<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) of the
--------------------------------------------------
SECURITIES ACT OF 1934
For The Quarterly period ended June 30, 1998
Commission File Number 0-28392
HARVARD SCIENTIFIC CORP.
--------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0226455
- ------ ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
755 Rinehart Road, Suite 100, Lake Mary, FL 32746
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (407) 324-1606
Common Stock, Par Value $0.01 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.
X Yes ____ No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
5,601,547
---------
NUMBER OF COMMON STOCK SHARES OUTSTANDING
-----------------------------------------
on August 13, 1998
------------------
Traditional Small Business Disclosure Format (Check One):
X Yes ____ No
<PAGE>
HARVARD SCIENTIFIC CORP.
INDEX
PART I
FINANCIAL INFORMATION
ITEM 1:
Balance Sheet - Assets
Balance Sheet - Liabilities and Stockholders' Equity
Statement of Operations
Statement of Stockholders' Equity (4 pages)
Statement of Cash Flows
Notes to the Financial Statements (15 pages)
ITEM 2:
Management's Discussion and Analysis or Plan of Operation
PART II
OTHER INFORMATION
ITEM 1:
Legal Proceedings
ITEM 2:
Changes in Securities and Use of Proceeds
ITEM 3:
Defaults Upon Senior Securities
ITEM 4:
Submission of Matters to a Vote of Security Holders
ITEM 5:
Other Information
ITEM 6:
Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 752,230 $ 873,199
Prepaid expenses 96,967 35,382
Accounts Receivable - Directors (Note 6 & 8) 4,984,197 57,711
Due From Related Parties (Note 6) - 852,305
Deferred debt issue costs (Note 10) - 156,250
------------ ------------
Total Current Assets 5,833,394 1,974,847
------------ ------------
Equipment and Leasehold Improvements:
at cost, less accumulated depreciation of $12,228 and
$11,930 at June 30, 1998 and December 31, 1997 (Note 3) 38,931 50,704
------------ ------------
Intangible Assets:
Intellectual Property, net of accumulated amortization
of $17,821 and $4,147 at June 30, 1998 and
December 31, 1997, respectively (Note 4) 1,035,993 156,848
Organizational cost, net of accumulated amortization of
$158,118 and $140,686 at June 30, 1998 and
December 31, 1997, respectively 17,432 34,864
------------ ------------
1,053,425 191,712
------------ ------------
Other Assets:
Deposits 5,314 10,414
TOTAL ASSETS $ 6,931,064 $ 2,227,677
============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
June 30, December 31,
1998 1997
(Unadited) (Audited)
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 77,600 $ 26,370
Accrued expenses (Note 5 & 10) 204,569 131,694
Obligation under capital lease - current (Note 3) 10,789 16,979
Debentures payable - Convertible (Note 10) 2,550,000 2,800,000
------------ ------------
Total Current Liabilities 2,842,958 2,975,043
------------ ------------
Long-Term Liabilities:
Obligation under capital lease - non-current (Note 3) 6,317 6,317
------------ ------------
Stockholders' Equity:
Common Stock, $.01 par value; 100,000,000 shares
authorized; 5,481,855 and 3,344,137 shares issued
and outstanding at June 30, 1998 and December 31,
1997, respectively (Note 2 & 12) 54,818 33,441
Additional paid-in capital 15,342,822 8,694,904
Deficit accumulated during the development stage (11,315,851) (9,482,028)
------------ ------------
Total Stockholders' Equity 4,081,789 (753,683)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,931,064 $ 2,227,677
============= ============
</TABLE>
The accompanying Notes are an integral part of these financial statements
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
1/13/87
Three Months Ended Six Months Ended (Inception)
June 30, June 30, June 30, June 30, to
1998 1997 1998 1997 6/30/98
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ - $ - $ - $ - $ 187,387
Cost of Sales - - - - 221,557
------------ ------------ ------------ ------------ ------------
Gross Profit - - - - (34,170)
------------ ------------ ------------ ------------ ------------
Operating Expenses:
General and administrative expenses 463,224 842,664 1,051,521 2,698,818 5,387,728
Research and development 215,483 192,839 510,091 193,216 2,313,650
Depreciation and amortization 22,606 169,329 38,485 190,326 674,333
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 701,313 1,204,832 1,600,097 3,082,360 8,375,711
------------ ------------ ------------ ------------ ------------
Loss from Operations (701,313) (1,204,832) (1,600,097) (3,082,360) (8,409,881)
------------ ------------ ------------ ------------ ------------
Other Income (Expense):
Settlements - - - - (715,629)
Interest Income 1,643 191 4,728 191 6,293
Dividend Income 3,001 18,188 7,628 18,188 59,082
Interest Expense (39,225) (79,781) (234,503) (1,343,121) (2,219,636)
Loss on disposition of Fixed Assets or Securities - - (11,580) - (36,080)
------------ ------------ ------------ ------------ ------------
Total Other Income and Expense (34,581) (61,402) (233,726) (1,324,742) (2,905,971)
------------ ------------ ------------ ------------ ------------
Net Loss $ (735,894) $(1,266,234) $(1,833,823) $(4,407,102) $(11,315,852)
============ ============ ============ ============ ============
Loss per Common Share $ (0.13) $ (1.07) $ (0.36) $ (3.78) $ (2.14)
============ ============ ============ ============ ============
Weighted Average Shares Outstanding (Note 2) 5,656,943 1,180,146 5,099,867 1,164,618 5,282,395
============ ============ ============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO JUNE 30, 1998 (UNAUDITED)
<CAPTION>
Restated Deficit
Common Stock Additional From
------------------------ Paid-in Inception
Shares Amount Capital To Date Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of shares for cash on
January 13, 1987 (inception) 103,000 $ 103 $ 2,097 $ - $ 2,200
Issuance of shares for cash,
net of offering costs 51,000 51 19,223 - 19,274
Issuance of shares for services 146,000 146 - - 146
Issuance of shares to acquire
Grant City Corporation 50,000 50 39,827 - 39,877
----------- ----------- ----------- ----------- -----------
Balance December 31, 1993 350,000 350 61,147 - 61,497
Issuance of shares to effect a
four-for-one split 1,050,000 1,050 (1,050) - -
Issuance of shares for
intellectual property rights 4,196,000 4,196 - - 4,196
Issuance of shares for
corporation property rights 394,000 394 24,231 - 24,625
Issuance of shares for fees
and services 1,045,000 1,045 96,893 - 97,938
Issuance of shares for cash,
net of offering costs 393,500 393 353,757 - 354,150
Adjustment of shares to effect a
four-for-one reverse split (5,571,375) (5,571) 5,571 - -
Cumulative (loss) from inception
to December 31, 1994 - - - (550,386) (550,386)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1994 1,857,125 1,857 540,549 (550,386) (7,980)
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO JUNE 30, 1998 (UNAUDITED)
Restated Deficit
Common Stock Additional From
------------------------ Paid-in Inception
Shares Amount Capital To Date Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1994 balance forward 1,857,125 1,857 540,549 (550,386) (7,980)
Issuance of shares for fees
and services 553,500 553 530,796 - 531,349
Issuance of shares at par value for
intellectual property rights 6,138,500 6,139 - - 6,139
Issuance of shares for cash,
net of offering costs 200,000 200 831,100 - 831,300
Net (loss) for the year ended
December 31, 1995 - - - (676,455) (676,455)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1995 8,749,125 8,749 1,902,445 (1,226,841) 684,353
Issuance of shares for services 255,000 255 59,828 - 60,083
Issuance of shares in conversion of debt 310,254 310 249,690 - 250,000
Issuance of shares for legal settlement 568,750 569 494,244 - 494,813
Discount on 7% Convertible Debentures - - 500,000 - 500,000
Net (loss) for the year ended
December 31, 1996 - - - (2,438,945) (2,438,945)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1996 9,883,129 9,883 3,206,207 (3,665,786) (449,696)
Issuance of shares for cash,
net of offering costs 250,000 250 124,750 - 125,000
Issuance of shares for fees
and services 1,270,000 1,270 - - 1,270
Discount on 6% Convertible Debentures - - 1,250,000 - 1,250,000
Net (loss) for the Quarter ended
March 31,1997 - - - (3,140,868) (3,140,868)
----------- ----------- ----------- ----------- -----------
Balance March 31, 1997 11,403,129 $ 11,403 $4,580,957 $(6,806,654) $(2,214,294)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO JUNE 30, 1998 (UNAUDITED)
Restated Deficit
Common Stock Additional From
-------------------------- Paid-in Inception
Shares Amount Capital To Date Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
March 31, 1997 balance forward 11,403,129 $ 11,403 $ 4,580,957 $(6,806,654) $(2,214,294)
Issuance of shares for fees and services 6,172,000 6,172 - - 6,172
Issuance of shares in conversion of debt 450,000 450 133,300 - 133,750
Net (loss) for the Quarter ended
June 31, 1997 - - - (1,266,233) (1,266,233)
------------ ------------ ------------ ------------ ------------
Balance June 30, 1997 18,025,129 $ 18,025 $ 4,714,257 $(8,072,887) $(3,340,605)
Issuance of shares in conversion of debt 1,446,325 1,446 1,275,133 - 1,276,579
Issuance of shares for fees and services 144,000 144 - - 144
Net (loss) for the Quarter ended
September 30, 1997 - - - (180,075) (180,075)
------------ ------------ ------------ ------------ ------------
Balance September 30, 1997 19,615,454 $ 19,615 $ 5,989,390 $(8,252,962) $(2,243,957)
Issuance of shares in conversion of debt 2,375,919 2,376 985,789 - 988,165
Issuance of shares for fees and services 8,300,000 8,300 537,100 - 545,400
Issuance of shares in legal settlement 1,150,000 1,150 439,075 - 440,225
Issuance of shares for intellectual
property 2,000,000 2,000 - - 2,000
Receivable due from related parties
reflecting the sale of stock Rule 16(b) - - 410,016 - 410,016
Receivable due from related parties - - 333,535 - 333,535
Net (loss) for the Quarter ended
December 31, 1997 - - - (1,229,065) (1,229,065)
------------ ------------ ------------ ------------ ------------
Balance at year end December 31, 1997 33,441,373 $ 33,441 $ 8,694,904 $(9,482,027) $ (753,682)
============ ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO JUNE 30, 1998 (UNAUDITED)
Restated Deficit
Common Stock Additional From
-------------------------- Paid-in Inception
Shares Amount Capital To Date Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Issuance of shares in conversion of
debt 1,036,064 1,036 260,882 261,918
February 2, 1998, adjustment of shares to
effect a one-for-ten reverse split (31,029,693) - - -
Issuance of shares for a commitment
to a financing agreement 1,580,278 15,803 4,984,197 5,000,000
Issuance of shares for services 10,000 100 100
Issuance of shares for cash 200,000 2,000 598,000 600,000
Net reversal of Receivable due from related
parties reflecting the sale of stock Rule 16(b) (17,197) (17,197)
Net (loss) for the Quarter ended
March 31, 1998 (1,097,930) (1,097,930)
------------ ------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1998 5,238,022 $ 52,380 $14,520,786 $(10,579,957) $ 3,993,209
Issuance of shares for fees and services 10,500 105 124,370 124,475
Issuance of shares for cash 233,333 2,333 697,666 699,999
Net (loss) for the Quarter ended
June 30, 1998 - - - (735,894) (735,894)
------------ ------------ ------------ ------------ ------------
Balance June 30, 1998 5,481,855 $ 54,818 $15,342,822 $(11,315,851) $ 4,081,789
============ ============ ============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<CAPTION>
1/13/87
(Inception)
Six Months Ended to
June 30, 1998 June 30, 1997 6/30/98
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
<S> <C> <C> <C>
Reconciliation of Net Loss to Net Cash
Used in Operating Activities:
Net Loss $ (1,833,823) $ (4,407,102) $(11,315,852)
------------- ------------- -------------
Adjustments to Reconcile Net Loss to
Net Cash Provided by (Used in)
Operating Activities:
Book value of assets sold - - 6,483
Loss on disposition of securities or
fixed assets (11,474) (11,474)
Depreciation and amortization 38,485 190,326 205,583
Amortization of Debt Issuance cost 156,250 - 625,000
Issuance of stock for director's fees
and services 124,370 1,052,772 1,374,144
Issuance of stock for Property Rights - - 2,000
Issuance of stock in legal settlement - - 795,854
Discount on Convertible Debentures - 1,250,000 1,750,000
Interest Expense converted to Stock - 8,750 86,878
(Increase) decrease in assets:
Prepaid expenses (77,155) (163,435) (77,155)
Deposits/Retainers 14,937 (6,000) (30,858)
Increase (decrease) in liabilities:
Accounts payable 72,572 (14,659) 77,600
Accrued expenses 72,876 81,561 217,296
Due to related parties - 2,175 (203,740)
------------- ------------- -------------
Total Adjustments 390,862 2,401,490 4,817,611
------------- ------------- -------------
Net Cash Used in Operating Activities $ (1,442,961) $ (2,005,612) $ (6,498,241)
============= ============= =============
Cash Flows from Investing Activities:
Cash from sale (purchase) of equipment - (46,617) (78,114)
Cash from sale (purchase) of Intellectual Rights - - (150,000)
Capitalized organization costs - - (150,924)
------------- ------------- -------------
Net Cash Used in Investing Activities - (46,617) (379,038)
------------- ------------- -------------
Cash Flows from Financing Activities:
Proceeds from issuance of capital stock,
net of offering costs 1,315,802 125,000 2,687,748
Proceeds from debt converted to capital stock - - 250,000
Proceeds from debt, net of costs - 30,611 438,739
Proceeds from debentures, net of costs - 4,375,000 4,375,000
Principal payments on debt 6,190 (37,275) (121,979)
------------- ------------- -------------
Net Cash Provided by Financing
Activities 1,321,992 4,493,336 7,629,509
------------- ------------- -------------
Net Increase (Decrease) in Cash (120,969) 2,441,107 752,230
Cash at beginning of period 873,199 (134) -
------------- ------------- -------------
Cash at end of period $ 752,230 $ 2,440,973 $ 752,230
============= ============= =============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION
NATURE OF BUSINESS:
Harvard Scientific Corp. (the "Company") is a biopharmaceutical drug development
company specializing in sexual dysfunction for both male and female. The
Company'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
intends to conduct and conclude all clinical testing necessary for regulatory
approval of such products from the U.S. Food and Drug Administration ("FDA") or
similar regulatory agencies in foreign countries in order to initiate marketing
and establish distribution channels for its products.
Thus far, the Company has developed five products designed to ameliorate sexual
dysfunction ("SD"):
1. An Intrameatal therapeutic treatment for male erectile dysfunction
("Male Intrameatal Product")
2. A topical therapeutic treatment for male erectile dysfunction ("Male
Topical Product")
3. A topical therapeutic treatment for female sexual dysfunction ("Female
Topical Product").
4. An orally administered form of liposomal, lyophilized Apomorphine for
the treatment of male erectile dysfunction ("Male Oral Product"), and
5. An orally administered form of liposomal, lyophilized Apomorphine for
the treatment of female sexual dysfunction ("Female Oral Product").
The Company is a development stage enterprise as defined by FASB No. 7.
"Accounting and Reporting by Development Stage Enterprises".
The Company plans to focus on its LLPGE1 for the treatment of erectile
dysfunction and bring the products to the marketplace. The Company presented the
results of its Phase I clinical study on the Male Intrameatal Product to the FDA
in April 1997, as part of its pre-Phase II clinical trial meeting. On May 29,
1998, the Company received approval from the FDA of the Phase I study and
authorization of Phase II clinical trials for the Male Intrameatal Product.
Protocols and research sites for this Phase II study are complete.
On February 17, 1998, The U.S. Patent Office approved and assigned patent No.
5,718,917 to the Company for an invention "PGE1 Containing Lyophilized Liposomes
For Use In The Treatment of Erectile Dysfunction," referred to as LLPGE1. In
June 1998, the Company filed an application for a patent in numerous regions and
countries (Australia, Brazil, Canada, China, the Czech Republic, Eurasia,
Europe, Hungary, Iceland, Israel, Japan, Mexico, New Zealand, Norway, Poland,
Korea, Singapore, Slovak, Turkey and the Ukraine). In addition, in June 1998,
the Company submitted an application with the US Patent and Trademark Office,
for its development of a new method for treating male erectile dysfunction via
the Intrameatal administration of an aqueous ("liquid") solution containing two
vasodilators, PGE1 and Papaverine.
ORGANIZATION:
The Company was incorporated under the laws of the State of Nevada on January
13, 1987. Effective February 2, 1998, the Company approved a 1 for 10 reverse
stock split. Shares outstanding went from 34,477,437 on February 1, 1998 to
3,447,769 just after the split. The Company is moving forward with a strategic
<PAGE>
plan designed to facilitate marketing of its products in a manner which is
consistent with enhancing its corporate image and further increasing shareholder
value. All figures in this Report give effect to previous stock splits and the
reverse stock splits, and previously stated number of shares are appropriately
restated. The Company has 100,000,000 shares of Common Stock authorized with
5,481,855 shares issued and outstanding as of June 30, 1998 and 3,344,137 shares
issued and outstanding on December 31, 1997.
On February 10, 1998, three new members were elected to the Board of Directors
of the Company. Two of these members will serve as new Directors of the Company
and the third will fill an existing seat vacated by the resignation of a
previous director. The Company's Board of Directors currently consists of five
members.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATIONAL COSTS:
Organization costs are being amortized over a five-year period using the
straight-line method. Also see the discussion contained in Note 3 & 4.
EQUIPMENT:
Equipment is stated at cost. Depreciation is incorporated on a double declining
balance basis over a period of 5 years. Expenditures for maintenance and repairs
are charged to expense as incurred. Upon retirement or disposal of assets, the
cost and accumulated depreciation are eliminated from the accounts and any
resulting gain or loss is included in expense. See Note 3.
USE OF ESTIMATES:
In order to prepare the financial statements in conformity with generally
accepted accounting principles, management must make estimates and assumptions
that affect certain reported accounts and disclosures. Actual results could
differ from these estimates.
INTELLECTUAL PROPERTIES:
The costs of intellectual properties are amortized using the straight-line
method over a period of fifteen years. See Note 4.
EARNINGS PER SHARE:
The earnings per share calculations were based on the weighted average number of
shares outstanding during the period: 5,099,867 for the Period ending June 30,
1998, 1,164,618 for the Period ending June 30, 1997 and 5,282,395 shares
outstanding from inception to June 30,1998.
During 1997, Company entered into an agreement with a 6% Debenture holders (see
Note 11 & 13), allowing for the conversion of the debenture on demand. At June
30, 1998, the Company had an outstanding debt balance with the debenture holders
of $2,550,000 plus accrued interest of $183,928. On June 30, 1998, if the
debenture holders chose to convert their debenture to Common Stock, the
converted balance would have calculated to additional 613,152 shares of Common
Stock issued for the six months ending June 30, 1998. See Note 10. Fully
dilutive earnings per share are not reflected because they are anti-dilutive.
INCOME TAX:
Because of losses sustained since inception, no provision has been made for
income tax.
<PAGE>
NOTE 3 - EQUIPMENT & LEASEHOLD IMPROVEMENTS
Equipment and building improvements consists of the following:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
(Unaudited) (Audited)
---------------------------------------------------
<S> <C> <C>
Equipment & Leasehold Improvements $ 51,159 $ 62,634
Less: accumulated depreciation 12,228 11,930
----------------------------------------------------
Total Net Equipment & Leasehold Improvements $ 38,931 $ 50,704
----------------------------------------------------
</TABLE>
In April 1997, the Company entered into an agreement for the lease of equipment
used in the process of sizing Liposomes which the Company uses in the delivery
of the Prostaglandin E-1. The total lease amount of $32,893 is to be paid over
24 months. The Company records the lease as a capital lease amortizing payments
over the life of the lease.
During December 1996, the Company established its administrative headquarters in
Reno, Nevada (see Note 12). In November 1997, the Company established the world
headquarters in Lake Mary, Florida. In May 1998, the Company moved the research
and development office from Reno, Nevada to Costa Mesa, California. The Company
has reduced its need for certain equipment and leasehold improvements because
the Company currently does not own manufacturing equipment for its product. The
product has been and will continue to be manufactured by third-party
manufacturers according to the Company's specifications.
NOTE 4 - INTELLECTUAL PROPERTIES
On January 7, 1994, the Company exchanged 285,600 shares of Common Stock with
BTI for the intellectual rights to patent, develop, manufacture, and market the
LLPGE-1 for the treatment of male erectile dysfunction, impotency and sexual
enhancement. The Company recorded the transfer of intellectual properties at the
par value of stock transferred, which amounted to $2,856. BTI's largest
shareholder, Dr. Jackie See M.D., the inventor of the Lyophilized Liposomal
LLPGE-1, holds a 2% royalty interest on the sale of products.
On November 16, 1995, the Company exchanged 613,850 shares of Common Stock with
BTI for assistance in raising working capital and patent application and for
management assistance and distribution agreements associated with the LLPGE-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 33,500 shares of Common Stock,
ceased product development in connection with a settlement accrued in 1995 (Note
10).
During 1997, the Company entered into three additional significant transactions
with BTI for the acquisition of intellectual rights, and for the provision of
technological, management, fundraising and marketing assistance. In addition, in
1996, the Company incurred costs payable to BTI for consultation and rent of
$133,157 and for research and development $50,378 of the LLPGE1 product. During
the first quarter 1998, BTI chose to convert the accounts payable balance of
$333,535 as a contribution to additional-paid-in-capital.
<PAGE>
On November 20, 1997, the Company agreed to exchange 200,000 shares of Common
Stock, which has been issued, to BTI for the Intellectual Property Rights to
Prostaglandin E1 Lyophilized Liposomes for the use of treatment of Psoriasis. In
addition, the Company is to pay BTI $150,000. BTI was to receive a 3% override
on royalties of the Psoriasis product. On June 11, 1998, BTI and the Company
agreed that BTI would transfer an irrevocable royalty-free license to all
intellectual property, intangibles, patents, trade secrets, trademarks, trade
names and goodwill relating to BTI that exists or is in development, relating to
male and/or female sexual dysfunction, for the return of the intellectual
property related to the Psoriasis product that BTI previously had transferred to
the Company and the granting to BTI of registration rights (see Note 12) as to
all shares of the Company's Common Stock held by BTI on July 20th, 1998. In
addition, all royalty agreements with respect to products other than sexual
dysfunction have been terminated. In addition, the Company forgave the
indebtedness of $892,819 of BTI. The debt forgiveness is treated as part of the
cost of the intellectual properties received from BTI. See Note 6.
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
(Unaudited) (Audited)
---------------------------------------------------
<S> <C> <C>
Interest on notes and debentures $ 196,922 $ 131,694
Accrued payroll & payroll taxes 7,647 -
---------------------------------------------------
Total $ 204,569 $ 131,694
---------------------------------------------------
</TABLE>
Also see Notes 10 for interest on debentures.
NOTE 6 - RELATED PARTY TRANSACTIONS
1. During 1994, 1995 and 1997, the Company entered into three significant
transactions with related parties for the acquisition of intellectual
rights, and for the provision of technological, management, fundraising and
marketing assistance. Note 4 describes the valuation of these transactions.
2. During 1997, the Company incurred a payable of $150,000 to BTI for the
Intellectual Property Rights to Prostaglandin E-1 Lyophilized Liposomes for
the use of treatment of Psoriasis. On June 11, 1998, BTI and the Company
agreed that BTI would transfer an irrevocable royalty-free license to all
its intellectual property relating to sexual dysfunction, for the return of
the intellectual property related to the Psoriasis and other non-sexual
dysfunction products that BTI previously had transferred. In addition, the
Company forgave BTI's indebtedness of $895,819 which was treated as part of
the basis of the intellectual properties. See Note 4.
<PAGE>
3. During 1996, BTI advanced 20,000 of its shares on behalf of the Company as
a subordinated loan agreement. The shares were loaned and are expected to
be returned to BTI in 1998. At the time of the advance, the fair market
value of the shares transferred was $500,000. During 1997, the Company
advanced to BTI $500,000 in connection with this settlement. The $500,000
was part of the forgiven debt of $895,819 described above.
4. In 1997, BTI, a major stockholder of the Company, received $352,305 from
the sale of the Company's Common Stock that was subject to recapture by the
Company pursuant to Section 16(b) of the Securities Exchange Act of 1934.
In January 1998, BTI received $40,514 from the sale of the Company's Common
Stock that was subject recapture by the Company pursuant to Section 16(b)
of the Securities Exchange Act of 1934. In January 1998, $40,514 was booked
as a receivable from related parties to reflect the recapture. This amount
was also part of the forgiven debt of $895,819 described above.
5. During the year, BTI chose to convert the accounts payable balance of
$333,535 as a contribution to additional-paid-in-capital.
6. BTI owned approximately 12.6% and 22% of the Company's shares on June 30,
1998 and December 31, 1997, respectively. Dr. Jackie See a Director of the
Company and a controlling person of BTI. Dr. Jackie See owned approximately
40.3% of the Common Stock of the Company on June 30, 1998, including the
shares owned by BTI and shares that Dr. See has the right to purchase.
7. In November 1997, the Company issued 400,000 shares of Common Stock to
Thomas E. Waite, the President and Chairman of the Board, as a signing
bonus. The transaction was recorded at par value.
8. The Company has entered into a financing agreement dated January 13, 1998,
as amended on February 3, 1998, between Dr. Jackie R. See, Thomas E. Waite
and the Company for the funding of the Company up to $10,000,000. Dr.
Jackie R. See and Mr. Thomas E. Waite are Directors of the Company. Thomas
E. Waite is also President and Chief Executive Officer of the Company. On
February 3, 1998, the Company issued 790,139 shares to each Dr. Jackie See,
M.D. and Thomas E. Waite in connection with this private placement. All
shares owned by Dr. Jackie See and Thomas E. Waite, have registration
rights. These registration rights have been exercised and upon the
registration statement becoming effective, the shares can be sold in
accordance with the Securities Act of 1933, subject to state securities
laws. See Note 8 and Note 12.
9. The Company often pays for services, fees, and salaries by issuing shares
of Common Stock. Most of this stock issued for services must be held for
investment to satisfy the exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended. Rule 144 under the statute requires
that such stock be held for a year, before it can be sold in accordance
with rule 144.
During 1998, the Company issued a total of 10,000 shares of Common Stock to
directors of the Company. These shares were booked at the closing stock
price of the Company's Common Stock on the day the stock was issued.
<PAGE>
During 1997, the Company approved the issuance of 1,190,200 shares of
Common Stock (restricted) to officers and directors of the Company for
prior and current services rendered or signing bonuses. In addition, during
1997 the Company issued 428,400 shares of Common Stock (restricted) for
services performed by outside consultants or scientists, and 50,000 shares
of Common Stock (restricted) to an employee of the Company as a signing
bonus.
These shares were recorded at par value.
Also see discussions regarding intellectual properties, agreements, and
subsequent events in Notes 4, 8, and 12.
NOTE 7 - INCOME TAXES
The Company has federal net operating loss carryforwards for financial statement
purposes of approximately $11,213,000 at June 30, 1998, which will be used to
offset future earnings of the Company. The loss carryforwards will expire during
the years ending 2002 through 2012 if not used.
NOTE 8 - AGREEMENTS
1. A financing agreement dated January 13, 1998, as amended on February 3,
1998 was entered into between Dr. Jackie R. See, Thomas E. Waite and the
Company for the funding of the Company up to $10,000,000. The agreement as
so amended, calls for initial funding of $5,000,000 in exchange for
1,580,278 shares of Common Stock, with registration rights, calculated at
$3.164 per share (the average closing bid price per share of the Common
Stock for the 10 days ending January 12, 1998, and adjusted for the 1 for
10 reverse split effective February 2, 1998). This initial funding was
effected on February 3, 1998 by the delivery of a check for $7,901.39 and
Promissory Notes to March 31, 1999 in the principal amount of
$2,492,098.61, bearing interest at the rate of 1% above prime and secured
by the shares purchased from each of Dr. See and Mr. Waite. Subsequent
funding is at the discretion of the investors and can be purchased in
tranches of $500,000 to $2,000,000 up to an aggregate of $10,000,000,
including the initial funding, prior to April 1, 1999. The future funding
price is $6.328 per share for the next $2,500,000 and $12.626 per share for
the last $2,500,000 (as adjusted to reflect the 1 for 10 reverse stock
split effective February 2, 1998). Dr. Jackie R. See and Mr. Thomas E.
Waite are Directors of the Company. Thomas E. Waite is also President and
Chief Executive Officer of the Company. On February 3, 1998, the Company
issued 790,139 shares to each Dr. Jackie See, M.D. and Thomas E. Waite in
connection with this private placement. A fairness opinion has been
obtained in connection with this Financing Agreement from HD Brous & Co.,
Inc., a New York Stock Exchange member firm located in Phoenix, Arizona.
The promissory notes will begin to accrue interest at 8% on the date the
registration statement, being prepared for the Company, becomes effective.
See Note 12.
2. On November 3, 1995, BTI entered into an agreement with a European
marketer, Pharma Maehle ("Pharma"), whereby Pharma was to establish the
European market for the Company's erectile dysfunction product (only the
Intrameatal Product) to develop, manufacture, sell, practice and exploit
the use of the Company's proprietary license technology. In February 1996,
<PAGE>
an amendment to the agreement was signed to reflect the transfer of said
agreement from BTI to the Company. On March 20, 1996, Section 19.0 (Entire
Agreement) was amended to better express the intent of the parties. On
December 20, 1996, the Company notified Pharma in writing that it was
terminating the agreement for breach of contract and the implied covenant
of good faith and fair dealing inherent in all contracts by failing to
exercise reasonable diligence to exploit the technology and patent rights.
On January 13, 1997, the Company signed a Letter of Understanding with
Pharma, whereby the parties would consider working out a formal agreement
settling their disputes after seeking advice from legal council. The
agreement was to be accomplished within 10 working days from January 13,
1997, and when that did not occur, the Company again notified Pharma of
it's intent to terminate any and all agreements with Pharma referencing
previous termination notices. Pharma contends the various notices of
termination were withdrawn or ineffective and the agreement is enforceable.
However, the Company believes it has rightfully terminated the agreement
with Pharma, which has been and continues to be in breach of the agreement
in any event. The validity of the agreement is currently in dispute.
On February 19, 1998, the Company renewed it's previous notices of
termination and renoticed the termination of the licensing agreement with
Pharma, and demanded binding arbitration under Nevada law of the existing
disputes between the parties pursuant to the terms of the licensing
agreement. The parties have discussed the appointment of an arbitrator.
Pharma has retained Nevada counsel; however, no arbitrator has been
selected at this time. Once an arbitrator has been selected, the Company
will pursue arbitration.
3. On December 1, 1997, the Company renegotiated the consulting agreement with
Martin E. Janis & Company, Inc. ("Janis"), dated December 13, 1996, whereby
Janis, a public relations agency, is to carry out an extensive financial
promotional program including public relations for the Company, in exchange
for 50,000 shares of the Company's (restricted) Common Stock plus a fee of
$5,000 a month for a period of one year beginning December 1, 1997. The
Company recorded the shares at par value.
4. On August 4, 1997, the Company entered into a consulting agreement with Dr.
Lorenz M. Hofmann, Ph.D. ("Hofmann"), whereby Hofmann is to lead the
clinical development program for liposomal Prostaglandin E-1 for the
treatment of male erectile dysfunction. The Company agreed to pay Hofmann
$15,000 per month plus 10,000 shares of (restricted) Common Stock. The
stock was recorded at par value. On May 29, 1998, the Company terminated
his agreement.
5. On August 1, 1997, the Company entered into a consulting agreement with Dr.
Irwin Goldstein, M.D. ("Goldstein"), whereas the Company has agreed to pay
Goldstein $10,000 upon signing the agreement and $4,000 per month until
March 1, 1999. Goldstein is a Professor of Urology and is assisting the
Company through the required FDA stages in bringing the LLPGE-1 product to
the marketplace. At June 30, 1998, the Company had paid Goldstein $58,000.
Effective July 1, 1998, the Company agreed to pay Goldstein $7,500 per
month until March 1, 1999.
6. On July 15, 1997, the Company entered into a consulting agreement with
Scopes-Garcia-Carlisle Advertising, Inc. ("Scopes"), whereby Scopes will
provide professional advertising and marketing, and a public relations
promotion plan to help promote the Company's sale of it's product(s) and
stock, in exchange for a fee of $3,000 per month beginning August 15, 1997.
The agreement expired January 15, 1998 and was not renewed.
<PAGE>
7. On March 19, 1997, and again on May 15, 1997, the Company entered into an
agreement with Alexander H. Walker, Jr. ("Walker"), former General Counsel,
Director and Officer of the Company. Walker was retained as General Counsel
as to all legal matters for the Company. In addition, he was to prepare or
supervise the preparation of Securities and Exchange Commission filings,
contracts and agreements. Walker was to receive $15,000 per month plus the
issuance of Common Stock shares of the Company of up to 100,000 shares
prorated over a three-year period. In 1997, Walker received $231,678 and
issued to himself 105,200 shares of Common Stock. The shares transferred
were recorded at par value. In December 1997, the Company terminated all
agreements with Walker requesting all records, documents, agreements, the
corporate minute book, etc. be turned over to the Company immediately. See
Note 9.
8. On November 6, 1997, the Company renegotiated the consulting agreement with
I.W. Miller & Co. ("Miller") dated September 18, 1997, whereby Miller will
provide investor relation consulting services for the Company for a one
year term beginning September 18, 1997 expiring September 17, 1998, in
exchange for 40,000 shares of the Company's Common Stock (with registration
rights). All prior agreements with Miller have been terminated. In November
1997, the shares transferred were recorded at $537,500, the fair market
value of the shares on the date the shares were transferred.
9. On November 17, 1997, the Company amended the consulting agreement with
Kostech Data Corporation ("Kostech") dated December 31, 1996, whereby
Kostech will establish and maintain an ongoing Internet based investor
relations program including the reprint and republish of research material
on wire service and media, in exchange for 10,000 shares of (restricted)
Common Stock of the Company. The agreement expires December 9, 1998.
The Company recorded the shares at par value.
10. On February 23, 1998, the Company entered into a financing agreement with
an independent investor ("Investor"), under which the Investor provided
financing of $600,000 to the Company in exchange for 200,000 shares of
Common Stock of the Company. If, on the effective date of the registration
(see Note 12) of the 200,000 shares under the Securities Act of 1933, the
closing bid price of the Company's stock is less than $6.00 per share, the
Investor is to receive additional shares calculated by taking the
difference between (a) 600,000 divided by one-half the closing bid price of
the company's Common Stock on the effective date and (b) 200,000. In
February 1998, the Company received $600,000 and issued 200,000 shares to
the Investor.
11. On June 11, 1998, the Company authorized the issuance of 30,000 shares of
Common Stock to a consultant of the Company, Medhat Gorgy, as a part of his
consultant agreement dated June 10, 1998. Of such shares, 25,000 shares of
Common Stock are entitled to registration rights under the Securities Act
of 1933 (see Note 12). The 5,000 shares without registration rights plus
3,000 shares with registration rights were issued on June 11, 1998. The
balance of 22,000 shares is issuable monthly in lots of 2,000 shares each.
The shares issued and issuable to Mr. Gorgy are effected pursuant to the
exemption from registration under Section 4(2) of the Securities Act of
1933. The 8,000 shares issued through June 30, 1998, were valued at the
closing bid price on the day the shares were issued.
12. On June 19, 1998, the Company entered into a financing agreement with
Ronald E. Patterson, under which Mr. Patterson provided financing of
$249,999 to the Company in exchange for 83,333 shares of Common Stock of
the Company. If, on the effective date of this Registration Statement (see
Note 12), the closing bid price of the Company's stock is less than $6.00
<PAGE>
per share, Mr. Patterson is to receive additional shares calculated by
taking the difference between (a) 249,999 divided by one-half the closing
bid price of the company's Common Stock on the effective date and (b)
83,333.
13. On June 29, 1998 the Company entered into financing agreements with The RK
Company, under which The RK Company provided a total financing of $450,000
to the Company in exchange for 150,000 shares of Common Stock of the
Company. If, on the effective date of this Registration Statement (see Note
12), the closing bid price of the Company's stock is less than $6.00 per
share, The RK Company is to receive additional shares calculated by taking
the difference between (a) 50,000 divided by one-half the closing bid price
of the company's Common Stock on the effective date and (b) 16,667.
14. The Company has the following office lease commitments at June 30, 1998:
a The Company occupies 5,428 square feet in Irvine, California where the
Company maintains research & development laboratories. Rent of $6,242
is paid monthly the first year beginning April 17, 1997 and increasing
to $6,514 in the second year expiring April 30, 1999.
b The Company occupies 2992 square feet in Lake Mary, Florida where the
corporate headquarters and general operations of the Company are
maintained. Rent of $4,268.58 is paid monthly beginning December 15,
1997 through December 31, 2000.
c The Company occupies 425 square feet in Reno, Nevada where all
accounting operations are maintained. Rent of $425 is paid monthly
beginning December 1, 1997 expiring May 3, 1998. The Company has
continued on a month-to-month basis. See Note 12.
NOTE 9 - CONTINGENCIES
The Company is a party in certain pending or threatened legal, governmental,
administrative, or judicial proceedings that arose in the ordinary course of
business. The following includes a list of current pending or threatened
proceedings, which are believed not to affect the financial position of the
Company in a material way at this time:
(a) HARVARD SCIENTIFIC CORPORATION V. NEVADA AGENCY & TRUST COMPANY, A
NEVADA CORPORATION, and DOES I - V, INCLUSIVE AND ABC CORPORATIONS I-V,
INCLUSIVE, Case No. CV98-00017 filed in the District Court of the State
of Nevada, Washoe County, Nevada, filed on January 2, 1998. In this
action, Harvard filed a request for an injunction against Nevada Agency
& Trust Company, Harvard's former transfer agent, to relinquish all
records of the Company to a newly appointed transfer agent located in
Salt Lake City, Utah. The Company was granted the injunction, and the
records were transferred to the new transfer agent on January 6, 1998.
The Company is prosecuting this action further to recover damages
associated with Nevada Agency's delay in turning over the records in
question, and the costs associated with obtaining the injunction.
Discovery is ongoing in this matter.
(b) COGDILL VS. HARVARD SCIENTIFIC CORP., DR. JACKIE R. SEE INDIVIDUALLY
AND ON BEHALF OF HARVARD SCIENTIFIC CORP., AND NEVADA AGENCY & TRUST
COMPANY, filed in the Superior Court for the State of California, in
<PAGE>
the County of Los Angeles on June 2, 1997, Case No. KC-025611. Cletus
Cogdill, ("Cogdill") a shareholder of the Company alleges that he
purchased the Company's Common Stock on March 17, 1994. At that time,
Rule 144 under the Securities Act of 1933 required that such stock be
held for two years before it could be sold. The certificate was issued
on June 17, 1994. On March 18, 1996, Cogdill completed form 144 in an
attempt to sell his stock listing his acquisition date as June 17,
1994. On April 12, 1996, Cogdill completed a revised form 144
indicating the shares had been acquired in March 1994, and thereby
should be re-issued new free-trading certificates. New certificates
were approved and issued to Cogdill but were apparently lost in the
mail or lost by Cogdill's broker. Two months later Cogdill sold his
stock and due to the reduction in market share price during that time,
he claims he lost value of approximately $45,000.
Cogdill alleges that his stock certificate was improperly dated which
caused him to improperly complete his Form 144, thereby causing his
loss. In addition, Cogdill alleges the Company made misrepresentations,
causing damages of $6,500, plus punitive damages. A non-binding
arbitration is scheduled for August 13, 1998.
Although there can be no guarantee that the Company will prevail, the
Company denies both generally and specifically each and every
allegation in the complaint. The Company has filed a cross-complaint
against Cogdill's brokerage firm for indemnity.
(c) ERIC N. SAVAGE V. HARVARD SCIENTIFIC CORP., DR. JACKIE SEE, DOES I
THROUGH X, Case No. A381022, filed in the District Court, Clark County,
Nevada on November 10, 1997. The Plaintiff alleges that the Company
restricted Savage from selling his Common Stock in the Company and is
seeking damages in excess of $1,260,000 plus attorney fees and costs.
The Company filed an answer to Savage's Complaint denying all
liability. The discovery process is ongoing in this matter.
(d) HARVARD SCIENTIFIC CORP. V. SPRINGRANGE INVESTMENT GROUP, Case No. 98
civ. 0735 (DC), filed in the United States District court, Southern
District of New York, filed on February 3, 1998. The defendant is the
holder of 6% Convertible Debentures issued pursuant to the Securities
Purchase Agreement dated March 21, 1997. The Company alleges that the
defendant had breached its representations under the agreement by
taking a short position and otherwise manipulating the price of the
Company's Common Stock. The Company is seeking to recover its damages
arising from Springrange's breach of contract and misrepresentations.
On January 28, 1998, the investor of the 6% Convertible Debenture gave
notice to the Company to convert into Common Stock $250,000 of
principal plus interest calculated at $12,863. The conversion
calculated at 80% of the market price, calls for the transfer of
525,726 shares of Common Stock to the investor. On January 29, 1998,
again the investor of the 6% Convertible Debenture gave notice to the
Company to convert into Common Stock $250,000 of principal plus
interest calculated at $12,904. The conversion calculated at 80% of the
market price, calls for the transfer of 486,859 shares of Common Stock
to the investor. The Company has not honored the above requests and
will not honor any requests by the defendant to convert the outstanding
$2,550,000 principal amount of 6% Convertible Debentures into Common
Stock until this matter has been resolved, see (e) below and Note 10.
On February 18, 1998. Springrange filed a motion to dismiss the
Complaint and to enjoin the Company's Financing Agreement with Thomas
E. Waite and Dr. Jackie R. See. SEE "SELLING STOCKHOLDERS AND PLAN OF
DISTRIBUTION - CURRENT FINANCING." Springrange also sought injunctive
relief requiring the Company to deliver shares of Common Stock pursuant
<PAGE>
to notices of conversion filed in January 1998. The Company opposed the
motion and requested injunctive relief. In early March 1998, a hearing
on the motion was held and the judge granted Springrange's motion to
dismiss the Complaint, with leave to amend in 30 days, and in view of
the dismissal, denied Springrange's motion for injunctive relief. On
April 3, 1998, the Company filed a first amended Complaint against
Springrange to recover its damages arising from Springrange's breach of
contract, misrepresentations and stock manipulation. Springrange is
free to pursue its claims independently or in this action. The matter
is in active settlement discussion.
(e) SPRINGRANGE INVESTMENT GROUP LTD. VS. HARVARD SCIENTIFIC CORP., THOMAS
E. WAITE, DR. JACKIE R. SEE, MARTIN J. HOLLORAN, ROBERT T. HAYDEN,
CURTIS A. ORGILL, Case No. A385912 in the Eighth Judicial Court for the
State of Nevada and the County of Clark filed on March 17, 1998.
Springrange is seeking to enjoin and nullify the Financing Agreement
between the Company and Mr. Waite and Dr. See. On March 18, 1998,
Springrange filed an ex-parte Application for Temporary Restraining
Order and a Motion for Preliminary Injunction. On March 23, 1998, the
Court issued a Temporary Restraining Order against the Company, Mr.
Waite and Dr. See. On March 31, 1998, the Company filed a motion to
Vacate the Temporary Restraining Order requesting the imposition of
sanctions against Springrange and its counsel for untruthful
representations made in Springrange's application for a Temporary
Restraining Order. The Company also moved to have the action
transferred from Las Vegas, Nevada to Reno, Nevada. On April 6, 1998,
the Nevada District Court dissolved the Temporary Restraining Order and
continued any determination with regard to Springrange's motion for
preliminary injunction. Further, the District Court entered orders (i)
transferring the litigation to Reno, Nevada, and (ii) imposing a
sanction award against Springrange in the amount of $11,095.76. The
matter is in active settlement discussion. See Note 10.
(f) ALEXANDER H. WALKER JR. V. HARVARD SCIENTIFIC CORP. AND JACKIE R. SEE,
M.D., Case No. 980901221 in the Third Judicial District Court in Salt
Lake City, Utah, filed on February 6, 1998. In this action, the
plaintiff, a former officer, director and General Council to the
Company, alleges two causes of action: 1) breach of contract by the
Company with respect to his employment agreement, and 2) false
representations allegedly made to Walker by the Company. Walker seeks
damages in the amount of $420,000 for the breach of contract claim and
unspecified damages for the alleged false representation claim.
Pursuant to the Company's request, this action was removed to the
Federal District Court for the Southern District of Utah. Thereafter,
the Company filed a motion to dismiss for lack of personal jurisdiction
over the Company in Utah, or in the alternative, to change the venue of
the action to the Federal District Court for the District of Nevada.
The US District Court remanded case back to the Utah State Court. The
Company will renew its motion to dismiss for lack of personal
jurisdiction in the Utah State Court. The Company denies liability to
Walker and has initiated an action against Walker and Nevada Agency &
Trust, Co., in the District Court for the State of Nevada (See (g)).
(g) HARVARD SCIENTIFIC CORP. VS. ALEXANDER H. WALKER JR. AND NEVADA AGENCY
& TRUST, CO., Case No. CV98-01959 in the Second Judicial District Court
of the State of Nevada in the County of Washoe, filed on March 23,
1998. The Company is seeking to recover damages sustained by the
Company as a result of Walker's failure to perform his responsibilities
as General Counsel for the Company, and breaches of fiduciary duties
owed to the Company by both Walker and Nevada Agency & Trust, Co.
Additionally, the Company is seeking indemnity from Walker for damages
it sustained and settlements it has been forced to negotiate in other
litigation. The Nevada Court has stayed this action pending the outcome
<PAGE>
of the jurisdictional issued raised in the Utah litigation with
Alexander H. Walker, Jr. A motion to consolidate this case with the
case referred to in (f) above is pending. (See (f) above).
(h) ALEXANDER H. WALKER, JR., DON STEFFENS INDIVIDUALLY AND AS TRUSTEE FOR
THE STEFFENS FAMILY TRUST, AND IAN HICKS, VS. ATLAS STOCK TRANSFER
COMPANY, HARVARD SCIENTIFIC CORP., AND JACKIE R. SEE, M.D., Case No.
98-0905858 in the Third Judicial District Court in the State of Utah in
the County of Salt Lake, filed on June 12, 1998. The action alleges
share ownership by the Plaintiffs named, and requests the Court to
remove any stop transfer orders or other prohibitions against
plaintiffs trading of said shares. In addition, Plaintiffs have
requested damages in conjunction with any prohibitions placed on the
trading of Plaintiffs shares by Atlas Stock Transfer Company, the
Company and/or Dr. See. The Company denies Plaintiffs allegations and
that Plaintiffs own the shares in question. The shares in dispute
include 1) 120,200 shares issued to Alexander H. Walker, Jr., 2)
125,000 shares issued to Don Steffens and/or the Steffens Family Trust,
and 3) 25,000 shares issued to Ian Hicks. See (g) and (i).
The financial statements reflect the manner in which the Company has resolved
certain litigations:
(a) On October 27,1997, the Company became a defendant in a U.S. District
Court action initiated by Wood Gundy ("Gundy"), a 7% debenture holder.
On December 26, 1997, the Company reached an agreement with Gundy
electing to convert the balance of $125,000 in 7% convertible debenture
plus accrued interest of $14,384 into 1,000,000 shares of Common Stock
of the Company. The Company recorded the shares at the fair market
value of the Common Stock on the date of the agreement, amounting to
$350,000. Approximately $210,600 was expensed to legal settlements in
1997.
(b) On December 3, 1997, the Company agreed to transfer 15,000 shares as
payment in full of an outstanding debt of $90,225 owed to Pyramid
Laboratories, Inc. ("Pyramid") by the Company for work performed on the
PaGE1 project. The Company maintains a good relationship with Pyramid
whereby Pyramid has agreed to perform a six-month stability study for
the LLPGE1 product.
(C) HARVARD SCIENTIFIC CORP. V. VIVUS, INC., Case No. CV-N-97-00562-HDM
(RAM) United States District Court, District of Nevada, filed October
1, 1997. In a letter dated August 29, 1997 Vivus, Inc. alleges that the
product and method used by Harvard Scientific for the treatment of male
erectile dysfunction infringed on a patent held by Vivus. On September
16, 1997, the Company responded advising Vivus that they did not
infringe on such patent, identifying those claim limitations not
present in the defendant's product and methods. On September 19, 1997,
Vivus again reiterated its claim of infringement against the Company.
The Company then filed this complaint for declaratory judgment of
non-infringement of the patent. Defendant filed a motion asking for
dismissal of the plaintiff's declaratory judgment action on the basis
that there is no infringement and, therefore, no actual controversy.
Vivus then asserted that its allegation of infringement was premature
because the plaintiff's use of its product and method for treating
erectile dysfunction is limited to FDA clinical trials which is a
non-infringing use under the patent laws. The Company has opposed
<PAGE>
Vivus' motion to dismiss on the basis that it has taken concrete steps
toward the commercialization of its product and method and that Vivus'
allegation of infringement is damaging the Company's ability to
complete FDA clinical trials. On March 16, 1998, the court granted
defendants motion for dismissal, without prejudice to the Company
renewing the action at an appropriate time.
Other Negotiating Matters:
(a) On April 21, 1998, the Company issued a Demand Letter to Don Steffens
("Steffens"), former officer and director of the Company, for the
return of 125,000 shares of its Common Stock issued to him in 1997 plus
the return of $100,000 cash paid to him on April 18, 1997. The Company
believes he is in breach of his fiduciary duty, causing the Company
substantial damages. The Company demands repayment of the $100,000 paid
to Steffens and a declaration of the invalidity of their shares. See
Note 12.
NOTE 10 - CONVERTIBLE DEBENTURES
In March 1997, pursuant to a private placement, the Company (a) sold to one
investor $5,000,000 principal amount of 6% Convertible Debentures (the
"Debentures") due March 30, 1998 and (b) received a commitment from that
investor, subject to various conditions, to purchase additional Debentures in
the aggregate principal amount of up to $10,000,000 in two tranches of
$5,000,000 each, also to be due March 30, 1998. The Debentures are 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. Market price is defined as
the average closing bid of the Common Stock on the five (5) days immediately
preceding March 21, 1997 or the actual conversion date. The Company has the
right to require, by written notice to the holder of this debenture at any time
on or before ten days prior to the maturity date, that the holder of this
debenture exercise its right of conversion with respect to all or that portion
of the principal amount and interest outstanding on the maturity date. In
addition, at the time of issuance, the Company accounted for the 20% discount to
market of $1,250,000 as additional interest expense and paid-in-capital.
Issuance costs of $625,000 related to the first $5,000,000 principal amount of
6% Convertible Debentures sold in March 1997 were deferred and are being
amortized on a straight-line basis through March 31, 1998. On January 6, 1998,
the investor served a conversion notice for the sum of $250,000 of the principal
amount plus $11,917 of interest expense, for the issuance of 1,036,064 shares of
Common Stock on January 15, 1998. Springrange has submitted two additional
conversion notices: 1) January 28, 1998 for the conversion of $250,000 principle
plus interest, and 2) on January 29, 1998 for the conversion of $250,000
principle plus interest. The Company has not honored these requests. See Note 9.
At June 30, 1998, $2,450,000 of the Debenture plus $75,661 interest on the
Debenture had been converted into 385,831 shares of the Company's Common Stock.
The debenture principle balance and accrued interest at June 30, 1998 and
December 31, 1997 is $2,550,000, $183,928 and $2,800,000, $131,694,
respectively.
<PAGE>
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 its products. If
additional capital is not secured, then there is substantial doubt about the
Company's ability to continue as a going concern.
See Note 8 regarding agreements arranged by the Company and the sale of stock by
the Company.
NOTE 12 - SUBSEQUENT EVENTS
1. On July 1, 1998, the Company entered into a settlement agreement between
Gensia Sicor Pharmaceuticals, Inc. and agreed to transfer 20,000 shares of
Common Stock of the Company in exchange for the release of all claims,
demands, etc. arising from a manufacturing agreement with the Company. The
shares were transferred on July 8, 1998 and valued at the closing stock
price on the date transferred.
2. On July 1, 1998, the Company entered into financing agreements with The RK
Company, under which The RK Company provided financing of $50,000 to the
Company in exchange for 16,667 shares of Common Stock of the Company. If,
on the effective date of this Registration Statement, the closing bid price
of the Company's stock was less than $6.00 per share, The RK Company was to
receive additional shares calculated by taking the difference between (a)
50,000 divided by one-half the closing bid price of the company's Common
Stock on the effective date and (b) 16,667. The registration statement was
effective July 28, 1998 and the closing bid price on that day was $6.62.
3. On July 7, 1998, the Company entered into a financing agreement with
Elisabeth & Samuel Valenzisi, under which Mr. and Mrs. Valenzisi provided a
total financing of $24,000 to the Company in exchange for 8,000 shares of
Common Stock of the Company. If, on the effective date of this Registration
Statement, the closing bid price of the Company's stock was less than $6.00
per share, Mr. & Mrs. Valenzisi were to receive additional shares
calculated by taking the difference between (a) 24,000 divided by one-half
the closing bid price of the company's Common Stock on the effective date
and (b) 8,000. The registration statement was effective July 28, 1998 and
the closing bid price on that day was $6.62.
4. The Company held their annual shareholder meeting on July 9, 1998 and voted
on the following matters:
(a) Election of Board of Directors as provided in the Company's Proxy
Statement, for continuation of their term (Thomas E. Waite, Dr. Jackie
R. See, Curtis A. Origill, Martin J. Holloran, and Col. Robert T.
Hayden), and
(b) to ratify and approve the financing agreement dated January 13,1998,
and amended February 3, 1998, between the Company and Dr. Jackie R.
See, Director and Thomas E. Waite, Director, CEO and President of the
Company, and
<PAGE>
(c) to amend the Company's Articles of Incorporation to approve the
increase in the number of authorized shares of Common Stock from
10,000,000 to 100,000,000 shares and to authorize 10,000,000 shares of
serial or "blank check" preferred stock, and
(d) to ratify the appointment of Ronald D. Simpkins and Associates, CPA,
P.A. as the Company's principal accountants to audit the Company's
financial statements for the fiscal year ending December 31, 1998.
A majority of all shares voted "FOR" all the above matters.
5. On July 9, 1998, the Company changed transfer agents from Atlas Stock
Transfer Co. in Salt Lake City, Utah to Olde Monmouth Stock Transfer Co.,
Inc. in Atlantic Highlands, New Jersey.
6. BIOSPHERE TECHNOLOGY INC. AND HARVARD SCIENTIFIC CORP. VS. DON STEFFENS,
INDIVIDUALLY AND AS TRUSTEE FOR THE STEFFENS FAMILY TRUST AND IAN HICKS,
Filed in the Superior Court for the County of Los Angeles, State of
California, Case No.BC194236, filed on July 14, 1998. On April 21, 1998,
the Company issued a Demand Letter to Don Steffens ("Steffens"), former
officer and director of the Company, for the return of 125,000 shares of
its Common Stock issued to him in 1997 plus the return of $100,000 cash
paid to him on April 18, 1997. The shares were issued to Steffens in
consideration of his performance as an officer and director of the Company,
and were advanced in accordance with his employment contract, for the
period beginning May 1997 through May 2000. Steffens resigned his positions
as officer and director of the Company on November 14, 1997. Ian Hicks
("Hicks") was issued 25,000 shares of Common Stock in consideration of
promised faithful discharge of officer and director duties. Hicks resigned
in May 1997. However, during such time they held their positions, they
undertook various actions which the Company believes were in breach of
their fiduciary duty, causing the Company substantial damages. The Company
demands repayment of the $100,000 paid to Steffens, a declaration of the
invalidity of their shares, and damages. See Note 10.
7. On July 20, 1998, the Company's filed a registration statement under the
Securities Act of 1933, registering 4,166,133 shares of its Common Stock,
and was declared effective on July 28th, 1998. The closing bid price of the
stock on that day was $6.62. See Note 8.
8. In July 1998, the Company moved the administrative headquarters from Reno,
Nevada to Scottsdale, Arizona where all accounting operations are
maintained. They occupy 610 square feet and pay rent of $610 monthly
beginning July 20, 1998 expiring August 31, 1999.
9. On August 10, 1998, the Company entered into a 1-year consulting agreement
with Francis C. Pizzulli, Esq. whereby Mr. Pizzulli is to perform legal
advice, service and legal consulting and to retain legal counsel to serve
as counsel of record in litigation and arbitration matters to the Company,
in exchange for a fee of $10,000 per month plus 45,000 shares of the
Company's Common Stock as a signing bonus. The shares issued have
registration rights and have been included in the Registration Statement
filed with the U.S. Securities and Exchange Commission on July 20, 1998,
which became effective on July 28, 1998.
<PAGE>
Item 2. Management's Discussion Analysis and Plan of Operation
The discussion contained in this Item 2 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 section.
OVERVIEW:
- ---------
Harvard Scientific Corp. is a biopharmaceutical drug development
company. The Company'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 intends to conduct and conclude, either on its own or with
the assistance of an industry partner, all clinical testing necessary for
regulatory approval of such products from the U.S. Food and Drug Administration
("FDA") and/or similar regulatory agencies in foreign countries in order to
initiate marketing and establish distribution channels for its products. The
Company is currently giving attention to three products, each of which uses the
Company's patented formula of lyophilized liposome Prostaglandin E1 ("LLPGE1"):
(i) an Intrameatal therapeutic treatment for male erectile dysfunction ("Male
Intrameatal Product"), (ii) a topically applied cream therapeutic treatment for
male erectile dysfunction ("Male Topical Product"), and (iii) topically applied
cream therapeutic treatment for female sexual dysfunction ("Female Topical
Product"). The Company presented the results of its Phase I clinical study on
the Male Intrameatal Product to the FDA in April 1997, as part of its pre-Phase
II clinical trial meeting. On May 29, 1998, the Company received approval from
the FDA on the Phase I study, and approval to initiate Phase II clinical trials
therefor. Protocols and research sites for the Phase II study on the Male
Intrameatal Product is complete and the Company is moving forward with its Phase
II clinical trials.
The Company believes that a sizable market already exits for sexual
dysfunction and that this market will expand for products that can effectively
treat female sexual dysfunction as well as male sexual dysfunction. Independent
studies of Dr. Irwin Goldstein, a Professor and Urologist at Boston University
School of Medicine and a Consultant to the Company, found that approximately
10-million women in the United States, between the ages of 50 and 74, reported a
lack of lubrication on 229-million sexual intercourse occasions and 58.5 percent
of the 260 female partners of impotent men he surveyed were affected with some
form of sexual dysfunction. The Company believes that a vasodilator such as its
Female Topical Product (in which LLPGE1 is reconstituted to form an aqueous
solution suspended in a cream base and applied to the female's vaginal area)
will provide a solution to this problem by stimulating the production of vaginal
fluid and increasing blood flow to the area, thus providing suitable lubrication
for sexual intercourse as well as heightened sensation. Toxicity studies will be
conducted on female animals before the Company submits its application for an
IND in connection with the Female Topical Product to the U.S. food and Drug
Administration.
The Company's Male Topical Product compliments its aqueous solution
Male Intrameatal Product. This Male Topical Product will be administered locally
to the penis glands as a lotion and is very similar to the Company's new
treatment for female sexual dysfunction. The Company has named Dr. Goldstein as
its Principal Investigator in trials involving the use of the Company's patented
LLPGE1 for the treatment of both male and female sexual dysfunction products.
The Company's core technology is covered by a U.S. patent. On August 18, 1997,
the Company received a Notification of Allowance for Patent from the U.S. Patent
and Trademark Office for "PGE1 CONTAINING LYOPHILIZED LIPOSOMES FOR USE IN THE
TREATMENT OF ERECTILE DYSFUNCTION". This is the active drug agent used in the
Company's Male Intrameatal, Male Topical and Female Topical Products. The U.S.
Patent and Trademark Office issued patent number 5,718,917 to the Company on
February 17, 1998.
The Company also has acquired the rights for an oral delivery treatment
for male and female sexual dysfunction via the lyophilized lipsomal delivery of
Apomorphine. The Male and Female Oral Products are designed to scientifically
manipulate the liposome through the stomach and into the small intestine where
it attaches to the intestinal wall, thereby greatly reducing the adverse effects
associated with this drug. While the Company believes these products have great
potential, it has not independently done any material investigation of these
products or of the opportunities to promote them in the marketplace.
<PAGE>
There can be no assurance that any of the Company's products will be
commercially successful even if they are scientifically successful and gain FDA
and other regulatory approval, none of which is assured.
During fiscal years 1994 through 1997 and during the first and second
quarters of 1998, the Company's activities consisted primarily of raising
capital, identifying a core management team, developing a patent application for
LLPGE1 and the submission of this application to the U.S. Patent and Trademark
office, which resulted in the issuance of Patent No. 5,718,917, concluding
manufacturing scale up and initial clinical trials and formulating both a
commercialization and clinical development strategy. The Company has considered
and evaluated additional products and market potential for those products in
order to enhance its own current product portfolio and intends to continue this
strategy for future corporate development.
The Company believes that its strategic plan, which was launched by a
new management team in November 1997, will be successful, although there is no
assurance that it will be. The Company's management team is currently
established, and it is not expected that the Company will need to hire any
additional employees during the next twelve months. Since the middle of November
1997: (i) the Company's International Patent Application, No. PCT/US96/18820
(International Publication No. W097/2234) for LLPGE1 received a favorable
Preliminary Examination Report, from the U.S. Patent and Trademark Office
Examiner acting as the International Preliminary Examining Authority, (ii) a
study utilizing gamma radiation instead of standard 0.2 micron filters to
sterilize the chemical components used in the Company's products proved
successful in the production of "GMP" (Good Manufacturing Practice) product,
which should lead to substantial cost savings, (iii) a financing agreement to
provide funds of up to $10,000,000 was signed between the Company and its two
largest stockholders, Thomas E. Waite, President and Chief Executive Officer of
the Company, and Jackie R. See, M.D., F.A.C.C., Director of Research and
Development, (iv) financing agreements of independent investors brought in a
total of $1,299,999 to the Company to be used toward working capital, and (v)
stability studies on LLPGE1 conducted with the collaborative efforts of Pyramid
Labs, Inc. in Costa Mesa, California have proven that LLPGE1 remains stable
without any degradation and chemical breakdown at room temperature for at least
12-months. These stability studies are ongoing in order to determine the exact
shelf life for the Company's products at room temperature.
Over the next 12 months, the Company's primary focuses will be to 1)
proceed with phase II/III clinical trials and product validation of its Male
Intrameatal Product to conform to the regulatory process of the FDA, 2) petition
the FDA to perform phases I and II of the Male and Female Topical Products
immediately 3) continue development with the Male and Female Oral Products, 4)
continue monitoring patent applications, and 5) identify companies with similar
technologies or companies seeking new proprietary products to strengthen their
existing market position and seek the formation of strategic alliances, joint
venture arrangements, licensing and distribution agreements, research and
development agreements and other collaborative arrangements with major
pharmaceutical distribution concerns and/or licensing agreements to eventually
assist in the development and distribution of the Company's products.
It is the belief of the Company that if an agreement with a major
industry partner can be secured, the possibility exists that the regulatory
process for its products could be expedited. This should enhance the Company's
ability to bring its products to market more quickly, thus enabling the Company
to make fuller use of the remaining life of its patent for LLPGE1 which was
issued February 17, 1998. Without the benefit of an industry partner, the
Company believes an 18 to 24 month time-line to obtain regulatory approval of
the Male Intrameatal Products is probable, but there can be no assurance that
the product will receive FDA approval in that time span, if ever.
The Company's future success is dependent upon its ability to raise
additional funds to complete the commercialization process for its Male
Intrameatal Product and its other products either through strategic agreements
(i.e. licensing, distribution or joint venture) or through private placements or
<PAGE>
public issuance of the Company's Common Stock. In the past, the Company has
relied upon the private purchase of its securities by accredited investors to
raise such funds and may have to rely upon this practice in the future There can
be no guarantee that the investors who have been interested in purchasing the
Company's securities in the past will be interested in doing so in the future,
or that alternative investors will be found, or that public financing or
collaborative arrangements will be available on terms satisfactory to the
Company.
The Company does not expect to purchase or sell any significant equipment.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDING JUNE 30, 1998 AND JUNE 30,
1997
- ----------------------------------------------------------------------------
During the second quarter of 1997, the Company began spending for
research & development ("R&D") which was initially booked to General &
Administrative ("G&A") expense. Later during 1997, these costs were reclassified
to accurately reflect expenditures in R&D. Consequently, by comparison, the June
1997 G&A includes almost all the R&D costs incurred for that period. As a
result, the costs for the three months ending June 30th should be reviewed by
comparing the overall Total Operating Expenses for the three months of $701,313
in 1998 vs. $1,204,832 in 1997, for a decrease of approximately $504,000 in 1998
over 1997. This decrease is primarily a result of reduced legal fees of
approximately $210,000 and an overall reduction in consulting fees and payroll
paid of $180,000. The balance resulting in an additional saving of $114,000 in
1998 over 1997, a direct result of identifying a core management team in
November 1997 and strategically eliminating unnecessary costs.
With exception to the reclassification discussed above, management
anticipates that such general and administrative expenses will continue to be
incurred in similar amounts throughout 1998 as the Company obtains additional
investment capital and expand its operations. The Company also continues to
incur legal expenses in connection with litigation in which the Company is
involved.
For the three months ending June 30, dividend and interest income
decreased from 1997 to 1998 by approximately $14,000 while interest expense also
decreased significantly in the second quarter 1998as a result of the reduction
of the 6% convertible Debenture. Overall, the Company has continued to make
efforts to reduce costs and increase operation efficiency. These savings are
expected to be reflective throughout the balance of the year.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDING JUNE 30, 1998 AND JUNE 30, 1997
- -------------------------------------------------------------------------------
During both quarters ending June 30, 1998 and June 30, 1997, the
Company had no net sales, and, accordingly, had no cost of sales for those
quarters. During that time, the Company has remained focused on completing the
required regulatory review process for its ED product and introducing the new
male and the new female sexual dysfunction products. The Company intends to
focus on promotions of their products only after completing the regulatory
review process.
For the six months ending June 30, 1998, Total Operating Expenses
resulted in a decrease of $1,482,263 in 1998 over 1997. This decrease is
primarily a result of a one-time payment of $750,000 in March 1997 for a funding
fee and $175,000 paid to officers/directors of the Company in the first quarter
of 1997, both a result of securing financing with the 6% Debenture holder. In
addition, the Company paid Consultants an additional $302,000 more in 1997 than
in 1998 and legal expenses were greater in 1997 by $100,000. The balance
resulting in an additional saving of approximately $155,000 in 1998 over 1997, a
direct result of identifying a core management team in November 1997 and
strategically eliminating unnecessary costs.
<PAGE>
As discussed above, dividend income, interest income and interest
expense were all greater in 1997 by $1,264,389, as a direct result of the 6%
Convertible Debenture. The Debentures are 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. At the time of issuance (March 1997), the Company
accounted for the 20% discount to market of $1,250,000 as additional interest
expense and paid-in-capital. The balance of the deferred issuance cost on the 6%
Debenture of $156,250 was amortized within the first quarter of 1998.
At the end of the second quarter of 1998, the Company reported total
assets of $6,931,064. This compares with total assets at December 31, 1997 of
$2,227,677. The primary reason for this increase in assets is a result of the
two promissory notes, totaling $4,984,000 (described above).
The Company's total current liabilities for the second quarter of 1998
decreased by $132,085 over the total current liabilities at December 31, 1997.
The difference is due to the conversion of $250,000 principal of the 6%
Convertible Debentures netted against an increase in accounts payable and
accrued expenses and a small decrease in lease obligations, for a total net of
approximately $118,000.
The Company issued a total of 2,137,717 shares of common stock during
the first half of the year ending June 30, 1998, mostly attributed to the
Debentures converted during January 1998 (103,606), securing four additional
financing arrangements (2,013,611), shares issued to new directors (10,000) and
shares issued for services and fees (10,500). The Company anticipates that it
will continue the practice of issuing shares of its common stock as compensation
for services rendered to the Company.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's major financial transaction for 1997 incurred during the
first quarter was the issuance of $5,000,000 aggregate principal amount of 6%
Convertible Debentures on March 21, 1997, resulting in a net receipt of
$4,375,000 by the Company for its general operating account. During 1997, the
majority of the cash used in the Company's operations came from the issuance of
the 6% Convertible Debentures. During the first quarter of 1998, the Company
managed to secure two additional financing arrangements: (1) the Company's two
principal stockholders, Thomas E. Waite, President and Chief Executive Officer,
and Jackie R. See, M.D., F.A.C.C., Director of Research and Development, entered
into the Financing Agreement pursuant to which on February 3, 1998 they each
made payment of $7,901.39 and gave a promissory note of $2,492,098.61 due March
31, 1999, with a right to purchase an additional $5,000,000 of the Company's
Common Stock together. and (2) O. Lee Tawes III, a person otherwise not
affiliated with the Company, purchased 200,000 shares of the Company's Common
Stock for $600,000, with the right to receive additional shares of Common Stock
of the Company if the price per share is below $6.00 when the shares are
registered with the U.S. Securities and Exchange Commission. (The Company's
Registration Statement filed on July 20, 1998 became effective on July 28, 1998,
and the closing bid price on that day was $6.62 per share). During the second
<PAGE>
quarter of 1998, three additional investors, under the same terms as Mr. Tawes,
purchased shares of Common Stock of the Company: 1) Ronald E. Patterson
purchased 83,333 shares for $249,999, also with the right to receive additional
shares of Common Stock of the Company if the price per share is below $6.00, and
2) RK Company purchased 150,000 shares for $450,000, with the right to receive
additional shares of Common Stock of the Company if the price per share is below
$6.00. Total monies raised in the second quarter of 1998 were $699,999.
Funding needed to complete the regulatory process for the Male
Intrameatal Product is estimated to be as much as $15,000,000. For the next six
months, expected costs to be incurred for research & development is $1,884,000
which includes clinical trials on the Male Intrameatal Product as well as the
Male and Female Topical products. Up to an additional $20,000,000 may be
required to complete testing and bring to market the Company's additional
products. However, regulatory and testing costs per product for these additional
products are projected to be lower due to data generated by the CMC, animal and
clinical data related to the Male Intrameatal Product.
The Company 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.
<PAGE>
PART II - OTHER INFORMATION
ITEM NO. 1. LEGAL PROCEEDINGS.
Registrant hereby references the description of legal proceedings contained in
the Registrant's (1) Form 10-QSB for the first quarter 1998 filed with the U.S.
Securities and Exchange Commission on May 15, 1998, and (2) Registration
Statement, form SB-2, filed with the U.S. Securities and Exchange Commission on
July 20, 1998, effective July 28, 1998. The Registrant has reported, herein,
legal proceedings which have become a reportable event during the second quarter
of 1998 or a reportable event reported in a prior filings in which there has
been a material development during the second quarter.
LEGAL PROCEEDINGS:
1. ALEXANDER H. WALKER, JR., DON STEFFENS INDIVIDUALLY AND AS
TRUSTEE FOR THE STEFFENS FAMILY TRUST, AND IAN HICKS, VS. ATLAS STOCK TRANSFER
COMPANY, HARVARD SCIENTIFIC CORP., AND JACKIE R. SEE, M.D., Case No. 98-0905858
in the Third Judicial District Court in the State of Utah in the County of Salt
Lake, filed on June 12, 1998. The action alleges share ownership by the
Plaintiffs named, and requests the Court to remove any stop transfer orders or
other prohibitions against plaintiffs trading of said shares. In addition,
Plaintiffs have requested damages in conjunction with any prohibitions placed on
the trading of Plaintiffs shares by Atlas Stock Transfer Company, the Company
and/or Dr. See. The Company denies Plaintiffs allegations and that Plaintiffs
own the shares in question. The shares in dispute include 1) 120,200 shares
issued to Alexander H. Walker, Jr., 2) 125,000 shares issued to Don Steffens
and/or the Steffens Family Trust, and 3) 25,000 shares issued to Ian Hicks.
Other Negotiating Matters
- -------------------------
None
ITEM NO. 2. CHANGES IN SECURITIES.
Registrant hereby references the description of any Changes in Securities
regarding the securities of the Registrant to the Registrants Registration
Statement Form SB-2 filed with the U.S. Securities and Exchange Commission on
July 20, 1998, effective July 28, 1998. Such information is contained in the
sections captioned "Description of Securities" and "Market for Common Equity and
Related Stockholder Matters".
ITEM NO. 3. DEFAULTS UPON SENIOR SECURITIES.
The Registrant hereby references the description of any Default upon Senior
Securities regarding the securities of the Registrant to the financial
information provided in Part I of this Form 10Q-SB. Reference should be made to
the disclosure provided in Part I in the "Notes to the Financial Statements",
Note 9 "Contingencies" No. (d) and (e), and in Note 10 "Convertible Debentures".
ITEM NO 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Registrant hereby references the this section to the financial information
provided in Part I of this Form 10Q-SB. Reference should be made to the
disclosure provided in Part I in the "Notes to the Financial Statements", Note
12 "Subsequent Events" No. (4). However, further information is provided here,
as follows:
(a) Annual meeting date July 9, 1998 held in Lake Mary, Florida.
(b) The meeting will involve the election of directors whose term of office as
a director will continue after the meeting, as follows:
1) Thomas E. Waite
2) Dr. Jackie R. See
<PAGE>
3) Curtis A. Orgill
4) Robert T. Hayden
5) Martin J. Holloran
(c) The Annual Meeting, held July 9, 1998 (subsequent to this filing period),
calculated total of 4,611,721 shares voted of the 5,240,547 shares issued
an outstanding on the record date of May 29,. 1998, of which: 1) 4,592,345
voted "FOR" the election of all Directors, and 19,535 shares voted to
"WITHHOLD" for Thomas E.
1) Waite, 12,880 shares voted to "WITHHOLD" for Jackie R. See, M.S.,
F.A.C.C., 14,000 shares voted to "WITHHOLD" for Curtis A. Orgill,
14,050 shares voted to "WITHHOLD" for Martin J. Holloran, and 14,096
shares voted to "WITHHOLD" for Robert T. Hayden, and ,
2) 3,568,928 voted "FOR", 167584 voted "AGAINST", and 7,193 voted to
"ABSTAIN" on Proposal One: To ratify and approve the Financing
Agreement between Dr. Jackie R. See and Thomas E. Waite, and
3) 3,560,305 voted "FOR", 175,463 voted "AGAINST", and 7,937 voted to
"ABSTAIN" on Proposal Two: To Amend the Company's Articles of
Incorporation to increase the number of authorized shares of Common
Stock from 10,000,000 to 100,000,000 shares, and to authorize
10,000,000 shares of serial or "blank check" Preferred Stock, and
4) 4,584,616 voted "FOR", 21,065 voted "AGAINST", and 7,000 voted to
"ABSTAIN" on Proposal Three: To ratify the appointment of Ronald D.
Simpkins and Associates, CPA, P.A. as the Company's principal
accountants to audit the Company's financial statements for the fiscal
year ending December 31, 1998.
ITEM NO. 5. OTHER INFORMATION.
None.
ITEM NO. 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------------------
A. Exhibits
(2) There is NO plan of acquisition, reorganization, liquidation or
succession
(3) (i) Articles of Incorporation , incorporated by reference *
(ii) By-laws - incorporated by reference *
(4) Instruments, defining the rights of holders, incl. indentures *,
**
(10) Materials contracts:
(i) Securities Purchase Agreement dated March 21, 1997 between
the Registrant and
Springrange Investment Group, Ltd. *
(ii) Financing Agreement between Thomas E. Waite and Dr. Jackie
R. See, Directors of the
Company - incorporated by reference *
(iii) Employment Contract between Thomas E. Waite *
(11) Statement re: Computation of per share earnings - Explanation not
necessary - computation can be clearly determined from the
financial statements attached.
(15) Letter on Unaudited Interim Financial Information - Not
applicable.
(18) Letter on Changes in Accounting Principles - Not applicable.
(19) Report Furnished to Security Holders - Not applicable.
(23) Consents of Experts and Counsel- Not applicable.
(22) Published report regarding matters submitted to vote **
(24) Power of Attorney - Not applicable.
(27) Financial Data Schedule -Attached
* Incorporated by reference from the Registrant's Registration
Statement Form SB-2 filed July 20, 1998 with the U.S. Securities and
Exchange Commission, effective July 28, 1998.
<PAGE>
** Incorporated by references from the Registrant's Proxy Statement 14D
filed with the U.S. Securities and Exchange Commission on June 5, 1998,
for the annual shareholder meeting held July 9, 1998.
B. Reports on Form 8-K.
None filed during the reporting period.
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: August 13, 1998
HARVARD SCIENTIFIC CORP
(Registrant)
Date: August 13, 1998 By: /s/Thomas E. Waite
------------------------------ --------------------------------
Thomas E. Waite
President & CEO
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<PERIOD-START> JAN-01-1998
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0
0
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</TABLE>
