HARVARD SCIENTIFIC CORP, 10KSB, 1999-04-15

HARVARD SCIENTIFIC CORP
10KSB, 1999-04-15
MEDICINAL CHEMICALS & BOTANICAL PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934

For The fiscal year ended December 31, 1998
Commission File Number 0-28392

HARVARD SCIENTIFIC CORP.
----------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)

Nevada 88-0226455
------ ----------
(State or Other Jurisdiction of (I.R.S. 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: (702) 323-7122

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, Par Value $0.01 Per Share
(Title of Class)

Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

X Yes No
- ----- -----

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

State issuer's revenues for its most recent fiscal year. ORDINARY INCOME FROM
FORGIVENESS OF DEBT OF $968,901.

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of such common equity, as
of a specified date within 60 days prior to the date of filing.

Based on the average of the high and low bid and ask prices for the Registrant's
shares of common stock of $.50 on April 12, 1999, such market value is
calculated net of 1,792,389 affiliate shares which equals $2,105,674.

Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of the latest practicable date. As of April 12, 1999 there were
6,003,737 shares of Common Stock outstanding.

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PART I
ITEM 1. 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. Unless otherwise
indicated, the number of shares referred to in this filing, of which this filing
have been restated to reflect the stock split and reverse stock splits.

The Company is a development stage biopharmaceutical company whose
corporate objective is to utilize medically researched and developed drug
substances for sexual dysfunction, determine the ability of these substances to
be delivered effectively and 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. Approval is required from the U.S. Food and Drug
Administration ("FDA") or similar regulatory agencies in foreign countries. The
Company must obtain such approval in order to initiate marketing and establish
distribution channels for its products.

PRODUCTS:

Thus far, the Company is in various stages of development with four
products designed to ameliorate sexual dysfunction:

(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

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 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 Female Topical Products. Toxicity studies
will be repeated under GLP conditions on female animals before the Company
submits its phase II 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 two products, no further action will be taken in connection with
the development, submission to the FDA or market analysis of the Male Oral
Product. Because of the financial condition of the Company, no action currently
is being taken related to these submissions. The Company estimates that such
actions required prior to submissions will take three to six months once they
are commenced

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In each of the Company's products, a substance (Prostaglandin E1 ("PGE1")
in the case of the Male Intrameatal and Female Topical Product, and Apomorphine
in the case of the Male Oral Product) 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. 56840. Apomorphine is used in animal and human ingestion of
toxins and is being studied by others in male erectile dysfunction - A
lyophilized liposomal form of Apomorphine would pass, 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.

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 Female Topical Products, the agent is freeze
dried and encapsulated in liposomes or directly into lyophilized form and later
reconstituted to form an aqueous solution suspended in a cream base, a small
amount of which is administered locally to the female's external vaginal area.
In the case of the Male 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".

On February 17, 1998, The U.S. Patent Office approved and assigned patent
No. 5,718,917 to the Company based on patent application 08/573408. In June
1998, the Company filed an application for international Patents of 5,718,917 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.

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. 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."

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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.

LIQUIDITY:

Since inception, the Company has generated limited revenues and incurred
significant losses, including losses of $2,545,531, $5,816,241 and $2,438,944
for the fiscal years ended December 31, 1998, 1997 and 1996, respectively. The
Company received $968,907 in revenue as Ordinary Income in 1998, entirely as a
result of a forgiveness of debt. 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.

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.

The Company has incurred research and development costs of $1,035,638,
$1,374,675 and $109,553 for the years ended December 31, 1998, 1997 and 1996
respectively. These costs are directly associated with the development of the
Company's products to bring the products and patents to the stages they are at
currently. The costs incurred associated with such steps conformed to the
Company's planned budgets for years ending 1998, 1997 and 1996.

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 plans to concentrate its personnel and financing resources
exclusively for the five sexual dysfunction products when it receives adequate
funding. It has no immediate plans to add additional products to the Company's
commercialization and marketing efforts.

THE MARKET

THE MARKET FOR MALE SEXUAL DYSFUNCTION:

Male sexual dysfunction 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 sexual
dysfunction. The market for treatments for Male sexual dysfunction, such as
LLPGE1 products, is expected to grow over the next few years, as more men become
comfortable with the fact that sexual dysfunction 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 sexual dysfunction
is likely to increase with a man's age.

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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 sexual dysfunction, 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

COMPETITION FOR THE MALE SEXUAL DYSFUNCTION PRODUCTS:

The market for treatment of sexual dysfunction 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. Upjohn's
product has received regulatory approval worldwide, Schwarz-Pharma's product is
approved for use in the United States and Europe.

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. NexMed is currently undergoing a phase I clinical trial on Females with
PGE1 and a dermal enhancement agent which would compete directly with the
Company's female PGE1 product.

There are tablet formulations of the Male sexual dysfunction 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
sexual dysfunction 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.

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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 sexual dysfunction 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. Recent data has been
generated which suggests inefficiency. Many of the Male sexual dysfunction
products noted above are competitive, or potentially competitive, with the
Company's Male sexual dysfunction products, and may be adaptable as Female
sexual dysfunction products. It is the Company's belief that there are no other
companies with female sexual dysfunction 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.

PRODUCTION AND MANUFACTURING

GENERAL:

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
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.

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.

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.

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DEPENDENCE ON THIRD-PARTY RESEARCH:

The Company will need substantial financing 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.

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 plans to negotiate 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 believes that it will need 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, could
generate material revenues to the Company if and when they are available for
sale. If financing becomes available to the Company, it believes that the Male
and Female Topical Products would be its initial revenue producing 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.

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EMPLOYEES

The Company has no full time employees and does not anticipate having any
until the Company obtains financing.

The Company is dependent on the efforts and abilities of Jackie R. See,
M.D., its founder and a director. On January 12, 1999, the Chief Accounting
Officer, Barbara L. Berry resigned her position. On March 4, 1999, Thomas E.
Waite resigned as President, CEO and Chairman of the Board of the Company.

The Company needs to retain qualified personnel to conduct its business but
will be unable to do so until it obtains financing. If and when it obtains
financing, the Company will be in competition with other employers, many of
which have significantly greater resources than the Company, to obtain such
qualified personnel. There can be no assurance that the Company will be able to
hire or retain such other qualified personnel.

INSURANCE

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. The policy expired February 28, 1999. The Company has made no claim, and
it does not know of any claim made by any director or officer of the Company,
under this policy. Until the Company obtains financing, it will be unable to
renew this policy or obtain substitute coverage.

PRODUCT LIABILITY:

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 need financing to
be able to pay for such coverage. 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.

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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.

BUSINESS INTERRUPTION INSURANCE:

The Company does not currently maintain business interruption insurance
coverage. The Company is a development stage concern at this time. Upon
obtaining further financing, if it is able to do so, then it plans to rely on a
few key employees to direct and administer the activities of the Company. The
Company will continue to outsource most aspects of its operations, except
administration. Assuming the Company does obtain financing and can continue
operations, 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.

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.

<PAGE>

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
sexual dysfunction 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.

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.

Pending financing, the Company is not taking action to secure FDA or other
regulatory clearance. If and when financing is obtained, 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 if the Company obtains financing. 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. If the Company can obtain adequate financing,
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 th 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. Such inability to market 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.

<PAGE>

COLLABORATIVE ARRANGEMENTS

The Company has operated, and plans to continue to operate if it obtains
financing, as a "virtual company". It has relied and plans to continue to rely
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.

The Company intends to continue to seek and enter into collaborative
arrangements with pharmaceutical distribution concerns to eventually distribute
its products. Such collaborative arrangements might include financing of the
Company.

OTHER FINANCING ARRANGEMENTS

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, former
President, Chief Executive Officer and 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 have been registered by the Company under the
Securities Act of 1933 to facilitate their sale as required by the Financing
Agreement.

Under the Financing Agreement, Dr. See and Mr. Waite had 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 had been made by Dr. See and Mr. Waite, they would have
invested $10,000,000 to acquire 2,172,882 shares of Common Stock. 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.

<PAGE>

Neither Dr. See nor Mr. Waite paid their respective Promissory Notes when
due March 31, 1999, although on October 22, 1998 and on November 3, 1998,
Mr. Waite made payments of $175,000 and $125,000, respectively. These
payments were applied to principal, leaving a principal balance on his
Promissory Note of $2,192,099. Dr. See and the Company are negotiating a
resolution of his indebtedness in consideration for a portion of his shares
of Common Stock of the Company, support for the technology of the Company
and/or other benefits to the Company, but no agreement or understanding has
been reached related thereto. Mr. Waite has sued the Company claiming that
his Promissory Note was obtained in connection with misrepresentations made
to him when he joined the Company, and claims that he should have no
obligations to the Company on the Promissory Note. See Item 3. LEGAL
PROCEEDINGS. At December 31, 1998, the principal balance due on these two
promissory notes was $4,684,197. Due to the uncertainty of collectability on
these notes, at December 31, 1998, the full balance of principle and
interest was reserved as a contra asset account to the receivable balance
with the interest receivable balance of $165,861 written off against the
interest income account.

2. a. 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.

b.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.

c. 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.

d. 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.

e. Such shares were registered under the Securities Act of 1933 to
facilitate their sale, as provided in each of the four foregoing financing
agreements. Each such financing agreement also provided that a proportionate
number of additional shares would be issued if on the effective date of the
Registration Statement registering such shares. The Registration Statement
for such shares was effective July 28, 1998, when the closing bid price on
that day was $6.62. Thus no additional shares were issuable pursuant to any
such financing agreements.

<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

The Registrant had the following office lease commitments at December 31, 1998:

a The Registrant occupied 2,992 square feet in Lake Mary, Florida where
the corporate headquarters and general operations of the Company are
maintained. Rent of $4,268.58 is to be paid monthly beginning December
15, 1997 through December 31, 2000. During December 1998, the Company
negotiated out of their lease and closed its corporate headquarters in
Lake Mary, Florida. The Company's headquarters are currently operating
out of the Chief Financial Officers office located in Reno, Nevada until
additional space is located.

b In June 1998, the Company moved its research & development offices from
Irvine, California to Costa Mesa, California where they occupied 930
square feet. Monthly rent was $900 beginning June 15, 1998 expiring June
14, 1999. In January 1999, the Company negotiated out of their lease and
closed its research and development office in Costa Mesa, California.
All research and development is expected to be performed out of Pyramid
Laboratories in Costa Mesa, California.

c On July 20, 1998 the Company moved the administrative headquarters from
Reno, Nevada to Scottsdale, Arizona where the accounting operations are
maintained. They occupy 144 square feet and pay rent of $610 monthly
expiring August 31, 1999. In February 1999, the Company negotiated out
of their lease and closed its administrative office in Scottsdale,
Arizona. The Company's administration is currently being maintained out
of the Company's Chief Financial Officers' office in Reno, Nevada.

The Registrant does not own any real estate, nor is the Registrant engaged
in the business of investing in real estate or real estate mortgages.

ITEM 3. LEGAL PROCEEDINGS

CERTAIN LEGAL PROCEEDINGS RESOLVED:

(a) On December 3, 1997, the Company agreed to transfer 15,000 shares as payment
in full of an outstanding debt of $90,225 owed to Pyramid Laboratories, Inc.
("Pyramid") by the Company for work performed on the PaGE1 project. The
Company maintains a good relationship with Pyramid whereby Pyramid has
agreed to perform a six-month stability study for the LLPGE1 product.

(b) 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.

On September 18, 1998 settlement discussions were concluded and all parties
entered into a mutual settlement agreement whereby both parties were to pay
their own costs and attorney fees and take nothing further. Effective
February 24, 1999, Nevada Agency & Trust Company resumed services as the
Company's transfer agent.

<PAGE>

(c) COGDILL vs. HARVARD SCIENTIFIC CORP., DR. JACKIE R. SEE INDIVIDUALLY AND ON
BEHALF OF HARVARD SCIENTIFIC CORP., AND NEVADA AGENCY & TRUST COMPANY, Case
No. KC-025611, filed in the Superior Court for the State of California, in
the County of Los Angeles on June 2, 1997. Cletus Cogdill, ("Cogdill") a
shareholder of the Company alleges that he purchased the Company's Common
Stock on March 17, 1994. The certificate was issued on June 17, 1994 after
the closing of a subscription agreement, pursuant to Rule 144 under the
Securities Act of 1933 whereby such stock was to be held for two years
before it could be sold. On March 18, 1996, Cogdill completed form 144
listing his acquisition date as June 17, 1994 in an attempt to sell his
stock. On April 12, 1996, Cogdill completed a revised form 144 indicating
the shares had been acquired on March 17, 1994, meeting the two year holding
period as required by Rule 144. New certificates were approved and issued to
Cogdill but were apparently lost in the mail or lost by Cogdill's broker.
Two months later (June 10, 1996) Cogdill sold his stock and due to the
reduction in market share price during that two month period, he claims he
lost value of approximately $57,000. Cogdill alleged that the Company
committed acts of fraud, intentional misrepresentation and negligent
misrepresentation causing him financial losses.

The Company filed their answer to his complaint on August 4, 1997, denying
both generally and specifically, each and every allegation in the complaint.
On December 29, 1997 the Company filed a cross-complaint against Cogdill's
brokerage firm, Olde Discount, for indemnity. On September 24, 1998 the
parties entered into a mutual settlement agreement whereby the Company paid
to Cogdill $5,000 and the action was dismissed with prejudice.

(d) 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. Alexander H. Walker, Jr. ("Walker"), a
former officer, director and General Counsel 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 causing him damages in excess of $1,420,000. The Company
denies liability to Walker and initiated an action against Walker and Nevada
Agency & Trust, Co., in the District Court for the State of Nevada. (See (g)
and (h) below).

On September 18, 1998 the parties concluded settlement discussions and
entered into a mutual settlement agreement wherein Walker was to return all
outstanding share certificates to the Company (approximately 120,200 shares)
from which 16,000 shares (the same 16,000 shares referred to in (f) below)
would be re-issued to Walker with the remaining shares being returned to the
Company's Treasury. These shares were re-issued on October 14, 1998 and
valued at par value. A dismissal with prejudice was filed as required by the
Settlement Agreement.

(e) HARVARD SCIENTIFIC CORP. vs. ALEXANDER H. WALKER JR. AND NEVADA AGENCY &
TRUST, CO., Case No. CV98-01959 filed on March 23, 1998 in the Second
Judicial District Court of the State of Nevada in the County of Washoe. The
Company sought 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. In addition, the Company sought indemnity
from Walker for damages sustained as a result of having been forced to
negotiate settlements in other litigation's as a result of Walkers actions.
The Nevada Court stayed this action pending the outcome of the
jurisdictional issues raised in the Utah litigation between the parties.

On September 18, 1998 the parties concluded settlement discussions and
entered into a mutual settlement agreement. See settlement discussions at
(d) and (f)). These shares were re-issued on October 14, 1998 and valued at
par value. A dismissal with prejudice was filed as required by the
Settlement Agreement.

(f) 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 filed
on June 12, 1998 in the Third Judicial District Court in the State of Utah
in the County of Salt Lake. The action alleges that the Plaintiffs,
collectively, own approximately 270,200 shares (adjusted for the 1 for 10
reverse stock split on February 2, 1998). The Plaintiffs alleged that the
Company fraudulently issued stop transfer orders or placed other
prohibitions to keep the Plaintiffs from trading said shares. Plaintiffs
have requested damages of unspecified amounts for the defendant's wrongful
refusal to transfer the shares. On August 3, 1998 the Company filed a
response denying each and every material allegation in the complaint. 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.

On October 14, 1998, and as agreed to in the Settlement Agreement, the
Plaintiffs collectively returned 270,200 shares of Common Stock to treasury,
including 120,200 shares from Alexander Walker, 125,000 shares from Don
Steffens and 25,000 shares from Ian Hicks. In addition, upon the return of
those shares the Company agreed to re-issue 16,000 shares (the same 16,000
shares referred to in (d) above) to Walker, 15,890 shares to Steffens and
3,500 shares to Hicks (the same 15,890 shares and 3,500 shares referred to
in (g) below). These shares were re-issued on October 14, 1998 and valued at
par value. A dismissal with prejudice was filed as required by the
Settlement Agreement.

<PAGE>

(g) 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"), a former
officer and director of the Company, for the return of 125,000 shares of its
Common Stock issued to him in 1997 plus the return of $100,000 cash paid to
him on April 18, 1997. The shares were issued to Steffens in consideration
of his performance as an officer and director of the Company, and were
advanced in accordance with his employment contract, for the period
beginning May 1997 through May 2000. Steffens resigned his positions as
officer and director of the Company on November 14, 1997. Ian Hicks
("Hicks") was issued 25,000 shares of Common Stock in consideration of
promised faithful discharge of officer and director duties. Hicks resigned
in May 1997. During such times as they held their positions, both Steffens
and Hicks undertook various actions, which the Company believes, were in
breach of their fiduciary duty.

On September 18, 1998 the parties concluded settlement discussions and
entered into a mutual settlement agreement wherein Steffens and Hicks are to
return outstanding share certificates to the Company from which 15,890
shares of Common Stock would be re-issued to Steffens and 3,500 shares of
Common Stock would be re-issued to Hicks (the same 15,890 shares and 3,500
shares referred to in (f) above). The remaining shares returned to the
Company's Treasury. A dismissal with prejudice was filed as was required by
the Settlement Agreement. See (d), (e) and (f) above.

(h) 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. Springrange Investment Group
("Springrange") was the holder of 6% Convertible Debentures issued pursuant
to the Securities Purchase Agreement dated March 21, 1997. The Company
alleges that Springrange 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 damages
arising from Springrange's breach of contract and misrepresentations. On
January 28, 1998, the investor of the 6% Convertible Debenture gave notice
to the Company to convert into Common Stock $250,000 of principal plus
interest calculated at $12,863. The conversion calculated at 80% of the
market price, called for the transfer of 525,726 shares of Common Stock to
the investor. On January 29, 1998, the investor again gave notice to the
Company to convert into Common Stock $250,000 of principal plus interest
calculated at $12,904. The conversion called for the transfer of 486,859
shares of Common Stock to the investor. The Company has not honored the
above requests.

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 Note 6 and 8). 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.

On August 17, 1998 the parties entered into a mutual Settlement Agreement
and Release whereby the Company agreed to transfer $1,800,000 to Springrange
in exchange for full and final settlement of all claims asserted in all the
legal actions against the Company, its Board of Directors and management by
Springrange. The Company agreed to issue 600,000 shares to a third party
purchaser in exchange for $1,800,000. The Terms of the agreement were
subject to a ruling by the presiding judicial authority as to their
fairness. On September 23, 1998 a fairness hearing was held in the New York
action approving the terms of the settlement agreement and the exemption of
the 600,000 shares from registration. The Company issued 600,000 shares of
its Common Stock to a third party, who purchased them for $1,800,000, which,
in turn, was paid to Springrange for full and final settlement of all
claims.

The shares were issued pursuant to the court order in this action and the
exchange of stipulations dismissing with prejudice the Nevada action (see
(k) below) and the New York action. Also see Note 9.

<PAGE>

(i) 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 filed on March 17, 1998 in the Eighth Judicial
Court for the State of Nevada and the County of Clark. 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, transferred the
litigation to Washoe County, imposed a sanction award against Springrange in
the amount of $11,095.76; and continued any determination with regard to
Springrange's motion for preliminary injunction.

The shares were issued pursuant to the court order in this action and the
exchange of stipulations dismissing with prejudice the Nevada action and the
New York action (see (j) above). Also see Note 11.

LEGAL PROCEEDINGS UNRESOLVED:

(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.

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) 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 currently in dispute.

<PAGE>

On February 19, 1998, the Company renewed it's previous notices of
termination and renoticed the termination of the licensing agreement with
Pharma. 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.

(c) 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. See Note 13,
"Subsequent Events".

(d) THOMAS WAITE, PLAINTIFF, VS. HARVARD SCIENTIFIC CORP., A NEVADA CORPORATION,
AND DR. JACKIE R. SEE, DEFENDANTS, Case No. 99-508-CA-15-K, filed in the
Circuit Court of the 18th Judicial District in and for Seminole County,
Florida, filed on March 8, 1999 by Mr. Waite, former President, CEO and
Chairman of the Board. 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 and repayment of $300,000 loaned under the agreement. 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation of
proxies or otherwise.

<PAGE>

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Common Stock of the Company began trading on the system of the National
Association of Securities Dealers, Inc. (NASD) known as the OTC Electronic
Bulletin Board under the symbol "HVSF" in June 1995.

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. On April 12, 1999, there were 6,003,737 shares of
the Company's Common Stock, and no shares of the Company's Preferred Stock,
outstanding.

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
---------------------------------------------------
March 31, 1999 $1.56 $.63
December 31, 1998 $4.78 $.94
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

On March 31st, 1999, 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 $.625, $.625 and $.625 respectively.

The approximate number of record holders of the Registrant's capital stock
as of March 31, 1999 was 207. Effective through February 23, 1999, the transfer
agent and registrar for the Common Stock was Olde Monmouth Stock Transfer Co.,
Atlantic Highlands, New Jersey. Effective February 24, 1999, the Company changed
transfer agents to Nevada Agency and Trust & Co., Reno, Nevada.

DIVIDENDS:

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.

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.

<PAGE>

If any series of Preferred Stock authorized by the Board provides for
dividends, such dividends, when and as declared by the Board of Directors out of
any funds legally available 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.

RECENT SALES OF UNREGISTERED SECURITIES:

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

<PAGE>

7. 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. 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.

8. 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 was
$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.

9. 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.

No. of
Purchaser 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. Crenshaw M.D. 10,000
Jackie R. See * 35,000
---------------
127,000
===============

Such shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933.

* - The 35,000 shares issued to Jackie R. See have demand registration
rights under the Securities Act of 1933. These rights were exercised in a
Registration Statement filed July 20, 1998, declared effective July 28,
1998.

** - On October 14, 1998, in litigation settlement with the Company (SEE
ITEM 3 "LEGAL PROCEEDINGS"), these shares were returned to the Company's
treasury.

10. 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."

11. 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:

<PAGE>

No. of
Purchaser Shares
--------- ------

David E. Jordan 16,680
Robert E. Jordan 200
Michael H. Jordan 200
A.L. Molesworth, Inc. 2,500
Lenora Todaro 200
Anita Grossfield 200
Lisa R. Gerren 20

12. 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.

13. On June 10, 1997, the Company issued 597,200 shares, as follows:

No. of
Purchaser Shares
--------- ------

Anita Wassgren See Trust 100,000
Jackie R. See * 300,000
Don A. Steffens ** 100,000
Alexander H. Walker, Jr. ** 87,200
Joseph L. Williams, M.D. 10,000

* - The 300,000 shares issued Jackie R. See have demand registration rights
under the Securities Act of 1933. These rights were exercised in a
Registration Statement filed July 20, 1998, declared effective July 28,
1998.

** - On October 14, 1998, in a litigation settlement with the Company (SEE
ITEM 3 "LEGAL PROCEEDINGS"), these shares were returned to the Company's
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.

14. On June 12, 1997, the Company issued 45,000 shares to Ailouros Ltd. in
settlement of a litigation settlement. Such shares were issued pursuant to
the exemption from registration under Section 4(2) of the Securities Act of
1933.

15. On September 23, 1997, the Company issued 16,900 shares, as a reimbursement
of legal fees and services, as follows:

No. of
Purchaser Shares
--------- ------

Ronald E. Patterson 11,000
Martin Bennett 200
Mark Bradley 200
Max Carter 2,500
David Miller 3,000

<PAGE>

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.

16. On October 20,1997, the Company issued 20,000 shares to Neil Armstrong in
settlement of litigation with the Company. Such shares were issued pursuant
to the exemption from registration under Section 4(2) of the Securities Act
of 1933.

17. 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.
These rights were exercised in a Registration Statement filed July 20,
1998, declared effective on July 28, 1998.

18. On November 25, 1997, the Company issued 370,000 shares for services or
signing bonuses or intellectual property rights, as follows:

No. of
Purchaser Shares
--------- ------

Biosphere Technology, Inc. (1) 200,000
Kostech Data Corporation (2) 10,000
Curtis A Orgill (3) 50,000
Ronald E. Patterson (2) 25,000
Michael Snell (4) 25,000
Martin E. Janis (2) 50,000
Lorenz M. Hoffman Ph.D. (2) 10,000

(1) Shares issued for the transfer of intellectual property rights.
(2) Shares issued in exchange for services performed.
(3) Shares issued to induce the employee to work for the Company and to provide
an incentive for his successful performance as Treasurer and Chief
Financial Officer.
(4) Shares issued to induce the employee to work for the Company and to provide
an incentive for his successful performance as Director of Public
Relations.

Such shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, in view of the sophistication
of the issuees. On December 10, 1997, the 25,000 shares issued to Ronald E.
Patterson were cancelled and returned to treasury for failure of
consideration. The balance of the shares shown above were cancelled without
proper corporate authority and reissued to correct such improper
cancellation at a later date.

19. 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.

20. On January 22, 1998, the Company reissued 10,000 shares to Kostech Data
Corporation. See Item 23 above.

21. On January 26, 1998, the Company issued or reissued a total of 625,000
shares to the following:

<PAGE>

No. of
Purchaser Ref. 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-Berry (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. These shares were included in a
Registration Statement filed July 20, 1998 and became registered
effective on July 28, 1998.
(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 Accounting Officer.

*- These shares have demand registration rights under the Securities Act of
1933. These rights were exercised in a Registration Statement filed July
20, 1998, declared effective on July 28, 1998.

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.

22. 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. These shares have demand registration rights under the
Securities Act of 1933. These rights were exercised in a Registration
Statement filed July 20, 1998, declared effective on July 28, 1998. 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.

23. 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.

24. 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. These rights were exercised in a
Registration Statement filed July 20, 1998 and declared effective on July
28, 1998.

<PAGE>

25. 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.

26. 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. These rights were exercised in a Registration Statement filed
July 20, 1998 and declared effective on July 28, 1998. 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 5,000 shares issued to Mr. Gorgy were issued
pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933.

27. 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. These rights were exercised in a
Registration Statement filed July 20, 1998 and declared effective on July
28, 1998.

28. 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. These
rights were exercised in a Registration Statement filed July 20, 1998 and
declared effective on July 28, 1998.

29. 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. These rights were
exercised in a Registration Statement filed July 20, 1998 and declared
effective on July 28, 1998.

30. 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. These rights were exercised in a
Registration Statement filed July 20, 1998 and declared effective on July
28, 1998.

31. 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.

32. On October 14, 1998, the Company issued the following shares in
implementation of a litigation settlement with the Company (SEE ITEM 3
"LEGAL PROCEEDINGS"):

Issuee No. of Shares
------ -------------

Alexander Walker, Jr. 16,000
Don Steffens 15,890
Ian Hicks 3,500
----------------
35,390
================

Such shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933.

33. On December 15, 1998, the Company issued 10,000 shares of Common Stock to
an employee of the Company, Kathleen Stateler, to provide an incentive for
her successful performance as the Company's Paralegal. Such shares were
issued pursuant to the exemption from registration under Section 4(2) of
the Securities Act of 1933.

<PAGE>

34. On January 15, 1999, the Company issued 15,000 shares of Common Stock to a
former employee of the Company, Marlene Feldstein, to provide an incentive
for her successful performance as the Company's bookkeeper and secretary.
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.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION

The discussion contained in this Item 6 is "forward looking", as that
term is identified in, or contemplated by, Section 27A of the Securities Act and
Section 21E of the Exchange Act. Accordingly, actual results may materially
differ from projections. Additional information concerning factors that could
cause actual results to differ materially is readily available in this section.

OVERVIEW:
- ---------

Harvard Scientific Corp. is a biopharmaceutical drug development
company. The Company's corporate objective is to utilize medically researched
and developed drug substances, determine the ability of these substances to be
encapsulated in liposomes and to determine the potential market for such
products. The Company intends to conduct and conclude, either on its own or with
the assistance of an industry partner, all clinical testing necessary for
regulatory approval of 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 currently in 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 committ to the Company.

<PAGE>

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.

The Company is moving forward as rapidly as possible with
implementation of its protocols for gaining U.S. regulatory approval. During
September, 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 early 1999.

The Company's Male Topical Product is a local treatment and will be
administered directly to the end of the penis (glans) 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 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.

<PAGE>

The Company believes that its strategic plan, which was launched by a
new management team in November 1997, will continue to be implemented, however,
the Company's management team will be reestablished. 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, it is expected that
the Company will need to establish a new management team. Additional employees
may be added to this new team during the next six months depending on financing
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) a financing agreement to potentially provide funds of up to $10,000,000
was signed between the Company and its two largest stockholders, Thomas E.
Waite, former 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, (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, (vi) a topically applied treatment product
(gel-base and liquid spray) is being developed for female sexual arousal
disorder, (vii) a topically applied treatment product is being developed for
male sexual disorder, (viii) the rights were acquired for an oral delivery
treatment method for the male sexual disorder whereby a capsule of Apomorphine
in lyophilized liposomal form will be taken orally by the patient, (ix) toxicity
studies and dynamic magnetic resonance imaging ("MRI") studies have been
completed by the Company for its female sexual arousal disorder treatment
product, (x) through a settlement agreement, the company will recapture a net of
234,810 shares of its common stock (for return to treasury), which were
previously issued to past officers and directors Walker, Steffens and Hicks, and
(xi) a settlement agreement was reached with Springrange Investment Group, Ltd.
whereby the Company believes that its shareholders saved approximately
$1-million.

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 licensing partner or other forms of financing
for its products. The Company anticipates it will: 1) submit its IND for its
FSAD product to the FDA in October 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 Oral Product, 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 or any other form of financing 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. However, until
financing is obtained, the Company is not pursuing regulatory clearance with the
FDA or any other regulatory clearance. Without the benefit of an industry
partner, the Company believes a 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.

<PAGE>

The Company does not expect to purchase or sell any significant equipment over
the next ninety days.

Results of Operations:
- ----------------------

FOR THE YEAR ENDED DECEMBER 31, 1998

During the period ending December 31, 1998, the Company had no net
sales, and, accordingly, had no cost of sales. 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.

During September 1998, the Company settled a lawsuit with Springrange
Investment Group and was able to book as ordinary income, a forgiveness of debt
amount of $968,901. For the twelve months ending December 31, 1998, General and
Administrative Expenses decreased slightly by approximately $91,000 over 1997, a
direct result of identifying a core management team in November 1997 and
strategically eliminating unnecessary costs. Research and Development decreased
by approximately $340,000 as a result of securing key manufactures in the
industry. Depreciation and Amortization decreased by approximately $240,000 in
1998 over 1997 as a result of the debenture issuance cost which became fully
depreciated in March 1998. Overall, the Total Operating Expenses resulted in a
decrease of approximately $670,000 in 1998 over 1997; a positive affect of the
cost-saving measures implemented beginning November 1997.

As discussed above, dividend income and interest expense were greater
in 1997 by $39,943 and $1,362,045, respectively, a direct result of the 6%
Convertible Debenture. The Debentures are convertible into shares of common
stock at the lesser of the market price on March 21, 1997 or 80% of the market
price on the conversion date. At the time of issuance (March 1997), the Company
accounted for the 20% discount to market of $1,250,000 as additional interest
expense and paid-in-capital. The balance of the deferred issuance cost on the 6%
Debenture of $156,250 was amortized within the first quarter of 1998.

On February 3, 1998 (as amended), 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, 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 which was 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. At December 31, 1998, the
Company reported total assets of $93,248. This compares with total assets at
December 31, 1997 of $2,227,677. The primary reason for this decrease in assets
is a result of a decrease in cash, a decrease in the Intellectual Properties of
which $156,848 was written down to zero, and a decrease in Due form Related
Parties and Deferred Debt Issue Cost. The Deferred debt Issue Cost was fully
amortized by March 1998. Total interest accrued in 1998 on these two Promissory
Notes totaled $165,861. However, the Company has reserved 100% of this accrued
interest receivable and the Promissory Note balances, reducing the asset balance
accordingly. The Company was unable to determine the collectability of
collectability of these notes. (See Item 7. FINANCIAL STATEMENTS).

The Company's total current liabilities for the year ending December
31, 1998 decreased by $2,134,429 over the total current liabilities at December
31, 1997. The difference is primarily due to a settlement agreement resolved in
September 1998, eliminating the $2,800,000 principal balance of the 6%
Convertible Debentures (see Part I, Notes to the Financial Statements).

The Company issued a total of 3,577,057 shares of common stock during
the twelve months ending December 31, 1998, mostly attributed to the Debentures
converted during January 1998 (1,036,064), securing four additional financing
arrangements (2,638,278), shares issued to new directors (10,000), shares issued
for services and fees (107,500) shares issued in legal settlements (55,390).
270,200 shares were returned to the Company's treasury as a result of a legal
settlement. 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>

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 Intraurethral 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.

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.

<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, former 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 payments of $7,901.39 and gave a promissory note of
$2,492,098.61 due March 31, 1999. These notes are currently in default, and (2)
O. Lee Tawes III, a person otherwise not affiliated with the Company, purchased
200,000 shares of the Company's Common Stock for $600,000, with the right to
receive additional shares of Common Stock of the Company if the price per share
is below $6.00 when the shares are registered with the U.S. Securities and
Exchange Commission. (The Company's Registration Statement filed on July 20,
1998 became effective on July 28, 1998, and the closing bid price on that day
was $6.62 per share). During the second quarter of 1998, two additional
investors, under the same terms as Mr. Tawes, purchased shares of Common Stock
of the Company: 1) Ronald E. Patterson purchased 83,333 shares for $249,999,
also with the right to receive additional shares of Common Stock of the Company
if the price per share is below $6.00, and 2) RK Company purchased 150,000
shares for $450,000, with the right to receive additional shares of Common Stock
of the Company if the price per share is below $6.00. Total monies raised in the
second quarter of 1998 were $699,999. During the third quarter of 1998, three
additional investments were made, under the same terms as described above,
whereby they purchased shares of Common Stock of the Company for cash: 1) RK
Company purchased 16,667 shares for $50,000, 2) Elisabeth and Samuel Valenzisi
purchased 8,000 shares for $24,000, and 3) O. Lee Tawes purchased 600,000 shares
for $1,800,000, in lieu of a litigation settlement (see Part I, Notes to the
Financial Statements, Note #10 (j) and (k), and Note 11. Total monies raised in
the Third quarter of 1998 were $1,874,000. During the fourth quarter of 1998,
Thomas E. Waite put $300,000 into the Company reducing his promissory note by
the same.

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. It is expected that external sources will be available to
provide these funds, but there can be no guarantees of such funding.

<PAGE>

ITEM 7. FINANCIAL STATEMENTS
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE CORP.)
DECEMBER 31, 1998

F-1

<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, 1998 and 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 year ended December 31, 1996 was 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, 1998 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.
[next sentence will need to be changed] The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

Reno, Nevada
April 14, 1999

RONALD D. SIMPKINS
CERTIFIED PUBLIC ACCOUNTANT

F-2

<PAGE>

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, 1998 and December 31, 1997, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended, and have issued my opinion thereon dated April 14, 1999. Such
financial statements and opinion are included in your 1998 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.

Reno, Nevada
April 14, 1999

F-3

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
(AUDITED) (AUDITED) (AUDITED)
-------------- -------------- --------------

<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,430 $ 873,199 $ -
Prepaid expenses 37,173 35,382 1,565
Note & Interest Receivable - Directors (Note 7, 9 & 13) 4,850,058 57,711 -
Reserve for receivables (Note 7, 9 & 13) (4,850,058) - -
Accounts Receivable - Employees (Note 7) 12,997 - -
Accounts Receivable - Other 300 - -
Due From Related Parties (Note 7) - 852,305 -
Deferred debt issue costs (Note 11) - 156,250 -
Product Inventory (Note 5) 18,000 - -
-------------- -------------- --------------

TOTAL CURRENT ASSETS 81,900 1,974,847 1,565
-------------- -------------- --------------

EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
at cost, less accumulated depreciation of $39,767 at December 31,
1998, $11,930 at December 31, 1997 and $3,491 at December 31,
1996, (Notes 2 & 3) 9,838 50,704 5,925
-------------- -------------- --------------

INTANGIBLE ASSETS:
Intellectual Property, net of accumulated amortization of $4,147 at
December 31, 1997 and $1,048 at December 31, 1996,
respectively (Note 4) - 156,848 7,948
Organizational cost, net of accumulated amortization of
$175,550 at December 31, 1998, $140,686 at December 31, 1997
and $105,760 at December 31, 1996, respectively - 34,864 69,789
-------------- -------------- --------------

- 191,712 77,737
-------------- -------------- --------------

OTHER ASSETS:
Deposits 1,510 10,414 300
-------------- -------------- --------------

TOTAL ASSETS $ 93,248 $ 2,227,677 $ 85,527
============== ============== ==============
</TABLE>

The accompanying Notes are an integral part of these financial statements

F-4

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEET (CONTINUED)

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
(AUDITED) (AUDITED) (AUDITED)
-------------- -------------- --------------

<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 350,859 $ 26,370 $ 36,625
Accrued expenses (Note 6) 63,662 131,694 20,329
Obligation under capital lease - current (Note 3) 8,263 16,979
Debentures payable - Convertible (Note 11) 2,800,000
Note payable - Convertible (Note 6) - 250,000
Due to related parties - 190,860
Note payable to related parties (Notes 6 & 7) - 37,275
Bank overdraft - - 134
-------------- -------------- --------------
TOTAL CURRENT LIABILITIES 422,784 2,975,043 535,223
-------------- -------------- --------------
LONG-TERM LIABILITIES:
Obligation under capital lease - non-current (Note 3) - 6,317 -
-------------- -------------- --------------

STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 100,000,000 shares
authorized; 5,988,746, 3,344,137 and 9,883,129 shares
issued and outstanding at December 31, 1998,
December 31, 1997, and December 31, 1996 (Note 2) 59,887 33,441 9,883
Preferred Stock, 10,000,000 shares authorized, none
issued and outstanding at December 31, 1998 (Note 2) -
Additional paid-in capital 12,804,614 8,694,904 3,206,207
Deficit accumulated during the development stage (13,194,037) (9,482,028) (3,665,786)
-------------- -------------- --------------
TOTAL STOCKHOLDERS' EQUITY (329,536) (753,683) (449,696)
-------------- -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 93,248 $ 2,227,677 $ 85,527
============== ============== ==============
</TABLE>

The accompanying Notes are an integral part of these financial statements

F-5

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
1/13/87
(INCEPTION)
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO
1998 1997 1996 12/31/98
(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 2,204,248 2,295,337 1,244,272 6,540,455
Research and development 1,035,638 1,374,675 109,553 2,839,197
Depreciation and amortization 275,080 515,213 41,472 910,927
-------------- -------------- -------------- --------------
TOTAL OPERATING EXPENSES 3,514,967 4,185,225 1,395,297 10,290,580
-------------- -------------- -------------- --------------
LOSS FROM OPERATIONS (3,514,967) (4,185,225) (1,431,167) (10,324,750)
-------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE):
Settlements (Note 9) (70,354) (220,816) (494,813) (785,983)
Foregiveness of Debt 968,901
Interest Income (Note 9 & 13) 5,875 1,168 - 7,440
Dividend Income 11,510 51,453 - 62,963
Interest Expense (100,776) (1,462,821) (512,964) (2,085,909)
Loss on disposition of Fixed Assets or Securities (Note 4) (1,012,198) - - (1,036,698)
-------------- -------------- -------------- --------------
TOTAL OTHER INCOME AND EXPENSE (197,043) (1,631,016) (1,007,777) (3,838,188)
-------------- -------------- -------------- --------------
NET LOSS $ (3,712,010) $ (5,816,241) $ (2,438,944) $ (14,162,938)
============== ============== ============== ==============
LOSS PER COMMON SHARE $ (0.69) $ (0.36) $ (0.27) $ (2.61)
============== ============== ============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 2) 5,363,250 16,352,816 9,040,685 5,435,710
============== ============== ============== ==============
</TABLE>

The accompanying Notes are an integral part of these financial statements.

F-6

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1998 (AUDITED)

<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.

F-7

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1998 (AUDITED)

<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.

F-8

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1998 (AUDITED)

<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.

F-9

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

YEAR ENDED 1/13/87
DECEMBER 31 (INCEPTION)
-------------------------------------------------- TO
1998 1997 1996 12/31/98
(AUDITED) (AUDITED) (AUDITED) (UNAUDITED)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:

NET LOSS $ (3,712,010) $ (5,816,241) $ (2,438,944) $ (14,162,938)
-------------- -------------- -------------- --------------
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 securities or assets 1,012,199 - - 1,012,199
Forgiveness of debt (968,901) (968,901)
Depreciation and amortization 118,830 46,464 41,472 285,928
Amortization of Debt Issuance cost 156,250 468,750 625,000
Issuance of stock for director's fees
and employment services 40,100 560,399 485,129 1,289,874
Issuance of stock for consulting & legal fees 283,181 283,181
Issuance of stock for Property Rights - 2,000 2,000
Issuance of stock in legal settlement 60,354 301,041 494,813 856,208
Discount on Convertible Debentures - 1,250,000 500,000 1,750,000
Interest Expense converted to stock 11,917 86,878 98,795

(Increase) decrease in assets:
Prepaid expenses - 1,565 (1,565) -
Deposits/Retainers 7,112 (45,496) - (38,684)
Other Assets (13,297) - - (13,297)
Increase (decrease) in liabilities:
Accounts payable 345,830 (31,597) (69,116) 350,857
Accrued expenses (89,373) 124,091 (64,051) 55,046
Due to/from related parties 514,040 (394,600) (216,021) 310,300
-------------- -------------- -------------- --------------
TOTAL ADJUSTMENTS 1,478,243 2,369,496 1,177,144 5,904,990
-------------- -------------- -------------- --------------
NET CASH USED IN OPERATING ACTIVITIES $ (2,233,768) $ (3,446,746) $ (1,261,800) $ (8,257,948)
============== ============== ============== ==============
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash from sale (purchase) of equipment (53,217) (7,400) (78,114)
Cash from sale (purchase) of Intellectual Rights (150,000) (150,000)
Capitalized organization costs - - - (150,924)
-------------- -------------- -------------- --------------
NET CASH USED IN INVESTING ACTIVITIES - (203,217) (7,400) (379,038)
-------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock,
net of offering costs 3,173,999 125,000 - 4,545,945
Proceeds from debt converted to capital stock 250,000 250,000
Proceeds from debt 23,295 251,100 438,739
Proceeds from debentures, net of costs 4,375,000 - 5,343,901
Principal payments on debt (1,800,000) (31,500) (1,928,169)
-------------- -------------- -------------- --------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,373,999 4,523,295 469,600 8,650,416
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH (859,768) 873,333 (799,600) 13,430

CASH AT BEGINNING OF PERIOD 873,199 (134) 799,466 -
-------------- -------------- -------------- --------------
CASH AT END OF PERIOD $ 13,430 $ 873,199 $ (134) $ 13,430
============== ============== ============== ==============
</TABLE>

The accompanying Notes are an integral part of these financial statements.

F-10

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION

NATURE OF BUSINESS:
Harvard Scientific Corp. (the "Company") is a biopharmaceutical drug development
company specializing in sexual dysfunction for both male and female. The
Company's corporate objective is to utilize medically researched and developed
drug substances, determine the ability of these substances to be encapsulated in
liposomes and to determine the potential market for such products. The Company
intends to conduct 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. The Company is moving forward with a strategic
plan to facilitate marketing of its products in a manner which is consistent
with enhancing its corporate image and further increasing shareholder value. All
figures in this Report give effect to previous stock splits and the reverse
stock splits, and previously stated number of shares are appropriately restated.
The Company has 100,000,000 shares of Common Stock authorized with 6,258,946

F-11

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

shares issued, 5,988,746 outstanding with 270,200 shares returned to the
Company's treasury (see Note 10, (f) - (i)) as of December 31, 1998, 3,344,137
shares issued and outstanding on December 31, 1997 and 9,883,129 shares issued
and outstanding on December 31, 1996. 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 December 31, 1998.

On February 10, 1998, three new members were elected to the Board of Directors
of the Company. Two of these members served as new Directors of the Company and
the third filled an existing seat vacated by the resignation of a previous
Director. On December 13, 1998, one of the Directors died and the Company has
not re-elected a new Director. The Company's Board of Directors currently
consists of four members. See Note 13, "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: 5,363,250 for the Period ending December
31, 1998, 16,352,816 for the Period ending December 31, 1997 and 9,040,685 for
the Period ending December 31, 1996.

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.

F-12

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

NOTE 3 - EQUIPMENT & LEASEHOLD IMPROVEMENTS

Equipment and building improvements consists of the following:
<TABLE>
<CAPTION>

December 31, 1998 December 31, 1997 December 31, 1996
(Audited) (Audited) (Audited)
----------------------------------------------------------------------
<S> <C> <C> <C>
Equipment & Leasehold Improvements $ 45,299 $ 62,634 $ 9,416

Less: accumulated depreciation 35,461 11,930 3,491
----------------------------------------------------------------------
Total Net Equipment & Leasehold
Improvements $ 9,838 $ 50,704 $ 5,925
----------------------------------------------------------------------

</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.

The Company had incurred leasehold improvements to the Irvine office of
approximately $4,300 in 1997, amortized over the life of the lease. In May 1998,
the company terminated the Irvine lease and moved the research and development
office from Irvine to Costa Mesa, California. The balance of unamortized
improvements of approximately $2,755 was written off.

During December 1996, the Company established its administrative offices in
Reno, Nevada. In November 1997, the Company established the headquarters in Lake
Mary, Florida. In July 1998, the Company moved it's administrative offices from
Reno, Nevada to Scottsdale, Arizona. See "Subsequent Events" Note 13.

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 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.

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.

F-13

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

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.

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. This product
is located at Pyramid Laboratories in Costa Mesa, California.

NOTE 6 - ACCRUED EXPENSES

Accrued expenses consist of the following:
<TABLE>
<CAPTION>

December 31, 1998 December 31, 1997 December 31, 1996
(Audited) (Audited) (Audited)
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on notes and debentures $ - $131,694 $ 9,649
Accrued payroll & payroll taxes 63,662 - 10,680
-----------------------------------------------------------------------------

Total $ 63,662 $131,694 $ 20,329
-----------------------------------------------------------------------------
</TABLE>

F-14

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

Also see Notes 11 for interest on debentures.

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.

6. BTI owned approximately 10% and 22% of the Company's shares on December 31,
1998, December 31, 1997, respectively. Dr. Jackie See a Director of the
Company and a controlling person of BTI. Dr. Jackie See owned approximately
35% of the Common Stock of the Company on December 31, 1998, 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.

8. The Company has entered into a financing agreement dated January 13, 1998,
as amended on February 3, 1998, between Dr. Jackie R. See, Thomas E. Waite
and the Company for the funding of the Company up to $10,000,000. Dr.
Jackie R. See and Mr. Thomas E. Waite were Directors of the Company. Thomas
E. Waite was also President and Chief Executive Officer of the Company. On

F-15

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

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. See Note 9 and Note 13.

9. The Company often pays for services, fees, and salaries by issuing shares
of Common Stock. Most of this stock issued for services must be held for
investment to satisfy the exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended. Rule 144 under the statute requires
that such stock be held for a year, before it can be sold in accordance
with rule 144.

During 1998, the Company issued a total of 1,590,278 shares of Common Stock
to directors of the Company. 10,000 of these shares were booked at the
price of the most recent sale of the stock for cash to shareholders of the
registration statement held effective July 28, 1998. The balance of
1,580,278 was issued in conjunction with the Waite and See Agreement, see
Note 9.

During 1998, the Company approved and issued 10,000 shares of Common Stock
(restricted) to an employee of the Company for prior and current services
rendered. In addition, during 1998 the Company issued 97,500 shares of
Common Stock for services performed by outside consultants. 270,200 shares
of Common Stock were returned to the Company treasury as part of a legal
settlement with prior affiliates of the Company (see Note 10). These shares
were recorded at the lesser of 1) the value of the Common Stock on the date
issued or 2) the most recent sale of the stock for cash to shareholders of
the registration statement held effective July 28, 1998.

Also see discussions regarding intellectual properties and agreements in
Notes 4.

NOTE 8 - INCOME TAXES

The Company has federal net operating loss carryforwards for financial
statement purposes of approximately $13,000,000 at December 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 9 - CONTRACTS & AGREEMENTS

1. A financing agreement dated January 13, 1998, as amended on February 3,
1998 was entered into between Dr. Jackie R. See, Thomas E. Waite and the
Company for the funding of the Company up to $10,000,000. The agreement as
so amended, calls for initial funding of $5,000,000 in exchange for
1,580,278 shares of Common Stock, with registration rights, calculated at
$3.164 per share (the average closing bid price per share of the Common
Stock for the 10 days ending January 12, 1998, and adjusted for the 1 for
10 reverse split effective February 2, 1998). This initial funding was
effected on February 3, 1998 by the delivery of a check for $7,901.39 and
Promissory Notes to March 31, 1999 in the principal amount of
$2,492,098.61, bearing interest at the rate of 1% above prime and secured
by the shares purchased from each of Dr. See and Mr. Waite. Subsequent
funding is at the discretion of the investors and can be purchased in
tranches of $500,000 to $2,000,000 up to an aggregate of $10,000,000,

F-16

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

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 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 note began to accrue interest at 8% on the date the
registration statement (for these shares) became effective (July 28, 1998).
At December 31, 1998, the Company had accrued interest from both Dr. See
and Mr. Waite of $165,861. During the 4th quarter of 1998, Mr. Waite made
payments towards his note balance of $300,000. At December 31, 1998, the
principal balance due on these two promissory notes is $4,684,197. At
December 31, 1998, the full balance of principle and interest was reserved
as a contra asset account to the receivable balance with interest
receivable balance of $165,861 written off against interest income. See
Note 13 "Subsequent Events".

2. 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. On
December 1, 1998, the consulting agreement expired and was not renewed by
the Company. The Company recorded the shares at par value. At December 31,
1998, the Company owed Janis approximately $16,000.

3. On August 4, 1997, the Company entered into a consulting agreement with Dr.
Lorenz M. Hofmann, Ph.D. ("Hofmann"), whereby Hofmann is to lead the
clinical development program for liposomal Prostaglandin E-1 for the
treatment of male erectile dysfunction. The Company agreed to pay Hofmann
$15,000 per month plus 10,000 shares of (restricted) Common Stock. The
stock was recorded at par value. On May 29, 1998, the Company terminated
his agreement.

4. 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 December 31, 1998, the Company
had paid Goldstein $75,000 from the beginning, with a balance still owing
him of $21,000.

5. 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. The Company
disputed a balance of $5,900.64 and in conjunction with the recent legal
settlement with Alexander Walker, Jr., it was agreed the Company would pay
Scopes this remaining balance. This amount of $5,900.64 was accrued at
December 31, 1998. See Note 10 (f) - (i).

F-17

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

6. 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 10 (d), (f) through (i).

7. 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.
The Company did not renew this agreement with Miller.

8. 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 expired on December 9, 1998 and
was not renewed. The Company recorded the shares at par value.

9. 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. The agreement states that if on the effective
date of the Registration Statement, 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. The Registration
Statement was effective July 28, 1998 and the closing bid price on that day
was $6.62.

10. On June 11, 1998, the Company authorized the issuance of 30,000 shares of
Common Stock to a consultant of the Company, Medhat Gorgy, as a part of his
consultant agreement dated June 10, 1998. Of such shares, 25,000 shares of
Common Stock are entitled to registration rights under the Securities Act
of 1933. The 5,000 shares without registration rights plus 3,000 shares
with registration rights were issued on June 11, 1998. The balance of
22,000 shares is issuable monthly in lots of 2,000 shares each. The shares
issued and issuable to Mr. Gorgy are effected pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933. The
8,000 shares issued through June 30, 1998 were valued at the closing bid
price on the day the shares were issued. The Registration Statement was
effective July 28, 1998 and the closing bid price on that day was $6.62.

11. 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 the 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. The
Registration Statement was effective July 28, 1998 and the closing bid
price on that day was $6.62.
F-18

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

12. On June 29, 1998 the Company entered into financing agreements with the RK
Company, under which The RK Company provided a total financing of $450,000
to the Company in exchange for 150,000 shares of Common Stock of the
Company. If, on the effective date of the 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) 50,000 divided by one-half the closing bid price of
the company's Common Stock on the effective date and (b) 16,667. The
Registration Statement was effective July 28, 1998 and the closing bid
price on that day was $6.62.

13. On July 1, 1998, the Company entered into a settlement agreement between
GensiaSicor Pharmaceuticals, Inc. and agreed to transfer 20,000 shares of
Common Stock of the Company in exchange for the release of all claims,
demands, etc. arising from a manufacturing agreement with the Company. The
shares were transferred on July 8, 1998 and valued at $3.00, which was the
lesser of 1) the closing stock price on the date transferred or 2) cash
received in exchange for stock from investors included in the registration
statement effective July 28, 1998.

14. On July 1, 1998, the Company entered into financing agreements with the RK
Company, under which the RK Company provided financing of $50,000 to the
Company in exchange for 16,667 shares of Common Stock of the Company. If,
on the effective date of this Registration Statement, the closing bid price
of the Company's stock was less than $6.00 per share, the RK Company was to
receive additional shares calculated by taking the difference between (a)
50,000 divided by one-half the closing bid price of the company's Common
Stock on the effective date and (b) 16,667. The Registration Statement was
effective July 28, 1998 and the closing bid price on that day was $6.62.

15. On July 7, 1998, the Company entered into a financing agreement with
Elisabeth & Samuel Valenzisi, under which Mr. and Mrs. Valenzisi provided a
total financing of $24,000 to the Company in exchange for 8,000 shares of
Common Stock of the Company. If, on the effective date of this Registration
Statement, the closing bid price of the Company's stock was less than $6.00
per share, Mr. & Mrs. Valenzisi were to receive additional shares
calculated by taking the difference between (a) 24,000 divided by one-half
the closing bid price of the company's Common Stock on the effective date
and (b) 8,000. The Registration Statement was effective July 28, 1998 and
the closing bid price on that day was $6.62.

16. 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.

17. On January 6, 1998, the Company changed transfer agents from Nevada Agency
& Trust, Company to Atlas Stock Transfer Co. (see Note 10 (d)
"Contingencies"). On July 9, 1998, the Company changed transfer agents from
Atlas Stock Transfer Co. in Salt Lake City, Utah to Olde Monmouth Stock
Transfer Co., Inc. in Atlantic Highlands, New Jersey. See Note 13.

F-19

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

18. 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.

19. The Company has the following office lease commitments at December 31,
1998:

a The Company occupied 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 to be paid monthly beginning December
15, 1997 through December 31, 2000. During December 1998, the Company
negotiated out of their lease and closed its corporate headquarters in
Lake Mary, Florida. The Company's headquarters are currently operating
out of the Chief Financial Officers office located in Reno, Nevada
until additional space is located. See Note 13, "Subsequent Events".

b 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. See Note 13, "Subsequent Events".

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.

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.

F-20

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

(b) 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 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. 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.

(c) 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. See Note 13, "Subsequent
Events".

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.

F-21

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

(b) On December 3, 1997, the Company agreed to transfer 15,000 shares as
payment in full of an outstanding debt of $90,225 owed to Pyramid
Laboratories, Inc. ("Pyramid") by the Company for work performed on
the PaGE1 project. The Company maintains a good relationship with
Pyramid whereby Pyramid has agreed to perform a six-month stability
study for the LLPGE1 product.

(c) HARVARD SCIENTIFIC CORP. V. VIVUS, INC., Case No. CV-N-97-00562-HDM
(RAM) United States District Court, District of Nevada, filed October
1, 1997. In a letter dated August 29, 1997 Vivus, Inc. alleges that
the product and method used by Harvard Scientific for the treatment of
male erectile dysfunction infringed on a patent held by Vivus. On
September 16, 1997, the Company responded advising Vivus that they did
not infringe on such patent, identifying those claim limitations not
present in the defendant's product and methods. On September 19, 1997,
Vivus again reiterated its claim of infringement against the Company.

The Company then filed this complaint for declaratory judgment of
non-infringement of the patent. Defendant filed a motion asking for
dismissal of the plaintiff's declaratory judgment action on the basis
that there is no infringement and, therefore, no actual controversy.
Vivus then asserted that its allegation of infringement was premature
because the plaintiff's use of its product and method for treating
erectile dysfunction is limited to FDA clinical trials which is a
non-infringing use under the patent laws. The Company opposed Vivus
motion to dismiss on the basis that it has taken concrete steps toward
the commercialization of its product and method. On March 16, 1998,
the court granted defendant's motion for dismissal, without prejudice,
allowing the Company to renew the action at an appropriate time.

(d) 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.

(e) COGDILL VS. HARVARD SCIENTIFIC CORP., DR. JACKIE R. SEE INDIVIDUALLY
AND ON BEHALF OF HARVARD SCIENTIFIC CORP., AND NEVADA AGENCY & TRUST
COMPANY, Case No. KC-025611, filed in the Superior Court for the State
of California, in the County of Los Angeles on June 2, 1997. Cletus
Cogdill, ("Cogdill") a shareholder of the Company alleges that he
purchased the Company's Common Stock on March 17, 1994. The
certificate was issued on June 17, 1994 after the closing of a
subscription agreement, pursuant to Rule 144 under the Securities Act
of 1933 whereby such stock was to be held for two years before it
could be sold. On March 18, 1996, Cogdill completed form 144 listing
his acquisition date as June 17, 1994 in an attempt to sell his stock.
On April 12, 1996, Cogdill completed a revised form 144 indicating the
shares had been acquired on March 17, 1994, meeting the two year
holding period as required by Rule 144. New certificates were approved
and issued to Cogdill but were apparently lost in the mail or lost by
Cogdill's broker. Two months later (June 10, 1996) Cogdill sold his

F-22

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

stock and due to the reduction in market share price during that two
month period, he claims he lost value of approximately $57,000.
Cogdill alleged that the Company committed acts of fraud, intentional
misrepresentation and negligent misrepresentation causing him
financial losses.

The Company filed their answer to his complaint on August 4, 1997,
denying both generally and specifically, each and every allegation in
the complaint. On December 29, 1997 the Company filed a cross-complaint
against Cogdill's brokerage firm, Olde discount, for indemnity. On
September 24, 1998 the parties entered into a mutual settlement
agreement whereby the Company paid to Cogdill $5,000 and the action was
dismissed with prejudice.

(f) ALEXANDER H. WALKER JR. V. HARVARD SCIENTIFIC CORP. AND JACKIE R. SEE,
M.D., Case No. 980901221 in the Third Judicial District Court in Salt
Lake City, Utah, filed on February 6, 1998. Alexander H. Walker, Jr.
("Walker"), a former officer, director and General Counsel 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 causing him
damages in excess of $1,420,000. The Company denies liability to
Walker and initiated an action against Walker and Nevada Agency &
Trust, Co., in the District Court for the State of Nevada. (See (g)
and (h) below).

On September 18, 1998 the parties concluded settlement discussions and
entered into a mutual settlement agreement wherein Walker was to
return all outstanding share certificates to the Company
(approximately 120,200 shares) from which 16,000 shares would be
re-issued to Walker with the remaining shares being returned to the
Company's Treasury. These shares were re-issued on October 14, 1998
and valued at par value. A dismissal with prejudice was filed as
required by the Settlement Agreement.

(g) HARVARD SCIENTIFIC CORP. VS. ALEXANDER H. WALKER JR. AND NEVADA AGENCY
& TRUST, CO., Case No. CV98-01959 filed on March 23, 1998 in the
Second Judicial District Court of the State of Nevada in the County of
Washoe. The Company sought 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. In
addition, the Company sought indemnity from Walker for damages
sustained as a result of having been forced to negotiate settlements
in other litigation's as a result of Walkers actions. The Nevada Court
stayed this action pending the outcome of the jurisdictional issues
raised in the Utah litigation between the parties.

On September 18, 1998 the parties concluded settlement discussions and
entered into a mutual settlement agreement. See settlement discussions
at (f) and (h)). These shares were re-issued on October 14, 1998 and
valued at par value. A dismissal with prejudice was filed as required
by the Settlement Agreement.

(h) ALEXANDER H. WALKER, JR., DON STEFFENS INDIVIDUALLY AND AS TRUSTEE FOR
THE STEFFENS FAMILY TRUST, AND IAN HICKS, VS. ATLAS STOCK TRANSFER
COMPANY, HARVARD SCIENTIFIC CORP., AND JACKIE R. SEE, M.D., Case No.
98-0905858 filed on June 12, 1998 in the Third Judicial District Court
in the State of Utah in the County of Salt Lake. The action alleges
that the Plaintiffs, collectively, own approximately 270,200 shares
(adjusted for the 1 for 10 reverse stock split on February 2, 1998).
The Plaintiffs alleged that the Company fraudulently issued stop
transfer orders or placed other prohibitions to keep the Plaintiffs
from trading said shares. Plaintiffs have requested damages of
unspecified amounts for the defendant's wrongful refusal to transfer
the shares. On August 3, 1998 the Company filed a response denying
each and every material allegation in the complaint. 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.

F-23

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

On October 14, 1998, and as agreed to in the Settlement Agreement, the
Plaintiffs collectively returned 270,200 shares of Common Stock to
treasury, including 120,200 shares from Alexander Walker, 125,000
shares from Don Steffens and 25,000 shares from Ian Hicks. In
addition, upon the return of those shares the Company agreed to
re-issue 16,000 shares to Walker, 15,890 shares to Steffens and 3,500
shares to Hicks. These shares were re-issued on October 14, 1998 and
valued at par value. A dismissal with prejudice was filed as required
by the Settlement Agreement.

(i) 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"), a former officer and director of the Company,
for the return of 125,000 shares of its Common Stock issued to him in
1997 plus the return of $100,000 cash paid to him on April 18, 1997.
The shares were issued to Steffens in consideration of his performance
as an officer and director of the Company, and were advanced in
accordance with his employment contract, for the period beginning May
1997 through May 2000. Steffens resigned his positions as officer and
director of the Company on November 14, 1997. Ian Hicks ("Hicks") was
issued 25,000 shares of Common Stock in consideration of promised
faithful discharge of officer and director duties. Hicks resigned in
May 1997. During such times as they held their positions, both
Steffens and Hicks undertook various actions, which the Company
believes, were in breach of their fiduciary duty.

On September 18, 1998 the parties concluded settlement discussions and
entered into a mutual settlement agreement wherein Steffens and Hicks
are to return outstanding share certificates to the Company from which
15,890 shares of Common Stock would be re-issued to Steffens and 3,500
shares of Common Stock would be re-issued to Hicks. The remaining
shares returned to the Company's Treasury. A dismissal with prejudice
was filed as required by the Settlement Agreement. See (f), (g) and
(h) above.

(j) 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. Springrange
Investment Group ("Springrange") was the holder of 6% Convertible
Debentures issued pursuant to the Securities Purchase Agreement dated
March 21, 1997. The Company alleges that Springrange 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 damages arising from Springrange's
breach of contract and misrepresentations. On January 28, 1998, the
investor of the 6% Convertible Debenture gave notice to the Company to
convert into Common Stock $250,000 of principal plus interest
calculated at $12,863. The conversion calculated at 80% of the market
price, called for the transfer of 525,726 shares of Common Stock to
the investor. On January 29, 1998, the investor again gave notice to
the Company to convert into Common Stock $250,000 of principal plus
interest calculated at $12,904. The conversion called for the transfer
of 486,859 shares of Common Stock to the investor. The Company has not
honored the above requests.

F-24

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

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.

On August 17, 1998 the parties entered into a mutual Settlement
Agreement and Release whereby the Company agreed to transfer
$1,800,000 to Springrange in exchange for full and final settlement of
all claims asserted in all the legal actions against the Company, its
Board of Directors and management by Springrange. The Company agreed
to issue 600,000 shares to a third party purchaser in exchange for
$1,800,000. The Terms of the agreement were subject to a ruling by the
presiding judicial authority as to their fairness. On September 23,
1998 a fairness hearing was held in the New York action approving the
terms of the settlement agreement and the exemption of the 600,000
shares from registration. The Company issued 600,000 shares of its
Common Stock to a third party, who purchased them for $1,800,000,
which, in turn, was paid to Springrange for full and final settlement
of all claims.

The shares were issued pursuant to the court order in this action and
the exchange of stipulations dismissing with prejudice the Nevada
action (see (k) below) and the New York action. Also see Note 9.

(k) 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 filed on March 17, 1998 in the
Eighth Judicial Court for the State of Nevada and the County of Clark.
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,
transferred the litigation to Washoe County, imposed a sanction award
against Springrange in the amount of $11,095.76; and continued any
determination with regard to Springrange's motion for preliminary
injunction.

On August 17, 1998 the parties entered into a mutual Settlement
Agreement and Release whereby the Company agreed to transfer
$1,800,000 to Springrange in exchange for full and final settlement of
all claims asserted in all the legal actions against the Company, its
Board of Directors and management by Springrange. The Company agreed
to issue 600,000 shares to a third party purchaser in exchange for
$1,800,000. The Terms of the agreement were subject to a ruling by the
presiding judicial authority as to their fairness. On September 23,
1998 a fairness hearing was held in the New York action approving the
terms of the settlement agreement and the exemption of the 600,000
shares from registration. The Company issued 600,000 shares of its
Common Stock to a third party, who purchased them for $1,800,000,
which, in turn, was paid to Springrange for full and final settlement
of all claims.

F-25

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

The shares were issued pursuant to the court order in this action and
the exchange of stipulations dismissing with prejudice the Nevada
action and the New York action (see (j) above). Also see Note 11.

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. In
addition, at the time of issuance, the Company accounted for the 20% discount to
market of $1,000,000 as additional interest expense and paid-in-capital.

Issuance costs of $625,000 related to the first $5,000,000 principal amount of
6% Convertible Debentures sold in March 1997 were deferred and are being
amortized on a straight-line basis through March 31, 1998. On January 6, 1998,
the investor served a conversion notice for the sum of $250,000 of the principal
amount plus $11,917 of interest expense, for the issuance of 1,036,064 shares of
Common Stock on January 15, 1998. Springrange had 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 did not honor these requests.

On September 23, 1998, the Company came to an agreement with Springrange and the
courts approved the terms of the settlement agreement. The Company issued
600,000 shares of its Common Stock to a third party who purchased them for
$1,800,000, and, in turn, paid $1,800,000 to Springrange for full and final
settlement of all claims (see Note 10).

On September 23, 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 Company recorded the transfer of 600,000 shares of Common Stock valued at
$1,800,000, eliminating the debt balance of $2,550,000 plus accrued interest of
$218,901,with the net of $968,901 booked to forgiveness of debt and treated as
ordinary income.

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 from other sources. Collectability is
uncertain on the Promissory Notes due from the former Officer/Director Mr. Waite
and Director Dr. See (see Note 13"SUBSEQUENT EVENTS"). If additional capital is
not secured, there is considerable doubt about the Company's ability to continue
as a going concern.

F-26

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS
BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1998
DECEMBER 31, 1997 AND DECEMBER 31, 1996

NOTE 13 - SUBSEQUENT EVENTS

1. In January 1999, the Company negotiated out of their lease and closed its
research and development office in Costa Mesa, California. All research and
development is expected to be performed out of Pyramid Laboratories in
Costa Mesa, California. In February 1999, the Company negotiated out of
their lease and closed its administrative office in Scottsdale, Arizona.
The Company's administration is currently being maintained out of the
Company's Chief Financial Officers' office in Reno, Nevada. The office
equipment in these offices were donated to charitable organizations. 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.

2. In the HARVARD SCIENTIFIC CORPORATION VS. DAVID E JORDAN, Case (see Note 10
"Contingencies" no. (c)), 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.

3. On February 24, 1999, the Company changed transfer agents from Olde
Monmouth Stock Transfer Company back to Nevada Agency & Trust Company in
Reno, Nevada.

4. 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, Chairman of the Board and
Director of the Company. On March 4, 1999, Martin J. Holloran resigned his
position as Director of the Company. These positions have not been replaced
at this time. On March 3, 1999, Gordon W. Cole was elected to the Board of
Directors.

5. 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 interest on March 31, 1999 and these notes and interest balances are
now in default. The Company has reserved 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 of $165,861 was
written off against interest income on the profit & loss statement. Mr.
Waite nor Dr. See have not been relieved from their obligation to pay in
full the note and interest balances due the Company. See Notes 7 & 9.

6. 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 and repayment
of $300,000 loaned under the agreement. 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.

F-27

<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Ronald D. Simpkins, independent certified public accountant, has
audited the financial statements of the Company for the years ended December 31,
1998 and December 31, 1997, included in this filing. 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.

PART III

A 1 for 10 reverse stock split was effective February 2, 1998. All
figures in this Amendment to the Annual Report give effect to such reverse stock
split, and previously stated numbers of shares are appropriately restated,
unless otherwise indicated. All statements in this annual report should be read
in conjunction with and are qualified by the other information and financial
statements (including the notes thereto) appearing elsewhere in this Annual
Report and the previously filed Annual Report and Amendments, or incorporated
herein by reference.

<PAGE>

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

As of April 12, 1999, 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>
- ------------------------------------ ------------ ------------------------------------ --------------------------------
Curtis A. Orgill 49 Director, Treasurer, and Officer since
Chief Financial Officer 12/12/97; Director
(2) (3) since 2/10/98
- ------------------------------------ ------------ ------------------------------------ --------------------------------
Jackie R. See, M.D. (4) 57 Director (3) Since 1/6/94
- ------------------------------------ ------------ ------------------------------------ --------------------------------
Gordon W. Cole 63 Director Since 3/3/99
- ------------------------------------ ------------ ------------------------------------ --------------------------------
</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.

(1) These Directors are members of the Compensation Committee. Mr. Orgill is
Chairman of this committee.

(2) These Directors are members on the Audit Committee. Mr. Orgill is Chairman
of this committee.

(3) 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.

(4) This Director is the only member of the Company's Executive Committee. Mr.
Waite is Chairman, however, Mr. Waite has resigned his positions with the
Company on March 4, 1999.

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.

<PAGE>

COLONEL ROBERT T. HAYDEN was a Director of the Company until his death on
December ?, 1998. 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.

GORDON W. COLE is a Director of the Company effective March 3, 1999. Mr. Cole is
currently working for Bartig, Basler and Ray as a Consultant and Accountant. The
prior 20 years, Mr. Cole was self-employed as an accountant, a tax preparer and
consultant. Additional professional experience included positions as Controller
with Montgomery Ward, Cook United (discount store chain based in Cleveland,
Ohio), and a major national geotechnical firm. This experience is augmented by 5
years as a programmer analyst with Ticor, an aerospace contractor in Southern
California. Additional experience was gained with his 2 1/2 years at a national
CPA firm and over 2 years in the trust department at Wells Fargo Bank. Mr. Cole
received a BS degree at the University of California, Berkeley, and an MBA at
the University of Southern California. He has had extensive training in
programming and systems analysis at the IBM Institute, in both San Francisco and
Los Angeles, California.

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION.

The following table sets forth information about compensation paid or
accrued by the Company during the years ended December 31, 1998, 1997
and 1996 to the Company's officers and directors:

SUMMARY COMPENSATION TABLE

<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Name and Other
Principal Position Year Salary/Consulting/Director Fees Bonus Compensation
- ---------------------- ------ ----------------------------------------------- ------- -----------------
(a) (b) STOCK (a) + (B)
CASH GRANTS (1) TOTAL
- ---------------------- ------ ----------------------------------------------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
JACKIE R. SEE (2) 1998 $138,462 $3,753,161 $138,462 None None
Director of Research 1997 $199,662 $10,088,450 $10,288,112 None None
1996 $104,000 None $104,000 None None
- ---------------------- ------ ----------------------------------------------- ------- -----------------
IAN HICKS (3) 1998 None $10,281 $10,281 None None
Was CEO, President & 1997 $46,000 $1,671,750 $1,717,750 None None
Director 1996 None None None None $16,440
- ---------------------- ------ ----------------------------------------------- ------- -----------------
DON STEFFENS (4) 1998 None $46,677 $46,677 None None
Was CEO, President & 1997 $155,135 $3,608,750 $3,763,885 $100,000 None
Director 1996 None None None None None
- ---------------------- ------ ----------------------------------------------- ------- -----------------
ALEXANDER H. 1998 None $47,000 $47,000 None None
Walker(5) 1997 $150,000 $2,892,724 $3,042,724 $75,000 None
Was Secretary & 1996 None $1,170,000 $1,170,000 None None
Director
- ---------------------- ------ ----------------------------------------------- ------- -----------------
LORENZ HOFFMAN (6) 1998 $60,000 None $60,000 None None
Was COO 1997 $140,150 $59,600 $199,750 None None
1996 None None None None None
- ---------------------- ------ ----------------------------------------------- ------- -----------------
THOMAS E. WAITE (7) 1998 $221,538 $3,753,161 $221,538 None None
President & CEO 1997 $28,462 $4,000,000 $4,028,462 None None
1996 None None None None None
- ---------------------- ------ ----------------------------------------------- ------- -----------------
CURTIS A. ORGILL (8) 1998 $110,770 $345,000 $455,770 None None
1997 $9,231 None None None None
1996 None None None None None
- ---------------------- ------ ----------------------------------------------- ------- -----------------
BARBARA L. BERRY (9) 1998 $110,770 $345,000 $450,770 None None
1997 $9,231 None None None None
1996 None None None None None
- ---------------------- ------ ----------------------------------------------- ------- -----------------
MARTIN J. HOLLORAN 1998 $6,000 $25,600 $31,600 None None
(10) 1997 None None None None None
1996 None None None None None
- ---------------------- ------ ----------------------------------------------- ------- -----------------
COLONEL ROBERT T. 1998 $6,000 $25,600 $31,600 None None
HAYDEN (11) 1997 None None None None None
1996 None None None None None
- -------------------------------------------------------------------------------------------------------
</TABLE>

(1) The transfer of shares issued to directors and officers is restricted
pursuant to applicable securities laws, although some recipients have
registration rights in respect of their shares, as noted herein. The
aggregate number and dollar value (based on closing price on the date
specified) of stock holdings of officers and directors as of April 12, 1999
were 2,384,993 shares and $1,192,497 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.

<PAGE>

(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.

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. In addition, on October 14,
1998, Mr. Hicks received 3,500 shares of Common Stock of the Company in
settlement of a legal proceeding. The dollar value of such stock based on
the closing price on the date of issue was $10,281. 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. In addition, on October 14, 1998, Mr. Steffens received 15,890
shares of Common Stock of the Company in settlement of a legal proceeding.
The dollar value of such stock based on the closing price on the date of
issue was $46,677. 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". 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. In
addition, on October 14, 1998, Mr. Walker received 16,000 shares of Common
Stock of the Company in settlement of a legal proceeding. The dollar value
of such stock based on the closing price on the date of issue was $47,000.

<PAGE>

(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 authorizing a salary of $20,000 per
month. Mr. Waite's employment contract was not renewed, and effective March
4, 1999, Mr. Waite resigned all his positions with the Company. Prior to
that time, Mr. Waite was not an employee of the Company. In 1995, Thomas E.
Waite & Associates, a company owned by Mr. Waite, was a consultant to the
Company.

On November 14, 1997, Mr. Waite was issued 400,000 shares of the Company's
Common Stock to enable him to devote his entire business time to the
affairs of the Company. The dollar value of such shares was $4,000,000. See
ITEM 1. "DESCRIPTION OF BUSINESS- OTHER FINANCING ARRANGEMENTS" concerning
the Financing Agreement between Dr. Jackie R. See and Thomas E. Waite and
the Company dated January 13, 1998 and amended February 3, 1998, pursuant
which Dr. See and Mr. Waite had 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"

(8) Curtis A. Orgill became Treasurer and Chief Financial Officer on December
12, 1997. On February 10, 1998 Mr. Orgill became a Director and Chairman of
the Compensation Committee and the Audit Committee. On January 26,1998, Mr.
Orgill was issued 50,000 shares (restricted) of the Company's Common Stock
to induce him to work for the issuer and provide an incentive for his
successful performance. . The dollar value of such stock based on the
closing price on the date of issue was $345,000. Mr. Orgill had a 1-year
contract with the Company effective November 17, 1997 authorizing a salary
of $10,000 per month. This contract was renewed on November 17, 1998 for 1
year. Prior to November 17, 1997, Mr. Orgill was not an employee of the
Company nor was he affiliated in any way with the Company.

(9) Barbara L. Berry became Secretary and Chief Operating Officer ("COO") on
December 12, 1997. On July 28, 1998, Mrs. Berry's title changed from COO to
Chief Accounting Officer. On January 26,1998, Mrs. Berry was issued 50,000
shares (restricted) of the Company's Common Stock to induce her to work for
the issuer and provide an incentive for her successful performance. The
dollar value of such stock based on the closing price on the date of issue
was $345,000. Mrs. Berry had a 1-year contract with the Company effective
November 17, 1997 authorizing a salary of $10,000 per month. This contract
was renewed on November 17, 1998 for 1 year. On January 18, 1999, Mrs.
Berry resigned her positions with the Company and is currently working on a
consultant basis only. Prior to November 17, 1997, Mrs. Berry was a
consultant for the Company beginning October 15, 1997. Prior to that time,
Mrs. Berry was not an employee of the Company nor was she affiliated in any
way with the Company.

(10) Martin J. Holloran became a Director and a member of the Audit Committee on
February 10, 1998. On February 18, 1998, Mr. Holloran was issued 5,000
shares of the Company's Common Stock for an incentive for becoming a
Director and a member of the Audit Committee. The dollar value of such
stock based on the closing price on the date of issue was $25,600. In
addition, it was agreed that Mr. Holloran was to receive $2,000 for every
Board of Director meeting he attended. At December 31, 1998, the Company
had paid him $6,000 for the year and owed him an additional $4,000 for past
meetings attended.

Colonel Martin T. Hayden became a Director and a member of the Audit
Committee and Compensation Committee on February 10, 1998. On February 18,
1998, Col. Hayden was issued 5,000 shares of the Company's Common Stock for
an incentive for becoming a Director and a member of the Audit Committee
and Compensation Committee. The dollar value of such stock based on the
closing price on the date of issue was $25,600. In addition, it was agreed
that Col. Hayden was to receive $2,000 for every Board of Director meeting
he attended. At December 31, 1998, the Company had paid him $6,000 for the
year and owed him an additional $6,000 for past meetings attended. In
December 1998, Col. Hayden passed away. Gordon W. Cole filled his position
as a Director.

<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

All shares included in the following table and in this section are current and
have been restated to reflect the 1 for 10 reverse stock split effective
February 2, 1998. The following table sets forth information as of April 12,
1999 concerning ownership of the Company's Common Stock by (i) each Director and
Executive Officer of the Company, (ii) all Directors and Officers as a group and
(iii) each person known to the Company to be the beneficial owner of more than
5% of the Company's Common Stock:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
AMOUNT AND OUTSTANDING SHARES
NAME AND ADDRESS NATURE OF BENEFICIAL OF COMMON STOCK
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP (1) AS OF APRIL 12, 1999
(1)
- -------------------------- ----------------------------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Common Stock Dr. Jackie R. See (2) 1,742,539 29.0%
100 N. Arlington
Suite 23-P
Reno, NV 89501
- -------------------------- ----------------------------------------- ------------------------ -----------------------
Common Stock Curtis Orgill (4) 50,000 .8%
1325 Airmotive Way
Suite 125
Reno, NV 89502
- -------------------------- ----------------------------------------- ------------------------ -----------------------
Common Stock All Directors and 1,792,539 29.9%
- -------------------------- ----------------------------------------- ------------------------ -----------------------
Common Stock Thomas E. Waite (3) 1,140,139 19.0%
5400 Carter Road
Lake Mary, FL 32746
- -------------------------- ----------------------------------------- ------------------------ -----------------------
Common Stock Bio-sphere Technology, Inc. 547,400 9.1%
Suite 23P
100 N. Arlington Avenue
Reno, NV 89501
- -------------------------- ----------------------------------------- ------------------------ -----------------------
</TABLE>

(1) 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.

(2) This total includes 1,095,139 shares held by Dr. Jackie R. See, 547,400
shares held by Bio-Sphere Technology, Inc., of which Dr. Jackie R. See is
the controlling person and 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.

<PAGE>

(3) Mr. Waite was appointed President, CEO, and Chairman of the Board of
Directors on November 14, 1997 and resigned all his positions on March 4,
1999. Mr. Waite's total includes 1,140,139 shares held by him.

(4) 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.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

During 1997 and 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:

<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
RELATIONSHIP TO CURRENT NO. OF
NAME THE COMPANY STATUS/RELATIONSHIP REFERENCE DATE ISSUED SHARES ISSUED DOLLAR VALUE**
- ------------------------- ------------------ -------------------- --------- ------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Colonel Robert T. Hayden Director Prior (1) 2/18/98 5,000 $ 25,650
- ------------------------- ------------------ -------------------- --------- ------------- ------------------ --------------
Ian Hicks Officer & Director Prior (1) 3/18/97 (6) 25,000 $ 1,671,750
Ian Hicks Officer & Director Prior (1) 10/14/98 (6) 3,500 $
Total 28,500
- ------------------------- ------------------ -------------------- --------- ------------- ------------------ --------------
Martin J. Holloran Director Prior (1) 2/18/98 5,000 $ 25,650
- ------------------------- ------------------ -------------------- --------- ------------- ------------------ --------------
Barbara L. Berry Officer Prior (1) 1/26/98 50,000 $ 298,000
- ------------------------- ------------------ -------------------- --------- ------------- ------------------ --------------
Curtis A. Orgill Officer & Director Current (1) 1/26/98 50,000 $ 298,000
- ------------------------- ------------------ -------------------- --------- ------------- ------------------ --------------
Dr. Jackie R. See, M.D. Director Current (1) 3/18/97 35,000 $ 2,340,450
Dr. Jackie R. See, M.D. Director Current (1) 6/10/97 400,000 $ 7,748,000
Dr. Jackie R. See, M.D. Director Current (2) 2/3/98 790,139 $ 7,506,321
Dr. Darryl See, M.D. Consultant Dr. Jackie See's Son (1) 11/14/97 50,000 $ 500,000
Dr. Darryl See, M.D. Consultant Dr. Jackie See's Son (1) 1/26/98 200,000 $ 1,192,000
Daniel L. See N/A Dr. Jackie See's Son (1) 6/11/97 1,000
David J. See N/A Dr. Jackie See's Son (1) 3/2/98 5,000
Charles Dayton See N/A Relative to Dr. (1) 6/11/97 1,000
Jackie See
Anita Wassgren Trust N/A Dr. Jackie See's (1) 6/26/98 100,000
Wife
Total 1,582,139 $
- ------------------------- ------------------ -------------------- --------- ------------- ------------------ --------------
Don Steffens Officer & Director Prior (1) 3/18/97 (6) 25,000 $ 1,671,750
Don Steffens Officer & Director Prior (1) 6/10/97 (6) 100,000 $ 1,937,000
Don Steffens Officer & Director Prior (1) 10/14/98 (6) 15,890 $
Total 140,890 $ 3,608,750
- ------------------------- ------------------ -------------------- --------- ------------- ------------------ --------------
Thomas E. Waite Officer & Director Prior (3) 12/18/96 56,875 $ 1,279,688
Thomas E. Waite Officer & Director Prior (4) 11/14/97 400,000 $ 4,000,000
Thomas E. Waite Officer & Director Prior (2) 2/3/98 790,139 $ 7,506,321
Total 1,247,014 $ 12,786,008
- ------------------------- ------------------ -------------------- --------- ------------- ------------------ --------------
Alexander H. Walker, Jr. Officer & Director Prior (5) 4/12/96 18,000 $ 1,170,000
Alexander H. Walker, Jr. Officer & Director Prior (5) 3/18/97 18,000 $ 1,203,660
Alexander H. Walker, Jr. Officer & Director Prior (5) 6/10/97 87,200 $ 1,689,064
Alexander H. Walker, Jr. Officer & Director Prior (5) 10/14/98 16,000 $
Alexander H. Walker, III N/A Walker Jr's Son (6) 7/5/96 2,000 $ 65,000
Alexander H. Walker, III N/A Walker Jr's Son (6) 3/18/97 2,000 $ 133,740
J.T. Cardinalli N/A Walker Jr's Son-in (6) 7/5/96 2,000 $ 65,000
law
J.T. Cardinalli N/A Walker Jr's Son-in (6) 3/18/97 2,000 $ 133,740
law
Total 147,200 $ 4,460,204
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*- 100,000 shares were issued in the name of Anita Wassgren See Trust. Anita
Wassgren See is Dr. Jackie See's wife.
** The dollar value of all share grants are calculated in accordance with item
402(b)(2)(iv)(A) of Regulation S-B, which requires the dollar value of any award
of restricted stock to be calculated by multiplying the closing market price of
the registrant's unrestricted stock on the date of grant by the number of shares
awarded even if the amount could not than be realized. The Company has recorded
the above stock transaction at varying prices, depending on the date issued.

(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.

<PAGE>

(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". On March 4, 1999, Mr. Waite
resigned all his positions with the Company.
(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, Mr. Walker issued to himself 105,200
shares of Common Stock. In December 1997, the Company terminated all
agreements with Mr. Walker. SEE "LEGAL PROCEEDINGS, AND "EXECUTIVE
COMPENSATION". In settlement of a legal dispute, Mr. Walker returned
120,200 shares of Common Stock to the Company treasury and the Company
issued Mr. Walker 16,000 shares of Common Stock (unrestricted) of the
Company on October 14, 1998.
(6) Shares were returned to the Company's treasury on 10/14/98, as part of
a litigation settlement agreement, See "LEGAL PROCEEDINGS" and on
October 14, 1998, restricted shares were issued as a part of the
settlement agreement.

On July 5, 1996 and again on March 18, 1997, the Company issued 2,000
shares of Common Stock to Alexander H. Walker III (Mr. Alexander H. Walker,
Jr.'s son) and 2,000 shares of Common Stock to J.T. Cardinalli (Alexander H.
Walker Jr.'s son-in-law) for legal services rendered and to be rendered to the
Company.

As of March 10, 1999, Bio-Sphere Technology Inc. ("BTI") owned 521,400
shares of Common Stock representing 8.7% 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.

<PAGE>

On November 20, 1997, the Company agreed to exchange 200,000 shares of
Common Stock (which have been issued) to BTI for the Intellectual Property
Rights to Prostaglandin E1 Lyophilized Liposomes for the use of treatment of
Psoriasis. BTI 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 Oral Product) 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 Oral product. 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. At the time of the advance, the fair
market value of the shares transferred was $500,000. During 1997, the Company
advanced to BTI this $500,000 in connection with this settlement and expects to
collect this money when the 20,000 shares are returned to BTI in 1998. The
$500,000 was part of the forgiven debt of $895,819 described above. This amount
was included in the amount the Company forgave for BTI's total indebtedness of
$895,819, which was treated as part of the basis of the intellectual properties.

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 sexual dysfunction
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 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 included in the amount the Company forgave for BTI's
total indebtedness of $895,819, which was treated as part of the basis of the
intellectual properties.

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.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

The Company filed an 8K on April 12, 1999 regarding the resignation of Thomas E.
Waite on March 4, 1999, former President, CEO and Chairman of the Board and the
resignation of Director Martin Holloran on March 4, 1999 and other matters.

The following is a table of the exhibits filed by the Registrant with its
Registration Statement on Form SB-2 filed July 20, 1998.

<PAGE>

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, 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 ***
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.

<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

HARVARD SCIENTIFIC CORP.

By /S/ Curtis A. Orgill
-----------------------------------------------
Curtis A. Orgill
Treasurer and Chief Financial Officer

In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

Name Title Date
---- ----- ----

/S/ Jackie R. See, M.D. Director April 14, 1999
- -----------------------------
Jackie R. See, M.D.

/S/Curtis A. Orgill Director, Treasurer, and
- ----------------------------- Chief Financial Officer April 14, 1999
Curtis A. Orgill

The Registrant does not currently hav a Principal Executive Officer or a
Controller or Principal Accounting Officer.

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

SUPPLEMENTAL DISCLOSURE

<TABLE>
<CAPTION>
SCHEDULE V

PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

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, 1998:

Furniture and Equipment 25,434 4,440 (17,469) - 12,405
Intellectual property 160,995 892,819 (1,053,814) - 0
Leasehold and Leasehold improvements 37,199 - (4,306) - 32,893

-------------- -------------- -------------- -------------- --------------
Total $ 223,628 $ 897,259 $ (1,075,588) $ - $ 45,299
============== ============== ============== ============== ==============

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
============== ============== ============== ============== ==============
</TABLE>

<PAGE>

HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)

SUPPLEMENTAL DISCLOSURE

<TABLE>
<CAPTION>
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------------------ -------------- -------------- -------------- --------------------------------

Furniture and Equipment 7,779 4,332 (5,889) - 6,223
Intellectual property 4,147 49,049 (53,196) - 0
Leasehold and Leasehold improvements 4,150 29,394 (4,306) - 29,238

-------------- -------------- -------------- -------------- --------------
Total $ 16,077 $ 82,775 $ (63,391) $ - $ 35,461
============== ============== ============== ============== ==============

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
============== ============== ============== ============== ==============
</TABLE>

<ARTICLE> 5
<LEGEND>
</LEGEND>
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,430
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 18,000
<CURRENT-ASSETS> 81,900
<PP&E> 9,838
<DEPRECIATION> 0
<TOTAL-ASSETS> 93,248
<CURRENT-LIABILITIES> 100,784
<BONDS> 0
0
0
<COMMON> 59,887
<OTHER-SE> 33,361
<TOTAL-LIABILITY-AND-EQUITY> 93,248
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,514,967
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,776
<INCOME-PRETAX> (3,045,877)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,712,010)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,712,010)
<EPS-PRIMARY> (.69)
<EPS-DILUTED> (.69)

</TABLE>