SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10QSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) of the
SECURITIES ACT OF 1934
For the quarter ended March 31, 2000
Commission File Number 0-28392
HARVARD SCIENTIFIC CORP.
----------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0226455
-------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1325 Airmotive Way, Suite 125, Reno, Nevada 89502
- ------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (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) 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 day.
(1) Yes No X (2) Yes No X
----- ----- ----- -----
Indicate the number of shares outstanding of each of the Issuer's classes of
Common Equity, as of the latest practicable date:
Common Stock, Par
Value $0.001 Per Share 13,147,437
---------------------- ----------
(TITLE OF CLASS) (NUMBER OF SHARES OUTSTANDING
on May 25, 2000)
1
<PAGE>
Part I
Item No. 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS
March 31, December 31,
2000 1999
(Unaudited) (Audited)
----------- -----------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,135 $ 1,610
Accounts Receivable - Directors (Note 7 & 9)
Deferred debt issue costs (Note 11) Legal Retainer
Note & Interest Receivable (Note 6, 8, & 9) 2,751,493 2,751,493
Reserve for receivables (Note 6, 8, & 9) (2,751,493) (2,751,493)
----------- -----------
Total Current Assets 2,135 1,610
----------- -----------
Intangible Assets:
Intellectual Property, Net of accumulated amortization
of $35,508 at March 31, 2000 and
December 31, 1999, respectively (Note 4) 0 0
Investment in Signetics.net 4,300,000 0
0
Organizational cost, net of accumulated amortization of
$175,550 at March 31, 2000 and December 31, 1999,
respectively 0 0
Deposits 300 300
----------- -----------
TOTAL ASSETS $ 4,302,435 $ 1,910
=========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-1
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (CONTINUED)
LIABLITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2000 1999
(Unaudited) (Audited)
----------- ------------
(Audited)
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 342,177 $ 349,753
------------ ------------
Total Current Liabilities 342,177 349,753
------------ ------------
Stockholders' Equity:
Common Stock, $.01 par value; 100,000,000 shares
authorized; 13,768,022 and 6,153,737 shares issued
and outstanding at March 31, 2000 and December 31,
1999, respectively (Note 2) 133,680 61,537
Preferred Stock, 10,000,000 shares authorized, 4,000 and none
Issued and outstanding at March 31, 2000 and December 31
1999, respectively (Note 2) 4,000 0
Additional paid-in capital 17,187,197 12,841,840
Deficit accumulated during the development stage (13,364,619) (13,251,220)
------------ ------------
Total Stockholders' Equity (3,960,258) (347,843)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,302,435 $ 1,910
============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
1/13/87
Three Months Ended Three Months Ended (Inception)
------------------ ------------------ To
March 31 2000 March 31, 1999 March 31, 2000 March 31, 1999 03/31/00
(Unaudited) (Audited) (Unaudited) (Audited) (Unaudited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ $ $ $ 187,387
Cost of Sales -- -- -- -- 221,557
------------ ------------ ------------ ------------ ------------
Gross Profit -- -- -- -- (34,170)
------------ ------------ ------------ ------------ ------------
Operating Expenses:
General and administrative expenses 113,399 66,559 113,399 66,559 6,734,239
Research and development -- 4,286 -- 4,286 2,885,276
Depreciation and amortization -- 2,742 -- 2,742 910,927
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 113,399 73,587 113,399 73,587 10,530,442
Loss from Operations (113,399) (73,587) (113,399) (73,587)) (10,564,612
------------ ------------ ------------ ------------ ------------
Other Income (Expense):
Other Income -- -- -- -- --
Forgiveness of debt -- -- -- -- 1,047,958
Settlements (Note 9) -- -- -- -- (785,983)
Interest Income -- 51 -- 51 7,500
Dividend Income -- 9 -- 9 62,963
Interest Expense -- -- -- -- (2,085,909)
Loss on disposition of Fixed Assets or
Securities -- (5,882) -- (5,882)) (1,046,536)
------------ ------------ ------------ ------------ ------------
Total Other Income and Expense -- (5,822) -- (5,822)) (800,007)
------------ ------------ ------------ ------------ ------------
Net Loss (113,399) $ ( 79,409)) (113,399) $ (79,409) $(13,364,619)
============ ============ ============ ============ ============
Loss per Common Share $ .02 $ (0.21) $ .01 $ (0.59) $ --
============ ============ ============ ============ ============
Weighted Average Shares
Outstanding (Note 2) 6,078,737 5,643,101 6,071,225 5,150,154 --
============ ============ ============ ============ ============
</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 STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO MARCH 31, 2000 (UNAUDITED)
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
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 MARCH 31, 2000 (UNAUDITED)
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 250,000 250 124,750 -- 125,000
costs
Issuance of shares for fees and services 1,270,000 1,270 -- -- 1,270
Discount on 6% Convertible Debentures -- -- 1,250,000 -- 1,250,000
Net (loss) for the Quarter ended March 31, 1997 -- -- -- (3,140,868) (3,140,868)
----------- ----------- ----------- ----------- -----------
Balance March 31, 1997 11,403,129 $ 11,403 $ 4,580,957 $(6,806,654) $(2,214,294)
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-5
<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 MARCH 31, 2000 (UNAUDITED)
Deficit
RESTATED Additional From
Common Stock Paid-in Inception
Shares Amount Capital To Date Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
March 31, 1997 balance forward 11,403,129 $ 11,403 $ 4,580,957 $(6,806,654) $(2,214,294)
Issuance of shares for fees and services 6,172,000 6,172 -- -- 6,172
Issuance of shares in conversion of debt 450,000 450 133,300 -- 133,750
Net (loss) for the Quarter ended June 30, 1997 -- -- -- (1,266,233) (1,266,233)
----------- ----------- ----------- ----------- -----------
Balance June 30, 1997 18,025,129 $ 18,025 $ 4,714,257 $(8,072,887) $(3,340,605)
Issuance of shares in conversion of debt 1,446,325 1,446 1,275,133 -- 1,276,579
Issuance of shares for fees and services 144,000 144 -- -- 144
Net (loss) for the Quarter ended September 30,
1997 -- -- -- (180,075) (180,075)
----------- ----------- ----------- ----------- -----------
Balance September 30, 1997 19,615,454 $ 19,615 $ 5,989,390 $(8,252,962) $(2,243,957)
Issuance of shares in conversion of debt 2,375,919 2,376 985,789 -- 988,165
Issuance of shares for fees and services 8,300,000 8,300 537,100 -- 545,400
Issuance of shares in legal settlement 1,150,000 1,150 439,075 -- 440,225
Issuance of shares for intellectual property 2,000,000 2,000 -- -- 2,000
Receivable due from related parties reflecting
the sale of stock Rule 16(b) -- -- 410,016 -- 410,016
Receivable due from related parties -- -- 333,535 -- 333,535
Net (loss) for the Quarter ended December 31,
1997 -- -- -- (1,229,065) (1,229,065)
----------- ----------- ----------- ----------- -----------
Balance at year end December 31, 1997 33,441,373 $ 33,441 $ 8,694,904 $(9,482,027) $ (753,682)
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-6
<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 MARCH 31, 2000 (UNAUDITED)
Deficit
RESTATED Additional From
Common Stock Paid-in Inception
Shares Amount Capital To Date Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Issuance of shares in conversion of debt 1,036,064 1,036 260,882 -- 261,918
February 1, 1998, adjustment of shares to effect
a one-for-ten reverse split (31,029,693) -- -- -- --
Issuance of shares for a commitment to a
financing agreement 1,580,278 15,803 4,984,197 -- 5,000,000
Issuance of shares for services 10,000 100 -- -- 100
Issuance of shares for cash 200,000 2,000 598,000 -- 600,000
Net reversal of Receivable due from related
parties reflecting the sale of stock Rule 16(b) -- -- (17,197) -- (17,197)
Net (loss) for the Quarter ended March 31, 1998 -- -- -- $ (1,097,930) $ (1,097,930)
--------- ------------ ------------ ------------ ------------
Balance at March 31, 1998 5,238,022 $ 52,380 $ 14,520,786 $(10,579,957) $ 3,993,209
Issuance of shares for fees and services 10,500 105 124,371 -- 124,476
Issuance of shares for cash 233,333 2,334 697,665 -- 699,999
Net (loss) for the Quarter ended June 30, 1998 -- -- -- (735,893) (735,893)
--------- ------------ ------------ ------------ ------------
Balance at June 30, 1998 5,481,855 $ 54,819 $ 15,342,822 $(11,315,850) $ 4,081,791
========= ============ ============ =========== ============
Issuance of shares for fees and services 101,000 1,010 396,990 -- 398,000
Issuance of shares for cash 24,667 247 73,753 -- 74,000
Issuance of shares for legal settlement 600,000 6,000 2,762,900 -- 2,768,900
Inventory -- -- 18,000 -- 18,000
Net (loss) for the Quarter ended September 30,
1998 -- -- -- (1,212,055) (1,212,055)
Balance September 30, 1998 6,207,522 $ 62,076 $ 18,594,465 (12,527,905) $ 6,128,636
========= ============ ============ =========== ============
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-7
<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 MARCH 31, 2000 (UNAUDITED)
Deficit
RESTATED Additional From
Common Stock Paid-in Inception
Shares Amount Capital To Date Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Adjustment of Waite & See Agreement -- -- (4,684,197) -- (4,684,197)
Shares returned to Treasury Stock (270,200) (2,702) -- -- (2,702)
Issue of shares for fees and services 51,390 513 -- -- 513
Reclassifying of debt forgiveness -- -- (968,901) -- (968,901)
Net (loss) for Quarter ended December 31, 1998 -- -- (136,752) -- (136,752)
Balance at Year End -- -- -- (666,133 (666,133)
Balance at December 31, 1998 5,988,712 59,887 12,804,615 (13,194,038) (329,536)
----------- ----------- ----------- ----------- -----------
Issue of shares for service 15,000 150 -- -- 150
Issue of shares January 11, 1999 25 -- 16,725 -- 16,725
Net (loss) for Quarter ended March 31, 1999 -- -- -- (79,408) (79,408)
Issue of shares for fees and services 51,390 513 -- -- 513
Reclassifying of debt forgiveness -- -- (968,901) -- (968,901)
Net (loss) for Quarter ended December 31, 1998 -- -- (136,752) -- (136,752)
Balance at December 31, 1998 5,988,712 59,887 12,804,615 (13,194,038) (329,536)
----------- ----------- ----------- ----------- -----------
Issue of shares for service 15,000 150 -- -- 150
Issue of shares January 11, 1999 25 -- 16,725 -- 16,725
Net (loss) for Quarter ended March 31, 1999 -- -- -- (79,408) (79,408)
Balance at March 31, 1999 6,003,737 60,037 12,821,340 (13,273,446) (392,069)
Net (loss) for Quarter ended June 30, 1999 -- -- -- (1,296) (1,296)
Balance as of June 30, 1999 6,003,737 60,037 12,821,340 (13,274,742) (393,365)
========= ====== ========== =========== ========
June 30, 1999 Balance forward 6,003,737 60,037 12,821,340 (13,274,742) (393,365)
Shares issued for service 150,000 -- -- -- --
Reduction of note receivable -- -- 22,000 -- 22,000
Net (loss) for quarter ended September 30, 1999 -- -- -- (204) (204)
Balance at Quarter ended September 30, 1999 6,153,737 60,037 12,843,340 (13,274,946) (371,569)
========= ====== ========== =========== ========
</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 STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO MARCH 31, 2000 (UNAUDITED)
<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 ended December 31,
1999 6,153,737 $ 61,537 $ 12,841,840 $(13,251,220) $ (347,843)
Issuance of Shares for legal fees and services
6,500,000 65,000 -- -- 65,000
Sale of shares 714,285 7,143 49,357 -- 56,500
Issuance of preferred shares for
Signetics.net acquisition 400,000 4,000 4,296,000 -- 4,696,000
Net loss for 3 mos. Ended March 31,2000 -- -- -- (113,399) (113,399)
---------- ------------ ---------- ------------ ------------
Balance at March 31, 2000 13,768,022 $ 137,680 17,187,197 $(13,364,619) $ 4,356,258
---------- ------------ ---------- ------------ ------------
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-9
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
1/13/87
Three Months Ended (Inception) to
March March March
31, 2000 31, 1999 31,2000
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Reconciliation of Net Loss to Net Cash
Used in Operating Activities:
Net Loss $ (113,399) $ (79,407) $(14,333,520)
------------ ------------ ------------
Adjustments to Reconcile Net Loss to
Net Cash Provided by (Used in)
Operating Activities:
Book value of assets sold -- -- 6,483
Loss on disposition of securities or fixed assets -- 5,882 1,022,037
Depreciation and amortization -- 2,742 258,928
Amortization of Debt Issuance cost -- -- 625,000
Issuance of stock for director's fees and
employment services 15,000 16,875 1,304,875
Issuance of stock for consulting & legal fees 4,406,500 -- 4,689,681
Issuance of stock for Property Rights -- -- 2,000
Issuance of stock in legal settlement -- -- 856,208
Discount on Convertible Debentures -- -- 1,750,000
Interest Expense converted to Stock
(Increase) decrease in assets: -- -- 98,795
Accounts Receivable
Note & Interest receivable -- -- (1,047,958)
Prepaid expenses -- 37,173 (37,173)
Deposits/Retainers -- (1,210) 37,474
Legal Retainer -- -- --
Other assets -- 13,297 18,000
Increase (decrease) in liabilities:
Accounts Payable (7,576) (830) 421,232
Accrued expenses -- (6,055) 8,616
Due to related parties -- -- 310,300
------------ ------------ ------------
Total Adjustments 4,413,924 70,284 1,033,664
------------ ------------ ------------
Net Cash Used in Operating Activities 4,300,525 $ (9,115) $ (3,999,856)
============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-10
<PAGE>
<TABLE>
<CAPTION>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
1/13/87
Three Months Ended (Inception) to
March March March
31, 2000 31, 1999 31,2000
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C>
Cash Flows from Investing Activities:
Cash from sale (purchase) of stock (4,300,000) -- (4,300,000)
Cash from sale (purchase) of equipment -- -- (78,114)
Cash from sale (purchase) of Intellectual Rights -- -- (150,000)
Capitalized organization costs -- -- (150,924)
----------- ----------- -----------
Net Cash Used in Investing Activities (4,300,000)- -- (4,679,0138)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of capital stock,
net of offering costs -- 1,373,999 4,584,821
Proceeds from debt converted to capital stock -- -- 250,000
Proceeds from debt, net of costs -- -- 438,739
Proceeds from debentures, net of costs -- -- 5,343,901
Principal payments on debt paid in capital -- (8,756) (1,936,432)
----------- ----------- -----------
Net Cash Provided by Financing Activities (4,300,000) 1,365,243 8,681,029
----------- ----------- -----------
Net Increase (Decrease) in Cash 525 (782,386) 2,135
Cash at beginning of period 1,610 873,199 --
----------- ----------- -----------
Cash at end of period 2,135 $ 90,813 2,135
=========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-11
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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-12
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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-13
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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-14
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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-15
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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-16
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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-17
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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-18
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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-19
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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-20
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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-21
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
$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-22
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(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-23
<PAGE>
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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-24
<PAGE>
ITEM 2: Management's Discussion and Analysis or 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
2
<PAGE>
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 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.
3
<PAGE>
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, 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.
4
<PAGE>
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 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.
5
<PAGE>
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 overcthe next ninety days.
Stuart Brame currently serves without salary and received 2,000,000
shares as asigning bonus. Optima Financial will serve without payment of monthly
consultingcfees 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.
6
<PAGE>
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 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.
7
<PAGE>
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.
8
<PAGE>
During September 1998, the Company settled a lawsuit with Springrange
Investment Group and was able to book as ordinary income, a forgiveness of debt
amount of $968,901. For the twelve months ending December 31, 1998, General and
Administrative Expenses decreased slightly by approximately $91,000 over 1997, a
direct result of identifying a core management team in November 1997 and
strategically eliminating unnecessary costs. Research and Development decreased
by approximately $340,000 as a result of securing key manufactures in the
industry. Depreciation and Amortization decreased by approximately $240,000 in
1998 over 1997 as a result of the debenture issuance cost which became fully
depreciated in March 1998. Overall, the Total Operating Expenses resulted in a
decrease of approximately $670,000 in 1998 over 1997; a positive affect of the
cost-saving measures implemented beginning November 1997.
As discussed above, dividend income and interest expense were greater
in 1997 by $39,943 and $1,362,045, respectively, a direct result of the 6%
Convertible Debenture. The Debentures are convertible into shares of common
stock at the lesser of the market price on March 21, 1997 or 80% of the market
price on the conversion date. At the time of issuance (March 1997), the Company
accounted for the 20% discount to market of $1,250,000 as additional interest
expense and paid-in-capital. The balance of the deferred issuance cost on the 6%
Debenture of $156,250 was amortized within the first quarter of 1998.
On February 3, 1998 (as amended), the Company entered into a financing
agreement with Jackie R. See, then 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.
9
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's major financial transaction for 1997 incurred during the
first quarter was the issuance of $5,000,000 aggregate principal amount of 6%
Convertible Debentures on March 21, 1997, resulting in a net receipt of
$4,375,000 by the Company for its general operating account. During 1997, the
majority of the cash used in the Company's operations came from the issuance of
the 6% Convertible Debentures. During the first quarter of 1998, the Company
managed to secure two additional financing arrangements: (1) the Company's two
principal stockholders, Thomas E. Waite, President and Chief Executive Officer,
and Jackie R. See, M.D., F.A.C.C., Director of Research and Development, entered
into the Financing Agreement pursuant to which on February 3, 1998 they each
made 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 litigationsettlement
(see Part I, Notes to the Financial Statements, Note #10 (j) and (k), and Note
11. Total monies raised in the Third quarter of 1998 were $1,874,000.
During the fourth quarter of 1998, Thomas E. Waite put $300,000 into
the Company reducing his promissory note by the same.
To complete the regulatory process for its products, the Company
estimates it will need as much as $12-million for the Female Topical Product,
potentially $10-million for the Male Topical Product and as much as $12-million
for the Male Intraurethral Product. For the next six months, expected costs to
be incurred for research & development is $1,983,000, which includes clinical
trials on the Male Intraurethral Product as well as the Male and Female Topical
products. Up to an additional $20-million may be required to complete testing
and bring to market the Company's additional products. However, regulatory and
testing costs per product for these additional products are projected to be
lower due to data generated by the CMC, animal and clinical data related to the
Male Intraurethral Product.
The Company expects to obtain capital funds either from the issuance of
common stock or debt. It is expected that external sources will be available to
provide these funds, but there can be no guarantees of such funding.
10
<PAGE>
PART II
Other Information
ITEM 1: Legal Proceedings
Registrant incorporates herein by this reference the description of
legal proceedings contained in the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission on May 26, 2000.
ITEM 2: Changes in Securities and Use of Proceeds
Any Changes regarding the securities or use of proceeds of the
Registrant are described in the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission on May 26, 2000. Such information is
incorporated herein by this reference.
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of the security holders during
the period covered by this report through the solicitation of proxies or
otherwise.
ITEM 5: Other Information
None.
ITEM 6: Exhibits and Reports on Form 8-K
A. Exhibits
(2) Plan of acquisition, reorganization, liquidation or succession:
NONE.
(3) (i) Articles of Incorporation *
(ii) By-laws *
(27) Financial Data Schedule.
* Incorporated by reference from the Registrant's Form 10-SB.
B. Reports on Form 8-K.
The Registrant did not file reports on Form 8-K during the first quarter
of 2000.
11
<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>
12
