<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) of the
--------------------------------------------------
SECURITIES ACT OF 1934
For The Quarterly period ended March 31, 1999
Commission File Number 0-28392
HARVARD SCIENTIFIC CORP.
d.b.a. VIBRAGEN, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0226455
------------------------------- -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1325 Airmotive Way, Suite 125, Reno Nevada 89502
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (775) 323-7122
Common Stock, Par Value $0.01 Per Share
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
X Yes No
- ---- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
6,403,737
---------
NUMBER OF COMMON STOCK SHARES OUTSTANDING
-----------------------------------------
on May 21, 1999
---------------
Traditional Small Business Disclosure Format (Check One):
X Yes No
- ----- -----
<PAGE>
HARVARD SCIENTIFIC CORP.
d.b.a. as Vibragen Inc.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,615 $ 13,430
Prepaid expenses - 37,173
Note & Interest Receivable - Directors (Note 7, 9 & 13) 4,943,742 4,850,058
Reserve for receivables (Note 7, 9 & 13) (4,943,742) (4,850,058)
Accounts Receivable - Employees (Note 7) - 12,997
Accounts Receivable - Other - 300
Product Inventory (Note 5) 18,000 18,000
------------ ------------
TOTAL CURRENT ASSETS 22,615 81,900
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
at cost, less accumulated depreciation of $31,981 at March 31,
1999, $39,767 at December 31, 1998 (Notes 2 & 3) 913 9,838
INTANGIBLE ASSETS:
Organizational cost, net of accumulated amortization of $175,550
at March 31, 1999 at December 31, 1998, respectively - -
OTHER ASSETS:
Deposits 300 1,510
------------ ------------
TOTAL ASSETS $ 23,828 $ 93,248
============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
d.b.a. as Vibragen Inc.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 355,035 $ 350,859
Accrued expenses (Note 6) 57,607 63,662
Obligation under capital lease - current (Note 3) 3,256 8,263
------------ ------------
Total Current Liabilities 415,898 422,784
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 100,000,000 shares
authorized; 6,003,712 and 5,988,746 shares issued
and outstanding at March 31, 1999 and December 31,
1998 (Note 2) 60,037 59,887
Preferred Stock, 10,000,000 shares authorized, none
issued and outstanding at March 31, 1999 (Note 2) - -
Additional paid-in capital 12,821,340 12,804,614
Deficit accumulated during the development stage (13,273,447) (13,194,037)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (392,070) (329,536)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,828 $ 93,248
============ =============
</TABLE>
The accompanying Notes are an integral part of these financial statements
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
d.b.a. Vibragen Inc.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended 1/13/87
--------------------------------- (Inception)
March 31, March 31, to
1999 1998 3/31/99
(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 66,559 588,297 6,607,014
Research and development 4,286 294,608 2,843,483
Depreciation and amortization 2,742 15,880 913,669
-------------- -------------- --------------
Total Operating Expenses 73,587 898,785 10,364,167
-------------- -------------- --------------
Loss from Operations (73,587) (898,785) (10,398,337)
-------------- -------------- --------------
Other Income (Expense):
Settlements (Note 9) - (785,983)
Foregiveness of Debt - 968,901
Interest Income (Note 9 & 13) 51 3,085 7,491
Dividend Income 9 4,628 62,972
Interest Expense (195,278) (2,085,909)
Loss on disposition of Assets (Note 4) (5,882) (11,580) (1,042,580)
-------------- -------------- --------------
Total Other Income and Expense (5,822) (199,145) (2,875,109)
-------------- -------------- --------------
Net Loss $ (79,409) $ (1,097,930) $ (13,273,446)
============== ============== ==============
Loss per Common Share $ (0.01) $ (0.24) $ (2.18)
============== ============== ==============
Weighted Average Shares Outstanding (Note 2) 6,001,904 4,529,318 6,075,719
============== ============== ==============
</TABLE>
The accompanying Notes are an integral part of these financial statements
<PAGE>
HARVARD SCIENTIFIC CORP.
d.b.a. Vibragen Inc.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
RESTATED DEFICIT
COMMON STOCK ADDITIONAL FROM
-------------------------------- PAID-IN INCEPTION
SHARES AMOUNT CAPITAL TO DATE TOTAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of shares for cash on
January 13, 1987 (inception) 103,000 $ 103 $ 2,097 $ - $ 2,200
Issuance of shares for cash,
net of offering costs 51,000 51 19,223 19,274
Issuance of shares for services 146,000 146 - 146
Issuance of shares to acquire
Grant City Corporation 50,000 50 39,827 39,877
-------------- -------------- -------------- -------------- --------------
BALANCE DECEMBER 31, 1993 350,000 350 61,147 - 61,497
Issuance of shares to effect a
four-for-one split 1,050,000 1,050 (1,050) -
Issuance of shares for
intellectual property rights 4,196,000 4,196 - 4,196
Issuance of shares for
corporation property rights 394,000 394 24,231 24,625
Issuance of shares for fees
and services 1,045,000 1,045 96,893 97,938
Issuance of shares for cash,
net of offering costs 393,500 393 353,757 354,150
Adjustment of shares to effect a
four-for-one reverse split (5,571,375) (5,571) 5,571 -
Cumulative (loss) from inception
to December 31, 1994 - - - (550,386) (550,386)
-------------- -------------- -------------- -------------- --------------
BALANCE DECEMBER 31, 1994 1,857,125 1,857 540,549 (550,386) (7,980)
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
HARVARD SCIENTIFIC CORP.
d.b.a. Vibragen Inc.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
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 15,886,000 15,886 537,100 552,986
Discount on 6% Convertible Debentures - - 1,250,000 1,250,000
Issuance of shares in conversion of debt 4,272,244 4,272 2,394,222 2,398,494
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
HARVARD SCIENTIFIC CORP.
d.b.a. Vibragen Inc.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO MARCH 31, 1999 (UNAUDITED)
<TABLE>
<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 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 year ended
December 31, 1997 - - - (5,816,241) (5,816,241)
-------------- -------------- -------------- -------------- --------------
BALANCE AT YEAR END DECEMBER 31, 1997 33,441,373 $ 33,441 $ 8,694,904 $ (9,482,027) $ (753,682)
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 fees and services 117,500 1,175 324,809 325,984
Issuance of shares for cash 1,058,000 10,580 3,163,418 3,173,998
Net reversal of Receivable due from related
parties reflecting the sale of stock
Rule 16(b) (17,197) (17,197)
Shares returned to Treasury - legal
settlement (270,200) (2,702) - (2,702)
Issuance of shares for legal settlement 55,390 554 59,799 60,354
Inventory contributed 18,000 18,000
Reserve for promissory note receivable - - (4,684,198) (4,684,198)
Net (loss) for the Year ended
December 31, 1998 - - - (3,712,010) (3,712,010)
-------------- -------------- -------------- -------------- --------------
BALANCE AT YEAR END DECEMBER 31, 1998 5,988,712 $ 59,887 $ 12,804,614 $ (13,194,037) $ (329,537)
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
HARVARD SCIENTIFIC CORP.
d.b.a. Vibragen Inc.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO MARCH 31, 1999 (UNAUDITED)
<TABLE>
<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 services 15,000 150 16,725 16,875
Net (loss) for the Quarter ending
March 31, 1999 - - - (79,409) (79,409)
-------------- -------------- -------------- -------------- --------------
BALANCE AT MARCH 31, 1999 6,003,712 $ 60,037 $ 12,921,340 $ (13,273,447) $ (392,070)
============== ============== ============== ============== ==============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
<TABLE>
HARVARD SCIENTIFIC CORP.
d.b.a. Vibragen Inc.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<CAPTION>
1/13/87
(Inception)
----------------------------- to
March 31, 1999 March 31, 1998 3/31/99
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
<S> <C> <C> <C>
Reconciliation of Net Loss to Net Cash
Used in Operating Activities:
Net Loss $ (79,409) $ (1,097,930) $(13,273,446)
------------- ------------- -------------
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 assets 5,882 5,882 14,879 1,018,081
Forgiveness of debt - - (968,901)
Depreciation and amortization 2,742 8,799 288,040
Amortization of Debt Issuance cost - 156,250 625,000
Issuance of stock for director's fees
and employment services 16,875 100 1,306,749
Issuance of stock for consulting & legal fees - - 283,181
Issuance of stock for Property Rights - - 2,000
Issuance of stock in legal settlement - - 856,208
Discount on Convertible Debentures - - 1,750,000
Interest Expense converted to stock - 11,917 98,795
(Increase) decrease in assets:
Prepaid expenses 37,173 - 37,173
Deposits/Retainers 1,210 15,568 (37,474)
Other Assets 13,297 - 0
Increase (decrease) in liabilities:
Accounts payable (830) 103,837 350,658
Accrued expenses (6,055) 39,711 48,991
Due to/from related parties - - 310,300
------------- ------------- -------------
Total Adjustments 70,294 351,061 5,975,284
------------- ------------- -------------
Net Cash Used in Operating Activities $ (9,115) $ (746,869) $ (7,298,162)
============= ============= =============
Cash Flows from Investing Activities:
Cash from sale (purchase) of equipment 300 - (77,814)
Cash from sale (purchase) of Intellectual Rights- - - (150,000)
Capitalized organization costs - - (150,924)
------------- ------------- -------------
Net Cash Used in Investing Activities 300 - (378,738)
------------- ------------- -------------
Cash Flows from Financing Activities:
Proceeds from issuance of capital stock,
net of offering costs - 615,803 4,545,945
Proceeds from debt converted to capital stock - - 250,000
Proceeds from debt - - 438,739
Proceeds from debentures, net of costs - - 4,375,000
Principal payments on debt - - (1,928,169)
------------- ------------- -------------
Net Cash Provided by Financing
Activities - 615,803 7,681,515
------------- ------------- -------------
Net Increase (Decrease) in Cash (8,815) (131,066) 4,615
Cash at beginning of period 13,430 873,199 -
------------- ------------- -------------
Cash at end of period $ 4,615 $ 742,133 $ 4,615
============= ============= =============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION
NATURE OF BUSINESS:
Harvard Scientific Corp., d.b.a. as Vibragen, Inc. (see Note 12 "Subsequent
Events") (the "Company") is a biopharmaceutical drug development company
specializing in sexual dysfunction for both male and female. The Company's
corporate objective is to utilize medically researched and developed drug
substances, determine the ability of these substances to be encapsulated in
liposomes and to determine the potential market for such products. The Company
intends to conduct 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's intention is to develop the following products designed
to ameliorate sexual dysfunction:
1. An Intraureathral therapeutic treatment for male erectile dysfunction
("Male Intraureathral 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"), and
4. An orally administered form of liposomal, lyophilized Apomorphine for
the treatment of male erectile dysfunction ("Male Oral Product")
The Company is a development stage enterprise as defined by FASB No. 7.
"Accounting and Reporting by Development Stage Enterprises".
The Company plans to focus on its LLPGE1 for the treatment of sexual dysfunction
and bring the products to the marketplace. 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 Intraureathral Product. Protocols for this Phase II
study are complete. Furthermore, the Company intends to file an IND
(Investigational new Drug) application with the FDA for Female Topical Product
for the treatment of female sexual dysfunction.
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 Intraureathral administration of an aqueous ("liquid") solution containing
two vasodilators, PGE1 and Papaverine.
ORGANIZATION:
The Company was incorporated under the laws of the State of Nevada on January
13, 1987. Effective February 2, 1998, the Company approved a 1 for 10 reverse
stock split. Shares outstanding went from 34,477,437 on February 1, 1998 to
3,447,769 just after the split. All figures in this Report give effect to
previous stock splits and the reverse stock splits, and previously stated number
of shares are appropriately restated. At March 31, 1999, the Company has
100,000,000 shares of Common Stock authorized with 6,273,937 shares issued,
6,003,737outstanding (270,200 shares returned to the Company's treasury), and as
of December 31, 1998, 5,988,737 shares were outstanding. In addition, on July 9,
1998, the shareholders of the Company authorized 10,000,000 shares of "blank
check" Preferred Stock; none are outstanding on March 31, 1999.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
In December 1998, one of the Directors died. On March 3, 1999, Gordon W. Cole
was elected to the Board of Directors. The Company's Board of Directors
currently consists of three members.
On January 18, 1999, Barbara L. Berry resigned her positions as Secretary and
Chief Accounting Officer of the Company. On March 4, 1999, Thomas E. Waite
resigned his positions as President, CEO and Chairman of the Board of Directors
of the Company. On March 4, 1999, Martin J. Holloran resigned his position as
Director of the Company. See Note 12, "Subsequent Events".
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATIONAL COSTS:
Organization costs were being amortized over a five-year period using the
straight-line method. At December 31, 1998, the Organizational Costs were fully
amortized. 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: 6,001,904 for the period ending March 31,
1999 and 5,363,250 for the Period ending December 31, 1998.
Fully dilutive earnings per share are not reflected because they are
anti-dilutive.
INCOME TAX:
Because of losses sustained since inception, no provision has been made for
income tax.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
NOTE 3 - EQUIPMENT & LEASEHOLD IMPROVEMENTS
Equipment and building improvements consists of the following:
March 31, 1999 December 31, 1998
(Unaudited) (Audited)
-------------- -----------------
Equipment & Leasehold Improvements $ 32,893 $ 45,299
Less: accumulated depreciation (31,981) 35,461
-------------- -----------------
Total Net Equipment & Leasehold
Improvements $ 912 $ 9,838
-------------- -----------------
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. See Note 12, "Subsequent Events".
During the fourth quarter of 1998 and the first quarter of 1999, the Company
closed three offices (Florida, Arizona and California) with all operations
maintained out of a Reno, Nevada office. The office equipment in these offices
was donated to charitable organizations. In December 1998, the Company wrote off
a total of $6,182 from fixed assets representing the net book value of the
office equipment donated to charitable organizations. See Note 9 "Contracts &
Agreements".
The Company has reduced its need for certain equipment and leasehold
improvements because the Company currently does not own manufacturing equipment
for its product, except a particle sizer for lipsomes (see Note 12, Subsequent
Events"). The products have 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 and
controlling 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.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
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.
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 $50,378 for research and development of the LLPGE1 product. During
1997, BTI chose to convert the accounts payable balance of $333,535 as a
contribution to additional-paid-in-capital.
On November 20, 1997, the Company agreed to exchange 200,000 shares of Common
Stock, which has been issued, to BTI for the Intellectual Property Rights to
Prostaglandin E1 Lyophilized Liposomes for the use of treatment of Psoriasis. In
addition, the Company is to pay BTI $150,000. BTI was to receive a 3% override
on royalties of the Psoriasis product. On June 11, 1998, BTI and the Company
agreed that BTI would transfer an irrevocable royalty-free license to all
intellectual property, intangibles, patents, trade secrets, trademarks, trade
names and goodwill relating to BTI that exists or is in development, relating to
male and/or female sexual dysfunction, for the return of the intellectual
property related to the Psoriasis product that BTI previously had transferred to
the Company and the granting to BTI registration rights (effective July 28,
1998) as to all shares of the Company's Common Stock held by BTI on July 20th,
1998. In addition, all royalty agreements with respect to products other than
sexual dysfunction have been terminated. In addition, the Company forgave the
indebtedness of BTI of $892,819. The debt forgiveness is treated as part of the
cost of the intellectual properties received from BTI. See Note 7.
In December 1998, the Company had a balance in Intellectual Properties of
$1,053,814, with accumulated depreciation of $53,196 for a net of $1,000,619. On
December 31, 1998, Intellectual Properties was written down to zero, the
determined market value at that time. The net asset balance of $1,000,619 was
written off to the P&L as a loss on assets until such time a value can be
determined for the Intellectual Properties.
NOTE 5 - INVENTORY
In September 1998, the Company received 30 grams of Prostaglandin PGE-1 with a
value of $600 a gram or $18,000, from Pharmacia-Upjohn for future use in
manufacturing clinical lots. The Company received this product, free of charge,
in good faith with the possibility of future business cooperation. The inventory
is located at Pyramid Laboratories in Costa Mesa, California.
NOTE 6 - ACCOUNTS PAYABLE & ACCRUED EXPENSES
At December 31, 1998, the accounts payable balance was $350,859. During the 1st
quarter 1999, it was determined that $116,070 of this amount was deemed forgiven
by the vendor and thereby no longer an obligation of the Company. During the 1st
quarter of 1999, $116,070 was written off to the profit & loss statement.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
Accrued expenses consist of the following:
March 31, 1999 December 31, 1998
(Unaudited) (Audited)
-------------- -----------------
Accrued payroll & payroll taxes $ 57,607 $ 63,662
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.
2. During 1997, the Company incurred a payable of $150,000 to BTI for the
Intellectual Property Rights to Prostaglandin E-1 Lyophilized Liposomes for
the use of treatment of Psoriasis. On June 11, 1998, BTI and the Company
agreed that BTI would transfer an irrevocable royalty-free license to all
its intellectual property relating to sexual dysfunction, for the return of
the intellectual property related to the Psoriasis and other non-sexual
dysfunction products that BTI previously had transferred. In addition, the
Company forgave BTI's indebtedness of $895,819, which was treated as part
of the basis of the intellectual properties. See Note 4.
3. During 1996, BTI advanced 20,000 of its shares on behalf of the Company as
a subordinated loan agreement. The shares were loaned and are expected to
be returned to BTI in 1998. At the time of the advance, the fair market
value of the shares transferred was $500,000. During 1997, the Company
advanced to BTI $500,000 in connection with this settlement. The $500,000
was part of the forgiven debt of $895,819 described above.
4. In 1997, BTI, a major stockholder of the Company, received $352,305 from
the sale of the Company's Common Stock that was subject to recapture by the
Company pursuant to Section 16(b) of the Securities Exchange Act of 1934.
In January 1998, BTI received $40,514 from the sale of the Company's Common
Stock that was subject recapture by the Company pursuant to Section 16(b)
of the Securities Exchange Act of 1934. In January 1998, $40,514 was booked
as a receivable from related parties to reflect the recapture. This amount
was also part of the forgiven debt of $895,819 described above.
5. During the year, BTI chose to convert the accounts payable balance of
$333,535 as a contribution to additional-paid-in-capital.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
6. BTI owned approximately 8% and 10% of the Company's shares on March 31,
1999 and December 31, 1998, respectively. Dr. Jackie See a Director of the
Company and a controlling person of BTI. Dr. Jackie See owned approximately
28% and 35% of the Common Stock of the Company on March 31, 1999 and
December 31, 1998, respectively, including the shares owned by BTI and
shares that Dr. See has the right to purchase (296,302 shares)(see Note 9).
7. In November 1997, the Company issued 400,000 shares of Common Stock to
Thomas E. Waite, the President and Chairman of the Board, as a signing
bonus. The transaction was recorded at par value. On March 4, 1999 Mr.
Waite resigned all his positions with the Company. See Note 10
"Contingencies".
8. The Company has entered into a financing agreement dated January 13, 1998,
as amended on February 3, 1998, between Dr. Jackie R. See, Thomas E. Waite
and the Company for the funding of the Company up to $10,000,000. Dr.
Jackie R. See is a Director of the Company. Thomas E. Waite was Chairman of
the Board, President and Chief Executive Officer of the Company. On
February 3, 1998, the Company issued 790,139 shares to each Dr. Jackie See,
M.D. and Thomas E. Waite in connection with this private placement. All
shares owned by Dr. Jackie See and Thomas E. Waite, have registration
rights. These registration rights have been exercised and upon the
registration statement becoming effective (July 28, 1998), the shares can
be sold in accordance with the Securities Act of 1933, subject to state
securities laws. On March 31, 1999, the Promissory Note balances of
4,684,197 plus accrued interest of $259,545 were due and payable. Neither
Dr. See nor Thomas E. Waite paid their respective Promissory Note balances
plus interest on March 31, 1999 and these notes and interest balances are
now in default. See Note 9 "Contracts & Agreements", Note 10
"Contingencies" and Note 11 "Subsequent Events".
9. The Company often pays for services, fees, and salaries by issuing shares
of Common Stock. Most of this stock issued for services must be held for
investment to satisfy the exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended. Rule 144 under the statute requires
that such stock be held for a year, before it can be sold in accordance
with rule 144.
During the first quarter 1999, the Company issued 15,000 shares of Common
Stock to an employee of Company, in accordance with her employment
agreement, and considered additional compensation fully earned in 1998. The
stock is restricted as defined in Rule 144 under the Securities Act of
1933. The employee is no longer with the company. The transaction was
valued at the low bid price on the day of the transfer, or $16,875.
NOTE 8 - INCOME TAXES
The Company has federal net operating loss carryforwards for financial
statement purposes of approximately $14,000,000 at March 31, 1999, which
will be used to offset future earnings of the Company. The loss
carryforwards will expire during the years ending 2002 through 2013 if not
used.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
NOTE 9 - CONTRACTS & AGREEMENTS
Certain contracts and agreements with the Company have been placed on hold until
financing arrangements have been made. These contracts include certain
employment contracts and other agreements between the Company and parties
expected to perform services for the Company.
1. A financing agreement dated January 13, 1998, as amended on February 3,
1998 was entered into between Dr. Jackie R. See, Thomas E. Waite and the
Company for the funding of the Company up to $10,000,000. The agreement as
so amended, calls for initial funding of $5,000,000 in exchange for
1,580,278 shares of Common Stock, with registration rights, calculated at
$3.164 per share (the average closing bid price per share of the Common
Stock for the 10 days ending January 12, 1998, and adjusted for the 1 for
10 reverse split effective February 2, 1998). This initial funding was
effected on February 3, 1998 by the delivery of a check for $7,901.39 and
Promissory Notes to March 31, 1999 in the principal amount of
$2,492,098.61, bearing interest at the rate of 1% above prime and secured
by the shares purchased from each of Dr. See and Mr. Waite. Dr. Jackie R.
See is a Director of the Company, and Mr. Thomas E. Waite was the
President, Chief Executive Officer and Chairman of the Board of the
Company. On March 4, 1999, Mr. Waite resigned all his positions with the
Company (see Note 10 "Contingencies"). 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 with registration rights effective
July 28, 1998. A fairness opinion has been obtained in connection with this
Financing Agreement from HD Brous & Co., Inc., a New York Stock Exchange
member firm located in Phoenix, Arizona.
The promissory began to accrue interest at 8% on the date the registration
statement (for these shares) became effective (July 28, 1998). During the
4th quarter of 1998, Mr. Waite made payments towards his note balance of
$300,000. Since, neither party has made additional payments towards their
notes.
On March 31, 1999, the Promissory Notes due from Dr. Jackie R. See and
Thomas E. Waite for a total of 4,764,308.76 were due and payable. Neither
Dr. See nor Thomas E. Waite paid their respective Promissory Note balances
plus accrued interest on March 31, 1999 and these notes and interest
balances are now in default. Due to the uncertainty of collection on these
notes plus accrued interest, the Company has reserved 100% of the
promissory note balances and accrued interest receivable due from Mr. Waite
and Dr. See as a contra asset account to the receivable. The interest
balance at March 31, 1999 (accrued from January 1999 to March 31, 1999) was
$93,684 and the balance at December 31, 1998 of $165,861 was written off
against interest income in the profit & loss statement in the respective
periods. At March 31, 1999, neither Mr. Waite nor Dr. See has been relieved
from their obligation to pay in full the note and interest balances due the
Company. See Note 7 ("Related Party Transactions), Note 910
("Contingencies") and Note 12 ("Subsequent Events").
2. 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. Effective July 1, 1998, the Company agreed to pay Goldstein
$7,000 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, 1999, the Company had
paid Goldstein $75,000 from the beginning, with a balance of $31,500 still
owing.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
3. The Company entered into a consulting agreement with Francis C. Pizzulli
effective June 1, 1998, whereby Mr. Pizzulli is to perform legal advice,
service and legal consulting and to retain legal counsel to serve as
counsel of record in litigation and arbitration matters to the Company, in
exchange for a fee of $10,000 per month plus 45,000 shares of the Company's
Common Stock as a signing bonus. The shares issued have registration rights
and have been included in the Registration Statement filed with the U.S.
Securities and Exchange Commission on July 20, 1998, which became effective
on July 28, 1998. At March 31, 1999, the Company owed Mr. Pizzulli $37,708.
4. On February 24, 1999, the Company changed transfer agents from Olde
Monmouth Stock Transfer Company back to Nevada Agency & Trust Company in
Reno, Nevada.
5. On July 20, 1998, the Company's filed a registration statement under the
Securities Act of 1933, registering 4,166,133 shares of its Common Stock,
and was declared effective on July 28th, 1998. The closing bid price of the
stock on that day was $6.62.
6. During the first quarter 1999, the Chief Financial Officer of the Company
has maintained the Company's operations out of his Reno, Nevada office.
Prior to that time, the Company had the following office lease commitments:
a In June 1998, the Company moved its research & development offices
from Irvine, California to Costa Mesa, California where they currently
occupy 930 square feet. Rent is $900 monthly beginning June 15, 1998
expiring June 14, 1999. During January 1999, the Company negotiated
out of this lease closing this office. All research and development
will be performed out of a designated laboratory still to be
determined.
b On July 20, 1998 the Company moved the administrative headquarters
from Reno, Nevada to Scottsdale, Arizona where the accounting
operations are maintained. They occupied 144 square feet and paid rent
of $610 monthly expiring August 31, 1999. During January 1999, the
Company negotiated out of this lease, moving all administrative
functions to the Reno, Nevada office.
c In December 1998, the Company closed its headquarters in Lake Mary,
Florida.
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) ERIC N. SAVAGE V. HARVARD SCIENTIFIC CORP., DR. JACKIE SEE, DOES I
THROUGH X, Case No. A381022 filed on November 10, 1997 in the District
Court, Clark County, Nevada. Eric N. Savage ("Savage"), a former
employee and officer of Harvard, alleges that pursuant to an oral
representation made in March 1994, that he was entitled to receive
150,000 shares (restated to reflect the current stock splits and
reverse stock splits), which were not authorized for issuance to him
until July 1994. Savage also alleges that the Company agreed to
backdate the issuance of the 150,000 shares to Savage to the date
March 17, 1994 employment contract, which contract made no mention of
any share compensation. Savage further alleges that the defendants
restricted and delayed him from selling shares causing him financial
losses in excess of $1,250,000.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
On April 2, 1998, the Company filed an answer to Savage's complaint
denying all liability. The Company denies any mention of the issuance
of shares to Savage in his employment contract.
Savage filed a motion for partial summary judgment on August 11, 1998
alleging that there are no material facts at issue. On September 21,
1998, the motion was denied. The matter has been scheduled for trial
on the May 9, 2000 trial calendar.
(b) INVESTORS CAPITAL ENTERPRISES, INC. V. HARVARD SCIENTIFIC CORP., AND
DOES 1--50, Case No: BC209049, filed April 20, 1999 in Superior
Court, Los Angeles County, State of California. Investor's Capital
Enterprises, Inc. alleges that it was due a fee of 87,500 shares
(post-split) of the Company's Common Stock in exchange for arranging
certain financing. The complaint alleges that it did arrange certain
financing through DJ Ltd. Investors Capital Enterprises claims that
such an investment qualifies for its commission agreement and that it
advised the Company in writing on July 1, 1996. The complaint alleges
that the market value of 87,500 shares on May 15, 1996 was $2,100,000.
The Company believes that there is no extant obligation and that the
complaint is without merit, and intends to vigorously defend against
it. The Company notes that litigation regarding the DJ Ltd. investment
was previously resolved, and that it has no record of receiving any
notice from Investors Capital Enterprises, Inc. since then. The
Company further notes that Investors Capital Enterprises, Inc. is
represented by the same law firm representing Eric Savage, who is
currently in litigation with the Company and who has threatened to
instigate additional litigation against the Company until his
settlement demands are met, which the Company views his current
demands as unreasonable (see above). The Company is considering its
rights and remedies against the appropriate parties who may be
attempting to tortuously interfere with the Company's business.
(c) On March 8, 1999, an action entitled THOMAS WAITE, PLAINTIFF, VS.
HARVARD SCIENTIFIC CORP., A NEVADA CORPORATION, AND DR. JACKIE R. SEE,
DEFENDANTS, was filed by Mr. Waite, former President, CEO and Chairman
of the Board. The case was filed in the Circuit Court of the 18th
Judicial District in and for Seminole County, Florida, Case No.
99-508-CA-15-K. The action alleges that Mr. Waite was fraudulently
induced to enter into the February 1998 financing agreement approved
by the stockholders in May of 1998. In addition, Mr. Waite seeks
rescission of such loan agreement in the amount of $2,492,098.61 and
repayment of $300,000 loaned under the agreement and consequent
cancellation of the transaction that resulted in 790,139 shares issued
to Waite in February 1998. On April 6, 1999, the Company and Dr. See
filed a notice of removal of the action to the United States District
Court, Middle District of Florida, Orlando Division, as Case No.
99-409-CIV-ORL-22B. The Company denies all allegations and plans to
vigorously defend itself against these untrue claims of fraud.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
Currently pending are Waite's motion to amend and the Company's motion
to dismiss or to transfer venue to the federal court in Reno, Nevada
where the Company's action against Waite is pending (see below). See
Notes 7 & 9.
(d) HARVARD SCIENTIFIC CORP. V. THOMAS E. WAITE, Case No.
CV-N-99-00245-ECR, was filed on April 30, 1999 in the United States
District Court for the District of Nevada, Reno. The complaint alleges
breach of contract and breach of fiduciary duty and unjust enrichment
claims in connection with former CEO, President and Director, Thomas
E. Waite's non-payment of a promissory note due to the Company on
March 31, 1999 in the amount of $2,492,098.61 (see Note 7 & 9). The
complaint also alleges a claim under section 16(b) of the Securities
Exchange Act of 1934, as amended, in connection with profits alleged
to be over $700,000 on sales of Company stock in 1997. The Company is
awaiting a response from Waite to the complaint, and to the motion to
transfer the action Waite has filed in the state of Florida to be
consolidated with this case filed in the federal court in Reno, Nevada
(see above).
(e) On November 3, 1995, BTI entered into an agreement with a European
marketer, Pharma Maehle ("Pharma"), whereby Pharma was to establish
the European market for the Company's erectile dysfunction product
(only the Intraureathral 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 in dispute.
On February 19, 1998, the Company renewed its previous notices of
termination and renoticed the termination of the licensing agreement
with Pharma. The Company demanded binding arbitration under Nevada law
of the existing disputes between the parties pursuant to the terms of
the licensing agreement. Pharma has retained Nevada counsel.
Arbitration is being pursued, and discovery has commenced.
The Company has obtained an order compelling production of various
documents by Pharma without objection after Pharma failed to timely
respond. The Company subsequently filed a motion to preclude Pharma
from producing certain categories of evidence at the arbitration on
the grounds that its response to the Arbitrator's order was
insufficient. In the meantime, Pharma's Nevada counsel has failed to
execute an arbitration agreement for the Arbitrator, despite multiple
requests therefor. The Company is considering seeking confirmation of
Pharma DE FACTO abandonment of its intent to have arbitration of a
proposed counterclaim for damages.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
The financial statements reflect the manner in which the Company has resolved
certain litigation:
(a) HARVARD SCIENTIFIC CORPORATION VS. DAVID E JORDAN, Case No.
98-2031-CA-16-P filed in the circuit court of the 18th Judicial
Circuit, in Seminole County, Florida, on or about October 1, 1998.
David E. Jordan ("Jordan") was a consultant to the Company. On May 15,
1997, the Board of Directors considered a resolution engaging Jordan
for his services. At that time the Company discussed a compensation of
$15,000 per month plus 100,000 shares (restated to reflect the 1 for
10 reverse split effective February 2, 1998) of the Company's Common
Stock. A Consulting Agreement was never consummated. Despite the fact
that no agreement was consummated, stock certificates evidencing
100,000 shares of the Company's Common Stock were issued and delivered
to Jordan on June 6, 1997. On or about June 17, 1997, the Company
cancelled the 100,000 shares issued and delivered to Jordan. In April
1997, prior to the issuance date of the 100,000 shares, Jordan
marketed and sold portions of these shares. Jordan also presented
himself as an agent of the Company in the sale of these shares when,
indeed, he had never received the authority to do so. The Company
claims an action for damages, injunctive relief and declaratory
judgement in excess of $15,000. On January 7, 1999, the lawsuit filed
by the Company was voluntarily dismissed by the Company without
prejudice, as a result of a venue dispute.
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 from other sources. Collectability is
uncertain on the Promissory Notes due from the former Officer/Director Mr. Waite
and Director Dr. See (see Notes 7, 9 & 10). If additional capital is not secured
within a reasonable time frame, there is considerable doubt about the Company's
ability to continue as a going concern.
NOTE 12 - SUBSEQUENT EVENTS
(a) On April 7, 1999, the Company secured a Financial Public Relations
Agreement with I.W. Miller Group, Inc. The agreement provides for
marketing and advertising of the Company to professionals, business
analysis of the Company, public relations and long-term financial
planning. In exchange for this, 1,000,000 shares of common stock, of
which 50% of the stock received is issued pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933
("Restricted"), have been issued to I.W. Miller Group, Inc.
<PAGE>
HARVARD SCIENTIFIC CORP.
(d.b.a. VIBRAGEN INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
BASED ON UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1999 AND AUDITED
FINANCIAL STATEMENTS AT DECEMBER 31, 1998
(b) On May 14, 1999, the Company agreed to resolve the Promissory Note
payable of $2,492,099 by Dr. See to the Company, plus accrued interest
of $135,592 through March 31, 1999, or $147,221 through may 14, 1999,
the date of this agreement, as follows:
(i) Dr. See will use his 790,139 shares issued in connection with the
Promissory Note transaction to the benefit of the Company whether
by contributing the proceeds from the sale of such shares or by
paying certain of the Company's obligations with such shares.
(ii) Dr. See agrees to use an additional 300,000 shares - i.e., the
entire balance of the shares owned by him - to the benefit of the
Company. Thus, all of Dr. See's 1,090,139 shares have been
obligated in this manner. To date, Dr. See has transferred
330,000 shares to pay a Company obligation as well as the
proceeds from the sale of another 100,000 shares.
(iii) Bio-Sphere Technology, Inc., in behalf of Dr. See, agrees to
grant the Company an exclusive license of its proprietary
invention and trade secrets regarding the use of liposomes
bearing prostaglandins for the treatment of psoriasis.
(iv) Dr. See waives arrearages in fees under his consulting agreement.
(c) On April 26, 1999, the Company announced it will be changing its name
to Vibragen, Inc. The Company intends to hold a shareholder meeting to
vote on the official name change. The Company previously announced it
will be holding a shareholders meeting on May 31, 1999. This date has
been changed and the new date of the meeting is still to be announced.
The Company has filed a "d.b.a." (doing business as) in Nevada and is
currently trading under the new ticker symbol of "VGEN".
(d) On April 29, 1999, Irwin Miller accepted the position of Chief
Executive Officer of the Company. The terms of Mr. Miller's employment
are still to be negotiated.
(e) In April 1999, the Company completed the required lease payments
on the lease of equipment used in the process of sizing Liposomes used
by the Company in the delivery of the Prostaglandin E-1, and now owns
the equipment free and clear. The total lease amount of $32,893 was
paid over 24 months. The Company recorded the lease as a capital lease
amortizing payments over the life of the lease. The lease has been
paid in full with a $1 buyout charge to acquire the equipment. The
Company now owns the equipment free and clear of any debts or liens.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION ANALYSIS AND PLAN OF OPERATION
The discussion contained in this Item 2 is "forward looking", as that term is
identified in, or contemplated by, Section 27A of the Securities Act and Section
21E of the Exchange Act. Accordingly, actual results may materially differ from
projections. Additional information concerning factors that could cause actual
results to differ materially is readily available in this section.
OVERVIEW:
- ---------
Harvard Scientific Corp. (d.b.a. Vibragen, Inc.) 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 focused on three of its four products, each
of which uses the Company's patented formula of lyophilized liposomal
Prostaglandin E1 ("LLPGE1"): (i) an intraurethrally administered treatment for
male erectile dysfunction ("Male Intraurethral Product"), and (ii) a topically
applied cream treatment for male sexual disorder ("Male Topical Product"), and
(iii) a topically applied treatment for female sexual arousal disorder ("FSAD")
in both a gel-base and an aqueous solution spray ("Female Topical Product").
The Company also has acquired the rights for an oral delivery treatment
whereby lyophilized liposomal delivery of Apomorphine will be developed to treat
male sexual disorder. A capsule which contains lyophilized liposomal Apomorphine
is taken orally by the patient. The capsule is designed to pass through the
stomach (acidic pH) without degradation or uptake of the drug and into the small
intestine (basic pH) whereby the capsule is dissolved and Apomorphine is then
gradually released from the liposome. The Company believes this will alleviate
the undesired side-effects of nausea and vomiting normally associated with
Apomorphine.
The Company plans to license each of these products to pharmaceutical
companies for marketing and worldwide distribution upon approval by the U.S.
Food and Drug Administration and/or other foreign regulatory agencies. The
Company is attempting discussions with several globally recognized
pharmaceutical companies regarding licensing of its LLPGE1 products for male and
female sexual disorder treatment. During the 3rd quarter of 1998, the Company
entered into Letter(s) of Intent ("LOI") with two such companies. These LOI's
did not work for the Company, however, the Company is optimistic that a
licensing agreement(s) and/or a Partner will commit to the Company before the
end of the second quarter 1999.
The Company believes that a sizable market already exits for both male and
female sexual disorder and that this market will continue to expand as effective
products are approved for treatment. The market for treating female sexual
arousal disorder ("FSAD") is relatively new when compared to the male sexual
disorder treatment market. In fact, certain world-renowned authorities and some
market analysts are suggesting that the market for FSAD will surely equal, if
not surpass, the market for male sexual disorder. Independent studies by 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 disorder. The Company believes that its Female Topical Product (in which
LLPGE1 is reconstituted into either a gel formulation or an aqueous solution
(liquid) spray and then applied topically to the female's vaginal area) will
provide a solution to this problem by enhancing blood flow within the clitoral
and vaginal tissue to stimulate nerve endings for increased sensitivity in the
female sex organs. The Company believes this should facilitate lubrication, thus
enabling greater satisfaction and possibly sexual orgasm for the female.
<PAGE>
The Company is moving forward as rapidly as possible with implementation of
its protocols for gaining U.S. regulatory approval. During September 1998,
toxicity studies were completed on female rabbits and the results showed no
toxicity and no redness or irritation at any dose or with the gel itself when
observed visually each day. Therefore, there was no gross (clinical) toxicity in
the LLPGE1 gel base used. The results also showed the virtual microscopic
absence of inflammation at the highest dose administered. In fact, microscopic
inflammation was significantly less at each escalating dose, including 1.5 mg,
than when the rabbits were only given placebo gel, suggesting that the
application process itself for 14 consecutive days caused very minor microscopic
but not clinically apparent inflammation which was reduced by the increased
blood flow into the area induced by the LLPGE1. Additionally, very minor
microscopic inflammation at the highest dose administered was reduced by the
increased blood flow into the area induced by the LLPGE1. The Company is
preparing to submit its application for an IND in connection with the Female
Topical Product to the U.S. Food and Drug Administration in 1999.
The Company's Male Topical Product is a local treatment and will be
administered directly to the end of the penis (glands) as a lotion or as a
liquid spray. It is very similar in composition to the Company's new treatment
product for FSAD and compliments the aqueous solution Male Intraurethral
Product.
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 disorder products. On August 27, 1998, the Company
submitted an Investigational New Drug Application ("IND") to the U.S. Food and
Drug Administration for Lyophilized Liposomal Prostaglandin E1, as an
intraurethrally delivered treatment for male sexual disorder. On August 28,
1998, the FDA assigned IND Number 56,840 to the Company. Simultaneous to
receiving the new IND, the Company withdrew IND Number 50,502. Dr. Goldstein
will conduct a Phase I pilot study for publication in parallel with the Phase II
clinical trials for treating male sexual disorder under an Investigational
Review Board ("IRB") at Boston University.
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 Intraurethral, 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.
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 1st quarter 1999, 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 will continue to be
implemented, however, the Company is currently selecting a new management team
to establish such goals. Since the resignation of the President, CEO and
Chairman of the Board, Thomas E. Waite, and the resignation of Director Martin
Holloran, on March 4, 1999, the Company is pleased to have hired Mr. Irwin
Miller as its new Chief Executive Officer. Mr. Miller brings more than 30 years
of extensive Wall Street experience and financial management experience of
publicly held corporations to the Company. He will use his successful track
record of highlighted senior level positions with firms such as Kayser Roth
Hosiery Company and Cowen & Company to help establish and implement goals for
the Company. He is currently in the process of establishing a new management
team for the Company. 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) financing agreements of independent investors brought in a total of
$1,373,999 to the Company was used toward working capital, (iv) 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, (v) a topically applied
treatment product (gel-base and liquid spray) is being developed for female
sexual arousal disorder, (vi) a topically applied treatment product is being
developed for male sexual disorder, (vii) the rights were acquired for an oral
delivery treatment method for both male and female sexual disorder whereby a
capsule of Apomorphine in lyophilized liposomal form will be taken orally by the
patient, (viii) toxicity studies and dynamic magnetic resonance imaging ("MRI")
studies have been completed by the Company for its female sexual arousal
disorder treatment product, (ix) through a settlement agreement, the company has
recaptured a net of 234,810 shares of its common stock (for return to treasury),
which were previously issued to past officers and directors of the Company, and
(x) a settlement agreement was reached with Springrange Investment Group, Ltd.
whereby the Company believes that its shareholders saved approximately
$1-million.
<PAGE>
Over the next 12 months, the Company's primary focus will be to
strategically implement a new management team and business plan as it pertains
to furthering the development of both male and female treatment products for
sexual disorders and to secure a globally recognized pharmaceutical company as a
licensing partner for its products or secure private placement financing for the
Company. The Company anticipates it will: 1) submit its IND for its FSAD product
to the FDA and commence clinical trials under this IND as allowed by the FDA, 2)
proceed with phase II/III clinical trials and product validation of its Male
Intraurethral Product to conform to the regulatory process of the FDA, 3)
petition the FDA for an IND for its Male Topical Product as soon as possible and
initiate clinical trials when the FDA approves the right to do so, 4) continue
development with the Male and Female Oral Products, 5) continue monitoring
patent applications, and 6) seek to identify other companies with similar
technologies or companies seeking new proprietary products in order to
strengthen their own existing market position and formulating strategic
alliances for joint venture arrangements, licensing and distribution agreements,
research and development agreements and other collaborative arrangements to
assist in the development, marketing 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 24 to 36 month time-line to obtain regulatory approval of the Male
Intraurethral Product 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 Female and
Male Topical Products, Male Intraurethral 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 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
over the next ninety days.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDING MARCH 31, 1999 AND MARCH 31,
- ------------------------------------------------------------------------------
1998
- ----
During both quarters ending March 31, 1999 and March 31, 1998, the Company
had no net sales, and, accordingly, had no cost of sales for those quarters.
During that time, the Company has remained focused on 1) completing the required
regulatory review process for its Male Intraurethral product, 2) introducing the
new male and the new female sexual dysfunction products, and 3) forming
alliances for securing a joint venture or licensing agreement. The Company
intends to focus on promotions of their products only after completing the
regulatory review process.
<PAGE>
During first quarter ending March 31, 1998, General & Administrative
expenses exceeded the period ending March 31, 1999 by $521,738. In 1998, the
Company was operating out of 3 offices with a management team of about 7
employees, none of which exists during the first quarter 1999. In addition,
legal fees were up about $211,000 during the first quarter 1998 vs. the first
quarter 1999.
Management does not anticipate that General and Administrative expenses
will escalate to the level it was in 1998. As the Company obtains additional
investment capital and expands its operations, management intends on hiring a
lean staff to continue its operations. Careful consideration will be given to
the necessity of opening another office. It is the Company's intention to
minimize General and Administrative expenses and to focus on applying monies to
the development of it's products. The Company also continues to incur legal
expenses in connection with litigation in which the Company is involved.
Research & Development costs for the first quarter ending 1998 exceeded the
first quarter 1999 by $290,332. During 1998, the Company was incurring large
research consulting fees and was in the middle of clinical trials for the Male
Intraurethral product. In addition, they were beginning tests for the FSAD
(female sexual arousal disorder) product. As a result of lack of financing, very
little activity in clinical trials and Research & Development has taken place
during the first quarter 1999.
Should the Company secure additional financing, it is expected the Company
will proceed with clinical trials on the Male sexual dysfunction products and
the female sexual arousal disorder products. Consequently, it can be assumed the
Company will experience a significant increase in R&D costs during 1999.
Dividend income and interest income have decreased significantly due to the
lack of funds earning interest and due to the write-off of the interest accrued
on the Financing Agreement Promissory Notes with Dr. See and Mr. Waite. There
was a decrease in Loss on Disposition of Assets of in the first quarter of
$5,698 in 1999 vs. 1998, a result of closing the Irvine, California office and
disposing of certain assets from downsizing the office to another location.
During the first quarter 1998, the Company entered into a financing
agreement with Jackie R. See, a director and a controlling stockholder of, and
consultant to, the Company, and Thomas E. Waite, former 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. Promissory Notes were 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. These notes plus accrued
interest are in default, and thereby the Company has reserved 100% of the
balance due as a result of the uncertainty of collectability. At March 31, 1999,
the Company reported total assets of $23,828. This compares with total assets at
March 31, 1998 of $6,868,118. The reasons for this decrease in assets is a
result of 1) a decrease in cash of $737,518, 2) a 100% decrease in prepaid
expenses of approximately $20,000, 3) a 100% decrease in Due from Related
Parties of $892,819, 4) the reserve established for the possible uncollectable
Promissory Notes plus accrued interest of $4,943,742 bringing the note
receivable balance to zero at March 31, 1999, 5) an increase in inventory of
$18,000, 6) the Company has depreciated it's Equipment and organizational costs
down by $63,521, and 7) intangible assets of $154,004 at March 31, 1998 have
been written down to zero at December 31, 1998 to reflect the current value
until such time a market value can be established.
The Company's total current liabilities for the period ending March 31,
1999 decreased by $6,223,068 over the total current liabilities at March 31
1998. The difference is primarily due to the elimination of the 6% Debentures,
which was resolved in a settlement agreement in September 1998, eliminating the
$2,550,000 principal balance.
The Company issued a total of 15,000 shares of common stock during the
first quarter 1999, as compared to 1,893,884 shares during the same period
ending 1998. This difference is mostly attributed to the Debentures converted
during January 1998 (103,606), securing two additional financing arrangements
(1,780,278), plus 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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
To complete the regulatory process for its products, the Company estimates
it will need as much as $12-million for the Female Topical Product, potentially
$10-million for the Male Topical Product and as much as $12-million for the Male
Intraurethral Product. For the next six months, expected costs to be incurred
for research & development is $1,983,000, which includes clinical trials on the
Male Intraurethral Product as well as the Male and Female Topical products. Up
to an additional $20-million 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 Intraurethral
Product.
The Company expects to obtain capital funds either from the issuance of
common stock or debt. Management is working extensively on obtaining financing
for the Company. It is expected that external sources will be available to
provide these funds, but there can be no guarantees of such funding. . If
additional capital is not secured, there is considerable doubt about the
Company's ability to continue as a going concern.
<PAGE>
PART II - OTHER INFORMATION
ITEM NO. 1. LEGAL PROCEEDINGS.
The Registrant has reported, herein, legal proceedings which have become a
reportable event during the first quarter of 1999 or a reportable event reported
in a prior filings in which there has been a material development during the
first quarter, as follows:
1. Legal Proceedings Reportable during First Quarter 1999:
1. INVESTORS CAPITAL ENTERPRISES, INC. V. HARVARD SCIENTIFIC CORP., AND
DOES 1--50, Case No: BC209049, filed April 20, 1999 in Superior Court, Los
Angeles County, State of California. Investors Capital Enterprises, Inc.
alleges that it was due a fee of 87,500 shares (post-split) of the
Company's Common Stock in exchange for arranging certain financing. The
complaint alleges that it did arrange certain financing through DJ Ltd.
Investors Capital Enterprises claims that such an investment qualifies for
its commission agreement and that it advised the Company in writing on July
1, 1996. The complaint alleges that the market value of 87,500 shares on
May 15, 1996 was $2,100,000. The Company believes that there is no extant
obligation and that the complaint is without merit, and intends to
vigorously defend against it. The Company notes that litigation regarding
the DJ Ltd. investment was resolved in 1997, and that it has no record of
receiving any notice from Investors Capital Enterprises, Inc. since then.
The Company further notes that Investors Capital Enterprises, Inc. is
represented by the same law firm representing Eric Savage, who is currently
in litigation with the Company and who has threatened to instigate
additional litigation against the Company until his settlement demands are
met, which the Company views his current demands as unreasonable (see
above). The Company is considering its rights and remedies against the
appropriate parties who may be attempting to tortuously interfere with the
Company's business.
2. On March 8, 1999, an action entitled THOMAS WAITE, PLAINTIFF, VS. HARVARD
SCIENTIFIC CORP., A NEVADA CORPORATION, AND DR. JACKIE R. SEE, DEFENDANTS,
was filed by Mr. Waite, former President, CEO and Chairman of the Board.
The case was filed in the Circuit Court of the 18th Judicial District in
and for Seminole County, Florida, Case No. 99-508-CA-15-K. The action
alleges that Mr. Waite was fraudulently induced to enter into the
February 1998 financing agreement approved by the stockholders in May of
1998. In addition, Mr. Waite seeks rescission of such loan agreement in the
amount of $2,492,098.61 and repayment of $300,000 loaned under the
agreement and consequent cancellation of the transaction that resulted in
790,139 shares issued to Waite in February 1998. On April 6, 1999, the
Company and Dr. See filed a notice of removal of the action to the United
States District Court, Middle District of Florida, Orlando Division, as
Case No. 99-409-CIV-ORL-22B. The Company denies all allegations and plans
to vigorously defend itself against these untrue claims of fraud.
Currently pending are Waite's motion to amend and the Company's motion to
dismiss or to transfer venue to the federal court in Reno, Nevada where the
Company's action against Waite is pending (see below).
3. Harvard Scientific Corp. v. Thomas E. Waite, Case No. CV-N-99-00245-ECR,
was filed on April 30, 1999 in the United States District Court for the
District of Nevada, Reno. The complaint alleges breach of contract and
breach of fiduciary duty and unjust enrichment claims in connection with
former CEO, President and Director, Thomas E. Waite's non-payment of a
promissory note due to the Company on March 31, 1999 in the amount of
$2,492,098.61 (see Note 7 & 9). The complaint also alleges a claim under
section 16(b) of the Securities Exchange Act of 1934, as amended, in
connection with profits alleged to be over $700,000 on sales of Company
stock in 1997. The Company is awaiting a response from Waite to the
complaint, and to the motion to transfer the action Waite has filed in the
state of Florida to be consolidated with this case filed in the federal
court in Reno, Nevada (see above).
<PAGE>
2. The following is Information on legal proceedings terminated and considered
a reportable event during this first quarter of 1999 filing or a reportable
event reported in a prior filings in which there has been a material
development during the third quarter:
(a) On November 3, 1995, BTI entered into an agreement with a European
marketer, Pharma Maehle ("Pharma"), whereby Pharma was to establish the
European market for the Company's erectile dysfunction product (only the
Intraureathral 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 in dispute.
On February 19, 1998, the Company renewed its previous notices of
termination and renoticed the termination of the licensing agreement with
Pharma. The Company demanded binding arbitration under Nevada law of the
existing disputes between the parties pursuant to the terms of the
licensing agreement. Pharma has retained Nevada counsel. Arbitration is
being pursued, and discovery has commenced.
The Company has obtained an order compelling production of various
documents by Pharma without objection after Pharma failed to timely
respond. The Company subsequently filed a motion to preclude Pharma from
producing certain categories of evidence at the arbitration on the grounds
that its response to the Arbitrator's order was insufficient. In the
meantime, Pharma's Nevada counsel has failed to execute an arbitration
agreement for the Arbitrator, despite multiple requests therefor. The
Company is considering seeking confirmation of Pharma DE FACTO abandonment
of its intent to have arbitration of a proposed counterclaim for damages.
(b) HARVARD SCIENTIFIC CORPORATION VS. DAVID E JORDAN, Case No.
98-2031-CA-16-P filed in the circuit court of the 18th Judicial Circuit, in
Seminole County, Florida, filed on or about October 1, 1998. David E.
Jordan ("Jordan") was a consultant to the Company. On May 15, 1997, the
Board of Directors considered a resolution engaging Jordan for his
services. At that time the Company discussed a compensation of $15,000 per
month plus 100,000 shares (restated to reflect the 1 for 10 reverse split
effective February 2, 1998) of the Company's Common Stock. A Consulting
Agreement was never consummated. Despite the fact that no agreement was
consummated, stock certificates evidencing 100,000 shares of the Company's
Common Stock were issued and delivered to Jordan on June 6, 1997. On or
about June 17, 1997, the Company cancelled the 100,000 shares issued and
delivered to Jordan. In April 1997, prior to the issuance date of the
100,000 shares, Jordan marketed and sold portions of these shares. Jordan
also presented himself as an agent of the Company in the sale of these
shares when, indeed, he had never received the authority to do so. The
Company claims an action for damages, injunctive relief and declaratory
judgement in excess of $15,000. On January 7, 1999, the lawsuit filed by
the Company was voluntarily dismissed by the Company without prejudice,
because of a venue dispute.
<PAGE>
ITEM NO. 2. CHANGES IN SECURITIES.
Any Changes regarding the securities of the Company are described in the
Company's Form 10-KSB filed April 14, 1999 with the Securities and Exchange
Commission. Such information is contained in the section captioned "Market for
Common Equity and Related Stockholder Matters" in Part II, Item 5 and such
description is incorporated herein by this reference.
ITEM NO. 3. DEFAULTS UPON SENIOR SECURITIES.
The Registrant hereby references the description of any Default upon Senior
Securities regarding the securities of the Registrant to the financial
information provided in Part I of this Form 10Q-SB. Reference should be made to
the disclosure provided in Part I in the "Notes to the Financial Statements",
Note 7 (8) "Related Party Transactions", Note 9 (1) "Contracts & Agreements",
Note 10 (c) & (d) "Contingencies", and Note 11"Uncertainty - Going Concern",
which all reference the Financing Agreement dated January 13, 1998 between
Director Dr. Jackie R. See and former CEO & President, Thomas E. Waite, which is
currently in default effective March 31, 1999.
ITEM NO 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters have been submitted to a vote of the security holders during the
period covered by this report through the solicitation of proxies or otherwise.
ITEM NO. 5. OTHER INFORMATION.
None.
ITEM NO. 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
(3) (i) Articles of Incorporation , including amendments to
April 30, 1996, incorporated by reference ***
Amendments to Articles of Incorporation June 18,
1996, July 9, 1996 and July 13, 1998. *
(ii) By-laws - incorporated by reference ***
(4) Instruments, defining the rights of holders, incl.
indentures *, **
(10) Material contracts:
(i) Securities Purchase Agreement dated March 21, 1997
between the Registrant and Springrange Investment
Group, Ltd. ****
(ii) Financing Agreement between Thomas E. Waite and Dr.
Jackie R. See and the Company- incorporated by
reference *****
(iii) Employment Contract between Thomas E. Waite and the
Company*
(iv) Consulting Agreement between Dr. Jackie R. See, M.D.
and the Company dated April 21, 1999 - Attached.
(27) Financial Data Schedule -Attached
* Incorporated by reference from the Registrant's Registration
Statement Form SB-2 filed July 20, 1998 with the U.S. Securities and
Exchange Commission, effective July 28, 1998. "CE"
** Incorporated by references from the Registrant's Proxy
Statement 14D filed with the U.S. Securities and Exchange Commission on
June 5, 1998, for the annual shareholder meeting held July 9, 1998.
"CE"
*** Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on April 30, 1996. "P"
**** 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. "CE"
***** Incorporated by reference to Form 8-K filed on January 26,
1998. "CD"
<PAGE>
2. Reports on Form 8-K.
The Registrant filed electronically the Forms 8-K listed below. Such
filings are incorporated herein by reference:
a. Date of 8K report - April 12, 1999, filed April 12, 1999 - Item
No. 6. - Effective March 4, 1999, Resignation of Registrant's
Director Martin J. Holloran, and Resignation of Registrant's
President, Chairman of the Board and Chief Executive Officer,
Thomas E. Waite.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 21, 1999
HARVARD SCIENTIFIC CORP
(Registrant)
Date: May 22,1999 By: /s/Gordon W. Cole
----------- --------------------------
Gordon W. Cole
Director
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