<PAGE>
REGISTRATION NO. 0-28392
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2
REGISTRATION STATEMENT
SECURITIES ACT OF 1933
HARVARD SCIENTIFIC CORP.
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
Nevada 2834 88-0226455
------ -------------- ----------
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation or Code Number)
Organization)
755 Rinehart Road, Suite 100, Lake Mary, Florida 32746 (407) 324-1606
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
755 Rinehart Road, Suite 100, Lake Mary, Florida 32746 (407) 324-1606
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
Barbara L. Krilich, Chief Operating Officer and Secretary
7373 East Doubletree Ranch Road
Suite 200
Scottsdale, Arizona 85258
(602) 607-1707
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
With copy to:
David R. Baker, Esq.
270 Madison Avenue
New York, New York 10016-0601
Approximate Date of Proposed Sale to the Public: From time to time after
the Registration Statement becomes effective.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act Registration Statement Number of the earlier effective
registration statement for the same offering. |_| __________________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Title of Each Class Proposed Maximum Proposed Maximum
of Securities To Amount To Be Offering Price Aggregate Amount of
Be Registered Registered (2) Per Unit (1) Offering Price Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 4,166,133 $ 7.00 (3) $29,162,931 $ 8,603.06
=================================================================================================================================
</TABLE>
1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as .
amended
2) Based upon the 3,551,528 shares of Common Stock owned by the Selling
Stockholders plus 592,605 shares of Common Stock that may be acquired
prior to April 1, 1999 under a Financing Agreement between two of the
Selling Stockholders and the Company and 22,000 shares that may be
acquired by a Selling Stockholders as a consultants to the Company.
3) The average of the high and low bid ($6.91) and asked ($7.09) prices of
the Common Stock of the Registrant on July 10, 1998 on the OTC Electronic
Bulletin Board was $7.00 per share.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall hereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
1
<PAGE>
PRELIMINARY PROSPECTUS DATED JULY 20, 1998
SUBJECT TO COMPLETION
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time that the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
4,166,133 SHARES OF COMMON STOCK
HARVARD SCIENTIFIC CORP.
The shares of Common Stock ("Common Stock") offered hereby are offered by
the holders (the "Selling Stockholders") of 3,551,528 shares, and rights to
acquire or issue 614,605 shares, of Common Stock of Harvard Scientific Corp.
(the "Company"). SEE "SELLING STOCKHOLDERS." The Common Stock is currently
quoted on the system of the National Association of Securities Dealers, Inc.
("NASD") known as the "OTC Electronic Bulletin Board" under the symbol "HVSF."
On July 16, 1998 the closing quotations on the NASD OTC Electronic Bulletin
Board of the Common Stock were $7.31 ask and $7.13 bid per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
THIS PROSPECTUS RELATES TO AN AGGREGATE OF 4,166,133 SHARES OF COMMON STOCK,
$.01 PAR VALUE PER SHARE. SEE "SELLING STOCKHOLDERS." ALL THE COMMON STOCK
OFFERED HEREBY IS BENEFICIALLY OWNED OR MAYBE ACQUIRED BY THE SELLING
STOCKHOLDERS AND MAY BE OFFERED BY THEM TO THE PUBLIC FROM TIME TO TIME. THE
COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS RECEIVED BY THE SELLING
STOCKHOLDERS FROM THE COMMON STOCK SOLD HEREUNDER, EXCEPT INSOFAR AS SOME OF THE
PROCEEDS ARE USED TO SATISFY INDEBTEDNESS OF TWO OF THE SELLING STOCKHOLDERS TO
THE COMPANY. SEE "USE OF PROCEEDS."
THE COMPANY WILL PAY ALL REASONABLE EXPENSES OF THIS OFFERING ESTIMATED AT
$52,000. THE COMMON STOCK MAY BE SOLD BY SELLING STOCKHOLDERS DIRECTLY OR
THROUGH UNDERWRITERS, DEALERS OR AGENTS IN MARKET TRANSACTIONS OR PRIVATELY
NEGOTIATED TRANSACTIONS. SEE "SELLING STOCKHOLDERS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ____________, 1998
2
<PAGE>
The Company is currently a reporting Company under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the reports, proxy statements
and other information filed by the Company with the Securities and Exchange
Commission can be inspected and copied at the public reference facilities of the
Commission at 4509 Fifth Street, NW, Washington, D.C. 20549; at its New York
Regional office, 7 World Trade Center, New York, New York 10048; and its Chicago
Regional Office, 500 West Madison Street, Chicago, Illinois 60661-2511, and
copies of such material can be obtained from the Commission's Public Reference
Section at prescribed rates. The Company furnishes its Stockholders with annual
reports containing audited financial statements after the close of each fiscal
year.
3
<PAGE>
***
PROSPECTUS SUMMARY
The Company
Harvard Scientific Corp. ("Company") is a biopharmaceutical drug
development company. The Company's corporate objective is to utilize medically
researched and developed drug substances, determine the ability of these
substances to be encapsulated in liposomes and to determine the potential market
for such products. The Company intends to conduct and conclude, either on its
own or with the assistance of an industry partner, all clinical testing
necessary for regulatory approval of such products from the U.S. Food and Drug
Administration ("FDA") or similar regulatory agencies in foreign countries in
order to initiate marketing and establish distribution channels for its
products.-
Thus far, the Company has developed five products designed to ameliorate sexual
dysfunction ("SD"): (1) An intrameatal therapeutic treatment for male erectile
dysfunction ("Male
Intrameatal Product")
(2) A topical therapeutic treatment for male erectile dysfunction ("Male Topical
Product")
(3) A topical therapeutic treatment for female sexual dysfunction ("Female
Topical Product").
(4) An orally administered form of liposomal, lyophilized Apomorphine for the
treatment of male erectile dysfunction ("Male Oral Product"), and
(5) An orally administered form of liposomal, lyophilized Apomorphine for the
treatment of female sexual dysfunction ("Female Oral Product").
The Company presented the results of its Phase I clinical study on
the Male Intrameatal Product to the FDA in April 1997, as part of its pre-Phase
II clinical trial meeting. On May 29, 1998, the Company received approval from
the FDA of the Phase I study and authorization of Phase II clinical trials for
the Male Intrameatal Product. Protocols and research sites for this Phase II
study are complete.
The Company is in the process of initiating protocols for Phase I
studies to be submitted to the FDA for the Male and the Female Topical Products,
although toxicity studies will be conducted on female animals before the Company
submits an Investigational New Drug ("IND") application to the FDA for the
Female Topical Product. In view of the related nature of the Male Intrameatal
Product, the Company plans to petition the FDA to include Phase I and Phase II
studies for the Male and Female Topical Products. The Company has determined
that until current actions required in connection with submissions to the FDA
are complete as to the foregoing products, which it estimates will take three to
six months, no further action will be taken in connection with the development,
submission to the FDA or market analysis of the Male or Female Oral Products.
In each of the Company's products, a substance (Prostaglandin E1
("PGE1") in the case of the Male Intrameatal, Male Topical and Female Topical
Products, and Apomorphine in the case of the Male and Female Oral Products), is
encapsulated in liposomes and then lyophilized (freeze-dried). This process
provides the product with stability, a shelf life recently proven to be at least
12 months at room temperature. For over 20 years, the FDA has approved PGE1 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 erectile dysfunction, 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 PGE1 ("LLPGE1") requires full registration of LLPGE1 with
the FDA as a new drug. Accordingly, the Company filed an IND application with
the FDA in May 1996 and has been assigned IND No. 50502. Apomorphine is a
non-addicting, non-opiate drug used in Parkinsonism and in animal and human
ingestion of toxins and is very effective in male erectile dysfunction - in
lyophilized liposomal form ("LL Apomorphine"), which is designed to
scientifically manipulate the liposome through the stomach and into the small
intestine where it attaches to the intestinal wall, thereby greatly reducing
that adverse effects associated with this drug.
***
4
<PAGE>
***
In each of the Male Intrameatal Product and the Male and Female
Topical Products, PGE1 is freeze-dried and encapsulated in liposomes, forming
LLPGE1. In the case of the Male Intrameatal Product, the lyophilized material is
reconstituted through the use of a non-irritating dilute detergent, which lyse
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 Male and Female Topical Products, the LLPGE1
is freeze dried and encapsulated in liposomes and later reconstituted to form an
aqueous solution suspended in a cream base, a small amount of which is
administered locally to the males penis or females external vaginal area. In the
case of the Male and Female Oral Products LL Apomorphine is delivered orally.
On February 17, 1998, The U.S. Patent Office approved and assigned
patent No. 5,718,917 to the Company for an invention "PGE1 Containing
Lyophilized Liposomes For Use In The Treatment of Erectile Dysfunction,"
referred to as LLPGE1. In June 1998, the Company filed an application for a
patent in numerous regions and countries (Australia, Brazil, Canada, China, the
Czech Republic, Eurasia, Europe, Hungary, Iceland, Israel, Japan, Mexico, New
Zealand, Norway, Poland, Korea, Singapore, Slovak, Turkey and the Ukraine). In
addition, in June 1998, the Company submitted an application with the US Patent
and Trademark Office, for its development of a new method for treating male
erectile dysfunction via the intrameatal administration of an aqueous ("liquid")
solution containing two vasodilators, PGE1 and Papaverine.
During fiscal years 1994 through 1997 and during the first part of
1998, the Company's activities have consisted primarily of developing the Male
Intrameatal Product, raising capital, identifying a core management team and
developing products that conform to the Company's strategic plans. In addition,
the Company has scaled up the manufacturing and initial clinical trials and
formulated a commercialization and clinical development strategy for all
products developed. The Company has considered and evaluated additional products
and market potential for those products in order to enhance its own current
product portfolio and intends to continue this strategy for future corporate
development. The Company believes that its current strategic plan, which was
initiated by a new management team installed in November 1997, will be
successful, although there is no assurance that it will be. The Company's
management team is now established, and it is not expected that the Company will
need to hire any additional employees during the next twelvemonths.
Over the next 12 months, the Company's primary focus will be on
continuing clinical trials and product validation of its products in accordance
with the regulatory process of the FDA. The Company has sought to identify
companies with similar technology or companies seeking new proprietary products
to strengthen its 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 products.
The Company believes that an agreement with a major industry partner
can expedite the regulatory review process for its products. This should enhance
the Company's ability to bring its products to market more quickly, thus
providing the Company an opportunity to maximize its profitability for the
remaining life of its patent No. 5,718,9117 issued earlier this year and from
other intellectual property it is developing. Without the benefit of an industry
partner, the Company believes it can nevertheless receive regulatory approval in
an 18 to 24 month time-line, although, there can be no assurance that the
product will receive FDA approval in that time span, if ever.
The Company's future success is dependent upon its ability to raise
additional funds to complete the commercialization process for its products
either through strategic agreements (i.e. licensing, distribution or joint
venture) or further financing. In the past, the Company has relied upon the
private purchase of its securities by accredited investors to raise such funds,
and it may have to rely upon this practice in the future. There can be no
assurance that the investors who have been interested in purchasing the
Company's securities in the past will be interested in doing so in the future,
or that alternative investors will be found, or that public financing or
collaborative arrangements will be available on terms satisfactory to the
Company.
The Principal address of the Company is 755 Rinehart Road, Suite 100,
Lake Mary, Florida 32746 and its telephone number there is (407) 324-1606. The
Company has no contractual relationship or affiliation with Harvard University.
***
5
<PAGE>
<TABLE>
***
Holdings Of Common Stock Offered
NUMBER OF SHARES REGISTERED
<CAPTION>
SELLING STOCKHOLDER OUTSTANDING RIGHT TO ACQUIRE TOTAL
- ------------------- ----------- ---------------- -----
<S> <C> <C> <C>
Dr. Jackie R. See[1] 1,095,139 296,303 1,391,442
Thomas E. Waite[1] 1,190,139 296,302 1,486,441
Bio-Sphere Technology, Inc[2] 710,250 ------- 710,250
O. Lee Tawes III[3] 200,000 ------- 200,000
Ronald E. Patterson[4] 83,333 ------- 83,333
Medhat Gorgy[5] 3,000 22,000 25,000
RK Company[6] 166,667 ------- 166,667
Michael Snell[7] 50,000 ------- 50,000
Elisabeth & Samuel Valenzisi[8] 8,000 ------- 8,000
Francis Pizzulli[9] 45,000 ------- 45,000
--------- ------- ---------
TOTAL 3,551,528 614,605 4,166,133
========= ======= =========
</TABLE>
[1] See "Selling Stockholders and Plan of Distribution - Current Financing" and
"Certain Relationships and Related Transactions" for information concerning the
acquisition of the Common Stock offered hereunder by Dr. See and Mr. Waite and
the basis upon which further shares of Common Stock are available to them. In
particular, the rights to purchase are jointly held by Dr. See and Mr. Waite, so
that such shares may be purchased for each in the amounts they determine,
although the Company understands that it is their present intention to purchase
the shares equally, to the extent they determine to purchase shares.
[2] See "Selling Stockholders and Plan of Distribution" and "Certain
Relationships and Related Transactions" for information concerning the
acquisition of the Common Stock offered hereunder by Bio-Sphere Technologies,
Inc.
[3] See "Selling Stockholders and Plan of Distribution - Current Financing" for
information concerning the acquisition of the Common Stock offered hereunder by
Mr. Tawes.
[4] See "Selling Stockholders and Plan of Distribution - Current Financing" for
information concerning the acquisition of the Common Stock offered hereunder by
Mr. Patterson.
[5] See "Selling Stockholders and Plan of Distribution - Acquisition of Shares
by Medhat Gorgy" for information concerning the acquisition of the Common Stock
offered hereunder by Medhat Gorgy.
[6] See "Selling Stockholders and Plan of Distribution - Acquisition of Shares
by RK Company" for information concerning the acquisition of the Common Stock
offered hereunder by RK Company.
[7] See "Selling Stockholders and Plan of Distribution - Acquisition of Shares
by Michael Snell" for information concerning the acquisition of the Common Stock
offered hereunder by Michael Snell.
[8] See "Selling Stockholders and Plan of Distribution - Acquisition of Shares
by Elisabeth and Samuel Valenzisi" for information concerning the acquisition
of the Common Stock offered hereunder by Mr. and Mrs. Valenzisi.
[9] See "Selling Stockholders and Plan of Distribution - Acquisition of Shares
by Francis Pizzulli" for information concerning the acquisition of the Common
Stock offered hereunder by Francis Pizzulli.
***
6
<PAGE>
***
The Offering
Common Stock Offered............... 4,166,133 shares. SEE "SELLING STOCKHOLDERS
AND PLAN OF DISTRIBUTION.
Common Stock Outstanding
Prior to Offering................ 5,601,547 shares
Common Stock to be Outstanding
Immediately After Offering....... 6,216,152 shares, based on all shares
offered under this prospectus.
Use of Proceeds.................... None of the proceeds of the sale of the
Common Stock registered hereunder will
accrue to the Company, although to the
extent Dr. See and Mr. Waite use proceeds
received by them to pay notes to the Company
delivered by them to purchase shares they
are offering here under, the Company will
receive the amounts so used. SEE "USE OF
PROCEEDS."
Risk Factors....................... Limited operating history; need for
additional funds; dependence on two product
lines; dependence on third-party
manufacturing, marking and clinical
research; uncertainty of regulatory
approval, and other risks. SEE "RISK
FACTORS."
NASD OTC Electronic Bulletin
Board Symbol.................... "HVSF"---
The number of shares referred to in this prospectus (other than in the financial
statements as at dates, or for periods, prior to February 2, 1998) have been
restated to reflect the 1 for 4 reverse stock split effective November 3, 1994
and the 1 for 10 reverse split effective February 2, 1998.
***
7
<PAGE>
Summary Financial Information
-----------------------------
The summary financial information set forth below is taken from and
should be read in conjunction with the Financial Statements, including notes
thereto, included elsewhere in this Prospectus.
<TABLE>
Statement of Operations Data:
- ----------------------------
<CAPTION>
(unaudited) (audited)
For the Three Months Ended For the Year Ended December 31, unaudited
March 31, ------------------------------- ---------
--------- Inception
1/31/87 to
1998 1997 1997 1996 1995 3/31/98
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales - - - $181,000 - $187,387
Cost of Sales - - - 216,870 - 221,557
--------------- ---------------- ---------------- ---------------- -------------- ---------------
Gross Profit (Loss) - - - (35,870) - (34,170)
--------------- ---------------- ---------------- ---------------- -------------- ---------------
Operating Expenses 898,785 1,877,528 4,185,225 1,395,297 668,835 7,674,398
(Loss) from Operations (898,785) (1,877,528) (4,185,225) (1,431,167) (668,835) (7,708,568)
Other Income (Expenses) (199,145) (1,263,340) (1,631,016) (1,007,777) (7,620) (2,871,389)
--------------- ---------------- ---------------- ---------------- -------------- ---------------
Net (Loss) $(1,097,930) $(3,140,868) $(5,816,241) $(2,438,944) $(676,455) $(10,579,957)
--------------- ---------------- ---------------- ---------------- -------------- ---------------
(Loss) Per Common Share (.24) (3.05) (.36) (.27) (.29) (2.08)
--------------- ---------------- ---------------- ---------------- -------------- ---------------
Weighted Average Shares
Outstanding 4,529,318 1,030,824 16,352,816 9,040,685 2,333,703 5,085,063
--------------- ---------------- ---------------- ---------------- -------------- ---------------
</TABLE>
<TABLE>
Balance Sheet Data:
- -------------------
<CAPTION>
March 31, 1998 December 31,
(unaudited) (audited)
----------- ---------
1997 1996
---- ----
<S> <C> <C> <C>
Cash and Prepaid Expenses $761,950 $908,581 $1,565
Total Assets 6,868,118 2,227,677 85,527
Total Current Liabilities 2,686,592 2,975,043 535,223
Total Stockholders' Equity $3,993,209 $(753,683) $(449,696)
</TABLE>
8
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK, INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS DESCRIBED
BELOW, AND SHOULD BE CONSIDERED ONLY BY THOSE INVESTORS WHO CAN AFFORD THE RISK
OF LOSS OF THEIR ENTIRE INVESTMENT. IN ADDITION TO OTHER INFORMATION IN THIS
PROSPECTUS, EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY BEFORE MAKING
AN INVESTMENT DECISION. MOREOVER, PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE
STATEMENTS IN THIS PROSPECTUS THAT ARE NOT DESCRIPTIONS OF HISTORICAL FACTS MAY
BE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY AND REVENUES; SIGNIFICANT AND CONTINUING LOSSES;
UNCERTAINTY OF FUTURE PROFITABILITY
The Company is a development-stage company. Since inception, the
Company has been engaged primarily in the development of LLPGE1 in its Male
Intrameatal Product. The Company commenced limited use of LLPGE1 in clinical
trials in 1996 and has just begun investigation of its Male and Female Topical
Products. Generally, the LLPGE1 process is the same for these products, although
the dose of LLPGE1 is different. The Company's most recent products to be
developed, its Male and Female Oral Products using LL Apomorphine, have just
been identified, and further development, submissions to the FDA or market
analysis of these products is being held in abeyance to allow the Company to
give full current attention to its LLPGE1 products. The Company, therefore, has
limited operating history upon which an evaluation of its performance and
prospects can be based.
The likelihood of the success of the Company must be considered in
light of the risks, problems, expenses, difficulties and complications
frequently encountered in connection with the shift from development to
commercialization of new products based on innovative technologies. For example,
during the period from January 1994 to February 1995, the Company investigated,
acquired, tested, and ultimately abandoned technology related to whole blood
rapid testing for viruses, particularly the HIV. The decision to abandon this
technology was based on poor pre-marketing results.
Since inception, and as a result of being a development stage
company, 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 and a loss of
$1,097,930 for the quarter ending March 31, 1998. Losses are continuing through
the date of this Prospectus 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 FDA approval. There can be no assurance the
Company will be able to operate profitably or be commercially successful. SEE
"DESCRIPTION OF BUSINESS".
SIGNIFICANT CAPITAL REQUIREMENTS; AUDITORS' GOING CONCERN REPORT; DEPENDENCE ON
OFFERING PROCEEDS; POSSIBLE ISSUANCE OF ADDITIONAL SECURITIES; FUTURE DILUTION
The Company's capital requirements have been and will continue to be
significant, and the Company currently has no cash flow from operations. As a
result, the Company has been dependent on equity and debt financing. The
Independent Auditor's Reports accompanying the Company's financial statements
for the years ended December 31, 1997, 1996 and 1995 state that, in light of the
recurring losses suffered by the Company, its continued existence depends upon
its ability to resolve its liquidity problems. SEE "MANAGEMENT'S DISCUSSION".
9
<PAGE>
Based on the Company's short and long-term operating plan, internal
forecasts and assumptions (which include successful conclusion of clinical
trials for the three Male SD and two Female SD products; rapid acceptance of the
Male Intrameatal Product due to ease and comfort of administration; continued
growth in the target markets of the Company's products as more patients become
aware of therapy for the problems and price parity with competitor products),
management believes that the proceeds from the Financing Agreement (SEE "SELLING
STOCKHOLDERS AND PLAN OF DISTRIBUTION - CURRENT FINANCING.") and other sources
will be sufficient to meet the Company's immediate cash needs. However, the
Company's future success is largely dependent upon its ability to raise
additional funds to complete the commercialization process for its products
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 and may have to rely
upon this practice in the future. There can be no assurance that the investors
who have been interested in purchasing the Company's securities in the past will
be interested in doing so in the future, or that alternative investors will be
found, or that public financing or collaborative arrangements will be available
on terms satisfactory to the Company. Any inability to obtain additional
financing when needed and on acceptable terms could have a material adverse
effect upon the Company's operations, including the possibility of requiring the
Company to curtail or cease its operations. In addition, any additional equity
financing may involve substantial dilution to the Company's then existing
Stockholders. SEE "USE OF PROCEEDS" AND "MANAGEMENT'S DISCUSSION."
DEPENDENCE UPON SALES OF PRINCIPAL PRODUCT; LIMITED CUSTOMER BASE
The Company's future performance will depend significantly on the
successful development, introduction and customer acceptance of the Company's
principal invention, LLPGE1, as used in the Male Intrameatal and Male and Female
Topical Products. To date, substantially all of the Company's limited revenues
have been generated in 1996 by the distribution of LLPGE1 for use in clinical
trials overseas, which was not an effective ongoing source of income and has not
continued since. Current development of the Company's Male and Female Oral
Products using LL Apomorphine has been temporarily deferred to allow the
Company's full attention to be given to matters involving its LLPGE1 products
over the next three to six months. The Company anticipates that, if and when FDA
approval is obtained for the Male Intrameatal, and Male and Female Topical,
products, substantially all of its revenues for the foreseeable future will be
generated by sales of these products in the U.S. Although early clinical data
regarding the products suggests good probable efficacy, new product development
is highly uncertain and unanticipated developments, clinical and regulatory
delays, adverse or unexpected side effects or inadequate therapeutic efficacy
could slow or prevent the commercialization of the LLPGE1 products and/or the
oral LL Apomorphine products. There can be no assurance that the Company will
not experience these or other difficulties that could delay or prevent the
commercialization of the Company's products. Furthermore, no assurance can be
given that, if commercialization is commenced, the Company's products will meet
with market acceptance. The inability to successfully commercialize LLPGE1, for
any reason, would have a material adverse effect on the Company's financial
condition, prospects, and ability to continue operations. SEE "DESCRIPTION OF
BUSINESS."
GOVERNMENT REGULATION; UNCERTAINTY OF REGULATORY APPROVAL; UNCERTAINTY OF
PRODUCT DEVELOPMENT
The Company is subject to various FDA regulations which govern or
influence the research, testing, manufacturing, safety, labeling, storage,
record keeping 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 continue 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. SEE
"BUSINESS - GOVERNMENT REGULATION."
10
<PAGE>
All of the Company's products require approval 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. 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 the LLPGE1 products and/or the
oral LL Apomorphine 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.
SEE "BUSINESS GOVERNMENT REGULATION."
DEPENDENCE ON THIRD-PARTY RESEARCH
The Company intends to use a significant portion of the proceeds of
the Financing Agreement to conduct research and clinical studies, primarily for
the purpose of obtaining FDA approval for the marketing of the LLPGE1 products
and the oral LL Apomorphine products in the U.S. The trials for the Company's
Phase I clinical study of the Company's Male Intrameatal product were conducted
by two private, practicing urologists in Las Vegas, Nevada. The Company plans to
continue to utilize third parties to conduct the necessary clinical trials, and,
therefore, will be substantially dependent upon third-party researchers and
others, over whom the Company will not have absolute control, to satisfactorily
complete scientific studies performed on behalf of the Company. There can be no
assurance that third parties will be able to carry out these studies in the
proper manner, within the time frame, and within the cost estimates currently
relied upon by management. In the event that the studies were carried out
incorrectly or improperly, or were not completed within the time frame currently
contemplated, or exceeded current cost parameters, the Company's business could
be materially adversely affected.
LACK OF MANUFACTURING EXPERIENCE AND CAPABILITIES; DEPENDENCE ON THIRD-PARTY
MANUFACTURING AND SUPPLIERS
The Company does not own or lease any manufacturing facilities, does
not manufacture the products or any of their ingredients, and purchases all
ingredients from unaffiliated suppliers, including FDA validated suppliers of
LLPGE1. The Company does not now have any contracts with manufacturers, although
it is in the process of negotiating such contracts. Although the Company
believes that there are adequate suppliers and manufacturers sufficient to
satisfy the Company's requirements, the terms on which suppliers and
manufacturers will be available could have a material effect on the success of
the Company. SEE "BUSINESS PRODUCTION AND MANUFACTURING."
LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE; DEPENDENCE UPON THIRD
PARTY MARKETING EFFORTS
The Company has limited marketing experience and limited financing,
personnel and other resources to independently undertake extensive marketing
activities. The Company's prospects will be significantly affected by its
ability to develop and maintain a network of distributors. The Company has
terminated all prior marketing agreements, and has not renegotiated any further
marketing agreements. Moreover, in 1996, the Company generated $181,000 in sales
from the distribution agreements, primarily due to the fact that the product has
not yet received regulatory approval. These revenues were derived from
reimbursement of production costs of clinical materials supplied to a
distributor for use in clinical trials. To the extent that the Company enters
into third-party marketing and distribution arrangements, it is dependent on the
marketing efforts of such third parties and upon their provision of installation
and support services and the vagaries of changes in market conditions. While the
Company believes that any third parties with which it enters into marketing
arrangements will have an economic motivation to commercialize the Company's
products, the time and resources devoted to these activities will be controlled
by such entities and not by the Company. There can be no assurance that the
Company will be able, for financial or other reasons, to finalize any
third-party marketing arrangements or that such arrangements, if finalized, will
result in successful commercialization of its products.
11
<PAGE>
COMPETITION; NO ASSURANCE OF MARKET FOR PRINCIPAL PRODUCT COMPETITION FOR THE
MALE SEXUAL DYSFUNCTION PRODUCTS:
The market for treatment of SD is emerging and evolving and is
characterized by a number of entrants. The Company faces competition from a
number of existing and potential competitors. Prostaglandin E-1 ("PGE1") is a
naturally occurring vasodilator originally approved by the FDA for intravenous
infusion in neonates. In 1995, PGE1 was approved by the FDA for use in Pharmacia
& Upjohn Inc.'s Caverject, which is administered by needle injection as a
treatment for male erectile dysfunction. Recently, the FDA approved PGE1 again
by needle administration via Edex(R), a Schwartz-Pharma product. Senetek also
produces 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 Male Intrameatal Product is
produced by Vivus, Inc., and was approved by the FDA in November 1996. It
consists of a pellet containing PGE1 which 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,
prolonged erection, priapism, headache, nervousness, drop in blood pressure and
pain at application.
Macrochem and NexMed are currently undertaking Phase I clinical
trials of a topical solution containing PGE1. These products would compete
directly with the Company's Male Topical Product, which has not yet commenced
Phase I clinical trials.
There are tablet formulations of the Male SD 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 Male SD
problems. However, clinical trials have shown that they cause various side
effects due to systemic vasodilatation, which must be overcome. Pfizer,
developer of Viagra(R), and Zonagen(R) are the two known competitors which are
developing tablet formulations. Viagra(R) was approved by the FDA in March 1998.
Zonagen(R) has not yet been approved by the FDA. The Company is developing its
own oral formulation of liposomal, lyophilized Apomorphine ("LL Apomorphine") to
compete with these oral drugs through its Male Oral Product. Apormorphine has
been used without life threatening side effects since 1869 but can be associated
with significant nausea and vomiting.
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 FEMALE SEXUAL DYSFUNCTION PRODUCT:
A product for the treatment of Female SD is fairly new to the market.
Pfizer Inc. has submitted an IND to assess Viagra(R) in Phase I trials for the
treatment of female sexual dysfunction. No data to has been generated to suggest
efficiency or inefficiency. Many of the Male SD products noted above are
competitive, or potentially competitive, with the Company's Male SD Products,
and may be adaptable as Female SD Products. It is the Company's belief that
there are no other companies with female SD products in development.
GENERAL
Although the Company is not aware of any additional technologies or
products that 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 the Company's products. 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 its products, obtain regulatory
approvals and commence commercial-scale manufacturing in a timely manner to be
effectively competitive. SEE "BUSINESS - COMPETITION" AND "BUSINESS - THE
MARKET."
12
<PAGE>
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
The successful commercialization of the Company's products 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 products and the oral LL Apomorphine products 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. For
example, several health maintenance or organizations and insurers have recently
declined to pay or restricted payments for Viagra(R), Pfizer's oral product.
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 to 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 PGE1 in general, LLPGE1, Apomorphine or LL
Apomorphine, generally or in the Company's products, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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 was 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 in response to that application. In June 1998,
the Company submitted international patent applications to obtain worldwide
protection for its intrameatal and topical administration of lyophilized
liposomal delivery of Prostaglandin E-1. In June 1998, the Company filed an
application with the U.S. Patent and Trademark Office for its development of a
new method for treating male erectile dysfunction via the intrameatal
administration of an aqueous ("liquid") solution containing two vasodilators,
PGE1 and Papaverine.
There can be no assurance that these patents will be effective to
protect the Company's products covered by these patents 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 these patents or other patents the Company may obtain. Although the
Company believes that its products do 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
products are determined to infringe upon the patents or proprietary rights of
others, the Company could be required to modify its products or obtain a license
for the manufacture and/or sale of the products, or could be prohibited from
selling the products. 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. 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. If the
Company's products are 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 " LEGAL PROCEEDINGS."
13
<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 intends to have full product liability
coverage covering clinical trials at the time it begins its FDA clinical trials,
and will not proceed until such coverage is in place. The Company will seek to
obtain a policy with minimum coverage of $1,000,000, with increases to such
required levels of insurance as its products are commercialized. There can be no
assurance, however, that the Company will be able to obtain, 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 its products 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.
DEPENDENCE ON KEY PERSONNEL
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 either such officer
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 personnel, 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 personnel.
SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS."
LACK OF BUSINESS INTERRUPTION INSURANCE
The Company does not currently maintain business interruption
insurance coverage. The Company is a development stage concern at this time. It
relies on a few key employees to direct and administer the activities of the
Company. SEE "DEPENDENCE ON KEY PERSONNEL." The Company outsources most aspects
of its operations, except administration. SEE "DEPENDENCE ON THIRD-PARTY
RESEARCH," "DEPENDENCE ON THIRD-PARTY MANUFACTURING AND SUPPLIERS" AND
"DEPENDENCE ON THIRD-PARTY MARKETING EFFORTS." There can be no assurance that
the Company will be able to obtain cost effective insurance, diversify its
outsource functions, or maintain a core group of effective personnel
sufficiently adequate to protect the Company's financial condition.
14
<PAGE>
BARRIERS TO TAKEOVER
The Company's Certificate of Incorporation and By-Laws contain
provisions that may deter, discourage, or make more difficult the assumption of
control of the Company by another corporation or person through a tender offer,
merger, proxy contest or similar transaction or series of transactions. These
provisions include a substantial number of shares of authorized capital stock
available for issuance (10,000,000 shares of authorized Preferred Stock, none of
which has been issued, and 100,000,000 shares of authorized Common Stock, of
which 5,601,547 shares have been issued, leaving 94,398,453 shares available for
issuance) and the prohibition of cumulative voting. The overall effect of these
provisions may be to deter a future tender offer or other takeover attempt that
some stockholders might view to be in their best interest as the offer might
include a premium over the market price of the Company's capital stock at the
time. In addition, these provisions may have the effect of assisting the
Company's current management in retaining its position and place it in a better
position to resist changes which some stockholders may want it to make if
dissatisfied with the conduct of the Company's business. These provisions also
present a risk of future dilution to existing Stockholders. SEE "MARKET FOR
COMMON STOCK AND RELATED STOCKHOLDER MATTERS -- NEVADA LAW AND CORPORATE
PROVISIONS AFFECTING STOCKHOLDERS."
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 stockholders
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 Stockholders. In addition, to the extent that the Company expends funds
to indemnify directors and officers, funds will be unavailable for operational
purposes. SEE "MARKET FOR COMMON EQUITY -- NEVADA LAW AND CORPORATE PROVISIONS
AFFECTING STOCKHOLDERS" and "DESCRIPTION OF BUSINESS - DIRECTORS AND OFFICERS
INSURANCE."
VOLATILITY OF THE COMPANY'S COMMON STOCK PRICES
The market price of the Company's Common Stock has experienced
significant volatility, with per share bids ranging from a low of $2.90 to a
high of $166.63 over the period from the first quarter of 1996 through the
second quarter 1998. Various factors and events, including announcements by the
Company or its competitors concerning patents, proprietary rights, technological
innovations or new commercial products, as well as public concern about the
safety of medical products and practice in general, may have a significant
impact on the Company's business and the price of the Company's Common Stock.
EFFECT OF DEBENTURE CONVERSION
There is currently outstanding $2,550,000 principal amount of the
Company's 6% Convertible Debentures ("Debentures") which are convertible into
the Company's Common Stock at the lower of $65.25 per share or 80% of the Market
Price (the average bid price on the five trading days immediately preceding the
conversion date) on the conversion date. As of July 9, 1998, the Company had
transferred a total of 385,831 shares to Springrange. On July 9, 1998 the
closing Market Price was $7.00, so that if the conversion of all the outstanding
Debentures was effected on that date, 455,357 shares of Common Stock would be
issuable. SEE "DESCRIPTION OF SECURITIES - 6% CONVERTIBLE DEBENTURES."
15
<PAGE>
Springrange, the sole holder of the Debentures gave notice of
conversion on each of January 28, 1998 and January 29, 1998 of $250,000
principal amount of Debentures, which (in each case with accrued interest) would
have resulted in the issuance of 52,573 and 48,686 shares of Common Stock,
respectively, or a total of 101,259 shares.
When the disputes between Springrange and the Company are adjudicated
or otherwise resolved, the Company may have to pay up to the principal amount of
the Debentures, with interest, issue shares upon conversion of the Debentures
and pay damages, although the Company is denying any obligation to Springrange
on the basis of allegations of improper actions by Springrange. SEE "LEGAL
PROCEEDINGS - HARVARD SCIENTIFIC CORP. V. SPRINGRANGE INVESTMENT GROUP and
SPRINGRANGE INVESTMENT GROUP LTD. V. HARVARD SCIENTIFIC CORP., THOMAS E. WAITE,
DR. JACKIE R. SEE, MARTIN J. HOLLORAN, ROBERT T. HAYDEN, CURTIS A. ORGILL." If
the Company is required to make payments for principal, interest or damages, its
cash resources, which currently limited and necessary for other purposes, will
be diminished, and if the Company is required to issue shares of Common Stock,
there will be further dilution to the Company's Stockholders. SEE "RISK FACTORS
- - SIGNIFICANT CAPITAL REQUIREMENTS; AUDITORS' GOING CONCERN REPORT; DEPENDENCE
ON PROCEEDS OF FINANCING AGREEMENT; POSSIBLE ISSUANCE OF ADDITIONAL SECURITIES;
FUTURE DILUTION."
ILLIQUID MARKET RISKS RELATING TO LOW-PRICED STOCKS
The Common Stock of the Company is currently traded on the system of
the National Association of Securities Dealers, Inc., known as the OTC
Electronic Bulletin Board under the symbol "HVSF". This market generally is not
as liquid as the market for NASDAQ equity securities or exchange-listed
securities, and discounts and transactional costs may be greater than in the
more liquid markets. In addition, the trading price of the Common Stock has
fallen below $5.00 per share at various times in the past and may do so in the
future, at which price trading in the Common Stock is subject to the
requirements of rules promulgated under the Exchange Act that require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a penny stock (generally, any non-NASDAQ equity security that has a
market price of less than $5.00 per share, subject to certain exceptions),
require the delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks associated therewith,
and impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors. The
additional burdens imposed upon broker-dealers by such requirements could, in
the event the Common Stock were deemed to be a penny stock, discourage
broker-dealers from effecting transactions in the stock, which could severely
limit the market liquidity of the Common Stock and the ability of purchasers in
this offering to sell the stock in the secondary market.
TRANSACTIONS WITH CONTROLLING PERSONS; POTENTIAL CONFLICTS OF INTEREST
The Company operates as a "virtual company" and will continue to seek
collaborative arrangements with pharmaceutical distribution concerns to
eventually distribute its products. The Company relies on subcontracting and
collaborative arrangements for much of its research and development,
manufacturing, clinical trial and marketing operations. Since January 1996, when
Biosphere Technology, Inc. ("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,
so that the Company no longer has the direct support of BTI. BTI owned
approximately 14% of the Company's shares on March 31, 1998, and 22% of the
Company's shares on December 31, 1997, respectively. Dr. Jackie R. See, the
Company's founder and Head of Research and Development and a Director of the
Company, controls BTI.
The Company has agreed to pay Dr. See a royalty of 2% of net revenues
from the sale of the Male Intrameatal Product and any other products the Company
produces under Patent No. 5,718,917. These royalty payments continue for the
life of the patent.
16
<PAGE>
Dr. See owns or has, the right to own 1,401,441 shares of the
Company's common stock, including 790,139 shares already issued and 296,303
shares entitled to be purchased pursuant to the Financing Agreement. See
"SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION - CURRENT FINANCING". In
addition, 710,250 shares of Common Stock are owned by BTI, which Dr. See
controls, and 100,000 shares are held in the Anita Wassgren See Trust. BTI is a
shareholder of the Company. Anita W. See, Dr. See's spouse, is the settler and a
Trustee of the Anita Wassgren See Trust and, accordingly, Dr. See may be deemed
to beneficially own the shares held by the Trust, although he disaffirms any
such ownership.
In November 1997, the Company issued 400,000 shares of common stock
to Thomas E. Waite, the President and Chairman of the Board, as a signing bonus.
In addition, Mr. Waite owns 790,139 shares and is entitled to purchase an
additional 296,303 shares of Common Stock pursuant to the Financing Agreement,
so that he owns or has the right to own 1,486,441 shares of the Company's Common
Stock. See "SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION - CURRENT FINANCING".
All shares owned by Dr. See and Mr. Waite, have registration rights
which have been exercised and such shares are being offered by this prospectus.
The foregoing arrangements and relationships may give rise to
conflicts of interest with respect to future interpretation of the agreements
between the Company, BTI, Dr. See and Mr. Waite. There can be no assurance that
future transactions or arrangements between the Company and any affiliates will
be advantageous to the Company, although the Company intends to enter into
transactions with BTI, Dr. See and Mr. Waite only if they are at least as
favorable to the Company as could be obtained from independent third parties.
SEE "RISK FACTORS - DEPENDENCE ON KEY PERSONNEL AND DEPENDENCE ON THIRD-PARTY
RESEARCHERS," "MANAGEMENT'S DISCUSSION" AND "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
OWNERSHIP BY MANAGEMENT AND EXISTING STOCKHOLDERS
Directors and officers of the Company would beneficially own in the
aggregate 3,205,527 shares of the Company's Common Stock and would own 3,798,132
shares if the Company issues an additional 592,605 shares of Common Stock to Dr.
See and/or Mr. Waite pursuant to the Financing Agreement (including 710,250
shares of Common Stock owned by BTI, which Dr. See controls and including
100,000 shares owned by the Anita Wassgren See Trust), representing 68.7% of the
5,601,547 shares of Common Stock currently outstanding and 61% of the 6,216,152
shares of Common Stock that would be outstanding upon the issuance of shares to
Dr. See and Mr. Waite pursuant to the Financing Agreement and to Mr. Gorgy and
Mr. Pizzulli as signing bonuses to their consulting agreements, respectively.
Accordingly, directors and officers will have the ability to control the affairs
of the Company and matters requiring a stockholder vote, including the election
of the Company's directors, the amendment of the company's charter documents,
the merger or dissolution of the Company and the sale of all or substantially
all of the company's assets. The voting power of these holders may also
discourage or prevent any proposed takeover of the Company pursuant to a tender
offer. SEE "COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
AND "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
PENDING LITIGATION
The Company is a party to several legal proceedings, which could have
a materially adverse effect upon the Company's financial condition or operation.
SEE " LEGAL PROCEEDINGS."
DESCRIPTION OF SECURITIES
The Company's authorized stock consists of 110,000,000 shares, $.01
par value per share, 100,000,000 of which are shares of Common Stock, and
10,000,000 of which are Preferred Stock.
17
<PAGE>
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders. Holders of
Common Stock are not entitled to cumulative voting rights. Holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All the outstanding
shares of Common Stock are validly issued, fully paid and non-assessable.
The Company has not paid any dividends on its Common Stock since its
inception and does not anticipate paying any dividends on its Common Stock in
the foreseeable future. Earnings, if any, will be used to finance research and
development of the Company's products and expansion of the Company's business.
As of the date hereof, there were 5,601,547 shares of Common Stock
outstanding, which were held of record by approximately 217 stockholders. The
Company's shares are listed on the NASD OTC Electronic Bulletin Board under the
symbol "HVSF".
PREFERRED STOCK
The Board of Directors of the Company has authority to establish
series of the 10,000,000 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. The Company
believes that the flexibility provided through this "blank check" Preferred
Stock allows the Company to address potential future financing needs by creating
series of Preferred Stock that may be customized to meet the needs of any
particular transaction and to market conditions.
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 therefor, 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.
6% CONVERTIBLE DEBENTURES
The Company's 6% Convertible Debentures ("Debentures") bear an
interest rate of six percent per annum and matured on March 30, 1998 as to the
$2,550,000 principal amount of Debentures currently outstanding. The holders had
the right to purchase an additional $10,000,000 principal amount of Debentures,
but that right has expired. The Debentures are issuable in denominations of
$100,000 and integral multiples thereof and, at the holder's request, are
exchangeable for an equal aggregate principal amount of debentures of different
authorized denominations. Upon maturity of the Debentures, payment of principal
and accrued interest is provided to be made either in currency or in shares of
the Company's Common Stock, at the option of the holder.
The holder had the right to convert the Debentures into Common Stock.
The Debentures gave the Company the right to require conversion by giving notice
thereof to the holder at least ten days prior to the Maturity Date. The
conversion price per share was either (a) $65.25, the Market Price as defined in
the Debentures as of March 21, 1997, or (b) 80% of the Market Price on the date
of conversion ("Conversion Date"), whichever was lower. "Market Price," as used
herein, means the average closing bid price of the Common Stock on the five
trading days immediately preceding March 21, 1997 or Conversion Date, as may be
applicable, as reported by the National Association of Securities Dealers, or
the closing bid price on the over-the-counter market on such date or, in the
event the Common Stock is listed on a stock exchange or traded on NASDAQ, the
Market Price means the closing price on the exchange on such date, as reported
in the Wall Street Journal. The Company had the option to pay the interest
accrued from the date of issuance to the date of conversion either in cash or in
shares of Common Stock.
18
<PAGE>
The Company was entitled to redeem any Debentures for which a Notice
of Conversion has not been submitted if the conversion price equals or is less
than $16.00 per share by delivering a Notice of Redemption to the holder.
However, the holder could opt to convert any such Debentures into shares of
Common Stock by submitting a Notice of Conversion to the Company within three
business days of the holder's receipt of the Company's Notice of Redemption at a
redemption price of 125% of the principal amount of the Debentures, plus accrued
unpaid interest. The Company was required to pay the redemption price to the
holder within ten days from the date of the Notice of Redemption. If the Company
failed to make the redemption payment within these ten days, the Company
forfeited its right to redeem those Debentures.
A holder could require the Company to declare whether it intended to
effect a redemption within the following ten days by faxing a notice to the
Company. The Company had to respond to this notice within 24 hours. If it failed
to do so, the Company could not have redeemed that holder's Debentures during
the ten-day period commencing 24 hours after the date of the notice from the
holder.
If the Company merged or consolidated with another corporation or
sold or transferred all or substantially all of its assets to another person
and, as a condition of such merger, consolidation or sale, the holders of the
Company's Common Stock were entitled to receive stock or securities in another
corporation or to receive property in exchange for the Company's Common Stock,
then the Debenture could have been converted into the kind and amount of stock,
securities or property receivable by the holders of the Company's Common Stock
pursuant to the transaction. If, within 15 days of the holder's receipt of a
notice from the Company advising of a proposed merger, consolidation or sale,
the holder had not submitted a Notice of Conversion, then the Company could
prepay all outstanding principal and accrued interest and thereby terminate the
holder's conversion rights.
The effect on the foregoing provisions of passing the maturity date
of the Debentures without payment or conversion, (even though conversion notices
for $500,000 principal amount of Debentures were outstanding), particularly at a
time when a dispute existed between the Company and Springrange Investment Group
Ltd. ("Springrange"), the holder of the Debentures, concerning the Debentures,
is unclear to the Company. The Company is taking the position that in view of
actions by Springrange, it has no obligations to Springrange, a position that
Springrange is vigorously rejecting. SEE "LEGAL PROCEEDINGS - HARVARD SCIENTIFIC
CORP. V. SPRINGRANGE INVESTMENT GROUP AND - SPRINGRANGE INVESTMENT GROUP, LTD.
VS. HARVARD SCIENTIFIC CORP., THOMAS E. WAITE, DR. JACKIE R. SEE, MARTIN J.
HOLLORAN, ROBERT T. HAYDEN, CURTIS A. ORGILL" and "RISK FACTORS - EFFECT OF
DEBENTURES."
MARKET FOR COMMON STOCK 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.
19
<PAGE>
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 do not necessarily represent actual transactions:
COMMON STOCK
QUARTER ENDED HIGH BID LOW BID
-------------------------------------------
September 30, 1998* $8.31 $6.19
June 30, 1998 $9.75 $3.67
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
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
--------------------------------------------
* To July 16, 1998.
On July 16, 1998, the high, low and closing bid price of the
Company's Common Stock, as reported on the OTC Bulletin Board by NASDAQ Trading
and Marketing Services, were $7.25, $7.25 and $7.125 respectively.
The approximate number of record holders of the Registrant's capital
stock as of June 30, 1998 was 215. Effective through July 13, 1998, the transfer
agent and registrar for the Common Stock was Atlas Stock Transfer, Salt Lake
City, Utah. Effective July 14, 1998, the Company changed transfer agents to Olde
Monmouth Stock Transfer Co., Inc., Atlantic Highlands, New Jersey.
The Registrant has never paid cash dividends on its Common 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.
REGISTRATION RIGHTS
Under the terms of the Financing Agreement (SEE "SELLING STOCKHOLDERS
AND PLAN OF DISTRIBUTION - CURRENT FINANCING"), pursuant to which Dr. Jackie R.
See and Mr. Thomas E. Waite have made an initial investment of $5,000,000 in the
Company and may make an additional investment of up to a further $5,000,000
prior to April 1, 1999, the Company was required to prepare and file this
registration statement under the federal Securities Act of 1933 for 2,172,884
shares of Common Stock. The other Selling Stockholders have similar registration
rights and/or the right to join in this Registration Statement. The Company will
bear all reasonable expenses of the registration and qualification of the Common
Stock under the Securities Act of 1933 and state securities laws.
POSSIBLE EFFECT OF FUTURE SALES OF COMMON STOCK
This Registration Statement will permit the Common Stock offered
hereby to be freely salable, subject to compliance with state securities or
"Blue Sky" laws. In the absence of this registration, such Common Stock either
was not saleable to the public or could be sold to the public only in accordance
with the limitations imposed by Rule 144 under the Securities Act of 1933. In
addition, substantial additional shares may be sold to the public if the 6%
Convertible Debentures are converted, although the Company is disputing the
rights of the holder of the Debentures. See "DESCRIPTION OF SECURITIES - 6%
CONVERTIBLE DEBENTURES." Future financing needs may cause the Company to issue
additional Common Stock, or Preferred Stock or other securities convertible into
Common Stock, which issuance may have the benefit of registration rights and, in
any event, ultimately will be salable.
20
<PAGE>
No prediction can be made as to the effect, if any, that such market
sales of Common Stock, including any shares issuable upon conversion of the 6%
Convertible Debentures, or the availability of such shares for sale will have on
the market price prevailing from time to time. Nevertheless, the possibility
that substantial amounts of Common Stock may be sold in the public market may
adversely effect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
CORPORATE PROVISIONS AFFECTING STOCKHOLDERS AND NEVADA LAW
SEE "RISK FACTORS - BARRIERS TO TAKEOVER" and "RISK FACTORS
LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS" for provisions of the
Company's Certificate of Incorporation and By-Law's and of Nevada General
Corporation Law that could adversely affect actions that some stockholders of
the Company might wish to take.
USE OF PROCEEDS
None of the proceeds from the sale of the Common Stock registered
hereunder will accrue to the Company.
Through private placement, the Company has obtained $5,000,000 of
financing through the sale of 1,580,278 shares of Common Stock pursuant to a
Financing Agreement (SEE "SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION CURRENT
FINANCING"), although the Company has received only $15,802.78 in cash therefrom
(which was used for working capital purposes), the balance of $4,984,197.22
being in the form of notes due March 31, 1999 from each of Dr. Jackie R. See and
Thomas E. Waite in the amount of $2,492,092.61. The purchasers of these shares,
who are also Selling Stockholders, may, under the terms of the Financing
Agreement, purchase, prior to April 1, 1999, additional shares in tranches of
$500,000 to $2,000,000, at the price of (a) $6.328 per share for the first $2.5
million of shares so purchased and (b) $12.656 per share for the next $2.5
million of shares purchased, such purchases to be for cash or notes with the
same payment terms as the notes for the first $5,000,000, except that the cash
payments will at least equal the par value of the shares sold.
The Company intends to apply the net proceeds of the Financing
Agreement (or the proceeds of any notes issued in connection with the Financing
Agreement, when such notes are paid) to complete requirements for approval of
the Male Intrameatal Product and proceed with clinical trials for the Male and
Female Topical Products with the FDA and applicable foreign regulatory
authorities, such costs are estimated to be $10,000,000 to $12,000,000.
The proceeds of $600,000 for 200,000 shares of Common Stock by O. Lee
Tawes III, $249,999 for 83,333 shares of Common Stock by Ronald E. Patterson,
and of $500,000 for 166,667 shares of Common Stock by RK Company, and $24,000
for 8,000 shares of Common Stock by Elisabeth & Samuel Valenzisi, Selling
Stockholders hereunder, were used for working capital purposes. No proceeds were
received or will be received in connection with the issuance of shares to Medhat
Gorgy, Michael Snell and Francis Pizzulli, since such issuance is a signing
bonuses in connection with either their consulting agreement, employment
agreement or engagement with the Company.
The Company believes that its existing available resources, the net
proceeds of the Financing Agreement, anticipated up-front and milestone payments
from strategic distribution partners should be sufficient to fund its operating
expenses until it reaches positive cash flow, although there can be no assurance
thereof. The amount and timing of expenditures will depend upon the progress of
the clinical trials, the terms of any collaborative arrangements entered into by
the Company for licensing and distribution, the timing of receipt of regulatory
approvals, if any, and other factors, many of which are beyond the Company's
control. The Company reserves the right to allocate the net proceeds among the
foregoing uses. SEE "BUSINESS - STRATEGIC ALLIANCES, COLLABORATIONS AND
LICENSES."
Pending the uses of such monies, intended for clinical trials,
marketing and manufacturing costs and operating expenses, the net proceeds of
the Financing Agreement and other financing will be invested in short-term,
interest bearing securities.
21
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1998, (i) the actual
capitalization of the Company, (ii) the capitalization restated pro-forma to
reflect the issuance of stock subsequent to that date to Messrs. Gorgy,
Patterson and Pizzulli, The RK Company and Mr. & Mrs. Valenzisi, and (iii) the
capitalization further adjusted the pro-forma to reflect the sale of an
additional 592,605 shares of Common Stock for $5,000,000 to Dr. See and Mr.
Waite pursuant to the terms of the Financing Agreement and the payment in full
of all notes received by the Company from them, and the issuance of an
additional 22,000 shares of Common Stock to Mr. Gorgy pursuant to his consulting
agreement. The table should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------------
PRO FORMA**
ACTUAL PRO FORMA* ADJUSTED
----------------------------------------------------
<S> <C> <C> <C>
Liabilities:
6% Convertible Debentures $ 2,550,000 $ 2,550,000 $ 2,550,000
Other Short-Term Debt 318,592 318,592 $ 318,592
-----------------------------------------------------
Total Liabilities $ 2,868,592 $ 2,868,592 $ 2,868,592
-----------------------------------------------------
Stockholders' equity:
Common stock, $.01 par value $ 52,380 $ 55,440 $ 61,586
Additional paid in capital 14,520,786 15,337,205 20,331,059
Deficit accumulated during development stage ($10,579,957) ($10,579,957) ($10,579,957)
------------------------------------------------------
Total Stockholders' Equity 3,993,209 4,812,688 9,812,688
------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 6,861,801 $ 7,681,280 $12,681,280
======================================================
Stockholders' Equity per Share $0.76 $0.87 $1.59
======================================================
</TABLE>
* Reflects issuance subsequent to March 31, 1998 to include Mr. Patterson, The
RK Company and Mr. & Mrs. Valenzisi, of a total of 258,000 shares of Common
Stock for an aggregate consideration of $773,999, and the issuance to Mr. Gorgy
of 3,000 shares of Common Stock in connection with his consulting agreements and
Mr. Pizzulli of 45,000 shares of Common Stock in connection with his engagement.
** Reflects the issuance of an additional 592,605 shares of Common Stock to Dr.
See and Mr. Waite for $5,000,000 pursuant to the Financing Agreement; the
payment of all notes made by Dr. See or Mr. Waite in connection with the
issuance of Common Stock to them under the Financing Agreement, and the issuance
of an additional 22,000 shares to Mr. Gorgy pursuant to his consulting agreement
with the Company.
22
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The Selling Stockholders whose shares are being registered hereby are
(a) Dr. Jackie R. See, a resident of Reno, Nevada and Thomas E. Waite, a
resident of Lake Mary, Florida, who are directors of the Company and its
principal shareholders, Dr. See being a consultant to the Company and Mr. Waite
its President and Chief Executive Officer; (b) Bio-Sphere Technology, Inc., a
company controlled by Dr. See; (c) O. Lee Tawes III, Ronald E. Patterson, the RK
Company and Elisabeth and Samuel Valenzisi, who are husband and wife, all
investors unaffiliated with the Company or its controlling persons; (d) Medhat
Gorgy, a consultant to the Company, Francis Pizzulli, legal counsel for the
Company, and Michael Snell, Director of Investor Relations to the Company.
Sandra Schnakenburt, a director of the RK Company, is the sister of Barbara L.
Krilich, Chief Operating Officer, Chief Accounting Officer and Secretary of the
Company. See "PROSPECTUS SUMMARY - HOLDINGS OF COMMON STOCK OFFERED" for a
listing of the Common Stock offered hereunder by each Selling Stockholder.
As of the date of this Prospectus, the Selling Stockholders held an
aggregate of 3,551,528 shares of Common Stock and had the right to purchase or
be issued up to an additional aggregate amount of 614,605 shares. The Company
has agreed to register the public offering of the Selling Stockholders' shares
of Common Stock under the Securities Act of 1933 and to pay all expenses in
connection therewith.
The Selling Stockholders' shares may be offered and sold from time to
time as market conditions permit, provided that a registration statement
covering such Shares is effective at the time of such offer and/or sale. Under
Section 10(a)(3) of the Securities Act of 1933, as amended, when a prospectus is
used more than nine months after the effective date of the registration
statement, the information contained therein must be as of a date not more than
16 months prior to such use.
The Selling Stockholders' shares may be offered and sold in the
over-the-counter market, or otherwise, at prices and terms then prevailing or at
prices related to the then-current market price, or in negotiated transactions.
There are no restrictions on the manner of sale of the shares of Common Stock
offered hereunder by the Selling Stockholders, and the manner of sale may
include, without limitation: (i) a block trade in which a broker or dealer so
engaged will attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (ii) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
accounts pursuant to this Prospectus; (iii) ordinary brokerage transactions and
transactions in which the broker solicits purchases; and (iv) transactions
between sellers and purchasers without a broker or dealer. In effecting sales,
brokers or dealers engaged by the Selling Stockholders may arrange for other
brokers or dealers to participate. Such brokers or dealers may receive
commissions or discounts from Selling Stockholders in amounts to be negotiated.
Such brokers and dealers and any other participating brokers and dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, in
connection with such sales.
CURRENT FINANCING:
1. 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 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 (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 592,604 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. The Initial Shares, the
Additional Shares, and the shares of Common Stock held by Dr. See and Mr.
Waite prior to entering into the Financing Agreement, (together, the
"Shares") constitute the Common Stock being offered and sold by them
pursuant to this Prospectus. SEE "DESCRIPTION OF SECURITIES,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES" AND "SELLING STOCKHOLDER
AND PLAN OF DISTRIBUTION."
23
<PAGE>
Under the Financing Agreement, Dr. See and Mr. Waite have the right, but
not the obligation, to invest up to an additional $5,000,000 prior to
April 1, 1999 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 Dr. See and Mr. Waite, they
will invest $10,000,000 to acquire 2,172,882 shares of Common Stock,
although there is no assurance that they 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 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 the Company ratified the 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
registrant. The Agreement was ratified by the Stockholders of the Company
at the Company's Annual Meeting of Stockholders held July 9, 1998 in Lake
Mary, Florida. 3,532,428 shares voted "FOR" ratification and approval of
the financing agreement, totaling a majority.
A fairness opinion has been obtained in connection with the Financing
Agreement from H.D. Brous & Co., Inc., a New York Stock Exchange member
firm located in Phoenix, Arizona.
2. On February 23, 1998, the Company entered into a financing agreement with
O. Lee Tawes III, under which Mr. Tawes 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 this Registration Statement, the closing bid
price of the Company's stock is less than $6.00 per share, Mr. Tawes 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.
3. On June 19, 1998, the Company entered into a financing agreement with
Ronald E. Patterson, under which Mr. Patterson provided financing of
$249,999 to the Company in exchange for 83,333 shares of Common Stock of
the Company. If, on the effective date of this Registration Statement, the
closing bid price of the Company's stock is less than $6.00 per share, Mr.
Patterson is to receive additional shares calculated by taking the
difference between (a) 249,999 divided by one-half the closing bid price
of the company's Common Stock on the effective date and (b) 83,333.
4. On June 29, 1998, and again on July 1, 1998, the Company entered into
financing agreements with The RK Company, under which The RK Company
provided a total financing of $500,000 to the Company in exchange for
166,667 shares of Common Stock of the Company. If, on the effective date
of this Registration Statement, the closing bid price of the Company's
stock is less than $6.00 per share, The RK Company is to receive
additional shares calculated by taking the difference between (a) 500,000
divided by one-half the closing bid price of the company's Common Stock on
the effective date and (b) 166,667.
5. On July 7, 1998, the Company entered into a financing agreement with
Elisabeth & Samuel Valenzisi, under which Mr. and Mrs. Valenzisi provided
a total financing of $24,000 to the Company in exchange for 8,000 shares
of Common Stock of the Company. If, on the effective date of this
Registration Statement, the closing bid price of the Company's stock is
less than $6.00 per share, Mr. & Mrs. Valenzisi are to receive additional
shares calculated by taking the difference between (a) 24,000 divided by
one-half the closing bid price of the company's Common Stock on the
effective date and (b) 8,000.
DESCRIPTION OF BUSINESS
GENERAL:
Harvard Scientific Corp. ("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 Company changed its name to CareyWard, Inc.; on
October 18, 1993, the Company 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
the Company's Common Stock was effective on June 17, 1988; a 1 for 4 reverse
stock split of the Company's Common Stock was effective November 3, 1994; and a
1 for 10 reverse stock split was effective February 2, 1998. The number of
shares referred to in this Registration Statement, of which this prospectus
forms a part, (other than in the financial statements at dates, or for periods
prior to February 2, 1998) have been restated to reflect the stock split and
reverse stock splits, unless otherwise indicated.
24
<PAGE>
The Company is a development stage biopharmaceutical company whose
corporate objective is to utilize medically researched and developed drug
substances, determine the ability of these substances to be encapsulated in
liposomes and determine the potential market for such products. SEE "PROSPECTUS
SUMMARY - THE COMPANY." The Company intends to conduct and conclude, either on
its own or with the assistance of an industry partner, all clinical testing
necessary for regulatory approval of such products from the U.S. Food and Drug
Administration ("FDA") or similar regulatory agencies in foreign countries in
order to initiate marketing and establish distribution channels for its
products.
PRODUCTS:
Thus far, the Company has developed five products designed to
ameliorate sexual dysfunction ("SD"):
(1) An intrameatal therapeutic treatment for erectile dysfunction ("Male
Intrameatal Product")
(2) A topical therapeutic treatment for male erectile dysfunction ("Male Topical
Product")
(3) A topical therapeutic treatment for female sexual dysfunction ("Female
Topical Product").
(4) An orally administered form of liposomal, lyophilized Apomorphine ("LL
Apomorphine") for the treatment of male erectile dysfunction ("Male Oral
Product"), and
(5) An orally administered LL Apomorphine for the treatment of female sexual
dysfunction ("Female Oral Product").
The Company presented the results of its Phase I clinical study on
the Male Intrameatal Product to the FDA in April 1997, as part of its pre-Phase
II clinical trial meeting. On May 29, 1998, the Company received approval from
the FDA of the Phase I study and authorization to go forward with the Phase II
clinical trials for the Male Intrameatal Product. Protocols and research sites
for this Phase II study are complete.
The Company is in the process of initiating protocols for Phase I
studies to be submitted to the FDA for the Male and the Female Topical Products,
although toxicity studies will be conducted on female animals before the Company
submits an Investigational New Drug ("IND") application to the FDA for the
Female Topical Product. The Company has determined that until current actions
required in connection with submissions to the FDA are complete as to the
foregoing three products, which it estimates will take three to six months, no
further action will be taken in connection with the development, submission to
the FDA or market analysis of the Male or Female Oral Products.
In each of the Company's products, a substance (Prostaglandin E1
("PGE1") in the case of the Male Intrameatal, Male Topical and Female Topical
Products, and Apomorphine in the case of the Male and Female Oral Products) is
encapsulated in liposomes and then lyophilized (freeze-dried). This process
provides the product with stability, a shelf life recently proven to be at least
12 months at room temperature. LLPGE1 is an oxygenated, unsaturated cyclic fatty
acid that occurs naturally in all cells of the body. For over 20 years, the FDA
has approved PGE1 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 erectile dysfunction, 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 IND application with the FDA in
May 1996 and has been assigned IND No. 50502. Apomorphine is a non-addicting,
non-opiate drug used in parkinsonism and in animal and human ingestion of toxins
and is very effective in male erectile dysfunction - in lyophilized liposomal
form, which is designed to scientifically manipulate the liposome through the
stomach and into the small intestine where it attaches to the intestinal wall,
thereby greatly reducing the adverse effects associated with this drug.
25
<PAGE>
In the case of the Male Intrameatal Product, the lyophilized material
is reconstituted through the use of a non-irritating dilute detergent, which
lyse 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 Male Intrameatal and the Male and
Female Topical Products, the agent is freeze dried and encapsulated in liposomes
and later reconstituted to form an aqueous solution suspended in a cream base, a
small amount of which is administered locally to the male's penis glands or
female's external vaginal area. In the case of the Male and Female Oral Products
LL Apomorphine is delivered orally.
PATENTS:
On January 6, 1994, the Company acquired intellectual property rights
relating to prostaglandin microsphere delivery from Bio-Sphere Technology, 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",
referred to as "LLPGE1". The Company filed an Investigational New Drug ("IND")
application with the FDA in May 1996 and has been assigned IND No. 50502. LLPGE1
as used in the SD product has undergone a Phase I clinical study, where approval
was recently granted by the FDA to proceed on to Phase II clinical trials.
On February 17, 1998, The U.S. Patent Office approved and assigned
patent No. 5,718,917 to the Company for an invention "PGE1 Containing
Lyophilized Liposomes For Use In The Treatment of Erectile Dysfunction,"
refereed to as LLPGE1. In June 1998, the Company filed an application for a
Patent in numerous regions and countries (Australia, Brazil, Canada, China, the
Czech Republic, Eurasia, Europe, Hungary, Iceland, Israel, Japan, Mexico, New
Zealand, Norway, Poland, Korea, Singapore, Slovakia, Turkey and the Ukraine). In
addition, in June 1998, the Company submitted an application with the U.S.
Patent and Trademark Office, for its development of a new method for treating
male erectile dysfunction via the intrameatal administration of an aqueous
("liquid") solution containing two vasodilators, PGE1 and Papaverine.
LIQUIDITY:
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, and a loss of $1,097,930 for the first quarter ending March 31,
1998. 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
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 incurred research and development costs of $194,965,
$109,553 and $1,374,675 for the years ended December 31, 1997, 1996 and 1995
respectively, and research and development costs of $294,608 for the quarter
ending March 31, 1998. These costs are directly associated with the development
of the Company's products 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 years ending 1996, 1997 and to-date 1998.
FUTURE:
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 reviewing 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 five sexual dysfunction products and has no immediate plans
to add additional products to the Company's commercialization and marketing
efforts.
26
<PAGE>
THE MARKET
THE MARKET FOR MALE SEXUAL DYSFUNCTION
Male SD 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 anti-hypertensive and other 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
SD. The market for treatments for Male SD, such as LLPGE1 products, is expected
to grow over the next few years, as more men become comfortable with the fact
that SD 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 the
incidences of Male SD is likely to increase with a man's age.
PGE1 and Alprostadil, the active ingredients in the Company's
products, have already been approved by the FDA. PGE1 applied intra-urethrally
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 PGE1 varies from 30 seconds to 10 minutes,
and intra-urethrally administered product is barely discernible in the
circulation. PGE1 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. Topically applied PGE1 has similar
effects. The result is the development of an erection. LL Apomorphine works by
stimulating erection-inducing centers in the brain while it is slowly released
across the wall of the small intestine which the Company's product, LL
Apomorphine, makes possible.
THE MARKET FOR FEMALE SEXUAL DYSFUNCTION:
A sizable market already exists with female SD, as suggested by the
widespread interest in Pfizer's intentions to test its pill on women in Europe.
The Company believes that this market is likely to expand rapidly as effective
therapeutic drugs are introduced for this disorder. Approximately 10 million
women in the United States, between the ages of 50 and 74, reported a lack of
lubrication on 229 million sexual intercourse occasions. Women experience sexual
dysfunction as discomfort during sexual intercourse, dryness, increased time for
arousal, diminished ability to reach orgasm or diminished clitoral sensation.
Women are more likely to experience sexual difficulties if they are older and if
they have medical conditions relating to vascular problems.
COMPETITION
SEE "RISK FACTORS - COMPETITION" for information concerning the
competition for the Company's products. The information is presented in that
section because of the substantial nature of such competition and the financial,
marketing and other strengths of some of the Company's competitors, although the
Company believes that it can be competitively successful.
PRODUCTION AND MANUFACTURING
Initially a third-party manufacturer located in Southern California
has been designated by the Company to manufacture its products, and a second
company will validate the products. The manufacturers will produce the Company's
products pursuant to the Company's directions and specifications and deliver the
products to the Company. The Company believes that it is unnecessary to acquire
the equipment required 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 believes that alternative
manufacturers are available if the designated manufacturers are unavailable for
any reason.
27
<PAGE>
The Company is aware that there are several alternative sources for
the ingredients from which LLPGE1 and LL Apomorphine 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.
MARKETING
The commercial success of the Company's products 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 and the conclusion by these physicians that the Company's
products furnish a safe, cost-effective and acceptable method of treatment.
Accordingly, achieving market acceptance of the Company's products will require
substantial marketing efforts and expenditure of significant funds to educate
doctors, pharmacists, and the public about what the Company believes are their
advantages and benefits. To that end, the Company will soon begin negotiations
with potential distributors for 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 if reached, as to which there can be no
assurance, will provide for the distributor to pay to 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 products,
both in the United States and internationally, may generate material revenues to
the Company by the end of 2000, or possibly sooner with regard to the Male and
Female Topical Products.
MILLENNIUM YEAR 2000
The Company does not anticipate any problem in dealing with computer
entries in the year 2000 or thereafter, with any computers currently used at any
of their facilities. All of the Company's computers are stand-alone personal
computers. The Company keeps current with all updates and revisions with all
software used by the Company and has confirmed with their accounting software
supplier, State of the Art, that version 3.2. has been proven to be in
compliance with the millennium requirements. It is anticipated that all other
software updates the Company uses reflect the required revisions to accommodate
transactions in the year 2000 and thereafter.
EMPLOYEES
The Company has seven full time employees, including three officers.
These full time employees are engaged in administration, management, and
research & development activities. In addition, Dr. Jackie R. See, a Director
and the Director of Scientific Research and Development, and Dr. Darryl See, the
Company's Medical Director of Clinical Affairs, 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 its relations with
its employees is good. SEE "RISK FACTORS - DEPENDENCE ON KEY PERSONNEL" and
"MANAGEMENT'S DISCUSSIONS AND ANALYSIS" as to the dependence of the Company on
the efforts and abilities of Dr. Jackie R. See, M.D., its founder and director;
and of Thomas E. Waite, its Chief Executive Officer, President and Director.
28
<PAGE>
DIRECTORS AND OFFICERS INSURANCE
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 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 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.
GOVERNMENT REGULATION
The Company is subject to various FDA regulations which govern or
influence 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 continue 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's research, development, clinical trials, manufacturing
and marketing of its products, 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 as used in its Male Intrameatal Product and
has concluded its Phase I trial. The Company presented the results of that Phase
I clinical study to the FDA in April 1997, as part of its pre-Phase II clinical
trial meeting. On May 29, 1998, the Company received approval from the FDA on
the Phase I study, and approval to initiate Phase II clinical trials for the
Male Intrameatal Product. Protocols and research sites for the Phase II study on
SDI are complete and the Company is moving forward with its Phase II clinical
trials. In this regard, 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 and assays verification and validation in progress has been initiated.
29
<PAGE>
The Company expects that some aspects of the Male Intrameatal Product
may be regulated by the FDA as Class III devices. Pre-clinical evaluations of
Class III devices are similar to those of pharmaceuticals and biologics, with
additional emphasis on implant persistence, implant sensitization, and carrier
characterization and specifications. The Company expects that some 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 will ever be
granted, although the Company believes that FDA and other regulatory clearance
ultimately will be forthcoming. Failure to obtain FDA approval for a product
would prevent the Company from marketing that product in the United States,
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 plans to distribute its products to various
countries and regions world wide, and management believes that such distribution
may generate material royalty revenues by 2002. 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
with respect to a Company products would prevent the Company from marketing
their products in such foreign country or countries, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The manufacturing processes of the Company's products will be subject
to certain regulatory guidelines. The FDA establishes these guidelines. All
pharmaceutical manufacturers must conform to these guidelines. The FDA inspects
these facilities on a regular basis and notes any deficiencies. The facility
must correct such deficiencies within a specified 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. The Company
has concluded discussions with FDA experts regarding animal trials for its
Female Topical Product. Two-week studies on rabbits will be performed on the
basis of these conversations when adequate GMP (Good Manufacturing Practice)
product is manufactured, followed by submission of an IND for Phase I trials.
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, and it no
longer relies on BTI.
30
<PAGE>
The Company intends to continue to seek and enter into collaborative
arrangements with pharmaceutical distribution concerns to eventually distribute
its products.
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 is and was
wholly 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.
2. 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 counter-suit 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, alleged that the Company breached
the terms of an employment agreement he alleged he had with the Company. The
plaintiff alleged 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 sought 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.
31
<PAGE>
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's former transfer agent, to relinquish all records of the Company to a
newly appointed transfer agent located in Salt Lake City, Utah. The Company was
granted the injunction, and the records were transferred to the new transfer
agent on January 6, 1998. The Company is prosecuting this action further to
recover damages associated with Nevada Agency's delay in turning over the
records in question, and the costs associated with obtaining the injunction.
Discovery is ongoing in this matter.
5. COGDILL VS. HARVARD SCIENTIFIC CORP., DR. JACKIE R. SEE
INDIVIDUALLY AND ON BEHALF OF HARVARD SCIENTIFIC CORP., AND NEVADA AGENCY &
TRUST COMPANY, filed in the Superior Court for the State of California, in the
County of Los Angeles on June 2, 1997, Case No. KC-025611. Cletus Cogdill,
("Cogdill") a shareholder of the Company alleges that he purchased the Company's
common stock on March 17, 1994. At that time, Rule 144 under the Securities Act
of 1933 required that such stock be held for two years before it could be sold.
The certificate was issued on June 17, 1994. On March 18, 1996, Cogdill
completed form 144 in an attempt to sell his stock, although, according to the
certificate date (June 17, 1994), the two years had not lapsed. On April 12,
1996 Cogdill completed a revised form 144 indicating the shares had been
acquired in March 1994, and thereby should be re-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 $10,000. Cogdill
has rejected this settlement offer. The discovery process is ongoing in this
matter.
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.
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 filed an answer to Savage's
Complaint denying all liability. The discovery process is ongoing in this
matter.
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 the holder of 6%
Convertible Debentures issued pursuant to the Securities Purchase Agreement
dated March 21, 1997. The Company alleges that the defendant had breached its
representations under the agreement by taking a short position and otherwise
manipulating the price of the Company's Common Stock. The Company is seeking to
recover its damages arising from Springrange's breach of contract and
misrepresentations. The Company will not honor any requests by the defendant to
convert the outstanding $2,550,000 principal amount of 6% Convertible Debentures
into Common Stock until this matter has been resolved, see 8. below. SEE
"DESCRIPTION OF SECURITIES - 6% CONVERTIBLE DEBENTURES" and RISK FACTORS EFFECT
OF DEBENTURES.".
On February 18, 1998. Springrange filed a motion to dismiss the
Complaint and to enjoin the Company's Financing Agreement with Thomas E. Waite
and Dr. Jackie R. See. SEE "SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
CURRENT FINANCING." Springrange also sought injunctive relief requiring the
Company to deliver shares of Common Stock pursuant to notices of conversion
filed in January 1998. The Company opposed the motion and requested injunctive
relief. In early March 1998, a hearing on the motion was held and the judge
granted Springrange's motion to dismiss the Complaint, with leave to amend in 30
days, and in view of the dismissal, denied Springrange's motion for injunctive
relief. On April 3, 1998, the Company filed a first amended Complaint against
Springrange to recover its damages arising from Springrange's breach of
contract, misrepresentations and stock manipulation. Springrange is free to
pursue its claims independently or in this action. The matter is in active
settlement discussion.
32
<PAGE>
8. SPRINGRANGE INVESTMENT GROUP LTD. VS. HARVARD SCIENTIFIC CORP.,
THOMAS E. WAITE, DR. JACKIE R. SEE, MARTIN J. HOLLORAN, ROBERT T. HAYDEN, CURTIS
A. ORGILL, Case No. A385912 in the Eighth Judicial Court for the State of Nevada
and the County of Clark filed on March 17, 1998. Springrange is seeking to
enjoin and nullify the Financing Agreement between the Company and Mr. Waite and
Dr. See. On March 18, 1998, Springrange filed an ex-parte Application for
Temporary Restraining Order and a Motion for Preliminary Injunction. On March
23, 1998, the Court issued a Temporary Restraining Order against the Company,
Mr. Waite and Dr. See. On March 31, 1998, the Company filed a motion to Vacate
the Temporary Restraining Order requesting the imposition of sanctions against
Springrange and its counsel for untruthful representations made in Springrange's
application for a Temporary Restraining Order. The Company also moved to have
the action transferred from Las Vegas, Nevada to Reno, Nevada. On April 6, 1998,
the Nevada District Court dissolved the Temporary Restraining Order and
continued any determination with regard to Springrange's motion for preliminary
injunction. Further, the District Court entered orders (i) transferring the
litigation to Reno, Nevada, and (ii) imposing a sanction award against
Springrange in the amount of $11,095.76. The matter is in active settlement
discussion.
9. ALEXANDER H. WALKER JR. V. HARVARD SCIENTIFIC CORP. AND JACKIE R.
SEE, M.D., Case No. 980901221 in the Third Judicial District Court in Salt Lake
City, Utah, filed on February 6, 1998. In this action, the plaintiff, a former
officer, director and General Council to the Company, alleges two causes of
action: 1) breach of contract by the Company with respect to his employment
agreement, and 2) false representations allegedly made to Walker by the Company.
Walker seeks damages in the amount of $420,000 for the breach of contract claim
and unspecified damages for the alleged false representation claim. Pursuant to
the Company's request, this action was removed to the Federal District Court for
the Southern District of Utah. Thereafter, the Company filed a motion to dismiss
for lack of personal jurisdiction over the Company in Utah, or in the
alternative, to change the venue of the action to the Federal District Court for
the District of Nevada. The US District Court remanded case back to the Utah
State Court. The Company will renew its motion to dismiss for lack of personal
jurisdiction in the Utah State Court. The Company denies liability to Walker and
has initiated an action against Walker and Nevada Agency & Trust, Co., in the
District Court for the State of Nevada (See # 10).
10. HARVARD SCIENTIFIC CORP. VS. ALEXANDER H. WALKER JR. AND NEVADA
AGENCY & TRUST, CO., Case No. CV98-01959 in the Second Judicial District Court
of the State of Nevada in the County of Washoe, filed on March 23, 1998. The
Company is seeking to recover damages sustained by the Company as a result of
Walker's failure to perform his responsibilities as General Counsel for the
Company, and breaches of fiduciary duties owed to the Company by both Walker and
Nevada Agency & Trust, Co. Additionally, the Company is seeking indemnity from
Walker for damages it sustained and settlements it has been forced to negotiate
in other litigation. The Nevada Court has stayed this action pending the outcome
of the jurisdictional issued raised in the Utah litigation with Alexander H.
Walker, Jr. (See #9 above).
11. ALEXANDER H. WALKER, JR., DON STEFFENS INDIVIDUALLY AND AS
TRUSTEE FOR THE STEFFENS FAMILY TRUST, AND IAN HICKS, VS. ATLAS STOCK TRANSFER
COMPANY, HARVARD SCIENTIFIC CORP., AND JACKIE R. SEE, M.D., Case No. 98-0905858
in the Third Judicial District Court in the State of Utah in the County of Salt
Lake, filed on June 12, 1998. The action alleges share ownership by the
Plaintiffs named, and requests the Court to remove any stop transfer orders or
other prohibitions against plaintiffs trading of said shares. In addition,
Plaintiffs have requested damages in conjunction with any prohibitions placed on
the trading of Plaintiffs shares by Atlas Stock Transfer Company, the Company
and/or Dr. See. The Company denies Plaintiffs allegations and that Plaintiffs
own the shares in question. The shares in dispute include 1) 120,200 shares
issued to Alexander H. Walker, Jr., 2) 125,000 shares issued to Don Steffens
and/or the Steffens Family Trust, and 3) 25,000 shares issued to Ian Hicks. See
#10 and 12.
12. BIOSPHERE TECHNOLOGY INC. AND HARVARD SCIENTIFIC CORP. VS. DON
STEFFENS, INDIVIDUALLY AND AS TRUSTEE FOR THE STEFFENS FAMILY TRUST AND IAN
HICKS, Filed in the Superior Court for the County of Los Angeles, State of
California, Case No.BC194236, filed on July 14, 1998. On April 21, 1998, the
Company issued a Demand Letter to Don Steffens ("Steffens"), former officer and
director of the Company, for the return of 125,000 shares of its Common Stock
issued to him in 1997 plus the return of $100,000 cash paid to him on April 18,
1997. The shares were issued to Steffens in consideration of his performance as
an officer and director of the Company, and were advanced in accordance with his
employment contract, for the period beginning May 1997 through May 2000.
Steffens resigned his positions as officer and director of the Company on
November 14, 1997. Ian Hicks ("Hicks") was issued 25,000 shares of Common Stock
in consideration of promised faithful discharge of officer and director duties.
33
<PAGE>
Hicks resigned in May 1997. However, during such time they held their positions,
they undertook various actions which the Company believes were in breach of
their fiduciary duty, causing the Company substantial damages. The Company
demands repayment of the $100,000 paid to Steffens and a declaration of the
invalidity of their shares. See #11 above.
13. HARVARD SCIENTIFIC CORP. V. VIVUS, INC., Case No.
CV-N-97-00562-HDM (RAM) United States District Court, District of Nevada, filed
October 1, 1997. In a letter dated August 29, 1997 Vivus, Inc. alleges that the
product and method used by Harvard Scientific for the treatment of male erectile
dysfunction infringed on a patent held by Vivus. On September 16, 1997, the
Company responded advising Vivus that they did not infringe on such patent,
identifying those claim limitations not present in the defendant's product and
methods. On September 19, 1997, Vivus again reiterated its claim of infringement
against the Company.
The Company then filed this complaint for declaratory judgment of
non-infringement of the patent. Defendant filed a motion asking for dismissal of
the plaintiff's declaratory judgment action on the basis that there is no
infringement and, therefore, no actual controversy. Vivus 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.
OTHER NEGOTIATING MATTERS
14. 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 advice from legal council. The agreement was to be
accomplished within 10 working days from January 13, 1997, and when that did not
occur, the Company again notified Pharma of it's intent to terminate any and all
agreements with Pharma referencing previous termination notices. Pharma contends
the various notices of termination were withdrawn or ineffective and the
agreement is enforceable. However, the Company believes it has rightfully
terminated the agreement with Pharma, which has been and continues to be in
breach of the agreement in any event. The validity of the agreement is currently
in dispute.
On February 19, 1998, the Company renewed it's previous notices of
termination and renoticed the termination of the licensing agreement with
Pharma, and demanded binding arbitration under Nevada law of the existing
disputes between the parties pursuant to the terms of the licensing agreement.
The parties have discussed the appointment of an arbitrator. Pharma has retained
Nevada counsel; however, no arbitrator has been selected at this time. Once an
arbitrator has been selected, the Company will pursue arbitration.
SELECTED FINANCIAL DATA
The following selected financial information is derived from the
Company's audited Financial Statements, unless otherwise indicated. The
financial statements 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. Mr. McGhie's report includes 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.
34
<PAGE>
The financial statements for the year ended December 31, 1997 have
been audited by Ronald D. Simpkins, independent certified public accountant, as
set forth in his report thereon appearing elsewhere herein. Mr. Simpkins' report
includes 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. The selected financial data presented below
should be read in conjunction with the Company's Financial Statements, including
the notes thereto, contained in this prospectus and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Historical results
are not necessarily indicative of the results of operations, which may be
expected in the future.
35
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS DATA:
INCOME STATEMENT DATA:
<CAPTION>
(UNAUDITED)
(UNAUDITED) (AUDITED) INCEPTION
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, 1/31/87 TO
MARCH 31, 3/31/98
------------------------------------------------------------------------------------------
1998 1997 1997 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ - $ - $ - $ 181,000 $ - $ 187,387
Cost of Sales - - - 216,870 - 221,557
------------------------------------------------------------------------------------------
Gross Profit (Loss) 0 0 0 (35,870) 0 (34,170)
------------------------------------------------------------------------------------------
Operating Expenses:
General and Administrative 588,297 1,856,154 2,295,337 1,244,272 434,320 4,924,504
Research and Development 294,608 377 1,374,675 109,553 194,965 2,098,167
Depreciation and Amortization 15,880 20,997 515,213 41,472 39,550 651,727
------------------------------------------------------------------------------------------
Total Operating Expenses 898,785 1,877,528 4,185,225 1,395,297 668,835 7,674,398
------------------------------------------------------------------------------------------
(Loss) from Operations
(898,785) (1,877,528) (4,185,225) (1,431,167) (668,835) (7,708,568)
------------------------------------------------------------------------------------------
Other Income (Expenses):
Settlements (220,816) (494,813) - (715,629)
Interest Income 3,085 - 1,168 - - 4,650
Dividend Income 4,628 - 51,453 - - 56,081
Interest Expense (195,278) (1,263,340) (1,462,821) (512,964) (7,620) (2,180,411)
(Loss on disposition of marketable
securities) (11,580) - - - - (36,080)
------------------------------------------------------------------------------------------
Total Other Income and Expense
(199,145) (1,263,340) (1,631,016) (1,007,777) (7,620) (2,871,389)
------------------------------------------------------------------------------------------
==========================================================================================
Net (Loss) ($1,097,930) ($3,140,868) ($5,816,241) ($2,438,944) ($676,455) ($10,579,957)
==========================================================================================
(Loss) Per Common Share (0.24) (3.05) (0.36) (0.27) (0.29) (2.08)
Weighted Average Shares Outstanding 4,529,318 1,030,824 16,352,816 9,040,685 2,333,703 5,085,063
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
BALANCE SHEET DATA:
<CAPTION>
(UNAUDITED) (AUDITED)
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and Prepaid
Expenses $ 761,950 $ 908,581 $ 905,581 $ 1,565 $1,224,560
Total Assets 6,868,118 2,227,677 1,974,847 1,565 1,224,560
Total Current
Liabilities 2,868,592 2,975,043 2,975,043 535,223 664,727
Total Stockholders'
Equity 3,993,209 (753,683) (753,682) (449,696) 684,353
</TABLE>
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Some of the discussion contained in this section 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. Actual results may differ materially
from projections. Some of the factors that could cause actual results to so
differ materially are set forth in this section and elsewhere in this
prospectus.
OVERVIEW:
Harvard Scientific Corp. is a biopharmaceutical drug development
company. The Company's corporate objective is to utilize medically researched
and developed drug substances, determine the ability of these substances to be
encapsulated in liposomes and to determine the potential market for such
products. The Company intends to conduct and conclude, either on its own or with
the assistance of an industry partner, all clinical testing necessary for
regulatory approval of such products from the U.S. Food and Drug Administration
("FDA") and/or similar regulatory agencies in foreign countries in order to
initiate marketing and establish distribution channels for its products. The
Company is currently giving attention to three products, each of which uses the
Company's patented formula of lyophilized liposome ProstaglandinE1 ("LLPGE1"):
(i) an intrameatal therapeutic treatment for male erectile dysfunction ("Male
Intrameatal Product"), (ii) a topically applied cream therapeutic treatment for
male erectile dysfunction ("Male Topical Product"), and (iii) topically applied
cream therapeutic treatment for female sexual dysfunction ("Female Topical
Produce"). The Company presented the results of its Phase I clinical study on
the Male Intrameatal Product to the FDA in April 1997, as part of its pre-Phase
II clinical trial meeting. On May 29, 1998, the Company received approval from
the FDA on the Phase I study, and approval to initiate Phase II clinical trials
therefor. Protocols and research sites for the Phase II study on the Male
Intrameatal Product is complete and the Company is moving forward with its Phase
II clinical trials.
The Company believes that a sizable market already exits for sexual
dysfunction and that this market will expand for products that can effectively
treat female sexual dysfunction as well as male sexual dysfunction. Independent
studies of Dr. Irwin Goldstein, a Professor and Urologist at Boston University
School of Medicine and a Consultant to the Company, found that approximately
10-million women in the United States, between the ages of 50 and 74, reported a
lack of lubrication on 229-million sexual intercourse occasions and 58.5 percent
of the 260 female partners of impotent men he surveyed were affected with some
form of sexual dysfunction. The Company believes that a vasodilator such as its
Female Topical Product (in which LLPGE1 is reconstituted to form an aqueous
solution suspended in a cream base and applied to the female's vaginal area)
will provide a solution to this problem by stimulating the production of vaginal
fluid and increasing blood flow to the area, thus providing suitable lubrication
for sexual intercourse as well as heightened sensation. Toxicity studies will be
conducted on female animals before the Company submits its application for an
IND in connection with the Female Topical Product to the U.S. food and Drug
Administration.
The Company's Male Topical Product compliments its aqueous solution Male
Intrameatal Product. This Male Topical Product will be administered locally to
the penis glands as a lotion and is very similar to the Company's new treatment
for female sexual dysfunction. The Company has named Dr. Goldstein as its
Principal Investigator in trials involving the use of the Company's patented
LLPGE1 for the treatment of both male and female sexual dysfunction products.
The Company's core technology is covered by a U.S. patent. On August 18, 1997,
the Company received a Notification of Allowance for Patent from the U.S. Patent
and Trademark Office for "PGE1 CONTAINING LYOPHILIZED LIPOSOMES FOR USE IN THE
TREATMENT OF ERECTILE DYSFUNCTION". This is the active drug agent used in the
Company's Male Intrameatal, Male Topical and Female Topical Products. The U.S.
Patent and Trademark Office issued patent number 5,718,917 to the Company on
February 17, 1998.
The Company also has acquired the rights for an oral delivery treatment
for male and female sexual dysfunction via the via the lyophilized lipsomal
delivery of Apomorphine. The Male and Female Oral Products are designed to
scientifically manipulate the liposome through the stomach and into the small
intestine where it attaches to the intestinal wall, thereby greatly reducing the
adverse effects associated with this drug. While the Company believes these
products have great potential, it has not done any material investigation of
these products or of the opportunities to promote them in the marketplace.
37
<PAGE>
There can be no assurance that any of the Company's products will be
commercially successful even if they are scientifically successful and gain FDA
and other regulatory approval, none of which is assured.
During fiscal years 1994 through 1997 and during the first and second
quarters of 1998, the Company's activities consisted primarily of raising
capital, identifying a core management team, developing a patent application for
LLPGE1 and the submission of this application to the U.S. Patent and Trademark
office, which resulted in the issuance of Patent No. 5,718,917, concluding
manufacturing scale up and initial clinical trials and formulating both a
commercialization and clinical development strategy. The Company has considered
and evaluated additional products and market potential for those products in
order to enhance its own current product portfolio and intends to continue this
strategy for future corporate development.
The Company believes that its strategic plan, which was launched by a
new management team in November 1997, will be successful, although there is no
assurance that it will be. The Company's management team is currently
established, and it is not expected that the Company will need to hire any
additional employees during the next twelve months. Since the middle of November
1997: (i) the Company's International Patent Application, No. PCT/US96/18820
(International Publication No. W097/2234) for LLPGE1 received a favorable
Preliminary Examination Report, from the U.S. Patent and Trademark Office
Examiner acting as the International Preliminary Examining Authority, (ii) a
study utilizing gamma radiation instead of standard 0.2 micron filters to
sterilize the chemical components used in the Company's products proved
successful in the production of "GMP" (Good Manufacturing Practice) product,
which should lead to substantial cost savings, (iii) a financing agreement to
provide funds of up to $10,000,000 was signed between the Company and its two
largest Stockholders, Thomas E. Waite, President and Chief Executive Officer of
the Company, and Jackie R. See, M.D., F.A.C.C., Director of Research and
Development, (iv) financing agreements of independent investors brought in a
total of $1,373,999 to the Company to be used toward working capital, and (v)
stability studies on LLPGE1 conducted with the collaborative efforts of Pyramid
Labs, Inc. in Costa Mesa, California have proven that LLPGE1 remains stable
without any degradation and chemical breakdown at room temperature for at least
12-months. These stability studies are ongoing in order to determine the exact
shelf life for the Company's products at room temperature.
Over the next 12 months, the Company's primary focuses will be to 1)
proceed with phase II/III clinical trials and product validation of its Male
Intrameatal Product to conform to the regulatory process of the FDA, 2) petition
the FDA to perform phases I and II of the Male and Female Topical Products
immediately 3) continue development with the Male and Female Oral Products, 4)
continue monitoring patent applications, and 5) identify companies with similar
technologies or companies seeking new proprietary products to strengthen their
existing market position and seek the formation of strategic alliances, joint
venture arrangements, licensing and distribution agreements, research and
development agreements and other collaborative arrangements with major
pharmaceutical distribution concerns and/or licensing agreements to eventually
assist in the development and distribution of the Company's products.
It is the belief of the Company that if an agreement with a major
industry partner can be secured, the possibility exists that the regulatory
process for its products could be expedited. This should enhance the Company's
ability to bring its products to market more quickly, thus enabling the Company
to make fuller use of the remaining life of its patent for LLPGE1 which was
issued February 17, 1998. Without the benefit of an industry partner, the
Company believes an 18 to 24 month time-line to obtain regulatory approval of
the Male Intrameatal Products is probable, but there can be no assurance that
the product will receive FDA approval in that time span, if ever.
The Company's future success is dependent upon its ability to raise
additional funds to complete the commercialization process for its Male
Intrameatal Product and its other products either through strategic agreements
(i.e. licensing, distribution or joint venture) or through private placements or
public issuance of the Company's Common Stock. In the past, the Company has
relied upon the private purchase of its securities by accredited investors to
raise such funds and may have to rely upon this practice in the future There can
be no guarantee that the investors who have been interested in purchasing the
Company's securities in the past will be interested in doing so in the future,
or that alternative investors will be found, or that public financing or
collaborative arrangements will be available on terms satisfactory to the
Company.
The Company does not expect to purchase or sell any significant
equipment.
38
<PAGE>
RESULTS 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 clinical
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 Male Intrameatal product. The Company submitted
an IND to the FDA and concluded a Phase I clinical trials. 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 incurred sales of $181,000 and a cost of sales of $216,867 for the year
as result of selling clinical supplies to a potential overseas distributor.
Accordingly, gross profit in 1996 was a loss of $35,870. 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 a potential overseas distributor. Accordingly,
gross profit in 1996 was a loss of $35,870. 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 "LEGAL PROCEEDINGS, #1." The net loss for the
year ended December 31, 1996 amounted to $2,438,944.
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% Convertible Debentures 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.
The Company had no net sales during year, and, accordingly, had no cost
of sales for the year. The Company's focus for 1997 was primarily to raising
investment capital. In 1997, the Company focused on completing the required
regulatory review process for its Male Intrameatal Product, as opposed to
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 Male Intrameatal Product and the
psoriasis product (later disposed of), 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. In connection with the issuance of $5,000,000
principal amount of 6% Convertible Debentures, 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 Male
Intrameatal Product submitted to the FDA in April 1997. Furthermore, the Company
prepared the protocols for the Phase II study, which were subject to FDA
approval before proceeding with the clinical trials. Approval was obtained in
May 1998. The costs incurred associated with such steps conformed to the
Company's planned budgets for 1996 and 1997.
39
<PAGE>
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 was amortized within the first quarter of 1998.
The Company expensed $220,816 to legal settlements in 1997, dividend
income increased 100% in 1997 as a result of investing the net proceeds of
$4,375,000 from the sale of $5,000,000 principal amount of 6% Convertible
Debentures received in March 1997 into an interest bearing account. However
interest expense increased by $949,857 as a result of the 6% Convertible
Debentures.
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 and development costs will continue to increase as the
Company moves forward with FDA approval of its various products 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.
FOR THE QUARTER ENDED MARCH 31, 1998:
During the quarter ending March 31, 1998, the Company had no net sales,
and, accordingly, had no cost of sales. The Company has remained focused on
completing the required regulatory review process for its Male Intrameatal
Product, the Male and Female Topical Products and initial consideration of the
Male and Female Oral Products. (The Company received FDA approval to proceed to
Phase II clinical trials with the Male intrameatal product in May 1998). The
Company intends to focus on promotion of its products only after completing the
regulatory review process.
During the first quarter of 1997, the Company began spending for
research & development ("R&D") costs which were initially booked to General &
Administrative ("G&A") expense. Later during 1997, these costs were reclassified
to accurately reflect expenditures in R&D. Consequently, the March 1997 G&A
includes almost all the R&D costs incurred for that period. As a result, the
costs should be reviewed by comparing the overall Total Operating Expenses of
$898,785 for the first quarter in 1998 ($294,608 for R&D and $588,297 for G&A)
vs. $1,877,528 for the first quarter in 1997, for a decrease of $980,000 in 1998
over 1997. This decrease is primarily a result of a one-time payment of $750,000
in March 1997 for settlement of stock matters. In addition, $175,000 was paid to
officers/directors of the Company in the first quarter of 1997 as a result of
securing financing through the sale of 6% Convertible Debentures. The remaining
decrease of $55,000 in 1998 over 1997, was a result of a program to eliminate
unnecessary costs.
Management anticipates that general and administrative expenses will
continue to be incurred in amounts similar to those in the first quarter
throughout 1998 as the Company obtains additional investment capital and expands
its operations. The Company anticipates continuing to incur substantial legal
expenses in connection with litigation in which the Company is involved.
The Company has prepared the protocols for the Phase II study for the
Male Intrameatal Product and is prepared to proceed with the Phase II clinical
trials therefor. Together with work on the Male and Female Topical Products, and
the possible initiation of work on the Male and Female Oral Products, it is
likely that the Company will experience a significant increase in R&D costs
during 1998.
40
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
The Company's major financial transaction for 1997 incurred during the
first quarter was the issuance of $5,000,000 aggregate principal amount of 6%
Convertible Debentures on March 21, 1997, resulting in a net receipt of
$4,375,000 by the Company for its general operating account. During 1997, the
majority of the cash used in the Company's operations came from the issuance of
the 6% Convertible Debentures. During the first quarter of 1998, the Company
managed to secure two additional financing arrangements: (1) the Company's two
principal stockholders, Thomas E. Waite, President and Chief Executive Officer,
and Jackie R. See, M.D., F.A.C.C., Director of Research and Development, entered
into the Financing Agreement pursuant to which on February 3, 1998 they each
made payment of $7,901.39 and gave a promissory note of $2,492,098.61 due March
31, 1999, with a right to purchase an additional $5,000,000 of the Company's
Common Stock together. SEE "SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION -
CURRENT FINANCING.", and (2) O. Lee Tawes III, a person otherwise not affiliated
with the Company, purchased 200,000 shares of the Company's Common Stock for
$600,000, with the right to receive additional shares of Common Stock of the
Company if the price per share is below $6.00 when this registration statement
becomes effective. During the second quarter of 1998, three additional investors
purchased shares of Common Stock of the Company: 1) Ronald E. Patterson
purchased 83,333 shares for $249,999, also with the right to receive additional
shares of Common Stock of the Company if the price per share is below $6.00 when
this registration statement becomes effective, 2) RK Company purchased 166,667
shares for $500,000 with the right to receive additional shares of Common Stock
of the Company if the price per share is below $6.00 when this registration
statement becomes effective, and 3) Elisabeth & Samuel Valenzisi purchased 8,000
shares for $24,000 with the right to receive additional shares of Common Stock
of the Company if the price per share is below $6.00 when this registration
statement becomes effective. Total monies raised in the second quarter of 1998
were $773,999.
At the end of the first quarter of 1998, the Company reported total
assets of $6,868,118. This compares with total assets at December 31, 1997 of
$2,227,677. The primary reason for the increase in assets was the increase in
cash of $616,000 and two promissory notes, totaling $4,984,000 (described
above).
The Company's total current liabilities for the first quarter of 1998
decreased by $106,500 over the total current liabilities at December 31, 1997.
This difference is due to the conversion of $250,000 principal amount of 6%
Convertible Debentures netted against the accrued expenses in 1998 of
approximately $146,000.
The Company issued a total of 1,893,884 shares of common stock during
the first quarter of 1998, mostly attributed to the Debentures converted during
the third quarter (103,606), securing two additional financing arrangements
(1,780,278) and shares issued to new directors (10,000). The Company anticipates
that it will continue the practice of issuing shares of its common stock as
compensation for services rendered to the Company.
See "RISK FACTORS - EFFECT OF DEBENTURE CONVERSION," "DESCRIPTION OF
SECURITIES - 6% CONVERTIBLE DEBENTURES," "LEGAL PROCEEDINGS - HARVARD SCIENTIFIC
CORP. V. SPRINGRANGE INVESTMENT GROUP" and "SPRINGRANGE INVESTMENT GROUP LTD. V.
HARVARD SCIENTIFIC CORP., THOMAS E. WAITE, DR. JACKIE R.. SEE, MARTIN J.
HOLLORAN, ROBERT T. HAYDEN, CURTISS A. ORGILL," and "MANAGEMENT DISCUSSION -
RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1997 AND - FOR THE
QUARTER ENDED MARCH 31, 1998" for information concerning the effect of the
issuance of the Company's 6% Convertible Debentures on the Company's liquidity
and capital resources.
Funding needed to complete the regulatory process for the Male
Intrameatal Product is estimated to be as much as $15,000,000. For the next six
months, expected costs to be incurred for research & development is $1,884,000
which includes clinical trials on the Male Intrameatal Product as well as the
Male and Female Topical products. Up to an additional $20,000,000 may be
required to complete testing and bring to market the Company's additional
products. However, regulatory and testing costs per product for these additional
products are projected to be lower due to data generated by the CMC, animal and
clinical data related to the Male Intrameatal Produce.
The Company expects to obtain capital funds either from the issuance of
common stock or debt. It is expected that external sources will be available to
provide these funds, but there can be no guarantees of such funding. SEE
"OVERVIEW," "DESCRIPTION OF SECURITIES" and "USE OF PROCEEDS FROM SALE OF
STOCK." As of the date of this prospectus, the Company has no plans to obtain
capital funds other than as described above-referenced sections of this
prospectus.
41
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
As of July 13, 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:
<TABLE>
<CAPTION>
---------------------------- ---------- ----------------------------- --------------------------
Period Served as Director
Name Age Position (1) or Executive Officer
---------------------------- ---------- ----------------------------- --------------------------
<S> <C> <C> <C>
Col. Robert T. Hayden 73 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, Officer since
and Chief Financial 12/12/97;
Officer (2) (3) Director since
2/10/98
---------------------------- ---------- ----------------------------- --------------------------
Jackie R. See, M.D. (4) 57 Director (5) Since 1/6/94
---------------------------- ---------- ----------------------------- --------------------------
Thomas E. Waite 35 Chief Executive Since 11/14/97
Officer, 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.
42
<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.
43
<PAGE>
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:
Summary Compensation Table
- --------------------------------------------------------------------------------
Name and Other
Principal Year Salary/Consulting Fees Bonus Compensation
Position
- --------------------------------------------------------------------------------
(a) (b) STOCK (a) +
CASH GRANTS (1) (b)
TOTAL
- --------------------------------------------------------------------------------
JACKIE R. SEE (2) 1997 $199,662 $10,088,450 $10,288,112 None None
Director of 1996 $104,000 None $104,000 None None
Research 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, 1996 None None None None $16,440
President & 1995 None None None None None
Director
- --------------------------------------------------------------------------------
DON STEFFENS (4) 1997 $155,135 $3,608,750 $3,763,885 $100,000 None
Was CEO, 1996 None None None None None
President & 1995 None None None None None
Director
- --------------------------------------------------------------------------------
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 1997 $140,150 $59,600 $199,750 None None
(6) 1996 None None None None None
Was COO 1995 None None None None None
- --------------------------------------------------------------------------------
THOMAS E. WAITE 1997 $28,462 $4,000,000 $4,028,462 None None
(7) President & 1996 None None None None None
CEO 1995 None None None None None
- --------------------------------------------------------------------------------
(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 (based on closing price on the date
specified) of stock holdings of officers and directors as of July 1, 1998
were 2,405,278 shares and $15,183,317, 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 and is for
his consulting services. 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 the Male
Intrameatal product and any other products the Company may produce under
Patent Application No. 08/573408 using LLPGE1. Dr. See will receive these
royalty fees for the life of patent No. 5,718,917 issued February 17, 1998.
SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS", DR. JACKIE R. SEE &
BIOSPHERE, for additional relationships between Dr. See and the Company.
44
<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 "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. See "LEGAL PROCEEDINGS".
(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. See
"LEGAL PROCEEDINGS".
(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. Effective May
29, 1998, the Company has terminated all agreements with Dr.
Hofmann.
(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.
45
<PAGE>
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, 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. For stock issuance's to Thomas E.
Waite & Associates prior to Mr. Waite becoming an employee, See "LEGAL
PROCEEDINGS NO. 1."
COMMON STOCK 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
July 14, 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 OF COMMON STOCK
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL AS OF APRIL 21,
OWNERSHIP (1) 1998 (2)
- --------------------- --------------------------------- ------------------- -------------------
<S> <C> <C> <C>
Common Stock Dr. Jackie R. See (3) 2,497,993 (2) 40.3%
100 N. Arlington
Suite 23-P
Reno, NV 89501
- --------------------- --------------------------------- ------------------- -------------------
Common Stock Don Steffens (4) 111,500 2.0%
100 N. Arlington
Suite 23-P
Reno, NV 89501
- --------------------- --------------------------------- ------------------- -------------------
Common Stock Ian Hicks (5) 25,000 .4%
5967 Jacaranda Lane
Yorba Linda, CA 92887
- --------------------- --------------------------------- ------------------- -------------------
Common Stock Alexander H. Walker, Jr. (6) 120,200 2.1%
American Plaza II
57 West 200 South, Ste. 400
Salt Lake City, UT 84101
- --------------------- --------------------------------- ------------------- -------------------
Common Stock Thomas E. Waite (7) 1,782,743 (2) 28.8%
755 Rinehart Road
Suite 100
Lake Mary, FL 32746
- --------------------- --------------------------------- ------------------- -------------------
Common Stock Curtis Orgill (8) 50,000 .9%
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) 3,688,132 59.5%
- --------------------- --------------------------------- ------------------- -------------------
Common Stock All Directors and 3,798,132 61.3%
Officers as a Group
- --------------------- --------------------------------- ------------------- -------------------
Common Stock Bio-sphere Technology, Inc. 710,250 12.6%
Suite 23P
100 N. Arlington Avenue
Reno, NV 89501
- --------------------- --------------------------------- ------------------- -------------------
</TABLE>
46
<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 "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 1,095,139 shares held by Dr. Jackie R. See, 710,250
shares held by Bio-Sphere Technology, Inc., of which Dr. Jackie R. See is
the controlling person, 100,000 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 "DESCRIPTION OF BUSINESS ".
(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. SEE
"LEGAL PROCEEDINGS".
(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. SEE "LEGAL PROCEEDINGS".
(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 "DESCRIPTION
OF BUSINESS").
47
<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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, 1997 and to July 1, 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 NO. OF
TO CURRENT DATE SHARES DOLLAR VALUE
NAME THE COMPANY STATUS/RELATIONSHIP REFERENCE ISSUED ISSUED **
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Colonel Robert T. Director Current (1) 2/18/98 5,000 $ 25,650
Hayden
- -------------------------------------------------------------------------------------------------------
Ian Hicks Officer & Prior (1) 3/18/97 25,000 $ 1,671,750
Director
- -------------------------------------------------------------------------------------------------------
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 & Current (1) 1/26/98 50,000 $ 298,000
Director
- -------------------------------------------------------------------------------------------------------
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 (1) 11/14/97 50,000 $ 500,000
See's Son
Dr. Darryl See, M.D. Consultant Dr. Jackie (1) 1/26/98 200,000 $ 1,192,000
See's Son
Total 1,475,139 $19,286,771
- -------------------------------------------------------------------------------------------------------
Don Steffens Officer & Prior (1) 3/18/97 25,000 $ 1,671,750
Director
Don Steffens Officer & Prior (1) 6/10/97 100,000 $ 1,937,000
Director
Total 125,000 $ 3,608,750
- -------------------------------------------------------------------------------------------------------
Thomas E. Waite Officer & Current (3) 12/18/96 56,875 $ 1,279,688
Director
Thomas E. Waite Officer & Current (4) 11/14/97 400,000 $ 4,000,000
Director
Thomas E. Waite Officer & Current (2) 2/3/98 790,139 $ 7,506,321
Director
Total 1,247,014 $12,786,008
- -------------------------------------------------------------------------------------------------------
Alexander H. Walker, Officer & Prior (5) 4/12/96 18,000 $ 1,170,000
Jr. Director
Alexander H. Walker, Officer & Prior (5) 3/18/97 18,000 $ 1,203,660
Jr. Director
Alexander H. Walker, Officer & Prior (5) 6/10/97 87,200 $ 1,689,064
Jr. Director
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 (6) 7/5/96 2,000 $ 65,000
Son-in-law
J.T. Cardinalli N/A Walker Jr.'s (6) 3/18/97 2,000 $ 133,740
Son-in-law
Total 131,200 $ 4,460,204
- -------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
*- 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.
(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 "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 "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") 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".
(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 "LEGAL PROCEEDINGS".
(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 "LEGAL
PROCEEDINGS, AND "EXECUTIVE COMPENSATION".
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.
49
<PAGE>
As of July 1, 1998, Bio-Sphere Technology Inc. ("BTI") owned 710,250
shares of Common Stock representing 12.6% 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 LLPGE1, 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) to BTI for the Intellectual Property
Rights to Prostaglandin E1 Lyophilized Liposomes for the use of treatment of
Psoriasis. BTI was to receive a 3% override on royalties of the Psoriasis
product. During the second quarter of 1998, BTI and the Company agreed in
principle that BTI would transfer the technology relating to the processes
utilized to transfer drugs through the stomach into the intestinal tract for
absorption into the body insofar as it relates to sexual dysfunction (which is
the technology related to the Male and Female Oral Products) for the return of
the intellectual property related to the Psoriasis product that BTI previously
had transferred to the Company and the granting to BTI of registration rights as
to all shares of the Company's Common Stock held by BTI. However, the 3%
override on royalties no longer exists for these products.
During 1997, the Company entered into three additional significant
transactions with BTI for the acquisition of intellectual rights, and for the
provision of technological, management, fundraising and marketing assistance. In
addition, in 1996, the Company incurred costs payable to BTI for consultation
and rent of $133,157 and for research and development $50,378 of the LLPGE1
product. During 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 use of treatment of Psoriasis (during the second quarter of
1998, the Psoriasis transaction was returned to BTI in exchange for the
Intellectual Rights for the Male and Female Oral products. 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 any SD products the Company
currently has or may produce utilizing the LLPGE1 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 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 other
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. SEE
"RISK FACTORS - TRANSACTIONS WITH AFFILIATES," "DEPENDENCE ON KEY PERSONNEL," "-
DEPENDENCE ON THIRD-PARTY RESEARCHERS," "BUSINESS RESEARCH AND DEVELOPMENT,"
"MANAGEMENT'S DISCUSSION" AND "PRINCIPAL STOCKHOLDERS."
50
<PAGE>
LEGAL MATTERS
Hardesty, Bader & Ryan, Ltd., 245 East Liberty St., Suite #300, Reno,
Nevada will pass upon the validity of the shares of Common Stock for the
Company. Various legal matters will be passed upon for the Company by David R.
Baker, Esq., New York, New York, who owns 30,000 shares of the Company's Common
Stock and 200,000 shares (approximately 1/2 percent of the equity) of Common
Stock of Bio-Sphere Technology, Inc., which has a 12.6% ownership of the
Company.
EXPERTS AND CHANGE IN ACCOUNTANTS
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. In June 1998, the Board of Directors
approved Ronald D. Simpkins to audit the Company's financial statements for the
year ending December 31, 1998. 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
Company determined that a change of auditor was in the best interest of the
Company. The decision to change accountants was 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 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.
A Fairness Opinion dated February 5, 1998 in connection with the sale of
up to 2,172,883 shares of common stock to Dr. Jackie See and Thomas E. Waite
pursuant to the Financing Agreement was rendered by H.D. Brous & Co., Inc.,
Phoenix, Arizona. See "SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION - CURRENT
FINANCING".
51
<PAGE>
ADDITIONAL INFORMATION
The Company is a reporting company under the Exchange Act. Reports and
other information filed by the Company with the Securities and Exchange
Commission may be inspected and copied at the public reference facilities of the
Commission at 450 Fifth Street, NW, Washington, DC 20549 and at its Regional
Offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and at Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such reports and other information can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, NW, Washington, DC 20549, at prescribed rates. The Commission maintains
a Web site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Commission, at
http://www.sec.gov.
The Company furnishes its Stockholders with annual reports containing
audited financial statements after the close of each fiscal year. The Companies
annual shareholder meeting was held on July 9, 1998.
The Company will provide without charge to each person who requests such
a document, upon written or oral request of such person, a copy of any of the
information that was incorporated by reference in the Prospectus. Please direct
requests to Secretary, Harvard Scientific Corp., 100 North Arlington, Suite 380,
Reno, Nevada 89501, or call (702) 786-9005.
52
<PAGE>
INDEX FOR FINANCIAL STATEMENTS
For the Quarter ending March 31, 1998 and Comparative periods:
Balance Sheet...............................................................F-2
Statement of Operations.....................................................F-4
Statement of Stockholders' Equity...........................................F-5
Statement of Cash Flows.....................................................F-9
Notes to Financial Statements...............................................F-10
For the Year ending December 31, 1997 and Comparative periods:
Independent Auditors Reports................................................F-23
Balance Sheet...............................................................F-26
Statement of Operations.....................................................F-28
Statement of Stockholders' Equity...........................................F-29
Statement of Cash Flows.....................................................F-32
Auditors Reports to Supplemental Schedules..................................F-33
Supplemental Disclosure - Schedule V........................................F-35
Supplemental Disclosure - Schedule VI.......................................F-36
Notes to Financial Statements...............................................F-37
F-1
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
BALANCE SHEET
ASSETS
March 31, December 31,
1998 1997
(Unaudited) (Audited)
---------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 742,133 $ 873,199
Prepaid expenses 19,817 35,382
Accounts Receivable - Directors (Note 6 & 8) 4,984,197 57,711
Due From Related Parties (Note 6) 892,819 852,305
Deferred debt issue costs (Note 10) - 156,250
---------------- ---------------
Total Current Assets 6,638,966 1,974,847
---------------- ---------------
Equipment and Leasehold Improvements:
at cost, less accumulated depreciation of $7,517 and
$11,930 at March 31, 1998 and December 31, 1997 (Note 3) 40,238 50,704
---------------- ---------------
Intangible Assets:
Intellectual Property, net of accumulated amortization
of $6,991 and $4,147 at March 31, 1998 and
December 31, 1997, respectively (Note 4) 154,004 156,848
Organizational cost, net of accumulated amortization of
$151,054 and $140,686 at March 31, 1998 and
December 31, 1997, respectively 24,496 34,864
---------------- ---------------
178,500 191,712
---------------- ---------------
Other Assets:
Deposits 10,414 10,414
TOTAL ASSETS $ 6,868,118 $ 2,227,677
================ ===============
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-2
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
BALANCE SHEET (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1998 1997
(Unaudited) (Audited)
---------------- ---------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 111,470 $ 26,370
Accrued expenses (Note 5 & 10) 192,746 131,694
Obligation under capital lease - current (Note 3) 14,376 16,979
Debentures payable - Convertible (Note 10) 2,550,000 2,800,000
---------------- ---------------
Total Current Liabilities 2,868,592 2,975,043
---------------- ---------------
Long-Term Liabilities:
Obligation under capital lease - non-current (Note 3) 6,317 6,317
---------------- ---------------
Stockholders' Equity:
Common Stock, $.01 par value; 10,000,000 shares
authorized; 5,238,022 and 33,441,373 shares issued
and outstanding at March 31, 1998 and December 31,
1997, respectively (Note 2) 52,380 33,441
Additional paid-in capital 14,520,786 8,694,904
Deficit accumulated during the development stage (10,579,957) (9,482,028)
---------------- ---------------
Total Stockholders' Equity 3,993,209 (753,683)
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,868,118 $ 2,227,677
================ ===============
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-3
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
STATEMENTS OF OPERATIONS
Three Months Ended 1/13/87
---------------------------- (Inception)
March 31, March 31, to
1998 1997 3/31/98
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
<S> <C> <C> <C>
Net Sales $ - $ - $ 187,387
Cost of Sales - - 221,557
------------- ------------- -------------
Gross Profit - - (34,170)
------------- ------------- -------------
Operating Expenses:
General and administrative expenses 588,297 1,856,154 4,924,504
Research and development 294,608 377 2,098,167
Depreciation and amortization 15,880 20,997 651,727
------------- ------------- -------------
Total Operating Expenses 898,785 1,877,528 7,674,398
------------- ------------- -------------
Loss from Operations (898,785) (1,877,528) (7,708,568)
------------- ------------- -------------
Other Income (Expense):
Settlements - - (715,629)
Interest Income 3,085 - 4,650
Dividend Income 4,628 - 56,081
Interest Expense (195,278) (1,263,340) (2,180,411)
Loss on disposition of Fixed Assets
or Securities (11,580) - (36,080)
------------- ------------- -------------
Total Other Income and Expense (199,145) (1,263,340) (2,871,389)
------------- ------------- -------------
Net Loss $ (1,097,930) $ (3,140,868) $(10,579,957)
============= ============= =============
Loss per Common Share $ (0.24) $ (3.05) $ (2.08)
============= ============= =============
Weighted Average Shares Outstanding (Note 2) 4,529,318 1,030,824 5,085,063
============= ============= =============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-4
<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 MARCH 31, 1998 (UNAUDITED)
Restated Deficit
Common Stock Additional From
------------------------- Paid-in Inception
Shares Amount Capital To Date Total
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of shares 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.
F-5
<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 MARCH 31, 1998 (UNAUDITED)
Restated Deficit
Common Stock Additional From
------------------------- Paid-in Inception
Shares Amount Capital To Date Total
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1994 BALANCE FORWARD 1,857,125 1,857 540,549 (550,386) (7,980)
Issuance of shares for fees
and services 553,500 553 530,796 - 531,349
Issuance of shares at par value for
intellectual property rights 6,138,500 6,139 - - 6,139
Issuance of shares for cash,
net of offering costs 200,000 200 831,100 - 831,300
Net (loss) for the year ended
December 31, 1995 - - - (676,455) (676,455)
------------ ----------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1995 8,749,125 8,749 1,902,445 (1,226,841) 684,353
Issuance of shares for service s 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.
F-6
<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 MARCH 31, 1998 (UNAUDITED)
Restated Deficit
Common Stock Additional From
------------------------- Paid-in Inception
Shares Amount Capital To Date Total
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
MARCH 31, 1997 BALANCE FORWARD 11,403,129 $ 11,403 $4,580,957 $(6,806,654) $(2,214,294)
Issuance of shares for fees and services 6,172,000 6,172 - - 6,172
Issuance of shares in conversion of debt 450,000 450 133,300 - 133,750
Net (loss) for the Quarter ended
June 31, 1997 - - - (1,266,233) (1,266,233)
------------ ----------- ----------- ------------ ------------
BALANCE JUNE 30, 1997 18,025,129 $ 18,025 $4,714,257 $(8,072,887) $(3,340,605)
Issuance of shares in conversion of debt 1,446,325 1,446 1,275,133 - 1,276,579
Issuance of shares for fees and services 144,000 144 - - 144
Net (loss) for the Quarter ended
September 30, 1997 - - - (180,075) (180,075)
------------ ----------- ----------- ------------ ------------
BALANCE SEPTEMBER 30, 1997 19,615,454 $ 19,615 $5,989,390 $(8,252,962) $(2,243,957)
Issuance of shares in conversion of debt 2,375,919 2,376 985,789 - 988,165
Issuance of shares for fees and services 8,300,000 8,300 537,100 - 545,400
Issuance of shares in legal settlement 1,150,000 1,150 439,075 - 440,225
Issuance of shares for intellectual
property 2,000,000 2,000 - - 2,000
Receivable due from related parties
reflecting the sale of stock Rule 16(b) - - 410,016 - 410,016
Receivable due from related parties - 333,535 - 33,535
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.
F-7
<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 MARCH 31, 1998 (UNAUDITED)
Restated Deficit
Common Stock Additional From
------------------------- Paid-in Inception
Shares Amount Capital To Date Total
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of shares in conversion of debt 1,036,064 1,036 260,882 - 261,918
February 2, 1998, adjustment of shares to
effect a one-for-ten reverse split (31,029,693) - - - -
Issuance of shares for a commitment to a
financing agreement 1,580,278 15,803 4,984,197 - 5,000,000
Issuance of shares for services 10,000 100 - - 100
Issuance of shares for cash 200,000 2,000 598,000 - 600,000
Net reversal of Receivable due from related
parties reflecting the sale of stock Rule 16(b) - - (17,197) - (17,197)
Net (loss) for the Quarter ended
March 31, 1998 - - - (1,097,930) (1,097,930)
------------ ----------- ----------- ------------ ------------
BALANCE AT MARCH 31, 1998 5,238,022 $ 52,380 $14,520,786 $(10,579,957) $ 3,993,209
============ =========== =========== ============= ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-8
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
<CAPTION>
STATEMENTS OF CASH FLOWS
Three Months Ended 1/13/87
---------------------------- (Inception)
March 31, March 31, to
1998 1997 3/31/98
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
<S> <C> <C> <C>
Reconciliation of Net Loss to Net Cash
Used in Operating Activities:
Net Loss $ (1,097,930) $( 3,140,868) $(10,579,957)
------------- ------------- -------------
Adjustments to Reconcile Net Loss to
Net Cash Provided by (Used in)
Operating Activities:
Book value of assets sold - - 6,483
Loss on disposition of securities or
fixed assets 14,879 - 14,879
Depreciation and amortization 8,799 20,997 175,897
Amortization of Debt Issuance cost 156,250 - 625,000
Issuance of stock for director's fees
and services 100 1,046,600 1,249,874
Issuance of stock for Property Rights - - 2,000
Issuance of stock in legal settlement - - 795,854
Discount on Convertible Debentures - 1,250,000 1,750,000
Interest Expense converted to Stock 11,917 - 98,795
(Increase) decrease in assets:
Prepaid expenses - (218,435) -
Deposits/Retainers 15,568 - (30,228)
Increase (decrease) in liabilities:
Accounts payable 103,837 (31,399) 108,864
Accrued expenses 39,711 77,588 184,130
Due to related parties - (7,325) (203,740)
------------- ------------- -------------
Total Adjustments 351,061 2,138,026 4,777,809
------------- ------------- -------------
Net Cash Used in Operating Activities $ (746,869) $ (1,002,842) $ (5,802,149)
============= ============= =============
Cash Flows from Investing Activities:
Cash from sale (purchase) of equipment - - (78,114)
Cash from sale (purchase) of Intellectual Rights - - (150,000)
Capitalized organization costs - - (150,924)
------------- ------------- -------------
Net Cash Used in Investing Activities - - (379,038)
------------- ------------- -------------
Cash Flows from Financing Activities:
Proceeds from issuance of capital stock,
net of offering costs 615,803 125,000 1,987,749
Proceeds from debt converted to capital stock - - 250,000
Proceeds from debt, net of costs - - 438,739
Proceeds from debentures, net of costs - 4,375,000 4,375,000
Principal payments on debt - - (128,169)
------------- ------------- -------------
Net Cash Provided by Financing
Activities 615,803 4,500,000 6,923,319
------------- ------------- -------------
Net Increase (Decrease) in Cash (131,066) 3,497,158 742,133
Cash at beginning of period 873,199 (134) -
------------- ------------- -------------
Cash at end of period $ 742,133 $ 3,497,024 $ 742,133
============= ============= =============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-9
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
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 and impotency, 2) Psoriasis, and 3) female sexual dysfunction
(see Note 12 no. 4). The Company has preliminary data available, indicating the
possible benefits of such a therapy for these 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 ("LLPGE1"). US Patent No. 5,718,917 was issued February 17, 1998. The
assignment was made by the holder of the application, BioSphere Technology, Inc.
("BTI"), a shareholder as of March 31, 1998.
The Company plans to focus on its LLPGE1 for the treatment of erectile
dysfunction and 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 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.
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. All
figures in this Report give effect to previous stock split and the reverse stock
splits, and previously stated numbers of shares are appropriately restated. The
Company has 10,000,000 shares of common stock authorized with 5,238,022 shares
issued and outstanding as of March 31, 1998 and 3,344,137 shares issued and
outstanding on December 31, 1997.
1
F-10
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
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.
On February 10, 1998, three new members were elected to the Board of Directors
of the Company. Two of these members will serve as new Directors of the Company
and the third will fill an existing seat vacated by the resignation of a
previous director. The Company's Board of Directors currently consists of five
members.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATIONAL COSTS:
Organization costs are being amortized over a five-year period using the
straight-line method. Also see the discussion contained in Note 3 & 4.
EQUIPMENT:
Equipment is stated at cost. Depreciation is incorporated on a double declining
balance basis over a period of 5 years. Expenditures for maintenance and repairs
are charged to expense as incurred. Upon retirement or disposal of assets, the
cost and accumulated depreciation are eliminated from the accounts and any
resulting gain or loss is included in expense. See Note 3.
USE OF ESTIMATES:
In order to prepare the financial statements in conformity with generally
accepted accounting principles, management must make estimates and assumptions
that affect certain reported accounts and disclosures. Actual results could
differ from these estimates.
INTELLECTUAL PROPERTIES:
The costs of intellectual properties are amortized using the straight-line
method over a period of fifteen years. See Note 4.
EARNINGS PER SHARE:
The earnings per share calculations were based on the weighted average number of
shares outstanding during the period: 4,529,318 for the Period ending March 31,
1998, 1,030,824 for the Period ending March 31, 1997 and 5,085,063 shares
outstanding from inception to March 31,1998.
During 1997, Company entered into an agreement with a 6% Debenture holders (see
Note 11 & 13), allowing for the conversion of the debenture on demand. At March
31, 1998, the Company had an outstanding debt balance with the debenture holders
of $2,550,000 plus accrued interest of $158,777. On March 31, 1998, if the
debenture holders chose to convert their debenture to common stock, the
converted balance would have calculated to an additional 405,506 shares of
common stock issued, or a loss per share of $.21 for the 3 months ending March
31, 1998. See Note 10. Fully dilutive earnings per share are not reflected
because they are anti-dilutive.
INCOME TAX:
Because of losses sustained since inception, no provision has been made for
income tax.
2
F-11
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
NOTE 3 - EQUIPMENT & LEASEHOLD IMPROVEMENTS
Equipment and building improvements consists of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
(Unaudited) (Audited)
-----------------------------------
<S> <C> <C>
Equipment & Leasehold Improvements $ 47,755 $ 62,634
Less: accumulated depreciation 7,517 11,930
-----------------------------------
Total Net Equipment & Leasehold Improvements $ 40,238 $ 50,704
-----------------------------------
</TABLE>
In April 1997, the Company entered into an agreement for the lease of equipment
used in the process of sizing Liposomes which the Company uses in the delivery
of the Prostaglandin E-1. The total lease amount of $32,893 is to be paid over
24 months. The Company records the lease as a capital lease amortizing payments
over the life of the lease.
During December 1996, the Company established its administrative headquarters in
Reno, Nevada. 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 285,600 shares of common stock with
BTI for the intellectual rights to patent, develop, manufacture, and market the
LLPGE-1 for the treatment of male erectile dysfunction, impotency and sexual
enhancement. The Company recorded the transfer of intellectual properties at the
par value of stock transferred, which amounted to $2,856. BTI's largest
shareholder, Dr. Jackie See M.D., the inventor of the Lyophilized Liposomal
LLPGE-1, holds a 2% royalty interest on the sale of products.
On November 16, 1995, the Company exchanged 613,850 shares of common stock with
BTI for assistance in raising working capital and patent application and for
management assistance and distribution agreements associated with the LLPGE-1
product. The Company recorded the transfer at the par value of stock
transferred, which amounted to $6,139.
During 1996, the Company expensed the unamortized cost of acquiring technology
relating to the development of an HIV home test kit. The Company, which
originally acquired the rights in exchange for 33,500 shares of common stock,
ceased product development in connection with a settlement accrued in 1995 (Note
10).
On November 20, 1997, the Company agreed to exchange 200,000 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
F-12
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following:
March 31, 1998 December 31, 1997
(Audited) (Audited)
------------------------------------
Interest on notes and debentures $ 158,777 $ 131,694
Accrued payroll & payroll taxes 33,969 -
------------------------------------
Total$ 192,746 $ 131,694
------------------------------------
Also see Notes 10 for interest on debentures.
NOTE 6 - RELATED PARTY TRANSACTIONS
1. During 1994, 1995 and 1997, the Company entered into three significant
transactions with related parties for the acquisition of intellectual
rights, and for the provision of technological, management, fundraising
and marketing assistance. Note 4 describes the valuation of these
transactions.
2. During 1997, the Company incurred a payable of $150,000 to BTI for the
Intellectual Property Rights to Prostaglandin E-1 Lyophilized Liposomes
for the use of treatment of Psoriasis. 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 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.
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.
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. During March 1998, it was determined
that Dr. Jackie See, MD did not violate Section 16(b), and therefore, the
Company reversed the receivable balance of $57,711.
4
F-13
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
5. BTI owned approximately 14% and 22% of the Company's shares on March 31,
1998 and December 31, 1997, respectively. Dr. Jackie See a Director of the
Company and a controlling person of BTI.
6. In November 1997, the Company issued 400,000 shares of common stock to
Thomas E. Waite, the President and Chairman of the Board, as a signing
bonus. The transaction was recorded at par value.
7. The Company has entered into a financing agreement dated January 13, 1998,
as amended on February 3, 1998, between Dr. Jackie R. See, Thomas E. Waite
and the Company for the funding of the Company up to $10,000,000. Dr.
Jackie R. See and Mr. Thomas E. Waite are Directors of the Company. Thomas
E. Waite is also President and Chief Executive Officer of the Company. On
February 3, 1998, the Company issued 790,139 shares to each Dr. Jackie
See, M.D. and Thomas E. Waite in connection with this private placement.
See Note 8.
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 1,190,200 shares of common
stock (restricted) to officers and directors of the Company for prior and
current services rendered or signing bonuses. In addition, during 1997 the
Company issued 428,400 shares of common stock (restricted) for services
performed by outside consultants or scientists, and 50,000 shares of
common stock (restricted) to an employee of the Company as a signing
bonus. In 1998, the Company issued a total of 10,000 shares of common
stock to directors of the Company. 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 laws.
Also see discussions regarding intellectual properties, agreements, and
subsequent events in Notes 4, 8, and 12.
NOTE 7 - INCOME TAXES
The Company has federal net operating loss carryforwards for financial statement
purposes of approximately $10,500,000 at March 31, 1998, which will be used to
offset future earnings of the Company. The loss carryforwards will expire during
the years ending 2002 through 2012 if not used.
NOTE 8 - AGREEMENTS
1. A financing agreement dated January 13, 1998, as amended on February 3,
1998 was entered into between Dr. Jackie R. See, Thomas E. Waite and the
Company for the funding of the Company up to $10,000,000. The agreement as
so amended, calls for initial funding of $5,000,000 in exchange for
5
F-14
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
1,580,278 shares of common stock, with registration rights, calculated at
$3.164 per share (the average closing bid price per share of the common
stock for the 10 days ending January 12, 1998, and adjusted for the 1 for
10 reverse split effective February 2, 1998). This initial funding was
effected on February 3, 1998 by the delivery of a check for $7,901.39 and
Promissory Notes to March 31, 1999 in the principal amount of
$2,492,098.61, bearing interest at the rate of 1% above prime and secured
by the shares purchased from each of Dr. See and Mr. Waite. Subsequent
funding is at the discretion of the investors and can be purchased in
tranches of $500,000 to $2,000,000 up to an aggregate of $10,000,000,
including the initial funding, prior to April 1, 1999. The future funding
price is $6.328 per share for the next $2,500,000 and $12.626 per share
for the last $2,500,000 (as adjusted to reflect the 1 for 10 reverse stock
split effective February 2, 1998). Dr. Jackie R. See and Mr. Thomas E.
Waite are Directors of the Company. Thomas E. Waite is also President and
Chief Executive Officer of the Company. On February 3, 1998, the Company
issued 790,139 shares to each Dr. Jackie See, M.D. and Thomas E. Waite in
connection with this private placement. A fairness opinion has been
obtained in connection with this Financing Agreement from HD Brous & Co.,
Inc., a New York Stock Exchange member firm located in Phoenix, Arizona.
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.
On February 19, 1998, the Company renewed it's previous notices of
termination, 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 parties have discussed the appointment of an
arbitrator. However, Pharma has not yet retained Nevada counsel and no
arbitrator has been selected. The Company intends to request the Nevada
District Court to compel the arbitration.
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 20,000
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, additional 100,000 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 100,000 shares
that had been issued to Mr. Jordan and parties related to Mr. Jordan.
6
F-15
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
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 50,000 shares of the Company's (restricted) common stock
plus a fee of $5,000 a month for a period of one year beginning December
1, 1997. The Company recorded the shares at par value.
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 10,000 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 March 31, 1998, the Company had paid
Goldstein $46,000.
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 expired January 15, 1998 and was not renewed.
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 100,000 shares prorated over a three year period. In 1997, Walker
received $231,678 and issued to himself 105,200 shares of common stock.
The shares transferred were recorded at par value. In December 1997, the
Company terminated all agreements with Walker requesting all records,
documents, agreements, the corporate minute book, etc. be turned over to
the Company immediately. See Note 9.
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 40,000 shares of the Company's common stock (with
registration rights). All prior agreements with Miller have been
terminated. In November 1997, the shares transferred were recorded at
$537,500, the fair market value of the shares on the date the shares were
transferred.
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 10,000 shares of (restricted)
common stock of the Company. The agreement expires December 9, 1998. The
Company recorded the shares at par value.
7
F-16
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
11. 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. In February 1998, the Company
received $600,000 and issued 200,000 shares to the Investor.
12. The Company has the following office lease commitments at March 31, 1998:
a. The Company occupies 5,428 square feet in Irvine, California where
the Company maintains research & development laboratories. Rent of
$6,242 is paid monthly the first year beginning April 17, 1997 and
increasing to $6,514 in the second year expiring April 30, 1999.
b. The Company occupies 2992 square feet in Lake Mary, Florida where
the corporate headquarters and general operations of the Company are
maintained. Rent of $4,268.58 is paid monthly beginning December 15,
1997 through December 31, 2000.
c. The Company occupies 425 square feet in Reno, Nevada where all
accounting operations are maintained. Rent of $425 is paid monthly
beginning December 1, 1997 expiring May 3, 1998. The Company will
continue on a month-to-month basis thereafter.
NOTE 9 - CONTINGENCIES
The Company is a party in certain pending or threatened legal, governmental,
administrative, or judicial proceedings that arose in the ordinary course of
business. The following includes a list of current pending or threatened
proceedings, which are believed not to affect the financial position of the
Company in a material way at this time:
a. 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.
8
F-17
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
b. On June 2, 1997, the Company became a defendant in an action
filed in the Superior Court of the State of California, Los
Angeles county, initiated by Cletus Cogdill, ("Cogdill") a
shareholder of the Company. Cogdill alleges that he purchased
the Company's common stock on March 17, 1994. At that time, Rule
144 under the Securities Act of 1933 required that such stock be
held for two years, before it can be sold. The certificate was
issued on June 17, 1994. On March 18, 1996, Cogdill completed
form 144 in an attempt to sell his stock, although, according to
the certificate date (June 17, 1994), the two years had not
lapsed. On April 12, 1996 Cogdill completed a revised form 144
indicating the shares had been acquired in March 1994, and
thereby should be issued new free-trading certificates. New
certificates were approved and issued to Cogdill but were
apparently lost in the mail. Two months later Cogdill sold his
stock and due to the reduction in market share price during that
time, he claims he lost value of approximately $45,000.
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 filed an answer to Savage's Complaint denying
all liability. The discovery process has been initiated. Savage
has made a settlement offer in the amount of $800,000. The
Company unequivocally rejected this offer.
d. On January 2, 1998, the Company filed a request for an
injunction against Nevada Agency & Trust & Co., the Company's
former transfer agent, to relinquish all records of the Company
to a newly appointed transfer agent located in Salt Lake City,
Utah. The Company was granted the injunction and the records
were transferred to the new transfer agent on January 6, 1998.
The Company is prosecuting this action further to recover
damages associated with Nevada Agency's delay in turning over
the records in question, and the costs associated with obtaining
the injunction.
e. 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 Counsel,
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.
Pursuant to the Company's request, this action was removed to
the Federal District Court for the Southern District of Utah.
Thereafter, the Company filed a motion to dismiss for lack of
personal jurisdiction over the Company in Utah, or in the
9
F-18
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
alternative, to change the venue of the action to the Federal
District Court for the District of Nevada. The parties have
stipulated to take limited discovery for the purposes of this
motion to dismiss. Once such discovery is taken, the matter will
be submitted to the Court for determination. The Company denies
liability.
On March 23, 1998, the Company filed an action against Walker
and Nevada Agency & Trust, Co. in the District Court for the
State of Nevada seeking to recover damages sustained by the
Company as a result of Walker's failure to perform his
responsibilities as General Counsel for the Company, and
breaches of fiduciary duties owed to the Company by both Walker
and Nevada Agency & Trust, Co. Additionally, the Company is
seeking indemnity from Walker for damages it sustained and
settlements it has been forced to negotiate in other litigation.
In response to the Company's complaint, Walker and Nevada Agency
& Trust, Co. have filed a Motion to Dismiss or for Stay, arguing
that the proper venue for the action is the Third Judicial
District Court in Salt Lake City, Utah, or the Federal District
Court in Utah. The Company has opposed this motion, and the
matter will be submitted to the Court for decision.
f. 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.
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.
On or about February 3, 1998, The Company filed an action in the
State of New York City, 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.
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
Note 6 & 8). The Company filed opposition to the motion and
requested injunctive relief. The hearing was conducted on March
5, 1998. The Court denied Springrange's motion for injunctive
relief. The Court granted Springrange's motion to dismiss the
Company's complaint, without prejudice, and with leave to file
an amended complaint. See Note 12.
g. On March 17, 1998, Springrange Investment Group, Ltd. Filed a
shareholder derivative action asserting claims against Harvard
Scientific Corp. and its directors Thomas E. Waite, Dr. Jackie
10
F-19
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
R. See, M.D., Martin J. Holloran, Robert T. Hayden and Curtis A.
Orgill, seeking to enjoin and nullify a Financing Agreement
entered into between Harvard, Thomas Waite, and Dr. See. On
March 18, 1998, Springrange filed an ex-parte Application for
Temporary Restraining Order and a Motion for Preliminary
Injunction. On March 23, 1998, the Court issued a Temporary
Restraining Order against Harvard Scientific Corp, Thomas Waite
and Dr. See.
On March 31, 1998, Harvard Scientific Corp. filed a motion to
Vacate the Temporary Restraining Order requesting the imposition
of sanctions against Springrange and its counsel for untruthful
representations made in Springrange's application for a
Temporary Restraining Order. Harvard Scientific Corp. also moved
to have the action transferred from Las Vegas, Nevada to Reno,
Nevada. See Note 12.
The financial statements reflect the manner in which the Company has resolved
certain litigations:
a. On October 27,1997, the Company became a defendant in a U.S.
District Court action initiated by Wood Gundy ("Gundy"), a 7%
debenture holder. On December 26, 1997, the Company reached an
agreement with Gundy electing to convert the balance of $125,000
in 7% convertible debenture plus accrued interest of $14,384
into 1,000,000 shares of common stock of the Company. The
Company recorded the shares at the fair market value of the
common stock on the date of the agreement, amounting to
$350,000. Approximately $210,600 was expensed to legal
settlements in 1997.
b. On December 3, 1997, the Company agreed to transfer 15,000
shares as payment in full of an outstanding debt of $90,225 owed
to Pyramid Laboratories, Inc. ("Pyramid") by the Company for
work performed on the PaGE1 project. The Company maintains a
good relationship with Pyramid whereby Pyramid has agreed to
perform a six-month stability study for the LLPGE 1 product.
NOTE 10 - CONVERTIBLE DEBENTURES
In March 1997, pursuant to a private placement, the Company (a) sold to one
investor $5,000,000 principal amount of 6% Convertible Debentures (the
"Debentures") due March 30, 1998 and (b) received a commitment from that
investor, subject to various conditions, to purchase additional Debentures in
the aggregate principal amount of up to $10,000,000 in two tranches of
$5,000,000 each, also to be due March 30, 1998. The Debentures are convertible
into shares of common stock at the lesser of the market price on March 21, 1997
or 80% of the market price on the conversion date. Market price is defined as
the average closing bid of the common stock on the five (5) days immediately
preceding March 21, 1997 or the actual conversion date. The Company has the
right to require, by written notice to the holder of this debenture at any time
on or before ten days prior to the maturity date, that the holder of this
debenture exercise its right of conversion with respect to all or that portion
of the principal amount and interest outstanding on the maturity date. In
addition, at the time of issuance, the Company accounted for the 20% discount to
market of $1,250,000 as additional interest expense and paid-in-capital.
Issuance costs of $625,000 related to the first $5,000,000 principal amount of
6% Convertible Debentures sold in March 1997 were deferred and are being
amortized on a straight-line basis through March 31, 1998. On January 6, 1998,
the investor served a conversion notice for the sum of $250,000 of the principal
11
F-20
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
amount plus $11,917 of interest expense, for the issuance of 1,036,064 shares of
Common Stock on January 15, 1998. Springrange has submitted two additional
conversion notices: 1) January 28, 1998 for the conversion of $250,000 principle
plus interest, and 2) on January 29, 1998 for the conversion of $250,000
principle plus interest. The Company has not honored these requests. See Note 9.
At March 31, 1998, $2,450,000 of the Debenture plus $75,661 interest on the
Debenture had been converted into 385,831 shares of the Company's Common Stock.
The debenture principle balance and accrued interest at March 31, 1998 and
December 31, 1997 is $2,550,000, $158,777 and $2,800,000, $131,694,
respectively.
NOTE 11 - UNCERTAINTY - GOING CONCERN
The financial statements of the Company have been prepared assuming that the
Company will continue as a going concern. The Company's continued existence is
dependent upon its ability to resolve its liquidity problems, principally by
obtaining additional equity capital and through the sale of its products. If
additional capital is not secured, then there is substantial doubt about the
Company's ability to continue as a going concern.
See Note 8 regarding agreements arranged by the Company and also the sale of
stock by the Company.
NOTE 12 - SUBSEQUENT EVENTS
1. On April 6, 1998, in the Harvard Scientific Corp. vs. Springrange
Investment Group, Ltd. (complaint filed in Nevada, see Note 9, #g), the
Nevada District Court dissolved the Temporary Restraining Order and
continued any determination with regard to Springrange" motion for
preliminary injunction. Further, on April 27, 1998, and May 4, 1998,
respectively, the District Court entered minute orders (i) transferring
the litigation to Reno, Nevada, and (ii) imposing a sanction award against
Springrange in the amount of $11,095.76. The court has instructed the
Company's counsel to prepare and submit orders consistent with the minute
orders.
2. Harvard Scientific vs. Springrange Investment Group, Ltd. (complaint filed
in New York, see Note 9 # f) - On April 3, 1998, the Company filed a first
amended complaint against Springrange to recover its damages arising from
Springrange's breach of contract, misrepresentations and stock
manipulation. Springrange has yet to file a response to the complaint.
3. On April 21, 1998, the Company issued a Demand Letter to Don Steffens
("Steffens"), former officer and director of the Company, for the return
of 125,000 shares of its Common Stock issued to him in 1997 plus the
return of $100,000 cash paid to him on April 18, 1997. The shares were
issued to Steffens in consideration of his performance as an officer and
director of the Company, and were advanced in accordance with his
employment contract, for the period beginning May 1997 through May 2000.
Steffens resigned his positions as officer and director of the Company on
November 14, 1997. However, during such time he held these positions, he
undertook various actions which the Company believes were in breach of his
fiduciary duty, causing the Company substantial damages. Steffens did not
complete the full term of his employment agreement. The Company demands
repayment of the $100,000 paid to Steffens in connection with the
Springrange debenture issuance (see Note 9 & 10).
12
F-21
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1998 AND
AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997
4. On May 1, 1998, the Company announced plans to unveil its new proprietary
treatment for female sexual dysfunction utilizing its patented formula of
lyophilized liposomal Prostaglandin E-1 ("LLPGE1"). Toxicity studies are
being planned at this time and the Company anticipates these to begin
shortly. The Company believes that a sizable market already exits and that
this market is likely to expand rapidly as effective therapeutic drugs are
introduced for this disorder. The Company believes that a vasodilator such
as its LLPGE1 erectile dysfunction treatment product will provide a
solution to this problem by stimulating the production of vaginal fluid
and increasing blood flow to the area, thus providing suitable lubrication
for sexual intercourse as well as heightened sensation.
13
F-22
<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
F-23
<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
F-24
<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
F-25
<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
F-26
<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
F-27
<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.
F-28
<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.
F-29
<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.
F-30
<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.
F-31
<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.
F-32
<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
F-33
<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
F-34
<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>
F-35
<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>
F-36
<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
F-37
<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
F-38
<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
F-39
<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
F-40
<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
F-41
<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
F-42
<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
F-43
<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
F-44
<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
F-45
<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
F-46
<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
F-47
<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
F-48
<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
F-49
<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
F-50
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
TABLE OF CONTENTS
PROSPECTUS SUMMARY.........................................................3
RISK FACTORS...............................................................8
DESCRIPTION OF SECURITIES.................................................16
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................18
USE OF PROCEEDS FROM SALE OF DEBENTURES...................................20
CAPITALIZATION............................................................21
SELLING SECURITY HOLDER AND PLAN OF DISTRIBUTION..........................22
DESCRIPTION OF BUSINESS...................................................23
SELECTED FINANCIAL DATA...................................................33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION.................36
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS..............40
EXECUTIVE COMPENSATION....................................................43
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...........................47
LEGAL MATTERS.............................................................50
EXPERTS AND CHANGE IN ACCOUNTANTS.........................................50
ADDITIONAL INFORMATION....................................................51
INDEX TO FINANCIAL STATEMENTS............................................F-1
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada General Corporation Law (Nevada Revised Statutes, Chapter 78;
the "NGCL") permits a corporation organized thereunder to indemnify its
directors and officers for certain of their acts. ARTICLE FOUR of the Company's
Certificate of Incorporation provides that the Company shall, to the full extent
permitted by NGCL, indemnify all persons whom may be indemnified pursuant
thereto.
Section 78.751 of the NGCL provides generally that a corporation may
indemnify any person who was or is threatened to be made a named defendant or
respondent to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he was or is a director, officer, employee or agent of
the Corporation, against expenses (which expenses, including attorney's fees,
may be advanced by the corporation when authorized under certain circumstances),
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation or, with respect to a criminal
action, he had no reasonable cause to believe his conduct was unlawful. In a
suit, action or proceeding against such person brought by or on behalf of the
corporation in which such person was found, after exhaustion of all appeals, to
be liable to the corporation, any indemnification must be approved by the court
in which such action is brought. In addition, unless limited by the articles of
incorporation, should a director be successful on the merits, Section 78.751
provides that he shall be indemnified against expenses incurred by him.
Section 78.752 of the NGCL empowers corporations to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation against any liability, regardless of whether the corporation could
indemnify such person against such liabilities.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE ABOVE, THE COMPANY HAS BEEN INFORMED THAT IN THE OPINION
OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC
POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized list of all expenses to be
borne by the Registrant in connection with the issuance and distribution of the
securities being registered hereby other than underwriting discounts and
commissions and non-accountable expenses (items marked with an asterisk (*)
represent estimated expenses):
SEC Registration Fee...................................$ 8,603
Printing and Engraving Expenses............................500*
Legal Fees and Expenses.................................40,000*
Accounting Fees and Expenses...............................500*
Blue Sky Fees and Expenses...............................1,000*
Stock Transfer Fees......................................1,000*
Miscellaneous..............................................397*
Total...........................................$52,000
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
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.
II-2
<PAGE>
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.
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
=============
II-3
<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
"DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS", AND "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:
Purchaser No. of 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:
Purchaser No. of 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.
II-4
<PAGE>
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.
20. On September 23, 1997, the Company issued 16,900 shares, as a reimbursement
of legal fees and services, as follows:
Purchaser No. of 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 " 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 Ref. 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. Hoffman Ph.D. (2) 10,000
(1) Shares issued for the transfer of intellectual property rights.
II-5
<PAGE>
(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 "Legal Proceedings".
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. Hoffman 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.
II-6
<PAGE>
27. On January 13, 1998, the Company entered into a financing agreement, as
amended on February 3, 1998, between Dr. Jackie R. See, Thomas E. Waite
("Investors") and the Company for the funding of the Company up to
$10,000,000. The agreement as so amended, calls for initial funding of
$5,000,000 in exchange for 1,580,278 shares of common stock, with
registration rights, calculated at $3.164 per share (the average closing bid
price per share of the common stock for the 10 days ending January 12, 1998,
and adjusted for the 1 for 10 reverse split effective February 2, 1998).
This initial funding was effected on February 3, 1998 by the delivery of a
check for $7,901.39 and Promissory Notes to March 31, 1999 in the principal
amount of $2,492,098.61, bearing interest at the rate of 1% above prime and
secured by the shares purchased from each of Dr. See and Mr. Waite. On
February 3, 1998, the Company issued 790,139 shares to each Dr. Jackie See,
M.D. and Thomas E. Waite in connection with this private placement. A
fairness opinion has been obtained in connection with this Financing
Agreement from H.D. Brous & Co., Inc., a New York Stock Exchange member firm
located in Phoenix, Arizona.
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 18,1998, 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.
30. On April 21, 1998, the Company issued 2,500 shares of Common Stock as an
incentive to Max Carter, an ex-employee as a part of his prior employment
agreement. These shares were to be issued to him during his employment
however, this was an oversight by both the employee and the Company. Such
shares were issued pursuant to the exemption from registration under Section
4(2) of the Securities Act of 1933.
31. On June 11, 1998, the Company authorized the issuance of 30,000 shares of
Common Stock to a consultant of the Company, Medhat Gorgy, as a part of his
consultant agreement dated June 10, 1998. Of such shares, 25,000 shares of
Common Stock were entitled to registration rights under the Securities Act
of 1933 and are included in this Registration Statement. The 5,000 shares
without registration rights plus 3,000 shares with registration rights were
issued forthwith. The balance of 22,000 shares is issuable monthly in lots
of 2,000 shares each. The shares issued and issuable to Mr. Gorgy are
effected pursuant to the exemption from registration under Section 4(2) of
the Securities Act of 1933.
32. On June 24, 1998, the Company issued 83,333 shares of Common Stock to an
investor, Ronald Patterson, for payment of $249,999. 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.
33. On June 29, 1998, and again on July 2, 1998, the Company issued 150,000 and
16,667 shares of Common Stock, respectfully, to the RK Company, for a total
payment of $500,000. 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.
34. On July 7, 1998, the Company issued 8,000 shares of Common Stock to an
investor, Elisabeth & Samuel Valenzisi, for a total payment of $24,000. 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.
35. On July 13, 1998, the Company issued 45,000 shares of Common Stock to
Francis Pizzulli, counsel to the Company, as an engagement fee. 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.
II-7
<PAGE>
36. On July 13, 1998, the Company issued 30,000 shares of Common Stock to David
R. Baker, counsel to the Company, as compensation for services. Such shares
were issued pursuant to the exemption from registration under Section 4(2)
of the Securities Act of 1933.
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 that future
transactions between the Company and any affiliates will be advantageous to
the Company. SEE "RISK FACTORS - TRANSACTIONS WITH AFFILIATES," "DEPENDENCE
ON KEY PERSONNEL," "DEPENDENCE ON THIRD-PARTY RESEARCHERS," "BUSINESS
RESEARCH AND DEVELOPMENT" AND "MANAGEMENT'S DISCUSSION."
ITEM 27. EXHIBITS
The following is a table of the exhibits filed by the Registrant with
its Registration Statement on Form SB-2.
Number Description
- ------ -----------
3.1 Articles of Incorporation of Registrant, including all amendments to
April 30, 1996. *
3.2 Amendment to Articles of Incorporation of Registrant, amended June
18, 1996***
3.3 Amendment to Articles of Incorporation of Registrant, amended July
9, 1996 ***
3.4 Amendment to Articles of Incorporation of Registrant, amended July
13, 1998 ***
3.5 Certificate of Change in Number of Authorized Shares of Class and
Series, filed February 2, 1998 ***
3.6 By-Laws of Registrant, as amended to date. *
4.1 Form of 6% Debenture (See Annex I to Item 10.2). **
5.1 Opinion of Hardesty,Bader & Ryan, Ltd., Attorneys at law, including
consent***
6.1 Consent of Ronald D. Simpkins, CPA ***
6.1.1 Consent of W. Dale McGhie, CPA ***
6.2 Consent of David R. Baker, Esq.***
6.3 Consent of H.D. Brous & Co., Inc.***
10.1 Consulting Agreement, dated April 19, 1996, between the Registrant
and Dr. Jackie R. See.**
10.1a Memorandum of Agreement, dated May 15, 1997, amending Consulting
Agreement between the Registrant and Dr. See of April 19, 1996.**
10.2 Securities Purchase Agreement dated March 21, 1997, between the
Registrant and Springrange Investment Group, Ltd.**
10.3 Employment Agreement between Registrant and Thomas E. Waite dated
January 5, 1998**
10.4 Financing Agreement, dated January 13, 1998 between the Registrant
and Dr. Jackie R. See and Thomas E. Waite.****
10.5 Amendment to Financing Agreement dated February 3, 1998 between the
Registrant and Dr. Jackie R. See and Thomas E. Waite.****
10.6 H.D. Brous Opinion as to Financing Agreement dated February 5, 1998
between Dr. Jackie R. See and Thomas E. Waite. *****
10.7 Financing Agreement dated February 23, 1998 between the Registrant
and O. Lee Tawes.***
10.8 Financing Agreement dated June 19, 1998 between the Registrant and
Ronald E. Patterson ***
II-8
<PAGE>
10.9 Financing Agreements dated June 29, 1998 and July 1, 1998 between
the Registrant and The RK Company. ***
10.10 Financing Agreement dated July 7, 1998 between the Registrant and
The Mr. & Mrs. Valenzisi. ***
10.11 Agreement for the Acquisition of Intellectual Property Rights for
all Sexual Dysfunction products, dated January 7, 1994, between the
Registrant and Bio-Sphere Technology, Inc.**
10.12 Assignment of Patent Application No. 08/573408, filed 12/15/95, for
an invention entitled PGE1 Containing Lyophilized Liposomes for the
Treatment of Erectile Dysfunction.**
10.13 Consulting Agreement, dated June 10, 1998, between the Registrant
and Medhat Gorgy. ***
================================================================================
* Incorporated by reference from the Registrant's Registration Statement on
Form 10-SB filed on April 30, 1996.
** Incorporated by reference from the Registrant's Registration Statement on
Form SB-2, filed on April 21, 1997, and Amendments Nos. 1, 2, 3 and 4
thereto, which became effective on August 14, 1997.
*** Filed with this Registration Statement.
**** Incorporated by reference to Form 8-K filed on January 26, 1998.
*****Incorporated by reference to Schedule 14A (Proxy Statement Information)
filed on May 22, 1998, definitive on June 5,1998.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to any of the provisions
described above, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling persons in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will govern by the final adjudication of
such issue.
The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(a) include any prospectus required by Section 10(a) of the
Securities Act;
(b) reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in the
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(c) include additional or changed material information with
respect to the plan of distribution.
II-9
<PAGE>
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial BONA FIDE offering; and
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the termination of the offering.
The Registrant hereby further undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act as part of this Registration
Statement as of the time the Commission declared it effective; and
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration
Statement, and the offering of such securities at that time as the
initial BONA FIDE offering of those securities.
II-10
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned on July 16, 1998.
HARVARD SCIENTIFIC CORP., Registrant
By: /S/ Thomas E. Waite
---------------------------------
Thomas E. Waite, President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Name Title Date
---- ----- ----
Directors, President,
/S/ Thomas E. Waite and Chief Executive July 16, 1998
- ---------------------------- Officer
Thomas E. Waite
/S/ Jackie R. See, M.D. Director July 16, 1998
- ----------------------------
Jackie R. See, M.D.
Director, Treasurer, and
/S/ Curtis A. Orgill Chief Financial Officer July 16, 1998
- ----------------------------
Curtis A. Orgill
/S/ Robert T. Hayden Director July 16, 1998
- ----------------------------
Robert T. Hayden
/S/ Martin J. Holloran Director July 16, 1998
- ----------------------------
Martin J. Holloran
Secretary, Chief
/S/ Barbara L. Krilich Operating Accounting Officer July 16, 1998
- ---------------------------- and Chief Operating Officer
Barbara L. Krilich
<PAGE>
Exhibit 3.2
FILED AMENDMENT
JUN 18 1996
TO THE ARTICLES OF INCORPORATION OF
HARVARD SCIENTIFIC CORP.
Pursuant to the provisions of the Nevada Revised Statutes, HARVARD
SCIENTIFIC CORP., a Nevada corporation, adopts the following amendments to its
Articles of Incorporation:
1. The undersigned hereby certifies that on the 14th day of June,
1996, a Special Meeting of the Board of Directors of Harvard Scientific Corp.
was duly held and convened at which there was present a quorum of the Board of
Directors acting throughout all proceedings, and at which time the following
resolution was unanimously adopted by the Board of Directors:
BE IT RESOLVED: That the Secretary of the corporation is hereby
authorized and directed to obtain the written consent of stockholders
owning at least a majority of the voting power of the outstanding
stock of the corporation to call a Special Meeting of Stockholders to
be held on Friday, June 14, 1996, at 10:00 o'clock a.m., local time,
at 50 West Liberty Street, Suite 880, Reno, Nevada 89501 for the
following purposes:
(a) To consider and vote upon proposals to amend the corporation's
Articles of Incorporation as follows:
(i) To change the name of the corporation to: DORSET TECHNOLOGY,
INC.
(ii) To restate the capitalization of the corporation of ONE
HUNDRED MILLION (100,000,000) shares of stock, par value ONE
MILL ($0.001) per share.
<PAGE>
(iii) To consider and vote upon a proposal to effect a reverse
split of the common stock of the corporation on a basis of
two (2) shares of the presently outstanding stock
surrendered for one (1) share of the restated common stock.
2. Pursuant to the provisions of the Nevada Revised Statutes, a majority of
the stockholders holding 5,812,743 shares of the 8,749,125 shares outstanding of
Harvard Scientific Corp. gave their written consent that a Special Meeting of
the Shareholders be held on Friday, June 14, 1996, at 10:00 o'clock a.m., local
time, at 50 West Liberty Street, Suite 880, Reno, Nevada 89501, and with regard
thereto, the undersigned certify as follows:
a. The proposal to amend Article One which is set forth below was
adopted by 5,812,743 shares. There were no shares voting against
the proposal and no shares abstained from voting.
b. The proposal to amend Article Four of the Articles of
Incorporation, which is set forth below, was adopted by 5,812,743
shares. There were no shares voting against the proposal and no
shares abstained from voting.
ARTICLE ONE. [NAME] The name of the corporation is:
- ------------
DORSET TECHNOLOGY, INC.
-----------------------
2
<PAGE>
ARTICLE FOUR. [CAPITAL STOCK] The corporation shall have authority to issue
an aggregate of ONE HUNDRED MILLION (100,000,000) shares of Stock, Par Value
$0.001 per share.
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 may 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.
c. The proposal to effect a reverse split of the common stock of the
corporation on the basis of the surrender of two (2) shares of the presently
outstanding capital stock for one (1) share of the restated authorized common
stock was adopted by 5,812,743 shares. There were no shares voting against the
proposal and no shares abstained from voting.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned being the President and Secretary of
Harvard Scientific Corp., a Nevada corporation, hereunto affix their signatures
this 14th day of June, 1996.
HARVARD SCIENTIFIC CORP.
By /s/ Ian Hicks
-----------------------------
Ian Hicks
President
By /s/ Neal Armstrong
-----------------------------
Neal Armstrong
Secretary
4
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On the 14th day of June, 1996, before me, the undersigned, a Notary Public
in and for the State of California, personally appeared IAN HICKS and NEAL
ARMSTRONG, President and Secretary respectively of HARVARD SCIENTIFIC CORP., a
Nevada corporation, known to me to be the persons described in and who executed
the foregoing instrument, and who acknowledged to me that they executed the same
freely and voluntarily, in behalf of and in their capacities as President and
Secretary respectively of Harvard Scientific Corp. for the uses and purposes
therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/ James W. Taylor
--------------------------------
NOTARY PUBLIC
Residing in ORANGE COUNTY
-------------
My Commission Expires:
July 9, 1997
- ----------------------
[NOTARY SEAL HERE]
5
<PAGE>
Exhibit 3.3
FILED
CERTIFICATE OF AMENDMENT
STATE OF NEVADA
TO THE ARTICLES OF INCORPORATION OF
DORSET TECHNOLOGY, INC.
JUL 09 1996
Pursuant to the provisions of the Nevada Revised Statutes, DORSET
TECHNOLOGY, INC., a Nevada corporation, adopts the following amendment to its
Articles of Incorporation:
1. The undersigned hereby certify that on the 28th day of June, 1996, a
Special Meeting of the Board of Directors of Dorset Technology, Inc. was duly
held and convened at which there was present a quorum of the Board of Directors
acting throughout all proceedings, and at which time the following resolution
was duly adopted by the Board of Directors:
BE IT RESOLVED: That the Secretary of the corporation is hereby
ordered and directed to obtain the written consent of stockholders
owning at least a majority or the voting power of the outstanding
stock of the corporation to call a Special Meeting of Stockholders to
be held on Friday June 28, 1996, at 10:00 o'clock a.m., local time, at
50 West Liberty Street, Suite 880, Reno, Nevada 89501 for the
following purposes:
(a) To consider and vote upon proposals to amend the corporation's
Articles of Incorporation as follows:
(i) To change the name of the corporation to: HARVARD SCIENTIFIC
CORP.
(ii) To restate the capitalization of the corporation of ONE
HUNDRED MILLION (100,000,000) shares of stock, par value,
ONE MILL ($0.001) per share.
<PAGE>
(iii) To consider and vote upon a proposal to unwind a reverse
split of the common stock of the corporation on a basis of
one (1) share of the presently outstanding stock in exchange
for two (2) shares of the restated common stock. Therefore
there would be outstanding 8,749,125 shares of common stock.
2. Pursuant to the provisions of the Nevada Revised Statutes, a majority of
the stockholders holding 2,906,371 shares of the 4,374,562 shares outstanding of
Dorset Technology, Inc. gave their written consent that a Special Meeting of the
Shareholders be held on Friday, June 28, 1996 at 10:00 o'clock a.m., local time,
at 50 West Liberty Street, Suite 880, Reno, Nevada 89501, and with regard
thereto, the undersigned certify as follows:
a. The proposal to amend Article One which is set forth below was adopted
by 2,906,371 shares. There were no shares voting against the proposal
and no shares abstained from voting.
b. The proposal to amend Article Four of the Articles of Incorporation,
which is set forth below, was adopted by 2,906,371 shares. There were
no shares voting against the proposal and no shares abstained from
voting.
ARTICLE ONE. [NAME] The name of the corporation is:
HARVARD SCIENTIFIC CORP
ARTICLE FOUR. [CAPITAL STOCK] The corporation shall have authority to
issue an aggregate of ONE HUNDRED MILLION
<PAGE>
(100,000,000) shares of stock, par value, ONE MILL ($0.001) per share.
All capital stock when issued shall be fully paid and non-assessable. No
holder of shares of capital stock of the corporation shall be entitles as such
to any unissued stock, or any other securities which the corporation may now or
hereafter be authorized to issue.
The corporation's capital stock may 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.
c. The proposal to unwind a reverse split of the common stock of the
corporation on the basis of the exchange of one (1) share of the
presently outstanding capital stock for two (2) shares of the restated
authorized Common Stock was adopted by 2,906,371 shares. There were no
shares abstained from voting.
<PAGE>
IN WITNESS WHEREOF, the undersigned being the President and Secretary of
Dorset Technology, Inc., a Nevada corporation, hereunto affix their signatures
this 8th day of July, 1996.
DORSET TECHNOLOGY, INC.
By: /s/ Ian Hicks
-----------------------------
Ian Hicks
President
By: /s/ Angela Barkevich
-----------------------------
Angela Barkevich
Assistant Secretary
STATE OF )
) ss.
COUNTY OF )
On the 14th day of June, 1996, before me, the undersigned, a Notary Public
in and for the State of California, personally appeared Ian Hicks, President and
Angela Barkevich, Assistant Secretary of Dorset Technology, Inc. a Nevada
corporation, known to me to be the persons described in and who executed the
foregoing instrument, and who acknowledged to me that they executed the same
freely and voluntarily, in behalf of and in their capacities as President and
Assistant Secretary respectively of Dorset Technology, Inc. for the uses and
purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/
--------------------------------
NOTARY PUBLIC
Residing in
-------------
My Commission Expires:
- ----------------------
4
<PAGE>
Exhibit 3.4
AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
HARVARD SCIENTIFIC CORPORATION
A Nevada Corporation
Pursuant to the provisions of the Nevada Revised Statues, Harvard
Scientific Corp., a Nevada Corporation, adopts the following amendment to its
Articles of Incorporation:
1. The undersigned hereby certify that on the 21st day of May, 1998, a
Special Meeting of the Board of Directors was duly held and convened at
which there was present a quorum of the Board of Directors acting
throughout all proceedings, and at which time the following resolutions
were duly adopted by the Board of Directors:
BE IT RESOLVED: That the Board of Directors, determines that
it is desirable to amend the Articles of Incorporation of
Harvard Scientific Corp. to increase the authorized Common
Stock of the Company from 10,000,000 to 100,000,000 shares and
to authorize 10,000,000 shares of serial preferred stock, all
as set forth in the Preliminary Proxy Statement, and hereby
recommends to the shareholders such amendment to the Articles
of Incorporation, and
BE IT FURTHER RESOLVED: That such amendment to the Articles of
Incorporation be submitted to the stockholders of the Company
for approval with the recommendation of this Board of
Directors.
2. At a meeting of the stockholders duly held July 9, 1998, pursuant to
the provisions of the Nevada Revised Statues, a majority of the
stockholders holding 3,523,805 shares of the 5,240,547 shares of Common
Stock outstanding of Harvard Scientific Corp. approved the adoption of
the Amendment of Article Four of the Articles of Incorporation as
follows:
<PAGE>
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 is authorized to issue.
The corporation's capital stock may 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.
<PAGE>
IN WITNESS WHEREOF, the undersigned being the President and Secretary
of Harvard Scientific Corp., a Nevada corporation, hereunto affix their
signatures on the respective dates of their acknowledgements.
HARVARD SCIENTIFIC CORP.
By /S/ Barbara L. Krilich
-------------------------
Barbara L. Krilich, Secretary
STATE OF ARIZONA }
: ss.
COUNTY OF MARICOPA }
On the 13 day of July, 1998, before me, the undersigned, a Notary
Public, personally appeared, Ms. Barbara L. Krilich, Secretary of Harvard
Scientific Corp., a Nevada Corporation, known to be the persons described in and
who executed the foregoing instrument, and who acknowledged to me that she
executed the same freely and voluntarily and for the uses and purposes therein
mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal on the date of such appearance.
/S/ Carman McGaues
----------------------------
NOTARY PUBLIC
Residing in Phoenix Arizona
----------------------------
My Commission Expires:
7-26-99
- -------------
<PAGE>
Exhibit 3.5
FILED
CERTIFICATE OF CHANGE IN NUMBER OF
AUTHORIZED SHARES OF CLASS AND SERIES
FEB 02 1998
OF
HARVARD SCIENTIFIC CORPORATION
a Nevada corporation
1. Harvard Scientific Corporation (the "Corporation") has one (1) class and
series of common stock.
2. The current number of authorized shares of the common stock of the
Corporation is ONE HUNDRED MILLION (100,000,000), par value ONE MIL ($0.001) per
share.
3. After the reverse stock split and change in the number of authorized
shares of the Corporation as reflected herein, the total number of authorized
shares of common stock of the Corporation shall be TEN MILLION (10,000,000), par
value ONE CENT ($0.01) per share.
4. By this certificate the Corporation shall effect a 1 for 10 (1:10)
reverse stock split of its common stock requiring the surrender of ten (10)
shares of the presently issued and outstanding common stock of the Corporation
in exchange for one (1) share of the restated authorized common stock of the
Corporation.
5. Any potential fractional shares created by the reverse stock split
reflected herein shall be rounded up to the next whole share. Therefore, any
stockholder entitled to fractional share of the Corporation's common stock as a
result of the reverse stock split reflected herein shall receive one whole share
of the Corporation's common stock instead of said fractional share of stock.
This shall be done to prevent the issuance of any fractional shares. No money or
scrip will be paid to stockholders otherwise entitled to a fraction of a share.
<PAGE>
6. Pursuant to Nevada Revised Statutes 78.207, no stockholder action and/or
approval was required or obtained to authorize the reverse stock split reflected
herein. Instead, pursuant to Nevada Revised Statutes 78.207, said reverse stock
split was authorized by a resolution duly adopted by the board of directors of
the Corporation.
7. The reverse stock split reflected herein shall become effective February
2, 1998 at 4:30 p.m. Eastern Standard Time.
By /s/ Thomas E. Waite By /s/ Barbara Krilich
---------------------------- --------------------------
Thomas E. Waite Barbara Krilich
President Secretary
Harvard Scientific Corporation Harvard Scientific Corporation
STATE OF FLORIDA )
) ss
COUNTY OF SEMINOLE )
This instrument was acknowledged before me on 1/2/98, 1997, by THOMAS E. WAITE
as President of HARVARD SCIENTIFIC CORPORATION.
/s/ Martin Baker [NOTARY SEAL HERE]
- --------------------
Notary Public
STATE OF OK )
) ss
COUNTY OF OK )
This instrument was acknowledged before me on Jan. 29, 1998, by BARBARA KRILICH
as Secretary of HARVARD SCIENTIFIC CORPORATION.
/s/ Elizabeth Walker [NOTARY SEAL HERE]
- -----------------------
Notary Public
<PAGE>
LETTERHEAD
OPINION LETTER
July 17, 1998
Thomas E. Waite
President, CEO and Chairman of the Board
Harvard Scientific Corp.
755 Rinehart Road
Suite 100
Lake Mary, Florida 32746
Re: OPINION LETTER (REGISTRATION STATEMENT FILED JULY 1998)
Dear Mr. Waite:
This law firm has acted as special counsel to Harvard Scientific Corp.,
a Nevada corporation ("Harvard"), in connection with Nevada state law corporate
matters and certain litigation matters in Nevada and Utah. Specifically, this
firm has been engaged to prepare and deliver the following opinion letter to
assist Harvard's securities law counsel with the preparation and filing of a
Registration Statement on Form SB-2 ("Registration Statement"). Said
Registration Statement registers (i) certain outstanding shares of Harvard's
common stock (hereafter, collectively "Shares"), and (ii) certain shares of
Harvard's unissued common stock subject to a right to purchase (hereafter
collectively, "Unissued Stock"), held by the following persons:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Dr. Jackie R. See Number of Shares owned 1,095,139
Right to Purchase 296,303
Total 1,391,442
2. Thomas E. Waite Number of Shares Owned 1,190,139
Right to Purchase 296,302
Total 1,486,441
3. Bio-Sphere Number of Shares Owned 710,250
Technology, Inc. Total 710,250
4. O. Lee Tawes III Number of Shares Owned 200,000
Total 200,000
5. Ronald E. Patterson Number of Shares Owned 83,333
Total 83,333
6. Medhat Gorgy Number of Shares Owned 3,000
Right to Purchase 22,000
Total 25,000
7. RK Company Number of Shares Owned 166,667
Total 166,667
8. Elisabeth & Samuel Valenzisi Number of Shares Owned 8,000
Total 8,000
9. Michael Snell Number of Shares Owned 50,000
Total 50,000
10. Francis Pizzulli Number of Shares Owned 45,000
Total 45,000
</TABLE>
<PAGE>
July 17, 1998
Page 2
As special counsel for Harvard in this regard, we have examined copies
of the following documents (the Reliance Documents"):
1. Draft of the Form SB-2 Registration Statement of Harvard
Scientific Corp. with attached Prospectus, undated and
unsigned, provided to this office on July 13, 1998, and
represented by Harvard to be the Registration Statement
referenced herein and to be filed with the Securities and
Exchange Commion;
2. Minutes and resolutions from Board of Director's Meetings of
Harvard, or excerpts thereof, authorizing the issuance of the
Shares, said minutes being dated July 14, 1998, February 18,
1998, February 3, 1998, December 1, 1997, November 14,1997,
October 9,1997, July 9, 1998, July 2, 1998, June 29, 1998,
June 19, 1998, May 15, 1997, March 19, 1997, February 21,
1997, and November 17, 1995. Minutes and resolutions from the
meetings of the Compensation Committee and Executive Committee
of Harvard Scientific Corp. dated July 9, 1998, June 17, 1998
and May 21, 1998;
3. Minutes and resolutions dated February 3, 1998 from Board of
Director's Meetings of Harvard, or excerpts thereof,
authorizing Harvard to enter into the Financing Agreement
(defined below) with Thomas E. Waite and Dr. Jackie See;
4. Certification of Harvard that Harvard received valuable
consideration for the issuance of the Shares, dated July 15,
1998 ("Certificate");
5. Financing Agreement between Harvard and Thomas Waite and Dr.
Jackie See dated January 13, 1998 and the Amendment thereto
dated February 3, 1998 (hereafter "Financing Agreement");
6. Consulting Agreement between Harvard and Medhat Gorgy dated
June 18, 1998 (hereafter "Gorgy Agreement");
7. Articles of Incorporation of Witch Doctor Bones, Inc., a
Nevada corporation, filed January 13, 1987 ("Articles of
Incorporation");
8. Amendment to Articles of Incorporation of Witch Doctor Bones,
Inc., a Nevada corporation, filed June 17, 1988, wherein the
corporate name was changed to CareyWard, Inc.;
9. Articles of Merger between CareyWard, Inc., A Nevada
corporation, and Grant City Corporation, a Nevada corporation,
filed October 18, 1993;
10. Amendment to the Articles of Incorporation of Grant City
Corporation, a Nevada corporation, filed January 18, 1994,
wherein the corporate name was changed to The Male Edge, Inc.;
11. Amendment to the Articles of Incorporation of The Male Edge,
Inc., a Nevada corporation, filed May 10, 1994, wherein the
corporate name was changed to Harvard Scientific Corp.;
<PAGE>
July 17, 1998
Page 3
12. Amendment to the Articles of Incorporation of Harvard
Scientific Corp., a Nevada corporation, filed February 15,
1995;
13. Amendment to the Articles of Incorporation of Harvard
Scientific Corp., a Nevada corporation, filed June 18, 1996,
wherein the corporate name was changed to Dorset Technology,
Inc.;
14. Amendment to the Articles of Incorporation of Dorset
Technology, Inc., a Nevada corporation, filed July 9, 1996,
wherein the corporate name was changed to Harvard Scientific
Corp;
15. Certificate of Change in Number of Authorized Shares of Class
and Series of Harvard Scientific Corp, a Nevada corporation,
filed February 2, 1998;
16. Amendment to the Articles of Incorporation of Harvard
Scientific Corp., a Nevada Corporation, filed on or about July
17, 1998;
17. Document entitled "Re-Statement of Original By-Laws for the
Regulation Except as Otherwise Provided by Statue or its
Articles of Incorporation of Harvard Scientific Corporation"
undated, and executed by Neal Armstrong as Secretary of
Harvard ("Bylaws"); and
18. Fairness Opinion for Harvard Scientific Corp prepared by HD
Brous & Co., Inc. Dated February 2, 1998, said fairness
opinion pertaining to the fairness of the transaction set
forth in the Financing Agreement ("Fairness Opinion").
In preparing this opinion letter, we have assumed, with the permission
of Harvard, and without independent verification, the following:
1. The Bylaws were duly adopted pursuant to the Articles of
Incorporation of Harvard and any amendments thereto;
2. The Bylaws constitute the most recent amended or amended and
restated Bylaws of Harvard;
3. The items listed above as Reliance Documents were duly
authorized by, and executed in accordance with, the Articles
of Incorporation and the Bylaws, as such articles and bylaws
existed at the time each of the aforementioned Reliance
Documents were executed and filed;
4. Other than the items listed in Reliance Documents numbers
8,9,10,11,12,13,14,15,and 16, the Articles of Incorporation
have not been amended and/or restated by Harvard;
5. The authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents
submitted to us as copies or excerpts or the originals;
6. The Registration Statement filed with the Securities and
Exchange Commission referenced and attaching this opinion
letter shall be in substantially identical form as the draft
Registration Statement provided to, and relied upon by, this
office in conjunction with the preparation of this opinion
letter as to all material matters relevant to the opinions
expressed in the opinion letter;
<PAGE>
July 17, 1998
page 4
7. That the representations made in the Certificate are complete
and accurate and that Harvard has received valuable and
adequate consideration, the nature and sufficiency of which
this firm has not examined, for the issuance of the Shares
under Nevada law and any other applicable state or federal
laws;
8. That the Financing Agreement was and is duly authorized and
approved by the Board of Directors of Harvard and/or the
shareholders of Harvard pursuant to the Articles of
Incorporation, the Bylaws, and under the laws of the State of
Nevada and any other applicable state or federal laws, and is
otherwise enforceable under the laws of the State of Nevada
and any other applicable state or federal laws;
9. That the transactions set forth in the Financing Agreement are
"fair" to Harvard as contemplated under Nevada Revised
Statues, Section 78.140, Subsection 2(d), the nature and
extent of which this firm has not examined and
10. That the Gorgy Agreement was and is duly authorized and
approved by Harvard pursuant to the Articles of Incorporation,
the Bylaws, and under the laws of the State of Nevada and any
other applicable state or federal laws, and is otherwise
enforceable under the laws of the State of Nevada and any
other applicable state or federal laws.
Based on the foregoing and subject to the limitation, qualifications,
exceptions and assumptions set forth in this letter, we are of the opinion that:
1. The Shares are legally issued, fully paid and non-assessable
under Nevada law and will be such upon sale in accordance with
the Financing Agreement;
2. The Unissued Stock of Dr. Jackie See referenced above shall be
legally issued, fully paid and non-assessable under Nevada law
if said Unissued Stock is issued by Harvard to Dr. Jackie See
in accordance with the Financing Agreement;
3. The Unissued Stock of Thomas E. Waite referenced above shall
be legally issued, fully paid and non-assessable under Nevada
law if said Unissued Stock is issued by Harvard to Thomas E.
Waite in accordance with the Financing Agreement; and
4. The Unissued Stock of Medhat Gorgy referenced above shall be
legally issued, fully paid and non-assessable under Nevada law
if said Unissued Stock is issued by Harvard to Medhat Gorgy in
accordance with the Gorgy Agreement.
We consent to the filing of this opinion letter as an exhibit to the
Registration Statement. We also consent to the reference made to us, if any,
under the caption "Legal Matters" and "Legal Proceedings" in the prospectus
contained in the Registration Statement.
The opinions expressed in this letter are subject to, limited and
qualified by, and do not consider the effect of, the following:
1. The enforceability of the Financing Agreement and the Gorgy
Agreement. We express no opinion as
to the enforceability of the Financing Agreement or the Gorgy
Agreement; and
2. General principles of equity, and the availability or
application of any equitable remedy or defense, and the
discretion of any court of competent jurisdiction in awarding
equitable remedies, including, but not limited to, specific
performance, the appointment of a receiver or injunctive
relief, regardless of whether considered in a proceeding in
equity or at law.
3. The effect of federal bankruptcy laws on the Financing
Agreement, the Gory Agreement, and the issuances of the sheres
and the unissued stock;
4. The sufficiency of any resolution adopted or actions taken by
the Harvard shareholders at their meeting July 9, 1998, the
minutes of which we have not reviewed.
<PAGE>
July 17, 1998
Page 5
The opinion expressed herein is limited to the application of the
corporate laws of the State of Nevada as set forth in Nevada Revised Statues,
Chapter 78 and interpreted and applied in Nevada. We express no opinion with
respect to Nevada or federal securities law, or the laws of any other
jurisdiction or the federal law of the United States. This opinion is given as
of the date of this letter, and we assume no obligation to analyze, evaluate or
consider the legal effect of any event or circumstance arising subsequent to
such date, which may affect the validity of any opinion expressed herein. This
letter is furnished to you solely in connection with the filing of the
Registration Statement and may not be relied upon for any other purpose, in
whole or in part, by any other person or entity.
Sincerely,
HARDESTY, BADER & RYAN, LTD.
/s/James W. Hardesty
--------------------------------
By: James W. Hardesty, Shareholder
<PAGE>
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the reference to my firm under the caption "Experts"
and to the use of my report on financial statements for the year ended December
31, 1997 dated March 5, 1998 in the Registration Statement (SB-2) in which this
consent is included and the related Prospectus of Harvard Scientific Corp.
I further consent to the use of my report dated March 5, 1998 stating my
opinion on the balance sheet as of February 28, 1998 in the Registration
Statement (SB-2) in which this consent is included and the related Prospectus of
Harvard Scientific Corp.
I also consent to the addition of Supplemental Schedules V and VI of
Harvard Scientific Corp. for the year ended December 31, 1997 in such
Registration Statement and Prospectus.
/S/ Ronald D. Simpkins
-----------------------------
Ronald D. Simpkins,
CPA
Dated: June 30, 1998
Reno, Nevada
<PAGE>
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the reference to my firm under the caption "Experts"
and to the use of my report on financial statements for the years ended December
31, 1996, 1995 and 1994 dated June 2, 1997 in the Registration Statement (SB-2)
in which this consent is included and the related Prospectus of Harvard
Scientific Corp.
I also consent to the addition of Supplemental Schedules V and VI of
Harvard Scientific Corp. for the years ended December 31, 1996 and 1995 in such
Registration Statement and Prospectus.
/S/ W. Dale McGhie
----------------------------------
W. Dale McGhie, CPA
Dated: July 13, 1998
Reno, Nevada
<PAGE>
CONSENT OF COUNSEL
I hereby consent to the reference to me under the caption "Legal Matters"
in the Prospectus contained in the Registration Statement on Form SB-2 of
Harvard Scientific Corp. with which this consent is filed
/S/ David R. Baker
----------------------------
David R. Baker, Esq.
Dated: July 16, 1998
<PAGE>
CONSENT OF FINANCING AGREEMENT OPINION
We hereby consent to the filing of our opinion dated February 5, 1998 as
an Exhibit to the Registration Statement of Harvard Scientific Corp. on Form
SB-2 with which this consent is filed. We also hereby consent to the reference
to us under the caption "Experts and Change of Accountants" in the Prospectus
contained in the Registration Statement.
H.D. BROUS & CO.
/S/ Scott Miller
-----------------------------
By: Scott Miller
Its: Managing Director
Dated: July 13, 1998
Phoenix, Arizona
<PAGE>
HARVARD SCIENTIFIC CORP.
FINANCING AGREEMENT
FEBRUARY 23, 1998
Harvard Scientific Corp. ("Harvard") has requested that O. Lee
Tawes III ("Investor") provide equity financing of $600,000. The Investor has
agreed to do so on the following terms:
BASIC ISSUANCE: Investor hereby purchases 200,000 shares
("Basic Shares") of Harvard's Common Stock ("Common") at $3.00 per share
("Acquisition Price"), which reflects a discount from the current trading price
of the Common on the OTC Bulletin Board in view of the restrictions upon
transfer of the Basic Shares and in view of further factors such as the
development status of Harvard and the potential volatility of the market for the
Common.
CONTINGENT ISSUANCE: If on the date of effectiveness of the
registration statement referred to below the closing bid price of the Common is
less than $6.00 per share ("Contingent Price"), Investor will automatically
receive that number of shares of Common ("Additional Shares," which together
with the Basic Shares are referred to herein as the "Acquired Shares") that is
the difference between (a) 600,000 divided by one-half the Contingent price and
(b) 200,000. The $600,000 consideration received as herein provided will be
allocated ratably over all the Acquired Shares so that the per share price of
each share of Basic Shares and Additional Shares will be identical.
SECURITIES LAW RESTRICTIONS: Investor recognizes that the
Basic Shares have not been, and the Additional Shares, upon issuance, may not
be, registered under the Securities Act of 1933 or qualified or registered under
the laws of any state or other jurisdiction. Investor will execute Harvard's
standard Investment Letter in the form of Exhibit A hereto.
REGISTRATION: Harvard will cause Basic shares (and any
Additional Shares so long as their inclusion will not delay the effectiveness of
registration of the Basic Shares) 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 Investor may reasonably request.
To the extent any Additional Shares have not been so registered at the time of
effectiveness of such Registration Statement, such Additional Shares will
thereafter be registered as promptly as practicable.
FURTHER AGREEMENT: This document is an agreement between the
parties hereto, effective upon its execution and delivery by Harvard and the
Investor. The parties will consult as to whether or not a more extensive
agreement is desired covering the matters herein, and if Harvard and the
Investor determine that such an agreement is desirable, then it will be
prepared, but until such a further agreement is executed and delivery by Harvard
and the Investor, this Agreement shall remain in full force and effect.
COSTS AND EXPENSES: As additional consideration for the
Investor hereunder, Harvard will bear all costs and expenses relating to this
Agreement, including those of registration and including fees and expenses of
counsel, if any, to the Investor.
1
<PAGE>
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 23rd day of February, 1998.
HARVARD SCIENTIFIC CORP. INVESTOR
By:/S/ Thomas E. Waite /S/O. Lee Tawes III
----------------------------- ---------------------------
Its: President O. Lee Tawes III
2
<PAGE>
INVESTMENT LETTER
Harvard Scientific Corp.
100 North Arlington
Suite 380
Reno, Nevada 89501
Re: Investment in Common Stock, par value 0.01 per share
("Shares")
Ladies and Gentlemen:
In connection with our acquisition of Shares, the undersigned
hereby represents and warrants to the Company as follows:
1. We understand that the Shares have not been and are not
expected to be registered under the United States
Securities Act of 1933, as from time to time amended (the
"Act", which term includes the rules and regulations from
time to time promulgated thereunder), or qualified or
registered under any state securities laws. The Shares we
receive will be "restricted securities" (as defined in the
Act". We are aware that this means that we will not be
able to reoffer, resell, pledge, hypothecate or otherwise
transfer ("Transfer") the Shares unless (I) the Shares
have been registered under the Act or (ii) an exemption
from the registration provisions of the Act is available
for such Transfer, and , in either case, the Transfer is
in compliance with any applicable state securities laws.
2. We acknowledge that the Shares are being acquired solely
for our own account for investment and not for the account
of any other person and not for distribution, assignment
or resale to others, except as may be permitted under the
act, and no other person has, or will have, upon our
acquisition of the Shares, direct or indirect beneficial
interest in the Shares.
3. We understand that a restrictive legend may be placed on
the certificate representing the Shares and that
stop-transfer instructions may be issued to the transfer
agent of the Shares or any related depositary shares
reflecting the foregoing restrictions, which restrictions
normally will not be released without opinion of counsel
satisfactory to the Company that such restrictions may be
released.
4. We have sufficient knowledge and experience in financial
and business matters, by ourselves or with our financial
advisors, to be capable of evaluating the merits and risks
of the acquisition of the Shares and to protect our
interests in connection with the transaction. We are able
and prepared to bear the economic risk represented by
holding the Shares indefinitely, regardless of what the
future value of the Shares may be.
5. We understand that an investment in the Shares, because of
the nature of the business or the Company and the stage of
development of that business, involves a high degree of
3
<PAGE>
risk. We have been given the opportunity to ask questions
and receive answers concerning the Company, its business
and matters concerning our acquisition of the Shares, and
our questions have been answered to our satisfaction for
purposes of the acquisition of the Shares.
6. We understand that the U.S. Securities and Exchange
Commission (the "Commission") does not pass upon the
merits of any securities offered or the terms of the
offering, nor does it pass upon the accuracy or
completeness of any offering circular or selling
literature and that no state commissioner has done so. We
also understand that, although these securities are
offered under an exemption from registration under the
Act, the Commission has not made an independent
determination that these securities are exempt from
registration, and that no state commissioner has
determined that qualification, registration or some other
action is not required.
7. Our residence address and our social security or employer
identification number, if any, are set forth below. If no
social security or employer identification number is set
forth below, we represent that we do not have any on and
are not required to have any.
8. We recognize that the Company and others will rely upon
the truth, accuracy and completeness of the foregoing
representations and warranties.
Sincerely yours,
[NAME OF INVESTOR]
Dated: February 23, 1998
Full name and permanent home address: By: /S/ O. Lee Tawes
--------------------
Signature
--------------------------------
--------------------------------
--------------------------------
Social Security or Employer Identification Number:
--------------------------------
4
<PAGE>
HARVARD SCIENTIFIC CORP.
FINANCING AGREEMENT
JUNE 19, 1998
Harvard Scientific Corp. ("Harvard") has requested that Ronald
E. Patterson ("Investor") provide equity financing of $249,999. The Investor has
agreed to do so on the following terms:
BASIC ISSUANCE: Investor hereby purchases 200,000 shares
("Basic Shares") of Harvard's Common Stock ("Common") at $3.00 per share
("Acquisition Price"), which reflects a discount from the current trading price
of the Common on the OTC Bulletin Board in view of the restrictions upon
transfer of the Basic Shares and in view of further factors such as the
development status of Harvard and the potential volatility of the market for the
Common.
CONTINGENT ISSUANCE: If on the date of effectiveness of the
registration statement referred to below the closing bid price of the Common is
less than $6.00 per share ("Contingent Price"), Investor will automatically
receive that number of shares of Common ("Additional Shares," which together
with the Basic Shares are referred to herein as the "Acquired Shares") that is
the difference between (a) 249,999 divided by one-half the Contingent price and
(b) 83,333. The $249,999 consideration received as herein provided will be
allocated ratably over all the Acquired Shares so that the per share price of
each share of Basic Shares and Additional Shares will be identical.
SECURITIES LAW RESTRICTIONS: Investor recognizes that the
Basic Shares have not been, and the Additional Shares, upon issuance, may not
be, registered under the Securities Act of 1933 or qualified or registered under
the laws of any state or other jurisdiction. Investor will execute Harvard's
standard Investment Letter in the form of Exhibit A hereto.
REGISTRATION: Harvard will cause Basic shares (and any
Additional Shares so long as their inclusion will not delay the effectiveness of
registration of the Basic Shares) 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 Investor may reasonably request.
To the extent any Additional Shares have not been so registered at the time of
effectiveness of such Registration Statement, such Additional Shares will
thereafter be registered as promptly as practicable.
FURTHER AGREEMENT: This document is an agreement between the
parties hereto, effective upon its execution and delivery by Harvard and the
Investor. The parties will consult as to whether or not a more extensive
agreement is desired covering the matters herein, and if Harvard and the
Investor determine that such an agreement is desirable, then it will be
prepared, but until such a further agreement is executed and delivery by Harvard
and the Investor, this Agreement shall remain in full force and effect.
COSTS AND EXPENSES: As additional consideration for the
Investor hereunder, Harvard will bear all costs and expenses relating to this
Agreement, including those of registration and including fees and expenses of
counsel, if any, to the Investor.
1
<PAGE>
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 19th day of June, 1998.
HARVARD SCIENTIFIC CORP. INVESTOR
By: /S/Thomas E. Waite /S/Ronald E. Patterson
------------------------------ ----------------------------
Its: President Ronald E. Patterson
2
<PAGE>
INVESTMENT LETTER
Harvard Scientific Corp.
100 North Arlington
Suite 380
Reno, Nevada 89501
Re: Investment in Common Stock, par value 0.01 per share
("Shares")
Ladies and Gentlemen:
In connection with our acquisition of Shares, the undersigned
hereby represents and warrants to the Company as follows:
1. We understand that the Shares have not been and are not
expected to be registered under the United States
Securities Act of 1933, as from time to time amended (the
"Act", which term includes the rules and regulations from
time to time promulgated thereunder), or qualified or
registered under any state securities laws. The Shares we
receive will be "restricted securities" (as defined in the
Act". We are aware that this means that we will not be
able to reoffer, resell, pledge, hypothecate or otherwise
transfer ("Transfer") the Shares unless (I) the Shares
have been registered under the Act or (ii) an exemption
from the registration provisions of the Act is available
for such Transfer, and , in either case, the Transfer is
in compliance with any applicable state securities laws.
2. We acknowledge that the Shares are being acquired solely
for our own account for investment and not for the account
of any other person and not for distribution, assignment
or resale to others, except as may be permitted under the
act, and no other person has, or will have, upon our
acquisition of the Shares, direct or indirect beneficial
interest in the Shares.
3. We understand that a restrictive legend may be placed on
the certificate representing the Shares and that
stop-transfer instructions may be issued to the transfer
agent of the Shares or any related depositary shares
reflecting the foregoing restrictions, which restrictions
normally will not be released without opinion of counsel
satisfactory to the Company that such restrictions may be
released.
4. We have sufficient knowledge and experience in financial
and business matters, by ourselves or with our financial
advisors, to be capable of evaluating the merits and risks
of the acquisition of the Shares and to protect our
interests in connection with the transaction. We are able
and prepared to bear the economic risk represented by
holding the Shares indefinitely, regardless of what the
future value of the Shares may be.
5. We understand that an investment in the Shares, because of
the nature of the business or the Company and the stage of
3
<PAGE>
development of that business, involves a high degree of
risk. We have been given the opportunity to ask questions
and receive answers concerning the Company, its business
and matters concerning our acquisition of the Shares, and
our questions have been answered to our satisfaction for
purposes of the acquisition of the Shares.
6. We understand that the U.S. Securities and Exchange
Commission (the "Commission") does not pass upon the
merits of any securities offered or the terms of the
offering, nor does it pass upon the accuracy or
completeness of any offering circular or selling
literature and that no state commissioner has done so. We
also understand that, although these securities are
offered under an exemption from registration under the
Act, the Commission has not made an independent
determination that these securities are exempt from
registration, and that no state commissioner has
determined that qualification, registration or some other
action is not required.
7. Our residence address and our social security or employer
identification number, if any, are set forth below. If no
social security or employer identification number is set
forth below, we represent that we do not have any on and
are not required to have any.
8. We recognize that the Company and others will rely upon
the truth, accuracy and completeness of the foregoing
representations and warranties.
Sincerely yours,
[NAME OF INVESTOR]
Dated: June 19, 1998
Full name and permanent home address: By: /S/Ronald E. Patterson
----------------------------
Signature
--------------------------------
--------------------------------
--------------------------------
Social Security or Employer Identification Number:
--------------------------------
4
<PAGE>
HARVARD SCIENTIFIC CORP.
FINANCING AGREEMENT
JUNE 29, 1998
Harvard Scientific Corp. ("Harvard") has requested that RK
Company ("Investor") provide equity financing of $450,000. The Investor has
agreed to do so on the following terms:
BASIC ISSUANCE: Investor hereby purchases 150,000 shares
("Basic Shares") of Harvard's Common Stock ("Common") at $3.00 per share
("Acquisition Price"), which reflects a discount from the current trading price
of the Common on the OTC Bulletin Board in view of the restrictions upon
transfer of the Basic Shares and in view of further factors such as the
development status of Harvard and the potential volatility of the market for the
Common.
CONTINGENT ISSUANCE: If on the date of effectiveness of the
registration statement referred to below the closing bid price of the Common is
less than $6.00 per share ("Contingent Price"), Investor will automatically
receive that number of shares of Common ("Additional Shares," which together
with the Basic Shares are referred to herein as the "Acquired Shares") that is
the difference between (a) 450,000 divided by one-half the Contingent price and
(b) 150,000. The $450,000 consideration received as herein provided will be
allocated ratably over all the Acquired Shares so that the per share price of
each share of Basic Shares and Additional Shares will be identical.
SECURITIES LAW RESTRICTIONS: Investor recognizes that the
Basic Shares have not been, and the Additional Shares, upon issuance, may not
be, registered under the Securities Act of 1933 or qualified or registered under
the laws of any state or other jurisdiction. Investor will execute Harvard's
standard Investment Letter in the form of Exhibit A hereto.
REGISTRATION: Harvard will cause Basic shares (and any
Additional Shares so long as their inclusion will not delay the effectiveness of
registration of the Basic Shares) 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 Investor may reasonably request.
To the extent any Additional Shares have not been so registered at the time of
effectiveness of such Registration Statement, such Additional Shares will
thereafter be registered as promptly as practicable.
FURTHER AGREEMENT: This document is an agreement between the
parties hereto, effective upon its execution and delivery by Harvard and the
Investor. The parties will consult as to whether or not a more extensive
agreement is desired covering the matters herein, and if Harvard and the
Investor determine that such an agreement is desirable, then it will be
prepared, but until such a further agreement is executed and delivery by Harvard
and the Investor, this Agreement shall remain in full force and effect.
COSTS AND EXPENSES: As additional consideration for the
Investor hereunder, Harvard will bear all costs and expenses relating to this
Agreement, including those of registration and including fees and expenses of
counsel, if any, to the Investor.
1
<PAGE>
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 29th day of June, 1998.
HARVARD SCIENTIFIC CORP. INVESTOR
By: /S /Curtis A. Orgill /S/ Donna Krilich
-------------------------- ---------------------------
Its: Treasurer RK Company
2
<PAGE>
EXHIBIT A
INVESTMENT LETTER
Harvard Scientific Corp.
100 North Arlington
Suite 380
Reno, Nevada 89501
Re: Investment in Common Stock, par value 0.01 per share
("Shares")
Ladies and Gentlemen:
In connection with our acquisition of Shares, the undersigned
hereby represents and warrants to the Company as follows:
1. We understand that the Shares have not been and are not
expected to be registered under the United States
Securities Act of 1933, as from time to time amended (the
"Act", which term includes the rules and regulations from
time to time promulgated thereunder), or qualified or
registered under any state securities laws. The Shares we
receive will be "restricted securities" (as defined in the
Act". We are aware that this means that we will not be
able to reoffer, resell, pledge, hypothecate or otherwise
transfer ("Transfer") the Shares unless (I) the Shares
have been registered under the Act or (ii) an exemption
from the registration provisions of the Act is available
for such Transfer, and , in either case, the Transfer is
in compliance with any applicable state securities laws.
2. We acknowledge that the Shares are being acquired solely
for our own account for investment and not for the account
of any other person and not for distribution, assignment
or resale to others, except as may be permitted under the
act, and no other person has, or will have, upon our
acquisition of the Shares, direct or indirect beneficial
interest in the Shares.
3. We understand that a restrictive legend may be placed on
the certificate representing the Shares and that
stop-transfer instructions may be issued to the transfer
agent of the Shares or any related depositary shares
reflecting the foregoing restrictions, which restrictions
normally will not be released without opinion of counsel
satisfactory to the Company that such restrictions may be
released.
4. We have sufficient knowledge and experience in financial
and business matters, by ourselves or with our financial
advisors, to be capable of evaluating the merits and risks
of the acquisition of the Shares and to protect our
interests in connection with the transaction. We are able
and prepared to bear the economic risk represented by
holding the Shares indefinitely, regardless of what the
future value of the Shares may be.
3
<PAGE>
5. We understand that an investment in the Shares, because of
the nature of the business or the Company and the stage of
development of that business, involves a high degree of
risk. We have been given the opportunity to ask questions
and receive answers concerning the Company, its business
and matters concerning our acquisition of the Shares, and
our questions have been answered to our satisfaction for
purposes of the acquisition of the Shares.
6. We understand that the U.S. Securities and Exchange
Commission (the "Commission") does not pass upon the
merits of any securities offered or the terms of the
offering, nor does it pass upon the accuracy or
completeness of any offering circular or selling
literature and that no state commissioner has done so. We
also understand that, although these securities are
offered under an exemption from registration under the
Act, the Commission has not made an independent
determination that these securities are exempt from
registration, and that no state commissioner has
determined that qualification, registration or some other
action is not required.
7. Our residence address and our social security or employer
identification number, if any, are set forth below. If no
social security or employer identification number is set
forth below, we represent that we do not have any on and
are not required to have any.
8. We recognize that the Company and others will rely upon
the truth, accuracy and completeness of the foregoing
representations and warranties.
Sincerely yours,
[NAME OF INVESTOR]
Dated: July 29, 1998
Full name and permanent home address: By:/S/ Donna Krilich
-------------------
Signature
--------------------------------
--------------------------------
--------------------------------
Social Security or Employer Identification Number:
--------------------------------
4
<PAGE>
HARVARD SCIENTIFIC CORP.
FINANCING AGREEMENT
JULY 3, 1998
Harvard Scientific Corp. ("Harvard") has requested that RK
Company ("Investor") provide equity financing of $50,000. The Investor has
agreed to do so on the following terms:
BASIC ISSUANCE: Investor hereby purchases 16,667 shares
("Basic Shares") of Harvard's Common Stock ("Common") at $3.00 per share
("Acquisition Price"), which reflects a discount from the current trading price
of the Common on the OTC Bulletin Board in view of the restrictions upon
transfer of the Basic Shares and in view of further factors such as the
development status of Harvard and the potential volatility of the market for the
Common.
CONTINGENT ISSUANCE: If on the date of effectiveness of the
registration statement referred to below the closing bid price of the Common is
less than $6.00 per share ("Contingent Price"), Investor will automatically
receive that number of shares of Common ("Additional Shares," which together
with the Basic Shares are referred to herein as the "Acquired Shares") that is
the difference between (a) 50,000 divided by one-half the Contingent price and
(b) 16,667. The $50,000 consideration received as herein provided will be
allocated ratably over all the Acquired Shares so that the per share price of
each share of Basic Shares and Additional Shares will be identical.
SECURITIES LAW RESTRICTIONS: Investor recognizes that the
Basic Shares have not been, and the Additional Shares, upon issuance, may not
be, registered under the Securities Act of 1933 or qualified or registered under
the laws of any state or other jurisdiction. Investor will execute Harvard's
standard Investment Letter in the form of Exhibit A hereto.
REGISTRATION: Harvard will cause Basic shares (and any
Additional Shares so long as their inclusion will not delay the effectiveness of
registration of the Basic Shares) 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 Investor may reasonably request.
To the extent any Additional Shares have not been so registered at the time of
effectiveness of such Registration Statement, such Additional Shares will
thereafter be registered as promptly as practicable.
FURTHER AGREEMENT: This document is an agreement between the
parties hereto, effective upon its execution and delivery by Harvard and the
Investor. The parties will consult as to whether or not a more extensive
agreement is desired covering the matters herein, and if Harvard and the
Investor determine that such an agreement is desirable, then it will be
prepared, but until such a further agreement is executed and delivery by Harvard
and the Investor, this Agreement shall remain in full force and effect.
COSTS AND EXPENSES: As additional consideration for the
Investor hereunder, Harvard will bear all costs and expenses relating to this
Agreement, including those of registration and including fees and expenses of
counsel, if any, to the Investor.
1
<PAGE>
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 3rd day of July, 1998.
HARVARD SCIENTIFIC CORP. INVESTOR
By: /S/ Curtis A. Orgill /S/ Sandra L. Schnakenburg
-------------------------- ----------------------------
Its: Treasurer RK Company
2
<PAGE>
EXHIBIT A
INVESTMENT LETTER
Harvard Scientific Corp.
100 North Arlington
Suite 380
Reno, Nevada 89501
Re: Investment in Common Stock, par value 0.01 per share
("Shares")
Ladies and Gentlemen:
In connection with our acquisition of Shares, the undersigned
hereby represents and warrants to the Company as follows:
1. We understand that the Shares have not been and are not
expected to be registered under the United States
Securities Act of 1933, as from time to time amended (the
"Act", which term includes the rules and regulations from
time to time promulgated thereunder), or qualified or
registered under any state securities laws. The Shares we
receive will be "restricted securities" (as defined in the
Act". We are aware that this means that we will not be
able to reoffer, resell, pledge, hypothecate or otherwise
transfer ("Transfer") the Shares unless (I) the Shares
have been registered under the Act or (ii) an exemption
from the registration provisions of the Act is available
for such Transfer, and , in either case, the Transfer is
in compliance with any applicable state securities laws.
2. We acknowledge that the Shares are being acquired solely
for our own account for investment and not for the account
of any other person and not for distribution, assignment
or resale to others, except as may be permitted under the
act, and no other person has, or will have, upon our
acquisition of the Shares, direct or indirect beneficial
interest in the Shares.
3. We understand that a restrictive legend may be placed on
the certificate representing the Shares and that
stop-transfer instructions may be issued to the transfer
agent of the Shares or any related depositary shares
reflecting the foregoing restrictions, which restrictions
normally will not be released without opinion of counsel
satisfactory to the Company that such restrictions may be
released.
4. We have sufficient knowledge and experience in financial
and business matters, by ourselves or with our financial
advisors, to be capable of evaluating the merits and risks
of the acquisition of the Shares and to protect our
interests in connection with the transaction. We are able
and prepared to bear the economic risk represented by
holding the Shares indefinitely, regardless of what the
future value of the Shares may be.
3
<PAGE>
5. We understand that an investment in the Shares, because of
the nature of the business or the Company and the stage of
development of that business, involves a high degree of
risk. We have been given the opportunity to ask questions
and receive answers concerning the Company, its business
and matters concerning our acquisition of the Shares, and
our questions have been answered to our satisfaction for
purposes of the acquisition of the Shares.
6. We understand that the U.S. Securities and Exchange
Commission (the "Commission") does not pass upon the
merits of any securities offered or the terms of the
offering, nor does it pass upon the accuracy or
completeness of any offering circular or selling
literature and that no state commissioner has done so. We
also understand that, although these securities are
offered under an exemption from registration under the
Act, the Commission has not made an independent
determination that these securities are exempt from
registration, and that no state commissioner has
determined that qualification, registration or some other
action is not required.
7. Our residence address and our social security or employer
identification number, if any, are set forth below. If no
social security or employer identification number is set
forth below, we represent that we do not have any on and
are not required to have any.
8. We recognize that the Company and others will rely upon
the truth, accuracy and completeness of the foregoing
representations and warranties.
Sincerely yours,
[NAME OF INVESTOR]
Dated: July 3, 1998
Full name and permanent home address: By: /S/Sandra Schnakenburg
------------------------
Signature
--------------------------------
--------------------------------
--------------------------------
Social Security or Employer Identification Number:
--------------------------------
4
<PAGE>
HARVARD SCIENTIFIC CORP.
FINANCING AGREEMENT
JULY 2, 1998
Harvard Scientific Corp. ("Harvard") has requested that Samuel
and Elisabeth Valenzisi ("Investor") provide equity financing of $24,000. The
Investor has agreed to do so on the following terms:
BASIC ISSUANCE: Investor hereby purchases 8,000 shares ("Basic
Shares") of Harvard's Common Stock ("Common") at $3.00 per share ("Acquisition
Price"), which reflects a discount from the current trading price of the Common
on the OTC Bulletin Board in view of the restrictions upon transfer of the Basic
Shares and in view of further factors such as the development status of Harvard
and the potential volatility of the market for the Common.
CONTINGENT ISSUANCE: If on the date of effectiveness of the
registration statement referred to below the closing bid price of the Common is
less than $6.00 per share ("Contingent Price"), Investor will automatically
receive that number of shares of Common ("Additional Shares," which together
with the Basic Shares are referred to herein as the "Acquired Shares") that is
the difference between (a) 24,000 divided by one-half the Contingent price and
(b) 8,000. The $24,000 consideration received as herein provided will be
allocated ratably over all the Acquired Shares so that the per share price of
each share of Basic Shares and Additional Shares will be identical.
SECURITIES LAW RESTRICTIONS: Investor recognizes that the
Basic Shares have not been, and the Additional Shares, upon issuance, may not
be, registered under the Securities Act of 1933 or qualified or registered under
the laws of any state or other jurisdiction. Investor will execute Harvard's
standard Investment Letter in the form of Exhibit A hereto.
REGISTRATION: Harvard will cause Basic shares (and any
Additional Shares so long as their inclusion will not delay the effectiveness of
registration of the Basic Shares) 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 Investor may reasonably request.
To the extent any Additional Shares have not been so registered at the time of
effectiveness of such Registration Statement, such Additional Shares will
thereafter be registered as promptly as practicable.
FURTHER AGREEMENT: This document is an agreement between the
parties hereto, effective upon its execution and delivery by Harvard and the
Investor. The parties will consult as to whether or not a more extensive
agreement is desired covering the matters herein, and if Harvard and the
Investor determine that such an agreement is desirable, then it will be
prepared, but until such a further agreement is executed and delivery by Harvard
and the Investor, this Agreement shall remain in full force and effect.
COSTS AND EXPENSES: As additional consideration for the
Investor hereunder, Harvard will bear all costs and expenses relating to this
Agreement, including those of registration and including fees and expenses of
counsel, if any, to the Investor.
1
<PAGE>
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 2nd day of July, 1998.
HARVARD SCIENTIFIC CORP. INVESTOR
By: /S/ Thomas E. Waite /S/ Samuel Valenzisi and Elisabeth Valenzisi
---------------------------- ----------------------------------------------
Its: President Samuel and Elisabeth Valenzisi
2
<PAGE>
EXHIBIT A
INVESTMENT LETTER
Harvard Scientific Corp.
100 North Arlington
Suite 380
Reno, Nevada 89501
Re: Investment in Common Stock, par value 0.01 per share
("Shares")
Ladies and Gentlemen:
In connection with our acquisition of Shares, the undersigned
hereby represents and warrants to the Company as follows:
1. We understand that the Shares have not been and are not
expected to be registered under the United States
Securities Act of 1933, as from time to time amended (the
"Act", which term includes the rules and regulations from
time to time promulgated thereunder), or qualified or
registered under any state securities laws. The Shares we
receive will be "restricted securities" (as defined in the
Act". We are aware that this means that we will not be
able to reoffer, resell, pledge, hypothecate or otherwise
transfer ("Transfer") the Shares unless (I) the Shares
have been registered under the Act or (ii) an exemption
from the registration provisions of the Act is available
for such Transfer, and , in either case, the Transfer is
in compliance with any applicable state securities laws.
2. We acknowledge that the Shares are being acquired solely
for our own account for investment and not for the account
of any other person and not for distribution, assignment
or resale to others, except as may be permitted under the
act, and no other person has, or will have, upon our
acquisition of the Shares, direct or indirect beneficial
interest in the Shares.
3. We understand that a restrictive legend may be placed on
the certificate representing the Shares and that
stop-transfer instructions may be issued to the transfer
agent of the Shares or any related depositary shares
reflecting the foregoing restrictions, which restrictions
normally will not be released without opinion of counsel
satisfactory to the Company that such restrictions may be
released.
4. We have sufficient knowledge and experience in financial
and business matters, by ourselves or with our financial
advisors, to be capable of evaluating the merits and risks
of the acquisition of the Shares and to protect our
interests in connection with the transaction. We are able
and prepared to bear the economic risk represented by
holding the Shares indefinitely, regardless of what the
future value of the Shares may be.
3
<PAGE>
5. We understand that an investment in the Shares, because of
the nature of the business or the Company and the stage of
development of that business, involves a high degree of
risk. We have been given the opportunity to ask questions
and receive answers concerning the Company, its business
and matters concerning our acquisition of the Shares, and
our questions have been answered to our satisfaction for
purposes of the acquisition of the Shares.
6. We understand that the U.S. Securities and Exchange
Commission (the "Commission") does not pass upon the
merits of any securities offered or the terms of the
offering, nor does it pass upon the accuracy or
completeness of any offering circular or selling
literature and that no state commissioner has done so. We
also understand that, although these securities are
offered under an exemption from registration under the
Act, the Commission has not made an independent
determination that these securities are exempt from
registration, and that no state commissioner has
determined that qualification, registration or some other
action is not required.
7. Our residence address and our social security or employer
identification number, if any, are set forth below. If no
social security or employer identification number is set
forth below, we represent that we do not have any on and
are not required to have any.
8. We recognize that the Company and others will rely upon
the truth, accuracy and completeness of the foregoing
representations and warranties.
Sincerely yours,
[NAME OF INVESTOR]
Dated: July 2, 1998
Full name and permanent home address: By: /S/Elisabeth and Samuel Valenzisi
---------------------------------
Signature
--------------------------------
--------------------------------
--------------------------------
Social Security or Employer Identification Number:
--------------------------------
4
<PAGE>
HARVARD SCIENTIFIC CORP.
AND
MR. MEDHAT GORGY
PAGE 1 OF 6
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, is made and entered into on the date signed
below, by and between HARVARD SCIENTIFIC CORP., a Nevada corporation, with its
World Headquarters located at 755 Rinehart Road, Suite 100, Lake Mary, Florida,
32746, hereinafter referred to as "HARVARD", and MR. MEDHAT GORGY, 3505 Cadillac
Ave., Bldg. C, Costa Mesa, California, 92626, hereinafter referred to as
"CONSULTANT".
WHEREAS, HARVARD is a biopharmaceutical development company and has
developed and patented a treatment for impotency, male erectile and
male/female sexual dysfunction, which utilizes intraurethral delivery
of lyophilized liposomal prostaglandin E-1 ("PRODUCT"); and
WHEREAS, HARVARD has been issued Patent Number 5,718,917 from the U.S.
Patent and Trademark Office entitled "PGE-1 CONTAINING LYOPHILIZED
LIPOSOMES FOR USE IN THE TREATMENT OF ERECTILE DYSFUNCTION" ("PATENT");
and
WHEREAS, HARVARD desires to gain regulatory approval from the U.S. Food
and Drug Administration ("FDA") and similar worldwide regulatory
agencies for marketing and distribution of the Product; and
WHEREAS, HARVARD desires to have the benefits of CONSULTANT'S knowledge
and expertise as it pertains to gaining regulatory approval for the
PRODUCT; and
WHEREAS, CONSULTANT desires to assist HARVARD in its efforts to achieve
governmental and regulatory approval of the PRODUCT.
NOW, THEREFORE, TO MEMORIALIZE THE DISCUSSIONS BETWEEN HARVARD AND
CONSULTANT, it is the desire of HARVARD to engage the services of CONSULTANT for
various technical, regulatory and/or Good Manufacturing Practice ("GMP")
assignments as pertains to HARVARD'S PRODUCT. In consideration of the promises
and mutual covenants set forth herein, HARVARD and CONSULTANT, jointly referred
to as (the "PARTIES"), hereto agree to the terms set forth herein.
REPRESENTATIONS OF HARVARD
- --------------------------
1) HARVARD represents and warrants that it has the full power and
authority to execute and deliver this AGREEMENT and to perform all of
its obligations herein; and
2) HARVARD represents and warrants it is not in violation or breach of
any non-compete or other agreements.
REPRESENTATIONS OF CONSULTANT
- -----------------------------
1) CONSULTANT has the knowledge and expertise needed to assist HARVARD
in its efforts to qualify its PRODUCT for regulatory approval; and
2) CONSULTANT represents and warrants that it has the full power and
authority to execute and deliver this AGREEMENT and to perform all of
its obligations herein; and
3) CONSULTANT represents and warrants it is not in violation or breach
of any non-compete or other agreements.
CONSULTANT (INIT) /S/ MG HARVARD (INIT) /S/ TW
------ ------
<PAGE>
HARVARD SCIENTIFIC CORP.
AND
MR. MEDHAT GORGY
PAGE 2 OF 6
A) Responsibilities of HARVARD shall include, but are not necessarily limited
to:
- -----------------------------------------------------------------------------
1) HARVARD agrees to provide CONSULTANT access as needed to all data,
records and files for its PRODUCT for use in CONSULTANT'S duties under
this AGREEMENT; and
2) HARVARD agrees that any misrepresentations made by HARVARD as to the
responsibilities of HARVARD shall result in, but, are not necessarily
limited to, the immediate termination of this AGREEMENT.
B) Responsibilities of CONSULTANT shall include, but are not necessarily limited
to:
- --------------------------------------------------------------------------------
1) CONSULTANT shall render services as reasonably requested by HARVARD
which pertains to the PRODUCT; and
2) CONSULTANT shall coordinate and administer various technical and
regulatory duties regarding the manufacture and production of the
PRODUCT; and
3) CONSULTANT shall design and implement a GMP documentation system
which insures that all records and supporting documentation for the
various regulatory submissions as applicable for the PRODUCT will be
maintained under GMP compliance requirements; and
4) CONSULTANT shall devote all time necessary to fulfill his duties
under this AGREEMENT; and
5) CONSULTANT shall be an independent contractor and shall be free to
engage in other forms of employment or provide services to other
persons or firms; and
6) CONSULTANT agrees that any misrepresentations made by CONSULTANT as
to the responsibilities of CONSULTANT shall result in, but, are not
necessarily limited to, the immediate termination of this AGREEMENT.
1) TERM OF THIS AGREEMENT.
- --------------------------------
This AGREEMENT shall be binding and in effect for a period of one (1)
year from the date of mutual execution, unless terminated by either PARTY after
thirty (30) days notice is given of any material breach of this AGREEMENT by the
other PARTY.
2) TIME AND EFFORTS.
- --------------------------
CONSULTANT will at all times be faithful and industrious, and to the
best of his ability, experience and talents, perform all duties that may be
required under this AGREEMENT. Such duties shall be rendered primarily at the
CONSULTANT'S office and/or place of business, although from time to time
CONSULTANT may be required to travel to such places as may be necessary to
conduct business on behalf of HARVARD. However, such travel must be at
reasonable times and shall be required in such a way as to not impose an unusual
hardship upon CONSULTANT.
CONSULTANT (INIT) /S/ MG HARVARD (INIT) /S/ TW
------ ------
<PAGE>
HARVARD SCIENTIFIC CORP.
AND
MR. MEDHAT GORGY
PAGE 3 OF 6
3) COMPENSATION.
- ----------------------
In full payment for CONSULTANT'S services, HARVARD shall pay to
CONSULTANT compensation determined in accordance with the terms below:
3.1 CONSULTANT shall receive a consulting fee of $15,000.00 (fifteen
thousand) per month to be payable in two (2) equal installments of
$7,500.00 (seven thousand, five hundred) on the 1st and 15th of every
month. CONSULTANT shall provide HARVARD an invoice for each payment
period for the term of the AGREEMENT.
3.2 CONSULTANT shall be entitled to receive additional consulting fee
of up to 25,000 (twenty five thousand) shares of HARVARD'S common stock
as additional compensation for services provided under this AGREEMENT.
Three thousand shares shall be payable on the first day of the initial
month under this AGREEMENT and shall be set forth on CONSULTANT'S
invoice for said period. Two thousand shares shall be payable and
included in CONSULTANT'S monthly invoicing for the remaining months
that this AGREEMENT is in effect, not to exceed 11 (eleven) months.
4) EXPENSES.
- ------------------
HARVARD shall reimburse CONSULTANT for all reasonable and necessary
business expenses incurred by CONSULTANT in the discharge of his duties.
Receipts for all travel and travel related expenses will be maintained by
CONSULTANT. An itemized expense report shall be submitted to HARVARD at the time
the expenses occur before reimbursement. Any expense which exceeds $500.00 (five
hundred) must be pre-approved by HARVARD in writing.
5) TERMINATION.
- ---------------------
CONSULTANT has no right to terminate this AGREEMENT except upon the
breach hereof by HARVARD. If, at any time, CONSULTANT breaches any material
obligation under this AGREEMENT, HARVARD shall give written notice to CONSULTANT
and may terminate this AGREEMENT if such breach is not promptly cured. Such
termination is effective upon the date set forth in such notice. Upon
termination, all of HARVARD'S and CONSULTANT'S confidential information and
solicitation shall survive the termination, breach or expiration of this
AGREEMENT.
5.1) Upon lawful termination in accordance with this AGREEMENT, the
maximum amount HARVARD may be liable to CONSULTANT for would be the
consulting fees fully earned under paragraphs 3.1 and 3.2 above and
expenses incurred by CONSULTANT in accordance with paragraph 4 above as
of the termination date.
6) TRADE SECRETS AND PROPRIETARY INFORMATION OF HARVARD.
- ---------------------------------------------------------
CONSULTANT will have access to, will acquire and become acquainted with various
trade secrets, confidential and proprietary information relating to HARVARD'S
business, including but not limited to: patentable inventions, scientific and
technological know-how, processes and compositions, research protocols and data,
client, CONSULTANT, employee, supplier and distributor lists, contacts,
addresses, information about employees and employee relations, training manuals
CONSULTANT (INIT) /S/ MG HARVARD (INIT) /S/ TW
------ ------
<PAGE>
HARVARD SCIENTIFIC CORP.
AND
MR. MEDHAT GORGY
PAGE 4 OF 6
and procedures, recruitment methods and procedures, employment and client
contracts, contracts with suppliers of goods and services; employee handbooks,
information about clients and suppliers, price lists, costs and expenses,
documents, ledgers, proposals, financial information, inventions, protocols,
patterns, processes, computer programs, manufacturing, recruitment and
distribution techniques, specifications, tapes and compilations of information,
all of which are owned by HARVARD or clients of HARVARD, and which are used in
the operation of HARVARD'S or its client's business. CONSULTANT shall hold in
the strictest confidence and shall not (other than as specifically allowed in
writing by HARVARD) disclose or use any trade secret or confidential information
of HARVARD, directly or indirectly, or use them in any way, either during the
term of CONSULTANT'S engagement, or at any time thereafter, except as required
by HARVARD, in the course of HARVARD'S engagement. CONSULTANT understands that
the term "trade secret" or "confidential information" means all information
concerning HARVARD, clients of HARVARD, or any parent, subsidiary or affiliate
of HARVARD'S or a client, any supplier, or any client (including, but not
limited to, information regarding the peculiarities, preferences and manner of
doing business) that is not generally known to the public. All items referred to
in this paragraph and similar items relating to business of HARVARD or client,
whether prepared by CONSULTANT or otherwise, shall remain the exclusive property
of HARVARD or client and shall not be removed from HARVARD'S or clients'
premises without prior written consent of HARVARD. CONSULTANT also agrees that
the remedy at law for breach of this paragraph is inadequate and HARVARD, in
addition to any other remedy, can seek appropriate injunctive relief from an
appropriate court or arbitrator, at its election, without bond, including
mandatory injunction.
7) RECORDS.
- -----------------
CONSULTANT will keep complete, accurate and authentic accounts, notes,
data and records of any and all kinds of said inventions in the manner and form
requested by HARVARD. CONSULTANT agrees that all accounts, notes, data,
sketches, drawings and other documents and records, and all material and
physical items of any kind, including all reproductions and copies thereof,
which relate in any way to the business, products, practices or techniques of
HARVARD or contain confidential information, made by CONSULTANT, or that come
into his possession by reason of his engagement are the property of HARVARD and
at the conclusion of this AGREEMENT, or upon Harvard's request, CONSULTANT will
promptly surrender the same to HARVARD.
8) DISPUTE RESOLUTION PROCEDURE.
- --------------------------------------
In any and all disputes arising out of or related to this AGREEMENT of
whatever nature, including, but not limited to, tort and contract claims, the
termination of CONSULTANT'S employment, compensation, the terms and conditions
of this AGREEMENT, or the coverage of this dispute resolution procedure, shall
be resolved by binding arbitration before a retired judge in Washoe County,
State of Nevada.
9) INJUNCTIVE RELIEF.
- ---------------------------
The services of CONSULTANT, as well as the trade secrets and the
proprietary and confidential information of HARVARD are of a special, unique,
unusual and extraordinary nature, which gives them a peculiar value, the loss of
which cannot reasonably or adequately be compensated for in damages in an action
at law. The breach by CONSULTANT of any provision of this AGREEMENT would cause
HARVARD irreparable injury and damage, the measure of which could not be
adequately measured at law. Accordingly, HARVARD shall be entitled, as a matter
of right, to injunctive and other equitable relief to prevent the violation of
any provision of this AGREEMENT by CONSULTANT. CONSULTANT hereby consents to the
granting of such injunctive or other equitable relief, provided notice is given
hereunder. The exercise by HARVARD of its rights hereunder shall not constitute
a waiver by HARVARD of any other rights which it any have to damages or
otherwise.
CONSULTANT (INIT) /S/ MG HARVARD (INIT) /S/ TW
------ ------
<PAGE>
HARVARD SCIENTIFIC CORP.
AND
MR. MEDHAT GORGY
PAGE 5 OF 6
10) CONSENT TO JURISDICTION.
- ---------------------------------
This AGREEMENT shall be governed by and construed in accordance with
the laws of the State of Nevada, the domicile of HARVARD, and the exclusive
venue for any arbitration arising out of this AGREEMENT, whether initiated by
HARVARD or CONSULTANT, shall be Washoe County, State of Nevada. All PARTIES
specifically agree to waive any jurisdictional venue or objection to Washoe
County that may otherwise exist.
11) NOTICE.
- ----------------
Any notices hereunder shall be in writing and shall be effective upon
personal delivery, or via facsimile, or five (5) days after deposit in the
United States mail, registered or certified, return receipt requested, postage
prepaid, addressed as follows or to such other addresses as may be specified in
the same manner:
If to CONSULTANT to: If to HARVARD to:
-------------------- -----------------
Medhat Gorgy Harvard Scientific Corp.
c/o Pyramid Labs., Inc. 755 Rinehart Road
3505 Cadillac Ave., Bldg. C Suite 100
Costa Mesa, CA 92626 Lake Mary, Florida 32746
Ph: (714) 435-9800 Ph: (407) 324-1606
Fax: (714) 435-9585 Fax: (407) 324-0664
12) ATTORNEY'S FEES.
- -------------------------
In any and all disputes arising out of or related to this AGREEMENT, of
whatever nature, the prevailing PARTY shall be entitled to receive reimbursement
from the non-prevailing PARTY for all reasonable attorneys' fees and all other
costs incurred in connection with any arbitration proceeding and dispute
resolution procedure related thereto as referred to in paragraphs 8 and 10
above.
13) SEVERABILITY.
- ----------------------
If any term of provision of this AGREEMENT is or are held to be invalid
or unenforceable, the remaining portions of this AGREEMENT shall continue to be
valid and will be by law, and the invalid or unenforceable term shall be deemed
amended and limited in accordance with the intent of the PARTIES as determined
on the face of the AGREEMENT, to the extent necessary to permit the maximum
enforceability or validity of the term or provision.
14) ENTIRE AGREEMENT.
- --------------------------
This AGREEMENT embodies the entire understanding between the PARTIES
with respect to the subject between them, and no PARTY shall be bound by any
definitions, conditions or warranties, or representations other than as
expressly stated in this AGREEMENT or as subsequently set forth in a writing
signed by the duly authorized representatives of all of the PARTIES hereto, or
the PARTY whose rights are affected. This AGREEMENT may only be changed or
modified, and any provisions hereof may only be waived, in or by writing signed
by the PARTY against whom enforcement of any waiver, change or modification is
sought. This AGREEMENT supersedes all prior agreements and understandings
between the PARTIES whether written or oral.
CONSULTANT (INIT) /S/ MG HARVARD (INIT) /S/ TW
------ ------
<PAGE>
HARVARD SCIENTIFIC CORP.
AND
MR. MEDHAT GORGY
PAGE 6 OF 6
15) CONFIDENTIALITY.
- -------------------------
The existence of this AGREEMENT and its terms are confidential and
shall not be disclosed by CONSULTANT or HARVARD except as may be required by law
or to enforce the provisions hereof.
16) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
- ----------------------------------------------------
All representations and warranties made herein shall survive the
execution of this AGREEMENT and the consummation of the transactions
contemplated herein.
17) BINDING EFFECT; ASSIGNMENT.
- ------------------------------------
This AGREEMENT shall be binding upon and inure to the benefit of the
PARTIES hereto and their respective personal representatives, heirs,
beneficiaries, successors and permitted assigns. HARVARD may assign its rights
or obligations under this AGREEMENT in its sole business discretion. CONSULTANT
may not assign its rights or obligations under this AGREEMENT without the prior
written consent of HARVARD.
18) COUNTERPARTS.
- ----------------------
This AGREEMENT may be executed in several counterparts, each of which
shall be deemed an original, but all of which shall only constitute one
instrument.
IN WITNESS WHEREOF, the PARTIES hereto have executed this AGREEMENT as
of the day and year first above written.
HARVARD SCIENTIFIC CORP. CONSULTANT
BY: /S/ THOMAS E. WAITE 6/16/98 BY: /S/ MEDHAT GORGY 6/18/98
THOMAS E. WAITE DATE MEDHAT GORGY DATE
PRESIDENT, CEO & CHAIRMAN
