<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1 TO FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES ACT OF 1934
For The fiscal year ended December 31, 1997
Commission File Number 0-28392
HARVARD SCIENTIFIC CORP.
--------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0226455
- ------ ----------
(State or Other Jurisdiction of (I.R.S. 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
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value $0.01 Per Share
(Title of Class)
Check whether the issuer: (1) has 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
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
State issuer's revenues for its most recent fiscal year. None
----
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of such common equity, as
of a specified date within 60 days prior to the date of filing.
Based on the average of the high and low bid and ask prices for the Registrant's
shares of common stock of $7.75 on March 18, 1998, such market value is
calculated net of 3,042,028 affiliate shares which equals $17,019,147.
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of the latest practicable date. As of March 18, 1998 there were
5,238,047 shares of Common Stock outstanding.
Documents incorporated by reference: The information required by PART III (other
than Item 13. "Exhibits and Reports on Form 8-K", which is included herein) of
this annual report 10K-SB, hereby is incorporated by reference to the proxy or
information statement for the election of directors and other matters, which
will be filed with the Securities Exchange Commission on or before April 30,
1998, or an amendment to this annual report will be filed by such date.
PART II
ITEM 7. FINANCIAL STATEMENTS
The independent auditor reports of Ronald D. Simpkins for the balance
sheet at December 31, 1997, and the related statements of operations,
stockholders' equity and cash flows for the year then ending, and the Balance
Sheet at February 28, 1998, and the auditors report on the Supplemental
Schedules V and VI on the Balance Sheet at December 31, 1997, omitted the
signature of Ronald D. Simpkins, which are supplied herewith and were on file
with the Company.
The independent auditor reports from W. Dale McGhie on the Balance
Sheet for the years ending December 31, 1996 and December 31, 1995 and the
related statements of operations, stockholders' equity and cash flows for the
years then ended, and W. Dale McGhie's report on the Supplemental Schedule V and
VI on the Balance Sheet ending December 31, 1996 were omitted but were on file
with the Company and are included herein.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE CORP.)
DECEMBER 31, 1997
<PAGE>
RONALD D. SIMPKINS
CERTIFIED PUBLIC ACCOUNTANT
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, 1997, and the related statements of
operations, stockholders'equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on the financial statements based on my
audit. The financial statements of the Company for the fiscal years ended
December 31, 1996 and 1995, were audited by other auditors whose report thereon
dated June 2, 1997, expressed an unqualified opinion with an explanatory
paragraph discussing its going-concern assumption.
I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Harvard Scientific Corp. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been presented assuming that the
Company will continue as a going concern. As discussed in Note 12 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.
/s/ Ronald D. Simpkins
Reno, Nevada
March 5, 1998
<PAGE>
RONALD D. SIMPKINS
CERTIFIED PUBLIC ACCOUNTANT
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 February 28, 1998. This financial statement is the
responsibility of the Company's management. My responsibility is to express an
opinion on this financial statement based on my audit.
I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audits to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. I
believe that my audit provides a reasonable basis for my opinion.
In my opinion, the balance sheet referred to above present fairly, in all
material respects, the financial position of Harvard Scientific Corp. as of
February 28, 1998, 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 12 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 balance sheet does not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Ronald D. Simpkins
Reno, Nevada
March 5, 1998
<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, revised as described
in Note 14, 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.
/s/ W. Dale McGhie
W. Dale McGhie, CPA
Reno, Nevada
June 2, 1997
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS
<CAPTION>
December 31, December 31, December 31,
1997 1996 1995
(Audited) (Audited) (Audited)
-------------- -------------- --------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 873,199 $ - $ 799,466
Prepaid expenses 35,382 1,565 425,094
Accounts Receivable - Directors (Note 7) 57,711 - -
Due From Related Parties (Note 7) 852,305 - -
Deferred debt issue costs (Note 11) 156,250 - -
-------------- -------------- --------------
Total Current Assets 1,974,847 1,565 1,224,560
-------------- -------------- --------------
Equipment and Leasehold Improvements:
at cost, less accumulated depreciation of $11,930
at December 31, 1997 and $3,491 at December 31,
1996 and $6,637 at December 31, 1995 (Note 3) 50,704 5,925 10,861
-------------- -------------- --------------
Intangible Assets:
Intellectual Property, net of accumulated amortization
of $4,147 at December 31, 1997, $1,048 at December
31, 1996 and $1,771 at December 31, 1995 (Note 4) 156,848 7,948 8,563
Organizational cost, net of accumulated amortization
of $140,686 at December 31, 1997,$105,760 at
December 31, 1996 and $70,754 at December 31, 1995 34,864 69,789 104,796
-------------- -------------- --------------
191,712 77,737 113,359
-------------- -------------- --------------
Other Assets:
Deposits 10,414 300 300
TOTAL ASSETS $ 2,227,677 $ 85,527 $ 1,349,080
============== ============== ==============
</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>
December 31, December 31, December 31,
1997 1996 1995
(Audited) (Audited) (Audited)
------------ ------------ ------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable $ 26,370 $ 36,625 $ 105,791
Accrued expenses (Note 5 & 11) 131,694 20,329 84,380
Bank overdraft - 134 -
Obligation under capital lease - current (Note 3) 16,979 - -
Due to related parties - 190,860 406,881
Note payable to related parties (Notes 6 and 7) - 37,275 67,675
Debentures payable - Convertible (Note 11) 2,800,000 - -
Note payable - Convertible (Note 6) - 250,000 -
------------ ------------ ------------
Total Current Liabilities 2,975,043 535,223 664,727
------------ ------------ ------------
Long-Term Liabilities:
Obligation under capital lease - non-current 6,317 - -
(Note 3) ------------ ------------ ------------
Stockholders' Equity:
Common Stock, $.001 par value; 100,000,000 shares
authorized; 33,441,373, 9,883,129 and 8,749,125
shares issued and outstanding at December 31, 1997,
December 31, 1996 and December 31, 1995,
respectively (Note 1) 33,441 9,883 8,749
Additional paid-in capital 8,694,904 3,206,207 1,902,445
Deficit accumulated during the development stage (9,482,027) (3,665,786) (1,226,841)
------------ ------------ ------------
Total Stockholders' Equity (753,682) (449,696) 684,353
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,227,677 $ 85,527 $ 1,349,080
============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<CAPTION>
1/13/87
(Inception)
December 31, December 31, December 31, to
1997 1996 1995 12/31/97
(Audited) (Audited) (Audited) (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 expenses 2,295,337 1,244,272 434,320 4,336,207
Research and development (Note 7) 1,374,675 109,553 194,965 1,803,559
Depreciation and amortization 515,213 41,472 39,550 635,847
------------ ------------ ------------ ------------
Total Operating Expenses 4,185,225 1,395,297 668,835 6,775,613
------------ ------------ ------------ ------------
Loss from Operations (4,185,225) (1,431,167) (668,835) (6,809,783)
------------ ------------ ------------ ------------
Other Income (Expense):
Settlements (Note 10) (220,816) (494,813) - (715,629)
Interest Income 1,168 - - 1,565
Dividend Income 51,453 - - 51,453
Interest Expense (1,462,821) (512,964) (7,620) (1,985,133)
Loss on disposition of marketable
securities - - - (24,500)
------------ ------------ ------------ ------------
Total Other Income and Expense (1,631,016) (1,007,777) (7,620) (2,672,244)
------------ ------------ ------------ ------------
Net Loss $(5,816,241) $(2,438,944) $ (676,455) $(9,482,027)
============ ============ ============ ============
Loss per Common Share $ (0.36) $ (0.27) $ (0.29) $ (0.56)
============ ============ ============ ============
Weighted Average Shares Outstanding
(Note 2) 16,352,816 9,040,685 2,333,703 17,077,159
============ ============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1997 (UNAUDITED)
<CAPTION>
Restated Deficit
Common Stock Additional From
------------------------ Paid-in Inception
Shares Amount Capital To Date Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of shares for cash on
January 13, 1987 (inception) 103,000 $ 103 $ 2,097 $ - $ 2,200
Issuance of shares for cash,
net of offering costs 51,000 51 19,223 - 19,274
Issuance of shares for services 146,000 146 - - 146
Issuance of shares to acquire
Grant City Corporation 50,000 50 39,827 - 39,877
----------- ----------- ----------- ----------- -----------
Balance December 31, 1993 350,000 350 61,147 - 61,497
Issuance of shares to effect a
four-for-one split 1,050,000 1,050 (1,050) - -
Issuance of shares for
intellectual property rights 4,196,000 4,196 - - 4,196
Issuance of shares for
corporation property rights 394,000 394 24,231 - 24,625
Issuance of shares for fees
and services 1,045,000 1,045 96,893 - 97,938
Issuance of shares for cash,
net of offering costs 393,500 393 353,757 - 354,150
Adjustment of shares to effect a
four-for-one reverse split (5,571,375) (5,571) 5,571 - -
Cumulative (loss) from inception
to December 31, 1994 - - - (550,386) (550,386)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1994 1,857,125 1,857 540,549 (550,386) (7,980)
</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 DECEMBER 31, 1997 (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 DECEMBER 31, 1997 (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>
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>
Year ended 1/13/87
December 31 (Inception)
---------------------------------------- to
1997 1996 1995 12/31/97
(Audited) (Audited) (Audited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Reconciliation of Net Loss to Net Cash
Used in Operating Activities:
Net Loss $(5,816,241) $(2,438,944) $ (676,455) $(9,482,027)
------------ ------------ ------------ ------------
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 46,464 41,472 39,550 167,098
Amortization of Debt Issuance cost 468,750 - - -
Issuance of stock for director's fees
and services 560,399 485,129 71,974 1,249,774
Issuance of stock for Property Rights 2,000 - - -
Issuance of stock in legal settlement 301,041 494,813 - 795,854
Discount on Convertible Debentures 1,250,000 500,000 - 1,750,000
Interest Expense converted to Stock 86,878 - - 86,878
(Increase) decrease in assets:
Prepaid expenses 1,565 (1,565) 38,281 -
Deposits/Retainers (45,496) - - (45,796)
Other Assets - - - -
Increase (decrease) in liabilities:
Accounts payable (31,597) (69,116) 100,962 5,027
Accrued expenses 124,091 (64,051) 82,779 144,419
Due to related parties (394,600) (216,021) 303,951 (203,740)
------------ ------------ ------------ ------------
Total Adjustments 2,369,496 1,177,144 637,497 3,980,498
------------ ------------ ------------ ------------
Net Cash Used in Operating Activities: $(3,446,746) $(1,261,800) $ (38,958) $(5,501,530)
============ ============ ============ ============
Cash Flows from Investing Activities:
Cash from sale (purchase) of equipment (53,217) (7,400) - (78,114)
Cash from sale (purchase) of Intellectual Right (150,000) - - -
Capitalized organization costs - - - (150,924)
------------ ------------ ------------ ------------
Net Cash Used in Investing Activities: (203,217) (7,400) - (229,038)
------------ ------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of capital stock,
net of offering costs 125,000 - 831,300 1,371,946
Proceeds from debt converted to capital stock - 250,000 - 250,000
Proceeds from debt, net of costs 23,295 251,100 80,719 438,739
Proceeds from debentures, net of costs 4,375,000 - - 4,375,000
Principal payments on debt - (31,500) (74,319) (128,169)
------------ ------------ ------------ ------------
Net Cash Provided by Financing
Activities 4,523,295 469,600 837,700 6,307,516
------------ ------------ ------------ ------------
Net Increase (Decrease) in Cash 873,333 (799,600) 798,742 576,949
Cash at beginning of period (134) 799,466 724 -
------------ ------------ ------------ ------------
Cash at end of period $ 873,199 $ (134) $ 799,466 $ 576,949
============ ============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION
NATURE OF BUSINESS:
Harvard Scientific Corp. (the "Company") is a development stage company. The
Company's primary business operations consist of development, commercialization,
marketing, and distribution of products relating to prostaglandin/microsphere
delivery and the manner in which the product is applied in treating 1) male
sexual dysfunction, impotency and sexual enhancement, and 2) for the treatment
of Psoriasis. The Company has preliminary data available, indicating the
possible benefits of such a therapy for both products. The Company is a
development stage enterprise as defined by FASB No. 7. "Accounting and Reporting
by Development Stage Enterprises".
On February 13, 1996, the Company received an assignment of an application for a
patent entitled "PGE1 Containing Lyophilized Liposomes For Use In The Treatment
of Erectile Dysfunction", and identified as United States Application No.
08/573,408 ("LLPGE-1"). US Patent No. 5,718,917 was issued February 17, 1998.
The assignment was made by the holder of the application, Bio-Sphere Technology,
Inc. ("BTI"), a majority shareholder as of December 31, 1997.
The Company plans to focus on LLPGE-1 Erectile Dysfunction to bring the product
to the marketplace. In May 1996, the Company submitted an Investigational New
Drug ("IND") application to the Federal Food & Drug Administration ("FDA") and
has concluded its Phase I clinical trial. The results of the Phase 1 clinical
trial are under review by the FDA. Upon the FDA's approval of the clinical study
of Phase I, the Company will proceed to a Phase II trial.
On November 20, 1997, the Company received the Intellectual Property Rights to
Prostaglandin E1 Lyophilized ("LLPGE-1") Liposomes for the use of treatment of
Psoriasis from BTI. This is in a special lotion base and delivery system which
is proprietary. The Investigational New Drug Number ("IND" No. 54,669) has been
issued to Harvard Scientific from the FDA Division of Dermatology and Dental
Drug Products for this topically applied skin treatment product for psoriasis
called PsoriClear. A Protocol is currently under development with the FDA for
Phase I trials.
ORGANIZATION:
The Company was incorporated under the laws of the State of Nevada on January
13, 1987, under the name of Witch Doctors Bones, Inc. On August 12, 1987, the
Company qualified a public offering under Rule 504 of Regulation D of the
Securities Act of 1933, as amended, with the Secretary of State of Nevada. On
June 17, 1988, the Company changed its name to Carey Ward, Inc. On October 18,
1993, the Company acquired Grant City Corporation by merger and changed its name
to Grant City Corporation. 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 33,441,373
shares issued and outstanding as of December 31, 1997, 9,883,129 issued and
outstanding on December 31, 1996 and 8,749,125 shares issued and outstanding on
December 31, 1995. BTI owned approximately 22%, 63% and 78% of the Company's
shares on December 31, 1997, December 31, 1996 and on December 31, 1995,
respectively. Jackie R. See M.D. is Director of the Company, and is a
controlling person of BTI.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
The Company's recent registration under the Securities Act of 1933, of its
common stock, issuable upon conversion of its 6% convertible debentures, was
declared effective on August 14th, 1997.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATIONAL COSTS:
Organization costs are being amortized over a five-year period using the
straight-line method. Also see the discussion contained in Note 7.
EQUIPMENT:
Equipment is stated at cost. Depreciation is incorporated on a double declining
balance basis over 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: 16,352,816 for the year ending December
31, 1997, 9,040,685 for the year ending December 31, 1996 and 2,333,703 shares
for the year ending December 31, 1995, and 17,077,159 shares outstanding from
inception to December 31,1997.
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
December 31, 1997, the Company had an outstanding debt balance with the
debenture holders of $2,800,000 plus accrued interest of $131,694. On December
31, 1997, if the debenture holders chose to convert their debenture to common
stock, the converted balance would have calculated to an additional 10,013,843
shares of common stock issued, or a loss per share of $.20. 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>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
NOTE 3 - EQUIPMENT & LEASEHOLD IMPROVEMENTS
Equipment and building improvements consists of the following:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995
(audited) (audited) (audited)
----------------------------------------------------------------
<S> <C> <C> <C>
Equipment & Leasehold Improvements $ 2,634 $ 9,416 $ 17,498
Less: accumulated depreciation 11,930 3,491 6,637
----------------------------------------------------------------
Total Net Equipment & Leasehold $ 50,704 $ 5,925 $ 10,861
Improvements ----------------------------------------------------------------
</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 corporate headquarters in
Reno, Nevada. In November 1997, the Company established the world headquarters
in Lake Mary, Florida. 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 2,856,000 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 6,138,500 shares of common stock
with BTI for assistance in raising working capital and patent application and
for management assistance and distribution agreements associated with the
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 335,000 shares of common stock,
ceased product development in connection with a settlement accrued in 1995 (Note
10).
On November 20, 1997, the Company agreed to exchange 2,000,000 shares of common
stock plus $150,000 to BTI for the Intellectual Property Rights to Prostaglandin
E1 Lyophilized Liposomes for the use of treatment of Psoriasis (see Note 1). The
Company recorded the transfer at the par value of stock transferred, which
amounted to $2,000, plus $150,000. BTI is to receive a 3% override on royalties.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 21, 1997 December 31, 1996 December 31, 1995
(Audited) (Audited) (Audited)
---------------------------------------------------------------
<S> <C> <C> <C>
Interest on notes and
debentures $ 131,694 $ 9,649 $ -
Accrued payroll & payroll taxes - 10,680 33,680
Settlement costs (Note 10) - - 50,000
Transfer fee - - 700
---------------------------------------------------------------
$ 131,694 $ 20,329 $ 84,380
---------------------------------------------------------------
</TABLE>
Also see Notes 11 for interest on debentures.
NOTE 6 - NOTES PAYABLE
The Company had the following notes payable:
<TABLE>
<CAPTION>
December 21, 1997 December 31, 1996 December 31, 1995
(Audited) (Audited) (Audited)
---------------------------------------------------------
<S> <C> <C> <C>
8% note, payable to former director on
demand, unsecured (Note 7) $ - $ 37,275 $ 62,675
8% note, payable to related party on demand,
unsecured - - 5,000
7% convertible debentures, convertible at
50% of the market price of the common stock - 250,000 -
on the day before the conversion date.
---------------------------------------------------------
$ - $ 287,275 $ 67,675
---------------------------------------------------------
</TABLE>
In June 1996, the Company issued $500,000 worth of 7% convertible debentures to
three non-US residents. The debentures were to be converted into shares of
common stock in December 1996, at 50% of the current market value of the stock.
By December 31, 1996, $250,000 of the debentures had been converted to equity. A
total of $500,000 was reflected as a discount and recorded to interest expense
and paid-in-capital in 1996. On June 12, 1997, an additional $125,000 was
converted into 450,000 shares of common stock. On December 26, 1997, the balance
of $125,000 was converted into 1,000,000 shares of common stock. See Note 10.
NOTE 7 - 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.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
2. On December 31, 1996, the Company had a payable to BTI of $183,535. The
payable is related to costs incurred by BTI, on the Company's behalf, for
consultation and rent, and for research and development of the LLPGE-1
product. During 1997, the Company incurred an additional payable of $150,000
to BTI for the Intellectual Property Rights to Prostaglandin E-1 Lyophilized
Liposomes for the use of treatment of Psoriasis. See Note 4. During the
year, BTI chose to convert the accounts payable balance of $333,535 as a
contribution to additional-paid-in-capital.
3. During 1996, BTI advanced 200,000 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 and expects to
collect this money when the 200,000 shares are returned to BTI in 1998.
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
addition, in 1997, Dr. Jackie See, MD received $57,711 from the sale of the
Company's common stock that was subject to recapture by the Company pursuant
to Section 16(b). In 1997, a total of $410,016 was booked as a receivable
from related parties/directors to reflect this recapture period.
5. At December 31, 1997, BTI owned approximately 22% of the Company's
shares. Dr. Jackie See a Director of the Company and a controlling person of
BTI. Jackie R. See M.D. is a Director of the Company.
6. In November 1997, the Company issued 4,000,000 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.
7. As of December 31, 1996, the Company had a note payable with a former
director (Note 6). The amount of accrued interest associated with the note
at December 31, 1996 was $6,419. This note was paid in full on May 7th,
1997.
8. 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 1997, the Company issued a total of 11,902,000 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 4,284,000 shares of common stock (restricted) for services performed
by outside consultants or scientists, and 500,000 shares of common stock
(restricted) to an employee of the Company as a signing bonus. These shares
were recorded at par value.
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, although, there is no assurance
that it will become effective, the shares can be sold in accordance with the
Securities Act of 1933, subject to state securities.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
Also see discussions regarding intellectual properties, agreements, and
subsequent events in Notes 4, 9, and 13.
NOTE 8 - INCOME TAXES
The Company has federal net operating loss carryforwards for financial statement
purposes of approximately $7,000,000 at December 31, 1997, which will be used to
offset future earnings of the Company. The loss carryforwards will expire during
the years ending 2002 through 2012 if not used.
NOTE 9 - AGREEMENTS
1. In conjunction with the agreement of November 16, 1995, between BTI and the
Company (Note 4), BTI transferred three agreements to the Company related to
the manufacture, marketing, and distribution of the LLPGE-1 product
overseas. In 1996, the Company terminated two of these agreements for
nonperformance and the third agreement was terminated by mutual consent.
2. On November 3, 1995, BTI entered into an agreement with a European
licensor, Pharma Maehle ("Pharma"), whereby Pharma was to establish the
European market for the Company's erectile dysfunction product to develop,
manufacture, sell, practice and exploit the use of the Company's proprietary
license technology. In February 1996, 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 30, 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 counsel. The agreement was to be accomplished within 10 working
days from January 13, 1997. Unable to do so, 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 they have rightfully terminated
the agreement with Pharma, who has been and continues to be in breach of the
agreement in any event. The validity of the agreement is currently in
dispute. See Note 13.
3. On April 2, 1997, the Company entered into a consulting agreement with
David E. Jordan for the provision of financial public relations and other
services. Under this agreement, Mr. Jordan was entitled to receive 200,000
shares of Common Stock (which Mr. Jordan and parties related to Mr. Jordan
received), as well as a monthly fee of $8,000. In addition to the monthly
fee, he was to receive all agency fees which public relations and/or
advertising firms receive when preparing material or placing advertising. On
June 6, 1997, an additional 1,000,000 shares of Common Stock were issued to
Mr. Jordan and parties related to Mr. Jordan. The Company terminated the
consulting agreement on June 17, 1997 and cancelled the 1,000,000 shares
that had been issued to Mr. Jordan and parties related to Mr. Jordan.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
4. 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 500,000 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.
5. 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 has agreed to pay
Hofmann $15,000 per month plus 500,000 shares of (restricted) common stock.
The stock was recorded at par value.
6. 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 December 31, 1997, the Company had paid Goldstein
$34,000.
7. 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 expires January 15, 1998.
8. 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 1,000,000 shares
prorated over a three year period. In 1997, Walker received $231,678 and
issued to himself 1,052,000 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 13.
9. 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 400,000 shares of the Company's common stock. All prior agreements with
Miller have been terminated. The shares transferred were recorded at
$537,500, the fair market value of the shares on the date the shares were
transferred.
10. 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 100,000 shares of (restricted)
common stock of the Company. The agreement expires December 9, 1998. The
Company recorded the shares at par value.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
11. The Company has the following office lease commitments at December 31, 1997:
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.
NOTE 10 - 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. In a letter dated August 29, 1997, Vivus, Inc. ("Vivus") asserted
that the Company's product and method 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
which were not present in the Company's product and method. On
September 19, 1997, Vivus again reiterated its claim of infringement
against the Company.
On October 1, 1997, the Company filed a complaint for declaratory
judgement of non-infringement of the patent, in the United States
District Court for the District of Nevada. Vivus filed a motion
asking for dismissal of the Company's declaratory judgement action on
the basis that there is no infringement and, therefore, no actual
controversy. Vivus now asserts that its allegation of infringement
was premature because the Company'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 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. A decision on the Vivus'
motion has not been reached.
b. On June 2, 1997, the Company became a defendant in an action filed
in the Superior Court of the State of California, Los Angeles county,
initiated by Cletus Cogdill, ("Cogdill") a shareholder of the
Company. Cogdill 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 can 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, although,
according to the certificate date (June 17, 1994), the two years had
not lapsed. On April 12, 1996 Cogdill completed a revised form 144
indicating the shares had been acquired in March 1994, and thereby
should be issued new free-trading certificates. New certificates were
approved and issued to Cogdill but were apparently lost in the mail.
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.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
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.
Cogdill had indicated he is willing to settle this matter for $30,000
and the Company countered his offer at $2,500.
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. On November 10, 1997, the Company became a defendant in an action
filed in the District Court, Clark County, Nevada by Eric Savage
("Savage"). Savage 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 denies
liability and believes Savage has acknowledged he was not entitled to
sell his stock free from restriction at a date earlier than he now
contends. The Company further believes this matter should be the
subject of binding arbitration. See Note 13.
The financial statements reflect the manner in which the Company has resolved
certain litigations:
a. The Company amicably settled an action with Thomas E. Waite &
Associates regarding a contract under which Waite was to provide an
array of business services. The Company issued 568,750 shares of
common stock in settlement, which accrued in the December 31, 1996
financial statements at $494,813. On November 14, 1997, Thomas E.
Waite became the Company's President and Chairman of the Board.
b. The Company reached a mutual release regarding a Distribution
Agreement, which provided for the manufacturing, marketing, and
distribution of HIV test kits. The mutual release called for a
$50,000 payment, which accrued during 1995 and was paid in full
during the first quarter of 1996.
c. The D. Weckstein & Co., Inc. ("Weckstein") lawsuit was settled on
April 23, 1997, with the issuance of 35,000 shares of the Company's
common stock to Weckstein. The Company filed an action for damages
due to negligence and breach of contract by D. Weckstein and Co.,
Inc. and Donald Weckstein. The contract at issue was an agreement to
obtain financing in exchange for Company stock. The Weckstein
defendants subsequently filed a lawsuit in New York against the
Company respecting the same contract, and asked for damages against a
third party for tortuous interference with the contract.
d. On February 6, 1997, Ailouros Ltd., regarding 7% Debenture held by it
brought an action against the Company. On June 12, 1997, the Company
reached a mutual settlement with Ailouros Ltd. converting the
$125,000 principal amount of the 7% Debentures held by it into
450,000 shares of common stock.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
e. On October 20, 1997, 200,000 shares of the Company's common stock
plus $10,000 was issued to Neil Armstrong, a former President & CEO
of the Company, in settlement of a dispute regarding termination of
employment.
f. 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.
g. On March 17, 1997, a former officer of the Company, Rex Morden
("Morden"), filed an action against the Company for the failure to
pay a Promissory Note due on demand. On May 15, 1997, the Company
reached a settlement with Morden whereby the Company paid Morden
$43,775.
h. On December 3, 1997, the Company agreed to transfer 150,000 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 LLPGE-1 product.
NOTE 11 - CONVERTIBLE DEBENTURES
In March 1997, pursuant to a private placement, the Company (a) sold to one
investor $5,000,000 principal amount of 6% Convertible Debentures (the
"Debentures") due March 30, 1998 and (b) received a commitment from that
investor, subject to various conditions, to purchase additional Debentures in
the aggregate principal amount of up to $10,000,000 in two tranches of
$5,000,000 each, also to be due March 30, 1998. The Debentures 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. See Note
12 and Note 13.
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 30, 1998. At December 31, 1997,
$2,200,000 of the Debenture plus $63,744 interest on the Debenture had been
converted into 2,822,244 shares of common stock of the Company. The balance due
on the Convertible Debenture at December 31, 1997 is $2,800,000 plus accrued
interest of $131,694. 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.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
NOTE 12 - UNCERTAINTY - GOING CONCERN
The financial statements of the Company have been prepared assuming that the
Company will continue as a going concern. The Company's 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 13 regarding subsequent funding agreements arranged by the Company and
also the subsequent sale of stock by the Company.
NOTE 13 - SUBSEQUENT EVENTS
1. On January 2, 1998, the Company filed a request for an injunction against
Nevada Agency & Trust & Co., the Company's 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.
2. On January 6, 1998, the investor who purchased the initial $5,000,000
principal amount of 6% Convertible Debentures in March 1997, served a
conversion notice for the sum of $250,000 of the principal amount plus
$11,917 of interest expense. The conversion at 80% of market price resulted
in the issuance of 1,036,064 shares of common stock to the investor. The
debenture balance after this conversion is $2,550,000 plus accrued interest.
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. The Company has not honored this request (see below).
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 this request (see below).
On or about February 3, 1998, The Company filed an action against the 6%
debenture holder, Springrange Investment Group, Ltd., ("Springrange"),
arising out of the Securities Purchase Agreement executed on or about March
21, 1997. The Company alleges that Springrange has 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. The Company will not be honoring any request by
Springrange to convert the debenture balance into common stock until this
matter has been resolved. See Note 11.
On February 18, 1998, Springrange filed a motion to dismiss the Complaint
and to enjoin the financing transaction entered into between the Company and
Thomas E. Waite and Dr. Jackie See formally announced publicly on or about
January 15, 1998 (see below). Springrange also seeks injunctive relief
requiring the Company to deliver shares of common stock pursuant to notices
of conversion filed in January 1998 (see above). The Company will oppose the
motion and requested injunctive relief. A hearing on the motion is scheduled
in March 1998.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
3. 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 plan designed to facilitate marketing of its products in a manner
which is consistent with enhancing its corporate image and further
increasing shareholder value.
4. 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 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.
5. In January 1998, BTI, a major stockholder of the Company, 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. See Note 7.
6. On February 6, 1998, a complaint was filed against the Company in the
Third Judicial District Court in Salt Lake City, Utah, by Alexander H.
Walker, Jr. ("Walker"), a former General Council, officer and director of
the Company. Walker 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. The time for
the Company's response to the Complaint has not expired. However, the
Company denies liability and anticipates the commencement of legal action
against Walker to recover damages sustained by the Company as a result of
Walker's failure to perform his responsibilities as general council for the
Company and breaches of his fiduciary duties owed to the Company. The
Company will also seek indemnity from Walker for damages it has sustained
and settlements it has been forced to negotiate in other litigation.
7. 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 independent
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. Furthermore, the Company established an
Independent Audit Committee and a Compensation Committee to assist in
strengthening internal controls.
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
8. On February 23, 1998, the Company entered into a financing agreement with
an independent investor ("Investor"), whereby the Investor is to provide
financing of $600,000 to the Company in exchange for 200,000 shares of
common stock of the Company. On the date of effectiveness of the
registration of the 200,000 shares, which is to be accomplished by the
Company as soon as practicable under the Securities Act of 1933, if 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 on the date of
registration and (b) 200,000. This difference in share calculation is still
to be determined and is based on the date the registration statement is
effective and the closing bid price on such date. In February 1998, the
Company received $600,000 and issued 200,000 shares to the Investor.
9. On February 19, 1998, the Company renewed it's previous notices of
termination and renoticed the termination of the licensing agreement with
Pharma Maehle ("Pharma") and demanded binding arbitration under Nevada law
of the existing disputes between the parties pursuant to the terms of the
licensing agreement. The demand requires a response by Pharma no later than
March 13, 1998. Should Pharma fail to respond by that date, the Company
intends to request the Nevada District Court to compel the arbitration. See
Note 9 regarding Pharma Licensing Agreement.
10. The Company has requested the Court to stay the State Court action pending
binding arbitration in the action filed against the Company by Eric Savage
(See note 10). The Company's request for arbitration is pending.
11. Due to the materiality of the subsequent event transactions listed in 3 and
6 above, the Company is disclosing the audited Balance Sheet at February 28,
1998, as follows:
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS
FEBRUARY 28,
1998
(AUDITED)
-------------
CURRENT ASSETS:
Cash and cash equivalents (Note 13 item 8) $ 1,018,291
Prepaid expenses 49,148
Accounts receivable - directors (Note 13 item 4) 5,057,711
Due From Related Parties (Note 7 item 3 & 4, and Note 13
item 5) 892,819
Deferred debt issue costs (Note 11) 52,083
-------------
TOTAL CURRENT ASSETS 7,070,052
-------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
at cost, less accumulated depreciation of $14,329 50,894
-------------
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
DECEMBER 31, 1996 AND DECEMBER 31, 1995
BALANCE SHEET (CONTINUED)
LIABILITIES & STOCKHOLDERS' EQUITY
INTANGIBLE ASSETS:
Intellectual Property, net of accumulated amortization of
$6,043 154,952
Organizational cost, net of accumulated amortization of
$147,598 27,952
-------------
182,904
-------------
OTHER ASSETS:
Deposits 10,514
-------------
TOTAL ASSETS $ 7,314,364
=============
182,904
-------------
OTHER ASSETS:
Deposits 10,514
-------------
TOTAL ASSETS $ 7,311,775
=============
CURRENT LIABILITIES:
Accounts payable $ 13,091
Accrued expenses 145,782
Obligation under capital lease - current 14,376
Debentures payable - Convertible (Note 11) 2,550,000
-------------
TOTAL CURRENT LIABILITIES 2,723,249
-------------
LONG-TERM LIABILITIES:
Obligation under capital lease - non-current 6,317
-------------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 100,000,000 shares authorized;
5,238,022 shares issued and outstanding at February 28, 1998 52,380
Additional paid-in capital 14,578,497
Deficit accumulated during the development stage (10,046,079)
-------------
TOTAL STOCKHOLDERS' EQUITY 4,584,798
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,314,364
=============
<PAGE>
RONALD D. SIMPKINS
CERTIFIED PUBLIC ACCOUNTANT
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, 1997, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended, and
have issued my opinion thereon dated March 5, 1998. Such financial statements
and opinion are included in your 1997 Annual Report to Stockholders and are
incorporated therein by reference. My examination also comprehended Supplemental
Schedules V and VI of Harvard Scientific Corp. (A Development Stage Company). In
my opinion, Schedules V and VI, when considered in relation to the basic
financial statements, present fairly in all material respects the information
shown therein.
/s/ Ronald D. Simpkins
Reno, Nevada
March 5, 1998
<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 June 2, 1997. Such financial statements and
opinion are included in your 1987 Annual Report to Stockholders and are
incorporated herein by reference. My examination also comprehended Supplemental
Schedules V and VI of Harvard Scientific Corp. (A Development Stage Company). In
my opinion, Schedules V and VI, when considered in relation to the basic
financial statements, present fairly in all material respects the information
shown therein.
/s/ W. Dale McGhie
W. Dale McGhie, CPA
Reno, Nevada
June 2, 1997
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
SUPPLEMENTAL DISCLOSURE
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
For the Years Ended December 31, 1997 and 1996
Column A Column B Column C Column D Column E
-------------------------------- ------------- ------------- ------------- ----------------------------
Balance at Other changes
Beginning Additions at Reclassifications Balance at
CLASSIFICATION of year Cost Retirements Add (Deduct) end of year
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1997:
Furniture and Equipment 9,416 16,018 - - 25,434
Intellectual property 8,995 152,000 - - 160,995
Leasehold and Leasehold improvements - 37,199 - - 37,199
------------- ------------- ------------- ------------- -------------
Total $ 18,411 $ 205,217 $ - $ - $ 223,628
============= ============= ============= ============= =============
December 31, 1996:
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
============= ============= ============= ============= =============
</TABLE>
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
SUPPLEMENTAL DISCLOSURE
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
For the Years Ended December 31, 1997 and 1996
Column A Column B Column C Column D Column E
-------------------------------- ------------- ------------- ------------- ----------------------------
Balance at Other changes
Beginning Additions at Reclassifications Balance at
CLASSIFICATION of year Cost Retirements Add (Deduct) end of year
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1997:
Furniture and Equipment 3,491 4,288 - - 7,779
Intellectual property 1,047 3,100 - - 4,147
Leasehold and Leasehold improvements - 4,150 - - 4,150
------------- ------------- ------------- ------------- -------------
Total $ 4,538 $ 11,539 $ - $ - $ 16,077
============= ============= ============= ============= =============
December 31, 1996:
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
============= ============= ============= ============= =============
</TABLE>
<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.
HARVARD SCIENTIFIC CORP.
By /s/Thomas E. Waite
-----------------------------------
Thomas E. Waite, President & CEO
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Name Title Date
---- ----- ----
Chairman of the Board of Directors,
President, and Chief Executive
/s/ Thomas E. Waite Officer April 3, 1998
- ------------------------
Thomas E. Waite
/s/ Jackie R. See, M.D. Director April 3, 1998
- ------------------------
Jackie R. See, M.D.
Director, Treasurer, and
/s/ Curtis A. Orgill Chief Financial Officer April 3, 1998
- ------------------------
Curtis A. Orgill
Secretary and Chief Operating
/s/ Barbara L. Krilich Officer April 3, 1998
- ------------------------
Barbara L. Krilich
<TABLE> <S> <C>
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<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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