form 10-KSB.
(9) Voting trust agreement: None.
(10) Material Contracts: Incorporated by reference from the
Registrant's Form 10-SB.
(11) Statement re: computation of per share earnings: See Part II,
Item 7.
(13) Annual or quarterly reports, Form 10-Q: Previously filed Form
10-Q's incorporated by this reference.
(16) Letter on change in certifying accountant
(18) Letter on change in accounting principles: None
(22) Published report regarding matters submitted to vote: None.
(23) Consent of experts and counsel: None.
(24) Power of attorney: None.
(99) Additional Exhibits: None.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
-44-
<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,
thereunto duly authorized.
Dated: April 9, 1997.
HARVARD SCIENTIFIC CORP.
By /s/ Don Steffens
Don Steffens
Secretary
-45-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1565
<PP&E> 193961
<DEPRECIATION> (110299)
<TOTAL-ASSETS> 85527
<CURRENT-LIABILITIES> 535223
<BONDS> 0
0
0
<COMMON> 9883
<OTHER-SE> (459579)
<TOTAL-LIABILITY-AND-EQUITY> 85527
<SALES> 181000
<TOTAL-REVENUES> 181000
<CGS> (216870)
<TOTAL-COSTS> (1395297)
<OTHER-EXPENSES> (494813)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (12964)
<INCOME-PRETAX> (1938944)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1938944)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
