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, 1999
Commission File Number 0-28392
HARVARD SCIENTIFIC CORP.
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(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0226455
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(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: (775) 323-7122
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value $0.01 Per Share
Preferred 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
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Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State issuer's revenues for its most recent fiscal year. None
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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 $.475 on May 24, 2000, such market value is calculated
net of 6,933,700 affiliate shares which equals $ 2,951,525.
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of the latest practicable date. As of May 25, 2000 there were
13,147,437 shares of Common Stock outstanding. 1
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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, determine the ability of these substances to be encapsulated in
liposomes 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(s), all clinical testing necessary for regulatory approval of
such products from the U.S. Food and Drug Administration ("FDA") or similar
regulatory agencies in foreign countries in order to initiate marketing and
establish distribution channels for its products.
Products:
Thus far, the Company has developed five products designed to
ameliorate sexual dysfunction and licensed worldwide a technology for the
treatement of Psoriasis:
(1) An intrameatal therapeutic treatment for erectile dysfunction ("Male
Intrameatal Product")
(2) A topical therapeutic treatment for male erectile dysfunction ("Male
Topical Product") (3) A topical therapeutic treatment for female sexual
dysfunction ("Female Topical Product").
(4) An orally administered form of liposomal, lyophilized Apomorphine ("LL
Apomorphine") for the treatment of male erectile dysfunction ("Male Oral
Product"), and
(5) An orally administered LL Apomorphine for the treatment of female sexual
dysfunction ("Female Oral Product").
(6) Exclusive worldwide license for manufacture and marketing of lyophilized
liposomal PGE-1 topically applied compound for the treatment of Psoriasis.
PGE1 and Alprostadil, the active ingredients in the Company's products,
have already been approved by the FDA. In each of the Company's products, a
substance (Prostaglandin E1 ("PGE1") in the case of the Male Intrameatal, Male
Topical and Female Topical Products, and Apomorphine in the case of the Male and
Female Oral Products is encapsulated in liposomes and then lyophilized
(freeze-dried). This process provides the product with stability, a shelf life
recently proven to be at least 12 months at room temperature. LLPGE1 is an
oxygenated, unsaturated cyclic fatty acid that occurs naturally in all cells of
the body. For over 20 years, the FDA has approved PGE1 for therapeutic use as an
intravenous infusion in newborn babies with congenital heart defects. PGE1 has
also been approved by the FDA in the past three years, for the treatment of
erectile dysfunction, as an injection and as an intra-urethrally administered
pellet.
In the case of the Male Intrameatal Product, the lyophilized material
is reconstituted through the use of a non-irritating dilute detergent, which
lyse the liposomes, releasing the PGE1 into solution. This solution is then
applied via the urethral meatus (the opening at the end of the urethral tract at
the tip of the penis). In the case of the Male Intrameatal and the Male and
Female Topical Products, the agent is freeze dried and encapsulated in liposomes
and later reconstituted to form an aqueous solution suspended in a cream base, a
small amount of which is administered locally to the male's penis glands or
female's external vaginal area. In the case of the Male and Female Oral Products
LL Apomorphine is delivered orally.
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
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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 that
the Company's product, LL Apomorphine, makes possible.
Patents and Other Intellectual Property:
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 for an invention "PGE1 Containing
Lyophilized Liposomes For Use In The Treatment of Erectile Dysfunction,"
refereed to as LLPGE1. In June 1998, the Company filed an application for a
Patent in numerous regions and countries (Australia, Brazil, Canada, China, the
Czech Republic, Eurasia, Europe, Hungary, Iceland, Israel, Japan, Mexico, New
Zealand, Norway, Poland, Korea, Singapore, Slovakia, Turkey and the Ukraine). In
addition, in June 1998, the Company submitted an application with the U.S.
Patent and Trademark Office, for its development of a new method for treating
male erectile dysfunction via the intrameatal administration of an aqueous
("liquid") solution containing two vasodilators, PGE1 and Papaverine.
On October 8, 1999, the Company effectively received a worldwide
license to manufacture and market certain intellectual property of Bio Sphere
Technology, Inc. for the treatment of Psoriasis with special lotions which do
not have detergent or surfactaut properties allowing for sustained release of
active PGE-1 to the dermins of the skin. This is not a patented or patent
pending technology and is therefore based upon the know how and trade secrets of
Bios Sphere Technology, Inc. and its principal, Dr. Jackie See.
On April 4, 2000, The U.S. Patent Office issued to the Company Patent
No. 6,046,240 for an invention providing a method for treating female sexual
dysfunction or a method for female sexual enhancement with the administrtion to
the vagina of a topical cream with the PGE1 compound.
There can be no assurance that these patents and licenses will be
effective to protect the Company's products covered duplication by others. In
addition, there can be no assurance that the Company will be able to afford the
expense of any litigation that may be necessary to enforce its rights under
these patents and licenses or other patents and licenses the Company may obtain.
Although the Company believes that its products do not and will not infringe
upon the patents or violate the proprietary rights of others, it is possible
that such infringement or violation has or may occur. In the event that the
Company's products are determined to infringe upon the patents or proprietary
rights of others, the Company could be required to modify its products or obtain
a license for the manufacture and/or sale of the products, or could be
prohibited from selling the products. There can be no assurance that, in such an
event, the Company would be able to do so in a timely manner, upon acceptable
terms and conditions, or at all, and the failure to do any of the foregoing
could have a material adverse effect upon the Company. There can be no assurance
that the Company will have the financial or other resources necessary to enforce
or defend a patent infringement or proprietary rights violation action. If the
Company's products are deemed to infringe upon the patents or proprietary rights
of others, the Company could, under certain circumstances, become liable for
damages, which could also have a material adverse effect on the Company.
The Company 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 $57,183, $2,545,531, and
$5,816,241 for the fiscal years ended December 31, 1999, 1998 and 1997,
respectively. Losses are continuing through the date of this filing, and the
Company anticipates that it will continue to incur such losses until such time,
if ever, as the Company generates sufficient levels of revenues from product
sales to offset its operating costs. The Company believes that generation of
such revenues is dependent upon licensing, entering into joint ventures the
Company's ability to obtain FDA and/or foreign jurisdiction approval for the
marketing of its products. However, there can be no assurance the Company will
be able to operate profitably.
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The Company has incurred research and development costs of $46,079,
$1,035,638, and $1,374,675 for the years ended December 31, 1999, 1998 and 1997
respectively.
Future:
In 1999 The Company, due to a lack of funding and changes in
management, placed on hold its application activities with the FDA. During the
year 2000 the Company intends to reorganize and review its business strategy for
obtaining necessary regulatory approvals from the FDA and/or foreign
jurisdictions for the marketing of its products.
The Company will continue to qualify products in development to
determine safety, effectiveness, market potential, and time and cost to
commercialization. In addition, the Company is reviewing existing
pharmacological agents of other pharmaceutical companies that could be made more
effective by utilizing the Company's delivery system technology. As of this
date, the Company is concentrating its personnel and financing resources for the
five sexual dysfunction products and the psoriasis treatment product.
The Company through its recently acquired Signetics. Net division will
continue the development of an ovulation monitoring device and plans to bring
this to market initially in Canada within the next 12 months. Signetics. Net
will also plans to review other developed technologies for commercialization.
The Market
The Market for Male Sexual Dysfunction
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.
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.
The Market for Psoriasis
Approximately three million people in the United States are afflicted
by Psoriasis and the disease consumes about two billion dollars allocated to
health care each year. According to the National Psoriasis Foundation, there are
approximately 2.4 million patient visits annually to dermatologist by Psoriasis
patients, with each dermatologist seeing an average of 28 patients per month.
The majority of the patients receive a topical steroid therapy, however most
patients develop a tolerance to the cortical steroid lotions and there is lack
of long term control of their Psoriasis. A topically applied product utilizing
PGE-1 with a capture rate of 5% of the U.S. market would generate over
$100,000,000 in sales potential.
Competition
Competition for Male Sexual Dysfunction Product
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. The FDA approved PGE1 again by needle
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administration via Edex(R), a Schwartz-Pharma product. Senetek also produces
PGE1 in injectable formulations. Upjohn's product has received regulatory
approval worldwide, Schwarz-Pharma's product is approved for use in the United
States and Europe, and Senetek's product has received FDA approval for sale in
the United States.
The product most similar to the Company's Male Intrameatal Product is
produced by Vivus, Inc., and was approved by the FDA in November 1996. It
consists of a pellet containing PGE1 that is released into the urethra via the
specialized MUSE(R) device designed specifically for this purpose. This product,
like injectable PGE1, has the potential for side effects, including dizziness,
prolonged erection, priapism, headache, nervousness, drop in blood pressure and
pain at application.
Macrochem and NexMed are currently undertaking Phase I clinical trials
of a topical solution containing PGE1. These products would compete directly
with the Company's Male Topical Product, which has not yet commenced Phase I
clinical trials.
There are tablet formulations of the Male 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
that are developing tablet formulations. Viagra(R) was approved by the FDA in
March 1998. Zonagen(R) has not yet been approved by the FDA. The Company is
developing its own oral formulation of liposomal, lyophilized Apomorphine ("LL
Apomorphine") to compete with these oral drugs through its Male Oral Product.
Apormorphine has been used without life threatening side effects since 1869 but
can be associated with significant nausea and vomiting.
Other forms of competition are penile implants and vacuum pumps.
However, the Company anticipates that the market for these devices will decline
with the increasing awareness of various drug formulations which provide a more
natural erection.
Competition for Female Sexual Dysfunction Product:
A product for the treatment of Female 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. No data has been
generated to suggest efficiency or 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.
Competition for Psoriasis Product:
There are a large number of companies that market topical steroids for
Psoriasis, however, these therapies are associated with potential systemic
toxicities of steroid dependence and their effects are transient.
Several companies produce vitamin D analogs which, while producing
little toxicity, have low therapeutic benefit.
A relatively new product, Tazorac, is a Vitamin A analog manufactured
by Allergan. Annual sales are in the $100 million range and increasing. This
product is very effective, has little system toxicity, but has local toxicity
such as burning and/or pain in 10-30% of patients.
Oral drugs include potent immunosuppressive agents such as
methotrexate, etretinate and cyclosporine. These products are limited by high
cost, toxicities associated with systemic immunosuppressive and development of
tolerance.
Finally, exposure to ultraviolet light and medium wave length
ultraviolet B radiation are effective but may enhance the risk of skin cancer.
All therapies combined produce a market with approximately two billion dollars
in sales annually in the United States alone.
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A number of treatments for Psoriasis are partially effective and as
reviewed by Gerald J. Krueger M.D. in the New England Journal of Medicine, June
24, 1993, they are divided into three categories.
One: Topically applied agents such as cortical steroids, lotions,
anthrolin and vitamin D analogs.
Two: Exposure to ultraviolet light or artificial medium wave length
ultraviolet B radiation (UVB) or photoaugmented long wave length ultraviolet A
radiation (PUVA).
Three: Orally administered drug such as methotrexate, etretinate and
cyclosporine. PUV treatments are expensive, approximately $2,600 per year, while
methotrexate is less expensive, approximately $1,400 per year. Frequently such
treatments become ineffective with continued use and require cycling or
rotation.
In summary, using currently available therapies: 1) the topically
applied lotions become ineffective as tolerance develops, 2) the light therapies
are very expensive and become ineffective over time, and 3) the oral agents as
mentioned above can induce cancer, have serious liver toxicity and are reserved
for disease that is severe.
Based upon third party opinion, the Company's liposomal PGE-1 lotion
for use as a treatment for psoriasis will be effective and safe. PGE-1 is a
known effective agent for treating inflammation and immune system abnormalities.
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 will purchase all
ingredients from unaffiliated suppliers, including FDA validated suppliers of
LLPGE1. The Company does not now have any contracts with manufacturers, although
it is in the process of negotiating such contracts. Although the Company
believes that there are adequate suppliers and manufacturers sufficient to
satisfy the Company's requirements, the terms on which suppliers and
manufacturers will be available could have a material effect on the success of
the Company.
Dependence on Third-Party Research:
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.
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Marketing
The commercial success of the Company's products will require
acceptance by urologists, gynecologists, dermatologists, family practitioners
with a significant elderly female and/or male clientele, medical doctors
practicing as sex therapists and the medical community as a whole. Such
acceptance will depend in large part on the results of the clinical trials and
the conclusion by these physicians that the Company's products furnish a safe,
cost-effective and acceptable method of treatment. Accordingly, achieving market
acceptance of the Company's products will require substantial marketing efforts
and expenditure of significant funds to educate doctors, pharmacists, and the
public about what the Company believes are their advantages and benefits. To
that end, the Company will soon begin negotiations with potential distributors
for major international pharmaceutical companies in the United States, European,
South American and Asian 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 or regulatory approval and validations. Based
on market studies undertaken by the Company, it expects that sales of LLPGE1
products, both in the United States and internationally, may generate material
revenues to the Company by the end of 2001, or possibly sooner with regard to
the Male and Female Topical Products.
Employees
The Company had no full time employees at December 31, 1999. On
December 22, 1999, the CEO and Chairman of the Board, Irwin Miller, resigned all
of his positions with the Company. On January 13, 2000, Stuart Brame was elected
as president. He has agreed to work at no salary. The Company will be required
to retain other qualified personnel, for whose services the Company will be in
competition with other employers, many of which have significantly greater
resources than the Company. There can be no assurance that the Company will be
able to hire or retain such other qualified personnel.
Insurance
Officers and Directors:
The Company currently has no Directors and Officers insurance.
Product Liability:
The Company currently has no product liability insurance. Upon the
commencement FDA trials 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.
Business Interruption Insurance:
The Company does not currently maintain business interruption insurance
coverage.
Government Regulation
The Company is subject to various FDA regulations and/or foreign
regulatory bodies which govern or influence the research, testing,
manufacturing, safety, labeling, storage, record keeping and advertising and
promotion of pharmaceutical products and medical devices.
The Company received a warning letter from the FDA in May of 1999
regarding numerous procedural failures on the part of the Company and/or its
agents in the processing of IND number 50502. The then current management of the
Company responded with a letter of explanation. The FDA is still investigating
the circumstances surrounding an allegedly falsified 135 patient study included
in an article (for publication allegedly authored by Dr. See and Dr. Crenshaw)
referred to in several locations of IND application number 50,502. The Company
is providing full cooperation to the FDA for acts committed by previous
management regarding this IDN application which the Company cancelled in 1998.
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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
and/or its designated agents 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.
There can be no assurance that FDA or other regulatory clearance will
not take longer than currently anticipated because of delays, problems or
unforeseen safety difficulties or that regulatory clearance will ever be
granted, although the Company believes that FDA and other regulatory clearance
ultimately will be forthcoming. Failure to obtain FDA approval for a product
would prevent the Company from marketing that product in the United States,
which would have a material adverse effect on the Company's business, financial
condition and results of operations. Even if regulatory approval is obtained, a
marketed pharmaceutical product and its manufacturer are subject to continuing
regulatory review, and discovery of previously unknown problems or amendments to
existing statutes or regulations or the adoption of new statutes or regulations
could result in restrictions on such product or manufacturer, including
withdrawal of the product from the market.
At present, the Company plans to distribute its products to various
countries and regions world wide, and management believes that such distribution
may generate material royalty revenues by 2002. However, such distribution of
the Company's products outside the United States will also be subject to
extensive government regulation. These regulations, including the requirements
for approvals or clearance to market, and the time required for regulatory
review and the sanctions imposed for violations, vary from country to country.
There can be no assurance that the Company will obtain regulatory approvals in
such countries or that it will not be required to incur significant costs in
obtaining or maintaining its foreign regulatory approvals. Failure to obtain
necessary regulatory approvals, the restriction, suspension or revocation of
existing approvals or any other failure to comply with regulatory requirements
with respect to a Company products would prevent the Company from marketing
their products in such foreign country or countries, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The manufacturing processes of the Company's products will be subject
to certain regulatory guidelines. The FDA establishes these guidelines as GMP
(Good Manufacturing Practice). 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.
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Collaborative Arrangements
The Company operates as a "virtual company" and relies on
subcontracting and collaborative arrangements for much of its research and
development, manufacturing, clinical trial and marketing operations. The Company
intends to continue to seek and enter into collaborative arrangements with
pharmaceutical consulting, manufacturing and distribution concerns to eventually
manufacture and distribute its products.
Other Financing Arrangements
On January 13, 2000, the Company entered into an option agreement with Optima
Financial as part of a financial consulting agreement to provide reorganization
consulting services. The option provides for the acquisition of 2,000,000 shares
of common stock of the Company at a price of $.07 per share for a term of one
year. As of May 25, 2000, Optima Financial has exercised 950,000 shares of this
option providing interim funding for the Company during reorganization and
management change.
ITEM 2. DESCRIPTION OF PROPERTY
The Registrant had no office lease commitments at December 31, 1999:
The Registrant does not own any real estate, nor is the Registrant
engaged in the business of investing in real estate or real estate mortgages.
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings Resolved:
(a) Enza Vitiello Baldari v. David E. Jordan v. Harvard Scientific, Case No.
99-6451, District Court Southern Florida; this case was settled in March,
2000 for 125,000 shares of common stock in the Company subject to the
return of certificates for 1,000,000 shares of stock previously issued to
the direction of David E. Jordan. Shares will be issued at the rate of
15,000 per month, with the Company having the option to pay $1.25 per share
to pick up any of the remaining options through September, 2000.
(b) Eric N. Savage v. Harvard Scientific Corporation, Case No. A381022 filed on
November 10, 1997, Superior Court, Clark County, Nevada; settled on or
about May 10, 2000 for 65,000 shares of common stock in the Company. The
company has retained certain option rights to reacquire these shares should
the price of its common justify the same to the company.
Legal Proceedings Unresolved:
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) 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
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that did not occur, the Company again notified Pharma of it's intent to
terminate any and all agreements with Pharma referencing previous termination
notices. Pharma contends the various notices of termination were withdrawn or
ineffective and the agreement is enforceable. However, the Company believes it
has rightfully terminated the agreement with Pharma, which has been and
continues to be in breach of the agreement in any event. The validity of the
agreement is currently in dispute.
On February 19, 1998, the Company renewed it's previous notices of termination
and renoticed the termination of the licensing agreement with Pharma, and
demanded binding arbitration under Nevada law of the existing disputes between
the parties pursuant to the terms of the licensing agreement. Pharma has
retained Nevada counsel and arbitration is being pursued. There has been no
activity on this case of any consequence during 1999.
(b) Investors Capital Enterprises, Inc. v. Harvard Scientific Corp.,
and Does 1--50, Case No: BC209049, filed April 20, 1999 in Superior Court, Los
Angeles County, State of California. Investor's Capital Enterprises, Inc.
alleges that it was due a fee of 87,500 shares (post-split) of the Company's
Common Stock in exchange for arranging certain financing. The complaint alleges
that it did arrange certain financing through DJ Ltd. Investors Capital
Enterprises claims that such an investment qualifies for its commission
agreement and that it advised the Company in writing on July 1, 1996. The
complaint alleges that the market value of 87,500 shares on May 15, 1996 was
$2,100,000. The Company believes that there is no extant obligation and that the
complaint is without merit, and intends to vigorously defend against it. The
Company notes that litigation regarding the DJ Ltd. investment was previously
resolved, and that it has no record of receiving any notice from Investors
Capital Enterprises, Inc. since then. The Company further notes that Investors
Capital Enterprises, Inc. is represented by the same law firm representing Eric
Savage, who is currently in litigation with the Company and who has threatened
to instigate additional litigation against the Company until his settlement
demands are met, which the Company views his current demands as unreasonable
(see above). The Company is considering its rights and remedies against the
appropriate parties who may be attempting to tortuously interfere with the
Company's business.
(c) Hardesty; Ltd. V Harvard Scientific Corp. et al, Case CV99-05715 filed on
October 22, 1999, in the Second Judicial District Court, Washoe County, State of
Nevada. Hardesty, Ltd challenges it rendered legal services and advanced costs
for Defendant from December 1997 through December 1998 in excess of $10,000.
(d) RK Company v. Harvard Scientific Corp. dba Vibragen Inc., Case No. 99 C
4261, United States District Court, Northern District of Illinois, Eastern
Division. Plaintiff alleges securities fraud perpetrated by Defendant and/or its
agents to induce Plaintiff to invest and hold securities in Harvard Scientific.
NOTE 11 - UNCERTAINTY - GOING CONCERN
The financial statements of the Company have been prepared assuming 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. It is uncertain whether the
Promissory Notes due from the former Officer/Director Mr. Waite will be
collectd.
NOTE 12 - SUBSEQUENT EVENTS
(a) On April 7, 1999, the Company secured a Financial Public Relations
Agreement with I.W. Miller Group, Inc. The agreement provides for marketing
and advertising of the Company to professionals, business analysis of the
Company, public relations and long-term financial planning. In exchange for
this, 1,000,000 shares of common stock, of which 50% of the stock received
is issued pursuant to the exemption from registration under Section 4(2) of
the Securities Act of 1933 ("Restricted"), have been issued to I.W. Miller
Group, Inc.
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(b) On May 14, 1999, the Company agreed to resolve the Promissory Note payable
of $2,492,099 by Dr. See to the Company, plus accrued interest of $135,592
through March 31, 1999, or $147,221 through may 14, 1999, the date of this
agreement, as follows: (i) Dr. See will use his 790,139 shares issued in
connection with the Promissory Note transaction to the benefit of the
Company whether by contributing the proceeds from the sale of such shares
or by paying certain of the Company's obligations with such shares. (ii)
Dr. See agrees to use an additional 300,000 shares - i.e., the entire
balance of the shares owned by him - to the benefit of the Company. Thus,
all of Dr. See's 1,090,139 shares have been obligated in this manner. To
date, Dr. See has transferred 330,000 shares to pay a Company obligation as
well as the proceeds from the sale of another 100,000 shares. (iii)
Bio-Sphere Technology, Inc., in behalf of Dr. See, agrees to grant the
Company an exclusive license of its proprietary invention and trade secrets
regarding the use of liposomes bearing prostaglandin's for the treatment of
psoriasis. (iv) Dr. See waives arrearages in fees under his consulting
agreement.
(c) The company has cancelled plans to change the name to Vibragen, Inc.
(d) On April 29, 1999, Irwin Miller accepted the position of Chief Executive
Officer of the Company. The terms of Mr. Miller's employment are still to
be negotiated.
(e) In April 1999, the Company completed the required lease payments on the
lease of equipment used in the process of sizing Liposomes used by the
Company in the delivery of the Prostaglandin E-1, and now owns the
equipment free and clear. The total lease amount of $32,893 was paid over
24 months. The Company recorded the lease as a capital lease amortizing
payments over the life of the lease. The lease has been paid in full with a
$1 buyout charge to acquire the equipment. The Company now owns the
equipment free and clear of any debts or liens.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company began trading on the system of the
National Association of Securities Dealers, Inc. (NASD) known as the OTC
Electronic Bulletin Board under the symbol "HVSF" in June 1995. It has been
trading under the symbol "VGEN" since April 1999.
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.
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, 2000 $.94 $.78
December 31, 1999 $.16 $.11
September 30, 1999 $.17 $.14
June 30, 1999 $.81 $.75
March 31, 1999 $.63
$1.56
December 31, 1998 $.94
$4.78
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
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The approximate number of record holders of the Registrant's capital
stock as of May 15, 2000 was 217. Effective through February 28, 1999, the
transfer agent and registrar for the Common Stock was Olde Monmouth Stock
Transfer Co., Atlantic Highlands, New Jersey. Effective March 1, 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.
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.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
Item 2. Management's Discussion Analysis and Plan of Operation
The discussion contained in this Item 2 is "forward looking", as that term is
identified in, or contemplated by, Section 27A of the Securities Act and Section
21E of the Exchange Act. Accordingly, actual results may materially differ from
projections. Additional information concerning factors that could cause actual
results to differ materially is readily available in this section.
OVERVIEW:
- --------
Harvard Scientific Corp. 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(s), 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 that 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 has
previously attempted 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 resulting in backward momentum for the Company during 1999,
resulting in the resignation of the Thomas Waite management and Director group
in early 1999, the installation of the Ira Miller management group and
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resignation thereof on December 22, 1999. Upon resignation of the Ira Miller
management group in December of 1999, the Company was faced with responding to
several large lawsuits without any source of funds, over $2,000,000 of accounts
payable and a share price of under $.10 per share. The remaining Board of
Directors began to prepare the company for filing of Chapter XI Bankruptcy
Reorganization while continuing discussions with possible financing and
reorganization groups. On or about January 13, 2000, negotiations resulted in
the Company entering into an agreement with Stuart Brame and David Nelson of
Optima Financial to acquire for stock a company or companies with a minimum
independent evaluation of $4,000,000. Stuart Brame was elected President and
Director, with Optima Financial being retained by the Company as exclusive
financial consultants to the Company to assist in reorganization, the settlement
of debts and outstanding litigation and facilitating new funding for the
Company. Funds were advanced by Optima Financial to satisfy certain immediate
obligations of the Company including the funds to overturn a $2,500,000 default
judgment in the RK Company case and the maintenance of patent filings for the
female patent which subsequently issued on February 26, 2000, with publication
occurring on April 6, 2000.
The transaction with Stuart Brame along with David Nelson and Optima Financial
has proceeded as planned with funds advanced to the Company for the purchase of
shares pursuant to an option with Optima Financial to acquire 2,000,000 shares
of the Company's common stock to provide much needed interim funding. Stuart
Brame acting as President, along with the consulting assistance of Optima
Financial has provided the leadership to turn the Company around with a new
positive direction. As part of the transaction entered into on January 13, 2000,
the Company has agreed to acquire for convertible preferred stock and/or common
stock at a price .33 per share all of the common stock in Signetics.net, a
Nevada corporation with diagnostic technology relating to the detection of
ovulation within the human female. Signetics.net with the existing technology
for an ovulation detection meter has been independently evaluated by Newcomb &
Company, a NASD Broker/Dealer at between 4.3M and 6.5M based upon substantially
discounted pro forma income statements. Signetics.net, as a wholly owned
subsidiary will continue with the final development of the ovulation detection
device under the direction of Dr. Rick Millis as President. Dr. Millis is a
Professor of BioPhysics at Howard University, Washington, D.C., well published,
known in his field and has over 15 years of involvement with the development of
the subject ovulation detection device. Signetics.net intends to begin formal
trial testing of the ovulation detection device in a Canadian based fertility
clinic simultaneously with an application for pre marketing approval in Canada
within the next 120 days as a Class 1 medical device, non evasive, with no
chance of harm to the user. Completion of trial testing and Canadian approval
for pre marketing is anticipated within six - nine months. Upon completion of
Canadian testing and receipt of pre marketing approval, Signetics.net will apply
for FDA approval with the filing of a form 510-K, along with additional testing
should the same be required. The Canadian pre-market approval process
application follows the same format as the FDA 510-K application program.
Referencing the male and female sexual disorder products, the Company believes 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. With the recent issuance and publication of the Female Topical
Product patent (patent information set out below) for the treatment of FSAD, the
Company is quite confident of developing licensing and/or joint venture
production and marketing agreements to generate substantial revenues for the
Company. Licensing and/or joint venture agreements will not be limited to the
FDA controlled US market but will be pursued in selected international markets
where the Company maintains patent protection. In conjunction with potential
licensing, the Company will be reviewing with patent counsel possible
infringement by other companies of its recently published Female Topical Product
Patent, # 6,046,240.
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 formerly 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 its patented 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 with implementation of its protocols for gaining
regulatory approvals. During September 1998, toxicity studies were completed on
female rabbits and the results showed no toxicity and no redness or irritation
at any dose or with the gel itself when observed visually each day. Therefore,
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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 currently interviewing drug trial consulting firms
for preparation and submition of its application for an IND in connection with
the Female Topical Product to the U.S. Food and Drug Administration in 2000.
The Company's Male Topical Product is a local treatment and will be administered
directly to the end of the penis (glands) as a lotion or as a liquid spray. It
is very similar in composition to the Company's new treatment product for FSAD
and compliments the aqueous solution Male Intraurethral Product.
The Company previously contracted with 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 which is
currently under investigation by the FDA for an allegedly false patient study
submitted to the FDA by prior management. Mr. Goldstein is no longer a
consultant to the Company. On May 18, 2000, the Company received an FDA Warning
Letter regarding IND # 50502 and an investigation into an allegedly false
patient study submitted to the FDA. The Company will be reviewing with the drug
trial consulting firm selected the FDA issue of the allegedly falsified study
submitted by prior management in 1997. Simultaneous with the warning letter from
the FDA, the Company received a private request for information regarding the
FDA matter from the SEC. No action has been taken at this time. The Company is
aware that prior officers and Directors are under investigation by the FDA.
The Company's core technology is covered by the following issued patents: (1)
U.S. Patent Number 5,718,917 issued to the Company on February 17, 1998 "PGE1
CONTAINING LYOPHILIZED LIPOSOMES FOR USE IN THE TREATMENT OF ERECTILE
DYSFUNCTION". (2) U.S. Patent Number 6,046,240 published on April 4, 2000.
TOPICAL APPLICATION OF PGE-1 IN LYOPHILIZED LIPOSOMES FOR TREATMENT OF SEXUAL
DYSFUNCTION IN THE FEMALE. PGE-1 is the active drug agent used in the Company's
Male Intraurethral, Male Topical and Female Topical Products. 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/or other than U.S.
regulatory agency approval, none of which is assured.
The Company is currently reorganizing with the settlement of outstanding
litigation, accounts payable, developing a new management team along with new
financing plans, product licensing strategies and acquisitions. Over the next 12
months, the Company's primary focus will be to strategically implement a new
management team and business plan as it pertains to furthering the development
of both male and female treatment products for sexual disorders and to secure a
globally recognized pharmaceutical company as a licensing partner for its
products or secure private placement financing for the Company. The Company
anticipates it will: 1) submit its IND for its FSAD product to the FDA and
commence clinical trials under this IND as allowed by the FDA, 2) proceed with
phase II/III clinical trials and product validation of its Male Intraurethral
Product to conform to the regulatory process of the FDA, 3) petition the FDA for
an IND for its Male Topical Product as soon as possible and initiate clinical
trials when the FDA approves the right to do so, 4) continue development with
the Male and Female Oral Products, 5) continue monitoring patent applications
6)complete testing of the Signetics.net ovulation detection meter along with
obtaining pre market approval in Canada to begin production and commercial sales
7) seek to identify other companies and universities with similar technologies
for acquisition or joint venture and 8) and formulating strategic alliances for
joint venture arrangements, licensing and distribution agreements, research and
development agreements and other collaborative arrangements to assist in the
development, marketing and distribution of the Company's products.
It is the belief of the Company that if an agreement with a major industry
partner can be secured, the possibility exists that the regulatory process for
its products could be expedited. This should enhance the Company's ability to
bring its products to market more quickly, thus enabling the Company to make
fuller use of the remaining life of its patent for LLPGE1 which was issued
February 17, 1998 and its newly issued FSAD Patent. Without the benefit of an
industry partner, the Company believes an 24 to 36 month time-line to obtain
regulatory approval of the Male Intraurethral Product and the newly patented
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FSAD product is probable, but there can be no assurance that the product will
receive FDA approval in that time span, if ever. The Company will also pursue
licensing outside of the United States for both the Male and Female products.
In addition the Company intends to prepare its previously developed home AIDS
TEST kit for marketing through its subsidiary, SIGNETICS.NET. It is the intent
to establish a product identity trademark for home diagnostic products to be
licensed for marketing along with the ovulation detection device. An Internet
web site will be established to promote and sell these products direct to the
consumer. The Company may also add a line of holistic supplements and vitamins
under this trademark for Internet marketing.
The Company's future success is dependent upon its ability to raise additional
funds to complete the commercialization process for its Female and Male Topical
Products, Male Intraurethral Product and its other products either through
strategic agreements (i.e. licensing, distribution or joint venture) or through
private placements or public issuance of the Company's common stock. In the
past, the Company has relied upon the private purchase of its securities by
accredited investors to raise such funds and may have to rely upon this practice
in the future. There can be no guarantee that investors who have been interested
in purchasing the Company's securities in the past will be interested in doing
so in the future, or that alternative investors will be found, or that public
financing or collaborative arrangements will be available on terms satisfactory
to the Company.
The Company does not expect to purchase or sell any significant equipment over
the next ninety days.
Stuart Brame currently serves without salary and received 2,000,000 shares as a
signing bonus. Optima Financial will serve without payment of monthly consulting
fees and has received 2,000,000 shares for its services. An additional 1,000,000
shares was issued to Alexander H. Walker, Jr. for his services as Chairman of
the Board, 1,000,000 shares was issued to Curtis Orgill for his services as an
officer and director and 500,000 shares were issued to Gordon Cole for his
services as a director.
Results of Operations for the three months ending June 30, 1999 and June 30,
1998
During both quarters ending September 30, 1999 and September 30, 1998,
the Company had no net sales, and, accordingly, had no cost of sales for those
quarters. During that time, the Company has remained focused on 1) completing
the required regulatory review process for its Male Intraurethral product, 2)
introducing the new male and the new female sexual dysfunction products, and 3)
forming alliances for securing a joint venture or licensing agreement. The
Company intends to focus on promotions of their products only after completing
the regulatory review process.
During second quarter ending September 30, 1998, General &
Administrative expenses exceeded the period ending September 30, 1999 by
$718,740. In 1998, the Company was operating out of 3 offices with a management
team of about 7 employees, none of which exists during the first quarter 1999.
Management does not anticipate that General and Administrative expenses
will escalate to the level it was in 1998. As the Company obtains additional
investment capital and expands its operations, management intends on hiring a
lean staff to continue its operations. Careful consideration will be given to
the necessity of opening another office. It is the Company's intention to
minimize General and Administrative expenses and to focus on applying monies to
the development of it's products. The Company also continues to incur legal
expenses in connection with litigation in which the Company is involved.
Research & Development costs for the third quarter ending 1998 exceeded
the third quarter 1999 by $352,443. During 1998, the Company was incurring large
research consulting fees and was in the middle of clinical trials for the Male
Intraurethral product. In addition, they were beginning tests for the FSAD
(female sexual arousal disorder) product. As a result of lack of financing, very
little activity in clinical trials and Research & Development has taken place
during the third quarter 1999.
Should the Company secure additional financing, it is expected the
Company will proceed with clinical trials on the Male sexual dysfunction
products and the female sexual arousal disorder products.
Dividend income and interest income have decreased significantly due to
the lack of funds earning interest and due to the write-off of the interest
accrued on the Financing Agreement Promissory Notes with Dr. See and Mr. Waite.
There was a decrease in Loss on Disposition of Assets of in the first quarter of
$5,698 in 1999 vs. 1998, a result of closing the Irvine, California office and
disposing of certain assets from downsizing the office to another location.
During the first quarter 1998, the Company entered into a financing
agreement with Jackie R. See, a director and a controlling stockholder of, and
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consultant to, the Company, and Thomas E. Waite, former President, Chief
Executive Officer, Chairman of the Board of Directors and a controlling
stockholder of the Company, whereby such investors (a) purchased an initial
tranche of 1,580,278 shares of the Company's Common Stock (the "Initial Shares")
for an aggregate purchase price of $5,000,000. Promissory Notes were due March
31, 1999 in the principal amount of $2,492,098.61, bearing interest at the rate
of 1% above prime and secured by the shares purchased. These notes plus accrued
interest are in default, and thereby the Company has reserved 100% of the
balance due as a result of the uncertainty of collectability. At March 31, 1999,
the Company reported total assets of $23,828. This compares with total assets at
March 31, 1998 of $6,868,118. The reasons for this decrease in assets is a
result of 1) a decrease in cash of $737,518, 2) a 100% decrease in prepaid
expenses of approximately $20,000, 3) a 100% decrease in Due from Related
Parties of $892,819, 4) the reserve established for the possible uncollectable
Promissory Notes plus accrued interest of $4,943,742 bringing the note
receivable balance to zero at March 31, 1999, 5) an increase in inventory of
$18,000, 6) the Company has depreciated it's Equipment and organizational costs
down by $63,521, and 7) intangible assets of $154,004 at March 31, 1998 have
been written down to zero at December 31, 1998 to reflect the current value
until such time a market value can be established.
The Company's total current liabilities for the period ending June 30,
1999 decreased by $2.431.261 over the total current liabilities at June 30,
1998.
The Company issued a total of 15,000 shares of common stock during the
first quarter 1999, as compared to 1,893,884 shares during the same period
ending 1998. This difference is mostly attributed to the Debentures converted
during January 1998 (103,606), securing two additional financing arrangements
(1,780,278), plus shares issued to new directors (10,000). The Company
anticipates that it will continue the practice of issuing shares of its common
stock as compensation for services rendered to the Company.
Liquidity and Capital Resources
- -------------------------------
To complete the regulatory process for its products, the Company
estimates it will need as much as $12-million for the Female Topical Product,
potentially $10-million for the Male Topical Product and as much as $12-million
for the Male Intraurethral Product. For the next six months, expected costs to
be incurred for research & development is $1,983,000, which includes clinical
trials on the Male Intraurethral Product as well as the Male and Female Topical
products. Up to an additional $20-million may be required to complete testing
and bring to market the Company's additional products. However, regulatory and
testing costs per product for these additional products are projected to be
lower due to data generated by the CMC, animal and clinical data related to the
Male Intraurethral Product.
The Company expects to obtain capital funds either from the issuance of
common stock or debt. Management is working extensively on obtaining financing
for the Company. It is expected that external sources will be available to
provide these funds, but there can be no guarantees of such funding. . If
additional capital is not secured, there is considerable doubt about the
Company's ability to continue as a going concern.
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.
17
<PAGE>
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 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 $5,943,925. This compares with total assets at
December 31, 1997 of $2,227,677. The primary reason for this increase in assets
is a result of the two promissory notes, totaling $4,850,058 at December 31,
1998 and a decrease in cash of $859,769. Interest Income accrued for 1998 on
these two notes totaled $165,861.
The Company's total current liabilities for the year ending December
31, 1998 decreased by $2,552,260 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.
Liquidity and Capital Resources
- -------------------------------
The Company's major financial transaction for 1997 incurred during the
first quarter was the issuance of $5,000,000 aggregate principal amount of 6%
Convertible Debentures on March 21, 1997, resulting in a net receipt of
$4,375,000 by the Company for its general operating account. During 1997, the
majority of the cash used in the Company's operations came from the issuance of
the 6% Convertible Debentures. During the first quarter of 1998, the Company
managed to secure two additional financing arrangements: (1) the Company's two
principal stockholders, Thomas E. Waite, President and Chief Executive Officer,
and Jackie R. See, M.D., F.A.C.C., Director of Research and Development, entered
into the Financing Agreement pursuant to which on February 3, 1998 they each
made payments of $7,901.39 and gave a promissory note of $2,492,098.61 due March
31, 1999, with a right to purchase an additional $5,000,000 of the Company's
Common Stock together, 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.
18
<PAGE>
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.
ITEM 7. FINANCIAL STATEMENTS
19
<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, 1999, December 31, 1998 and December 31, 1997,
and the related statements of operations, stockholders' equity, and cash flows
for the years 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.
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, 1999, December 31, 1998 and December 31, 1997 and the results of
its operations and its cash flows for the years 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 11 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
By: /s/ Ronald D. Simpkins
--------------------------
Ronald D. Simpkins
Reno, Nevada
May 24, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS
December 31, December 31, December 31,
1999 1998 1997
(Audited) (Audited) (Audited)
Current Assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 1,610 $ 13,430 $ 873,199
Prepaid expenses -- 37,173 35,382
Note & Interest Receivable (Note 6, 8 & 9) 2,751,493 4,850,058 57,711
Reserve for receivables (Note 6, 8 & 9) (2,751,493) (4,850,058) --
Accounts Receivable - Employees -- 12,997 --
Accounts Receivable - Other -- 300 --
Due From Related Parties (Note 6) -- -- 852,305
Deferred debt issue costs (Note 10) -- -- 156,250
Product Inventory -- 18,000 --
----------- ----------- -----------
Total Current Assets 1,610 81,900 1,974,847
----------- ----------- -----------
Equipment and Leasehold Improvements:
at cost, less accumulated depreciation of $35,461
at December 31, 1998, $11,930 at December 31, 1997
(Notes 2 & 3) -- 9,838 50,704
----------- ----------- -----------
Intangible Assets:
Intellectual Property, net of accumulated amortization
of $4,147 at December 31, 1997 (Note 4) -- -- 156,848
Organizational cost, net of accumulated amortization of
$175,550 at December 31, 1999 and 1998, $140,686 at
December 31, 1997 respectively -- -- 34,864
----------- ----------- -----------
-- -- 191,712
----------- ----------- -----------
Other Assets:
Deposits 300 1,510 10,414
----------- ----------- -----------
TOTAL ASSETS $ 1,910 $ 93,248 $ 2,227,677
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31, December 31,
1999 1998 1997
(Audited) (Audited) (Audited)
------------- ------------- -------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable $ 349,753 $ 350,859 $ 26,370
Accrued expenses (Note 5) -- 63,662 131,694
Obligation under capital lease - current (Note 3) -- 8,263 16,979
Debentures payable - Convertible (Note 10) -- -- 2,800,000
------------- ------------- -------------
Total Current Liabilities 349,753 422,784 2,975,043
------------- ------------- -------------
Long-Term Liabilities:
Obligation under capital lease - non-current (Note 3) -- -- 6,317
------------- ------------- -------------
Stockholders' Equity:
Common Stock, $.001 par value; 100,000,000 shares
authorized; 6,153,737, 5,988,746 and 3,344,137
shares issued and outstanding at December 31,
1999, December 31, 1998 and December 31, 1997 61,537 59,887 33,441
Preferred Stock, 10,000,000 shares authorized, none
issued and outstanding -- -- --
Additional paid-in capital 12,841,840 12,804,614 8,694,904
Deficit accumulated during the development stage (13,251,220) (13,194,037) (9,482,028)
------------- ------------- -------------
Total Stockholders' Equity (347,843) (329,536) (753,683)
------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,910 $ 93,248 $ 2,227,677
============= ============= =============
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
1/13/87
(Inception)
December 31, December 31, December 31, to
1999 1998 1997 12/31/99
(Audited) (Audited) (Audited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ -- $ -- $ -- $ 187,387
Cost of Sales -- -- -- 221,557
Gross Profit -- -- -- (34,170)
------------ ------------ ------------ ------------
Operating Expenses:
General and administrative expenses 80,385 2,204,248 2,295,337 6,620,840
Research and development 46,079 1,035,638 1,374,675 2,885,276
Depreciation and amortization -- 275,080 515,213 910,927
------------ ------------ ------------ ------------
Total Operating Expenses 126,464 3,514,966 4,185,225 10,417,043
------------ ------------ ------------ ------------
Loss from Operations (126,464) (3,514,966) (4,185,225) (10,451,213)
------------ ------------ ------------ ------------
Other Income (Expense):
Settlements -- (70,354) (220,816) (785,983)
Foregiveness of Debt 79,057 968,901 -- 1,047,958
Interest Income 62 5,875 1,168 7,500
Dividend Income -- 11,510 51,453 62,963
Interest Expense -- (100,776) (1,462,821) (2,085,909)
Loss on disposition of Assets or Securitie s (9,838) (1,012,198) -- (1,046,536)
------------ ------------ ------------ ------------
Total Other Income and Expense 69,281 (197,042) (1,631,016) (2,800,007)
------------ ------------ ------------ ------------
Net Loss $ (57,183) $ (3,712,008) $ (5,816,241) $(13,251,220)
============ ============ ============ ============
Loss per Common Share $ (0.01) $ (0.69) $ (0.36) $ (2.44)
============ ============ ============ ============
Weighted Average Shares Outstanding 6,071,225 5,363,250 16,352,816 5,435,701
============ ============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1999 (AUDITED)
Deficit
Restated Additional From
Common Stock Paid-in Inception
Shares Amount Capital To Date Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of shares for cash on
January 13, 1987 (inception) 103,000 $ 103 $ 2,097 $ -- $ 2,200
Issuance of shares for cash,
net of offering costs 51,000 51 19,223 -- 19,274
Issuance of shares for services 146,000 146 -- -- 146
Issuance of shares to acquire
Grant City Corporation 50,000 50 39,827 -- 39,877
---------- ---------- ---------- ---------- ----------
Balance December 31, 1993 350,000 350 61,147 -- 61,497
Issuance of shares to effect a
four-for-one split 1,050,000 1,050 (1,050) -- --
Issuance of shares for
intellectual property rights 4,196,000 4,196 -- -- 4,196
Issuance of shares for
corporation property rights 394,000 394 24,231 -- 24,625
Issuance of shares for fees
and services 1,045,000 1,045 96,893 -- 97,938
Issuance of shares for cash,
net of offering costs 393,500 393 353,757 -- 354,150
Adjustment of shares to effect a
four-for-one reverse split (5,571,375) (5,571) 5,571 -- --
Cumulative (loss) from inception
to December 31, 1994 -- -- -- (550,386) (550,386)
---------- ---------- ---------- ---------- ----------
Balance December 31, 1994 1,857,125 1,857 540,549 (550,386) (7,980)
</TABLE>
The accompanying Notes are an integral part of these financial statements.
<PAGE>
F-5
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1999 (AUDITED)
Deficit
Restated Additional From
Common Stock 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-6
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1999 (AUDITED)
Deficit
Restated Additional From
Common Stock 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) -- -- 410,015 -- 410,015
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 Reeivable 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 -- 60,353
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) $ (329,536)
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1999 (AUDITED)
Deficit
Restated Additional From
Common Stock Paid-in Inception
Shares Amount Capital To Date Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Issuance of Shares for fees
and services 165,025 1,650 15,226 -- 16,876
Reduction of Note receivable -- -- 22,000 -- 22,000
Net (loss) for the Year ended
December 31, 1999 -- -- -- (57,183) (57,183)
------------ ------------ ------------ ------------ ------------
Balance at year end December 31, 1999 $ 6,153,737 $ 61,537 $ 12,841,840 $(13,251,220) $ (347,843)
============ ============ ============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Year ended 1/13/87
December 31 (Inception)
-------------------------------------- to
1999 1998 1997 12/31/99
(Audited) (Audited) (Audited) (Unaudited)
----------- ----------- ----------- -----------
Reconciliation of Net Loss to Net Cash
Used in Operating Activities:
<S> <C> <C> <C> <C>
Net Loss $ (57,183) $(3,712,008 $(5,816,241) $(14,220,121)
----------- ----------- ----------- -----------
Adjustments to Reconcile Net Loss to
Net Cash Provided by (Used in)
Operating Activities:
Book value of assets sold -- -- -- 6,483
Loss on disposition of securities or asset 9,838 1,012,199 -- 1,022,037
Forgiveness of debt (79,057) (968,901) -- (1,047,958)
Depreciation and amortization -- 118,830 46,464 285,928
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 1,289,875
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 -- 60,354 301,041 856,208
Discount on Convertible Debentures -- -- 1,250,000 1,750,000
Interest Expense converted to Stock -- 11,917 86,878 98,795
(Increase) decrease in assets:
Prepaid expenses 37,173 -- 1,565 37,173
Deposits/Retainers 1,210 7,112 (45,496) (37,474)
Other Assets 31,297 (13,297) -- 18,000
Increase (decrease) in liabilities:
Accounts payable 77,951 345,830 (31,597) 428,808
Accrued expenses (63,662) (89,373) 124,091 (8,616)
Due to/from related parties -- 514,040 (394,600) 310,300
----------- ----------- ----------- -----------
Total Adjustments 14,750 1,478,242 2,369,495 5,919,740
----------- ----------- ----------- -----------
Net Cash Provided (Used) by Operating Act $ (42,433) $(2,233,768) $(3,446,746) $ (8,300,381)
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Cash from sale (purchase) of equipment -- -- (53,217) (78,114)
Cash from sale (purchase) of Intellectual Righs -- -- (150,000) (150,000)
Capitalized organization costs -- -- -- (150,924)
----------- ----------- ----------- -----------
Net Cash Used in Investing Activities -- -- (203,217) (379,038)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of capital stock,
net of offering costs 38,876 3,173,999 125,000 4,584,821
Proceeds from debt converted to capital stock -- -- -- 250,000
Proceeds from debt -- -- 23,295 438,739
Proceeds from debentures, net of costs -- -- 4,375,000 5,343,901
Principal payments on debt (8,263) (1,800,000) -- (1,936,432)
----------- ----------- ----------- -----------
Net Cash Provided by Financing
Activities 30,613 1,373,999 4,523,295 8,681,029
----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash (11,820) (859,769) 873,332 1,610
Cash at beginning of period 13,430 873,199 (133) --
----------- ----------- ----------- -----------
Cash at end of period $ 1,610 $ 13,430 $ 873,199 $ 1,610
=========== =========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-9
<PAGE>
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
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 dys-
function ("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 LLPGE1 for the treatment of sexual dysfunction and
bring the products to the marketplace. In 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.
On November 15, 1999, notice was received from the U.S. Patent Office that the
patent application for methods For the Treatment of Female Sexual Dysfunction
was allowed pursuant to Notice of Allowances Case No. 34437.
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
F-10
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
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. 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, 1999.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organizational Costs:
Organization costs are being amortized over a five-year period using the
straight-line method. At December 31, 1999, the Organizational Costs were fully
amortized.
Inventory:
Inventory is valued at the lower of cost or market.
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.
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.
Earnings per share:
The earnings per share calculations were based on the weighted average number of
shares outstanding during the period.
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-11
<PAGE>
NOTE 3 - EQUIPMENT & LEASEHOLD IMPROVEMENTS
Equipment and building improvements consists of the following:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Equipment & Leasehold Improvements $ 45,299 $ 62,634
Less: Accumulated depreciation 35,461 11,930
------------- -------------
Total $ 9,838 $ 50,704
============== ==============
</TABLE>
In April 1997, the Company entered into an agreement for the lease of equipment
used in the process of sizing Liposomes which the Company uses in the delivery
of the Prostaglandin E1. 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 the fourth quarter of 1998 and the first quarter of 1999, the Company
closed three offices (Florida, Arizona and California) with all operations
maintained out of a Reno, Nevada office. The office equipment in these offices
were donated to charitable organizations.
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
LLPGE1 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.
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 LLPGE1
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-12
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
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, BTI chose to convert the accounts payable balance of $333,535 as a
contribution to additional-paid-in-capital.
On November 20, 1997, the Company agreed to exchange 200,000 shares of common
stock, which has been issued, to BTI for the Intellectual Property Rights to
Prostaglandin E1 Lyophilized Liposomes for the use of treatment of Psoriasis. In
addition, the Company is to pay BTI $150,000. BTI was to receive a 3% override
on royalties of the Psoriasis product. On June 11, 1998, BTI and the Company
agreed that BTI would transfer an irrevocable royalty-free license to all
intellectual property, intangibles, patents, trade secrets, trademarks, trade
names and goodwill relating to BTI that exists or is in development, relating to
male and/or female sexual dysfunction, for the return of the intellectual
property related to the Psoriasis product that BTI previously had transferred to
the Company and the granting to BTI registration right (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.
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.
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following:
(Audited) (Audited)
December 31, 1998 December 31, 1997
----------------- -----------------
Interest on notes and debentures $ 0 $131,694
Accrued payroll & payroll taxes 63,662 0
-------- --------
Total $ 63,662 $131,694
======== ========
Also see Note 10 for interest on debentures.
NOTE 6 - RELATED PARTY TRANSACTIONS
1. During 1994, 1995 and 1997, the Company entered into three significant
transactions with related parties for the acquisition of intellectual
rights, and for the provision of technological, management, fundraising and
marketing assistance. Note 4 describes the valuation of these transactions.
F-13
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
2. During 1997, the Company incurred a payable of $150,000 to BTI for the
Intellectual Property Rights to Prostaglandin E1 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 1997, 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 8).
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
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 8 and Note 9.
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.
F-14
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
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
Notes 8 and 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.
During the first quarter 1999, the Company issued 15,000 shares of Common
Stock to an employee of Company, in accordance with her employment
agreement and considered additional compensation fully earned in 1998. The
stock is restricted as defined in Rule 155 under Securities Act of 1933.
The employee is no longer with the Company. The transaction was valued at
the low bid price on the day of the transfer, or $16,875.
Also see discussions regarding intellectual properties and agreements in
Notes 4 and 8.
NOTE 7 - INCOME TAXES
The Company has federal net operating loss carryforwards for financial
statement purposes of approximately $14,000,000 at December 31, 1999, which
will be used to offset future earnings of the Company. The loss
carryforwards will expire during the years ending 2002 through 2013 if not
used.
NOTE 8 - CONTRACTS & AGREEMENTS
1. Certain contracts and agreements with the Company have been placed on hold
until financing arrangements have been made. These contracts include
certain employment contracts and other agreements between the Company and
parties expected to perform services for the Company.
2. 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,
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
F-15
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
split effective February 2, 1998). 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 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 notes 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.
On March 31, 1999, the Promissory Notes due from Dr. Jackie R. See and
Thomas E. Waite were due and payable.
On May 14, 1999, the Company agreed to resolve the Promisory Note payable
of $2,492,099 by Dr. See to the Company, plus accrued interest of $147,221
through May 14, 1999, the date of this agreement, as follows: (i) Dr. See
will use his 790,139 shares issued in connection with the Promissory Note
transaction to the benefit of the Company whether by contributing the
proceeds from the sale of such shares or by paying certain of the Company's
obligations with such shares (ii) Dr. See agrees to use an additional
300,000 shares - i.e., the entire balance of the shares owned by him - to
the benefit of the Company. Thus, all of Dr. See's 1,090,139 shares have
been obligated in this manner. To date, Dr. See has transferred 990,139
shares to pay Company obligations as well as the proceeds from the sale of
another 100,000 shares. (iii) Bio-Sphere Technology, Inc., in behalf of Dr.
See, agrees to grant the Company an exclusive license of its proprietary
invention and trade secrets regarding the use of liposomes bearing
prostaglandin's for the treatment of psoriasis. (iv) Dr. See waives
arrearages in fees under his consulting agreement.
Mr. Waite has not been relieved from his obligation to pay in full the note
and interest balance due the Company ( See Note 9).
3. 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.
4. 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 E1 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.
F-16
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
5. 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 LLPGE1 product to the marketplace. Effective January 1, 1999 the
agreement with Dr. Irwin Goldstein was terminated.
6. 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.
7. 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
was issued 105,200 shares of Common Stock. The shares transferred were
recorded at par value.
8. 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.
9. 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.
10. 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.
11. 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
F-17
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
F-18
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
17. 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.
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. Since January 1999, the Chief Financial Officer of the Company has
maintained the Company's operations out of his Reno, Nevada office. Prior
to that time, the Company had the following office lease commitments:
(a) In June 1998, the Company moved its research & development offices from
Irvine, California to Costa Mesa, California where they occupied 930
square feet. Rent was $900 monthly beginning June 15, 1998 expiring
June 14, 1999. During January 1999, the Company negotiated out of this
lease closing this office. All research and development will be
performed out of a designated laboratory still to be determined.
(b) On July 20, 1998 the Company moved the administrative headquarters from
Reno, Nevada to Scottsdale,Arizona where the accounting operations were
maintained. They occupied 144 square feet and paid rent of $610 monthly
expiring August 31, 1999. During January 1999, the Company negotiated
out of this lease, moving all administrative functions to the Reno,
Nevada office.
(c) In December 1998, the Company closed its headquarters in Lake Mary,
Florida.
NOTE 9 - CONTINGENCIES
The Company is a party in certain pending or threatened legal, governmental,
administrative, or judicial proceedings that arose in the ordinary course of
business. The following includes a list of current pending or threatened
proceedings, which are believed not to affect the financial position of the
Company in a material way at this time:
(a) Investors Capital Enterprises, Inc. v. Harvard Scientific Corp. and Does
1-50 Case No: BC209049, filed April 20, 1999 in Superior Court, Los
Angeles County , State of California. Investor's Capital Enterprises,
Inc. alleges that it was due a fee of 87,500 shares (post-split) of the
Company's Common Stock in exchange for arranging certain financing. The
complaint alleges that it did arrange certain financing through DJ Ltd.
Investors Capital Enterprises claims that such an investment qualifies
for its commission agreement and that it advised the Company in writing
on July 1, 1996. The complaint alleges that the market value of 87,500
shares on May 15, 1996 was $2,100,000.
During September 1999, the court ordered this Case to proceed to binding
arbitration. However, to date, Investors Capital Enterprises, Inc. has
not initiated the arbitration.
(b) On March 8, 1999, an action entitled Thomas Waite, Plaintiff, vs.
Harvard Scientific Corp., a Nevada Corporation, and Dr. Jackie R. See,
Defendants, was filed by Mr. Waite, former President, CEO and Chairman
of the Board. The case was filed in the Circuit Court of the 18th
Judicial District in and for Seminole county, Florida, Case No.
99-508-CA-15-K. The action alleges that Mr. Waite was fraudulently
induced to enter into the February 1998 financing agreement approved by
the stockholders in May of 1998. In addition, Mr. Waite seeks rescission
of such loan agreement in the amount of $2,492,098.61 and repayment of
F-19
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
$300,000 loaned under the agreement and consequent cancellation of the
transaction that resulted in 790,139 shares issued to Waite in February
1998. On April 6, 1999, the Company and Dr. See filed a notice of
removal of the action tot he United States District Court, Middle
District of Florida, Orlando Division, as Case No. 99-409-CIV-ORL-22B.
On September 3, 1999 the Judge dismissed the Case without prejudice and
directed to the clerk to close the file.
(c) Harvard Scientific Corp. v. Thomas E. Waite, Case No. CV-N-99-00245-ECR,
was filed on April 30, 1999 in the United States District Court for the
District of Nevada, Reno. The complaint alleges breach of contract of
fiduciary duty and unjust enrichment claims in connection with former
CEO, President and Director, Thomas E. Waite's non-payment of a
promissory note due to the Company on March 31, 1999 in the amount of
$2,492,098.61. The complaint also alleges a claim under section 16(b) of
the Securities Exchange Act of 1934, as amended, in connection with
profits alleged to be over $700,000 on sales of Company stock in 1997.
The Company is awaiting a response from Waite to the complaint, and to
the motion to transfer the action Waite has filed in the state of
Florida to be consolidated with this case filed in the federal court in
Reno, Nevada (see above).
(d) 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 counsel. 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. It appears that Pharma Maehle has abandoned
arbitration.
(e) Hardesty, Ltd., vs. Harvard Scientific Corp. et al, Case No. CV99-05715
filed on October 22, 1999, in the Second Judicial District Court, Washoe
County, State of Nevada. Hardesty, Ltd. Challenges it rendered legal
services and advanced costs for Defendant from December 1997 through
December 1998 in excess of $10,000.
F-20
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
(f) RK Company vs. Harvard Scientific Corp., Case No. 99 C 4261, United
States District Court, Northern District of Illinois, Eastern Division.
Plaintiff alleges massive fraud perpetrated by Defendant to induce
Plaintiff to invest and hold securities in Harvard Scientific.
(g) Pyramid Laboratories vs. Harvard Scientific Corp.,Case No. 811584 in the
Superior Court of the State of California, County of Orange, Central
Justice Center: Pyramid Laboratories is seeking approximately
$128,000.00 in damages from Harvard for services allegedly provided to
Harvard. This amount is disputed by Harvard. Harvard asserts that there
should be an offset of this amount due to actions of Pyramid
Laboratories. This matter is set for trial on May 30, 2000 in Orange
County Superior Court.
(h) Medhat Gorgy vs. Harvard Scientific Corp., Case No. CV99-04662 in the
Second Judicial District Court of Washoe County, Nevada. Medhat Gorgy, a
principal of Pyramid Laboratories, has filed suit against Harvard
claiming damages for services alledgedly provided to Harvard. The amount
sought is disputed by Harvard. The Company seeks an offset of the amount
due to actions of Medhat Gorgy and seeks damages against Medhat Gorgy in
a counterclaim. The Company seeks damages against Pyramid Laboratory as
a third party defendant to this action.
NOTE 10 - CONVERTIBLE DEBENTURES
In March 1997, pursuant to a private placement, the Company (a) sold to one
investor $5,000,000 principal amount of 6% Convertible Debentures (the
"Debentures") due March 30, 1998 and (b) received a commitment from that
investor, subject to various conditions, to purchase additional Debentures in
the aggregate principal amount of up to $10,000,000 in two tranches of
$5,000,000 each, also to be due March 30, 1998. The Debentures are convertible
into shares of Common Stock at the lesser of the market price on March 21, 1997
or 80% of the market price on the conversion date. Market price is defined as
the average closing bid of the Common Stock on the five (5) days immediately
preceding March 21, 1997 or the actual conversion date. The Company has the
right to require, by written notice to the holder of this debenture at any time
on or before ten days prior to the maturity date, that the holder of this
debenture exercise its right of conversion with respect to all or that portion
of the principal amount and interest outstanding on the maturity date. In
addition, at the time of issuance, the Company accounted for the 20% discount to
market of $1,000,000 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.
F-21
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Based on Audited Financial Statements at December 31, 1999,
December 31, 1998 and December 31, 1997
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 11 - UNCERTAINTY - GOING CONCERN
The financial statements of the Company have been prepared assuming that the
Company will continue as a going concern. The Company's continued existence is
dependent upon its ability to resolve its liquidity problems, principally by
obtaining additional equity capital from other sources. Collectability is
uncertain on the Promissory Note due from the former Officer/Director, Mr.
Waite. If additional capital is not secured, there is considerable doubt about
the Company's ability to continue as a going concern.
NOTE 12 - SUBSEQUENT EVENTS
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 May 18, 2000 an agreement was reached whereby Harvard will issue 75,000
shares of stock to Savage.
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. This case was settled and dismissed by a Court Order dated
April 17, 2000. The settlement agreement requires Harvard to issue 125,000
shares to David Jordan or his nominees.
F-22
<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,
1999, 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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
During the year 1999 up through March of 2000, 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 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Period Served as Director
Name Age Position (1) or Executive Officer
- -----------------------------------------------------------------------------------------------------------------------
Irwin Miller 66 Director,Chairman,and 4/29/99 - 12/22/99
Chief Executive Officer
- -----------------------------------------------------------------------------------------------------------------------
Martin J. Holloran 67 Director (3) 2/10/98 - 3/4/99
- -----------------------------------------------------------------------------------------------------------------------
Barbara L. Krilich 38 Secretary and Chief 12/12/97 - 1/12/99
Operating Officer
- -----------------------------------------------------------------------------------------------------------------------
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 (5) 1/6/94 - 7/12/99
- -----------------------------------------------------------------------------------------------------------------------
Thomas E. Waite 36 Chief Executive Officer, 11/14/97 - 3/4/99
President and Director (5)
- -----------------------------------------------------------------------------------------------------------------------
Alexander H. Walker, Jr. 74 Director and Chairman of Since 1/13/2000
the Board
- -----------------------------------------------------------------------------------------------------------------------
Stuart V. Brame 53 Director, President, and Since 1/13/2000
Chief Executive Officer
(2) (3)(4)
- -----------------------------------------------------------------------------------------------------------------------
Gordon W. Cole 63 Director (3) Since March 3, 1999
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company's directors are elected at the annual meeting of stockholders
and hold office until their successors are elected and qualified or until
the director resigns. The Company's officers are appointed annually and as
needed by the Board of Directors and serve at the pleasure of the Board.
(2) These Directors are members of the Compensation Committee. Mr. Orgill is
Chairman of this committee.
(3) These Directors are members on the Audit Committee. Mr. Orgill is Chairman
of this committee.
(4) These Directors are members of the Company's Executive Committee.
20
<PAGE>
Business Experience:
Jackie R. See, M.D., F.A.C.C., was a Director of the Company. He resigned in
July of 1999. Dr. See is a cardiologist and the principal inventor and author of
the patent of microsphere technology "PGE1-EDT". He received his M.D. from the
University of California, College of Medicine (Irvine) in 1968. Dr. See
completed his Residency in Internal Medicine at the Huntington Memorial
Hospital, Pasadena, California in 1973. After serving as a Medical Officer on
active duty in the U.S. Navy Medical Corps. He went on to do research fellowship
work in cardiology at Peter Bent Brigham Hospital, Harvard Medical School
(Boston). He was an Associate Director of the Foundation for Cardiovascular
Research (1968-1984) and has been a Fellow of the American College of Cardiology
since 1980. Dr. See is licensed to practice medicine in the States of California
and Nevada and is Board Certified by the American Board of Internal Medicine. He
is the author or co-author of more than 60 research articles for various medical
publications.
Thomas E. Waite, was a Director and Chairman of the Board, President and the
Chief Executive Officer of the Company at December 31, 1998. Mr. Waite resigned
all his positions with the Company on March 4, 1999. Much of Mr. Waite's
experience has been specialized in investment banking, corporate finance,
mergers and acquisitions, and public relations for publicly traded biotechnology
and medical device companies. Just prior to joining the Company, Mr. Waite was
President of his consulting firm, Thomas E. Waite & Associates, Inc., which
began in late 1992, where he and his associates began researching the most
effective, risk adverse way for establishing enterprises in the rapidly
expanding and highly lucrative riverboat gaming industry. As a result of this
research, in 1993, Mr. Waite organized a successful riverboat gaming company
called Wild Card Enterprises, Inc., of which he was also President. From 1988 to
mid 1994, Mr. Waite was a Series-7 licensed registered representative. His
consulting experience began in 1990 at First Montauk Securities. In 1991 he
became Director of Investment Banking and Corporate Finance at Collner Higgins
and Andersen, a securities firm that specializes in trading. In 1993, Mr. Waite
resigned his position with Collner Higgins and Andersen.
21
<PAGE>
Martin J. Holloran was a Director of the Company. Mr. Holloran resigned his
position as Director on March 4, 1999. Mr. Holloran is currently retired. Prior
to retirement, Mr. Holloran had over forty years of experience in sales and
marketing, which includes over twenty-five years with Prudential Insurance
Company. He earned many awards over his career for both sales and management
abilities. Mr. Holloran was a winner of 24 National Leadership awards for
Prudential, a two time winner of its Academy of Honor and a two time winner of
the Citation award given to the top 10% producers in Prudential Insurance
Company. Mr. Holloran also received the Distinguished Professional Service Award
for New England and continues to be very active as a Teacher of Christian
Doctrine and a coach of children's athletics.
Curtis A. Orgill, CPA, is the Company's Treasurer, Director and Chief Financial
Officer. Mr. Orgill is a Certified Public Accountant with current licenses in
the states of Nevada and Utah. In 1974, Mr. Orgill joined Deloitte Haskins &
Sells (currently Deloitte & Touche), in Salt Lake City. He later helped open a
new office for Deloitte & Touche in Reno, Nevada, serving as the Senior Tax
Partner in the State of Nevada. He left Deloitte & Touche in 1993 to join the
regional CPA firm of Bartig, Basler & Ray, CPA's Inc. Mr. Orgill is involved in
international accounting, corporate tax planning and tax compliance as well as
structuring acquisitions for corporations. Mr. Orgill is a member of the
American Institute of Certified Public Accountants, the Nevada Society of
Certified Public Accountants and the Utah Association of Certified Public
Accountants.
Barbara L. Berry, CPA, was the Company's Secretary and Chief Operating Officer
until she resigned on January 12, 1999. Mrs. Berry has been a Certified Public
Accountant in Arizona since 1984. She recently served as Director and Chief
Financial Officer of Health Care Centers of America, Inc. from November 1996 to
April 1997. Immediately prior to that she was employed by Evans Withycombe
Residential, Inc. (currently Equity Residential Inc.), a Real Estate Investment
Trust (REIT), in Phoenix, Arizona, which she joined in 1994. Initially Mrs.
Berry worked in developing multi-family units in Phoenix, Arizona, later
transferring into the acquisition division responsible for acquiring
multi-family properties in Southern California. From 1992 to 1994, she was a
Regional Manager in Phoenix Arizona for SCG Residential, a subsidiary of
Security Capital Group, a REIT listed on the New York Stock Exchange. Prior to
joining SCG, Ms. Krilich spent over 10 years in accounting and finance with
various firms, including Peat Marwick & Mitchell (currently KPMG). Mrs. Berry is
a member of the American Institute of Certified Public Accountants and the
Arizona Society of Certified Public Accountants.
22
<PAGE>
Gordon W. Cole is a Director of the Company and has been such since 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.
Alexander H. Walker, Jr. is Chairman of the Board and a Director of the Company
as of January 13, 2000. Mr. Walker has been a practicing since 1956 with an
emphasis on trial and transactional work in the area of corporate securities.
From 1955 to 1956, he served as the Attorney in Charge of the Salt Lake City
branch office of the SEC. Prior to that he served as the advising attorney for
the SEC division of corporate finance in Washington, D.C. He maintains a law
office in Salt Lake City and is a member of the state bars of Pennsylvania and
Utah. He is an owner of Nevada Agency and Trust Company and serves as a Director
on other public and private companies from time to time.
Stuart V. Brame is Chief Executive Officer, President and Director of the
Company as of January 13, 2000. Mr. Brame is from British Columbia, Canada hand
has extensive experience in the areas of corporate development and financial
restructuring. He has served as a Director and Officer of both private and
public companies and was instrumental in raising money for the purpose of
advancing those companies and advising them on all aspects of their future
growth. Mr. Brame has developed international private and corporate networks
which can assist the Company in its long term positioning.
23
<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:
24
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
- -------------------------------------------------------------------------------------------------
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) 1999 None None None None None
Was a Director 1998 $138,462 $ 3,753,161 $ 138,462 None None
1997 $199,662 $10,088,450 $10,288,112 None None
- -------------------------------------------------------------------------------------------------
Ian Hicks (3) 1999 None None None None None
Was CEO, President & 1998 None $ 10,281 $ 10,281 None None
Director 1997 $46,000 $1,671,750 $1,717,750 None None
- -------------------------------------------------------------------------------------------------
Don Steffens (4) 1999 None None None None None
Was CEO, President & 1998 None $ 46,677 $ 46,677 None None
Director 1997 $155,135 $3,608,750 $3,763,885 $100,000 None
- -------------------------------------------------------------------------------------------------
Alexander H. 1999 None None None None None
Walker(5) 1998 None $ 47,000 $ 47,000 None None
Chairman of the Board & 1997 $150,000 $2,892,724 $3,042,724 $75,000 None
and Director
- -------------------------------------------------------------------------------------------------
Lorenz Hoffman (6) 1999 None None None None None
Was COO 1998 $ 60,000 None $ 60,000 None None
1997 $140,150 $59,600 $199,750 None None
- -------------------------------------------------------------------------------------------------
Thomas E. Waite (7) 1999 None None None None None
was President & CEO 1998 $221,538 $3,753,161 $ 221,538 None None
1997 $28,462 $4,000,000 $4,028,462 None None
- -------------------------------------------------------------------------------------------------
Curtis A. Orgill (8) 1999 None None None None None
1998 $110,770 $345,000 $455,770 None None
1997 $ 9,231 None None None None
- -------------------------------------------------------------------------------------------------
Barbara L. Berry (9) 1999 None None None None None
1998 $110,770 $345,000 $450,770 None None
1997 $ 9,231 None None None None
- -------------------------------------------------------------------------------------------------
Martin J. Holloran 1999 None None None None None
(10) 1998 $6,000 $25,600 $31,600 None None
1997 None None None None None
- -------------------------------------------------------------------------------------------------
Colonel Robert T. 1999 None None None None None
Hayden (11) 1998 $6,000 $25,600 $31,600 None None
1997 None None None None None
- -------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
(1) The transfer of shares issued to directors and officers is restricted
pursuant to applicable securities laws, although some recipients may have
registration rights in respect of their shares. The dollar value of all
share grants reflected in this Summary Compensation Table as of the date
involved are calculated in accordance with item 402(b)(2)(iv)(A) of
Regulation S-B, which requires the dollar value of any award of restricted
stock to be calculated by multiplying the closing market price of the
registrant's unrestricted stock on the date of grant by the number of
shares awarded, even if that amount could not than be realized.
(2) Dr. See is not an employee, and all compensation paid to him was for his
consulting services. His consultant agreement, which was entered into as of
April 1, 1996 and terminated on March 30, 1999, called for the Company to
pay him a consulting fee of $12,500 per month. In addition, he was
reimbursed for all reasonable and necessary business expenses incurred in
the discharge of his consulting duties.
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).
(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.
(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.
(5) The Company entered into two agreements on March 19, 1997, and on May 15,
1997, with Alexander H. Walker, Jr. ("Walker"), currently the Company's
Chairman of the Board and a Director. The agreements provided that Mr.
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.
On April 12, 1996, Mr. 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, Mr. Walker received 18,000 shares of stock
for services performed. The dollar value of such stock was $1,203,660. On
June 10, 1997, Mr. 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.
(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 terminated all agreements with Dr.
Hofmann.
26
<PAGE>
(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
performance. Mr. Waite had 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 have the right to invest up to $10,000,000 in
the Company and pursuant to which they invested $5,000,000 on February 3,
1998 in promissory notes and cash and received 1,580,028 shares of Common
Stock therefor. Such stock is valued at the closing bid price of $9.50 on
February 3, 1998 for a total value of $7,506,321. For stock issuance's to
Thomas E. Waite & Associates prior to Mr. Waite becoming an employee, See
"Legal Proceedings No. 1."
(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 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 12, 1999, Mrs. Berry resigned
her positions with the Company. 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. Mr. Holloran resigned and no londer is a director.
(11) 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
27
<PAGE>
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 of 1998, Col. Hayden passed away.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All shares included in the following table and in this section reflect sets
forth information 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 as of December 31, 1999:
<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 12/31/99(1)
- -------------------------- ----------------------------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Common Stock Curtis Orgill (6) 50,000 <1%
1325 Airmotive Way
Suite 125
Reno, NV 89502
- -------------------------- ----------------------------------------- ------------------------ -----------------------
Common Stock All Directors and 50,000 <1%
Officers as a Group
- -------------------------- ----------------------------------------- ------------------------ -----------------------
Common Stock Thomas Waite 1,140,139 9%
54 Carter Road
Lake May, FL 32746
- -------------------------- ----------------------------------------- ------------------------ -----------------------
</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) 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 1999, the Company issued no shares of Common Stock to current or prior
Officers and Directors of the Company, relatives of those Officers and Directors
and other related parties. Prior to 1999, the Company had issued shares as
follows:
28
<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 (1) 11/14/97 50,000 $ 500,000
Son
Dr. Darryl See, M.D. Consultant Dr. Jackie See's (1) 1/26/98 200,000 $ 1,192,000
Son
Daniel L. See N/A Dr. Jackie See's (1) 6/11/97 1,000
Son
David J. See N/A Dr. Jackie See's (1) 3/2/98 5,000
Son
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 (6) 7/5/96 2,000 $ 65,000
Son-in-law
J.T. Cardinalli N/A Walker JR's (6) 3/18/97 2,000 $ 133,740
Son-in-law
Total 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.
(2) The Company has secured a Financing Agreement (See "Description of
Business") with Dr. Jackie See and Thomas E. Waite, then the 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.
29
<PAGE>
(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 performance as President and Chief Executive Officer.
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, the Company issued to Mr. Walker
105,200 shares of Common Stock. In December 1997, the Company
terminated all agreements with Mr. Walker. 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, and on October 14, 1998,
unrestricted shares were reissued as a part of the settlement
agreement.
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.
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 following is a table of the exhibits filed by the Registrant with its
Registration Statement on Form SB-2.
Number Description
- ------ -----------
3.1 Articles of Incorporation of Registrant, including all amendments to
April 30, 1996. *
3.2 Amendment to Articles of Incorporation of Registrant, amended June 18,
1996***
3.3 Amendment to Articles of Incorporation of Registrant, amended July 9,
1996 ***
3.4 Amendment to Articles of Incorporation of Registrant, amended July 13,
1998 ***
3.5 Certificate of Change in Number of Authorized Shares of Class and
Series, filed February 2, 1998 ***
3.6 By-Laws of Registrant, as amended to date. *
4.1 Form of 6% Debenture (See Annex I to Item 10.2). **
5.1 Opinion of Hardesty, Bader & Ryan, 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.**
30
<PAGE>
10.1a 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 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.**
10.12 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.
31
<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/Alexander H. Walker, Jr.
-----------------------------------------------
Alexander H. Walker, Jr., Chairman of the Board
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.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/Stuart Brame President, and Chief Executive May 26, 2000
- ------------------------- Officer
Stuart Brame
/s/Gordon W. Cole Director May 26, 2000
- -------------------------
Gordon W. Cole
/s/Curtis A. Orgill Director, Treasurer, and May 26, 2000
- -------------------------- Chief Financial Officer
Curtis A. Orgill
</TABLE>
32
