SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDED 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
--------------
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.
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
<PAGE>
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.
PART I
- - --------------------------------------------------------------------------------
ITEM 1. DESCRIPTION OF BUSINESS
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part I, Item 1 of the
Form 10-KSB the Registrant filed the Securities and Exchange Commission on April
14, 1997.
- - --------------------------------------------------------------------------------
ITEM 2. DESCRIPTION OF PROPERTY
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part I, Item 2 of the
Form 10-KSB the Registrant filed the Securities and Exchange Commission on April
14, 1997.
- - --------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part I, Item 3 of the
Form 10-KSB the Registrant filed the Securities and Exchange Commission on April
14, 1997.
<PAGE>
- - --------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part I, Item 4 of the
Form 10-KSB the Registrant filed the Securities and Exchange Commission on April
14, 1997.
PART II
- - --------------------------------------------------------------------------------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part II, Item 5 of
the Form 10-KSB the Registrant filed the Securities and Exchange Commission on
April 14, 1997.
- - --------------------------------------------------------------------------------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATION
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part II, Item 6 of
the Form 10-KSB the Registrant filed the Securities and Exchange Commission on
April 14, 1997.
- - --------------------------------------------------------------------------------
ITEM 7. FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
REPORT ON FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
PAGE NO.
INDEPENDENT AUDITOR'S REPORT
On Financial Statements 2
On Supplemental Schedules 17
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 10-16
Schedule V -- Property, Plant, and Equipment 18
Schedule VI - Accumulated Depreciation and Amortization of Property, 19
Plant, and Equipment
<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 1995, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996. 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 audits.
I have conducted my audits 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 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, 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.
W. Dale McGhie, CPA
Reno, Nevada
March 20, 1997,
except for Notes 12 and 13 dated June 2, 1997.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<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
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<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
<PAGE>
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)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
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 -- -- -- 397
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
<PAGE>
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
<TABLE>
<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
<PAGE>
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
<TABLE>
<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 conversion of debentures 310,254 310 249,690 -- 250,000
Issuance of common stock
for services 255,000 255 59,828 -- 60,083
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.
<PAGE>
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
<TABLE>
<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 employees (237,911) (8,804) (93,255) (339,970)
Cash paid to suppliers (Note 13) (1,151,723) (30,154) (158,108) (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 (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 sale of capital stock, 831,300 354,149 1,246,946
Proceeds from debt converted to capital stock 250,000 -- -- 250,000
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 469,600 837,700 415,424 537,275
------------ ----------- ----------- ------------
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
<PAGE>
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
<TABLE>
<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) $(3,165,785)
------------ ------------ ------------ ------------
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 (Note 13) 485,128 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 677,143 637,497 238,301 1,581,752
------------ ------------ ------------ -----------
Net Cash (Used) in Operating Activities $(1,261,802) $ (38,958) $ (251,363) $(1,584,033)
============ ============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements
<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%
and 78% of the Company's shares at December 31, 1996 and December 31, 1995,
respectively.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organizational Costs:
Organization costs are being amortized over a five-year period using the
straight line method. See also discussion contained in Note 7.
<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 3,491 6,637
----- -----
depreciation
$ 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.
<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, convertible at
50% of the market price
of the stock on the day before
the conversion date 250,000 -
------- -------
$ 287,275 $ 67,675
========== ==========
<PAGE>
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 and 12.
NOTE 7 - RELATED PARTY TRANSACTIONS
During 1994, the Company paid $150,000, to related parties for work performed in
completing a merger (described in Note 1). Of this amount, $100,000 was paid to
BTI. The remaining $50,000 was paid to individuals affiliated with BTI. These
amounts have been capitalized and are included in organizational costs.
Additional organizational costs of $24,625 were capitalized in 1994. The Company
transferred 246,000 shares 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.
<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.
<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
During 1997, the Company authorized a transfer of 1,250,000 shares of common
stock to related parties in exchange for services previously rendered.
During 1997, the Company became a defendant in a U.S. District Court action
initiated by Ailouros Ltd., a 7% debenture holder. Ailouros claims it is
entitled to convert its debentures into 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. On April 23, 1997,
the parties settled these lawsuits with the issuance of 35,000 shares of the
Company's common stock to D. Weckstein & Co., Inc.
In March 1997, pursuant to a private placement, the Company sold to one investor
$5,000,000 principal amount of 6% Convertible Debentures (the "Debentures") due
March 30, 1988. The company also received a commitment from the same 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.
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.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 13 - SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company paid cash to suppliers of goods and services and in 1996, 1995, and
1994 as follows:
1996 1995 1994
Professional Fees $ 589,370 $ -- $ 41,467
Office & Occupancy 37,787
28,885 33,478
Travel & Entertainmen 114,588
1,269 32,316
R&D/ Costs of Goods Sold 405,359
-- 48,740
Miscellaneous 5,619 -- 2,107
---------- ---------- ----------
$1,151,723 $ 30,154 $ 158,108
========== ========== ==========
The Company issues stock for other than cash in the following amounts:
1996 1995 1994
Issuance of stock for director's
fees, salaries, consultants,
and rent $ 60,083 $531,349 $ 97,938
Issuance of stock for
intellectual properties -- 6,139 4,196
Issuance of stock for
organizational costs -- -- 24,625
Issuance of stock for legal
settlement 494,813 -- --
-------- -------- --------
$554,896 $537,448 $126,759
======== ======== ========
The Company expensed $425,045 in the current year for stock issued in 1995 for
prepaid services.
<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.
W. Dale McGhie, CPA
Reno, Nevada
March 20, 1997
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE V -- PROPERTY, PLANT, AND EQUIPMENT
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
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>
*Supplemental disclosure
<PAGE>
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
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
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 $ - $ - $8,407
================= ================ ============= ================= ============
</TABLE>
*Supplemental disclosure
<PAGE>
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the reference to my firm under the caption "Experts"
and to the use of my report on financial statements for the years ended December
31, 1996, 1995, and 1994 dated March 20, 1997, except for Notes 12 and 13 dated
June 2, 1997, in the Registration Statement (Form SB-2) in which this consent is
included and the related Prospectus of Harvard Scientific Corp.
I also consent to the addition of Supplemental Schedules V and VI of
Harvard Scientific Corp. for the years ended December 31, 1996 and 1995 in such
Registration Statement and Prospectus.
-------------------
W. Dale McGhie, CPA
Dated: July 11, 1997
Reno, Nevada
<PAGE>
- - --------------------------------------------------------------------------------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part II, Item 8 of
the Form 10-KSB the Registrant filed the Securities and Exchange Commission on
April 14, 1997, and the Amended Form 8-K the Registrant filed with the
Securities and Exchange Commission on July 28, 1997.
PART III
- - --------------------------------------------------------------------------------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part III, Item 9 of
the Form 10-KSB the Registrant filed the Securities and Exchange Commission on
April 14, 1997.
- - --------------------------------------------------------------------------------
ITEM 10. EXECUTIVE COMPENSATION
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part III, Item 10 of
the Form 10-KSB the Registrant filed the Securities and Exchange Commission on
April 14, 1997.
- - --------------------------------------------------------------------------------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part III, Item 11 of
the Form 10-KSB the Registrant filed the Securities and Exchange Commission on
April 14, 1997.
- - --------------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part III, Item 12 of
the Form 10-KSB the Registrant filed the Securities and Exchange Commission on
April 14, 1997.
- - --------------------------------------------------------------------------------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- - --------------------------------------------------------------------------------
The Registrant incorporates herein by this reference Part III, Item 13 of
the Form 10-KSB the Registrant filed the Securities and Exchange Commission on
April 14, 1997, and the Amended Form 8-K the Registrant filed with the
Securities and Exchange Commission on July 28, 1997, with specific reference to
Exhibit (16) filed with that amended Form 8-K.
<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: July 29, 1997.
HARVARD SCIENTIFIC CORP.
By /s/ Don Steffens
---------------------
Don Steffens
Secretary
