<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [ X ]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] PRELIMINARY PROXY STATEMENT [ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
[X] DEFINITIVE PROXY STATEMENT (PER RULE 14A-6(E)(2))
[X] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO RULE 14A-LL(C) OR RULE 14A-12
HARVARD SCIENTIFIC CORP.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] NO FEE REQUIRED.
[ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14A-6(I)(4) &
0-11.
(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
(2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated, and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-ll (a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $______________
(2) Form, Schedule or Registration Statement No.: _________________
(3) Filing Party: _________________
(4) Date Filed: __________________
<PAGE>
Company Letterhead
Chairman of the Board
President
Chief Executive Officer
HARVARD SCIENTIFIC CORP.
755 Rinehart Road
Suite 100
Lake Mary, Florida 32746
407-324-1606
407-324-0664 Fax
May 21, 1998
DEAR SHAREHOLDER:
You are cordially invited to attend the Company's Annual Meeting to be held
Thursday, July 9, 1998, at 1:30 p.m. at the Lake Mary Hilton Garden Inn at 705
Currency Circle, Lake Mary, Florida 32746. The meeting will begin with
introductions of the Directors, followed by voting as directors, on the three
proposals on and other matters properly brought before the Meeting, none of
which are now anticipated. We will then conclude with a report on Company
operations.
In addition to electing Directors and ratifying the appointment of Ronald D.
Simpkins & Associates, CPA, P.A., as independent auditors for the Company, you
are being asked to consider and approve an amendment to the Company's Restated
Articles of Incorporation and ratify and approve a Financing Agreement. The
Board of Directors believes these proposals are in the best interest of the
Company and its shareholders and recommends a vote FOR each of the proposals.
They are more fully described in the accompanying Proxy Statement, which you are
encouraged to read carefully.
Your Board of Directors and Management look forward to personally greeting you
on July 9th. Whether or not you will be able to attend the Annual Meeting, we
urge you to exercise your right to vote by promptly completing and returning
your signed proxy card in the envelope provided.
Thank you for your cooperation and continued support.
Sincerely,
/s/ Thomas E. Waite
THOMAS E. WAITE
Chairman of the Board,
President and Chief Executive Officer
<PAGE>
Harvard Scientific Corp.
755 Rinehart Road
Suite 100
Lake Mary, Florida 32746
(407) 324-1606
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY JULY 9, 1998
To The Stockholders of Harvard Scientific Corporation:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of Harvard Scientific Corp., a Nevada Company (the "Company"),
will be held at the Lake Mary Hilton Garden Inn, 705 Currently Circle, Lake
Mary, Florida 32746, at 1:30 p.m., Eastern Daylight Time, on Thursday July 9,
1998, for the following purposes:
1. To elect five (5) Directors of the Company to serve for the
ensuing year and until their successors are elected and qualify.
2. To ratify and approve the Financing Agreement dated January 13,
1998 and amended February 3, 1998 between the Company and Dr.
Jackie R. See and Thomas E. Waite - Proposal One.
3. To approve an amendment to 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 - Proposal Two.
4. To ratify the appointment of Ronald D. Simpkins and Associates,
CPA, P. A. as the Company's independent public accountants for
the year ending 1998 - Proposal Three.
5. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
The Board of Directors of the Company has fixed the close of business on May
29, 1998 as the record date ("Record Date") for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting and any
adjournment(s) thereof. Only shareholders of record at the close of business on
the Record Date are entitled to notice of and to vote at such meeting. The
transfer books will not be closed.
By Order of the Board of Directors
/S/ Barbara L. Krilich
Barbara L. Krilich, Secretary
Reno, Nevada
June 10, 1998
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD, AND RETURN IT TO ATLAS STOCK TRANSFER AT
5899 SOUTH STATE STREET, SALT LAKE CITY, UTAH 84107. THE PROXY MAY BE REVOKED AT
ANY TIME BEFORE IT IS VOTED, AND STOCKHOLDERS EXECUTING PROXIES MAY ATTEND THE
ANNUAL MEETING AND VOTE THEREAT IN PERSON SHOULD THEY SO DESIRE.
<PAGE>
Harvard Scientific Corp.
755 Rinehart Road
Suite 100
Lake Mary, Florida 32746
(407) 324-1606
Proxy Statement
For
Annual Meeting of Stockholders
To be Held July 9, 1998
This Proxy Statement is being furnished in connection with the solicitation
of proxies by Harvard Scientific Corp., a Nevada corporation (the "Company"), to
be voted at the Annual Meeting of Stockholders of the Company and at any and all
adjournments thereof (the "Annual Meeting"), to be held at the Lake Mary Hilton
Garden Inn, 705 Currently Circle, located at Lake Mary, Florida, at 1:30 p.m.,
[Eastern Daylight Time], on July 9, 1998 for the purposes set forth in the
Notice of Annual Meeting of Stockholders (the "Notice of Meeting"). This Proxy
Statement and accompanying Notice of Meeting, form of Proxy and Annual Report to
the Stockholders for the year ended December 31, 1997, is expected to be mailed
commencing on or about June 10, 1998 to the holders of record of the Company's
common stock, par value $ .01 per share (the "Common Stock") as of the close of
business on the Record Date. On the Record Date, there were 5,238,047 shares of
Common Stock outstanding, the only outstanding voting securities of the Company.
All expenses of this solicitation will be borne by the Company.
VOTING AT THE ANNUAL MEETING
The record date for the determination of shareholders entitled to vote at
the Annual Meeting and to notice thereof was the close of business on May 29,
1998 (the "Record Date"). On the Record Date, there were issued and outstanding
5,238,047 shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"). Each holder of Common Stock is entitled to one vote for each
share owned as of the Record Date on all matters presented at the meeting. The
presence at the Annual Meeting in person or by proxy of the holders of a
majority of the outstanding shares of Common Stock shall constitute a quorum.
The affirmative vote of a majority of the shares eligible to vote and actually
voted at the Annual Meeting, if a quorum is present, is required for the
election of directors and for action on all other matters proposed to be voted
on at the Annual Meeting or any adjournment thereof. The shareholders of the
Company have no minority shareholder dissenters rights under the Nevada Revised
Statues (chapter 78) the governing law of Nevada, the Company's state of
incorporation, or any other applicable law with respect to the proposals
specified in the notice.
Shares represented by valid proxies will be voted in accordance with
instructions contained therein, or, in the absence of such instructions, will be
voted "FOR" the nominees for directors recommended by the Board of directors,
"FOR" each of the three proposals submitted to the meeting and in the discretion
of the proxies on each other matter that properly may come before the meeting.
Any shareholder who is present at the meeting but who abstains from voting shall
be counted for purposes of determining whether a quorum exists, but an
abstention shall not be counted as an affirmative vote with respect to any
matter. With respect to all matters other than the election of directors, an
abstention would have the same effect as a vote against the proposal. Any
shareholder of the Company has the unconditional right to revoke such
shareholder's proxy at any time prior to the voting thereof by written notice of
revocation to Barbara L. Krilich, Secretary, Harvard Scientific Corp., 100 North
Arlington Avenue, Suite 380, Reno, Nevada 89501, by executing a new proxy, or by
attending the Annual Meeting and casting a contrary vote; however, no revocation
shall be effective until such notice of revocation has been received by the
Company at or prior to the Annual Meeting.
The Company does not anticipate that any of its nominees will be
unavailable for election and does not know of any matters other than those
proposed above that may be brought before the Annual Meeting. In the event that
any other matter comes before the Annual Meeting or any nominee is not available
for election, the persons named in the enclosed Proxy will have discretionary
authority to vote all Proxies not marked to the contrary with respect to any
such matter in accordance with their best judgment.
A list of Stockholders entitled to vote at the Annual Meeting will be
open to examination by any Stockholder, for any purpose germane to the Annual
Meeting, at the Company's Executive Offices, at the address indicated on the
Notice of Annual Meeting, during ordinary business hours for ten (10) days prior
to the Annual Meeting. This list will also be available for review at the Annual
Meeting.
<PAGE>
ACTIONS TO BE TAKEN AT THE ANNUAL MEETING
ELECTION OF FIVE NOMINEES AS DIRECTORS
The Board of Directors has nominated the five incumbent Directors for
election. Proxies not marked to the contrary will be voted "FOR" the election of
the persons listed below:
---------------------------------------------------------------
Year
POSITION(S) WITH FIRST
NAME AGE THE COMPANY BECAME
DIRECTOR
---------------------------------------------------------------
Thomas E. Waite 35 Chairman, Chief 1997
Executive Officer,
President & Director
Jackie R. See, M.D. 56 Director 1994
Curtis A. Orgill 48 Director, Chief 1997
Financial Officer &
Treasurer
Martin J. Holloran 67 Director 1998
Col. Robert T. Hayden 72 Director 1998
---------------------------------------------------------------
THOMAS E. WAITE, is a Director and Chairman of the Board, President and
the Chief Executive Officer of the Company. Mr. Waite has experience in
investment banking, corporate finance, mergers and acquisitions, and public
relations for publicly traded biotechnology and medical device companies. Prior
to joining the Company in November 1997, Mr. Waite was active as President of
his consulting firm, Thomas E. Waite & Associates, Inc., which was founded in
late 1992 and commenced researching the most effective, risk adverse ways to
participate in the rapidly expanding riverboat gaming industry. As a result of
this research, in 1993, Mr. Waite organized Wild Card Enterprises, Inc., a
successful riverboat gaming company of which he was also President. From 1988 to
1994, Mr. Waite was a Series-7 licensed registered representative. His
consulting experience began in 1990 at First Montauk Securities. In 1991 he
become Director of Investment Banking and Corporate Finance at Collner Higgins
and Andersen, a securities firm that specialized in trading, where he remained
through 1993.
JACKIE R. SEE, M.D., F.A.C.C., is a Director of, and consultant to, the
Company. Dr. See is a cardiologist and the principal inventor and author of the
patent of microsphere technology "PGE1-EDT". He received his M.D. from the
University of California, College of Medicine (Irvine) in 1968. Dr. See
completed his Residency in Internal Medicine at the Huntington Memorial
Hospital, Pasadena, California in 1973. After serving as a Medical Officer on
active duty in the U.S. Navy Medical Corps he went on to do research fellowship
work in cardiology at Peter Bent Brigham Hospital, Harvard Medical School
(Boston). He was an Associate Director of the Foundation for Cardiovascular
Research (1968-1984) and has been a Fellow of the American College of Cardiology
since 1980. Dr. See is licensed to practice medicine in the States of California
and Nevada and is Board Certified by the American Board of Internal Medicine. He
is the author or co-author of more than 60 research articles for various medical
publications.
CURTIS A. ORGILL, CPA, is the Company's Treasurer, Director and Chief
Financial Officer. Mr. Orgill is a Certified Public Accountant with current
licenses in the states of Nevada and Utah. In 1974, Mr. Orgill joined Deloitte
Haskins & Sells (currently Deloitte & Touche), in Salt Lake City. He later
helped open a new office for Deloitte & Touche in Reno, Nevada, serving as the
Senior Tax Partner in the State of Nevada. He left Deloitte & Touche in 1993 to
join the regional CPA firm of Bartig, Basler & Ray, CPA's Inc. Mr. Orgill is
involved in international accounting, corporate tax planning and tax compliance
as well as structuring acquisitions for corporations. Mr. Orgill is a member of
the American Institute of Certified Public Accountants, the Nevada Society of
Certified Public Accountants and the Utah Association of Certified Public
Accountants.
MARTIN J. HOLLORAN is a Director of the Company. Prior to retirement,
Mr. Holloran had over forty years of experience in sales and marketing,
including over twenty-five years with Prudential Insurance Company. He earned
many awards over his career for both sales and management abilities. Mr.
Holloran was a winner of 24 National Leadership awards for Prudential, a two
time winner of its Academy of Honor and a two time winner of the Citation award
given to the top 10% producers in Prudential Insurance Company. Mr. Holloran
also received the Distinguished Professional Service Award for New England and
continues to be very active as a Teacher of Christian Doctrine and a coach of
children's athletics.
COLONEL ROBERT T. HAYDEN is a Director of the Company. Colonel Hayden
retired from active service in the United States Army in 1981 following 31 years
of active service. He was promoted to Colonel in 1971, and upon graduation from
The War College, served 3 years on the Joint Staff in the Pentagon in the office
of J-5, NATO Plans and Policy Directorate. Over his military career, Colonel
Hayden served in both Korea and Vietnam and has received many military
decorations which include the Silver Star, the Legion of Merit, two Bronze
Starts, a Purple Heart, an Army Commendation Medal with two oak leaf clusters,
an Air Medal with five oak leaf clusters, a Vietnam Medal of Honor and the
Vietnam Gallantry Cross with Silver and Gold Palm. He has been awarded the
Combat Infantry Badge and the Army Staff and Joint Chiefs of Staff Medallions,
is a member of the Field Artillery Hall of Fame, MOWW, The American Legion and
the Military Order of the Purple Heart and has served as President of the
Florida Council of Florida Chapter of the Retired Officers Association.
<PAGE>
Management has no reason to believe that any of the nominees will not be
a candidate or will be unable to serve. In the event that any nominee should
become unable or unwilling serve as a Director, however, Proxies will be voted
for the election of any person substituted for such nominee designated by the
incumbent Directors. All Directors of the Company hold office until the next
annual meeting of Stockholders and until their successors are elected and
qualify.
Officers are elected annually by, and serve at the discretion of, the
Board of Directors. The name and business background of the Executive Officer of
the Company who is not a Director of the Company is:
-------------------------------------------------------------
POSITION WITH FIRST YEAR
NAME AGE THE COMPANY BECAME
OFFICER
-------------------------------------------------------------
Barbara L. 38 Secretary and Chief 1997
Krilich Operating Officer
-------------------------------------------------------------
BARBARA L. KRILICH, CPA, is the Company's Secretary and Chief Operating
Officer. Ms. Krilich has been a Certified Public Accountant in Arizona since
1984. She recently served as Director and Chief Financial Officer of Health Care
Centers of America, Inc. from 11/96 to 8/97. Immediately prior to that she was
employed by Evans Withycombe Residential, Inc. (currently Equity Residential
Inc.), a Real Estate Investment Trust (REIT), in Phoenix, Arizona, which she
joined in 1994. Initially Ms. Krilich worked in developing multi-family units in
Phoenix, Arizona, later transferring into the acquisition division responsible
for acquiring multi-family properties in Southern California. From 1992 to 1994,
she was a Regional Manager in Phoenix Arizona for SCG Residential, a subsidiary
of Security Capital Group, a REIT listed on the New York Stock Exchange. Prior
to joining SCG, Ms. Krilich spent over 10 years in accounting and finance with
various firms, including Peat Marwick & Mitchell (currently KPMG Peat Marwick).
Ms. Krilich is a member of the American Institute of Certified Public
Accountants and the Arizona Society of Certified Public Accountants.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has minutes for 18 meetings of the Board of Directors in
1997 held from the first of the year to May 15, 1997 And from September 26, 1997
until the end of the year. These minutes reflect that the two incumbent
Directors who served in 1997, Dr. See and Mr. Waite attended all such meetings
during the time the Directors served on the Board in 1997, 18 meetings for Dr.
See and 5 meetings for Mr. Waite. The Company believes that there were meetings
of the Board between May 15, 1997 and September 15, 1997 for which it does not
have minutes. The Company believes the minutes were taken and kept by the former
corporate Secretary, who was terminated in December 1997, who has indicated that
he has turned over to the Company all its records that he holds.
In December 1997, the company established an Executive Committee, which
did not meet in 1997. Since February 1998 the Company has had two additional
standing committees of the Board of Directors, the Compensation Committee and
the Audit Committee. Messrs. See and Waite comprise the Executive Committee,
which met once in 1997. This Committee, in general, may exercise the powers of
the Board in managing the business and properties of the Company during the
intervals between Board meetings, subject to Board direction. Messrs. Orgill and
Hayden comprise the Compensation Committee, whose duties include making
recommendations to the Board of remuneration for officers and key persons of the
Company, the determination of the number and issuance of stock compensation and
the review of any compensation and incentive programs for Executive officers,
consultants and others. The members of the Audit Committee are Messrs. Orgill,
Hayden and Holloran, whose duties include recommending the independent public
accountants to serve as the Company's auditors, reviewing and considering
actions of management in matters relating to audit functions, reviewing with
such accountants the scope and results of their audit engagement, reviewing the
financial statements and information included in the Company's filings with the
Securities and Exchange Commission, reviewing the Company's system of internal
controls and procedures and reviewing the effectiveness of procedures intended
to prevent violations of laws and regulations.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference to this section may be found in Item 11 "Security Ownership of
Certain Beneficial Owners and Management" of the Company's Consolidated Annual
Report on Form 10-KSB transmitted with this proxy statement.
EXECUTIVE COMPENSATION:
Reference to this section may be found in Item 10 "Executive
Compensation" of the Company's Consolidated Annual Report on Form 10-KSB
transmitted with this proxy statement.
In 1998 the Company obtained Directors and Officers liability insurance
from American International Group. The policy pays the loss of a director or
officer of the Company arising from a claim first made against the director OR
officer during the policy period for an actual or alleged wrongful act. The
per-claim maximum limit liability coverage is $3,000,000 with the annual
aggregate limit of liability coverage also being $3,000,000. The retention for
each loss coverage is $75,000 for corporate matters and $250,000 for securities
matters. The policy provisions include: no prior acts exclusion (i.e. all prior
acts are included to the extent a claim is made during the policy coverage
period), 100% entity coverage for securities matters (if the claim names the
Company and no officer or director, the policy includes coverage for the
company), employment practices liability for directors and officers, including
securities suits, punitive damages covered on security claims, green mail, and
secondary offering for 30 days. The policy does not include the "hammer clause"
(limiting coverage to the amount of a settlement offer received) nor listed
events. The retention for securities matters is refundable if the case is
dismissed with or without prejudice. The policy contains standard conditions and
exclusions normal to this type of policy. The cost to the Company of this policy
is $6,277 per month.
<PAGE>
The Company does not currently have, nor during the 1997 fiscal year did
it have, any long-term incentive plans. The Company granted no stock options or
stock appreciation rights in 1997.
The following sets forth the policy of the Board of Directors in
connection with executive compensation.
Letter from the Directors:
Executive Compensation
It is the Company's intention to assign the responsibility of the Board
of Directors to review the compensation levels and performance of management and
to recommend compensation changes during 1998. These functions have been
assigned to the responsibility of the Compensation Committee, which was
established in February 1998. The Report of the Board of Directors concerning
executive compensation, which sets policy for the Compensation Committee, is as
follows:
Report of the Board of Directors on Compensation
Philosophy: The Board of Directors believes that maximizing shareholder
value is the most important measure of success, and achieving this depends on
the coordinated efforts of individual employees working as a team toward defined
common performance goals. The objectives of the Company's compensation program
are to align executive compensation with shareholder value, to reward individual
and team effort and performance furthering the Company's business goals and to
attract, retain and reward employees who will contribute to the long-term
success of the Company.
The total direct compensation package for the Company's executives,
including the Chief Executive Officer, is intended to be made up of three
elements: (i) a competitive base salary; (ii) attractive short-term incentives
to executives to earn additional bonus income based on operating results; and
(iii) the awarding of stock grants, from time to time, to executives in an
effort to provide the executive with a closer identification with the
shareholders by giving the executives an opportunity to own a proprietary
interest in the Company.
Salaries; Chief Executive Officer. The Board of Directors fixed the
salaries of the Company's officers for 1997. The Board believes, however, that
the basic philosophy to be followed regarding salaries is to consider increases
based upon a favorable evaluation of individual performance relative to
individual goals, the functioning of the executive's team within the corporate
structure, success in furthering the corporate strategy and goals, and
individual management skills, responsibilities and anticipated workload. The
Board has also considered demonstrated loyalty and commitment to the Company and
the competitive salaries offered by similar companies to attract executives,
including executives of high technical backgrounds and those in the
biopharmaceutical industry. Merit increases for executives are to be subject to
the same budgetary guidelines which apply to all other employees of the Company.
In addition, the Board has made grants of restricted shares of Common Stock to
its Chief Executive Officer, Mr. Waite, to induce him to work for the Company
and provide an incentive for his successful performance as President and Chief
Executive Officer. The Grant was determined, in view of the cessation of the
active business of Thomas E. Waite & Associates at the time of Mr. Waite's
employment to enable him to devote his entire business time to the affairs of
the Company. There has been no change in the amount of Mr. Waite's stated annual
salary since he was hired on November 14, 1997.
Bonuses; The Board believes that grants of cash bonus incentives should
be made from time to time as a percentage of each executive base salary when the
Company achieves its target goals and when cash flow of the Company is
sufficient to support such grants. This policy is also designed to recognize
performance. Awarded on May 1, 1998, the Board authorized a cash bonus of $5,000
to Barbara L. Krilich, Secretary and Chief Operating Officer, for her extra
efforts in assisting in the completion of the year-end audit and Annual Report
filing(s) with the Securities and Exchange Commission.
Stock Grants; Executives and other employees are eligible for stock
grants. The stock granted to any individual depends on the individual
performance, salary level and competitive data, and the impact that such
employee's productivity may make to shareholder value over time. In addition, in
determining the number of shares granted to each executive or employee, the
Board considers the future benefits potentially available to the executive or
employee. The number of shares granted to any executive or employee will depend
in part on the total number of shares deemed necessary to provide an incentive
to that executive to make a long-term commitment to remain with the Company. By
giving to executives an equity interest in the Company, the value of which
depends upon stock performance, the policy seeks to further align management and
shareholder interests.
Respectfully submitted,
The Board of Directors:
Thomas E. Waite, Chairman
Dr. Jackie R. See
Curtis A. Orgill
Col. Robert T. Hayden
Martin J. Holloran
<PAGE>
STOCK PERFORMANCE
Reference to stock performance may be found in Item 5 - "Market for Common
Equity and Related Stockholder Matters" of the Company's Consolidated Annual
Report on Form 10-KSB transmitted with this proxy statement.
BOARD OF DIRECTOR INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in February 1998. Prior
to that time, the Board of Directors and its Executive Committee participated in
the deliberations concerning compensation of Executive Officers. The Company's
Board of Directors had various members in 1997, The Executive Committee, which
was formed in December 1997, is composed of Dr. Jackie R. See and Thomas E.
Waite.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTION INVOLVING DIRECTORS, OFFICERS AND
OTHERS:
Reference to Certain Relationships and Related transactions may be found
in Item 12 "Certain Relationships and Related Transactions" of the Company's
Consolidated Annual Report on Form 10-KSB transmitted with this proxy statement.
On April 21, 1998, the Company issued a demand letter to Don Steffens,
former Officer and Director of the Company, for the return of 125,000 shares of
the Company Common Stock issued to him, and $100,000 paid to him, in 1997, based
on his breach of fiduciary duty as an Officer and Director of the Company.
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 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 and
requested that all corporate records, documents and agreements, including the
corporate minute books, be turned over to the Company. On December 24, 1997,
Walker resigned his position as Director with the Company. On February 6, 1998,
Walker filed a complaint against the Company in the Third Judicial District
Court in Salt Lake City, Utah alleging 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 Company denies liability. On
March 23, 1998, the Company filed a complaint against Walker and Nevada Agency
and Trust (the Company's prior transfer agent of which Walker is believed to be
a controlling person) 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
also seeks indemnity from Walker for damages it has sustained and settlements it
has been forced to negotiate in other litigation.
See Proposal One - Ratification and Approval of the Financing Agreement
for information regarding the Financing Agreement between the Company and two
directors, Dr. Jackie R. See and Thomas E. Waite.
As of April 21, 1998, BioSphere Technology Inc. ("BTI") owned 746,750
shares of Common Stock representing 14.3% of the Company's outstanding shares.
Dr. Jackie R. See controls BTI and is a Director, a controlling person, and may
be considered a promoter, of the Company.
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. 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 treatment of Psoriasis. During the year, BTI chose to convert the accounts
payable balance of $333,535 as a contribution to additional-paid-in-capital.
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 and expects to collect this money
when the 20,000 shares are returned to BTI in 1998.
In April 1996, the Company entered into a royalty agreement with Dr. See
to pay Dr. See 2% of net revenues from the sale of LLPGE1 and any other products
the Company may produce under Patent Application No. 08/573408 pursuant to which
patent No. 5,718,917 was issued on February 17, 1998. Dr. See will receive these
royalty fees for the life of the patent.
In 1997, and again in January 1998, BTI received $352,305 and $40,514,
respectively, 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. The total amount of profits of $392,819 has been booked as a
receivable from related parties and is expected to be repaid to the company.
The Company may continue the practice of issuing shares of Common Stock
in lieu of cash payment in the future if it determines that such issuance is in
the best interests of the Company and is consistent with the Company's
agreements. The foregoing arrangements and relationships may give rise to
conflicts of interest with respect to future interpretation of the agreements
between the Company and its affiliates or with respect to future transaction
between the Company and its affiliates. There can be no assurance those future
transactions between the Company and any affiliates will be advantageous to the
Company.
<PAGE>
THE BOARD OF DIRECTOS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
ELECTION OF EACH OF THE NOMINEES FOR THE BOARD OF DIRECTOS SET FORTH ABOVE.
PROPOSAL ONE - RATIFICATION AND APPROVAL OF THE FINANCING AGREEMENT
On January 13, 1998, the Company entered into a financing agreement
(such agreement, as amended on February 3, 1998, is herein referred to as the
"Financing Agreement" and a copy of which is Exhibit Four to Exhibit A to this
proxy statement) with Jackie R. See, a director and a controlling stockholder
of, and consultant to, the Company, and Thomas E. Waite, President, Chief
Executive Officer, Chairman of the Board of Directors and a controlling
stockholder of the Company, whereby such investors ("Investors") (a) purchased
an initial tranche of 1,580,278 shares of the Company's Common Stock (the
"Initial Shares") for an aggregate purchase price of $5,000,000, and (b) may
purchase up to an aggregate of 592,605 additional shares of the Company's Common
Stock (the "Additional Shares"), upon certain terms and conditions, at an
aggregate maximum additional purchase price of $5,000,000. The initial funding
of $5,000,000 was effected on February 3, 1998 by the delivery to the Company by
each of Dr. See and Mr. Waite of a check for $7,901.39 and Promissory Notes due
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.
Under the Financing Agreement, the Investors have the right, but not the
obligation, to invest up to an additional $5,000,000 to purchase Common Stock,
of which $2,500,000 would acquire 383,070 shares at $6.238 per share and an
additional $2,500,000 would acquire 197,534 shares at $12.656 per share, so that
if all available investments under the Agreement are made by the Investors, they
will invest $10,000,000 to acquire 2,172,882 shares of Common, although there is
no assurance that the Investors will make any investment in the Company beyond
the purchase for $5,000,000 already made. All further purchases would be for
cash, at least to the extent of the $0.01 per share par value of the Common
Stock, with the balance payable by notes with the same maturity and interest
rate as the notes used in connection with the initial purchases under the
Financing Agreement. Additional investments in Common Stock pursuant to the
Financing Agreement would be made in tranches of $500,000 to $2,000,000 each.
Dr. See and Mr. Waite contemplate that they will participate equally in any
additional purchases under the Financing Agreement, but there is no requirement
that they do so. The Board of Directors of the Company ratified the Financing
Agreement on February 23, 1998, with Dr. See and Mr. Waite abstaining from
voting. Dr. See and Mr. Waite approved the Financing Agreement when they were
the only directors of the Company. The Financing Agreement provided that it
would be submitted to the shareholders of the Corporation for ratification at
its next meeting of shareholders.
A fairness opinion ("Fairness Opinion") has been obtained in connection
with the Financing Agreement from HD Brous & Co., Inc., a New York Stock
Exchange member firm located in Phoenix, Arizona. The Fairness Opinion is
Exhibit A hereto and is set forth in full except for its Exhibits Two (The
Company's report on Form 10-Q for the period ended September 30, 1997) and Three
(the Company's 1996 Annual Report to Shareholders), both of which may be
obtained from the Company upon request without cost.
Section 78.140 of the Nevada Revised Statutes provides, in part, that a
transaction involving interested directors is not void or voidable if, among
other reasons, the fact of the financial interest is known to the board of
directors and the board authorizes, approves or ratifies the contract of
transaction in good faith by a vote sufficient for the purpose without counting
the vote or votes of the interested directors, the fact of the financial
interest is known to the stockholders, and they approve or ratify the contract
or transaction in good faith by a majority vote of stockholders holding a
majority of the voting power ( with the votes of the interested directors
counted in any such vote of stockholders), or the contract or transaction is
fair as to the corporation at the time it is authorized or approved. A copy of
Section 78.140 is Exhibit B hereto.
The Financing Agreement has been ratified by the Board of Directors
without counting the vote or votes of the interested directors, and the Board of
Directors believes that the Financing Agreement was fair to the Company, as
evidenced by the Fairness Opinion, at the time it was approved and ratified by
the Board of Directors. As a result, the Board of Directors believes that the
Financing Agreement is not void or voidable and is a proper and binding
agreement of the Company. Nevertheless, the Board of Directors believes that is
desirable to submit the Financing Agreement for the consideration and vote of
the shareholders of the Company so that if it is approved by the shareholders
there will be an additional basis for avoiding any claim that the Financing
Agreement is void or voidable. In view of the shares of Common Stock of the
company owned or controlled by Dr. Jackie R. See and Thomas E. Waite, it is
expected that the Financing Agreement will be approved by the shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE FINANCING AGREEMENT.
<PAGE>
PROPOSAL TWO - AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO AUTHORIZE
COMMON STOCK AND SERIAL OR "BLANK CHECK" PREFERRED STOCK
The Board of Directors deems it advisable that the Articles of
Incorporation be amended, subject to approval by the shareholders, to (1)
increase the number of shares of the Company's Common Stock, par value $.01 per
share ("Common Stock"), from 10,000,000 to 100,000,000 shares, and (2) to
authorize 10,000,000 shares of "blank check" preferred stock, par value $.01 per
share ("Preferred Stock"). As amended Article Four of the Company's Articles of
Incorporation would read as follows (the last three paragraphs being unchanged
from the present Article Four):
"ARTICLE FOUR [CAPITAL STOCK] The aggregate number
of shares of all classes of stock which the Corporation
shall have the authority to issue is one hundred and ten
million (110,000,000) consisting of one hundred million
shares of Common Stock of the par value of one cent ($.01)
per share and ten million shares of Preferred Stock of the
par value of one cent ($.01) per share. The Board of
Directors Shall have authority to establish series of
unissued shares of Preferred Stock by fixing and
determining the designations, preferences, limitations and
relative rights, including voting rights, of the shares of
any series so established to the same extent that such
designations, preferences, limitations and relative rights
could be stated if fully set forth in the Articles of
Incorporation."
" All capital stock when issued shall be fully paid
and non-assessable. No holder of shares of capital stock
of the corporation shall be entitled as such to any
pre-emptive or preferential rights to subscribe to any
unissued stock, or any other securities, which the
corporation may now or hereafter be authorized to issue."
"The corporation's capital stock my be issued and
sold from time to time for such consideration as may be
fixed by the Board of Directors, provided that the
consideration so fixed is not less than par value."
"Holders of the corporation's Common Stock shall
not possess cumulative voting rights at any shareholders
meetings called for the purpose of electing a Board of
Directors or on other matters brought before stockholders
meetings, whether they be annual or special."
The Company believes it is desirable to have the additional authorized
shares of common stock available for future financing and acquisition
transactions, stock dividends and stock splits, employee benefit plans, and
other general corporate purposes. All authorized but unissued shares of common
stock will be available for issuance without further action by the shareholders,
unless such action is required by applicable law.
The additional shares of common stock to be authorized by the Common
Stock Amendment would have rights identical to the currently authorized common
stock of the Company. Any future issuance of additional shares of common stock
may, among other things, have a dilutive effect on earnings per share of common
stock and on the equity and voting rights of those holding common stock at the
time such shares are issued. From time to time the Company evaluates the
desirability of stock splits at various ratios and various prices. However, the
Company currently has no plans, arrangements or understandings for the issuance
of additional shares of common stock.
The proposed amendment would vest in the Board of Directors the
authority to designate one or more series of Preferred Stock. Such provisions
are often referred to as "blank check" provisions, as they give the Board of
Directors the flexibility, at any time or from time to time, without further
shareholder approval, to create one or more series of Preferred Stock and to
determine the designations, preferences and limitations of each such series,
including, but not limited to, (i) the number of shares, (ii) dividend rights,
(iii) voting rights, (iv) conversion privileges, (v) redemption provisions, (vi)
sinking fund provisions, (vii) rights upon liquidation, dissolution or winding
up of the Company and (viii) other relative rights, preferences and limitations
of such series. If the proposed amendment is approved by the shareholders, it
will become effective upon filing and recording a certificate of amendment to
the Company's Articles of Incorporation.
The Board of Directors believes that amending the Articles of
Incorporation to permit the Board to authorize the issuance of up to 10,000,000
shares of "blank check" preferred stock provides the Company with the
flexibility to address potential future financing needs by creating a series of
Preferred Stock customized to meet the needs of any particular transaction and
to market conditions. The Company also could issue Preferred Stock for other
corporate purposes such as to raise capital, implement joint ventures or to make
acquisitions. In addition, while the proposed amendment to authorize "blank
check" preferred stock is not designed to deter or to prevent a change in
control, under certain circumstances, the Company could use the Preferred Stock
to create voting impediments or to frustrate persons seeking to effect a
takeover or otherwise gain control of the Company and thereby to protect the
continuity of the Company's management. In addition, the issuance of additional
Preferred Stock at below market rates would dilute the value of the outstanding
securities of the Company. The Company could also privately place such shares
with purchasers who might favor the Board of Directors in opposing a hostile
takeover bid, although the Company has no present intention to do so. The
Company does not currently have any plans, agreements, commitments or
understandings with respect to the issuance of Preferred Stock. Although the
Company is not currently considering the issuance of Preferred Stock or any such
financing or transaction and has no present intention to issue any series of
Preferred Stock, the Board believes that the Company should have the flexibility
to issue Preferred Stock.
<PAGE>
If any series of Preferred Stock authorized by the Board provides for
dividends, such dividends, when and as declared by the Board of Directors out of
any funds legally available therefore, may be cumulative and may have a
preference over the Common Stock as to the payment of such dividends. In
addition, if any series of Preferred Stock authorized by the Board so provides,
in the event of any dissolution, liquidation or winding up of the Company,
whether voluntary or involuntary, the holders of each such series of the then
outstanding Preferred Stock may be entitled to receive, prior to the
distribution of any assets or funds to the holders of Common Stock, a
liquidation preference established by the Board of Directors, together with all
accumulated and unpaid dividends. Depending upon the consideration paid for
Preferred Stock, the liquidation preference of Preferred Stock and other
matters, the issuance of Preferred Stock could therefore result in a reduction
in the assets available for distribution to the holders of Common Stock in the
event of liquidation of the Company. Holders of Common Stock do not have any
preemptive rights to acquire Preferred Stock or any other securities of the
Company.
Approval of the amendment to the Articles of Incorporation requires the
affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote at the annual meeting of shareholders. Abstention from voting
on the proposal will have the same effect as voting against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" ADOPTION OF
THE AMENDMENT TO THE ARTICLES OF INCORPORATION AUTHORIZING 100,000,000 SHARES OF
COMMON STOCK AND 10,000,000 SHARES OF SERIAL OR "BLANK CHECK" PREFERRED STOCK.
PROPOSAL THREE - RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has selected Ronald D. Simpkins and Associates,
CPA, P.C. ("Simpkins & Associates"), Certified Public Accountants of Reno,
Nevada to continue as the Company's principal accountants to audit the Company's
financial statements for the fiscal year ending December 31, 1998. The Company's
former auditor, W. Dale McGhie did not resign and did not decline to stand for
reelection. The new management of the Company determined that a change of
auditor was in the best interest of the company, and therefore, the former
accountant simply was replaced as of January 13, 1998. This decision to change
accountants was recommended and approved by the Board of Directors. There were
no disagreements with Mr. McGhie on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which,
if not resolved to his satisfaction, would have caused Mr. McGhie to make
reference to the subject matter of any such disagreements in connection with his
reports. As required by Item 304 of Regulation S-B reflecting disclosure of this
change in accountants, on January 20, 1998, the Company filed a Form 8K and an
amendment thereto on January 26, 1998.
Disclosure on changes in accountants may be found in PART II, Item 8
"Changes and Disagreements with Accountants on Accounting and Financial
Disclosure" of the Company's Consolidated Annual Report on Form 10-KSB,
transmitted with this proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF RONALD D. SIMPKINS, CPA AS THE COMPANY'S AUDITOR.
<PAGE>
OTHER MATTERS
The Board of Directors is not aware of any matters to be presented at
the 1998 Meeting except those matters described in this Proxy Statement. Unless
otherwise directed, all shares represented by Proxies will be voted for the
election of the Directors nominated by the Board of directors and in favor of
Proposals 1, 2 and 3 described in this Proxy Statement and the Notice of the
Annual Meeting. If any other matters come before the Annual Meeting, the persons
named in the accompanying Proxies will vote on those matters according to their
best judgment.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 16(A)
Section 16(a) of the Exchange Act requires the Company's officers and
Directors and persons who own beneficially more than ten percent of a registered
class of the Company's equity securities (10% Stockholders) to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, Directors and 10% Stockholders are required by regulation to furnish
the Company with copies of all forms filed by them pursuant to Section 16(a).
Reference to this section may be found in Part III Item 9 "Directors, Executive
Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act" of the Company's Consolidated Annual Report on Form 10-KSB,
transmitted with this proxy statement.
EXPENSES
The Company will bear the expense of preparing, assembling, printing and
mailing this Proxy Statement, the enclosed Notice, Proxy and Annual Report and
accompanying material to shareholders. Solicitation may be made by mail,
personal contact, telephone and facsimile by officers and other employees of the
Company, who will not receive additional compensation for such services. The
Company may also request brokerage houses, nominees, custodians, fiduciaries and
other similar parties to forward soliciting material to the Company's record
shareholders and will reimburse such persons for their reasonable associated
charges and expenses. The Company has engaged Atlas Transfer Agency to represent
the Company in the solicitation of proxies at a cost of approximately $1.01 per
proxy for return envelopes and proxy tabulation plus printing and postage
expenses.
<PAGE>
STOCKHOLDER PROPOSALS
No person who intends to present a proposal for action at a forthcoming
Stockholders' meeting of the Company's Stockholders (a "Proponent") may seek to
have such Proponent's proposal included in the proxy statement or form of proxy
for such meeting unless the Proponent: (i) is a record or beneficial owner at
the time the proposal is submitted of at least 1% or $1,000 in market value of
the Company's securities entitled to vote on such proposal, has held such
securities for at least one year at the time the proposal is submitted and
continues to own such shares through the date of the meeting, (ii) provides the
Company in writing with (A) his name, address, the number of voting securities
held by such Proponent and the dates upon which such securities were acquired,
(B) documentary support of the Proponent's beneficial ownership in the form of
either (1) a written statement by a record owner of such securities or an
independent third party, or (2) a copy of (A) a Schedule 13D, Schedule 13G, Form
13F, Form 3 and/or Form 4 or amendments thereto, (B) a copy of all subsequent
amendments to such documents reporting a change in ownership level, (C) the
Proponent's affidavit, declaration, affirmation or other similar document
provided for under state law attesting that the Proponent continues to be the
beneficial owner of the required percent or market value of the Company's
shares, as provided in clause (i) above; (iii) the Proponent's written statement
that he intends to continue ownership of such shares through the date of the
next annual meeting of stockholders of the Company; (iv) notifies the Company of
his intention to appear personally at the meeting or by a representative
qualified under Nevada law to present his proposal for action, and (v) submits
this proposal and all supporting statements and documents in writing on a timely
basis. To be included in the proxy statement or proxy for the Company's next
annual meeting of Stockholders, a proposal must be received at the Company's
principal executive office no later than February 10, 1999. If the date of such
meeting is changed by more than 30 calendar days from the date such meeting is
scheduled to be held under the Company's By-laws, or if the proposal is to be
presented at any meeting other than the next annual meeting of stockholders, the
proposal must be received at the Company's principal executive offices at a
reasonable time before proxies are solicited for such meeting.
A person may submit only one proposal, along with a supporting statement
if the proponent requests inclusion of such a statement with the proxy
materials, aggregating not more than 500 words. Under specified circumstances
set forth in the rules of the Securities and Exchange Commission relating to the
solicitation of proxies, the Company may be entitled to omit the proposal and
any statement in support thereof from its proxy statement and form of proxy.
ANNUAL REPORT
A Copy of the Company's Consolidated Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997, as filed with the Securities and
Exchange Commission on March 20, 1998 and amended on April 3, 1998, April 27,
1998 and April 28, 1998, including financial statements of the Company for such
year and for comparative periods, is transmitted herewith.
By Order of the Board of Directors
/s/ Barbara L. Krilich/
Barbara L. Krilich
Secretary
Lake Mary, Florida
June 10 1998
<PAGE>
EXHIBITS SUMMARY
EXHIBIT A - Fairness Opinion
Exhibit One - Historical Trading Schedules
Exhibit Two - 10-QSB for the period end September 30, 1997 (1)
Exhibit Three - 1996 Annual Report of Harvard Scientific Corp. (1)
Exhibit Four - Agreement Dated January 13, 1998 and Amendment
Dated February 3, 1998.
EXHIBIT B - Section 78.140 of the Nevada Revised Statues
(1) These exhibits are omitted to conserve space but are available without cost
to a shareholder upon request to the Company at the address listed on the Proxy.
<PAGE>
EXHIBIT A
H D BROUS & CO., INC.
MEMBER
NEW YORK STOCK EXCHANGE, INC.
2700 NORTH CENTRAL AVENUE, STE. 1250
PHOENIX, ARIZONA 85004
(602) 222-5880 - FAX (602) 222-5895
FAIRNESS OPINION
FOR
HARVARD SCIENTIFIC CORP.
PREPARED BY HD BROUS & CO., INC.
FEBRUARY 5, 1998
<PAGE>
SCOPE OF WORK
-------------
At the request of Harvard Scientific Corp. ("HSC" or the "Company"), HD
Brous & Co., Inc. ("Brous") has determined the economic "fairness" of the
transaction described in the Financing Agreement dated January 13, 1998 and
amended February 3, 1998 (the "Agreement") and summarized herein (the
"Transaction").
In economic/financial terms, "fairness" is determined as the agreed-to
value placed upon an asset or group of assets, arrived at between a
knowledgeable buyer and knowledgeable seller, each possessing all relevant facts
pertaining to the asset or assets.
This report is limited to the economic fairness of the Transaction, and
is not an attempt to determine the value of the Company or its common stock.
HD Brous & Co., Inc. is a NYSE-member full service investment banking
firm based in Great Neck, New York. In that capacity Brous conducts public
offerings, private placements, merger & acquisition advisory services,
restructurings and fairness opinions. No officer, director or employee of Brous
has a material relationship with the Company, its officers, directors or
employees. Brous has received a fee in connection with this fairness opinion
(the "Opinion"). While performing the tasks associated with the Opinion, Brous
relied on the published information prepared by the Company. Brous made no
attempt to audit or authenticate the information provided by the Company.
THE PROPOSAL
------------
Based upon the Agreement dated January 13, 1998, and amended February 3,
1998, investors (the "Investors") have agreed to provide financing to the
Company, of up to $10 million, on the following terms and conditions:
(A) Initial Financing: an initial investment of $5 million at the
price per share of $0.3164, evidenced by promissory notes (copies attached
hereto) issued to HSC by the Investors; and
(B) Subsequent Financing: at the sole discretion of the
Investors, but prior to April 1, 1999, the Investors MAY purchase Common Stock
of the Company on the following schedule:
AMOUNT INVESTED PRICE PER SHARE
--------------- ---------------
first $5 million $0.3164
next $2.5 million $0.6328
next $2.5 million $1.2656
The Company has agreed to register the Common stock purchased by the
investors pursuant to the Agreement.
Assuming full investment ($10 million), the blended purchase price to
the Investors for the Company's Common Stock would be $0.6328 per share. If the
Investors were to invest a total of $7.5 million, the blended purchase price
would be $0.4197 per share. For purposes of preparing this Opinion, Brous
assumed the full $10 million would be invested.
THE COMPANY
-----------
HSC is a development-stage bio-pharmaceutical company that develops
products relating to male erectile dysfunction ("MED"), impotency and sexual
enhancement. On January 30, 1998 HSC announced that the U.S. Patent and
Trademark Office had notified the Company of its intention to issue a patent
entitled "PGE-1 Containing Lyophilized Liposomes for use in the Treatment of
Erectile Dysfunction."
While PGE-1 has been previously approved by the Food and Drug
Administration ("FDA"), the Company believes that its proprietary/patented
delivery system of PGE-1 represents a treatment advantage over other delivery
systems currently in use.
The Company advises that Phase II protocols for MED have been
established, and that Phase II trials will be initiated upon FDA approval.
According to numerous sources, approximately 50 million males worldwide are
afflicted with MED; therefore the Company believes that the potential for
significant revenue and earnings is significant.
<PAGE>
A secondary product under development by HSC is a topically applied skin
treatment for psoriasis. According to the Company, the worldwide market for
topical treatment of psoriasis is over $120 million annually. HSC is currently
developing Phase I protocols for this product.
HSC is a development-stage company, and as such has experienced
negligible revenue and significant costs since its inception in 1987. The fiscal
1996 audit report contained a "going concern" clause given the strain on the
Company's capital resources. The Company has previously estimated the cost of
the regulatory process at $15 million, placing further strain on capital
resources over the foreseeable future.
SUMMARY FINANCIAL REVIEW
------------------------
BALANCE SHEET (unaudited, as of September 30, 1997 10-Q Report)
- -------------
ASSETS
Current Assets $ 1,932,539
Property, plant & equipment (net) 53,336
Intangibles/other (net) 58,738
-------------
Total Assets $ 2,044,613
LIABILITIES
Current Liabilities $ 4,265,275
Long-term liabilities 23,295
-------------
Total Liabilities $ 4,288,570
SHAREHOLDER'S EQUITY
Issued/Paid-in capital $ 6,009,005
Accumulated deficit (8,252,962)
-------------
Total Stockholders' Equity $ (2,243,957)
Key points to the Balance Sheet include (1) HSC has a negative working
capital balance of approximately $2.3 million; (2) the Company has negative net
worth; (3) 87% of Total Liabilities is the convertible debentures due March,
1998 (see discussion of the convertible debentures later in this Opinion); and
(4) HSC had approximately $1.9 million of cash.
STATEMENT OF OPERATIONS
- -----------------------
Since
9 months ended Inception
9/30/97 TO 9/30/97
----------------- -----------------
Net Sales $ 0 $ 187,387
Cost of Sales 0 221,557
----------------- -----------------
Gross Profit 0 (34,170)
General & Admin. $ 1,966,508 $ 4,007,378
R & D 894,401 1,323,285
Depreciation/amort 342,899 463,513
----------------- -----------------
Operating Expenses $ 3,203,809 $ 5,794,197
Loss from Operations (3,203,809) (5,828,367)
Other Income
(Expenses) (net) (1,383,368) (2,424,596)
----------------- ----------------
Income (Loss) (4,587,177) (8,252,963)
Key points to the Statement of Operations include: (1) HSC has
experienced significant losses since its inception; (2) the normalized "burn
rate" from operations, before other expenses, is approximately $356 thousand per
month. At current cash levels, that equals approximately 4 and one-half months
before all cash is used; and (3) as HSC gets closer to commercialization of its
primary products, losses are expected to increase.
<PAGE>
SUMMARY STATEMENT OF CASH FLOWS
- -------------------------------
Since
9 months ended Inception
9/30/97 TO 9/30/97
----------------- -----------------
Net Loss $ (4,587,177) $ (8,252,963)
Net Cash Used in
Operations (2,817,485) (4,361,371)
Net Cash Used in
Investing (52,810) (253,257)
Net Cash Provided by
Financing 4,489,768 6,233,967
Net Increase
(Decrease) in Cash 1,619,339 1,619,339
Key points from the Statement of Cash Flows include (1) discounts
attributable to the convertible debentures and the proceeds from issuance of the
debentures significantly enhanced the Company's cash position as of September
30, 1997; (2) approximately $6.2 million has been invested in HSC since its
inception in 1987.
CONCLUSION
----------
(1) HSC is a development-stage company which has experienced significant
losses to date and is expected to incur further losses as it conducts trials and
commercial introduction of its primary products;
(2) HSC's current "burn rate" of cash will use up the current cash
balance within approximately 5 months, meaning additional capital will be
required;
(3) Company's management projects it will take $15 million of additional
capital to complete the regulatory process;
(4) Due to early stage of development, HSC has a negative net worth and
significant indebtedness (convertible); and
(5) Due to the lack of revenue and earnings, no meaningful analysis of
the Company's financial statements can be accomplished.
ANALYSIS TECHNIQUES
-------------------
Traditional analysis techniques used in preparation of a fairness
opinion include discounted cash flow analysis, comparable company analysis,
comparable transaction analysis, and stock price/volume history.
1. DISCOUNTED CASH FLOW ANALYSIS: Discounted cash flow ("DCF") estimates
the value of a business by forecasting the future cash flows the business is
expected to produce and discounting those cash flows back to the present using a
discount rate that reflects the related risk.
HSC is developing the protocol for Phase I and Phase II clinical trials
for its primary products; therefore revenue and cash flows are extremely
difficult to forecast with any confidence. Therefore DCF is not appropriate for
purposes of this valuation.
2. COMPARABLE COMPANY ANALYSIS: Comparable Company Analysis ("CCA")
compares a company's financial statistics with the financial statistics of other
relevant comparable public companies, thereby estimating value by analogy.
For purposes of this Opinion, we classified the Company under the SIC
Code 2834, Medical/Bio-Medical/Bio-pharmaceutical companies. There are
approximately 50 public companies under that SIC Code with revenue under $100
million. However, because HSC has no significant financial statistics, CCA is
not an appropriate valuation technique for purposes of this Opinion.
3. COMPARABLE TRANSACTION ANALYSIS: Comparable Transaction Analysis
("CTA") examines transactions over a period of years involving companies in the
same or similar industry. This technique is primarily used in acquisition
analysis wherein a controlling interest will be acquired. Average acquisition
multiples are then applied to estimate a value.
<PAGE>
This technique is limited by the amount of data that is publicly
available concerning transactions, and further limited by the size and nature of
the transactions, as well as the statistical variance between the acquisition
multiples. While there are numerous transactions involving bio-medical and
bio-pharmaceutical companies, the (a) limited amount of available data; and (b)
the significant statistical variance in acquisition multiples makes analysis by
this technique inappropriate for purposes of this Opinion.
4. STOCK PRICE AND VOLUME HISTORY: This technique involves analyzing (a)
the company's stock price and volume; and (b) the percent of volume traded at
specific prices, with both analyses performed over various time frames.
HSC has been a publicly traded company for some time, experiencing
strong volume and significant price swings. Because there is considerable data
available, this technique is most appropriate for purposes of this Opinion.
Attached hereto, as exhibits are the historical trading prices of HSC
Common Stock, summarized below. Note that these figures do NOT reflect the
reverse stock split announced by the Company on February 2, 1998).
DAYS HIGH LOW AVERAGE VOLUME
------------------------------------------------------------
45 $1.0625 $0.30 $0.5093 278,500
60 $1.1875 $0.30 $0.6380 237,560
180 $1.9688 $0.30 $1.2147 147,030
Mean $1.4063 $0.30 $0.7873 221,030
Using the extrapolated average daily volume of HSC Common Stock,
approximately 5 million shares trade per month, implying ample liquidity in the
Company's Common Stock for investors.
The weighted average purchase price to which the Investors and Company
have agreed is $0.6328, or 80% of the mean average closing price of HSC Common
Stock over the past 180 days (up to January 13, 1998, the date of the original
Agreement). The mean average closing price over the 60 day period ended January
13, 1998 was $0.5737. Therefore the blended purchase price to the Investors of
$0.6328 is 10% greater than the more current mean average price of HSC Common
Stock.
One must take into consideration the probable lack of liquidity to the
Investors in light of their forecasted ownership (assuming full or near-full
investment) in HSC. This lack of liquidity negatively effects the value of the
Common Stock. Numerous studies reflect a 10% to 20% discount for this lack of
liquidity. Therefore the mean average closing price, adjusted for lack of
liquidity, over the past 180, 60 and 45 days, using a 15% discount, is $1.0325,
$0.5423 and $0.4329 respectively, compared to the Investors' blended purchase
price of $0.6328. The Investors' blended price of $0.6328 is approximately 16%
above the adjusted 60-day average price, 46% above the adjusted 45 day price,
and 39% below the adjusted 180 day price. In conclusion therefore, the blended
price for the Investors is roughly equal to the median average price of HSC
common stock over the past 180 days.
RISK FACTORS
------------
There are numerous risks associated with development-stage companies
such as HSC. Some, but not all of the financial risks associated with HSC
include:
(1) Lack of foreseeable revenue and earnings;
(2) Current burn rate of cash from operations;
(3) Anticipated working capital demands for clinical trials; and
(4) The convertible debentures due March 1998.
The convertible debentures merit special attention since they represent
almost 2 times the Company's cash balances as of September 30, 1997 and mature
very soon. According to public documents prepared by the Company, the debentures
are convertible into Common Stock at the discretion of the Company. The Company
has advised that it intends to demand conversion. Failure to convert these
debentures into common stock could have a material adverse effect on the
Company.
<PAGE>
OPINION
-------
In the opinion of Brous, the Agreement between the Company and Investors
is at a fair price to both parties. Our opinion is based primarily upon the
following:
(1) the stage of development of HSC;
(2) the very clear need for additional equity capital;
(3) the current burn rate of cash v. current cash balances;
(4) the inability to forecast revenue and earnings;
(5) the inherent risks associated with the development and introduction
of new drugs and/or deliver of those drugs; and
(6) the trading history (price and volume) of HSC common stock.
CAVEAT
------
This Opinion is highly confidential and for the exclusive use of Harvard
Scientific Corporation and the Investors identified in the Financing Agreement
dated January 13, 1998, and amended February 3, 1998, and may not be distributed
to any other party, in part or in whole, without the prior written consent of HD
Brous & Co., Inc., signed by an authorized officer of Brous. This Opinion is
limited in scope, and is only intended to determine the economic fairness of the
price and terms of the above-referenced Financing Agreement. This report is not
a evaluation of the Company's products, management or prospects.
HD BROUS & CO., INC.
By:/s/SCOTT MILLER dated this 5th day of February 1998.
------------------------------
Managing Director
<PAGE>
EXHIBIT ONE
HISTORICAL TRADING SCHEDULES
HELP for explanation. DG37 Equity H P
C O M P O S I T E / C L O S E / P R I C E PAGE 1 / 1
HARVARD SCIENTIFIC CORP (HVSFD US) PRICE 7 1/2 U $ DELAYED
HI 10.625 ON 12/ 3/97
RANGE 12/1/97 TO 01/19/98 PERIOD D (D-W-M-Q-Y) AVE 5.093 VL 27850
T (T-Trd, B=Bid,A=Ask,W=Wa) LOW 3 ON 12/30/97
- --------------------------------------------------------------------------------
DATE PRICE VOLUME | DATE PRICE VOLUME | DATE PRICE VOLUME
- --------------------------------------------------------------------------------
F |F 12/26 3.9 9040 |F 12/ 5 9 1/2 5790
T |T 12/25 |T 12/ 4 10 13520
W |W 12/24 4 17980 |W 12/ 3 H10.625 15580
T 1/13 4 121600 |T 12/23 3.7 18460 |T 12/ 2 10 5050
M 1/12 3 1/8 12130 |M 12/22 3.9 22990 |M 12/ 1 9 11/16 15990
| |
F 1/ 9 3.2 8890 |F 12/19 4 10040 |
T 1/ 8 3.4 2440 |T 12/18 4.4 18290 |
W 1/ 7 3.4 6980 |W 12/17 4.9 19870 |
T 1/ 6 3.4 17630 |T 12/16 5.6 37910 |
M 1/ 5 3.2 54170 |M 12/15 4.6 37060 |
| |
F 1/ 2 3 1/8 45980 |F 12/12 3.9387 52680 |
T 1/ 1 |T 12/11 4.7 25110 |
W 12/31 3.4 98930 |W 12/10 6.1 11830 |
T 12/30 L3 42510 |T 12/ 9 6 41700 |
M 12/29 3.7 22510 |M 12/ 8 6.3 22830 |
- --------------------------------------------------------------------------------
Bloomberg-all rights reserved. Frankfurt:69-920410 Hong Kong:2-521-3000
London:171-330-7500 New York: 212-318-2000 Princeton: 609-279-3000
Singapore:226-3000 Sydney:2-9777-8600 Tokyo:3-3201-8900 Sao paulo:11-3048-4500
G189-53-1 05-Feb-98 11:45:17
HELP for explanation. DG37 Equity H P
C O M P O S I T E / C L O S E / P R I C E PAGE 1 / 2
HARVARD SCIENTIFIC CORP (HVSFD US) PRICE 7 1/2 U $ DELAYED
HI 11.875 ON 11/17/97
RANGE 11/14/97 TO 01/13/98 PERIOD D (D-W-M-Q-Y) AVE 6.380 VL 23756
T (T-Trd, B=Bid,A=Ask,W=Wa) LOW 3 ON 12/30/97
- --------------------------------------------------------------------------------
DATE PRICE VOLUME | DATE PRICE VOLUME | DATE PRICE VOLUME
- --------------------------------------------------------------------------------
F |F 12/26 3.9 9040 |F 12/ 5 9 1/2 5790
T |T 12/25 |T 12/ 4 10 13520
W |W 12/24 4 17980 |W 12/ 3 10.625 15580
T 1/13 4 121600 |T 12/23 3.7 18460 |T 12/ 2 10 5050
M 1/12 3 1/8 12130 |M 12/22 3.9 22990 |M 12/ 1 9 11/16 15990
| |
F 1/ 9 3.2 8890 |F 12/19 4 10040 |F 11/28 10 11310
T 1/ 8 3.4 2440 |T 12/18 4.4 18290 |T 11/27
W 1/ 7 3.4 6980 |W 12/17 4.9 19870 |W 11/26 9 11/16 6410
T 1/ 6 3.4 17630 |T 12/16 5.6 37910 |T 11/25 10 7400
M 1/ 5 3.2 54170 |M 12/15 4.6 37060 |M 11/24 10 11340
| |
F 1/ 2 3 1/8 45980 |F 12/12 3.9387 52680 |F 11/21 10 11510
T 1/ 1 |T 12/11 4.7 25110 |T 11/20 10.2 12890
W 12/31 3.4 98930 |W 12/10 6.1 11830 |W 11/19 10 5900
T 12/30 L3 42510 |T 12/ 9 6 41700 |T 11/18 10.625 10540
M 12/29 3.7 22510 |M 12/ 8 6.3 22830 |M 11/17 H11.875 29410
- --------------------------------------------------------------------------------
Bloomberg-all rights reserved. Frankfurt:69-920410 Hong Kong:2-521-3000
London:171-330-7500 New York: 212-318-2000 Princeton: 609-279-3000
Singapore:226-3000 Sydney:2-9777-8600 Tokyo:3-3201-8900 Sao paulo:11-3048-4500
G189-53-1 05-Feb-98 11:45:43
HELP for explanation. DG37 Equity H P
C O M P O S I T E / C L O S E / P R I C E PAGE 1 / 2
HARVARD SCIENTIFIC CORP (HVSFD US) PRICE 7 1/2 U $ DELAYED
HI 19.6875 ON 8/21/97
RANGE 7/17/97 TO 01/13/98 PERIOD D (D-W-M-Q-Y) AVE 12.147 VL 14703
T (T-Trd, B=Bid,A=Ask,W=Wa) LOW 3 ON 12/30/97
- --------------------------------------------------------------------------------
DATE PRICE VOLUME | DATE PRICE VOLUME | DATE PRICE VOLUME
- --------------------------------------------------------------------------------
F |F 12/26 3.9 9040 |F 12/ 5 9 1/2 5790
T |T 12/25 |T 12/ 4 10 13520
W |W 12/24 4 17980 |W 12/ 3 10.625 15580
T 1/13 4 121600 |T 12/23 3.7 18460 |T 12/ 2 10 5050
M 1/12 3 1/8 12130 |M 12/22 3.9 22990 |M 12/ 1 9 11/16 15990
| |
F 1/ 9 3.2 8890 |F 12/19 4 10040 |F 11/28 10 11310
T 1/ 8 3.4 2440 |T 12/18 4.4 18290 |T 11/27
W 1/ 7 3.4 6980 |W 12/17 4.9 19870 |W 11/26 9 11/16 6410
T 1/ 6 3.4 17630 |T 12/16 5.6 37910 |T 11/25 10 7400
M 1/ 5 3.2 54170 |M 12/15 4.6 37060 |M 11/24 10 11340
| |
F 1/ 2 3 1/8 45980 |F 12/12 3.9387 52680 |F 11/21 10 11510
T 1/ 1 |T 12/11 4.7 25110 |T 11/20 10.2 12890
W 12/31 3.4 98930 |W 12/10 6.1 11830 |W 11/19 10 5900
T 12/30 L3 42510 |T 12/ 9 6 41700 |T 11/18 10.625 10540
M 12/29 3.7 22510 |M 12/ 8 6.3 22830 |M 11/17 11.875 29410
- --------------------------------------------------------------------------------
Bloomberg-all rights reserved. Frankfurt:69-920410 Hong Kong:2-521-3000
London:171-330-7500 New York: 212-318-2000 Princeton: 609-279-3000
Singapore:226-3000 Sydney:2-9777-8600 Tokyo:3-3201-8900 Sao paulo:11-3048-4500
G189-53-1 05-Feb-98 11:45:59
<PAGE>
EXHIBIT TWO
10-Q REPORT FOR THE PERIOD ENDED
SEPTEMBER 30, 1997
[Omitted from this copy]
-------------------------------------------------------------------------------
EXHIBIT THREE
1996 ANNUAL REPORT
[Omitted from this copy]
------------------------------------------------------------------------------
<PAGE>
EXHIBIT FOUR
AGREEMENT DATED JANUARY 13, 1998
AND
AMENDMENT DATED FEBRUARY 3, 1998
<PAGE>
HARVARD SCIENTIFIC CORP.
FINANCING AGREEMENT
JANUARY 13, 1998
Harvard Scientific Corp. ("Harvard") has requested that Dr. Jackie R.
See and Mr. Thomas E. Waite ("Investors") provide equity financing of up to
$10,000,000 to be made in tranches ("Tranches") of $500,000 to $2,000,000. The
Investors have agreed to do so on the following terms:
Initial Funding: An initial Tranche to be made upon the effectiveness of
the registration statement referred to below to purchase shares of Harvard's
Common Stock ("Common") at $0.3164 per share ("Acquisition Price"), which is the
average closing bid price of a share of Common for the 10 trading days ending
January 12, 1998.
Subsequent Funding: The Investors will have the option, acting in their
sole discretion and from time to time as they see fit, to purchase additional
Common in Tranches up to an aggregate of $10,000,000 purchase price (including
the Initial Funding), prior to January 1, 1999. The price for the first
$5,000,000 of funding (Including the Initial Funding) will be at the Acquisition
Price, the price for the next $2,500,000 of funding will be at 200% of the
Acquisition Price, or $0.6328 per share, and the price for the next $2,500,000
of funding will be at 400% of the Acquisition Price, or $1.2656 per share.
Registration: Harvard will cause all Shares acquirable by the Investors
as provided herein to be registered as promptly as practicable under the
Securities Act of 1933 and to be qualified or registered under the laws of any
other jurisdiction as to which the Investors may reasonably request. As part of
the consideration to the Investors hereunder (to the extent the Investors do not
otherwise have registration rights), Harvard will also cause all Shares
otherwise owned by the Investors to be registered under the Securities Act of
1933 and to be qualified or registered under the laws of any other jurisdiction
as to which the Investors may reasonably request.
Fairness Opinion: Because the Investors comprise the Board of Directors
that must approve the transaction, Harvard will seek a fairness opinion as to
the transaction from an established banker, investment banker or accounting
firm, which opinion will be based on all the reasonably available facts of the
situation including Harvard's lack of income, positive cash flow or marketable
products and the lack of additional funding from Springrange Investment Group,
Ltd. If for any reason this transaction is not confirmed as fair to Harvard by
such a fairness opinion, the parties hereto will restructure the transaction in
a manner so that a fairness opinion can be obtained.
Further Agreement: This document is an agreement between the parties
hereto, effective upon its execution and delivery by Harvard and the Investors.
The parties will consult as to whether or not a more extensive agreement is
desired covering the matters herein, and if Harvard and the Investors determine
that such an agreement is desirable, then it will be prepared, but until such a
further agreement is executed and delivered by Harvard and the Investors, this
Agreement shall remain in full force and effect.
Costs and Expenses: As additional consideration for the Investors
hereunder, Harvard will bear all costs and expenses relating to this Agreement,
including those of registration and including fees and expenses of counsel to
the Investors.
Counterparts: This Agreement may be signed in counterparts, each of
which will be an original and all together will constitute one agreement.
IN WITNESS HEREOF, the parties hereto have executed this Agreement this
13th day of January 1998.
HARVARD SCIENTIFIC CORP. INVESTORS
/s/ JACKIE R. SEE 1/13/98
------------------------------
Jackie R. See
By: /S/ THOMAS E. WAITE
------------------------------
Its: President, CEO
/s/ THOMAS E. WAITE 1/13/98
------------------------------
Thomas E. Waite
<PAGE>
HARVARD SCIENTIFIC CORP.
AMENDMENT, DATED FEBRUARY 3, 1998
to
FINANCING AGREEMENT, DATED JANUARY 13, 1998
The Agreement dated January 13, 1998 ("Agreement") between Harvard
Scientific Corp. ("Harvard") and Dr. Jackie R. See ("See") and Mr. Thomas E.
Waite ("Waite" and, jointly with See, "Investors") hereby is amended as follows
(the Agreement, as so amended, being herein referred to as the "Amended
Agreement"):
1. Initial Funding: An initial tranche of $5,000,000 will be purchased
forthwith following the execution and delivery of this Amendment in lieu of the
initial tranche of $500,000 - $2,000,000 provided in the Agreement, which will
result in the acquisition of 1,580,278 shares ("Initial Acquisition Shares," the
number of shares set forth in this Amendment reflecting the 1 for 10 reverse
split of Harvard's common stock effective February 2, 1998) of Harvard common
stock ("Common") at $3.164 per share. The purchase will be effected by the
payment of $15,802.78 by checks of $7,901.39 from each of See and Waite, subject
to collection, representing the par value of the Initial Acquisition Stock, and
the balance of $4,984,197.22 by two promissory notes ("Initial Notes") of
$2,492,098.61 from each of See and Waite in the form of Exhibit A hereto. The
Investors will each promptly certify to Harvard that they have net worth,
exclusive of securities or obligations of Harvard, in excess of the principal
amount of the Notes upon which the Investor is obligated. Each Investor will
submit to Harvard, on a confidential basis, a personal balance sheet supporting
his certification of net worth.
2. Any future tranches purchased in accordance with the Amended
Agreement may be in cash or partially in cash and partially by notes
("Subsequent Notes" and, with the Initial Notes, "Notes") in the form of Exhibit
A hereto, provided that in no case will the cash paid for any Common so
purchased be less than the par value of the Common so purchased.
3. To secure the obligations to Harvard (whose address is set forth in
Exhibit A, hereto) of the Investors evidenced by the Notes, each Note will be
secured by the Common with respect to whose purchase by the Investors the Note
was consideration. The Investors will instruct the transfer agent of the Common
to deliver the certificates for such Common to Harvard upon their issuance and
will furnish to Harvard a stock power in blank, executed by the Investor or
Investors involved, as to all such Common. Upon any default by any Investor in
the payment of any Note upon which he is obligated, Harvard shall have all
rights provided under the Uniform Commercial Code of Florida with respect to
Common held as security with respect to such Note. If an Investor arranges a
sale or a refinancing of any Common so held as security, Harvard will cooperate
with the Investor in releasing such Common to or on behalf of a purchaser, or
lender on the security, of the Common upon receipt of payment of the Note
involved or, if all the Common securing the Note is not sold or used as
collateral, that portion of the principal amount and accrued interest with
respect to the Note that the Common so sold bears to all the Common securing the
Note.
4. The date "January 1, 1999," where it appears in the paragraph of the
Agreement headed "Subsequent Funding," hereby is deleted and replaced with
"April 1, 1999."
5. Harvard will submit the Amended Agreement to its stockholders for
approval at its next meeting of stockholders or cause it to be considered for
approval no later than any consent of stockholders in lieu of a meeting.
6. Except as expressly modified herein, the Agreement shall remain in
full force and effect in accordance with its terms.
7. This Amendment may be signed in counterparts, each of which will be
an original and all together will constitute one agreement.
IN WITNESS HEREOF, the parties hereto have executed this Amendment this
3rd day of February 1998.
HARVARD SCIENTIFIC CORP. INVESTORS
/S/JACKIE R. SEE
-------------------------
Jackie R. See
By: /S/THOMAS E. WAITE
---------------------------------
Its: President and CEO
/S/THOMAS E. WAITE
-------------------------
Thomas E. Waite
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$____________________
The undersigned ("Investor") hereby promises to pay to Harvard Scientific Corp.
on March 31, 1999 at its principal office, 100 North Arlington, Suite 380, Reno,
Nevada, the sum of __________________ Dollars, together with interest from the
date hereof at the rate of 1% above prime as promulgated from time to time by
Citibank, N. A. This Note may be prepaid at any time, in whole or in part, with
interest on the amount prepaid to the date of prepayment, without penalty.
The Investor hereby waives any right he may have to demand, notice or
protest in connection with this Note. All costs of collection, if any, of this
Note, including reasonable attorneys' fees, shall be payable by the Investor.
This Note is entitled to the security provided in the Amended Agreement
between Harvard Scientific Corp. and Dr. Jackie R. See and Mr. Thomas E. Waite.
Executed this ______ day of _______________, 19___.
------------------------------
[Name of Investor]
<PAGE>
PROMISSORY NOTE
$2,492.098.61
The undersigned ("Investor") hereby promises to pay to Harvard Scientific Corp.
on March 31, 1999 at its principal office, 100 North Arlington, Suite 380, Reno,
Nevada, the sum of Two Million Four Hundred Ninety-two Thousand Ninety-eight and
Sixty-one One-hundredths Dollars, together with interest from the date hereof at
the rate of 1% above prime as promulgated from time to time by Citibank, N. A..
This Note may be prepaid at any time, in whole or in part, with interest on the
amount prepaid to the date of prepayment, without penalty.
The Investor hereby waives any right he may have to demand, notice or
protest in connection with this Note. All costs of collection, if any, of this
Note, including reasonable attorneys' fees, shall be payable by the Investor.
This Note is entitled to the security provided in the Amended Agreement
between Harvard Scientific Corp. and Dr. Jackie R. See and Mr. Thomas E. Waite.
Executed this 3rd day of February 1998.
/S/ JACKIE R. SEE
----------------------------
Jackie R. See
<PAGE>
PROMISSORY NOTE
$2,492.098.61
The undersigned ("Investor") hereby promises to pay to Harvard Scientific Corp.
on March 31, 1999 at its principal office, 100 North Arlington, Suite 380, Reno,
Nevada, the sum of Two Million Four Hundred Ninety-two Thousand Ninety-eight and
Sixty-one One-hundredths Dollars, together with interest from the date hereof at
the rate of 1% above prime as promulgated from time to time by Citibank, N. A..
This Note may be prepaid at any time, in whole or in part, with interest on the
amount prepaid to the date of prepayment, without penalty.
The Investor hereby waives any right he may have to demand, notice or
protest in connection with this Note. All costs of collection, if any, of this
Note, including reasonable attorneys' fees, shall be payable by the Investor.
This Note is entitled to the security provided in the Amended Agreement
between Harvard Scientific Corp. and Dr. Jackie R. See and Mr. Thomas E. Waite.
Executed this 3rd day of February 1998.
/S/ THOMAS E. WAITE
--------------------------
Thomas E. Waite
<PAGE>
EXHIBIT B
SECTION 78.140 OF THE NEVADA REVISED STATUTES
NRS 78.140 Restrictions on transactions involving interested directors or
officers; compensation of directors.
1. A contract or other transaction is not void or voidable solely because:
(a) The Contract or transaction is between a corporation and:
(1) One or more of its directors or officers; or
(2) Another corporation, firm or association in which one or more of
its directors or officers are directors or officers or are
financially interested;
(b) A common or interested director or officer:
(1) Is present at the meeting of the board of directors or a committee
thereof which authorizes or approves the contract or transaction;
or
(2) Joins in the execution of a written consent which authorizes or
approves the contract or transaction pursuant to subsection 2 of
NRS 78.315; or
(c) The vote or votes of a common or interested director are counted for
the purpose of authorizing or approving the contract or transaction, if
one of the circumstances specified in subsection 2 exists.
2. The circumstances in which a contract or other transaction is not void
or voidable pursuant to subsection 1 are:
(a) The fact of the common directorship, office or financial interest is
known to the board of directors or committee, and the board or committee
authorizes, approves or ratifies the contract or transaction in good
faith by a vote sufficient for the purpose without counting the vote or
votes of the common or interested director or directors.
(b) The fact of the common directorship, office or financial interest is
known to the stockholders, and they approve or ratify the contract or
transaction in good faith by a majority vote of stockholders holding a
majority of the voting power. The votes of the common or interested
directors or officers must be counted in any such vote of stockholders.
(c) The fact of the common directorship, office or financial interest is
known to the director or officer at the time the transaction is brought
before the board of directors of the corporation for action.
(d) The contract or transaction is fair as to the corporation at the time it
is authorized or approved.
3. Common or interested directors may be counted in determining the presence of
a quorum at a meeting of the board of directors or a committee thereof which
authorizes, approves or ratifies a contract or transaction, and if the votes
of the common or interested directors are not counted at the meeting, then a
majority of the disinterested directors may authorize, approve or ratify a
contract or transaction.
4. Unless otherwise provided in the articles of incorporation or the by-laws,
the board of directors, without regard to personal interest, may establish
the compensation of directors for services in any capacity. If the board of
directors establishes the compensation of directors pursuant to this
subsection, such compensation is presumed to be fair to the corporation
unless proven unfair by a preponderance of the evidence.
<PAGE>
PROXY
Harvard Scientific Corporation
755 Rinehart Road
Suite #100
Lake Mary, Florida 32746
The undersigned, a holder of Common Stock of Harvard Scientific
Corp., a Nevada corporation (the "Company"), hereby appoints Curtis A. Orgill
and Barbara A. Krilich, and each of them, the proxies of the undersigned (the
"Proxies"), each with full power of substitution, to attend, represent and vote
for the undersigned, all of the shares of Common Stock of the Company which the
undersigned would be entitled to vote, at the Annual Meeting of Stockholders of
the Company to be held on July 9, 1998 and any adjournments thereof, as follows:
1. ELECTION OF DIRECTORS, as provided in the Company's Proxy Statement:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
nominees listed below. (Instructions: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH OR OTHERWISE STRIKE OUT HIS NAME
BELOW)
Thomas E. Waite, Dr. Jackie R. See, Curtis A. Orgill, Martin J. Holloran,
and Col. Robert Hayden.
2. Proposal One. To ratify and approve the FINANCING AGREEMENT dated January 13,
1998 and amended February 3, 1998 between the Company and Dr. Jackie R. See and
Thomas E. Waite:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal Two. 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.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. 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.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Upon such other matters as may properly come before the meeting or any
adjournments thereof.
The undersigned hereby revokes any other proxy previously granted to
vote at such Annual Meeting, and hereby ratifies and confirms all that the
above-named Proxies, and each of them, may lawfully do by virtue hereof. With
respect to matters not known at the time of the solicitation hereof, said
Proxies are authorized to vote in accordance with their best judgment.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE REVERSE SIDE HEREOF. IF NO CONTRARY INSTRUCTIONS ARE GIVEN,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE FIVE DIRECTORS NAMED ABOVE, FOR
THE ADOPTION OF PROPOSALS ONE, TWO AND THREE AND AS SAID PROXIES SHALL DEEM
ADVISABLE WITH RESPECT TO SUCH OTHER BUSINESS AS MAY COME BEFORE THE MEETING.
The undersigned acknowledges receipt of copies of the Annual Report
for the period ended December 31, 1997, the Notice of Annual Meeting, and the
accompanying Proxy Statement of the Company dated June 10, 1998, relating to the
Annual Meeting.
- ------------------------- ------------------------ --------------------------
Print name(s) of Signature of Stockholder Signature of 2nd
Stockholder(s) signing Stockholder, if applicable
The signature(s) hereon should correspond exactly to the name(s) of the
Stockholder(s) appearing on the Stock Certificate. If stock is jointly held, all
joint owners should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If signer is a corporation,
please indicate the full corporate name and indicate the title of signing
officer.
Date: ______________________, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
HARVARD SCIENTIFIC CORP.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
[CONFORMED CONSOLIDATED FORM REFLECTING ALL AMENDMENTS]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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.
[This Conformed Consolidated Form 10-KSB reflects the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1997, as filed with the
Securities and Exchange Commission on March 20, 1998, and amended by filings on
April 3, 1998, April 27, 1998 and April 28, 1998.]
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Harvard Scientific Corp. ("Registrant" or "Company") was incorporated
under the laws of the State of Nevada on January 13, 1987 with the name of Witch
Doctor Bones, Inc. On June 17, 1988, the Registrant changed its name to
CareyWard, Inc.; on October 18, 1993, the Registrant merged Grant City
Corporation into itself, taking the name Grant City Corporation through the
merger; on January 18, 1994, the Company changed its name to The Male Edge,
Inc., and on May 10, 1994, the Company changed its name to Harvard Scientific
Corp. A 10 for 1 stock split of Registrant's Common Stock was effective on June
17, 1988; a 1 for 4 reverse stock split of Registrant's Common Stock was
effective November 3, 1994; and a 1 for 10 reverse stock split was effective
February 2, 1998. All figures in this Annual Report give effect to the stock
split and reverse stock splits, and previously stated numbers of shares are
appropriately restated, except Item 7. "Financial Statements", unless otherwise
indicated. All statements in this annual report should be read in conjunction
with and are qualified by the other information and financial statements
(including the notes thereto) appearing elsewhere in this Annual Report, or
incorporated herein by reference.
The Company is a development stage biopharmaceutical company engaged in
the development of products for 1) the treatment of male erectile dysfunction
("ED"), and 2) a topically applied preparation for Psoriasis. The Company's
principal product is a lyophilized liposomal formulation of Prostaglandin E1
("LLPGE1") in which the LLPGE1 is encapsulated in liposomes and then lyophilized
(freeze-dried). This process provides the product with stability, the shelf life
of which is expected to be at least 9 months at room temperature. LLPGE1 is an
oxygenated, unsaturated cyclic fatty acid that occurs naturally in all cells of
the body.
The process is the same for both the ED and the Psoriasis products,
except the dose of LLPGE1 is different. In the case of the ED product, the
lyophilized material is reconstituted through the use of a non-irritating dilute
detergent, which lyses the liposomes, releasing the PGE1 into solution. This
solution is then applied via the urethral meatus (the opening at the end of the
urethral tract at the tip of the penis). In the case of the Psoriasis product,
the lyophilized product is suspended in a standard skin lotion and applied
topically to lesions twice daily.
On January 6, 1994, the Company acquired intellectual property rights
relating to prostaglandin microsphere delivery from Bio-Sphere Technologies,
Inc. ("BTI"). On February 13, 1996, the Company received an assignment of an
application from the U.S. Patent Office for a patent identified as Application
Serial No. 08/573408, filed December 15, 1995, for an invention "PGE1 Containing
Lyophilized Liposomes For Use In The Treatment of Erectile Dysfunction". On
February 17, 1998, The U.S. Patent Office approved and assigned patent No.
5,718,917 to the Company. The Company also filed an application for a European
Patent in December 1996. On November 20, 1997, the Company received the
Intellectual Property Rights to LLPGE1 Liposomes for the use of treatment of
Psoriasis from BTI.
Since inception, the Company has generated limited revenues and
incurred significant losses, including losses of $5,816,241, $2,438,944 and
$676,455 for the fiscal years ended December 31, 1997, 1996 and 1995,
respectively. Losses are continuing through the date of this filing and the
Company anticipates that it will continue to incur such losses until such time,
if ever, as the Company generates sufficient levels of revenues from product
sales to offset its operating costs. The Company believes that generation of
such revenues is dependent upon, among other things, the Company's ability to
obtain U. S. Food and Drug Administration ("FDA") approval. There can be no
assurance the Company will be able to operate profitably or be commercially
successful even if it receives funding for the development of the products.
The Company has spent approximately $1,374,675 in 1997 and $110,000 in
1996 on research and development costs to bring the products to the stages they
are at currently. The costs incurred associated with such steps conformed to the
Company's planned budgets for 1996 and 1997.
<PAGE>
PGE1 has been approved by the FDA for over 20 years for therapeutic use
as an intravenous infusion in newborn babies with congenital heart defects. PGE1
has also been approved by the FDA in the past three years, for the treatment of
ED, as an injection and as an intra-urethrally administered pellet. However, the
use of the specially formulated detergent to lyse the liposomes and the
lyophilizing of the liposome-encapsulated LLPGE1 requires full registration of
LLPGE1 with the FDA as a new drug. Accordingly, the Company filed an
Investigational New Drug ("IND") application with the FDA in May 1996 and has
been assigned IND No. 50502. LLPGE1 has undergone a Phase I clinical study, the
results of which indicated the possible benefits of such therapy and provided
the Company with sufficient information for the recommendation of two doses of
the product to be developed for marketing, as well as an indication of the
safety of the product.
On November 20, 1997, the Company received the Intellectual Property
Rights to LLPGE1 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 awarded 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 1 clinical trial.
The Company continues to qualify products in development
within BTI to determine safety, effectiveness, market potential, and time and
cost to commercialization. In addition, the Company is looking into existing
pharmacological agents of other pharmaceutical companies that could be made more
effective by utilizing the Company's delivery system technology. As of this
date, the Company is concentrating its personnel and financing resources
exclusively for the ED and Psoriasis treatments and has no immediate plans to
add additional products to the Company's commercialization and marketing
efforts.
THE MARKET
THE MARKET FOR ERECTILE DYSFUNCTION
Male ED occurs when there is a persistent inability to achieve an
erection sufficient to permit sexual intercourse. It is not a loss of desire or
the ability to experience orgasm. In about 75% of cases a medical condition such
as diabetes, vascular disease, high blood pressure or a neurological disorder is
found to be interfering with the erection process. An estimated additional 5% of
cases occur due to medications such as anti-hypertensive medications. Smoking
and excessive drinking of alcohol may also contribute to the condition. The
remaining 20% of cases may have some form of psychological difficulty, including
anxiety and stress. Often there is a combination of factors at work.
According to the Consensus Report of the American Medical Association,
ten to twenty percent of adult men in the United States suffer from ED. The
market for treatments for ED, such as LLPGE1, is expected to grow over the next
few years, as more men become comfortable with the fact that ED is treatable.
The aging of the male population as the so-called "Baby Boomers" enter middle
age is also expected to expand the market, since incidence of ED is likely to
increase with a man's age.
LLPGE1 treats ED in the following manner: The intra-urethrally applied
LLPGE1 is absorbed across the urethral mucosa into the corpus spongiosum. Some
of the dose enters the corpora cavernosum, while some of the dose goes into
pelvic venous circulation. The half-life of LLPGE1 varies from 30 seconds to 10
minutes, and intra-urethrally administered product is barely discernable in the
circulation. Alprostadil or PGE1, the active product in LLPGE1, is already
approved by the FDA for the treatment of ED. The PGE 1 , causes the smooth
muscle in the penile corpora to relax and dilates the penile arteries. This
results in the rapid filling of the corpora with blood, which causes the
compression of corporal sinusoids against the tunica albuginea, impeding venous
outflow. The result is the development of an erection.
<PAGE>
THE MARKET FOR PSORIASIS
Approximately three million people in the United States are afflicted
by Psoriasis and the disease consumes about two billion dollars allocated to
health care each year. According to the National Psoriasis Foundation, there are
approximately 2.4 million patient visits annually to dermatologist by Psoriasis
patients, with each dermatologist seeing an average of 28 patients per month.
The majority of the patients receive a topical steroid therapy, however most
patients develop a tolerance to the cortical steroid lotions and there is lack
of long term control of their Psoriasis.
A number of treatments for Psoriasis are partially effective and as
reviewed by Gerald J. Krueger M.D. in the New England Journal of Medicine, June
24, 1993, they are divided into three categories.
One: Topically applied agents such as cortical steroids, lotions,
anthrolin and vitamin D analogs.
Two: Exposure to ultraviolet light or artificial medium wave length
ultraviolet B radiation (UVB) or photoaugmented long wave length ultraviolet A
radiation (PUVA).
Three: Orally administered drug such as methotrexate, etretinate and
cyclosporine. PUV treatments are expensive, approximately $2,600 per year, while
methotrexate is less expensive, approximately $1,400 per year. Frequently such
treatments become ineffective with continued use and require cycling or
rotation.
In summary, using currently available therapies: 1) the topically
applied lotions become ineffective as tolerance develops, 2) the light therapies
are very expensive and become ineffective over time, and 3) the oral agents as
mentioned above can induce cancer, have serious liver toxicity and are reserved
for disease that is severe.
There is a genetic basis to the disease and the anti-rejection drug
cyclosporinc and the anti-cancer drug methotrexate usage supports the concept
that this is an inflammatory disease. There is some evidence that there is an
autoimmune process involved as well and that the involved skin and uninvolved
skin of patients with Psoriasis are equally hyperprofliferative when
transplanted to nude mice (Krueger G.J., Chambers D.A., Shelby J.; "Involved and
Uninvolved Skin from Psoriasis Subjects: Are They Equally Diseased? Assessment
by Skin Transplanted to Congenitally Athymic Nude Mice." J Clin Invest 1981;
Vol. 68; Pages 1548-57).
Therefore, inflammation is the common elements of Psoriasis inducing
symptoms. The inflammation is induced by a decrease in cell cycle duration of
the proliferative keratinocytcs in the psoriatic epidermis of approximately 1.5
days versus 13-14 days in normal epidermis. There is a subsequent increased
growth and altered differentiation of epidermal keratinocytes, which results in
accumulation, and activation of T-lymphocytes and other inflammatory cells
within a localized plaque. This then causes further inflammation which induces
the symptoms of Psoriasis. This remarkable decrease in the keratinocytes cycle
of the epidermis induces maturation and shedding within 4 days instead of the
normal 25-28 days found in normal skin.
What is needed to treat the symptoms of the disease Psoriasis is an
agent that mediates inflammatory components and subsequent immune response at a
local level. The prostaglandin's are ideal agents for this purpose, in fact
Hammerstrom, et al, in their paper "Arachadonic Acid Transformations in Normal
and Psoriatic Skin" in JOURNAL OF INVESTIGATIVE DERMATOLOGY, 1979: Vol. 73;
Pages 180-183, noticed elevated levels of 12H pete and free arachadonic acid in
lesions of Psoriasis indicating that the inflammatory components of Psoriasis
are probably generated by the activation of eicosanoid pathways. However, the
discovery was not translated to treatment because of the rapid acting nature of
the eicosanoids or prostaglandin's. Prostaglandin's, i.e. PGR-1 are involved in
the inflammatory reaction both for cellular healing and modulators of
inflammation. This occurs by direct immunologic mechanism as well as
vasodilatation and alteration of platelet and leukocyte adhesion and factor
release.
<PAGE>
COMPETITION
COMPETITION FOR ERECTILE DYSFUNCTION PRODUCT:
The market for treatment of ED is emerging and evolving and is
characterized a number of entrants. The company faces competition from a number
of existing and potential competitors. Pharmacia/ Upjohn, Schwarz Pharma and
Senetek each produce PGE1 in injectable formulations. Upjohn's product has
received regulatory approval worldwide, Schwarz Pharma's product is approved for
use in the United States and Europe, and Senetek's product has received FDA
approval for sale in the United States.
The product most similar to the Company's product is produced by Vivus,
Inc. It consists of a pellet containing PGE1which is released into the urethra
via the specialized MUSE(R) device designed specifically for this purpose. This
product, like injectable PGE1, has the potential for side effects, including
dizziness, drop in blood pressure and pain at application.
There are tablet formulations of ED products (phentolamine and
sildenafil) currently being evaluated for New Drug Application ("NDA") approval
by the Food and Drug Administration ("FDA"). NDA's for these oral products have
recently been submitted to the FDA. The tablet formulations have potential
benefits for patients who suffer from mild to moderate ED problems. However,
clinical trials have shown that they cause various side effects due to systemic
vasodilatation, which must be overcome. Pfizer and Zonagen are the two known
competitors developing tablet formulations.
Other competitors, Macrochem and NexMed are currently undertaking Phase
I clinical trials of a topical solution containing PGE1.
Other forms of competition are penile implants and vacuum pumps.
However, the Company anticipates that the market for these devices will decline
with the increasing awareness of various drug formulations which provide a more
natural erection.
COMPETITION FOR PSORIASIS PRODUCT:
There are a large number of companies that market topical steroids for
Psoriasis, however, these therapies are associated with potential systemic
toxicities of steroid dependence and their effects are transient.
Several companies produce vitamin D analogs which, while producing
little toxicity, have low therapeutic benefit.
A relatively new product, Tazorac, is a Vitamin A analog manufactured
by Allergan. Annual sales are in the $100 million range and increasing. This
product is very effective, has little system toxicity, but has local toxicity
such as burning and/or pain in 10-30% of patients.
Oral drugs include potent immunosuppressive agents such as
methotrexate, etretinate and cyclosporine. These products are limited by high
cost, toxicities associated with systemic immunosuppressive and development of
tolerance.
Finally, exposure to ultraviolet light and medium wave length
ultraviolet B radiation are effective but may enhance the risk of skin cancer.
All therapies combined produce a market with approximately two billion dollars
in sales annually in the United States alone.
COMPETITION FOR BOTH ERECTILE DYSFUNCTION AND PSORIASIS PRODUCTS
Although the Company is not aware of any additional technologies or
products which are functionally similar to those of the Company currently under
development, there can be no assurance that such technologies or products will
not be developed or that other companies with the expertise or resources that
would encourage them to attempt to develop or market competing products will not
develop new products directly competitive with LLPGE1. Some of the Company's
competitors and potential competitors have well-established reputations for
success in the development, sale and service of biopharmaceuticals and have
substantially greater financial, technical, personnel and other resources than
the Company, enabling them to undertake clinical testing of products, obtain
regulatory approvals and manufacture and market pharmaceutical products in
response to competitors seeking to market new products and enter into new
markets. In addition, there can be no assurance that the Company can complete
clinical testing of LLPGE1, obtain regulatory approvals and commence
commercial-scale manufacturing in a timely manner to be effectively competitive.
<PAGE>
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
Successful commercialization of LLPGE1 for ED and the psoriasis product may
depend in part upon the availability of reimbursement for the cost of related
treatment from third-party healthcare providers, principally Medicare, Medicaid
and private health insurance plans, including health maintenance organizations.
To the extent reimbursement is not provided or is limited, patients will have to
pay for the LLPGE1 and/or the psoriasis product out of their own pockets.
Third-party payers are increasingly challenging the price of medical products
and services, which have had and could continue to have a significant effect on
the purchasing patterns of many healthcare providers.
In markets other than the United States, reimbursement is obtained from a
variety of sources, including governmental authorities, private health insurance
plans and labor unions. In most foreign countries, there are also private
insurance systems that may offer payments for alternative therapies. Although
not as prevalent as in the U.S., health maintenance organizations are emerging
in some European countries. Accordingly, the Company may need to seek
reimbursement approvals in such other countries, although there can be no
assurance that any such approvals will be obtained in a timely manner or at all.
Failure to receive reimbursement approvals in such other countries could have an
adverse effect on market acceptance of the Company's product in those
international markets in which such approvals are sought.
The Company believes that reimbursement will be subject of increased
restrictions in the future in the U.S. and foreign markets. The overall
escalating cost of medical products and services has led to and will likely
continue to lead to increased pressures on the health care industry to reduce
the costs of products and services, potentially including products offered by
the Company. Significant uncertainty generally exists as to the reimbursement
status of newly approved healthcare products. Failure to receive adequate levels
of reimbursement for the use of prostaglandin in general, and LLPGE1 and/or the
psoriasis product could have a material adverse effect on the Company's
business, financial condition and results of operations.
PRODUCTION AND MANUFACTURING
One third-party manufacturer located in Southern California will
manufacture the Company's products and a second company will validate the
products. The manufacturers will produce the Company's product per the Company's
directions and specifications and deliver the product to the Company. The
Company sees no reason to acquire the equipment necessary for production at this
time and anticipates utilizing its existing current arrangement with outside
laboratories for the manufacturing of its products for distribution.
The Company anticipates that Sigma Chemical Company, Austin Chemical
Co., Inc., Spectrum Chemical Company, Interchem Corporation and West Company
will supply the ingredients from which LLPGE1, will be manufactured.
The Company is not aware of any environmental issues related to the use
of disposal of its product. The chemistry involved produces no damaging effects
on human, animal or plant life if exposed to the general population's air, water
or soil supply. The Company's previous manufacturer, Collaborative Laboratories,
did not disclose or relate any information indicating that the manufacturing
process would produce any environmentally harmful by-products.
MARKETING
The commercial success of LLPGE1 will require acceptance by urologists,
family practitioners with a significant elderly male clientele, medical doctors
practicing as sex therapists and the medical community as a whole. Such
acceptance will depend in large part on the results of the clinical trials for
both ED and Psoriasis, and the conclusion by these physicians that LLPGE1 is a
safe, cost-effective and acceptable method of treatment. Accordingly, achieving
market acceptance for LLPGE1 will require substantial marketing efforts and
expenditure of significant funds to educate doctors, pharmacists, and the public
about what the Company believes are the advantages and benefits of LLPGE1. To
that end, the Company is currently negotiating distribution agreements with
major international pharmaceutical companies in the United States, European and
South American markets. As is customary in the biopharmaceutical industry
operating in these markets, the Company anticipates that these distribution
agreements will provide for the distributor to pay the Company up-front
licensing fees and milestone payments. In addition, the distributor will be
responsible for the costs of registration and/or FDA approval and validations.
Despite these arrangements, the Company expects to expend over $3 million over
the first few years of launch in marketing support activities. Based on market
studies undertaken by the Company, it expects that sales of LLPGE1, both in the
United States and internationally, may generate material revenues to the Company
by the end of 2000.
<PAGE>
GOVERNMENT REGULATION
The Company is subject to various FDA regulations which govern or
influences the research, testing, manufacturing, safety, labeling, storage,
recordkeeping and advertising and promotion of pharmaceutical products,
biologics, and Class II devices. The Company believes it is in substantial
compliance with all material federal and state laws and regulations. There can
be no assurance, however, that the Company will be able, for financial and other
reasons, to comply with applicable laws, rules and regulations. Failure or delay
by the Company to comply with FDA regulations or other applicable regulatory
requirements could subject the Company to civil remedies, including fines,
suspensions, delays of approvals, injunctions, recalls or seizures of products,
operating restrictions, as well as potential criminal sanctions, which could
have a material adverse effect on the Company.
The Company is currently working with the FDA to conduct animal trials
prior to commencing Phase I studies of the Psoriasis product.
The Company's research, development, clinical trials, manufacturing and
marketing of LLPGE1 and topical Psoriasis cream are subject to extensive,
rigorous and frequently changing regulatory review process by the FDA and other
regulatory agencies in the U.S. and various foreign countries. The process of
obtaining and maintaining required regulatory approvals is lengthy, expensive
and uncertain. FDA procedures for approval of pharmaceuticals and biologics
involve clinical testing which occurs in three phases to demonstrate the safety
and efficacy of the product. Phase I clinical trials consist of testing for the
safety and tolerance of the product with a small group of subjects and may also
yield preliminary information about the effectiveness and dosage levels of the
product. Phase II clinical trials involve testing for efficacy, determination of
optimal dosage, and identification of possible side effects in a larger patient
group. Phase III clinical trials consist of additional testing for efficacy and
safety with an expanded patient group. Upon successful completion of Phase III
testing, a New Drug Application ("NDA") can be filed. Approval requires a review
of detailed data resulting from the clinical studies, the composition of the
drug, the labeling that will be used, information on manufacturing methods, and
samples of the products. After the FDA completes its review of the application,
a panel of medical experts typically reviews the product, and the applicant is
required to answer questions regarding its safety and efficacy. At the
recommendation of the panel, an NDA may be granted and the product may then be
marketed. After the product has been approved for marketing, Phase IV
post-marketing surveillance studies may be required to provide additional data
to the FDA for longer term follow-up concerns.
The Company submitted an Investigational New Drug ("IND") application
to the FDA in May 1996 for LLPGE1 ED product and has concluded its Phase I
trial. The results of the Phase I trial were presented to the FDA in April 1997
during the Company's pre-Phase II clinical trial meeting. At an October 1997
meeting, the FDA had questions regarding the Company's clinical studies
conducted prior to filing of the IND and requested additional information
regarding the product's stability and chemistry. As a result of the October 1997
meeting, on February 5, 1998, the Company completed and forwarded to the FDA the
reports requested by them. The company expects the FDA to complete their audit
shortly and believes approval to proceed to Phase II will be granted, although
there can be no assurance that such approval will be forthcoming.
Regarding the Phase II trial, the FDA recommended that the product's
dosage be increased by 50%, that the study's parameters be refined to conform
more closely to other equivalent studies, and that certain potential indirect
effects of the product's use be more closely monitored. The FDA did not require
the Company to perform any further animal studies but also prohibited the
Company from making any label claims based on the animal study it had previously
conducted, due to the small size of this study.
Currently, the manufacturing procedure is being scaled up, with assay
verification and validation in progress through Prima Pharma, Inc., located in
San Diego, California and Pyramid Laboratories, located in Fountain Valley,
California. The Company anticipates that an NDA will be filed with the FDA in
late 1999 or early 2000, assuming adequate data is generated upon conclusion of
the clinical trial program. It is estimated that the costs of competing the
above procedures for approval by the FDA will cost $10,000,000 to $12,000,000.
The Company expects that the FDA review process could last as long as two years.
<PAGE>
The Company expects that certain of its potential products also may be
regulated by the FDA as Class II devices upon completion of clinical testing.
Class II devices include urological catheters . A Form 510(k) for the catheter
to be used with LLPGE1 will be filed with the FDA at the time of the NDA
submission. This application must contain data demonstrating the safety of the
product for human use, as well as information on manufacturing processes and
procedures.
There can be no assurance that FDA or other regulatory clearance will
not take longer than currently anticipated because of delays, problems or
unforeseen safety difficulties or that regulatory clearance ever will be
granted, although the Company believes that FDA and other regulatory clearance
ultimately will be forthcoming. Failure to obtain FDA approval would prevent the
Company from marketing LLPGE1 in the U.S., which would have a material adverse
effect on the Company's business, financial condition and results of operations.
Even if regulatory approval is obtained, a marketed pharmaceutical product and
its manufacturer are subject to continuing regulatory review, and discovery of
previously unknown problems or amendments to existing statutes or regulations or
the adoption of new statutes or regulations could result in restrictions on such
product or manufacturer, including withdrawal of the product from the market.
At present, the Company also plans to distribute LLPGE1 in Europe and
South America, and Management believes that such distribution may generate
material royalty revenues by 2000. However, such distribution of the Company's
products outside the United States will also be subject to extensive government
regulation. These regulations, including the requirements for approvals or
clearance to market, and the time required for regulatory review and the
sanctions imposed for violations, vary from country to country. There can be no
assurance that the Company will obtain regulatory approvals in such countries or
that it will not be required to incur significant costs in obtaining or
maintaining its foreign regulatory approvals. Failure to obtain necessary
regulatory approvals, the restriction, suspension or revocation of existing
approvals or any other failure to comply with regulatory requirements would
prevent the Company from marketing LLPGE1 in such foreign country or countries,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
The manufacturing processes of the Company's product will be subject to
certain regulatory guidelines. These guidelines are laid down by the FDA. All
pharmaceutical manufacturers must conform to these guidelines. The FDA inspects
these facilities on a regular basis and any deficiencies are noted. The facility
must correct those deficiencies within a finite period of time.
Any new pharmaceutical facility must go through a strict inspection by
the FDA, in a full audit, and then adhere to the guidelines. Any facility not
adhering to these guidelines is subject to FDA regulatory action.
UNCERTAINTY OF PATENT PROTECTION; UNCERTAINTY OF PROTECTION OF PROPRIETARY
TECHNOLOGY
The strength of the Company's patent position may play an important role in its
long-term success. The Company is the assignee of Patent Application No.
08/573408, filed December 15, 1995, for an invention "PGE1 Containing
Lyophilized Liposomes For Use In The Treatment of erectile dysfunction." On
February 17, 1998, the U.S. Patent Office issued patent number 5,718,917 with
all claims allowed. There can be no assurance that this patent will be effective
to protect the Company's product from duplication by others. In addition, there
can be no assurance that the Company will be able to afford the expense of any
litigation which may be necessary to enforce its rights under this patent.
Moreover, although the Company believes that its product does not and will not
infringe upon the patents or violate the proprietary rights of others, it is
possible that such infringement or violation has or may occur. In the event that
the Company's product is determined to infringe upon the patents or proprietary
rights of others, the Company could be required to modify its product or obtain
a license for the manufacture and/or sale of the product, or could be prohibited
from selling the product. There can be no assurance that, in such an event, the
Company would be able to do so in a timely manner, upon acceptable terms and
conditions, or at all, and the failure to do any of the foregoing could have a
material adverse effect upon the Company. Furthermore, there can be no assurance
that the Company will have the financial or other resources necessary to enforce
or defend a patent infringement or proprietary rights violation action. In
addition, if the Company's product is deemed to infringe upon the patents or
proprietary rights of others, the Company could, under certain circumstances,
become liable for damages, which could also have a material adverse effect on
the Company. The Company commenced one action seeking a declaration of
non-infringement by Vivus, Inc. SEE ITEM 3. LEGAL PROCEEDINGS 5."
<PAGE>
The Company also relies substantially upon its proprietary technologies,
utilizing non-disclosure agreements with its employees, consultants and
customers to establish and protect the ideas, concepts and documentation of its
proprietary technology and know-how. Such methods, however, may not afford
complete protection, and there can be no assurance that third parties will not
independently develop such know-how or obtain access to the Company's know-how,
ideas, concepts and documentation, which could have a material adverse effect on
the Company.
POTENTIAL PRODUCT LIABILITY EXPOSURE AND INSURANCE EXPENSE
Upon the commencement of commercial production, the Company's business will
expose it to an inherent risk of potential product liability claims, including
claims for serious bodily injury or death, which could lead to substantial
damage awards. The Company currently maintains product liability insurance
through BTI, in the amount of $1,000,000, with a maximum payout of $3,000,000,
which is the standard insurance coverage for the biopharmaceutical industry. The
Company will seek to increase the level of such insurance as its products are
commercialized. There can be no assurance, however, that the Company will be
able to maintain or increase its insurance on acceptable terms or at reasonable
costs, or that such insurance will provide the Company with adequate coverage
against potential liabilities. A successful claim brought against the Company in
excess of, or outside of, its insurance coverage could have a material adverse
effect on the Company's results of operations and financial condition. Claims
against the Company, regardless of their merit or eventual outcome, may also
have a material adverse effect on the Company's ability to obtain physician
endorsement of its products or expand its business.
RELIANCE ON INTERNATIONAL SALES; CURRENCY EXCHANGE RISKS ASSOCIATED WITH
INTERNATIONAL SALES
The Company anticipates marketing LLPGE1 internationally, as well as in the U.S.
To the extent the Company is able to market its products in foreign countries,
the Company will become subject to the risks associated with international
sales, including, but not limited to, health and welfare regulatory controls
imposed by foreign governments, shipping delays, customs duties, export quotas
and other trade restrictions, increased collection risks and international
political, regulatory and economic developments, and exchange risks, any one of
which could have an adverse effect on the Company's operating results.
MILLENIUM YEAR 2000
The Company does not aniticipate any problem in dealing with computer
entries in the year 2000 or thereafter, with any computers currently used at any
of their facilities. The Company keeps current with all updates and revisions
with all software the Company currently use. It is anticipated that the software
updates reflect required revisions to accommodate transactions in the year 2000
and thereafter. All of the Company's computers are stand alone and due to the
minimal computer capacity, it is not anticipated that the Company will have a
problem at the turn of the century.
EMPLOYEES
As of December 31, 1997, the Company had seven full time employees.
These full time employees are engaged in administration, management, and
research & development activities. Three of the Company's officers and/or
directors, are full-time employees of the Company (Thomas E. Waite, Curtis A.
Orgill and Barbara L. Krilich. In addition, Dr. Jackie See and Dr. Darryl See,
as well as others, serve as consultants to the Company.). The Company has
written employment agreements for all of its employees and consultants. The
Company believes their relation with its employees is good.
The Company is dependent on the efforts and abilities of Jackie R. See,
M.D., its founder and director; and of Thomas E. Waite, its Chief Executive
Officer, President and Director. The loss of the services of any such officers
or other key personnel could have a material adverse effect on the Company's
operations. To the extent that the services of key personnel become unavailable,
the Company will be required to retain other qualified personal, for whose
services the Company will be in competition with other employers, many of which
have significantly greater resources than the Company. There can be no assurance
that the Company will be able to hire or retain such other qualified person. SEE
ITEM 6. "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION".
<PAGE>
LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada General Corporation Law ("NGCL") allows the Company
to indemnify any person who is or was made a party to, or is or was threatened
to be made a party to, any pending, completed, or threatened action, suit or
proceeding by reason of the fact that he or she is or was a director, officer,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise. The NGCL permits the
Company to advance expenses to an indemnified party in connection with defending
any such proceeding, upon receipt of an undertaking by the indemnified party to
repay those amounts if it is later determined that the party is not entitled to
indemnification.
The foregoing provision may reduce the likelihood of derivative litigation
against directors and officers and discourage or deter shareholders from suing
directors or officers for breaches of their duties to the Company, even though
such an action, if successful, might otherwise benefit the Company and its
shareholders. In addition, to the extent that the Company expends funds to
indemnify directors and officers, funds will be unavailable for operational
purposes.
In 1998 the Company obtained Directors and Officers insurance from American
International Group. The policy pays the loss of a director or officer of the
Company arising from a claim first made against the director of officer during
the policy period for an actual or alleged wrongful act. The per-claim maximum
limit liability coverage is $3,000,000 with the annual aggregate limit of
liability coverage also being $3,000,000. The retention for each loss coverage
is $75,000 for corporate matters and $250,000 for security matters. The policy
provisions include: no prior acts exclusion (i.e. all prior acts are included to
the extent a claim is made during the policy coverage period), 100% entity
coverage for security matters (if the claim names the Company and no officer or
director, the policy includes coverage for the company), employment practices
liability for directors and officers, including security suits, punitive damages
covered on security claims, green mail, and secondary offering for 30 days. The
policy does not include the "hammer clause" (limiting coverage to the amount of
a settlement offer received) nor listed events. The retention for securities
matters is refundable if the case is dismissed with or without prejudice. The
policy contains standard conditions and exclusions normal to this type of
policy.
COLLABORATIVE ARRANGEMENTS
The Company operates as a "virtual company" and relies on
subcontracting and collaborative arrangements for much of its research and
development, manufacturing, clinical trial and marketing operations. Since
January 1994, when BTI acquired the majority of the Company's Common Stock, the
Company has relied extensively on management, technical and financial services
provided by BTI. During 1997, the Company established an in-house management
team separating the operations of BTI from the Company's operations.
The Company has paid BTI for the LLPGE1 patent application and other
intellectual properties, as well as licensing and distribution agreements and
utilization of its scientific and technical personnel, with Company stock. The
Company initially issued 71,400 shares (originally issued 2,856,000 shares prior
to the 1 for 4 reverse stock split effective November 3, 1994 and the 1 for 10
reverse stock split effective February 2, 1998) to BTI in January 1994 for the
intellectual rights to the product with the stipulation that the company pay for
and effect a patent application. The Company was not able to fund the patent
process. To fund the patent application and for management assistance and
distribution agreements associates with the LLPGE 1 product, BTI received
613,850 shares of the Company's Common Stock in November 1995.
On November 20, 1997, the Company agreed to exchange 200,000 shares of
Common Stock (which have been issued) plus $150,000 to BTI for the Intellectual
Property Rights to Prostaglandin E1 Lyophilized Liposomes for the use of
treatment of Psoriasis. BTI is to receive a 3% override on royalties of the
Psoriasis product.
<PAGE>
Prior to 1997, the Company reimbursed BTI for the time contributed by
its employees and other overhead expense incurred by the Company at BTI's cost.
The Company paid BTI $40,501 in overhead expenses incurred in 1994, $67,979 in
1995 and $80,000 in 1996. During 1997, the Company established separate
operations from BTI whereby no overhead expenses incurred by the Company were
reimbursable to BTI.
The Company intends to continue to seek and enter into collaborative
arrangements with pharmaceutical distribution concerns to eventually distribute
LLPGE1.
OTHER FINANCING ARRANGEMENTS
1. In March 1997, pursuant to a private placement, the Company (a) sold to
Springrange Investment Group Ltd. $5,000,000 principal amount of 6%
Convertible Debentures (the "Debentures") 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. The investor may convert the Debentures into
Common Stock (the "Conversion Shares"), and the Company has the right to
require such conversion. The Company's has registered under the Securities
Act of 1933 of its Common Stock issuable upon conversion of its 6%
convertible debentures, which registration statement was declared effective
on August 14, 1997. As of February 28, 1998, of the $5,000,000 investment,
$2,450,000 has been converted, with the issuance of 3,858,308 shares of the
Company's Common Stock therefor. Sales of substantial amounts of Common
Stock, or the perception that these sales could occur, could adversely
affect, and the Company believes have adversely affected, prevailing market
prices for the Common Stock and could impair the ability of the Company to
raise additional capital through the sale of its equity securities or
through debt financing. No prediction can be made as to the effect, if any,
that future sales of shares of Common Stock, whether offered by the holder
or others, will have on the market price of the shares of Common Stock
prevailing from time to time. The Company has brought an action against
Springrange Investment Group in connection with its investment in the
Debentures. SEE ITEM 3."LEGAL PROCEEDINGS, PROCEEDING 7".
2. On January 13, 1998, the Company entered into a financing agreement (such
agreement, as amended on February 3, 1998, is herein referred to as the
"Financing Agreement") with Jackie R. See, a director and a controlling
stockholder of, and consultant to, the Registrant, and Thomas E. Waite,
President, Chief Executive Officer, Chairman of the Board of Directors and
a controlling stockholder of the Registrant, whereby such investors
("Investors") (a) purchased an initial tranche of 1,580,278 shares of the
Company's Common Stock (the "Initial Shares") for an aggregate purchase
price of $5,000,000, and (b) may purchase up to an aggregate of 592,605
additional shares of the Company's Common Stock (the "Additional Shares"),
upon certain terms and conditions, at an aggregate maximum additional
purchase price of $5,000,000. The initial funding of $5,000,000 was
effected on February 3, 1998 by the delivery to the Company by each of Dr.
See and Mr. Waite of a check for $7,901.39 and Promissory Notes due 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.
A fairness opinion has been obtained in connection with the Financing
Agreement from HD Brous & Co., Inc., a New York Stock Exchange member firm
located in Phoenix, Arizona.
Under the Financing Agreement, the Investors have the right, but not the
obligation, to invest up to an additional $5,000,000 to purchase Common
Stock, of which $2,500,000 would acquire 383,070 shares at $6.238 per share
and an additional $2,500,000 would acquire 197,534 shares at $12.656 per
share, so that if all available investments under the Agreement are made by
the Investors, they will invest $10,000,000 to acquire 2,172,882 shares of
Common, although there is no assurance that the Investors will make any
investment in registrant beyond the purchase for $5,000,000 already made.
All further purchases would be for cash to at least to the extent of the
$0.01 per share par value of the Common Stock, with the balance payable by
notes with the same maturity and interest rate as the notes used in
connection with the initial purchases under the Agreement. Additional
investments in Common Stock pursuant to the Agreement would be made in
tranches of $500,000 to $2,000,000 each. Dr. See and Mr. Waite contemplate
that they will participate equally in any additional purchases under the
Financing Agreement, but there is no requirement that they do so. The Board
of Directors of registrant ratified the Agreement on February 23, 1998,
with Dr. See and Mr. Waite abstaining from voting. Dr. See and Mr. Waite
approved the Original Agreement when they were the only directors of the
registrant. The Agreement will be submitted to the shareholders of the
Corporation for ratification at its next meeting of shareholders, at which,
in view of the shareholdings controlled by the Investors, it is expected
that shareholder ratification will be forthcoming.
<PAGE>
3. 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
of the 200,000 shares under the Securities Act of 1933, which is to be
accomplished by the Company as soon as practicable, 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.
ITEM 2. DESCRIPTION OF PROPERTY
The Registrant's occupies a total of three office locations:
1) 5,428 square feet in Irvine, California where the Registrant maintains
a research & development laboratory. Rent of $6,242 ($1.15 per square
foot) is paid monthly for the first year and is increased to $6,514 on
April 17, 1998 until the lease expires on April 30, 1999, (telephone
(714) 252-1942).
2) 2,992 square feet is occupied in Lake Mary, Florida where the world
headquarters and general operations of the Registrant are maintained.
Rent of $4,269 ($1.43 per square foot) is paid monthly beginning
December 15, 1997 through the expiration of the lease on December 31,
2000, (telephone (407)-324-1606).
3) 425 square feet is occupied in Reno, Nevada at the corporate
headquarters where all accounting operations are maintained. Rent of
$425 ($1 per square foot) is paid monthly beginning December 1, 1997
and expiring May 3, 1998, (telephone (702)-786-9005).
All of the properties leased by the Company are in good working
condition. The Company has secured property insurance for the above locations
occupied.
The Registrant does not own any real estate, nor is the Registrant
engaged in the business of investing in real estate or real estate mortgages.
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS RESOLVED INVOLVING RELATED PARTIES:
1. HARVARD SCIENTIFIC CORP. V. NEVADA AGENCY AND TRUST COMPANY AND
THOMAS E. WAITE & ASSOCIATES, Case No. CV96-0495, Second Judicial District Court
of Nevada, County of Washoe, filed August 2, 1996. This action involved a
dispute over performance of an agreement between the Company and a consultant,
Thomas E. Waite & Associates ("TEW"), which had been issued 35,000 shares of
Common Stock in exchange for services to be performed by TEW. TEW was and is
only owned by Thomas E. Waite, President, CEO, Chairman of the Board, and a
controlling stockholder of the Company. Those services involved obtaining the
financing for the Registrant. In this action, the Registrant claimed that TEW
had not performed those services and had breached its agreement with the
Registrant. Nevada Agency and Trust Company, the Registrant's transfer agent,
was included as a defendant in order to enjoin the transfer of the 35,000 shares
which had been issued to TEW. The Company sought to recover damages for TEW's
breach of contract and obtain a declaratory judgment declaring the agreement
between the Company and Waite null and void, and canceling the shares issued to
TEW.
This action was settled amicably between the parties and is no longer
pending. Under the terms of the settlement agreement, the Company acquiesced in
the transfer of the 35,000 shares of Common Stock to TEW and issued additional
shares of 56,875 to TEW. SEE NOTE 10 TO THE FINANCIAL STATEMENTS.
<PAGE>
2. D. WECKSTEIN AND CO., INC. V. HARVARD SCIENTIFIC CORP. AND THOMAS E.
WAITE & ASSOCIATES, INC., Index No. 97-103324, Supreme Court of New York, County
of New York, filed February 18, 1997. In this action, Weckstein claimed that the
Company breached an agreement between it and the Company whereby Weckstein
agreed to help the Company obtain financing in exchange for 25,000 shares of the
Company's Common Stock. Weckstein also sought damages against TEW, claiming that
TEW tortuously interfered with the agreement between the Company and Weckstein.
Weckstein also sought damages for alleged fraud on the part of TEW, in
connection with its dealings with Weckstein.
Weckstein also brought a cause of action against the Company for "abuse
of process" in connection with the filing a Nevada action that had been brought
by the Company against Weckstein. In this claim, Weckstein asserted that the
Nevada Court has no personal jurisdiction over either of the defendants to the
Nevada action, and that the Company brought the action in Nevada simply to
inconvenience Weckstein.
This suit and countersuit has been settled amicably between the parties
and is no longer pending. Under the terms of the settlement agreement, the
Company caused 3,500 shares of the Company's Common Stock to be delivered to
Weckstein.
3. NEIL ARMSTRONG V. HARVARD SCIENTIFIC CORP., DON STEFFENS, DR. JACKIE
R. SEE, IAN HICKS, AND DOES I THROUGH X, Case No. A371879 District of Nevada,
County of Clark, filed April 4, 1997. In this action, the plaintiff, a former
officer and director of the Company, alleges that the Company breached the terms
of an employment agreement he alleges he had with the Company. The plaintiff
alleges that the Company wrongfully terminated his employment with the Company
and that the other defendants conspired with one another to wrongfully terminate
his employment with the Company. The complaint seeks compensatory damages,
punitive damages and reasonable attorneys' fees and costs in a total amount
exceeding $10,000.
This litigation has been settled amicably between the parties and is no
longer pending. Under the terms of the settlement agreement, the Company paid
Armstrong 20,000 shares of the Company's Common Stock plus $10,000.
LEGAL PROCEEDINGS UNRESOLVED:
4. 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' former transfer agent, to relinquish all records of the Company's to a
newly appointed transfer agent located in Salt Lake City, Utah. Harvard was
granted the injunction and the records were transferred to the new transfer
agent on January 6, 1998. Harvard is considering amending its complaint against
Nevada Agency & Trust to add additional causes of action for damages, and
additional defendants. The Company believes that Nevada Agency & Trust Co. is
owned by Cecil Ann Walker, wife of Alexander H. Walker, Jr., former Director,
Secretary, and General Counsel to the Company and Chairman of the Board of
Nevada Agency & Trust Company.
5. 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. Vivus asserted they had ownership rights to
this patent. 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 judgement of
non-infringement of the patent. Defendant filed a motion asking for dismissal of
the plaintiff's declaratory judgement action on the basis that there is no
infringement and, therefore, no actual controversy. Vivus now assets 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 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 for the Company to amend.
<PAGE>
6. 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 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. In February 1998, the
Company requested the Court to stay the State Court action pending binding
arbitration in the action filed against the Company by the plaintiff. The
Company's request for arbitration is pending.
7. 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 a 6% debenture holder
arising out of the Securities Purchase Agreement executed on or about 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.
The Company will not be honoring any requests by the defendant to convert the
debenture balance into Common Stock until this matter has been resolved. SEE
NOTES 11 & 13 TO THE FINANCIAL STATEMENTS AND ITEM 1. "DESCRIPTION OF BUSINESS -
OTHER FINANCING ARRANGEMENTS".
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. Springrange also sought injunctive relief requiring the
Company to deliver shares of Common Stock pursuant 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. Springrange is free to pursue its claims independently or in this action
if the Company files an amended complaint.
8. 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 him 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 litigations. SEE NOTE 13 TO THE FINANCIAL STATEMENTS.
OTHER NEGOTIATING MATTERS
9. 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 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 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 advise 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 they have 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.
<PAGE>
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 demand required a response by Pharma no later than March 13, 1998. Pharma
responded and with a settlement proposal which was declined by the Company.
Pharma then indicated that it was in the process of selecting Nevada counsel. If
Pharma does not notify the Company of its legal counsel obtained in Nevada by
March 20, 1998, the Company intends to request the Nevada District Court to
compel the arbitration. SEE NOTE 9 & 13 TO FINANCIAL STATEMENTS AND FORM 8K
FILED FEBRUARY 23, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company began trading on the system of the
National Association of Securities Dealers, Inc. (NASD) known as the OTC
Electronic Bulletin Board under the symbol "HVSF" in June 1995. On February 3,
1998, the Company changed the symbol to "HVSFD" as a result of the 10 for 1
reverse stock split. The Company continued to use the "HVSFD" symbol through
March 5th, 1998, at which time the symbol reverted back to "HVSF", and continues
to be traded thereunder.
The following table sets forth the range of high and low bid quotations
for the Company's Common Stock for each quarterly period indicated, as reported
by brokers and dealers making a market in the capital stock. Such quotations
reflect inter-dealer prices without retail markup, markdown or commission, and
may not necessarily represent actual transactions:
<TABLE>
COMMON STOCK
------------
<CAPTION>
QUARTER ENDED HIGH BID LOW BID
------------- -------- -------
<S> <C> <C>
March 31, 1998 * $ 9.40 $ 3.00
December 31, 1997 $ 14.10 $ 2.90
September 30, 1997 $ 22.50 $ 9.40
June 30, 1997 $ 61.90 $12.50
March 31, 1997 $ 81.30 $25.00
December 31, 1996 $ 26.20 $ 8.70
September 30, 1996 $ 33.10 $15.00
June 30, 1996 $ 72.50 $21.90
March 31, 1996 $166.30 $52.50
------------------------------------
* Includes January 1, 1998 through March 18, 1998
</TABLE>
The approximate number of record holders of the Registrant's capital
stock as of December 31, 1997 and March 18, 1998 were 192 and 207, respectively.
<PAGE>
Dividends:
The Registrant has never paid cash dividends on its capital stock and
does not intend to do so in the foreseeable future. The Registrant currently
intends to retain its earnings, if any, for the operation and expansion of its
business.
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 14, 1997.
1. September 25, 1995, the corporation issued 20,350 shares to officers,
directors or consultants for services to the Company:
Purchaser No. of Shares
--------- -------------
Rex Morden 2,100
Alexander Sparkuhl 500
Neal Armstrong 5,000
Steven Rayman 7,500
Eric Savage 3,250
Jackie R. See 2,000
----------------
20,350
================
All shares listed in this paragraph were issued in reliance upon the
exemption provided by Section 4(2) of the Securities Act of 1933, in view
of the sophistication of the issuee.
2. On December 7, 1995, the Company issued 613,850 shares of its Common Stock
to BTI for BTI's assistance in raising working capital, prosecuting the
patent application, management assistance and for assignment of rights
under the Distribution Agreements for LLPGE1. Such shares were issued in
reliance upon the exemption from registration provided in Section 4(2) of
the Securities Act of 1933, in view of the sophistication of the issuee.
3. On December 11, 1995, the Company issued 20,000 shares of its Common Stock
to Baltic Trust Company, a non-U.S. entity in connection with a private
placement of the Company's shares pursuant to Regulation "S" promulgated
under the Securities Act of 1933. All such shares subsequently were
returned to the Company's treasury as a result of a failure of
consideration for the issuance of such shares.
4. During November 1995, the Company entered into a two-year agreement with
Thomas E. Waite & Associates, then and now wholly owned by Thomas E. Waite,
President, Chief Executive Officer, Director and a controlling stockholder
of the Company, to provide an array of business services to enhance the
Company's asset base and further the development of the Company's business
plan. The contracted services included public/investor relations, marketing
and sales plans, identifying strategic partnership arrangements, and other
opportunities that would enhance the market value and viability of the
Company. On December 15, 1995, the Company issued to Thomas E. Waite 35,000
shares of Common Stock in consideration of the services to be provided for
the two-year duration. Such shares were issued pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933, in view
of the sophistication of the issuee.
5. On December 27, 1995, the Company issued 20,000 shares of its Common Stock
in connection with an offering of the Company's shares pursuant to Rule 504
promulgated under the Securities Act of 1933. Such shares were issued to
Rosehouse Ltd. in exchange for the consideration of $831,300.
6. On January 12, 1996, the Company issued 1,000 shares of its Common Stock in
connection with consulting services rendered to the corporation by Dr.
Joseph L. Williams, one of the individuals on the Company's Scientific
Advisory Board, in exchange for research and development conducted by the
individual. Such shares were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, in view of
the sophistication of the issuee.
7. On April 12, 1996, the corporation issued 18,000 shares of its Common Stock
to Alexander H. Walker, Jr., in connection with legal services rendered to
the Company. On July 5, 1996, the Company issued 2,000 shares of its Common
Stock each to Alexander H. Walker, III and J.T. Cardinalli for legal
services rendered for the Company. Such shares were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of
1933, in view of the sophistication of the issuees.
8. On June 10, 1996, the Company sold $500,000 of 7% Convertible Debentures in
the following aggregate principal amounts: $250,000 to Wood Gundy London
Limited, $150,000 to Ailouros Ltd. and $100,000 to DJ Limited. All such
Debentures were issued pursuant to the exemption from registration under
Regulation "S" promulgated under the Securities Act of 1933.
<PAGE>
9. On August 15, 1996, the Company issued 3,333 shares of its Common Stock to
Ailouros Ltd. as a result of Ailouros Ltd.'s conversion of $25,000 of the
7% Convertible Debentures it purchased from the Company on June 10, 1996.
Such shares were issued in reliance upon the exemption from registration
under Regulation "S" promulgated under the Securities Act of 1933.
10. On August 22, 1996, the Company issued 15,385 shares of its Common Stock to
Wood Gundy London Limited as a result of Wood Gundy's conversion of
$125,000 of the 7% Convertible Debentures it purchased from the Company on
June 10, 1996. The Company also issued 12,308 shares of its Common Stock to
DJ Limited on this date as a result of DJ Limited's conversion of $100,000
of the 7% Convertible Debentures it purchased from the Company on June 10,
1996. All such shares were issued in reliance upon the exemption from
registration under Regulation "S" promulgated under the Securities Act of
1933.
11. On November 20, 1996, the Company issued 1,500 shares of its Common Stock
to Dr. Joseph J. Williams for consulting services rendered to the Company.
The Company also issued 550 shares of its Common Stock to Stock Desk
Communications Ltd. for printing services rendered to the Company. The
Company also issued 1,000 shares of its Common Stock to Dr. Alexander
Sparkuhl for consulting services rendered to the Company. Except as to the
550 shares issued to Stock Desk Communications Ltd., all such shares were
issued pursuant to the exemption from registration under Section 4(2) of
the Securities Act of 1933, in view of the sophistication of the issuee.
The 550 shares issued to Stock Desk Communications Ltd. were returned to
the treasury on May 12, 1997, due to the fact that, subsequent to the
issuance of these shares, the Company learned that such printing services
had been paid for in cash and that the issuance of the 550 shares
constituted a double payment for such services.
12. On December 18, 1996, the Company issued 56,875 shares of its Common Stock
as part of a settlement agreement in the litigation between the Company and
Thomas Waite & Associates described herein. SEE ITEM 3. " LEGAL
PROCEEDINGS". Such shares were issued in reliance on the exemption from
registration under Section 4(2) of the Securities Act of 1933, in view of
the sophistication of the issuee. On February 26, 1997 the shares were
reissued pursuant to a court order which approved such issuance, after a
hearing on the fairness of the terms and conditions of such issuance. The
issuance of such shares was in accordance with Section 3(a)10 of the
Securities Act of 1933.
13. On January 20, 1997 and January 30, 1997, the Company sold Ronald E.
Patterson 10,000 and 5,000 shares, of Common Stock for $50,000 and $25,000,
respectively. The closing bid prices on January 20 and January 30, 1997
were $31.20 and $42.90, respectively. On February 19, 1997, the Company
sold Ronald E. Patterson 10,000 shares of Common Stock in exchange for
$50,000. The closing bid price on February 19, 1997 was $73.70. Such shares
were issued pursuant to the exemption from registration under Section 4(2)
of the Securities Act of 1933, in view of the sophistication of the issuee.
14. On March 18, 1997, the Company issued a total of 127,000 shares of its
Common Stock to eight (8) individuals for legal and consulting services and
for services rendered by officers and directors of the Company.
Purchaser No. of Shares
--------- -------------
Ian Hicks
25,000
Don Steffens
25,000
Ronald E. Patterson
10,000
Alexander H. Walker, Jr.
18,000
Alexander H. Walker III
2,000
J.T. Cardinalli
2,000
Roger T. M.D.
10,000
Jackie R. See
35,000
----------------
127,000
================
<PAGE>
Such shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933.
15. On March 21, 1997, the Company sold $5,000,000 aggregate principal amount
of 6% Convertible Debentures to Springrange Investment Group Ltd. The
agreement is 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. The investor may convert the Debentures into
Common Stock (the "Conversion Shares"), and the Company has the right to
require such conversion. Shares issuable upon conversion have been
registered under the Securities Act of 1933, declared effective on August
14, 1997. The 6% Convertible Debentures were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of
1933. SEE ITEM 1 "DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS",
AND ITEM 3. "LEGAL PROCEEDINGS."
16. On April 18, 1997, the Company issued a total of 20,000 shares of Common
Stock to David E. Jordan and persons designated by Mr. Jordan, for
assisting the Company in securing funding through the debenture holder,
Springrange Investment Group, as follows:
No. of
Purchaser Shares
--------- ------
David E. Jordan 16,680
Robert E. Jordan 200
Michael H. Jordan 200
A.L. Molesworth, Inc. 2,500
Lenora Todaro 200
Anita Grossfield 200
Lisa R. Gerren 20
17. On June 6, 1997, the Company issued a total of 100,000 shares to David E.
Jordan and persons designated by Mr. Jordan. Such shares were cancelled for
failure of consideration and returned to the treasury on August 8, 1997.
18. On June 10, 1997, the Company issued 597,200 shares, as follows:
No. of
Purchaser Shares
--------- ------
Anita Wassgren See Trust 100,000
Jackie R. See * 300,000
Don A. Steffens 100,000
Alexander H. Walker, Jr. 87,200
Joseph L. Williams, M.D. 10,000
* The 300,000 shares issued Jackie R. See have demand registration rights
under the Securities Act of 1933, which rights have been exercised.
All such shares were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, in view of the
sophistication of the issuees.
19. On June 12, 1997, the Company issued 45,000 shares to Ailouros Ltd. in
settlement of a litigation settlement. SEE ITEM 3. " LEGAL PROCEEDINGS".
Such shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933.
<PAGE>
20. On September 23, 1997, the Company issued 16,900 shares, as a reimbursement
of legal fees and services, as follows:
No. of
Purchaser Shares
--------- ------
Ronald E. Patterson 11,000
Martin Bennett 200
Mark Bradley 200
Max Carter 2,500
David Miller 3,000
On October 13, 1997, Max Carter returned 2,500 shares to the treasury. All
such shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, in view of the sophistication
of the issuees.
21. On October 20,1997, the Company issued 20,000 shares to Neil Armstrong in
settlement of litigation with the Company. SEE ITEM 3. " LEGAL
PROCEEDINGS". Such shares were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933.
22. On November 14, 1997, the Company issued 50,000 shares to Darryl M. See,
M.D., in exchange for research and development consulting services and
400,000 shares to Thomas E. Waite to induce him to work for the Company and
provide an incentive for his successful performance as President and Chief
Executive Officer. The grant of the 400,000 shares is irrevocable and the
amount of the grant was determined, in view of the cessation of the active
business of Thomas E. Waite & Assoc. at the time of Mr. Waite's employment
to enable him to devote his entire business time to the affairs of the
Company. Such shares were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, in view of
the sophistication of the issuees. The 400,000 shares issued Thomas E.
Waite have demand registration rights under the Securities Act of 1933,
which rights have been exercised.
23. On November 25, 1997, the Company issued 370,000 shares for services or
signing bonuses or intellectual property rights, as follows:
No. of
Purchaser Shares
--------- ------
Biosphere Technology, Inc. (1) 200,000
Kostech Data Corporation (2) 10,000
Curtis A Orgill (3) 50,000
Ronald E. Patterson (2) 25,000
Michael Snell (4) 25,000
Martin E. Janis (2) 50,000
Lorenz M. Hofmann Ph.D. (2) 10,000
(1) Shares issued for the transfer of intellectual property rights.
(2) Shares issued in exchange for services performed.
(3) Shares issued to induce the employee to work for the Company and to provide
an incentive for his successful performance as Treasurer and Chief
Financial Officer.
(4) Shares issued to induce the employee to work for the Company and to provide
an incentive for his successful performance as Director of Public
Relations.
Such shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, in view of the sophistication
of the issuees. On December 10, 1997, the 25,000 shares issued to Ronald E.
Patterson were cancelled and returned to treasury for failure of
consideration. The balance of the shares shown above were cancelled without
proper corporate authority and reissued to correct such improper
cancellation at a later date. SEE NO. 26 BELOW AND ITEM 3. "LEGAL
PROCEEDINGS, PROCEEDING NO. 8".
24. On January 16, 1998, the Company issued 100,000 shares to CIBC Wood Gundy
London Limited. The parties came to an agreement on a litigation issue
resolved on December 26, 1997. Such shares were issued pursuant to the
exemption from registration under section 4(2) of the Securities Act of
1933, in view of the sophistication of the issuees.
25. On January 22, 1998, the Company reissued 10,000 shares to Kostech Data
Corporation. See Item 23 above.
26. On January 26, 1998, the Company issued or reissued a total of 625,000
shares to the following:
Purchaser Ref. No. of Shares
Biosphere Technology, Inc. (1) 200,000
Dr. Darryl See (3) 200,000
Pyramid Laboratories (4) 15,000
Curtis A Orgill (1) 50,000
Barbara L. Krilich (5) 50,000
Michael Snell (2) 50,000
Martin E. Janis (1) 50,000
Lorenz M. Hofmann Ph.D. (1) 10,000
----------------
625,000
================
(1) These shares were reissued, see Item 23 above.
(2) See Item 23 above as to 25,000 shares. 25,000 shares were issued as an
additional incentive to induce the employee to work for the Company and
to provide an incentive for his successful performance as the Company's
Director of Public Relations.
(3) Shares issued to induce the employee to work for the Company and to
provide an incentive for his successful performance as the Company's
Chief Clinical Investigator.
(4) Shares issued in settlement of a debt.
(5) Shares issued to induce the employee to work for the Company and to
provide an incentive for her successful performance as the Company's
Secretary and Chief Operating Officer.
Such shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, in view of the sophistication
of the issuees.
27. On February 3, 1998, Dr. Jackie R. See and Mr. Thomas E. Waite
("Investors") each invested $2,500,000 in the registrant and received
shares. Such shares were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933. The shares have demand
registration rights under the Securities Act of 1933, which rights have
been exercised. SEE ITEM 1 "DESCRIPTION OF BUSINESS - OTHER FINANCING
ARRANGEMENTS".
28. 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. On February 11,1998, the
Company issued a total of 10,000 shares, 5,000 to each new independent
Director of the Company, Col. Robert T. Hayden, USA (Ret) and Martin J.
Holloran. Such shares were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933.
29. On February 18, 1998, the Company issued 200,000 shares of Common Stock to
an investor, O. Lee Tawes III, for payment of $600,000. Such shares were
issued pursuant to the exemption from registration under Section 4(2) of
the Securities Act of 1933. The shares have demand registration rights
under the Securities Act of 1933, which rights have been exercised. SEE
ITEM 1. "DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS".
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
The discussion contained in this Item 6 is "forward looking", as that term is
identified in, or contemplated by, Section 27A of the Securities Act and Section
21E of the Exchange Act. Accordingly, actual results may materially differ from
projections. Additional information concerning factors that could cause actual
results to differ materially is readily available in this 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 said 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 two products, (i) a therapeutic treatment for male
erectile dysfunction and, (ii) a topical treatment for psoriasis. The Company
presented the results of its Phase I clinical study on the erectile dysfunction
treatment product to the FDA in April 1997, as part of its pre-Phase II clinical
trial meeting. The FDA is currently auditing the data from its Phase I study.
Protocols and research sites for the Phase II study are complete and the Company
is currently awaiting FDA approval to proceed with its Phase II clinical trials.
The Company voluntarily placed the psoriasis product on clinical hold with the
FDA until additional data, both qualitative and quantitative, could be collected
to determine the exact systemic reactions, if any, to the body. The FDA
requested that the Company conduct more animal trials, specifically dog trials,
to provide this data. The Company also believes that the data resulting from
these trials may suggest that an opportunity exists for the Company to consider
a potential additional therapeutic product to treat animal skin conditions,
specifically mange.
During fiscal years 1994 through 1997, the Company's activities
consisted primarily of raising capital, identifying a core management team,
developing a patent application for its ED product and the submission of this
application to the U.S. Patent and Trademark office (which resulted in the
issuance of said patent), 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'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 ED treatment product. The U.S. Patent and Trademark
Office issued patent number 5,718,917 to the Company on February 17, 1998.
The Company is confident 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 thereby, during the next twelve months it is not expected that the
Company will need to hire any additional employees. Since the middle of November
1997: (i) the Company received an Investigational New Drug ("IND") number 54,669
from the FDA Division of Dermatology and Dental Drug Products for its new
product, PsoriClear, (ii) its International Patent Application, No.
PCT/US96/18820 (International Publication No. W097/2234), received a favorable
Preliminary Examination Report, from the U.S. Patent and Trademark Office
Examiner acting as the International Preliminary Examining Authority, (iii) 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,
(iv) a financing agreement to provide funds of up to $10,000,000 was signed
between the Company and its two largest shareholders, 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 and, (v) stability studies on lyophilized
liposomal Prostaglandin E1 conducted with the collaborative efforts of Pyramid
Labs, Inc. in Costa Mesa, California has proven that LLPGE1 remains stable
without any degradation and chemical breakdown at room temperature for at least
9-months. These stability studies are ongoing in order to determine the exact
shelf-life for the Company's products at room temperature.
<PAGE>
Over the next 12 months, the Company's primary focus will be on
continuing clinical trials and product validation of its ED product to conform
to the regulatory process of the FDA. Also, the Company intends to move forward
in parallel and has undertaken efforts to identify companies with similar
technologies or companies seeking new proprietary products to strengthen their
existing market position. This strategy is directed toward 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 its
current two projects, with particular emphasis on the ED product.
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 greatly enhance the
Company's ability to bring its products to market more quickly, thus insuring
the Company an opportunity to maximize its profitability from the remaining life
of its patent for its products which was issued February 17, 1998. Without the
benefit of an industry partner, the Company believes that an 18 to 24 month
time-line to obtain regulatory approval is the current assumption, but there can
be no assurance, if ever, that the product will receive FDA approval in that
time span.
In the next 12 months, the Company's future success is dependent upon
its ability to raise additional funds to complete the commercialization process
for its ED treatment product and its psoriasis treatment product either through
strategic agreements (i.e. licensing, distribution or joint venture) or through
private placements or 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. The Company will continue to seek such
practices of raising such funds in the future, however, there is no assurance
that they will prove successful.
In January 1998, a financing agreement to provide funds of up to
$10,000,000 was signed between the Company and its two largest shareholders,
Thomas E. Waite, President and Chief Executive Officer, and Jackie R. See, M.D.,
F.A.C.C., Director of Research and Development. The notes of $2,492,098.61 each
are due and payable on March 31, 1999. For the terms of this transaction, sEE
ITEM 1."DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS". In February
1998, an investor purchased 200,000 shares of the Company's Common Stock for an
initial funding of $600,000 SEE ITEM 1 "DESCRIPTION OF BUSINESS - OTHER
FINANCING ARRANGEMENTS".
The Company does not expect to purchase or sell any significant
equipment.
RESULT OF OPERATIONS:
FOR THE YEAR ENDED DECEMBER 31, 1996:
The Company experienced an increase in administrative and general
expenses primarily as a result of increased consulting, legal and professional
fees. These fees were paid mostly to auditors, attorneys and marketing
consultants. In addition, the Company experienced an increase in payroll costs,
as it had four employees until December 6,1996, when a management change took
place. As a result of this management change, Neal Armstrong, Rex Morden,
Stephen M. Goldberg and David F. Miller were removed and Don Steffens and Ian
Hicks were appointed as officers and directors of the Company.
During 1996, the Company's activities centered on continued fund
raising efforts and development of the product. The Company submitted an IND to
the FDA and concluded a Phase I clinical trial. The Company started the year
with a cash balance of $799,466. The Company raised funds though the sale of
$500,000 aggregate principal amount of 7% Convertible Debentures ("7%
Debentures") in June 1996 and incurred $500,000 in interest expense thereon. The
Company received revenues of $181,000 resulting from the supply of its product
to its Korean distributor for the conduct of clinical trials and incurred
research and development and other costs of the goods sold in the amount of
$326,423. The Company also incurred $494,813 in costs for legal settlements,
based on the fair market value of 568,750 shares issued to Thomas Waite &
Associates ("Waite") in settlement of litigation between the Company and Waite.
SEE ITEM 3 "LEGAL PROCEEDINGS." The net loss for the year ended December 31,
1996 amounted to $2,438,944.
<PAGE>
FOR THE YEAR ENDED DECEMBER 31, 1997:
The Company's major financial transaction for the year was the issuance
of $5,000,000 aggregate principal amount of 6% Convertible Debentures. The
issuance of such Debentures brought a net amount of $4,375,000 into the
Company's general operating account in March 1997. The Registration Statement on
form SB-2, registering the 6% debenture transaction, became effective on August
14, 1997. Indeed, almost all of the cash generated by the Company's operations
for the year ending December 31,1997 came from the issuance of this 6%
Debenture. SEE ITEM 1. "DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS".
The Company had no net sales during year, and, accordingly, had no cost
of sales for the year. However, in 1996, the Company incurred sales of $181,000
and a cost of sales of $216,867 for the year as result of selling clinical
supplies to Korea. Accordingly, gross profit in 1996 was a loss of $35,870. The
difference in the sales figures for 1997 vs. 1996 is attributable primarily to
the Company's focus on raising investment capital in 1997. In 1997, the Company
focused on completing the required regulatory review process for its ED product
and introducing their psoriasis product, as opposed enhancing promotions of the
Company's products, as was the case in 1996.
During 1997, the Company also experienced a significant increase of
$1,051,065 in operating expenses over what was experienced in 1996. This
increase is a result of several factors including: 1) identifying a core
management team, 2) opening a new Corporate office in Reno, Nevada and a new
World Headquarters in Lake Mary, Florida, 3) other administrative costs
associated with the clinical trials on both ED product and the psoriasis
product, and 4) expanding efforts to raise additional capital. Consequently,
salaries increased approximately $213,500 and rent and office overhead increased
approximately $90,000. The Company focused on expanding public relations, which
resulted in an additional cost of approximately $486,000 for 1997. As a result
of securing the 6% debenture holder, the Company paid approximately $750,000 in
finder fees, of which $625,000 is amortized over a 12-month period ending March
1998. Legal and professional fees increased by approximately $136,000.
During 1997, the Company experienced a significant increase in research
& development costs over those incurred in 1996. This increase of $1,265,122 is
a direct result of completing the clinical trials on Phase I study on the ED
product submitted to the FDA in April 1997. Furthermore, the Company has
prepared the protocols for the Phase II study and is awaiting FDA approval
before proceeding with the clinical trials. In addition, the Company has
prepared for the Phase I clinical trials for its psoriasis product. The costs
incurred associated with such steps conformed to the Company's planned budgets
for 1996 and 1997.
The increase in depreciation and amortization of $473,741 in 1997 is
the amortized portion of the deferred issuance cost on the 6% Debenture of
$468,750. The balance of $156,250 will be amortized within the first quarter of
1998. SEE ITEM 1 "DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS".
The Company expensed $220,816 to legal settlements in 1997, SEE IN ITEM
7. - FOOTNOTE 10 TO THE FINANCIAL STATEMENTS. Dividend income increased 100% in
1997, however interest expense also increased by $949,857 as a result of the
$5,000,000 6% Debenture received in March 1997.
Management anticipates that general and administrative expenses will
continue to be incurred in similar amounts throughout 1998 as the Company
continues to seek additional investment capital and expand its operations. In
addition, research & development costs will continue to increase as the Company
moves forward with FDA approval and continues to bring its products to market.
The Company will continue to incur legal expenses in connection with litigation
which the Company is involved.
ITEM 7. FINANCIAL STATEMENTS
<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>
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>
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.
1
<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.
2
<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.
3
<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 on the day before - 250,000 -
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.
4
<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.
5
<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.
6
<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.
7
<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
8
<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
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.
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.
9
<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.
10
<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
11
<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
oppose the motion and requested injunctive relief. A hearing on the motion
is scheduled in March 1998.
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.
12
<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:
13
<PAGE>
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
-----------------
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; 10,000,000 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
=================
14
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The financial statements of the Company for the year ended December 31,
1997 included in this filing, have been audited by Ronald D. Simpkins,
independent certified public accountant, as set forth in his report thereon
appearing in Item 6. herein. The financial statements of the Company included
for the years ended December 31, 1996 and 1995 have been audited by Dale McGhie,
independent certified public accountant, as set forth in his report thereon
appearing elsewhere herein. Both Mr. Simpkins' report and Mr. McGhie's report
include an explanatory paragraph stating that, in light of the recurring losses
suffered by the Company, its continued existence depends upon its ability to
resolve its liquidity problems.
On January 13, 1998, the Company's former accountant, W. Dale McGhie,
was replaced by Ronald D. Simpkins, Certified Public Accountant, 1155 West
Fourth Street, Suite 214, Reno, Nevada 89503, as the Company's independent
accountant in connection with the financial statements for the year ended
December 31, 1997. The Registrant's former accountant, W. Dale McGhie did not
resign and did not decline to stand for reelection. The new management of the
Registrant has determined that a change of auditor is in the best interest of
the company, and therefore, the former accountant simply was replaced as of
January 13, 1998. This decision to change accountants was recommended and
approved by the Board of Directors. There were no disagreements with Mr. McGhie
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to his
satisfaction, would have caused Mr. McGhie to make reference to the subject
matter of any such disagreements in connection with his reports. As required by
Item 304 of Regulation S-B reflecting disclosure of this change in accountants,
on January 20, 1998, the Company filed a Form 8K and an amendment thereto on
January 26, 1998.
The Company's former accountant, Fair, Anderson & Langerman, was
replaced by W. Dale McGhie, Certified Public Accountant, 1539 Vasser Street,
Reno, Nevada 89502, on March 19, 1997, as the Company's independent accountant
in connection with the financial statements for the year ended December 31,
1996. Fair, Anderson & Langerman did not resign and did not decline to stand for
re-appointment. They were replaced because the Company's headquarters were moved
to Reno, Nevada, where Mr. McGhie is located, from Las Vegas, Nevada, where
Fair, Anderson & Langerman is located, and the Company believed that it would be
more efficient and effective to use Mr. McGhie as a Reno-based accountant. The
decision to change accountants was recommended and approved by the Board of
Directors.
Fair, Anderson & Langerman's report on the financial statements for the
years ended December 31, 1995 and 1994 was presented on the assumption that the
Company would continue as a going concern and was unqualified. Mr. McGhie in his
report on the financial statements for the years ended December 31, 1996 and
1995 also made this assumption. There were no disagreements with Fair, Anderson
& Langerman on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
that firm's satisfaction, would have caused that firm to make reference to the
subject matter of any such disagreements in connection with its reports. As
required by item 304 of Regulation S-B, the Company filed a Form 8K on July 3,
1997 and an amendment thereto on July 28, 1997.
<PAGE>
PART III
A 1 for 10 reverse stock split was effective February 2, 1998. All
figures in this Amendment to the Annual Report give effect to such reverse stock
split, and previously stated numbers of shares are appropriately restated,
unless otherwise indicated. All statements in this annual report should be read
in conjunction with and are qualified by the other information and financial
statements (including the notes thereto) appearing elsewhere in this Annual
Report and the previously filed Annual Report and Amendments, or incorporated
herein by reference.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
As of April 24, 1998, the directors and executive officers of the Company, their
ages, positions and offices in the Company, the dates of their initial election
or appointment as director or executive officer, and the expiration of the terms
as directors are as follows:
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------ ----------------------------------- --------------------------------
Period Served as Director
NAME Age Position (1) or Executive Officer
- ------------------------------------ ------------ ----------------------------------- --------------------------------
<S> <C> <C> <C>
Col. Robert T. Hayden 72 Director (2) (3) Since 2/10/98
- ------------------------------------ ------------ ----------------------------------- --------------------------------
Martin J. Holloran 67 Director (3) Since 2/10/98
- ------------------------------------ ------------ ----------------------------------- --------------------------------
Barbara L. Krilich 38 Secretary and Chief Since 12/12/97
Operating Officer
- ------------------------------------ ------------ ----------------------------------- --------------------------------
Curtis A. Orgill 48 Director, Treasurer, and Officer since
Chief Financial Officer 12/12/97; Director
(2) (3) since 2/10/98
- ------------------------------------ ------------ ----------------------------------- --------------------------------
Jackie R. See, M.D. (4) 56 Director (5) Since 1/6/94
- ------------------------------------ ------------ ----------------------------------- --------------------------------
Thomas E. Waite 35 Chief Executive Officer, Since 11/14/97
President and Director (5)
</TABLE>
(1) The Company's directors are elected at the annual meeting of stockholders
and hold office until their successors are elected and qualified or until
the director resigns. The Company's officers are appointed annually and as
needed by the Board of Directors and serve at the pleasure of the Board.
(2) These Directors are members of the Compensation Committee. Mr. Orgill is
Chairman of this committee.
(3) These Directors are members on the Audit Committee. Mr. Orgill is Chairman
of this committee.
(4) In his role as consultant, Dr. See acts as the Company's Director of
Scientific Research and Development. Dr. See may also be considered a
promoter of the Company.
(5) These Directors are members of the Company's Executive Committee, of which
Mr. Waite is Chairman.
BUSINESS EXPERIENCE:
JACKIE R. SEE, M.D., F.A.C.C., is a Director of the Company. Dr. See is a
cardiologist and the principal inventor and author of the patent of microsphere
technology "PGE1-EDT". He received his M.D. from the University of California,
College of Medicine (Irvine) in 1968. Dr. See completed his Residency in
Internal Medicine at the Huntington Memorial Hospital, Pasadena, California in
1973. After serving as a Medical Officer on active duty in the U.S. Navy Medical
Corps. He went on to do research fellowship work in cardiology at Peter Bent
Brigham Hospital, Harvard Medical School (Boston). He was an Associate Director
of the Foundation for Cardiovascular Research (1968-1984) and has been a Fellow
of the American College of Cardiology since 1980. Dr. See is licensed to
practice medicine in the States of California and Nevada and is Board Certified
by the American Board of Internal Medicine. He is the author or co-author of
more than 60 research articles for various medical publications.
THOMAS E. WAITE, is a Director and Chairman of the Board, President and the
Chief Executive Officer of the Company. Much of Mr. Waite's experience has been
specialized in investment banking, corporate finance, mergers and acquisitions,
and public relations for publicly traded biotechnology and medical device
companies. Just prior to joining the Company, Mr. Waite was President of his
consulting firm, Thomas E. Waite & Associates, Inc., which began in late 1992,
where he and his associates began researching the most effective, risk adverse
way for establishing enterprises in the rapidly expanding and highly lucrative
riverboat gaming industry. As a result of this research, in 1993, Mr. Waite
organized a successful riverboat gaming company called Wild Card Enterprises,
Inc., of which he was also President. From 1988 to 1994, Mr. Waite was a
Series-7 licensed registered representative. His consulting experience began in
1990 at First Montauk Securities. In 1991 he became Director of Investment
Banking and Corporate Finance at Collner Higgins and Andersen, a securities firm
that specializes in trading. In 1993, Mr. Waite resigned his position with
Collner Higgins and Andersen.
<PAGE>
MARTIN J. HOLLORAN is a Director of the Company. Mr. Holloran is currently
retired. Prior to retirement, Mr. Holloran had over forty years of experience in
sales and marketing, which includes over twenty-five years with Prudential
Insurance Company. He earned many awards over his career for both sales and
management abilities. Mr. Holloran was a winner of 24 National Leadership awards
for Prudential, a two time winner of its Academy of Honor and a two time winner
of the Citation award given to the top 10% producers in Prudential Insurance
Company. Mr. Holloran also received the Distinguished Professional Service Award
for New England and continues to be very active as a Teacher of Christian
Doctrine and a coach of children's athletics.
COLONEL ROBERT T. HAYDEN is a Director of the Company. Colonel Hayden retired
from active service in the United States Army in 1981 following 31 years of
active service. He was promoted to Colonel in 1971, and upon graduation from The
War College, served 3 years on the Joint Staff in the Pentagon in the office of
J-5, NATO Plans and Policy Directorate. Over his military career, Colonel Hayden
served in both Korea and Vietnam and has received many military decorations
which include the Silver Star, the Legion of Merit, two Bronze Starts, a Purple
Heart, an Army Commendation Medal with two oak leaf clusters, an Air Medal with
five oak leaf clusters, a Vietnam Medal of Honor and the Vietnam Gallantry Cross
with Silver and Gold Palm. He has been awarded the Combat Infantry Badge and the
Army Staff and Joint Chiefs of Staff Medallions, is a member of the Field
Artillery Hall of Fame, MOWW, The American Legion and the Military Order of the
Purple Heart and has served as President of the Florida Council of Florida
Chapter of the Retired Officers Association.
CURTIS A. ORGILL, CPA, is the Company's Treasurer, Director and Chief Financial
Officer. Mr. Orgill is a Certified Public Accountant with current licenses in
the states of Nevada and Utah. In 1974, Mr. Orgill joined Deloitte Haskins &
Sells (currently Deloitte & Touche), in Salt Lake City. He later helped open a
new office for Deloitte & Touche in Reno, Nevada, serving as the Senior Tax
Partner in the State of Nevada. He left Deloitte & Touche in 1993 to join the
regional CPA firm of Bartig, Basler & Ray, CPA's Inc. Mr. Orgill is involved in
international accounting, corporate tax planning and tax compliance as well as
structuring acquisitions for corporations. Mr. Orgill is a member of the
American Institute of Certified Public Accountants, the Nevada Society of
Certified Public Accountants and the Utah Association of Certified Public
Accountants.
BARBARA L. KRILICH, CPA, the Company's Secretary and Chief Operating Officer,
has been a Certified Public Accountant in Arizona since 1984. She recently
served as Director and Chief Financial Officer of Health Care Centers of
America, Inc. from November 1996 to August 1997. Immediately prior to that she
was employed by Evans Withycombe Residential, Inc. (currently Equity Residential
Inc.), a Real Estate Investment Trust (REIT), in Phoenix, Arizona, which she
joined in 1994. Initially Ms. Krilich worked in developing multi-family units in
Phoenix, Arizona, later transferring into the acquisition division responsible
for acquiring multi-family properties in Southern California. From 1992 to 1994,
she was a Regional Manager in Phoenix Arizona for SCG Residential, a subsidiary
of Security Capital Group, a REIT listed on the New York Stock Exchange. Prior
to joining SCG, Ms. Krilich spent over 10 years in accounting and finance with
various firms, including Peat Marwick & Mitchell (currently KPMG Peat Marwick).
Ms. Krilich is a member of the American Institute of Certified Public
Accountants and the Arizona Society of Certified Public Accountants.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
For the period beginning June 30, 1996 through the fiscal year ending December
31, 1997, the following persons, who were directors, officers or beneficial
owners of more than 10% of Common Stock of the Company, that failed to file, or
failed to file on a timely basis, reports required by Section 16(a) of the
Securities Exchange Act of 1934:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
DATE TO DATE
NAME POSITION STATUS FORMS BE FILED FILED
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Don Steffens Director & Officer Filed late 3 and 4 A 4/17/98
Jackie R. See Director Filed late 3 and 4 A 4/6/98
Curtis A. Orgill Director & Officer Filed late 3 2/9/98 3/2/98
Barbara L. Krilich Officer Filed late 3 2/9/98 3/2/98
Biosphere Technology Inc. More than 10% of Stock Filed late 3 and 4 A 4/6/98
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
A= Filer inadvertently failed to file required forms timely. The Forms
4 filed includes all transactions which were previously unreported
throughout the year. A Form 5 was required to be filed and was not.
However, all transactions required to be filed on the Form 5 have now
been included on Form's 3 and 4, respectively.
<PAGE>
The Company is unable to confirm or verify compliance with Section
16(a) of the Exchange Act for a former Director and Officer of the Company,
Alexander H. Walker, Jr. The Company is currently in litigation with Mr. Walker
(See "ITEM 3. LEGAL PROCEEDINGS, ITEM NO.8"). The Company has attempted to
obtain a reconciliation of share differences and as of April 24, 1998 there has
been no response from Mr. Walker.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information about compensation paid or
accrued by the Company during the years ended December 31, 1997, 1996
and 1995 to the Company's officers and directors:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
- -----------------------------------------------------------------------------------------------
Name and Other
Principal Position Year Salary/Consulting Fees Bonus Compensation
- -----------------------------------------------------------------------------------------------
(a) (b) STOCK (a)+(b)
CASH GRANTS (1) TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JACKIE R. SEE (2) 1997 $199,662 $10,088,450 $10,288,112 None None
Director of Research 1996 $104,000 None $104,000 None None
1995 $16,000 $65,000 $81,000 None None
- -----------------------------------------------------------------------------------------------
IAN HICKS (3) 1997 $46,000 $1,671,750 $1,717,750 None None
Was CEO, President & 1996 None None None None $16,440
Director 1995 None None None None None
- -----------------------------------------------------------------------------------------------
DON STEFFENS (4) 1997 $155,135 $3,608,750 $3,763,885 $100,000 None
Was CEO, President & 1996 None None None None None
Director 1995 None None None None None
- -----------------------------------------------------------------------------------------------
ALEXANDER H. 1997 $150,000 $2,892,724 $3,042,724 $75,000 None
Walker(5) 1996 None $1,170,000 $1,170,000 None None
Was Secretary & 1995 None None None None None
Director
- -----------------------------------------------------------------------------------------------
LORENZ HOFMANN (6) 1997 $140,150 $59,600 $199,750 None None
Was COO 1996 None None None None None
1995 None None None None None
- -----------------------------------------------------------------------------------------------
THOMAS E. WAITE (7) 1997 $28,462 $4,000,000 $4,028,462 None None
President & CEO 1996 None None None None None
1995 None None None None None
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) The transfer of shares issued to directors and officers is restricted
pursuant to applicable securities laws, although some recipients have
registration rights in respect of their shares, as noted herein. The
aggregate number and dollar value of stock holdings of officers and
directors as of April 20, 1998 were 2,405,278 shares and $25,502,291,
respectively. Such dollar value and the dollar value of all share grants
reflected in this Summary Compensation Table as of the date involved are
calculated in accordance with item 402(b)(2)(iv)(A) of Regulation S-B,
which requires the dollar value of any award of restricted stock to be
calculated by multiplying the closing market price of the registrant's
unrestricted stock on the date of grant by the number of shares awarded,
even if that amount could not than be realized.
(2) Dr. See is not an employee, and all compensation paid to him was as a
consultant. His consultant agreement, which was entered into as of April 1,
1996 and will terminate on March 30, 1999, calls for the Company to pay him
a consulting fee of $12,500 per month. In addition, he is reimbursed for
all reasonable and necessary business expenses incurred in the discharge of
his consulting duties. Dr. See is to receive a royalty fee equal to two
percent (2%) of the net revenues from the sale of LLPGE1 and any other
products the Company may produce under Patent Application No. 08/573408.
Dr. See will receive these royalty fees for the life of patent No.
5,718,917 issued February 17, 1998. SEE ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, DR. JACKIE R. SEE & BIOSPHERE, for additional
relationships between Dr. See and the Company.
<PAGE>
On March 18, 1997, Dr. See received 35,000 shares of Common Stock of the
Company for services performed for the Company. The dollar value of such
shares was $2,340,450. On June 10, 1997, Dr. See received 400,000 shares of
Common Stock of the Company for services performed for the Company. The
dollar value of such shares was $7,748,000. Of these shares, 100,000 shares
were transferred into the Anita Wassgren See Trust (Anita Wassgren See is
Dr. See's wife). See ITEM 1."DESCRIPTION OF BUSINESS- OTHER FINANCING
ARRANGEMENTS" concerning the Financing Agreement between Dr. Jackie R. See
and Thomas E. Waite and the Company dated January 13, 1998 and amended
February 3, 1998, pursuant which Dr. See and Mr. Waite have the right to
invest up to $10,000,000 in the Company and pursuant to which they invested
$5,000,000 on February 3, 1998 in promissory notes and cash and received
1,580,028 shares of Common Stock therefor. Such stock is valued at the
closing bid price of $9.50 on February 3, 1998 for a total value of
$7,506,321.
(3) During 1995, Mr. Hicks was not an employee of the Company. Mr. Hicks became
President in June 1996. He ceased being an employee or otherwise affiliated
with the Company as of May 14, 1997. On March 18, 1997, Mr. Hicks received
25,000 shares of Common Stock of the Company for services performed. The
dollar value of such stock was $1,671,750.
(4) Mr. Steffens was not an employee of the Company during 1995, and he moved
from the positions of CFO, Secretary and Treasurer of the Company, to which
he was appointed in 1996, to the positions of President and CEO as of May
15,1997. Mr. Steffens resigned from these positions on November 14, 1997
and is no longer affiliated with the Company. On June 10, 1997, Mr.
Steffens received 100,000 shares of the Company's Common Stock for services
performed for the Company. The dollar value of such stock was $1,937,000.
On March 18, 1997, Mr. Steffens received 25,000 shares of Common Stock of
the Company for services performed. The dollar value of such stock was
$1,671,750.
(5) The Company entered into two agreements on March 19, 1997, and on May 15,
1997, with Alexander H. Walker, Jr. ("Walker"), former Director, Secretary,
and General Counsel of the Company. The agreements provided that Walker was
retained as General Counsel for all legal matters of the Company and was to
prepare or supervise the preparation of Securities and Exchange Commission
filings, contracts and agreements. The agreements provided that Walker
would receive $15,000 per month over 36 months plus up to 100,000 shares of
Common Stock. In 1997, Walker received $231,678 and was issued 105,200
shares of Common Stock. In December 1997, the Company terminated all
agreements with Walker. SEE ITEM 2."LEGAL PROCEEDINGS-ITEM 8". During 1996,
Walker did not receive any cash payment for legal fees and received $600 as
reimbursement of expenses for his services as counsel.
On April 12, 1996, Walker received 18,000 shares of the Company's Common
Stock for services performed. The dollar value of such stock was
$1,170,000. On March 18, 1997, Walker received 18,000 shares of stock for
services performed. The dollar value of such stock was $1,203,660. On June
10, 1997, Walker received 87,200 shares of stock for current and future
services to be performed. The dollar value of such stock was $1,689,064.
(6) Dr. Lorenz Hofmann Ph.D. was not an employee of the Company during 1995 and
1996. In August 1997, the Company entered into a consulting agreement with
Dr. Hofmann whereby Dr. Hofmann was to receive $15,000 per month for his
services, plus 10,000 shares of the Company's Common Stock for services
performed in 1997. These shares were issued on January 26, 1998 with
respect to services performed in 1997 for a dollar value of $59,600.
(7) Thomas E. Waite became President, Director and Chief Executive Officer on
November 14, 1997 and was issued 400,000 shares of the Company's Common
Stock to induce him to work for the issuer and provide an incentive for his
successful performance. Mr. Waite has a 1-year employment contract with the
Company effective January 5, 1998 for a monthly salary of $20,000. Prior to
that time, Mr. Waite was not an employee of the Company. In 1995, Thomas E.
Waite & Associates, a company owned by Mr. Waite, was a consultant to the
Company.
On November 14, 1997, Mr. Waite was issued 400,000 shares of the Company's
Common Stock to enable him to devote his entire business time to the
affairs of the Company. The dollar value of such shares was $4,000,000. See
ITEM 1."DESCRIPTION OF BUSINESS- OTHER FINANCING ARRANGEMENTS" concerning
the Financing Agreement between Dr. Jackie R. See and Thomas E. Waite and
the Company dated January 13, 1998 and amended February 3, 1998, pursuant
which Dr. See and Mr. Waite have the right to invest up to $10,000,000 in
the Company and pursuant to which they invested $5,000,000 on February 3,
10998 in promissory notes and cash and received 1,580,028 shares of Common
Stock therefor. Such stock is valued at the closing bid price of $9.50 on
February 3, 1998 for a total value of $7,506,321. For stock issuance's to
Thomas E. Waite & Associates prior to Mr. Waite becoming an employee, see
ITEM 3. "LEGAL PROCEEDINGS - ITEM 1."
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All shares included in the following table and in this section are current and
have been restated to reflect the 1 for 10 reverse stock split effective
February 2, 1998. The following table sets forth information as of April 21,
1998 concerning ownership of the Company's Common Stock by (i) each Director and
Executive Officer of the Company, (ii) all Directors and Officers as a group and
(iii) each person known to the Company to be the beneficial owner of more than
5% of the Company's Common Stock:
<TABLE>
<CAPTION>
- ------------------------- ----------------------------------------- ----------------------- ------------------------
PERCENTAGE OF
AMOUNT AND OUTSTANDING SHARES
NAME AND ADDRESS NATURE OF BENEFICIAL OF COMMON STOCK
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP (1) AS OF APRIL 21, 1998 (2)
- ------------------------- ----------------------------------------- ----------------------- ------------------------
<S> <C> <C> <C>
Common Stock Dr. Jackie R. See (3) 2,554,493 (2) 43.8%
100 N. Arlington
Suite 23-P
Reno, NV 89501
- ------------------------- ----------------------------------------- ----------------------- ------------------------
Common Stock Don Steffens (4) 111,500 2.1%
100 N. Arlington
Suite 23-P
Reno, NV 89501
- ------------------------- ----------------------------------------- ----------------------- ------------------------
Common Stock Ian Hicks (5) 25,000 .5%
5967 Jacaranda Lane
Yorba Linda, CA 92887
- ------------------------- ----------------------------------------- ----------------------- ------------------------
Common Stock Alexander H. Walker, Jr. (6) 122,200 2.3%
American Plaza II
57 West 200 South, Ste. 400
Salt Lake City, UT 84101
- ------------------------- ----------------------------------------- ----------------------- ------------------------
Common Stock Thomas E. Waite (7) 1,782,743 (2) 30.6%
755 Rinehart Road
Suite 100
Lake Mary, FL 32746
- ------------------------- ----------------------------------------- ----------------------- ------------------------
Common Stock Curtis Orgill (8) 50,000 1.0%
1325 Airmotive Way
Suite 125
Reno, NV 89502
- ------------------------- ----------------------------------------- ----------------------- ------------------------
Common Stock Colonel Robert T. Hayden (9) 5,000 -
3715 Constancia Drive
Green Cove Springs, FL 32043
- ------------------------- ----------------------------------------- ----------------------- ------------------------
Common Stock Martin J. Holloran (10) 5,000 -
356 Crystal Ridge Way
Lake Mary, FL 32746
- ------------------------- ----------------------------------------- ----------------------- ------------------------
Common Stock See & Waite Group (11) 3,744,632 64.2%
- ------------------------- ----------------------------------------- ----------------------- ------------------------
Common Stock All Directors and 3,854,632 66.1%
Officers as a Group
- ------------------------- ----------------------------------------- ----------------------- ------------------------
Common Stock BioSphere Technology, Inc. 746,750 14.3%
Suite 23P
100 N. Arlington Avenue
Reno, NV 89501
- ------------------------- ----------------------------------------- ----------------------- ------------------------
</TABLE>
<PAGE>
(1) The ownership of the shares deemed to be held by Springrange Investment
Group, Ltd., due to its ownership of $2,550,000 principal amount of the
Company's 6% Convertible Debentures, is not reflected due to Springrange's
contractual obligation to the Company pursuant to which it is not entitled
to convert any Debenture to the extent that after such conversion the
number of shares of Common Stock beneficially owned by Springrange and its
affiliates (excluding any shares deemed beneficially owned through any
continuing ownership of Debentures) exceeds 4.9% of the outstanding Common
Stock.
The Company cannot, however, be assured that the shares owned by
Springrange have or have not exceeded 4.9% of the shares outstanding from
time to time. In this regard, the following conversions by Springrange of
6% Convertible Debentures are noted: 1) 86,452 shares of Common Stock
issued upon conversion of $700,000 principal amount of Debentures on July
14, 1997, 2) 35,504 shares of Common Stock issued upon conversion of
$300,000 principal amount of Debenture on August 13, 1997, 3) 22,677
shares of Common Stock issued upon conversion of $250,000 principal amount
of Debenture on August 22, 1997, 4) 40,430 shares of Common Stock issued
upon conversion of $500,000 principal amount of Debenture on October 24,
1997, 5) 33,400 shares of Common Stock issued upon conversion of $250,000
principal amount of Debenture on December 3, 1997, 6) 63,762 shares of
Common Stock issued upon conversion of $200,000 principal amount of
Debenture on December 24, 1997, 7) 103,606 shares of Common Stock issued
upon conversion of $250,000 principal amount of Debenture on January 16,
1998. The total number of shares of Common Stock issued to Springrange
through April 24, 1998 is 385,831.
On January 28, 1998, Springrange gave notice of conversion of $250,000
principle amount of Debenture. This Conversion called for a transfer of
52,573 shares of Common Stock. The Company has not honored this request.
On January 29, 1998, Springrange gave notice of conversion of $250,000
principle amount of Debenture. The conversion called for a transfer of
48,686 shares of Common Stock. The Company has not honored this request.
(SEE ITEM 2."LEGAL PROCEEDINGS").
(2) The percentage calculation for each person or group, reflects the addition
to the number of shares beneficially owned by such person or group and to
the aggregate outstanding shares, the number of shares that the person or
group involved has the right to acquire within 60 days.
(3) This total includes 1,105,139 shares held by Dr. Jackie R. See, 746,750
shares held by Bio-Sphere Technology, Inc., of which Dr. Jackie R. See is
the controlling person, 110,000 shares held by Anita Wassgren See Trust
(Anita Wassgren See is Dr. Jackie See's spouse), of which Trust Dr. Jackie
R. See disclaims any beneficial interest or control, 296,302 additional
shares issuable to Dr. Jackie R. See under the See and Waite Agreement,
and 296,302 shares issuable to Thomas E. Waite under the See & Waite
Agreement because Dr. Jackie R. See and Thomas E. Waite may be deemed to
be a group in connection therewith, (sEE ITEM 1."DESCRIPTION OF BUSINESS -
OTHER FINANCING ARRANGEMENTS").
(4) As of May 15, 1997, Mr. Steffens moved from the positions of Chief
Financial Officer, Secretary and Treasurer of the Company to the positions
of President and Chief Executive Officer of the Company. Mr. Steffens
resigned from all positions with the Company as of November 14, 1997.
(5) Mr. Hicks resigned as President, Chief Executive Officer and Director of
the Company as of May 14, 1997.
(6) Mr. Walker was appointed Secretary and Director of the Company as of May
15,1997, and was appointed General Council as of February 21, 1997. Mr.
Walker was terminated as Secretary and General Council on December 13,
1997 and resigned as Director on December 23, 1997.
(7) Mr. Waite was appointed President, CEO, and Chairman of the Board of
Directors on November 14, 1997. Mr. Waite's total includes 1,190,139
shares held by him plus 296,302 additional shares issuable to Mr. Waite
under the See and Waite Agreement, and 296,302 shares issuable to Dr.
Jackie R. See under the See & Waite agreement, because Thomas E. Waite and
Dr. Jackie R. See may be deemed to be a group in connection therewith,
(sEE ITEM 1."DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS" AND
ITEM 1."DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS").
<PAGE>
(8) Mr. Orgill was appointed Treasurer and Chief Financial Officer on December
12, 1997. On February 10, 1998, Mr. Orgill was appointed as a Director to
the Company.
(9) Col. Hayden was appointed a Director of the Company on February 10, 1998.
(10) Mr. Holloran was appointed a Director of the Company on February 10, 1998.
(11) Dr. Jackie R. See & Thomas E. Waite may be considered to be a group. See
(2) and (7) above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1996, 1997 and to April 24, 1998, the Company issued the
following shares of Common Stock to current or prior Officers and Directors of
the Company, relatives of those Officers and Directors and other related
parties, as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
RELATIONSHIP TO CURRENT NO. OF
NAME THE COMPANY STATUS/RELATIONSHIP REFERENCE DATE ISSUED SHARES ISSUED DOLLAR VALUE **
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Colonel Robert T. Hayden Director Current (1) 2/18/98 5,000 $ 25,650
- -------------------------------------------------------------------------------------------------------------------------
Ian Hicks Officer & Director Prior (1) 3/18/97 25,000 $ 1,671,750
- -------------------------------------------------------------------------------------------------------------------------
Martin J. Holloran Director Current (1) 2/18/98 5,000 $ 25,650
- -------------------------------------------------------------------------------------------------------------------------
Barbara L. Krilich Officer Current (1) 1/26/98 50,000 $ 298,000
- -------------------------------------------------------------------------------------------------------------------------
Curtis A. Orgill Officer & Director Current (1) 1/26/98 50,000 $ 298,000
- -------------------------------------------------------------------------------------------------------------------------
Dr. Jackie R. See, M.D. Director Current (1) 3/18/97 35,000 $ 2,340,450
Dr. Jackie R. See, M.D. Director Current (1) 6/10/97 400,000 $ 7,748,000
Dr. Jackie R. See, M.D. Director Current (2) 2/3/98 790,139 $ 7,506,321
Dr. Darryl See, M.D. Consultant Dr. Jackie See's Son (1) 11/14/97 50,000 $ 500,000
Dr. Darryl See, M.D. Consultant Dr. Jackie See's Son (1) 1/26/98 200,000 $ 1,192,000
Total 1,475,139 $ 19,286,771
- -------------------------------------------------------------------------------------------------------------------------
Don Steffens Officer & Director Prior (1) 3/18/97 25,000 $ 1,671,750
Don Steffens Officer & Director Prior (1) 6/10/97 100,000 $ 1,937,000
Total 125,000 $ 3,608,750
- -------------------------------------------------------------------------------------------------------------------------
Thomas E. Waite Officer & Director Current (3) 12/18/96 56,875 $ 1,279,688
Thomas E. Waite Officer & Director Current (4) 11/14/97 400,000 $ 4,000,000
Thomas E. Waite Officer & Director Current (2) 2/3/98 790,139 $ 7,506,321
Total 1,247,014 $ 12,786,008
- -------------------------------------------------------------------------------------------------------------------------
Alexander H. Walker, Jr. Officer & Director Prior (5) 4/12/96 18,000 $ 1,170,000
Alexander H. Walker, Jr. Officer & Director Prior (5) 3/18/97 18,000 $ 1,203,660
Alexander H. Walker, Jr. Officer & Director Prior (5) 6/10/97 87,000 $ 1,689,064
Alexander H. Walker, III N/A Walker Jr's Son (6) 7/5/96 2,000 $ 65,000
Alexander H. Walker, III N/A Walker Jr's Son (6) 3/18/97 2,000 $ 133,740
J.T. Cardinalli N/A Walker Jr's Son-in-law (6) 7/5/96 2,000 $ 65,000
J.T. Cardinalli N/A Walker Jr's Son-in-law (6) 3/18/97 2,000 $ 133,740
Total 131,200 $ 4,460,204
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*- 100,000 shares were issued in the name of Anita Wassgren See Trust. Anita
Wassgren See is Dr. Jackie See's wife.
** The dollar value of all share grants are calculated in accordance with item
402(b)(2)(iv)(A) of Regulation S-B, which requires the dollar value of any award
of restricted stock to be calculated by multiplying the closing market price of
the registrant's unrestricted stock on the date of grant by the number of shares
awarded even if the amount could not than be realized. The Company has recorded
all the above stock transaction at par value of $.01.
<PAGE>
(1) The shares were issued for compensation for services performed as an
Officer or Director of the Company, or services performed as an
independent consultant to the Company. See ITEM 11"SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" for specific title of
their position with the Company and dates of service with the Company.
Also see ITEM 10 "EXECUTIVE COMPENSATION" for a more specific
description of share transactions to Officers and Directors of the
Company.
(2) The Company has secured a Financing Agreement (SEE "DESCRIPTION OF
BUSINESS - OTHER FINANCING ARRANGEMENTS") with Dr. Jackie See and
Thomas E. Waite, President and Chief Executive Officer (the
"Investors"), whereby the investors (a) purchased an initial tranche of
1,580,278 shares of the Company's Common Stock for an aggregate
purchase price of $5,000,000, and (b) may purchase up to an aggregate
of 592,605 additional shares of the Company's Common Stock, upon
certain terms and conditions, at an aggregate maximum additional
purchase price of $5,000,000. The initial funding of $5,000,000 was
effected on February 3, 1998 by the delivery to the company by each
investor of a check for $7,901.39 and Promissory Notes due 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.
(3) In December 1996, the Company issued 56,875 shares of its Common Stock
as part of a settlement agreement in the litigation between the Company
and Thomas Waite & Associates described herein. SEE " LEGAL
PROCEEDINGS- ITEM 2".
(4) In November 1997, the Company hired Thomas E Waite as the President and
Chairman of the Board and issued to him 400,000 shares of the Company's
Common Stock to induce him to work for the Company and provide an
incentive for his successful performance as President and Chief
Executive Officer. The grant of 400,000 shares of the Company's Common
Stock is irrevocable and the amount of the grant was determined, in
view of the cessation of the active business of Thomas E. Waite &
Assoc., at the time of Mr. Waite's employment to enable him to devote
his entire business time to the affairs of the Company. The 400,000
shares issued to Thomas E. Waite have demand registration rights under
the Securities Act of 1933, which rights have been exercised. For stock
issuance's to Thomas E. Waite & Associates prior to Mr. Waite becoming
an employee, see ITEM 3. "LEGAL PROCEEDINGS - ITEM 1."
(5) On April 12, 1996, the Company issued 18,000 shares of Common Stock to
Alexander H. Walker, Jr. in connection with legal services rendered and
to be rendered to the Company, pursuant to a consulting agreement
signed in March 1996. During 1997, Alexander H. Walker Jr's consulting
agreement was renewed whereby Mr. Walker was to receive $15,000 per
month plus the issuance of Common Stock shares, in exchange for his
services as general counsel to the Company, among other things. During
1997, Mr. Walker issued to himself 105,200 shares of Common Stock. The
Company has terminated all agreements with Mr. Walker. SEE ITEM
2."LEGAL PROCEEDINGS- ITEM 8 AND ITEM 10, AND "EXECUTIVE COMPENSATION
NO. 5".
(6) On July 5, 1996 and again on March 18, 1997, the Company issued 2,000
shares of Common Stock to Alexander H. Walker III (Mr. Alexander H.
Walker, Jr's son) and 2,000 shares of Common Stock to J.T. Cardinalli
(Alexander H. Walker Jr's son-in-law) for legal services rendered and
to be rendered to the Company.
As of April 21, 1998, BioSphere Technology Inc. ("BTI") owned 746,750
shares of Common Stock representing 14.3% of the Company's outstanding shares.
Dr. Jackie R. See controls BTI and is a Director, a controlling person, and may
be considered a promoter, of the Company.
The Company has paid BTI for the LLPGE1 patent application and other
intellectual properties, as well as licensing and distribution agreements and
utilization of its scientific and technical personnel, with Company stock. The
Company initially issued 71,400 shares (originally issued 2,856,000 shares prior
to the 1 for 4 reverse stock split effective November 3, 1994 and the 1 for 10
reverse stock split effective February 2, 1998) to BTI in January 1994 for the
intellectual rights to the product with the stipulation that the company pay for
and effect a patent application. The Company was not able to fund the patent
process. To fund the patent application and for management assistance and
distribution agreements associates with the LLPGE 1 product, BTI received
613,850 shares of the Company's Common Stock in November 1995.
<PAGE>
On November 20, 1997, the Company agreed to exchange 200,000 shares of
Common Stock (which have been issued) to BTI for the Intellectual Property
Rights to Prostaglandin E1 Lyophilized Liposomes for the use of treatment of
Psoriasis. BTI is to receive a 3% override on royalties of the Psoriasis
product.
During 1997, the Company entered into three 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
1997, the Company incurred an additional cost payable to BTI of $150,000 for the
Intellectual Property Rights to Prostaglandin E1 Lyophilized Liposomes for the
treatment of Psoriasis. During the year, BTI chose to convert the accounts
payable balance of $333,535 as a contribution to additional-paid-in-capital.
During 1996, BTI advanced 20,000 of its shares as security for a
subordinated loan agreement with Stein Securities. The shares were loaned and
are expected to be returned to BTI in 1998. During 1997, the Company advanced to
BTI $500,000 in connection with this settlement and expects to collect this
money when the 20,000 shares are returned to BTI in 1998.
In April 1996, the Company entered into a royalty agreement with Dr.
See to pay Dr. See 2% of net revenues from the sale of LLPGE1 and any other
products the Company may produce under Patent Application No. 08/573408 pursuant
to which patent No. 5,718,917 was issued on February 17, 1998. Dr. See will
receive these royalty fees for the life of the patent.
In 1997, BTI in lieu thereof, sold shares of the Company's Common Stock
under circumstances in which the Company is entitled to recapture of profit
pursuant to Section 16(b) of the Securities Exchange Act of 1934. The total
amount of profits of $392,819 has been booked as a receivable from related
parties and is expected to be repaid to the company.
The Company may continue the practice of issuing shares of Common Stock in
lieu of cash payment in the future if it determines that such issuance is in the
best interests of the Company and is consistent with the Company's agreement.
The foregoing arrangements and relationships may give rise to conflicts of
interest with respect to future interpretation of the agreements between the
Company and its affiliates or with respect to future transaction between the
Company and its affiliates. There can be no assurance those future transactions
between the Company and any affiliates will be advantageous to the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(1) Instruments defining the rights of holders, incl. indentures: None during
the time covered by this Form 10K-SB.
(2) Voting trust agreements: None.
(3) Material Contracts: Incorporated by reference to Form 8K filed (b) below.
(4) Statement re: computation of per share earnings: See Part II, Item 7.
(5) Annual or quarterly reports, Form 10-Q for the quarter ending September 30,
1997.
(6) Letter on change in certifying accountant: Incorporated by reference to the
Form 8-K filed, see (b) below.
(7) Letter on change in accounting principles: None.
(8) Published report regarding matters submitted to vote: None.
(9) Power of Attorney: None.
(10) Additional Exhibits: None.
<PAGE>
(b) Reports on Form 8-K.
(1) Date of 8K report - March 19, 1997, filed July 3,1997 - Item No. 4. -
Changes in Registrant's Certified Accountants.
(2) Date of 8K/A report - March 19, 1997, filed July 28,1 997 - Item No. 4. -
Amended - Changes in Registrant's Certified Accountants.
(3) Date of 8K report - October 1, 1997, filed October 31, 1997 - Item No. 5. -
Other Events, Infringement on Patent by Vivus.
(4) Date of 8K report - December 24, 1997, filed December 31, 1997- Item No.6.
- Resignation of Registrant's Director Alexander Walker Jr.
(5) Date of 8K report - January 15, 1998, filed January 20, 1998 - Item No. 4.
- Changes in Registrant's Certified Accountants.
(6) Date of 8K/A report - January 24,1 998, filed January 26, 1998 - Item No.
4. - Amended - Changes in Registrant's Certified Accountants.
(7) Date of 8K report -January 13, 1998, filed January 26, 1998- Item No. 5.-
Other Events, Financing Agreement with Thomas E. Waite and Dr. Jackie See.
(8) Date of 8K report - February 19, 1998, filed February 23, 1998 - Item No.
5.- Other Events, Agreement with Pharma Maehle.
<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 March 19, 1998
- -----------------------
Thomas E. Waite
/s/ Jackie R. See, M.D. Director March 19, 1998
- -----------------------
Jackie R. See, M.D.
Director, Treasurer, and
/s/ Curtis A. Orgill Chief Financial Officer March 19, 1998
- -----------------------
Curtis A. Orgill
Secretary and Chief Operating
/s/ Barbara L. Krilich Officer March 19, 1998
- -----------------------
Barbara L. Krilich
