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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

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

           For The fiscal year ended December 31, 1997 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.)

                755 Rinehart Road, Suite 100, Lake Mary, FL 32746
               (Address of Principal Executive Offices) (Zip Code)

       Registrant's Telephone Number, Including Area Code: (407) 324-1606

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

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

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

  X   Yes   ____  No

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

State issuer's revenues for its most recent fiscal year. None
                                                         ----

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

Based on the average of the high and low bid and ask prices for the Registrant's
shares of common stock of $7.75 on March 18, 1998, such market value is
calculated net of 3,042,028 affiliate shares which equals $17,019,147.

Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of the latest practicable date. As of March 18, 1998 there were
5,238,047 shares of Common Stock outstanding.

Documents incorporated by reference: The information required by PART III (other
than Item 13. "Exhibits and Reports on Form 8-K", which is included herein) of
this annual report 10K-SB, hereby is incorporated by reference to the proxy or
information statement for the election of directors and other matters, which
will be filed with the Securities Exchange Commission on or before April 30,
1998, or an amendment to this annual report will be filed by such date.

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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

        Harvard Scientific Corp. ("Registrant" or "Company") was incorporated
under the laws of the State of Nevada on January 13, 1987 with the name of Witch
Doctor Bones, Inc. On June 17, 1988, the Registrant changed its name to
CareyWard, Inc.; on October 18, 1993, the Registrant merged Grant City
Corporation into itself, taking the name Grant City Corporation through the
merger; on January 18, 1994, the Company changed its name to The Male Edge,
Inc., and on May 10, 1994, the Company changed its name to Harvard Scientific
Corp. A 10 for 1 stock split of Registrant's Common Stock was effective on June
17, 1988; a 1 for 4 reverse stock split of Registrant's Common Stock was
effective November 3, 1994; and a 1 for 10 reverse stock split was effective
February 2, 1998. All figures in this Annual Report give effect to the stock
split and reverse stock splits, and previously stated numbers of shares are
appropriately restated, except Item 7. "Financial Statements", unless otherwise
indicated. All statements in this annual report should be read in conjunction
with and are qualified by the other information and financial statements
(including the notes thereto) appearing elsewhere in this Annual Report, or
incorporated herein by reference.

        The Company is a development stage biopharmaceutical company engaged in
the development of products for 1) the treatment of male erectile dysfunction
("ED"), and 2) a topically applied preparation for Psoriasis. The Company's
principal product is a lyophilized liposomal formulation of Prostaglandin E1
("LLPGE1") in which the LLPGE1 is encapsulated in liposomes and then lyophilized
(freeze-dried). This process provides the product with stability, the shelf life
of which is expected to be at least 9 months at room temperature. LLPGE1 is an
oxygenated, unsaturated cyclic fatty acid that occurs naturally in all cells of
the body.

        The process is the same for both the ED and the Psoriasis products,
except the dose of LLPGE1 is different. In the case of the ED product, the
lyophilized material is reconstituted through the use of a non-irritating dilute
detergent, which lyses the liposomes, releasing the PGE1 into solution. This
solution is then applied via the urethral meatus (the opening at the end of the
urethral tract at the tip of the penis). In the case of the Psoriasis product,
the lyophilized product is suspended in a standard skin lotion and applied
topically to lesions twice daily.

        On January 6, 1994, the Company acquired intellectual property rights
relating to prostaglandin microsphere delivery from Bio-Sphere Technologies,
Inc. ("BTI"). On February 13, 1996, the Company received an assignment of an
application from the U.S. Patent Office for a patent identified as Application
Serial No. 08/573408, filed December 15, 1995, for an invention "PGE1 Containing
Lyophilized Liposomes For Use In The Treatment of Erectile Dysfunction". On
February 17, 1998, The U.S. Patent Office approved and assigned patent No.
5,718,917 to the Company. The Company also filed an application for a European
Patent in December 1996. On November 20, 1997, the Company received the
Intellectual Property Rights to LLPGE1 Liposomes for the use of treatment of
Psoriasis from BTI.

        Since inception, the Company has generated limited revenues and incurred
significant losses, including losses of $5,816,241, $2,438,944 and $676,455 for
the fiscal years ended December 31, 1997, 1996 and 1995, respectively. Losses
are continuing through the date of this filing and the Company anticipates that
it will continue to incur such losses until such time, if ever, as the Company
generates sufficient levels of revenues from product sales to offset its
operating costs. The Company believes that generation of such revenues is
dependent upon, among other things, the Company's ability to obtain U. S. Food
and Drug Administration ("FDA") approval. There can be no assurance the Company
will be able to operate profitably or be commercially successful even if it
receives funding for the development of the products.

        The Company has spent approximately $1,374,675 in 1997 and $110,000 in
1996 on research and development costs to bring the products to the stages they
are at currently. The costs incurred associated with such steps conformed to the
Company's planned budgets for 1996 and 1997.

        PGE1 has been approved by the FDA for over 20 years for therapeutic use
as an intravenous infusion in newborn babies with congenital heart defects. PGE1
has also been approved by the FDA in the past three years, for the treatment of
ED, as an injection and as an intra-urethrally administered pellet. However, the
use of the specially formulated detergent to lyse the liposomes and the
lyophilizing of the liposome-encapsulated LLPGE1 requires full registration of
LLPGE1 with the FDA as a new drug. Accordingly, the Company filed an
Investigational New Drug ("IND") application with the FDA in May 1996 and has
been assigned IND No. 50502. LLPGE1 has undergone a Phase I clinical study, the
results of which indicated the possible benefits of such therapy and provided
the Company with sufficient information for the recommendation of two doses of
the product to be developed for marketing, as well as an indication of the
safety of the product.

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        On November 20, 1997, the Company received the Intellectual Property
Rights to LLPGE1 for the use of treatment of Psoriasis from BTI. This is in a
special lotion base and delivery system which is proprietary. The
Investigational New Drug Number (IND No. 54,669) has been awarded to Harvard
Scientific from the FDA Division of Dermatology and Dental Drug Products for
this topically applied skin treatment product for Psoriasis called PsoriClear. A
Protocol is currently under development with the FDA for Phase 1 clinical trial.

               The Company continues to qualify products in development within
BTI to determine safety, effectiveness, market potential, and time and cost to
commercialization. In addition, the Company is looking into existing
pharmacological agents of other pharmaceutical companies that could be made more
effective by utilizing the Company's delivery system technology. As of this
date, the Company is concentrating its personnel and financing resources
exclusively for the ED and Psoriasis treatments and has no immediate plans to
add additional products to the Company's commercialization and marketing
efforts.

                                   THE MARKET

THE MARKET FOR ERECTILE DYSFUNCTION

        Male ED occurs when there is a persistent inability to achieve an
erection sufficient to permit sexual intercourse. It is not a loss of desire or
the ability to experience orgasm. In about 75% of cases a medical condition such
as diabetes, vascular disease, high blood pressure or a neurological disorder is
found to be interfering with the erection process. An estimated additional 5% of
cases occur due to medications such as anti-hypertensive medications. Smoking
and excessive drinking of alcohol may also contribute to the condition. The
remaining 20% of cases may have some form of psychological difficulty, including
anxiety and stress. Often there is a combination of factors at work.

        According to the Consensus Report of the American Medical Association,
ten to twenty percent of adult men in the United States suffer from ED. The
market for treatments for ED, such as LLPGE1, is expected to grow over the next
few years, as more men become comfortable with the fact that ED is treatable.
The aging of the male population as the so-called "Baby Boomers" enter middle
age is also expected to expand the market, since incidence of ED is likely to
increase with a man's age.

        LLPGE1 treats ED in the following manner: The intra-urethrally applied
LLPGE1 is absorbed across the urethral mucosa into the corpus spongiosum. Some
of the dose enters the corpora cavernosum, while some of the dose goes into
pelvic venous circulation. The half-life of LLPGE1 varies from 30 seconds to 10
minutes, and intra-urethrally administered product is barely discernable in the
circulation. Alprostadil or PGE1, the active product in LLPGE1, is already
approved by the FDA for the treatment of ED. The PGE 1 , causes the smooth
muscle in the penile corpora to relax and dilates the penile arteries. This
results in the rapid filling of the corpora with blood, which causes the
compression of corporal sinusoids against the tunica albuginea, impeding venous
outflow. The result is the development of an erection.


THE MARKET FOR PSORIASIS

        Approximately three million people in the United States are afflicted by
Psoriasis and the disease consumes about two billion dollars allocated to health
care each year. According to the National Psoriasis Foundation, there are
approximately 2.4 million patient visits annually to dermatologist by Psoriasis
patients, with each dermatologist seeing an average of 28 patients per month.
The majority of the patients receive a topical steroid therapy, however most
patients develop a tolerance to the cortical steroid lotions and there is lack
of long term control of their Psoriasis.

        A number of treatments for Psoriasis are partially effective and as
reviewed by Gerald J. Krueger M.D. in the New England Journal of Medicine, June
24, 1993, they are divided into three categories.

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        One: Topically applied agents such as cortical steroids, lotions,
anthrolin and vitamin D analogs.

        Two: Exposure to ultraviolet light or artificial medium wave length
ultraviolet B radiation (UVB) or photoaugmented long wave length ultraviolet A
radiation (PUVA).

        Three: Orally administered drug such as methotrexate, etretinate and
cyclosporine. PUV treatments are expensive, approximately $2,600 per year, while
methotrexate is less expensive, approximately $1,400 per year. Frequently such
treatments become ineffective with continued use and require cycling or
rotation.

        In summary, using currently available therapies: 1) the topically
applied lotions become ineffective as tolerance develops, 2) the light therapies
are very expensive and become ineffective over time, and 3) the oral agents as
mentioned above can induce cancer, have serious liver toxicity and are reserved
for disease that is severe.

        There is a genetic basis to the disease and the anti-rejection drug
cyclosporinc and the anti-cancer drug methotrexate usage supports the concept
that this is an inflammatory disease. There is some evidence that there is an
autoimmune process involved as well and that the involved skin and uninvolved
skin of patients with Psoriasis are equally hyperprofliferative when
transplanted to nude mice (Krueger G.J., Chambers D.A., Shelby J.; "Involved and
Uninvolved Skin from Psoriasis Subjects: Are They Equally Diseased? Assessment
by Skin Transplanted to Congenitally Athymic Nude Mice." J CLIN INVEST 1981;
Vol. 68; Pages 1548-57).

        Therefore, inflammation is the common elements of Psoriasis inducing
symptoms. The inflammation is induced by a decrease in cell cycle duration of
the proliferative keratinocytcs in the psoriatic epidermis of approximately 1.5
days versus 13-14 days in normal epidermis. There is a subsequent increased
growth and altered differentiation of epidermal keratinocytes, which results in
accumulation, and activation of T-lymphocytes and other inflammatory cells
within a localized plaque. This then causes further inflammation which induces
the symptoms of Psoriasis. This remarkable decrease in the keratinocytes cycle
of the epidermis induces maturation and shedding within 4 days instead of the
normal 25-28 days found in normal skin.

        What is needed to treat the symptoms of the disease Psoriasis is an
agent that mediates inflammatory components and subsequent immune response at a
local level. The prostaglandin's are ideal agents for this purpose, in fact
Hammerstrom, et al, in their paper "Arachadonic Acid Transformations in Normal
and Psoriatic Skin" in JOURNAL OF INVESTIGATIVE DERMATOLOGY, 1979: Vol. 73;
Pages 180-183, noticed elevated levels of 12H pete and free arachadonic acid in
lesions of Psoriasis indicating that the inflammatory components of Psoriasis
are probably generated by the activation of eicosanoid pathways. However, the
discovery was not translated to treatment because of the rapid acting nature of
the eicosanoids or prostaglandin's. Prostaglandin's, i.e. PGR-1 are involved in
the inflammatory reaction both for cellular healing and modulators of
inflammation. This occurs by direct immunologic mechanism as well as
vasodilatation and alteration of platelet and leukocyte adhesion and factor
release.



                                   COMPETITION

COMPETITION FOR ERECTILE DYSFUNCTION PRODUCT:

        The market for treatment of ED is emerging and evolving and is
characterized a number of entrants. The company faces competition from a number
of existing and potential competitors. Pharmacia/ Upjohn, Schwarz Pharma and
Senetek each produce PGE1 in injectable formulations. Upjohn's product has
received regulatory approval worldwide, Schwarz Pharma's product is approved for
use in the United States and Europe, and Senetek's product has received FDA
approval for sale in the United States.

        The product most similar to the Company's product is produced by Vivus,
Inc. It consists of a pellet containing PGE1which is released into the urethra
via the specialized MUSE(R) device designed specifically for this purpose. This
product, like injectable PGE1, has the potential for side effects, including
dizziness, drop in blood pressure and pain at application.

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        There are tablet formulations of ED products (phentolamine and
sildenafil) currently being evaluated for New Drug Application ("NDA") approval
by the Food and Drug Administration ("FDA"). NDA's for these oral products have
recently been submitted to the FDA. The tablet formulations have potential
benefits for patients who suffer from mild to moderate ED problems. However,
clinical trials have shown that they cause various side effects due to systemic
vasodilatation, which must be overcome. Pfizer and Zonagen are the two known
competitors developing tablet formulations.

        Other competitors, Macrochem and NexMed are currently undertaking Phase
I clinical trials of a topical solution containing PGE1.

        Other forms of competition are penile implants and vacuum pumps.
However, the Company anticipates that the market for these devices will decline
with the increasing awareness of various drug formulations which provide a more
natural erection.

COMPETITION FOR PSORIASIS PRODUCT:

        There are a large number of companies that market topical steroids for
Psoriasis, however, these therapies are associated with potential systemic
toxicities of steroid dependence and their effects are transient.

        Several companies produce vitamin D analogs which, while producing
little toxicity, have low therapeutic benefit.

        A relatively new product, Tazorac, is a Vitamin A analog manufactured by
Allergan. Annual sales are in the $100 million range and increasing. This
product is very effective, has little system toxicity, but has local toxicity
such as burning and/or pain in 10-30% of patients.

        Oral drugs include potent immunosuppressive agents such as methotrexate,
etretinate and cyclosporine. These products are limited by high cost, toxicities
associated with systemic immunosuppressive and development of tolerance.

        Finally, exposure to ultraviolet light and medium wave length
ultraviolet B radiation are effective but may enhance the risk of skin cancer.
All therapies combined produce a market with approximately two billion dollars
in sales annually in the United States alone.

COMPETITION FOR BOTH ERECTILE DYSFUNCTION AND PSORIASIS PRODUCTS

        Although the Company is not aware of any additional technologies or
products which are functionally similar to those of the Company currently under
development, there can be no assurance that such technologies or products will
not be developed or that other companies with the expertise or resources that
would encourage them to attempt to develop or market competing products will not
develop new products directly competitive with LLPGE1. Some of the Company's
competitors and potential competitors have well-established reputations for
success in the development, sale and service of biopharmaceuticals and have
substantially greater financial, technical, personnel and other resources than
the Company, enabling them to undertake clinical testing of products, obtain
regulatory approvals and manufacture and market pharmaceutical products in
response to competitors seeking to market new products and enter into new
markets. In addition, there can be no assurance that the Company can complete
clinical testing of LLPGE1, obtain regulatory approvals and commence
commercial-scale manufacturing in a timely manner to be effectively competitive.

                     DEPENDENCE ON THIRD-PARTY REIMBURSEMENT

Successful commercialization of LLPGE1 for ED and the psoriasis product may
depend in part upon the availability of reimbursement for the cost of related
treatment from third-party healthcare providers, principally Medicare, Medicaid
and private health insurance plans, including health maintenance organizations.
To the extent reimbursement is not provided or is limited, patients will have to
pay for the LLPGE1 and/or the psoriasis product out of their own pockets.
Third-party payers are increasingly challenging the price of medical products
and services, which have had and could continue to have a significant effect on
the purchasing patterns of many healthcare providers.

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In markets other than the United States, reimbursement is obtained from a
variety of sources, including governmental authorities, private health insurance
plans and labor unions. In most foreign countries, there are also private
insurance systems that may offer payments for alternative therapies. Although
not as prevalent as in the U.S., health maintenance organizations are emerging
in some European countries. Accordingly, the Company may need to seek
reimbursement approvals in such other countries, although there can be no
assurance that any such approvals will be obtained in a timely manner or at all.
Failure to receive reimbursement approvals in such other countries could have an
adverse effect on market acceptance of the Company's product in those
international markets in which such approvals are sought.

The Company believes that reimbursement will be subject of increased
restrictions in the future in the U.S. and foreign markets. The overall
escalating cost of medical products and services has led to and will likely
continue to lead to increased pressures on the health care industry to reduce
the costs of products and services, potentially including products offered by
the Company. Significant uncertainty generally exists as to the reimbursement
status of newly approved healthcare products. Failure to receive adequate levels
of reimbursement for the use of prostaglandin in general, and LLPGE1 and/or the
psoriasis product could have a material adverse effect on the Company's
business, financial condition and results of operations.


                          PRODUCTION AND MANUFACTURING

        One third-party manufacturer located in Southern California will
manufacture the Company's products and a second company will validate the
products. The manufacturers will produce the Company's product per the Company's
directions and specifications and deliver the product to the Company. The
Company sees no reason to acquire the equipment necessary for production at this
time and anticipates utilizing its existing current arrangement with outside
laboratories for the manufacturing of its products for distribution.

        The Company anticipates that Sigma Chemical Company, Austin Chemical
Co., Inc., Spectrum Chemical Company, Interchem Corporation and West Company
will supply the ingredients from which LLPGE1, will be manufactured.

        The Company is not aware of any environmental issues related to the use
of disposal of its product. The chemistry involved produces no damaging effects
on human, animal or plant life if exposed to the general population's air, water
or soil supply. The Company's previous manufacturer, Collaborative Laboratories,
did not disclose or relate any information indicating that the manufacturing
process would produce any environmentally harmful by-products.


                                    MARKETING

        The commercial success of LLPGE1 will require acceptance by urologists,
family practitioners with a significant elderly male clientele, medical doctors
practicing as sex therapists and the medical community as a whole. Such
acceptance will depend in large part on the results of the clinical trials for
both ED and Psoriasis, and the conclusion by these physicians that LLPGE1 is a
safe, cost-effective and acceptable method of treatment. Accordingly, achieving
market acceptance for LLPGE1 will require substantial marketing efforts and
expenditure of significant funds to educate doctors, pharmacists, and the public
about what the Company believes are the advantages and benefits of LLPGE1. To
that end, the Company is currently negotiating distribution agreements with
major international pharmaceutical companies in the United States, European and
South American markets. As is customary in the biopharmaceutical industry
operating in these markets, the Company anticipates that these distribution
agreements will provide for the distributor to pay the Company up-front
licensing fees and milestone payments. In addition, the distributor will be
responsible for the costs of registration and/or FDA approval and validations.
Despite these arrangements, the Company expects to expend over $3 million over
the first few years of launch in marketing support activities. Based on market
studies undertaken by the Company, it expects that sales of LLPGE1, both in the
United States and internationally, may generate material revenues to the Company
by the end of 2000.

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                              GOVERNMENT REGULATION

        The Company is subject to various FDA regulations which govern or
influences the research, testing, manufacturing, safety, labeling, storage,
recordkeeping and advertising and promotion of pharmaceutical products,
biologics, and Class II devices. The Company believes it is in substantial
compliance with all material federal and state laws and regulations. There can
be no assurance, however, that the Company will be able, for financial and other
reasons, to comply with applicable laws, rules and regulations. Failure or delay
by the Company to comply with FDA regulations or other applicable regulatory
requirements could subject the Company to civil remedies, including fines,
suspensions, delays of approvals, injunctions, recalls or seizures of products,
operating restrictions, as well as potential criminal sanctions, which could
have a material adverse effect on the Company.

        The Company is currently working with the FDA to conduct animal trials
prior to commencing Phase I studies of the Psoriasis product.

        The Company's research, development, clinical trials, manufacturing and
marketing of LLPGE1 and topical Psoriasis cream are subject to extensive,
rigorous and frequently changing regulatory review process by the FDA and other
regulatory agencies in the U.S. and various foreign countries. The process of
obtaining and maintaining required regulatory approvals is lengthy, expensive
and uncertain. FDA procedures for approval of pharmaceuticals and biologics
involve clinical testing which occurs in three phases to demonstrate the safety
and efficacy of the product. Phase I clinical trials consist of testing for the
safety and tolerance of the product with a small group of subjects and may also
yield preliminary information about the effectiveness and dosage levels of the
product. Phase II clinical trials involve testing for efficacy, determination of
optimal dosage, and identification of possible side effects in a larger patient
group. Phase III clinical trials consist of additional testing for efficacy and
safety with an expanded patient group. Upon successful completion of Phase III
testing, a New Drug Application ("NDA") can be filed. Approval requires a review
of detailed data resulting from the clinical studies, the composition of the
drug, the labeling that will be used, information on manufacturing methods, and
samples of the products. After the FDA completes its review of the application,
a panel of medical experts typically reviews the product, and the applicant is
required to answer questions regarding its safety and efficacy. At the
recommendation of the panel, an NDA may be granted and the product may then be
marketed. After the product has been approved for marketing, Phase IV
post-marketing surveillance studies may be required to provide additional data
to the FDA for longer term follow-up concerns.

        The Company submitted an Investigational New Drug ("IND") application to
the FDA in May 1996 for LLPGE1 ED product and has concluded its Phase I trial.
The results of the Phase I trial were presented to the FDA in April 1997 during
the Company's pre-Phase II clinical trial meeting. At an October 1997 meeting,
the FDA had questions regarding the Company's clinical studies conducted prior
to filing of the IND and requested additional information regarding the
product's stability and chemistry. As a result of the October 1997 meeting, on
February 5, 1998, the Company completed and forwarded to the FDA the reports
requested by them. The company expects the FDA to complete their audit shortly
and believes approval to proceed to Phase II will be granted, although there can
be no assurance that such approval will be forthcoming.

        Regarding the Phase II trial, the FDA recommended that the product's
dosage be increased by 50%, that the study's parameters be refined to conform
more closely to other equivalent studies, and that certain potential indirect
effects of the product's use be more closely monitored. The FDA did not require
the Company to perform any further animal studies but also prohibited the
Company from making any label claims based on the animal study it had previously
conducted, due to the small size of this study.

        Currently, the manufacturing procedure is being scaled up, with assay
verification and validation in progress through Prima Pharma, Inc., located in
San Diego, California and Pyramid Laboratories, located in Fountain Valley,
California. The Company anticipates that an NDA will be filed with the FDA in
late 1999 or early 2000, assuming adequate data is generated upon conclusion of
the clinical trial program. It is estimated that the costs of competing the
above procedures for approval by the FDA will cost $10,000,000 to $12,000,000.
The Company expects that the FDA review process could last as long as two years.

        The Company expects that certain of its potential products also may be
regulated by the FDA as Class II devices upon completion of clinical testing.
Class II devices include urological catheters . A Form 510(k) for the catheter
to be used with LLPGE1 will be filed with the FDA at the time of the NDA
submission. This application must contain data demonstrating the safety of the
product for human use, as well as information on manufacturing processes and
procedures.

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        There can be no assurance that FDA or other regulatory clearance will
not take longer than currently anticipated because of delays, problems or
unforeseen safety difficulties or that regulatory clearance ever will be
granted, although the Company believes that FDA and other regulatory clearance
ultimately will be forthcoming. Failure to obtain FDA approval would prevent the
Company from marketing LLPGE1 in the U.S., which would have a material adverse
effect on the Company's business, financial condition and results of operations.
Even if regulatory approval is obtained, a marketed pharmaceutical product and
its manufacturer are subject to continuing regulatory review, and discovery of
previously unknown problems or amendments to existing statutes or regulations or
the adoption of new statutes or regulations could result in restrictions on such
product or manufacturer, including withdrawal of the product from the market.

        At present, the Company also plans to distribute LLPGE1 in Europe and
South America, and Management believes that such distribution may generate
material royalty revenues by 2000. However, such distribution of the Company's
products outside the United States will also be subject to extensive government
regulation. These regulations, including the requirements for approvals or
clearance to market, and the time required for regulatory review and the
sanctions imposed for violations, vary from country to country. There can be no
assurance that the Company will obtain regulatory approvals in such countries or
that it will not be required to incur significant costs in obtaining or
maintaining its foreign regulatory approvals. Failure to obtain necessary
regulatory approvals, the restriction, suspension or revocation of existing
approvals or any other failure to comply with regulatory requirements would
prevent the Company from marketing LLPGE1 in such foreign country or countries,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.

        The manufacturing processes of the Company's product will be subject to
certain regulatory guidelines. These guidelines are laid down by the FDA. All
pharmaceutical manufacturers must conform to these guidelines. The FDA inspects
these facilities on a regular basis and any deficiencies are noted. The facility
must correct those deficiencies within a finite period of time.

        Any new pharmaceutical facility must go through a strict inspection by
the FDA, in a full audit, and then adhere to the guidelines. Any facility not
adhering to these guidelines is subject to FDA regulatory action.


   UNCERTAINTY OF PATENT PROTECTION; UNCERTAINTY OF PROTECTION OF PROPRIETARY
                                   TECHNOLOGY

The strength of the Company's patent position may play an important role in its
long-term success. The Company is the assignee of Patent Application No.
08/573408, filed December 15, 1995, for an invention "PGE1 Containing
Lyophilized Liposomes For Use In The Treatment of erectile dysfunction." On
February 17, 1998, the U.S. Patent Office issued patent number 5,718,917 with
all claims allowed. There can be no assurance that this patent will be effective
to protect the Company's product from duplication by others. In addition, there
can be no assurance that the Company will be able to afford the expense of any
litigation which may be necessary to enforce its rights under this patent.
Moreover, although the Company believes that its product does not and will not
infringe upon the patents or violate the proprietary rights of others, it is
possible that such infringement or violation has or may occur. In the event that
the Company's product is determined to infringe upon the patents or proprietary
rights of others, the Company could be required to modify its product or obtain
a license for the manufacture and/or sale of the product, or could be prohibited
from selling the product. There can be no assurance that, in such an event, the
Company would be able to do so in a timely manner, upon acceptable terms and
conditions, or at all, and the failure to do any of the foregoing could have a
material adverse effect upon the Company. Furthermore, there can be no assurance
that the Company will have the financial or other resources necessary to enforce
or defend a patent infringement or proprietary rights violation action. In
addition, if the Company's product is deemed to infringe upon the patents or
proprietary rights of others, the Company could, under certain circumstances,
become liable for damages, which could also have a material adverse effect on
the Company. The Company commenced one action seeking a declaration of
non-infringement by Vivus, Inc. SEE ITEM 3. LEGAL PROCEEDINGS 5."

The Company also relies substantially upon its proprietary technologies,
utilizing non-disclosure agreements with its employees, consultants and
customers to establish and protect the ideas, concepts and documentation of its
proprietary technology and know-how. Such methods, however, may not afford
complete protection, and there can be no assurance that third parties will not
independently develop such know-how or obtain access to the Company's know-how,
ideas, concepts and documentation, which could have a material adverse effect on
the Company.

                                       8

<PAGE>  9

           POTENTIAL PRODUCT LIABILITY EXPOSURE AND INSURANCE EXPENSE

    Upon the commencement of commercial production, the Company's business will
expose it to an inherent risk of potential product liability claims, including
claims for serious bodily injury or death, which could lead to substantial
damage awards. The Company currently maintains product liability insurance
through BTI, in the amount of $1,000,000, with a maximum payout of $3,000,000,
which is the standard insurance coverage for the biopharmaceutical industry. The
Company will seek to increase the level of such insurance as its products are
commercialized. There can be no assurance, however, that the Company will be
able to maintain or increase its insurance on acceptable terms or at reasonable
costs, or that such insurance will provide the Company with adequate coverage
against potential liabilities. A successful claim brought against the Company in
excess of, or outside of, its insurance coverage could have a material adverse
effect on the Company's results of operations and financial condition. Claims
against the Company, regardless of their merit or eventual outcome, may also
have a material adverse effect on the Company's ability to obtain physician
endorsement of its products or expand its business.


    RELIANCE ON INTERNATIONAL SALES; CURRENCY EXCHANGE RISKS ASSOCIATED WITH
                              INTERNATIONAL SALES

The Company anticipates marketing LLPGE1 internationally, as well as in the U.S.
To the extent the Company is able to market its products in foreign countries,
the Company will become subject to the risks associated with international
sales, including, but not limited to, health and welfare regulatory controls
imposed by foreign governments, shipping delays, customs duties, export quotas
and other trade restrictions, increased collection risks and international
political, regulatory and economic developments, and exchange risks, any one of
which could have an adverse effect on the Company's operating results.

                               MILLENIUM YEAR 2000

        The Company does not aniticipate any problem in dealing with computer
entries in the year 2000 or thereafter, with any computers currently used at any
of their facilities. The Company keeps current with all updates and revisions
with all software the Company currently use. It is anticipated that the software
updates reflect required revisions to accommodate transactions in the year 2000
and thereafter. All of the Company's computers are stand alone and due to the
minimal computer capacity, it is not anticipated that the Company will have a
problem at the turn of the century.


                                    EMPLOYEES

        As of December 31, 1997, the Company had seven full time employees.
These full time employees are engaged in administration, management, and
research & development activities. Three of the Company's officers and/or
directors, are full-time employees of the Company (Thomas E. Waite, Curtis A.
Orgill and Barbara L. Krilich. In addition, Dr. Jackie See and Dr. Darryl See,
as well as others, serve as consultants to the Company.). The Company has
written employment agreements for all of its employees and consultants. The
Company believes their relation with its employees is good.

        The Company is dependent on the efforts and abilities of Jackie R. See,
M.D., its founder and director; and of Thomas E. Waite, its Chief Executive
Officer, President and Director. The loss of the services of any such officers
or other key personnel could have a material adverse effect on the Company's
operations. To the extent that the services of key personnel become unavailable,
the Company will be required to retain other qualified personal, for whose
services the Company will be in competition with other employers, many of which
have significantly greater resources than the Company. There can be no assurance
that the Company will be able to hire or retain such other qualified person. SEE
ITEM 6. "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION".


                                       9

<PAGE>  10

               LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS

Section 78.751 of the Nevada General Corporation Law ("NGCL") allows the Company
to indemnify any person who is or was made a party to, or is or was threatened
to be made a party to, any pending, completed, or threatened action, suit or
proceeding by reason of the fact that he or she is or was a director, officer,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise. The NGCL permits the
Company to advance expenses to an indemnified party in connection with defending
any such proceeding, upon receipt of an undertaking by the indemnified party to
repay those amounts if it is later determined that the party is not entitled to
indemnification.

The foregoing provision may reduce the likelihood of derivative litigation
against directors and officers and discourage or deter shareholders from suing
directors or officers for breaches of their duties to the Company, even though
such an action, if successful, might otherwise benefit the Company and its
shareholders. In addition, to the extent that the Company expends funds to
indemnify directors and officers, funds will be unavailable for operational
purposes.

In 1998 the Company obtained Directors and Officers insurance from American
International Group. The policy pays the loss of a director or officer of the
Company arising from a claim first made against the director of officer during
the policy period for an actual or alleged wrongful act. The per-claim maximum
limit liability coverage is $3,000,000 with the annual aggregate limit of
liability coverage also being $3,000,000. The retention for each loss coverage
is $75,000 for corporate matters and $250,000 for security matters. The policy
provisions include: no prior acts exclusion (i.e. all prior acts are included to
the extent a claim is made during the policy coverage period), 100% entity
coverage for security matters (if the claim names the Company and no officer or
director, the policy includes coverage for the company), employment practices
liability for directors and officers, including security suits, punitive damages
covered on security claims, green mail, and secondary offering for 30 days. The
policy does not include the "hammer clause" (limiting coverage to the amount of
a settlement offer received) nor listed events. The retention for securities
matters is refundable if the case is dismissed with or without prejudice. The
policy contains standard conditions and exclusions normal to this type of
policy.


                           COLLABORATIVE ARRANGEMENTS

        The Company operates as a "virtual company" and relies on subcontracting
and collaborative arrangements for much of its research and development,
manufacturing, clinical trial and marketing operations. Since January 1994, when
BTI acquired the majority of the Company's Common Stock, the Company has relied
extensively on management, technical and financial services provided by BTI.
During 1997, the Company established an in-house management team separating the
operations of BTI from the Company's operations.

        The Company has paid BTI for the LLPGE1 patent application and other
intellectual properties, as well as licensing and distribution agreements and
utilization of its scientific and technical personnel, with Company stock. The
Company initially issued 71,400 shares (originally issued 2,856,000 shares prior
to the 1 for 4 reverse stock split effective November 3, 1994 and the 1 for 10
reverse stock split effective February 2, 1998) to BTI in January 1994 for the
intellectual rights to the product with the stipulation that the company pay for
and effect a patent application. The Company was not able to fund the patent
process. To fund the patent application and for management assistance and
distribution agreements associates with the LLPGE 1 product, BTI received
613,850 shares of the Company's Common Stock in November 1995.

        On November 20, 1997, the Company agreed to exchange 200,000 shares of
Common Stock (which have been issued) plus $150,000 to BTI for the Intellectual
Property Rights to Prostaglandin E1 Lyophilized Liposomes for the use of
treatment of Psoriasis. BTI is to receive a 3% override on royalties of the
Psoriasis product.

        Prior to 1997, the Company reimbursed BTI for the time contributed by
its employees and other overhead expense incurred by the Company at BTI's cost.
The Company paid BTI $40,501 in overhead expenses incurred in 1994, $67,979 in
1995 and $80,000 in 1996. During 1997, the Company established separate
operations from BTI whereby no overhead expenses incurred by the Company were
reimbursable to BTI.
          
        The Company intends to continue to seek and enter into collaborative
arrangements with pharmaceutical distribution concerns to eventually distribute
LLPGE1.

                                       10

<PAGE>  11

                          OTHER FINANCING ARRANGEMENTS

1.   In March 1997, pursuant to a private placement, the Company (a) sold to
     Springrange Investment Group Ltd. $5,000,000 principal amount of 6%
     Convertible Debentures (the "Debentures") 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. The investor may convert the Debentures into
     Common Stock (the "Conversion Shares"), and the Company has the right to
     require such conversion. The Company's has registered under the Securities
     Act of 1933 of its Common Stock issuable upon conversion of its 6%
     convertible debentures, which registration statement was declared effective
     on August 14, 1997. As of February 28, 1998, of the $5,000,000 investment,
     $2,450,000 has been converted, with the issuance of 3,858,308 shares of the
     Company's Common Stock therefor. Sales of substantial amounts of Common
     Stock, or the perception that these sales could occur, could adversely
     affect, and the Company believes have adversely affected, prevailing market
     prices for the Common Stock and could impair the ability of the Company to
     raise additional capital through the sale of its equity securities or
     through debt financing. No prediction can be made as to the effect, if any,
     that future sales of shares of Common Stock, whether offered by the holder
     or others, will have on the market price of the shares of Common Stock
     prevailing from time to time. The Company has brought an action against
     Springrange Investment Group in connection with its investment in the
     Debentures. SEE ITEM 3."LEGAL PROCEEDINGS, PROCEEDING 7".

2.   On January 13, 1998, the Company entered into a financing agreement (such
     agreement, as amended on February 3, 1998, is herein referred to as the
     "Financing Agreement") with Jackie R. See, a director and a controlling
     stockholder of, and consultant to, the Registrant, and Thomas E. Waite,
     President, Chief Executive Officer, Chairman of the Board of Directors and
     a controlling stockholder of the Registrant, whereby such investors
     ("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 592,605
     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.

    A fairness opinion has been obtained in connection with the Financing
    Agreement from HD Brous & Co., Inc., a New York Stock Exchange member firm
    located in Phoenix, Arizona.

    Under the Financing Agreement, the Investors have the right, but not the
    obligation, to invest up to an additional $5,000,000 to purchase Common
    Stock, of which $2,500,000 would acquire 383,070 shares at $6.238 per share
    and an additional $2,500,000 would acquire 197,534 shares at $12.656 per
    share, so that if all available investments under the Agreement are made by
    the Investors, they will invest $10,000,000 to acquire 2,172,882 shares of
    Common, although there is no assurance that the Investors will make any
    investment in registrant beyond the purchase for $5,000,000 already made.
    All further purchases would be for cash to at least to the extent of the
    $0.01 per share par value of the Common Stock, with the balance payable by
    notes with the same maturity and interest rate as the notes used in
    connection with the initial purchases under the Agreement. Additional
    investments in Common Stock pursuant to the Agreement would be made in
    tranches of $500,000 to $2,000,000 each. Dr. See and Mr. Waite contemplate
    that they will participate equally in any additional purchases under the
    Financing Agreement, but there is no requirement that they do so. The Board
    of Directors of registrant ratified the Agreement on February 23, 1998, with
    Dr. See and Mr. Waite abstaining from voting. Dr. See and Mr. Waite approved
    the Original Agreement when they were the only directors of the registrant.
    The Agreement will be submitted to the shareholders of the Corporation for
    ratification at its next meeting of shareholders, at which, in view of the
    shareholdings controlled by the Investors, it is expected that shareholder
    ratification will be forthcoming.

                                       11

<PAGE>  12

3.   On February 23, 1998, the Company entered into a financing agreement with
     an independent investor ("Investor"), under which the Investor provided
     financing of $600,000 to the Company in exchange for 200,000 shares of
     Common Stock of the Company. If, on the effective date of the registration
     of the 200,000 shares under the Securities Act of 1933, which is to be
     accomplished by the Company as soon as practicable, the closing bid price
     of the Company's stock is less than $6.00 per share, the Investor is to
     receive additional shares calculated by taking the difference between (a)
     600,000 divided by one-half the closing bid price of the company's Common
     Stock on the effective date and (b) 200,000.


ITEM 2.  DESCRIPTION OF PROPERTY

        The Registrant's occupies a total of three office locations:

1)      5,428 square feet in Irvine, California where the Registrant maintains a
        research & development laboratory. Rent of $6,242 ($1.15 per square
        foot) is paid monthly for the first year and is increased to $6,514 on
        April 17, 1998 until the lease expires on April 30, 1999, (telephone
        (714) 252-1942).

2)      2,992 square feet is occupied in Lake Mary, Florida where the world
        headquarters and general operations of the Registrant are maintained.
        Rent of $4,269 ($1.43 per square foot) is paid monthly beginning
        December 15, 1997 through the expiration of the lease on December 31,
        2000, (telephone (407)-324-1606).

3)      425 square feet is occupied in Reno, Nevada at the corporate
        headquarters where all accounting operations are maintained. Rent of
        $425 ($1 per square foot) is paid monthly beginning December 1, 1997 and
        expiring May 3, 1998, (telephone (702)-786-9005).

        All of the properties leased by the Company are in good working
condition. The Company has secured property insurance for the above locations
occupied.

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


ITEM 3.  LEGAL PROCEEDINGS

LEGAL PROCEEDINGS RESOLVED INVOLVING RELATED PARTIES:

        1.    HARVARD SCIENTIFIC CORP. v. NEVADA AGENCY AND TRUST COMPANY AND
THOMAS E. WAITE & ASSOCIATES, Case No. CV96-0495, Second Judicial District Court
of Nevada, County of Washoe, filed August 2, 1996. This action involved a
dispute over performance of an agreement between the Company and a consultant,
Thomas E. Waite & Associates ("TEW"), which had been issued 35,000 shares of
Common Stock in exchange for services to be performed by TEW. TEW was and is
only owned by Thomas E. Waite, President, CEO, Chairman of the Board, and a
controlling stockholder of the Company. Those services involved obtaining the
financing for the Registrant. In this action, the Registrant claimed that TEW
had not performed those services and had breached its agreement with the
Registrant. Nevada Agency and Trust Company, the Registrant's transfer agent,
was included as a defendant in order to enjoin the transfer of the 35,000 shares
which had been issued to TEW. The Company sought to recover damages for TEW's
breach of contract and obtain a declaratory judgment declaring the agreement
between the Company and Waite null and void, and canceling the shares issued to
TEW.

        This action was settled amicably between the parties and is no longer
pending. Under the terms of the settlement agreement, the Company acquiesced in
the transfer of the 35,000 shares of Common Stock to TEW and issued additional
shares of 56,875 to TEW. SEE NOTE 10 TO THE FINANCIAL STATEMENTS.

        2.    D. WECKSTEIN AND CO., INC. V. HARVARD SCIENTIFIC CORP. AND THOMAS 
E. WAITE & ASSOCIATES, INC., Index No. 97-103324, Supreme Court of New York, 
County of New York, filed February 18, 1997. In this action, Weckstein claimed 
that the Company breached an agreement between it and the Company whereby 
Weckstein agreed to help the Company obtain financing in exchange for 25,000 
shares of the Company's Common Stock. Weckstein also sought damages against TEW,
claiming that TEW tortuously interfered with the agreement between the Company 
and Weckstein. Weckstein also sought damages for alleged fraud on the part of 
TEW, in connection with its dealings with Weckstein.

                                       12

<PAGE>  13

        Weckstein also brought a cause of action against the Company for "abuse
of process" in connection with the filing a Nevada action that had been brought
by the Company against Weckstein. In this claim, Weckstein asserted that the
Nevada Court has no personal jurisdiction over either of the defendants to the
Nevada action, and that the Company brought the action in Nevada simply to
inconvenience Weckstein.

        This suit and countersuit has been settled amicably between the parties
and is no longer pending. Under the terms of the settlement agreement, the
Company caused 3,500 shares of the Company's Common Stock to be delivered to
Weckstein.

        3.    NEIL ARMSTRONG V. HARVARD SCIENTIFIC CORP., DON STEFFENS, DR.
JACKIE R. SEE, IAN HICKS, AND DOES I THROUGH X, Case No. A371879 District of
Nevada, County of Clark, filed April 4, 1997. In this action, the plaintiff, a
former officer and director of the Company, alleges that the Company breached
the terms of an employment agreement he alleges he had with the Company. The
plaintiff alleges that the Company wrongfully terminated his employment with the
Company and that the other defendants conspired with one another to wrongfully
terminate his employment with the Company. The complaint seeks compensatory
damages, punitive damages and reasonable attorneys' fees and costs in a total
amount exceeding $10,000.

        This litigation has been settled amicably between the parties and is no
longer pending. Under the terms of the settlement agreement, the Company paid
Armstrong 20,000 shares of the Company's Common Stock plus $10,000.

LEGAL PROCEEDINGS UNRESOLVED:

        4.    HARVARD SCIENTIFIC CORPORATION V. NEVADA AGENCY & TRUST COMPANY, A
NEVADA CORPORATION, and DOES I - V, INCLUSIVE AND ABC CORPORATIONS I-V,
INCLUSIVE, Case No. CV98-00017 filed in the District Court of the State of
Nevada, Washoe County, Nevada, filed on January 2, 1998. In this action, Harvard
filed a request for an injunction against Nevada Agency & Trust Company,
Harvard' former transfer agent, to relinquish all records of the Company's to a
newly appointed transfer agent located in Salt Lake City, Utah. Harvard was
granted the injunction and the records were transferred to the new transfer
agent on January 6, 1998. Harvard is considering amending its complaint against
Nevada Agency & Trust to add additional causes of action for damages, and
additional defendants. The Company believes that Nevada Agency & Trust Co. is
owned by Cecil Ann Walker, wife of Alexander H. Walker, Jr., former Director,
Secretary, and General Counsel to the Company and Chairman of the Board of
Nevada Agency & Trust Company.

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

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

                                       13

<PAGE>  14

        6.    ERIC N. SAVAGE V. HARVARD SCIENTIFIC CORP., DR. JACKIE SEE, DOES I
THROUGH X, Case No. A381022, filed in the District Court, Clark County, Nevada
on November 10, 1997. The Plaintiff alleges that the Company restricted Savage
from selling his Common Stock in the Company and is seeking damages in excess of
$1,260,000 plus attorney fees and costs. The Company denies liability and
believes Savage has acknowledged he was not entitled to sell his stock free from
restriction at a date earlier than he now contends. In February 1998, the
Company requested the Court to stay the State Court action pending binding
arbitration in the action filed against the Company by the plaintiff. The
Company's request for arbitration is pending.

        7.    HARVARD SCIENTIFIC CORP. V. SPRINGRANGE INVESTMENT GROUP, Case No.
98 civ. 0735 (DC), filed in the United States District court, Southern District
of New York, filed on February 3, 1998. The defendant is a 6% debenture holder
arising out of the Securities Purchase Agreement executed on or about March 21,
1997. The Company alleges that the defendant had breached its representations
under the agreement by taking a short position and otherwise manipulating the
price of the Company's Common Stock. The Company is seeking to recover its
damages arising from Springrange's breach of contract and misrepresentations.
The Company will not be honoring any requests by the defendant to convert the
debenture balance into Common Stock until this matter has been resolved. SEE
NOTES 11 & 13 TO THE FINANCIAL STATEMENTS AND ITEM 1. "DESCRIPTION OF BUSINESS -
OTHER FINANCING ARRANGEMENTS".

        On February 18, 1998. Springrange filed a motion to dismiss the
Complaint and to enjoin the financing transaction entered into between the
Company and Thomas E. Waite and Dr. Jackie See formally announced publicly on or
about January 15, 1998. Springrange also sought injunctive relief requiring the
Company to deliver shares of Common Stock pursuant to notices of conversion
filed in January 1998. The Company opposed the motion and requested injunctive
relief. In early March 1998, a hearing on the motion was held and the judge
granted Springrange's motion to dismiss the Complaint, with leave to amend in 30
days and in view of the dismissal, denied Springrange's motion for injunctive
relief. Springrange is free to pursue its claims independently or in this action
if the Company files an amended complaint.

        8.    ALEXANDER H. WALKER JR. V. HARVARD SCIENTIFIC CORP. AND JACKIE R.
SEE, M.D., Case No. 980901221 in the Third Judicial District Court in Salt Lake
City, Utah, filed on February 6, 1998. In this action, the plaintiff, a former
officer, director and General Council to the Company, alleges two causes of
action: 1) breach of contract by the Company with respect to his employment
agreement, and 2) false representations allegedly made to him by the Company.
Walker seeks damages in the amount of $420,000 for the breach of contract claim
and unspecified damages for the alleged false representation claim. The time for
the Company's response to the Complaint has not expired. However, the Company
denies liability and anticipates the commencement of legal action against Walker
to recover damages sustained by the Company as a result of Walker's failure to
perform his responsibilities as General Council for the company and breaches of
his fiduciary duties owed to the Company. The Company will also seek indemnity
from Walker for damages it has sustained and settlements it has been forced to
negotiate in other litigations. SEE NOTE 13 TO THE FINANCIAL STATEMENTS.

OTHER NEGOTIATING MATTERS

        9.    On November 3, 1995, BTI entered into an agreement with a European
marketer, Pharma Maehle ("Pharma"), whereby Pharma was to establish the European
market for the Company's erectile dysfunction product to develop, manufacture,
sell, practice and exploit the use of the Company's proprietary license
technology. In February 1996, an amendment to the agreement was signed to
reflect the transfer of said agreement from BTI to the Company. On March 20,
1996, Section 19.0 (Entire Agreement) was amended to better express the intent
of the parties. On December 20, 1996, the Company notified Pharma in writing
that it was terminating the agreement for breach of contract and the implied
covenant of good faith and fair dealing inherent in all contracts by failing to
exercise reasonable diligence to exploit the technology and patent rights. On
January 13, 1997, the Company signed a Letter of Understanding with Pharma,
whereby the parties would consider working out a formal agreement settling their
disputes after seeking advise from legal council. The agreement was to be
accomplished within 10 working days from January 13, 1997,and when that did not
occur, the Company again notified Pharma of it's intent to terminate any and all
agreements with Pharma referencing previous termination notices. Pharma contends
the various notices of termination were withdrawn or ineffective and the
agreement is enforceable. However, the Company believes they have rightfully
terminated the agreement with Pharma, which has been and continues to be in
breach of the agreement in any event. The validity of the agreement is currently
in dispute.

        On February 19, 1998, the Company renewed it's previous notices of
termination and renoticed the termination of the licensing agreement with
Pharma, and demanded binding arbitration under Nevada law of the existing
disputes between the parties pursuant to the terms of the licensing agreement.
The demand required a response by Pharma no later than March 13, 1998. Pharma
responded and with a settlement proposal which was declined by the Company.
Pharma then indicated that it was in the process of selecting Nevada counsel. If
Pharma does not notify the Company of its legal counsel obtained in Nevada by
March 20, 1998, the Company intends to request the Nevada District Court to
compel the arbitration. SEE NOTE 9 & 13 TO FINANCIAL STATEMENTS AND FORM 8K
FILED FEBRUARY 23, 1998.

                                       14

<PAGE>  15


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

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


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The Common Stock of the Company began trading on the system of the
National Association of Securities Dealers, Inc. (NASD) known as the OTC
Electronic Bulletin Board under the symbol "HVSF" in June 1995. On February 3,
1998, the Company changed the symbol to "HVSFD" as a result of the 10 for 1
reverse stock split. The Company continued to use the "HVSFD" symbol through
March 5th, 1998, at which time the symbol reverted back to "HVSF", and continues
to be traded thereunder.

        The following table sets forth the range of high and low bid quotations
for the Company's Common Stock for each quarterly period indicated, as reported
by brokers and dealers making a market in the capital stock. Such quotations
reflect inter-dealer prices without retail markup, markdown or commission, and
may not necessarily represent actual transactions:


                                       COMMON STOCK
                                       ------------

                          QUARTER ENDED                HIGH BID       LOW BID
                          -------------                --------       -------
            March 31, 1998 *                           $  9.40        $ 3.00
            December 31, 1997                          $ 14.10        $ 2.90
            September 30, 1997                         $ 22.50        $ 9.40
            June 30, 1997                              $ 61.90        $12.50
            March 31, 1997                             $ 81.30        $25.00
            December 31, 1996                          $ 26.20        $ 8.70
            September 30, 1996                         $ 33.10        $15.00
            June 30, 1996                              $ 72.50        $21.90
            March 31, 1996                             $166.30        $52.50
            ------------------------------------
            *  Includes January 1, 1998 through March 18, 1998


        The approximate number of record holders of the Registrant's capital
stock as of December 31, 1997 and March 18, 1998 were 192 and 207, respectively.

Dividends:
        The Registrant has never paid cash dividends on its capital stock and
does not intend to do so in the foreseeable future. The Registrant currently
intends to retain its earnings, if any, for the operation and expansion of its
business.

                                       15

<PAGE>  16

        The Company's recent registration under the Securities Act of 1933, of
its Common Stock, issuable upon conversion of its 6% convertible debentures, was
declared effective on August 14, 1997. 

1.  September 25, 1995, the corporation issued 20,350 shares to officers, 
    directors or consultants for services to the Company:

                              Purchaser          No. of Shares
                              ---------          -------------
                              Rex Morden                 2,100
                              Alexander Sparkuhl           500
                              Neal Armstrong             5,000
                              Steven Rayman              7,500
                              Eric Savage                3,250
                              Jackie R. See              2,000
                                                 --------------
                                                        20,350
                                                 ==============


    All shares listed in this paragraph were issued in reliance upon the
    exemption provided by Section 4(2) of the Securities Act of 1933, in view of
    the sophistication of the issuee.

2.  On December 7, 1995, the Company issued 613,850 shares of its Common Stock
    to BTI for BTI's assistance in raising working capital, prosecuting the
    patent application, management assistance and for assignment of rights under
    the Distribution Agreements for LLPGE1. Such shares were issued in reliance
    upon the exemption from registration provided in Section 4(2) of the
    Securities Act of 1933, in view of the sophistication of the issuee.

3.  On December 11, 1995, the Company issued 20,000 shares of its Common Stock
    to Baltic Trust Company, a non-U.S. entity in connection with a private
    placement of the Company's shares pursuant to Regulation "S" promulgated
    under the Securities Act of 1933. All such shares subsequently were returned
    to the Company's treasury as a result of a failure of consideration for the
    issuance of such shares.

4.   During November 1995, the Company entered into a two-year agreement with
     Thomas E. Waite & Associates, then and now wholly owned by Thomas E. Waite,
     President, Chief Executive Officer, Director and a controlling stockholder
     of the Company, to provide an array of business services to enhance the
     Company's asset base and further the development of the Company's business
     plan. The contracted services included public/investor relations, marketing
     and sales plans, identifying strategic partnership arrangements, and other
     opportunities that would enhance the market value and viability of the
     Company. On December 15, 1995, the Company issued to Thomas E. Waite 35,000
     shares of Common Stock in consideration of the services to be provided for
     the two-year duration. Such shares were issued pursuant to the exemption
     from registration under Section 4(2) of the Securities Act of 1933, in view
     of the sophistication of the issuee.

5.  On December 27, 1995, the Company issued 20,000 shares of its Common Stock
    in connection with an offering of the Company's shares pursuant to Rule 504
    promulgated under the Securities Act of 1933. Such shares were issued to
    Rosehouse Ltd. in exchange for the consideration of $831,300.

6.  On January 12, 1996, the Company issued 1,000 shares of its Common Stock in
    connection with consulting services rendered to the corporation by Dr.
    Joseph L. Williams, one of the individuals on the Company's Scientific
    Advisory Board, in exchange for research and development conducted by the
    individual. Such shares were issued pursuant to the exemption from
    registration under Section 4(2) of the Securities Act of 1933, in view of
    the sophistication of the issuee.

7.  On April 12, 1996, the corporation issued 18,000 shares of its Common Stock
    to Alexander H. Walker, Jr., in connection with legal services rendered to
    the Company. On July 5, 1996, the Company issued 2,000 shares of its Common
    Stock each to Alexander H. Walker, III and J.T. Cardinalli for legal
    services rendered for the Company. Such shares were issued pursuant to the
    exemption from registration under Section 4(2) of the Securities Act of
    1933, in view of the sophistication of the issuees.

8.  On June 10, 1996, the Company sold $500,000 of 7% Convertible Debentures in
    the following aggregate principal amounts: $250,000 to Wood Gundy London
    Limited, $150,000 to Ailouros Ltd. and $100,000 to DJ Limited. All such
    Debentures were issued pursuant to the exemption from registration under
    Regulation "S" promulgated under the Securities Act of 1933.

                                       16

<PAGE>  17

9.  On August 15, 1996, the Company issued 3,333 shares of its Common Stock to
    Ailouros Ltd. as a result of Ailouros Ltd.'s conversion of $25,000 of the 7%
    Convertible Debentures it purchased from the Company on June 10, 1996. Such
    shares were issued in reliance upon the exemption from registration under
    Regulation "S" promulgated under the Securities Act of 1933.

10. On August 22, 1996, the Company issued 15,385 shares of its Common Stock to
    Wood Gundy London Limited as a result of Wood Gundy's conversion of $125,000
    of the 7% Convertible Debentures it purchased from the Company on June 10,
    1996. The Company also issued 12,308 shares of its Common Stock to DJ
    Limited on this date as a result of DJ Limited's conversion of $100,000 of
    the 7% Convertible Debentures it purchased from the Company on June 10,
    1996. All such shares were issued in reliance upon the exemption from
    registration under Regulation "S" promulgated under the Securities Act of
    1933.

11. On November 20, 1996, the Company issued 1,500 shares of its Common Stock to
    Dr. Joseph J. Williams for consulting services rendered to the Company. The
    Company also issued 550 shares of its Common Stock to Stock Desk
    Communications Ltd. for printing services rendered to the Company. The
    Company also issued 1,000 shares of its Common Stock to Dr. Alexander
    Sparkuhl for consulting services rendered to the Company. Except as to the
    550 shares issued to Stock Desk Communications Ltd., all such shares were
    issued pursuant to the exemption from registration under Section 4(2) of the
    Securities Act of 1933, in view of the sophistication of the issuee. The 550
    shares issued to Stock Desk Communications Ltd. were returned to the
    treasury on May 12, 1997, due to the fact that, subsequent to the issuance
    of these shares, the Company learned that such printing services had been
    paid for in cash and that the issuance of the 550 shares constituted a
    double payment for such services.

12. On December 18, 1996, the Company issued 56,875 shares of its Common Stock
    as part of a settlement agreement in the litigation between the Company and
    Thomas Waite & Associates described herein. SEE ITEM 3. " LEGAL
    PROCEEDINGS". Such shares were issued in reliance on the exemption from
    registration under Section 4(2) of the Securities Act of 1933, in view of
    the sophistication of the issuee. On February 26, 1997 the shares were
    reissued pursuant to a court order which approved such issuance, after a
    hearing on the fairness of the terms and conditions of such issuance. The
    issuance of such shares was in accordance with Section 3(a)10 of the
    Securities Act of 1933.

13. On January 20, 1997 and January 30, 1997, the Company sold Ronald E.
    Patterson 10,000 and 5,000 shares, of Common Stock for $50,000 and $25,000,
    respectively. The closing bid prices on January 20 and January 30, 1997 were
    $31.20 and $42.90, respectively. On February 19, 1997, the Company sold
    Ronald E. Patterson 10,000 shares of Common Stock in exchange for $50,000.
    The closing bid price on February 19, 1997 was $73.70. Such shares were
    issued pursuant to the exemption from registration under Section 4(2) of the
    Securities Act of 1933, in view of the sophistication of the issuee.

14. On March 18, 1997, the Company issued a total of 127,000 shares of its
    Common Stock to eight (8) individuals for legal and consulting services and
    for services rendered by officers and directors of the Company.


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

                          Ian Hicks                       25,000    
                          Don Steffens                    25,000
                          Ronald E. Patterson             10,000
                          Alexander H. Walker, Jr.        18,000
                          Alexander H. Walker III          2,000
                          J.T. Cardinalli                  2,000
                          Roger T. M.D.                   10,000
                          Jackie R. See                   35,000
                                                    -------------
                                                         127,000
                                                    =============

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

                                       17

<PAGE>  18

15. On March 21, 1997, the Company sold $5,000,000 aggregate principal amount of
    6% Convertible Debentures to Springrange Investment Group Ltd. The agreement
    is subject to various conditions, to purchase additional Debentures in the
    aggregate principal amount of up to $10,000,000 in two tranches of
    $5,000,000 each. The investor may convert the Debentures into Common Stock
    (the "Conversion Shares"), and the Company has the right to require such
    conversion. Shares issuable upon conversion have been registered under the
    Securities Act of 1933, declared effective on August 14, 1997. The 6%
    Convertible Debentures were issued pursuant to the exemption from
    registration under Section 4(2) of the Securities Act of 1933. SEE ITEM 1
    "DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS", AND ITEM 3. "LEGAL
    PROCEEDINGS."

16. On April 18, 1997, the Company issued a total of 20,000 shares of Common
    Stock to David E. Jordan and persons designated by Mr. Jordan, for assisting
    the Company in securing funding through the debenture holder, Springrange
    Investment Group, as follows:



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

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



17. On June 6, 1997, the Company issued a total of 100,000 shares to David E.
    Jordan and persons designated by Mr. Jordan. Such shares were cancelled for
    failure of consideration and returned to the treasury on August 8, 1997.

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



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

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

    * The 300,000 shares issued Jackie R. See have demand registration rights
    under the Securities Act of 1933, which rights have been exercised.

    All such shares were issued pursuant to the exemption from registration
    under Section 4(2) of the Securities Act of 1933, in view of the
    sophistication of the issuees.

19. On June 12, 1997, the Company issued 45,000 shares to Ailouros Ltd. in
    settlement of a litigation settlement. SEE ITEM 3. " LEGAL PROCEEDINGS".
    Such shares were issued pursuant to the exemption from registration under
    Section 4(2) of the Securities Act of 1933.

                                       18

<PAGE>  19


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



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

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

    On October 13, 1997, Max Carter returned 2,500 shares to the treasury. All
    such shares were issued pursuant to the exemption from registration under
    Section 4(2) of the Securities Act of 1933, in view of the sophistication of
    the issuees.

21. On October 20,1997, the Company issued 20,000 shares to Neil Armstrong in
    settlement of litigation with the Company. SEE ITEM 3. " LEGAL PROCEEDINGS".
    Such shares were issued pursuant to the exemption from registration under
    Section 4(2) of the Securities Act of 1933.

22. On November 14, 1997, the Company issued 50,000 shares to Darryl M. See,
    M.D., in exchange for research and development consulting services and
    400,000 shares to Thomas E. Waite to induce him to work for the Company and
    provide an incentive for his successful performance as President and Chief
    Executive Officer. The grant of the 400,000 shares is irrevocable and the
    amount of the grant was determined, in view of the cessation of the active
    business of Thomas E. Waite & Assoc. at the time of Mr. Waite's employment
    to enable him to devote his entire business time to the affairs of the
    Company. Such shares were issued pursuant to the exemption from registration
    under Section 4(2) of the Securities Act of 1933, in view of the
    sophistication of the issuees. The 400,000 shares issued Thomas E. Waite
    have demand registration rights under the Securities Act of 1933, which
    rights have been exercised.

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


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

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

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

    Such shares were issued pursuant to the exemption from registration under
    Section 4(2) of the Securities Act of 1933, in view of the sophistication of
    the issuees. On December 10, 1997, the 25,000 shares issued to Ronald E.
    Patterson were cancelled and returned to treasury for failure of
    consideration. The balance of the shares shown above were cancelled without
    proper corporate authority and reissued to correct such improper
    cancellation at a later date. SEE NO. 26 BELOW AND ITEM 3. "LEGAL
    PROCEEDINGS, PROCEEDING NO. 8".

                                       19

<PAGE>  20

24. On January 16, 1998, the Company issued 100,000 shares to CIBC Wood Gundy
    London Limited. The parties came to an agreement on a litigation issue
    resolved on December 26, 1997. Such shares were issued pursuant to the
    exemption from registration under section 4(2) of the Securities Act of
    1933, in view of the sophistication of the issuees.

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

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


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

                     Biosphere Technology, Inc.  (1)        200,000
                     Dr. Darryl See              (3)        200,000
                     Pyramid Laboratories        (4)         15,000
                     Curtis A Orgill             (1)         50,000
                     Barbara L. Krilich          (5)         50,000
                     Michael Snell               (2)         50,000
                     Martin E. Janis             (1)         50,000
                     Lorenz M. Hofmann Ph.D.     (1)         10,000
                                                       -------------
                                                            625,000
                                                       =============

    (1) These shares were reissued, see Item 23 above.
    (2) See Item 23 above as to 25,000 shares. 25,000 shares were issued as an
        additional incentive to induce the employee to work for the Company and
        to provide an incentive for his successful performance as the Company's
        Director of Public Relations.
    (3) Shares issued to induce the employee to work for the Company and to
        provide an incentive for his successful performance as the Company's
        Chief Clinical Investigator.
    (4) Shares issued in settlement of a debt.
    (5) Shares issued to induce the employee to work for the Company and to
        provide an incentive for her successful performance as the Company's
        Secretary and Chief Operating Officer.

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

27. On February 3, 1998, Dr. Jackie R. See and Mr. Thomas E. Waite ("Investors")
    each invested $2,500,000 in the registrant and received shares. Such shares
    were issued pursuant to the exemption from registration under Section 4(2)
    of the Securities Act of 1933. The shares have demand registration rights
    under the Securities Act of 1933, which rights have been exercised. SEE ITEM
    1 "DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS".

28. On February 10, 1998, three new members were elected to the Board of
    Directors of the Company. Two of these members will serve as new independent
    Directors of the Company and the third will fill an existing seat vacated by
    the resignation of a previous director. The Company's Board of Directors
    currently consists of five members. On February 11,1998, the Company issued
    a total of 10,000 shares, 5,000 to each new independent Director of the
    Company, Col. Robert T. Hayden, USA (Ret) and Martin J. Holloran. Such
    shares were issued pursuant to the exemption from registration under Section
    4(2) of the Securities Act of 1933.

29. On February 18, 1998, the Company issued 200,000 shares of Common Stock to
    an investor, O. Lee Tawes III, for payment of $600,000. Such shares were
    issued pursuant to the exemption from registration under Section 4(2) of the
    Securities Act of 1933. The shares have demand registration rights under the
    Securities Act of 1933, which rights have been exercised. SEE ITEM 1.
    "DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS".

                                       20

<PAGE>  21

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

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

OVERVIEW:

        Harvard Scientific Corp. is a biopharmaceutical drug development
company. The Company's corporate objective is to utilize medically researched
and developed drug substances, determine the ability of these substances to be
encapsulated in liposomes and to determine the potential market for such
products. The Company intends to conduct and conclude, either on its own or with
the assistance of an industry partner, all clinical testing necessary for
regulatory approval of said products from the U.S. Food and Drug Administration
("FDA") or similar regulatory agencies in foreign countries in order to initiate
marketing and establish distribution channels for its products. Thus far, the
Company has developed two products, (i) a therapeutic treatment for male
erectile dysfunction and, (ii) a topical treatment for psoriasis. The Company
presented the results of its Phase I clinical study on the erectile dysfunction
treatment product to the FDA in April 1997, as part of its pre-Phase II clinical
trial meeting. The FDA is currently auditing the data from its Phase I study.
Protocols and research sites for the Phase II study are complete and the Company
is currently awaiting FDA approval to proceed with its Phase II clinical trials.
The Company voluntarily placed the psoriasis product on clinical hold with the
FDA until additional data, both qualitative and quantitative, could be collected
to determine the exact systemic reactions, if any, to the body. The FDA
requested that the Company conduct more animal trials, specifically dog trials,
to provide this data. The Company also believes that the data resulting from
these trials may suggest that an opportunity exists for the Company to consider
a potential additional therapeutic product to treat animal skin conditions,
specifically mange.

        During fiscal years 1994 through 1997, the Company's activities
consisted primarily of raising capital, identifying a core management team,
developing a patent application for its ED product and the submission of this
application to the U.S. Patent and Trademark office (which resulted in the
issuance of said patent), concluding manufacturing scale up and initial clinical
trials and formulating both a commercialization and clinical development
strategy. The Company has considered and evaluated additional products and
market potential for those products in order to enhance its own current product
portfolio and intends to continue this strategy for future corporate
development.

        The Company's core technology is covered by a U.S. patent. On August 18,
1997, the Company received a Notification of Allowance for Patent from the U.S.
Patent and Trademark Office for "PGE1 CONTAINING LYOPHILIZED LIPOSOMES FOR USE
IN THE TREATMENT OF ERECTILE DYSFUNCTION". This is the active drug agent used in
the Company's male ED treatment product. The U.S. Patent and Trademark Office
issued patent number 5,718,917 to the Company on February 17, 1998.

        The Company is confident that its strategic plan which was launched by a
new management team in November, 1997, will be successful, although there is no
assurance that it will be. The Company's management team is currently
established thereby, during the next twelve months it is not expected that the
Company will need to hire any additional employees. Since the middle of November
1997: (i) the Company received an Investigational New Drug ("IND") number 54,669
from the FDA Division of Dermatology and Dental Drug Products for its new
product, PsoriClear, (ii) its International Patent Application, No.
PCT/US96/18820 (International Publication No. W097/2234), received a favorable
Preliminary Examination Report, from the U.S. Patent and Trademark Office
Examiner acting as the International Preliminary Examining Authority, (iii) a
study utilizing gamma radiation instead of standard 0.2 micron filters to
sterilize the chemical components used in the Company's products proved
successful in the production of "GMP" (Good Manufacturing Practice) product,
(iv) a financing agreement to provide funds of up to $10,000,000 was signed
between the Company and its two largest shareholders, Thomas E. Waite, President
and Chief Executive Officer of the Company, and Jackie R. See, M.D., F.A.C.C.,
Director of Research and Development and, (v) stability studies on lyophilized
liposomal Prostaglandin E1 conducted with the collaborative efforts of Pyramid
Labs, Inc. in Costa Mesa, California has proven that LLPGE1 remains stable
without any degradation and chemical breakdown at room temperature for at least
9-months. These stability studies are ongoing in order to determine the exact
shelf-life for the Company's products at room temperature.

                                       21

<PAGE>  22

        Over the next 12 months, the Company's primary focus will be on
continuing clinical trials and product validation of its ED product to conform
to the regulatory process of the FDA. Also, the Company intends to move forward
in parallel and has undertaken efforts to identify companies with similar
technologies or companies seeking new proprietary products to strengthen their
existing market position. This strategy is directed toward the formation of
strategic alliances, joint venture arrangements, licensing and distribution
agreements, research and development agreements and other collaborative
arrangements with major pharmaceutical distribution concerns and/or licensing
agreements to eventually assist in the development and distribution of its
current two projects, with particular emphasis on the ED product.

        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 greatly enhance the
Company's ability to bring its products to market more quickly, thus insuring
the Company an opportunity to maximize its profitability from the remaining life
of its patent for its products which was issued February 17, 1998. Without the
benefit of an industry partner, the Company believes that an 18 to 24 month
time-line to obtain regulatory approval is the current assumption, but there can
be no assurance, if ever, that the product will receive FDA approval in that
time span.

        In the next 12 months, the Company's future success is dependent upon
its ability to raise additional funds to complete the commercialization process
for its ED treatment product and its psoriasis treatment product 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. The Company will continue to seek such
practices of raising such funds in the future, however, there is no assurance
that they will prove successful.

        In January 1998, a financing agreement to provide funds of up to
$10,000,000 was signed between the Company and its two largest shareholders,
Thomas E. Waite, President and Chief Executive Officer, and Jackie R. See, M.D.,
F.A.C.C., Director of Research and Development. The notes of $2,492,098.61 each
are due and payable on March 31, 1999. For the terms of this transaction, SEE
ITEM 1."DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS". In February
1998, an investor purchased 200,000 shares of the Company's Common Stock for an
initial funding of $600,000 SEE ITEM 1 "DESCRIPTION OF BUSINESS - OTHER
FINANCING ARRANGEMENTS".

        The Company does not expect to purchase or sell any significant
equipment.

RESULT OF OPERATIONS:

FOR THE YEAR ENDED DECEMBER 31, 1996:

        The Company experienced an increase in administrative and general
expenses primarily as a result of increased consulting, legal and professional
fees. These fees were paid mostly to auditors, attorneys and marketing
consultants. In addition, the Company experienced an increase in payroll costs,
as it had four employees until December 6,1996, when a management change took
place. As a result of this management change, Neal Armstrong, Rex Morden,
Stephen M. Goldberg and David F. Miller were removed and Don Steffens and Ian
Hicks were appointed as officers and directors of the Company.

        During 1996, the Company's activities centered on continued fund raising
efforts and development of the product. The Company submitted an IND to the FDA
and concluded a Phase I clinical trial. The Company started the year with a cash
balance of $799,466. The Company raised funds though the sale of $500,000
aggregate principal amount of 7% Convertible Debentures ("7% Debentures") in
June 1996 and incurred $500,000 in interest expense thereon. The Company
received revenues of $181,000 resulting from the supply of its product to its
Korean distributor for the conduct of clinical trials and incurred research and
development and other costs of the goods sold in the amount of $326,423. The
Company also incurred $494,813 in costs for legal settlements, based on the fair
market value of 568,750 shares issued to Thomas Waite & Associates ("Waite") in
settlement of litigation between the Company and Waite. SEE ITEM 3 "LEGAL
PROCEEDINGS." The net loss for the year ended December 31, 1996 amounted to
$2,438,944.

                                       22

<PAGE>  23


FOR THE YEAR ENDED DECEMBER 31, 1997:

        The Company's major financial transaction for the year was the issuance
of $5,000,000 aggregate principal amount of 6% Convertible Debentures. The
issuance of such Debentures brought a net amount of $4,375,000 into the
Company's general operating account in March 1997. The Registration Statement on
form SB-2, registering the 6% debenture transaction, became effective on August
14, 1997. Indeed, almost all of the cash generated by the Company's operations
for the year ending December 31,1997 came from the issuance of this 6%
Debenture. SEE ITEM 1. "DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS".

        The Company had no net sales during year, and, accordingly, had no cost
of sales for the year. However, in 1996, the Company incurred sales of $181,000
and a cost of sales of $216,867 for the year as result of selling clinical
supplies to Korea. Accordingly, gross profit in 1996 was a loss of $35,870. The
difference in the sales figures for 1997 vs. 1996 is attributable primarily to
the Company's focus on raising investment capital in 1997. In 1997, the Company
focused on completing the required regulatory review process for its ED product
and introducing their psoriasis product, as opposed enhancing promotions of the
Company's products, as was the case in 1996.

        During 1997, the Company also experienced a significant increase of
$1,051,065 in operating expenses over what was experienced in 1996. This
increase is a result of several factors including: 1) identifying a core
management team, 2) opening a new Corporate office in Reno, Nevada and a new
World Headquarters in Lake Mary, Florida, 3) other administrative costs
associated with the clinical trials on both ED product and the psoriasis
product, and 4) expanding efforts to raise additional capital. Consequently,
salaries increased approximately $213,500 and rent and office overhead increased
approximately $90,000. The Company focused on expanding public relations, which
resulted in an additional cost of approximately $486,000 for 1997. As a result
of securing the 6% debenture holder, the Company paid approximately $750,000 in
finder fees, of which $625,000 is amortized over a 12-month period ending March
1998. Legal and professional fees increased by approximately $136,000.

        During 1997, the Company experienced a significant increase in research
& development costs over those incurred in 1996. This increase of $1,265,122 is
a direct result of completing the clinical trials on Phase I study on the ED
product submitted to the FDA in April 1997. Furthermore, the Company has
prepared the protocols for the Phase II study and is awaiting FDA approval
before proceeding with the clinical trials. In addition, the Company has
prepared for the Phase I clinical trials for its psoriasis product. The costs
incurred associated with such steps conformed to the Company's planned budgets
for 1996 and 1997.

        The increase in depreciation and amortization of $473,741 in 1997 is the
amortized portion of the deferred issuance cost on the 6% Debenture of $468,750.
The balance of $156,250 will be amortized within the first quarter of 1998. SEE
ITEM 1 "DESCRIPTION OF BUSINESS - OTHER FINANCING ARRANGEMENTS".

        The Company expensed $220,816 to legal settlements in 1997, SEE IN ITEM
7. - FOOTNOTE 10 TO THE FINANCIAL STATEMENTS. Dividend income increased 100% in
1997, however interest expense also increased by $949,857 as a result of the
$5,000,000 6% Debenture received in March 1997.

        Management anticipates that general and administrative expenses will
continue to be incurred in similar amounts throughout 1998 as the Company
continues to seek additional investment capital and expand its operations. In
addition, research & development costs will continue to increase as the Company
moves forward with FDA approval and continues to bring its products to market.
The Company will continue to incur legal expenses in connection with litigation
which the Company is involved.

                                       23

<PAGE>  24

ITEM 7. FINANCIAL STATEMENTS

                                       24


<PAGE>  25



                            HARVARD SCIENTIFIC CORP.
                           (A DEVELOPMENT STAGE CORP.)
                                DECEMBER 31, 1997





                                       25



<PAGE>  26

                               RONALD D. SIMPKINS
                           CERTIFIED PUBLIC ACCOUNTANT





                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
     And Shareholders of
Harvard Scientific Corp.

I have audited the balance sheet of Harvard Scientific Corp. (A Development
Stage Company) as of December 31, 1997, and the related statements of
operations, stockholders'equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on the financial statements based on my
audit. The financial statements of the Company for the fiscal years ended
December 31, 1996 and 1995, were audited by other auditors whose report thereon
dated June 2, 1997, expressed an unqualified opinion with an explanatory
paragraph discussing its going-concern assumption.

I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Harvard Scientific Corp. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

The accompanying financial statements have been presented assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.



Reno, Nevada
March 5, 1998



                                       26

<PAGE>  27



                               RONALD D. SIMPKINS
                           CERTIFIED PUBLIC ACCOUNTANT




                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
    And Shareholders of
Harvard Scientific Corp.


I have audited the balance sheet of Harvard Scientific Corp. (A Development
Stage Company) as of February 28, 1998. This financial statement is the
responsibility of the Company's management. My responsibility is to express an
opinion on this financial statement based on my audit.

I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audits to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. I
believe that my audit provides a reasonable basis for my opinion.

In my opinion, the balance sheet referred to above present fairly, in all
material respects, the financial position of Harvard Scientific Corp. as of
February 28, 1998, in conformity with generally accepted accounting principles.

The accompanying financial statements have been presented assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
The balance sheet does not include any adjustments that might result from the
outcome of this uncertainty.



Reno, Nevada
March 5, 1998

                                       27


<PAGE>  28


<TABLE>

                                         HARVARD SCIENTIFIC CORP.
                                       (A DEVELOPMENT STAGE COMPANY)

                                               BALANCE SHEET

                                                  ASSETS
<CAPTION>
                                                             December 31,    December 31,   December 31,
                                                                1997            1996           1995
                                                              (Audited)       (Audited)       (Audited)
                                                           --------------  --------------  --------------
<S>                                                        <C>             <C>             <C>
Current Assets:
    Cash and cash equivalents                              $     873,199   $           -   $     799,466
    Prepaid  expenses                                             35,382           1,565         425,094
    Accounts Receivable - Directors (Note 7)                      57,711               -               -
    Due From Related Parties  (Note 7)                           852,305               -               -
    Deferred debt issue costs (Note 11)                          156,250               -               -
                                                           --------------  --------------  --------------

       Total Current Assets                                    1,974,847           1,565       1,224,560
                                                           --------------  --------------  --------------

Equipment and Leasehold Improvements:
    at cost, less accumulated depreciation of $11,930
    at December 31, 1997 and $3,491 at December 31,
    1996 and $6,637 at December 31, 1995 (Note 3)                 50,704           5,925          10,861
                                                           --------------  --------------  --------------

Intangible Assets:
    Intellectual Property, net of accumulated amortization
       of $4,147 at December 31, 1997, $1,048 at December
       31, 1996 and $1,771 at December 31, 1995  (Note 4)        156,848           7,948           8,563
    Organizational cost, net of accumulated amortization 
       of $140,686 at December 31, 1997,$105,760 at
       December 31, 1996 and $70,754 at December 31, 1995         34,864          69,789         104,796
                                                           --------------  --------------  --------------

                                                                 191,712          77,737         113,359
                                                           --------------  --------------  --------------

Other Assets:
    Deposits                                                      10,414             300             300




       TOTAL ASSETS                                        $   2,227,677   $      85,527   $   1,349,080
                                                           ==============  ==============  ==============
</TABLE>




    The accompanying Notes are an integral part of these financial statements

                                       28
<PAGE>  29
<TABLE>
                                         HARVARD SCIENTIFIC CORP.
                                      (A DEVELOPMENT STAGE COMPANY)

                                        BALANCE SHEET (CONTINUED)

                                   LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>

                                                       December 31,  December 31,  December 31,
                                                           1997          1996          1995
                                                         (Audited)     (Audited)     (Audited)
                                                       ------------  ------------  ------------

<S>                                                    <C>           <C>           <C>        
Current Liabilities:
   Accounts payable                                    $    26,370   $    36,625   $   105,791
    Accrued expenses (Note 5 & 11)                         131,694        20,329        84,380
    Bank overdraft                                               -           134             -
    Obligation under capital lease - current (Note 3)       16,979             -             -
    Due to related parties                                       -       190,860       406,881
    Note payable to related parties (Notes 6 and 7)              -        37,275        67,675
    Debentures payable - Convertible (Note 11)           2,800,000             -             -
    Note payable - Convertible (Note 6)                          -       250,000             -
                                                       ------------  ------------  ------------
      Total Current Liabilities                          2,975,043       535,223       664,727
                                                       ------------  ------------  ------------
Long-Term Liabilities:
    Obligation under capital lease - non-current             6,317             -             -
      (Note 3)                                         ------------  ------------  ------------

Stockholders' Equity:
    Common Stock, $.001 par value; 100,000,000 shares
      authorized; 33,441,373, 9,883,129 and 8,749,125
      shares issued and outstanding at December 31, 1997,
      December 31, 1996 and December 31, 1995,
      respectively (Note 1)                                 33,441         9,883         8,749
    Additional paid-in capital                           8,694,904     3,206,207     1,902,445
    Deficit accumulated during the development stage    (9,482,027)   (3,665,786)   (1,226,841)
                                                       ------------  ------------  ------------
      Total Stockholders' Equity                          (753,682)     (449,696)      684,353
                                                       ------------  ------------  ------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $ 2,227,677   $    85,527   $ 1,349,080
                                                       ============  ============  ============
</TABLE>




    The accompanying Notes are an integral part of these financial statements

                                       29
<PAGE>  30
<TABLE>
                                         HARVARD SCIENTIFIC CORP.
                                      (A DEVELOPMENT STAGE COMPANY)

                                        STATEMENTS OF OPERATIONS

<CAPTION>
                                                                                   1/13/87
                                                                                  (Inception)
                                        December 31,  December 31,  December 31,      to
                                           1997          1996          1995        12/31/97
                                         (Audited)     (Audited)     (Audited)    (Unaudited)
                                        ------------  ------------  ------------  ------------

<S>                                     <C>           <C>           <C>           <C>        
Net Sales                               $         -   $   181,000   $         -   $   187,387
Cost of  Sales                                    -       216,870             -       221,557
                                        ------------  ------------  ------------  ------------
     Gross Profit                                 -       (35,870)            -       (34,170)
                                        ------------  ------------  ------------  ------------
Operating Expenses:
   General and administrative expenses    2,295,337     1,244,272       434,320     4,336,207
   Research and development (Note 7)      1,374,675       109,553       194,965     1,803,559
   Depreciation and amortization            515,213        41,472        39,550       635,847
                                        ------------  ------------  ------------  ------------
     Total Operating Expenses             4,185,225     1,395,297       668,835     6,775,613
                                        ------------  ------------  ------------  ------------
     Loss from Operations                (4,185,225)   (1,431,167)     (668,835)   (6,809,783)
                                        ------------  ------------  ------------  ------------
Other Income (Expense):
   Settlements (Note 10)                   (220,816)     (494,813)            -      (715,629)
   Interest Income                            1,168             -             -         1,565
   Dividend Income                           51,453             -             -        51,453
   Interest Expense                      (1,462,821)     (512,964)       (7,620)   (1,985,133)
   Loss on disposition of marketable 
     securities                                   -             -             -       (24,500)
                                        ------------  ------------  ------------  ------------
     Total Other Income and Expense      (1,631,016)   (1,007,777)       (7,620)   (2,672,244)
                                        ------------  ------------  ------------  ------------
Net Loss                                $(5,816,241)  $(2,438,944)  $  (676,455)  $(9,482,027)
                                        ============  ============  ============  ============
Loss per Common Share                   $     (0.36)  $     (0.27)  $     (0.29)  $     (0.56) 
                                        ============  ============  ============  ============

Weighted Average Shares Outstanding 
  (Note 2)                               16,352,816     9,040,685     2,333,703    17,077,159
                                        ============  ============  ============  ============
</TABLE>

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

                                       30
<PAGE>  31
<TABLE>

                                         HARVARD SCIENTIFIC CORP.
                                      (A DEVELOPMENT STAGE COMPANY)


                                    STATEMENTS OF STOCKHOLDERS' EQUITY
                         FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
                                     TO DECEMBER 31, 1997 (UNAUDITED)

<CAPTION>
                                                                               
                                                Restated                        Deficit
                                              Common Stock        Additional     From
                                        ------------------------    Paid-in     Inception
                                          Shares       Amount       Capital      To Date       Total
                                        -----------  -----------  -----------  -----------  -----------
<S>                                     <C>          <C>          <C>          <C>          <C>
Issuance of shares for cash on
    January 13, 1987 (inception)           103,000   $      103   $    2,097   $        -   $    2,200

Issuance of shares for cash,
    net of offering costs                   51,000           51       19,223            -       19,274

Issuance of shares for services            146,000          146            -            -          146

Issuance of shares to acquire
    Grant City Corporation                  50,000           50       39,827            -       39,877
                                        -----------  -----------  -----------  -----------  -----------
Balance December 31, 1993                  350,000          350       61,147            -       61,497

Issuance of shares to effect a
    four-for-one split                   1,050,000        1,050       (1,050)           -            -

Issuance of shares for
    intellectual property rights         4,196,000        4,196            -            -        4,196

Issuance of shares for
    corporation property rights            394,000          394       24,231            -       24,625

Issuance of shares for fees
    and services                         1,045,000        1,045       96,893            -       97,938

Issuance of shares for cash,
    net of offering costs                  393,500          393      353,757            -      354,150

Adjustment of shares to effect a
    four-for-one reverse split          (5,571,375)      (5,571)       5,571            -            -

Cumulative (loss) from inception
    to December 31, 1994                         -            -            -     (550,386)    (550,386)
                                        -----------  -----------  -----------  -----------  -----------
Balance December 31, 1994                1,857,125        1,857      540,549     (550,386)      (7,980)

</TABLE>





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

                                       31
<PAGE>  32
<TABLE>

                                         HARVARD SCIENTIFIC CORP.
                                      (A DEVELOPMENT STAGE COMPANY)
<CAPTION>

                                    STATEMENTS OF STOCKHOLDERS' EQUITY
                         FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
                                     TO DECEMBER 31, 1997 (UNAUDITED)
                                               Restated                         Deficit
                                              Common Stock        Additional     From
                                        ------------------------    Paid-in     Inception
                                          Shares       Amount       Capital      To Date       Total
                                        -----------  -----------  -----------  -----------  ----------- 
<S>                                     <C>          <C>          <C>          <C>          <C>
December 31, 1994 balance forward        1,857,125        1,857      540,549     (550,386)      (7,980)

Issuance of shares for fees
    and services                           553,500          553      530,796            -      531,349

Issuance of shares at par value for
    intellectual property rights         6,138,500        6,139            -            -        6,139

Issuance of shares for cash,
    net of offering costs                  200,000          200      831,100            -      831,300

Net (loss) for the year ended
    December 31, 1995                            -            -            -     (676,455)    (676,455)
                                        -----------  -----------  -----------  -----------  -----------
Balance December 31, 1995                8,749,125        8,749    1,902,445   (1,226,841)     684,353

Issuance of shares for services            255,000          255       59,828            -       60,083

Issuance of shares in conversion of debt   310,254          310      249,690            -      250,000

Issuance of shares for legal settlement    568,750          569      494,244            -      494,813

Discount on 7% Convertible Debentures            -            -      500,000            -      500,000

Net (loss) for the year ended
    December 31, 1996                            -            -            -   (2,438,945)  (2,438,945)
                                        -----------  -----------  -----------  -----------  -----------
Balance December 31, 1996                9,883,129        9,883    3,206,207   (3,665,786)    (449,696)

Issuance of shares for cash,
    net of offering costs                  250,000          250      124,750            -      125,000

Issuance of shares for fees
    and services                         1,270,000        1,270            -            -        1,270

Discount on 6% Convertible Debentures            -            -    1,250,000            -    1,250,000

Net (loss) for the Quarter ended 
    March 31,1997                                -            -            -   (3,140,868)  (3,140,868)
                                        -----------  -----------  -----------  -----------  -----------
Balance March 31, 1997                  11,403,129   $   11,403   $4,580,957  $(6,806,654) $(2,214,294)
                                        ===========  ===========  ===========  ===========  ===========
</TABLE>


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

                                       32
<PAGE>  33
<TABLE>

                                         HARVARD SCIENTIFIC CORP.
                                      (A DEVELOPMENT STAGE COMPANY)

<CAPTION>

                                    STATEMENTS OF STOCKHOLDERS' EQUITY
                         FOR THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
                                     TO DECEMBER 31, 1997 (UNAUDITED)

                                                 Restated                          Deficit
                                               Common Stock         Additional      From
                                        --------------------------    Paid-in      Inception
                                           Shares        Amount       Capital       To Date        Total
                                        ------------  ------------  ------------  ------------  ------------
<S>                                     <C>           <C>           <C>           <C>           <C>
March 31, 1997 balance forward           11,403,129   $    11,403   $ 4,580,957   $(6,806,654)  $(2,214,294)

Issuance of shares for fees and services  6,172,000         6,172             -             -         6,172

Issuance of shares in conversion of debt    450,000           450       133,300             -       133,750

Net (loss) for the Quarter ended
    June 31, 1997                                 -             -             -    (1,266,233)   (1,266,233)
                                        ------------  ------------  ------------  ------------  ------------
Balance June 30, 1997                    18,025,129      $ 18,025   $ 4,714,257   $(8,072,887)  $(3,340,605)

Issuance of shares in conversion of debt  1,446,325         1,446     1,275,133             -     1,276,579

Issuance of shares for fees and services    144,000           144             -             -           144

Net (loss) for the Quarter ended
    September 30, 1997                            -             -             -      (180,075)     (180,075)
                                        ------------  ------------  ------------  ------------  ------------
Balance September 30, 1997               19,615,454      $ 19,615   $ 5,989,390   $(8,252,962)  $(2,243,957)

Issuance of shares in conversion of debt  2,375,919         2,376       985,789             -       988,165

Issuance of shares for fees and services  8,300,000         8,300       537,100             -       545,400

Issuance of shares in legal settlement    1,150,000         1,150       439,075             -       440,225

Issuance of shares for intellectual 
    property                              2,000,000         2,000             -             -         2,000

Receivable due from related parties
    reflecting the sale of stock Rule 16(b)       -             -       410,016             -       410,016

Receivable due from related parties               -             -       333,535             -       333,535

Net (loss) for the Quarter ended
    December 31, 1997                             -             -             -    (1,229,065)   (1,229,065)
                                        ------------  ------------  ------------  ------------  ------------
Balance at year end December 31, 1997    33,441,373   $    33,441   $ 8,694,904   $(9,482,027)  $  (753,682)
                                        ============  ============  ============  ============  ============
</TABLE>
                                        
   The accompanying Notes are an integral part of these financial statements.
                                       33
<PAGE>  34
<TABLE>
                                          HARVARD SCIENTIFIC CORP.
                                      (A DEVELOPMENT STAGE COMPANY)

                                         STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                                          
                                                                Year ended                   1/13/87
                                                                December 31                (Inception)
                                                ----------------------------------------       to
                                                     1997          1996          1995       12/31/97
                                                  (Audited)     (Audited)     (Audited)    (Unaudited)
                                                ------------  ------------  ------------  ------------
<S>                                             <C>           <C>           <C>           <C>
Reconciliation of Net Loss to Net Cash
   Used in Operating Activities:

Net Loss                                        $(5,816,241)  $(2,438,944)  $  (676,455)  $(9,482,027)
                                                ------------  ------------  ------------  ------------
Adjustments to Reconcile Net Loss to
   Net Cash Provided by (Used in)
   Operating Activities:

   Book value of assets sold                              -         6,483             -         6,483
   Loss on disposition of marketable securities           -             -             -        24,500
   Depreciation and amortization                     46,464        41,472        39,550       167,098
   Amortization of Debt Issuance cost               468,750             -             -             -
   Issuance of stock for director's fees
     and services                                   560,399       485,129        71,974     1,249,774
   Issuance of stock for Property Rights              2,000             -             -             -
   Issuance of stock in legal settlement            301,041       494,813             -       795,854
   Discount on Convertible Debentures             1,250,000       500,000             -     1,750,000
   Interest Expense converted to Stock               86,878             -             -        86,878
   (Increase) decrease in assets:
     Prepaid expenses                                 1,565        (1,565)       38,281             -
     Deposits/Retainers                             (45,496)            -             -       (45,796)
     Other Assets                                         -             -             -             -
   Increase (decrease) in liabilities:
     Accounts payable                               (31,597)      (69,116)      100,962         5,027
     Accrued expenses                               124,091       (64,051)       82,779       144,419
     Due to related parties                        (394,600)     (216,021)      303,951      (203,740)
                                                ------------  ------------  ------------  ------------
            Total Adjustments                     2,369,496     1,177,144       637,497     3,980,498
                                                ------------  ------------  ------------  ------------
Net Cash Used in Operating Activities:          $(3,446,746)  $(1,261,800)  $   (38,958)  $(5,501,530)
                                                ============  ============  ============  ============
Cash Flows from Investing Activities:
   Cash from sale (purchase) of equipment           (53,217)       (7,400)            -       (78,114)
   Cash from sale (purchase) of Intellectual Right (150,000)            -             -             - 
   Capitalized organization costs                         -             -             -      (150,924)
                                                ------------  ------------  ------------  ------------
    Net Cash Used in Investing Activities:         (203,217)       (7,400)            -      (229,038)
                                                ------------  ------------  ------------  ------------
Cash Flows from Financing Activities:
   Proceeds from issuance of capital stock,
    net of offering costs                           125,000             -       831,300     1,371,946
   Proceeds from debt converted to capital stock          -       250,000             -       250,000
   Proceeds from debt, net of costs                  23,295       251,100        80,719       438,739
   Proceeds from debentures, net of costs         4,375,000             -             -     4,375,000
   Principal payments on debt                             -       (31,500)      (74,319)     (128,169)
                                                ------------  ------------  ------------  ------------
    Net Cash Provided by Financing
        Activities                                4,523,295       469,600       837,700     6,307,516
                                                ------------  ------------  ------------  ------------
Net Increase (Decrease) in Cash                     873,333      (799,600)      798,742       576,949

Cash at beginning of period                            (134)      799,466           724             -
                                                ------------  ------------  ------------  ------------
Cash at end of period                           $   873,199   $      (134)  $   799,466   $   576,949
                                                ============  ============  ============  ============
</TABLE>



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

                                       34
<PAGE>  35


                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


                                                   
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION

NATURE OF BUSINESS:
Harvard Scientific Corp. (the "Company") is a development stage company. The
Company's primary business operations consist of development, commercialization,
marketing, and distribution of products relating to prostaglandin/microsphere
delivery and the manner in which the product is applied in treating 1) male
sexual dysfunction, impotency and sexual enhancement, and 2) for the treatment
of Psoriasis. The Company has preliminary data available, indicating the
possible benefits of such a therapy for both products. The Company is a
development stage enterprise as defined by FASB No. 7. "Accounting and Reporting
by Development Stage Enterprises".


On February 13, 1996, the Company received an assignment of an application for a
patent entitled "PGE1 Containing Lyophilized Liposomes For Use In The Treatment
of Erectile Dysfunction", and identified as United States Application No.
08/573,408 ("LLPGE-1"). US Patent No. 5,718,917 was issued February 17, 1998.
The assignment was made by the holder of the application, Bio-Sphere Technology,
Inc. ("BTI"), a majority shareholder as of December 31, 1997.

The Company plans to focus on LLPGE-1 Erectile Dysfunction to bring the product
to the marketplace. In May 1996, the Company submitted an Investigational New
Drug ("IND") application to the Federal Food & Drug Administration ("FDA") and
has concluded its Phase I clinical trial. The results of the Phase 1 clinical
trial are under review by the FDA. Upon the FDA's approval of the clinical study
of Phase I, the Company will proceed to a Phase II trial.

On November 20, 1997, the Company received the Intellectual Property Rights to
Prostaglandin E1 Lyophilized ("LLPGE-1") Liposomes for the use of treatment of
Psoriasis from BTI. This is in a special lotion base and delivery system which
is proprietary. The Investigational New Drug Number ("IND" No. 54,669) has been
issued to Harvard Scientific from the FDA Division of Dermatology and Dental
Drug Products for this topically applied skin treatment product for psoriasis
called PsoriClear. A Protocol is currently under development with the FDA for
Phase I trials.

ORGANIZATION:
The Company was incorporated under the laws of the State of Nevada on January
13, 1987, under the name of Witch Doctors Bones, Inc. On August 12, 1987, the
Company qualified a public offering under Rule 504 of Regulation D of the
Securities Act of 1933, as amended, with the Secretary of State of Nevada. On
June 17, 1988, the Company changed its name to Carey Ward, Inc. On October 18,
1993, the Company acquired Grant City Corporation by merger and changed its name
to Grant City Corporation. On January 18, 1994, the Company changed its name to
The Male Edge, Inc. On May 10, 1994, the Company changed its name to Harvard
Scientific Corp.

The Company has 100,000,000 shares of common stock authorized with 33,441,373
shares issued and outstanding as of December 31, 1997, 9,883,129 issued and
outstanding on December 31, 1996 and 8,749,125 shares issued and outstanding on
December 31, 1995. BTI owned approximately 22%, 63% and 78% of the Company's
shares on December 31, 1997, December 31, 1996 and on December 31, 1995,
respectively. Jackie R. See M.D. is Director of the Company, and is a
controlling person of BTI.


                                       35
<PAGE>  36
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995

The Company's recent registration under the Securities Act of 1933, of its
common stock, issuable upon conversion of its 6% convertible debentures, was
declared effective on August 14th, 1997.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATIONAL COSTS:
Organization costs are being amortized over a five-year period using the
straight-line method. Also see the discussion contained in Note 7.

EQUIPMENT:
Equipment is stated at cost. Depreciation is incorporated on a double declining
balance basis over a period of 5 years. Expenditures for maintenance and repairs
are charged to expense as incurred. Upon retirement or disposal of assets, the
cost and accumulated depreciation are eliminated from the accounts and any
resulting gain or loss is included in expense. See Note 3.

USE OF ESTIMATES:
In order to prepare the financial statements in conformity with generally
accepted accounting principles, management must make estimates and assumptions
that affect certain reported accounts and disclosures. Actual results could
differ from these estimates.

INTELLECTUAL PROPERTIES:
The costs of intellectual properties are amortized using the straight-line
method over a period of fifteen years. See Note 4.

EARNINGS PER SHARE:
The earnings per share calculations were based on the weighted average number of
shares outstanding during the period: 16,352,816 for the year ending December
31, 1997, 9,040,685 for the year ending December 31, 1996 and 2,333,703 shares
for the year ending December 31, 1995, and 17,077,159 shares outstanding from
inception to December 31,1997.

During 1997, Company entered into an agreement with a 6% Debenture holders (see
Note 11 & 13), allowing for the conversion of the debenture on demand. At
December 31, 1997, the Company had an outstanding debt balance with the
debenture holders of $2,800,000 plus accrued interest of $131,694. On December
31, 1997, if the debenture holders chose to convert their debenture to common
stock, the converted balance would have calculated to an additional 10,013,843
shares of common stock issued, or a loss per share of $.20. Fully dilutive
earnings per share are not reflected because they are anti-dilutive.

INCOME TAX:
Because of losses sustained since inception, no provision has been made for
income tax.


                                       36
<PAGE>  37
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


NOTE 3 - EQUIPMENT & LEASEHOLD IMPROVEMENTS

Equipment and building improvements consists of the following:

<TABLE>
<CAPTION>

                                              December 31, 1997    December 31, 1996     December 31, 1995
                                                  (audited)            (audited)             (audited)
                                             --------------------------------------------------------------
<S>                                                <C>                  <C>                   <C>
Equipment & Leasehold Improvements                 $  2,634             $  9,416              $ 17,498
Less: accumulated depreciation                       11,930                3,491                 6,637
                                             ----------------------------------------------------------------
  Total Net Equipment & Leasehold                  $ 50,704             $  5,925              $ 10,861    
    Improvements                             ----------------------------------------------------------------
</TABLE>

In April 1997, the Company entered into an agreement for the lease of equipment
used in the process of sizing Liposomes which the Company uses in the delivery
of the Prostaglandin E-1. The total lease amount of $32,893 is to be paid over
24 months. The Company records the lease as a capital lease amortizing payments
over the life of the lease.

During December 1996, the Company established its corporate headquarters in
Reno, Nevada. In November 1997, the Company established the world headquarters
in Lake Mary, Florida. The Company has reduced its need for certain equipment
and leasehold improvements because the Company currently does not own
manufacturing equipment for its product. The product has been and will continue
to be manufactured by third-party manufacturers according to the Company's
specifications.


NOTE 4 - INTELLECTUAL PROPERTIES

On January 7, 1994, the Company exchanged 2,856,000 shares of common stock with
BTI for the intellectual rights to patent, develop, manufacture, and market the
LLPGE-1 for the treatment of male erectile dysfunction, impotency and sexual
enhancement. The Company recorded the transfer of intellectual properties at the
par value of stock transferred, which amounted to $2,856. BTI's largest
shareholder, Dr. Jackie See M.D., the inventor of the Lyophilized Liposomal
LLPGE-1, holds a 2% royalty interest on the sale of products.

On November 16, 1995, the Company exchanged 6,138,500 shares of common stock
with BTI for assistance in raising working capital and patent application and
for management assistance and distribution agreements associated with the
LLPGE-1 product. The Company recorded the transfer at the par value of stock
transferred, which amounted to $6,139.

During 1996, the Company expensed the unamortized cost of acquiring technology
relating to the development of an HIV home test kit. The Company, which
originally acquired the rights in exchange for 335,000 shares of common stock,
ceased product development in connection with a settlement accrued in 1995 (Note
10).

On November 20, 1997, the Company agreed to exchange 2,000,000 shares of common
stock plus $150,000 to BTI for the Intellectual Property Rights to Prostaglandin
E1 Lyophilized Liposomes for the use of treatment of Psoriasis (see Note 1). The
Company recorded the transfer at the par value of stock transferred, which
amounted to $2,000, plus $150,000. BTI is to receive a 3% override on royalties.


                                       37
<PAGE>  38
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


NOTE 5 - ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>

                                December 21, 1997    December 31, 1996     December 31, 1995
                                    (Audited)             (Audited)             (Audited)
                                ---------------------------------------------------------------
<S>                             <C>                  <C>                   <C>
Interest on notes and
  debentures                    $     131,694        $        9,649        $            -
Accrued payroll & payroll taxes             -                10,680                33,680
Settlement costs (Note 10)                  -                     -                50,000
Transfer fee                                -                     -                   700
                                ---------------------------------------------------------------

                                $     131,694        $       20,329        $       84,380
                                ---------------------------------------------------------------
</TABLE>

Also see Notes 11 for interest on debentures.

NOTE 6 - NOTES PAYABLE

The Company had the following notes payable:

<TABLE>
<CAPTION>

                                              December 21, 1997  December 31, 1996   December 31, 1995
                                                  (Audited)          (Audited)           (Audited)
                                              ---------------------------------------------------------
<S>                                           <C>                <C>                 <C>
8% note, payable to former director on
demand, unsecured (Note 7)                    $          -       $     37,275        $     62,675   
8% note, payable to related party on demand,
unsecured                                                -                  -               5,000   
7% convertible debentures, convertible at
50% of the market price of the common stock              -            250,000                   -
on the day before the conversion date.        
                                              ---------------------------------------------------------

                                              $          -       $    287,275        $     67,675
                                              ---------------------------------------------------------
</TABLE>

In June 1996, the Company issued $500,000 worth of 7% convertible debentures to
three non-US residents. The debentures were to be converted into shares of
common stock in December 1996, at 50% of the current market value of the stock.
By December 31, 1996, $250,000 of the debentures had been converted to equity. A
total of $500,000 was reflected as a discount and recorded to interest expense
and paid-in-capital in 1996. On June 12, 1997, an additional $125,000 was
converted into 450,000 shares of common stock. On December 26, 1997, the balance
of $125,000 was converted into 1,000,000 shares of common stock. See Note 10.


NOTE 7 - RELATED PARTY TRANSACTIONS

1.  During 1994, 1995 and 1997, the Company entered into three significant
    transactions with related parties for the acquisition of intellectual
    rights, and for the provision of technological, management, fundraising and
    marketing assistance. Note 4 describes the valuation of these transactions.


                                       38
<PAGE>  39
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


2.  On December 31, 1996, the Company had a payable to BTI of $183,535. The
    payable is related to costs incurred by BTI, on the Company's behalf, for
    consultation and rent, and for research and development of the LLPGE-1
    product. During 1997, the Company incurred an additional payable of $150,000
    to BTI for the Intellectual Property Rights to Prostaglandin E-1 Lyophilized
    Liposomes for the use of treatment of Psoriasis. See Note 4. During the
    year, BTI chose to convert the accounts payable balance of $333,535 as a
    contribution to additional-paid-in-capital.

3.  During 1996, BTI advanced 200,000 of its shares on behalf of the Company
    as a subordinated loan agreement. The shares were loaned and are expected to
    be returned to BTI in 1998. At the time of the advance, the fair market
    value of the shares transferred was $500,000. During 1997, the Company
    advanced to BTI $500,000 in connection with this settlement and expects to
    collect this money when the 200,000 shares are returned to BTI in 1998.

4.  In 1997, BTI, a major stockholder of the Company, received $352,305 from
    the sale of the Company's common stock that was subject to recapture by the
    Company pursuant to Section 16(b) of the Securities Exchange Act of 1934. In
    addition, in 1997, Dr. Jackie See, MD received $57,711 from the sale of the
    Company's common stock that was subject to recapture by the Company pursuant
    to Section 16(b). In 1997, a total of $410,016 was booked as a receivable
    from related parties/directors to reflect this recapture period.

5.  At December 31, 1997, BTI owned approximately 22% of the Company's
    shares. Dr. Jackie See a Director of the Company and a controlling person of
    BTI. Jackie R. See M.D. is a Director of the Company.

6.  In November 1997, the Company issued 4,000,000 shares of common stock to
    Thomas E. Waite, the President and Chairman of the Board, as a signing
    bonus. The transaction was recorded at par value.

7.  As of December 31, 1996, the Company had a note payable with a former
    director (Note 6). The amount of accrued interest associated with the note
    at December 31, 1996 was $6,419. This note was paid in full on May 7th,
    1997.

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

    During 1997, the Company issued a total of 11,902,000 shares of common stock
    (restricted) to officers and directors of the Company for prior and current
    services rendered or signing bonuses. In addition, during 1997 the Company
    issued 4,284,000 shares of common stock (restricted) for services performed
    by outside consultants or scientists, and 500,000 shares of common stock
    (restricted) to an employee of the Company as a signing bonus. These shares
    were recorded at par value.

    All shares owned by Dr. Jackie See and Thomas E. Waite, have registration
    rights. These registration rights have been exercised and upon the
    registration statement becoming effective, although, there is no assurance
    that it will become effective, the shares can be sold in accordance with the
    Securities Act of 1933, subject to state securities.


                                       39
<PAGE>  40
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


Also see discussions regarding intellectual properties, agreements, and
subsequent events in Notes 4, 9, and 13.


NOTE 8 - INCOME TAXES

The Company has federal net operating loss carryforwards for financial statement
purposes of approximately $7,000,000 at December 31, 1997, which will be used to
offset future earnings of the Company. The loss carryforwards will expire during
the years ending 2002 through 2012 if not used.


NOTE 9 - AGREEMENTS

1.  In conjunction with the agreement of November 16, 1995, between BTI and the
    Company (Note 4), BTI transferred three agreements to the Company related to
    the manufacture, marketing, and distribution of the LLPGE-1 product
    overseas. In 1996, the Company terminated two of these agreements for
    nonperformance and the third agreement was terminated by mutual consent.

2.  On November 3, 1995, BTI entered into an agreement with a European
    licensor, Pharma Maehle ("Pharma"), whereby Pharma was to establish the
    European market for the Company's erectile dysfunction product to develop,
    manufacture, sell, practice and exploit the use of the Company's proprietary
    license technology. In February 1996, an amendment to the agreement was
    signed to reflect the transfer of said agreement from BTI to the Company. On
    March 20, 1996, Section 19.0 (Entire Agreement) was amended to better
    express the intent of the parties. On December 30, 1996, the Company
    notified Pharma in writing that it was terminating the agreement for breach
    of contract and the implied covenant of good faith and fair dealing inherent
    in all contracts by failing to exercise reasonable diligence to exploit the
    technology and patent rights. On January 13, 1997, the Company signed a
    Letter of Understanding with Pharma, whereby the parties would consider
    working out a formal agreement settling their disputes after seeking advice
    from legal counsel. The agreement was to be accomplished within 10 working
    days from January 13, 1997. Unable to do so, the Company again notified
    Pharma of it's intent to terminate any and all agreements with Pharma
    referencing previous termination notices. Pharma contends the various
    notices of termination were withdrawn or ineffective and the agreement is
    enforceable. However, the Company believes they have rightfully terminated
    the agreement with Pharma, who has been and continues to be in breach of the
    agreement in any event. The validity of the agreement is currently in
    dispute. See Note 13.

3.  On April 2, 1997, the Company entered into a consulting agreement with
    David E. Jordan for the provision of financial public relations and other
    services. Under this agreement, Mr. Jordan was entitled to receive 200,000
    shares of Common Stock (which Mr. Jordan and parties related to Mr. Jordan
    received), as well as a monthly fee of $8,000. In addition to the monthly
    fee, he was to receive all agency fees which public relations and/or
    advertising firms receive when preparing material or placing advertising. On
    June 6, 1997, an additional 1,000,000 shares of Common Stock were issued to
    Mr. Jordan and parties related to Mr. Jordan. The Company terminated the
    consulting agreement on June 17, 1997 and cancelled the 1,000,000 shares
    that had been issued to Mr. Jordan and parties related to Mr. Jordan.


                                       40

<PAGE>  41
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


4.  On December 1, 1997, the Company renegotiated the consulting agreement with
    Martin E. Janis & Company, Inc. ("Janis"), dated December 13, 1996, whereby
    Janis, a public relations agency, is to carry out an extensive financial
    promotional program including public relations for the Company, in exchange
    for 500,000 shares of the Company's (restricted) common stock plus a fee of
    $5,000 a month for a period of one year beginning December 1, 1997. The
    Company recorded the shares at par value.

5.  On August 4, 1997, the Company entered into a consulting agreement with Dr.
    Lorenz M. Hofmann, Ph.D. ("Hofmann"), whereby Hofmann is to lead the
    clinical development program for liposomal Prostaglandin E-1 for the
    treatment of male erectile dysfunction. The Company has agreed to pay
    Hofmann $15,000 per month plus 500,000 shares of (restricted) common stock.
    The stock was recorded at par value.

6.  On August 1, 1997, the Company entered into a consulting agreement with Dr.
    Irwin Goldstein, M.D. ("Goldstein"), whereas the Company has agreed to pay
    Goldstein $10,000 upon signing the agreement and $4,000 per month until
    March 1, 1999. Goldstein is a Professor of Urology and is assisting the
    Company through the required FDA stages in bringing the LLPGE-1 product to
    the marketplace. At December 31, 1997, the Company had paid Goldstein
    $34,000.

7.  On July 15, 1997, the Company entered into a consulting agreement with
    Scopes-Garcia-Carlisle Advertising, Inc. ("Scopes"), whereby Scopes will
    provide professional advertising and marketing, and a public relations
    promotion plan to help promote the Company's sale of it's product(s) and
    stock, in exchange for a fee of $3,000 per month beginning August 15, 1997.
    The agreement expires January 15, 1998.

8.  On March 19, 1997, and again on May 15, 1997, the Company entered into an
    agreement with Alexander H. Walker, Jr. ("Walker"), former General Counsel,
    Director and Officer of the Company. Walker was retained as General Counsel
    as to all legal matters for the Company. In addition, he was to prepare or
    supervise the preparation of Securities and Exchange Commission filings,
    contracts and agreements. Walker was to receive $15,000 per month plus the
    issuance of common stock shares of the Company of up to 1,000,000 shares
    prorated over a three year period. In 1997, Walker received $231,678 and
    issued to himself 1,052,000 shares of common stock. The shares transferred
    were recorded at par value. In December 1997, the Company terminated all
    agreements with Walker requesting all records, documents, agreements, the
    corporate minute book, etc. be turned over to the Company immediately. See
    Note 13.

9.  On November 6, 1997, the Company renegotiated the consulting agreement with
    I.W. Miller & Co. ("Miller") dated September 18, 1997, whereby Miller will
    provide investor relation consulting services for the Company for a one year
    term beginning September 18, 1997 expiring September 17, 1998, in exchange
    for 400,000 shares of the Company's common stock. All prior agreements with
    Miller have been terminated. The shares transferred were recorded at
    $537,500, the fair market value of the shares on the date the shares were
    transferred.

10. On November 17, 1997, the Company amended the consulting agreement with
    Kostech Data Corporation ("Kostech") dated December 31, 1996, whereby
    Kostech will establish and maintain an ongoing Internet based investor
    relations program including the reprint and republish of research material
    on wire service and media, in exchange for 100,000 shares of (restricted)
    common stock of the Company. The agreement expires December 9, 1998. The
    Company recorded the shares at par value.


                                       41
<PAGE>  42
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


11. The Company has the following office lease commitments at December 31, 1997:

    a.  The Company occupies 5,428 square feet in Irvine, California where the
        Company maintains research & development laboratories. Rent of $6,242 is
        paid monthly the first year beginning April 17, 1997 and increasing to
        $6,514 in the second year expiring April 30, 1999.

    b.  The Company occupies 2992 square feet in Lake Mary, Florida where the
        corporate headquarters and general operations of the Company are
        maintained. Rent of $4,268.58 is paid monthly beginning December 15,
        1997 through December 31, 2000.

    c.  The Company occupies 425 square feet in Reno, Nevada where all
        accounting operations are maintained. Rent of $425 is paid monthly
        beginning December 1, 1997 expiring May 3, 1998.


NOTE 10 - CONTINGENCIES

The Company is a party in certain pending or threatened legal, governmental,
administrative, or judicial proceedings that arose in the ordinary course of
business. The following includes a list of current pending or threatened
proceedings, which are believed not to affect the financial position of the
Company in a material way at this time:

    a.     In a letter dated August 29, 1997, Vivus, Inc. ("Vivus") asserted
           that the Company's product and method for the treatment of male
           erectile dysfunction infringed on a patent held by Vivus. On
           September 16, 1997, the Company responded advising Vivus that they
           did not infringe on such patent, identifying those claim limitations
           which were not present in the Company's product and method. On
           September 19, 1997, Vivus again reiterated its claim of infringement
           against the Company.

           On October 1, 1997, the Company filed a complaint for declaratory
           judgement of non-infringement of the patent, in the United States
           District Court for the District of Nevada. Vivus filed a motion
           asking for dismissal of the Company's declaratory judgement action on
           the basis that there is no infringement and, therefore, no actual
           controversy. Vivus now asserts that its allegation of infringement
           was premature because the Company's use of its product and method for
           treating erectile dysfunction is limited to FDA clinical trials which
           is a non-infringing use under the patent laws. The Company has
           opposed Vivus' motion to dismiss on the basis that it has taken
           concrete steps toward the commercialization of its product and method
           and that Vivus' allegation of infringement is damaging the Company's
           ability to complete FDA clinical trials. A decision on the Vivus'
           motion has not been reached.

    b.     On June 2, 1997, the Company became a defendant in an action filed
           in the Superior Court of the State of California, Los Angeles county,
           initiated by Cletus Cogdill, ("Cogdill") a shareholder of the
           Company. Cogdill alleges that he purchased the Company's common stock
           on March 17, 1994. At that time, Rule 144 under the Securities Act of
           1933 required that such stock be held for two years, before it can be
           sold. The certificate was issued on June 17, 1994. On March 18, 1996,
           Cogdill completed form 144 in an attempt to sell his stock, although,
           according to the certificate date (June 17, 1994), the two years had
           not lapsed. On April 12, 1996 Cogdill completed a revised form 144
           indicating the shares had been acquired in March 1994, and thereby
           should be issued new free-trading certificates. New certificates were
           approved and issued to Cogdill but were apparently lost in the mail.
           Two months later Cogdill sold his stock and due to the reduction in
           market share price during that time, he claims he lost value of
           approximately $45,000.


                                       42
<PAGE>  43
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


           Cogdill alleges that his stock certificate was improperly dated which
           caused him to improperly complete his Form 144, thereby causing his
           loss. In addition, Cogdill alleges the Company made
           misrepresentations, causing damages of $6,500, plus punitive damages.
           Cogdill had indicated he is willing to settle this matter for $30,000
           and the Company countered his offer at $2,500.

           Although there can be no guarantee that the Company will prevail, the
           Company denies both generally and specifically each and every
           allegation in the complaint. The Company has filed a cross-complaint
           against Cogdill's brokerage firm for indemnity.

    c.     On November 10, 1997, the Company became a defendant in an action
           filed in the District Court, Clark County, Nevada by Eric Savage
           ("Savage"). Savage alleges that the Company restricted Savage from
           selling his common stock in the Company and is seeking damages in
           excess of $1,260,000 plus attorney fees and costs. The Company denies
           liability and believes Savage has acknowledged he was not entitled to
           sell his stock free from restriction at a date earlier than he now
           contends. The Company further believes this matter should be the
           subject of binding arbitration. See Note 13.

The financial statements reflect the manner in which the Company has resolved
certain litigations:

    a.     The Company amicably settled an action with Thomas E. Waite &
           Associates regarding a contract under which Waite was to provide an
           array of business services. The Company issued 568,750 shares of
           common stock in settlement, which accrued in the December 31, 1996
           financial statements at $494,813. On November 14, 1997, Thomas E.
           Waite became the Company's President and Chairman of the Board.

    b.     The Company reached a mutual release regarding a Distribution
           Agreement, which provided for the manufacturing, marketing, and
           distribution of HIV test kits. The mutual release called for a
           $50,000 payment, which accrued during 1995 and was paid in full
           during the first quarter of 1996.

    c.     The D. Weckstein & Co., Inc. ("Weckstein") lawsuit was settled on
           April 23, 1997, with the issuance of 35,000 shares of the Company's
           common stock to Weckstein. The Company filed an action for damages
           due to negligence and breach of contract by D. Weckstein and Co.,
           Inc. and Donald Weckstein. The contract at issue was an agreement to
           obtain financing in exchange for Company stock. The Weckstein
           defendants subsequently filed a lawsuit in New York against the
           Company respecting the same contract, and asked for damages against a
           third party for tortuous interference with the contract.

    d.     On February 6, 1997, Ailouros Ltd., regarding 7% Debenture held by it
           brought an action against the Company. On June 12, 1997, the Company
           reached a mutual settlement with Ailouros Ltd. converting the
           $125,000 principal amount of the 7% Debentures held by it into
           450,000 shares of common stock.


                                       43
<PAGE>  44
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


    e.     On October 20, 1997, 200,000 shares of the Company's common stock
           plus $10,000 was issued to Neil Armstrong, a former President & CEO
           of the Company, in settlement of a dispute regarding termination of
           employment.

    f.     On October 27,1997, the Company became a defendant in a U.S. District
           Court action initiated by Wood Gundy ("Gundy"), a 7% debenture
           holder. On December 26, 1997, the Company reached an agreement with
           Gundy electing to convert the balance of $125,000 in 7% convertible
           debenture plus accrued interest of $14,384 into 1,000,000 shares of
           common stock of the Company. The Company recorded the shares at the
           fair market value of the common stock on the date of the agreement,
           amounting to $350,000. Approximately $210,600 was expensed to legal
           settlements.

    g.     On March 17, 1997, a former officer of the Company, Rex Morden
           ("Morden"), filed an action against the Company for the failure to
           pay a Promissory Note due on demand. On May 15, 1997, the Company
           reached a settlement with Morden whereby the Company paid Morden
           $43,775.

    h.     On December 3, 1997, the Company agreed to transfer 150,000 shares as
           payment in full of an outstanding debt of $90,225 owed to Pyramid
           Laboratories, Inc. ("Pyramid") by the Company for work performed on
           the PaGE1 project. The Company maintains a good relationship with
           Pyramid whereby Pyramid has agreed to perform a six-month stability
           study for the LLPGE-1 product.


NOTE 11 - CONVERTIBLE DEBENTURES

In March 1997, pursuant to a private placement, the Company (a) sold to one
investor $5,000,000 principal amount of 6% Convertible Debentures (the
"Debentures") due March 30, 1998 and (b) received a commitment from that
investor, subject to various conditions, to purchase additional Debentures in
the aggregate principal amount of up to $10,000,000 in two tranches of
$5,000,000 each, also to be due March 30, 1998. The Debentures are convertible
into shares of common stock at the lesser of the market price on March 21, 1997
or 80% of the market price on the conversion date. Market price is defined as
the average closing bid of the common stock on the five (5) days immediately
preceding March 21, 1997 or the actual conversion date. The Company has the
right to require, by written notice to the holder of this debenture at any time
on or before ten days prior to the maturity date, that the holder of this
debenture exercise its right of conversion with respect to all or that portion
of the principal amount and interest outstanding on the maturity date. See Note
12 and Note 13.

Issuance costs of $625,000 related to the first $5,000,000 principal amount of
6% Convertible Debentures sold in March 1997 were deferred and are being
amortized on a straight-line basis through March 30, 1998. At December 31, 1997,
$2,200,000 of the Debenture plus $63,744 interest on the Debenture had been
converted into 2,822,244 shares of common stock of the Company. The balance due
on the Convertible Debenture at December 31, 1997 is $2,800,000 plus accrued
interest of $131,694. At the time of issuance, the Company accounted for the 20%
discount to market of $1,250,000 as additional interest expense and
paid-in-capital.


                                       44
<PAGE>  45
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995



NOTE 12 - UNCERTAINTY - GOING CONCERN

The financial statements of the Company have been prepared assuming that the
Company will continue as a going concern. The Company's continued existence is
dependent upon its ability to resolve its liquidity problems, principally by
obtaining additional equity capital and through the sale of its products. If
additional capital is not secured, then there is substantial doubt about the
Company's ability to continue as a going concern.

See Note 13 regarding subsequent funding agreements arranged by the Company and
also the subsequent sale of stock by the Company.


NOTE 13 - SUBSEQUENT EVENTS

1.  On January 2, 1998, the Company filed a request for an injunction against
    Nevada Agency & Trust & Co., the Company's transfer agent, to relinquish all
    records of the Company to a newly appointed transfer agent located in Salt
    Lake City, Utah. The Company was granted the injunction and the records were
    transferred to the new transfer agent on January 6, 1998.

2.  On January 6, 1998, the investor who purchased the initial $5,000,000
    principal amount of 6% Convertible Debentures in March 1997, served a
    conversion notice for the sum of $250,000 of the principal amount plus
    $11,917 of interest expense. The conversion at 80% of market price resulted
    in the issuance of 1,036,064 shares of common stock to the investor. The
    debenture balance after this conversion is $2,550,000 plus accrued interest.

    On January 28, 1998, the investor of the 6% Convertible Debenture gave
    notice to the Company to convert into common stock $250,000 of principal
    plus interest calculated at $12,863. The conversion calculated at 80% of the
    market price, calls for the transfer of 525,726 shares of common stock to
    the investor. The Company has not honored this request (see below).

    On January 29, 1998, again the investor of the 6% Convertible Debenture gave
    notice to the Company to convert into common stock $250,000 of principal
    plus interest calculated at $12,904. The conversion calculated at 80% of the
    market price, calls for the transfer of 486,859 shares of common stock to
    the investor. The Company has not honored this request (see below).

    On or about February 3, 1998, The Company filed an action against the 6%
    debenture holder, Springrange Investment Group, Ltd., ("Springrange"),
    arising out of the Securities Purchase Agreement executed on or about March
    21, 1997. The Company alleges that Springrange has breached its
    representations under the agreement by taking a short position and otherwise
    manipulating the price of the Company's common stock. The Company is seeking
    to recover its damages arising from Springrange's breach of contract and
    misrepresentations. The Company will not be honoring any request by
    Springrange to convert the debenture balance into common stock until this
    matter has been resolved. See Note 11.

    On February 18, 1998, Springrange filed a motion to dismiss the Complaint
    and to enjoin the financing transaction entered into between the Company and
    Thomas E. Waite and Dr. Jackie See formally announced publicly on or about
    January 15, 1998 (see below). Springrange also seeks injunctive relief
    requiring the Company to deliver shares of common stock pursuant to notices
    of conversion filed in January 1998 (see above). The Company will oppose the
    motion and requested injunctive relief. A hearing on the motion is scheduled
    in March 1998.


                                       45
<PAGE>  46
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


3.  Effective February 2, 1998, the Company approved a 1 for 10 reverse stock
    split. Shares outstanding went from 34,477,437 on February 1, 1998 to
    3,447,769 just after the split. The Company is moving forward with a
    strategic plan designed to facilitate marketing of its products in a manner
    which is consistent with enhancing its corporate image and further
    increasing shareholder value.

4.  A financing agreement dated January 13, 1998, as amended on February 3,
    1998 was entered into between Dr. Jackie R. See, Thomas E. Waite and the
    Company for the funding of the Company up to $10,000,000. The agreement as
    so amended, calls for initial funding of $5,000,000 in exchange for
    1,580,278 shares of common stock, with registration rights, calculated at
    $3.164 per share (the average closing bid price per share of the common
    stock for the 10 days ending January 12, 1998, and adjusted for the 1 for 10
    reverse split effective February 2, 1998). This initial funding was effected
    on February 3, 1998 by the delivery of a check for $7,901.39 and Promissory
    Notes to March 31, 1999 in the principal amount of $2,492,098.61 from each
    of Dr. See and Mr. Waite. Subsequent funding is at the discretion of the
    investors and can be purchased in tranches of $500,000 to $2,000,000 up to
    an aggregate of $10,000,000, including the initial funding, prior to April
    1, 1999. The future funding price is $6.328 per share for the next
    $2,500,000 and $12.626 per share for the last $2,500,000 (as adjusted to
    reflect the 1 for 10 reverse stock split effective February 2, 1998). Dr.
    Jackie R. See and Mr. Thomas E. Waite are Directors of the Company. Thomas
    E. Waite is also President and Chief Executive Officer of the Company. On
    February 3, 1998, the Company issued 790,139 shares to each Dr. Jackie See,
    M.D. and Thomas E. Waite in connection with this private placement.

5.  In January 1998, BTI, a major stockholder of the Company, received $40,514
    from the sale of the Company's common stock that was subject recapture by
    the Company pursuant to Section 16(b) of the Securities Exchange Act of
    1934. In January 1998, $40,514 was booked as a receivable from related
    parties to reflect the recapture. See Note 7.

6.  On February 6, 1998, a complaint was filed against the Company in the
    Third Judicial District Court in Salt Lake City, Utah, by Alexander H.
    Walker, Jr. ("Walker"), a former General Council, officer and director of
    the Company. Walker alleges two causes of action: 1) breach of contract by
    the Company with respect to his employment agreement, and 2) false
    representations allegedly made to Walker by the Company. Walker seeks
    damages in the amount of $420,000 for the breach of contract claim and
    unspecified damages for the alleged false representation claim. The time for
    the Company's response to the Complaint has not expired. However, the
    Company denies liability and anticipates the commencement of legal action
    against Walker to recover damages sustained by the Company as a result of
    Walker's failure to perform his responsibilities as general council for the
    Company and breaches of his fiduciary duties owed to the Company. The
    Company will also seek indemnity from Walker for damages it has sustained
    and settlements it has been forced to negotiate in other litigation.

7.  On February 10, 1998, three new members were elected to the Board of
    Directors of the Company. Two of these members will serve as new independent
    Directors of the Company and the third will fill an existing seat vacated by
    the resignation of a previous director. The Company's Board of Directors
    currently consists of five members. Furthermore, the Company established an
    Independent Audit Committee and a Compensation Committee to assist in
    strengthening internal controls.


                                       46
<PAGE>  47
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


8.  On February 23, 1998, the Company entered into a financing agreement with
    an independent investor ("Investor"), whereby the Investor is to provide
    financing of $600,000 to the Company in exchange for 200,000 shares of
    common stock of the Company. On the date of effectiveness of the
    registration of the 200,000 shares, which is to be accomplished by the
    Company as soon as practicable under the Securities Act of 1933, if the
    closing bid price of the Company's stock is less than $6.00 per share, the
    Investor is to receive additional shares calculated by taking the difference
    between (a) 600,000 divided by one-half the closing bid price on the date of
    registration and (b) 200,000. This difference in share calculation is still
    to be determined and is based on the date the registration statement is
    effective and the closing bid price on such date. In February 1998, the
    Company received $600,000 and issued 200,000 shares to the Investor.

9.  On February 19, 1998, the Company renewed it's previous notices of
    termination and renoticed the termination of the licensing agreement with
    Pharma Maehle ("Pharma") and demanded binding arbitration under Nevada law
    of the existing disputes between the parties pursuant to the terms of the
    licensing agreement. The demand requires a response by Pharma no later than
    March 13, 1998. Should Pharma fail to respond by that date, the Company
    intends to request the Nevada District Court to compel the arbitration. See
    Note 9 regarding Pharma Licensing Agreement.

10. The Company has requested the Court to stay the State Court action pending
    binding arbitration in the action filed against the Company by Eric Savage
    (See note 10). The Company's request for arbitration is pending.

11. Due to the materiality of the subsequent event transactions listed in 3 and
    6 above, the Company is disclosing the audited Balance Sheet at February 28,
    1998, as follows:


                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                                  BALANCE SHEET
                                     ASSETS
                                                                    FEBRUARY 28,
                                                                        1998
                                                                     (AUDITED)
                                                                   -------------
  CURRENT ASSETS:
      Cash and cash equivalents (Note 13 item 8)                   $  1,018,291
      Prepaid  expenses                                                  49,148
      Accounts receivable - directors (Note 13 item 4)                5,057,711
      Due From Related Parties  (Note 7 item 3 & 4, and Note 13
      item 5)                                                           892,819
      Deferred debt issue costs (Note 11)                                52,083
                                                                   -------------
          TOTAL CURRENT ASSETS                                        7,070,052
                                                                   -------------
  EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
      at cost, less accumulated depreciation of $14,329                  50,894
                                                                   -------------


                                       47
<PAGE>  48
                            HARVARD SCIENTIFIC CORP.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO THE FINANCIAL STATEMENTS
           BASED ON AUDITED FINANCIAL STATEMENTS AT DECEMBER 31, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 31, 1995


                        BALANCE SHEET (CONTINUED)
                    LIABILITIES & STOCKHOLDERS' EQUITY



  INTANGIBLE ASSETS:
      Intellectual Property, net of accumulated amortization of
      $6,043                                                            154,952
      Organizational cost, net of accumulated amortization of
      $147,598                                                           27,952
                                                                   -------------
                                                                        182,904
                                                                   -------------
  OTHER ASSETS:
      Deposits                                                           10,514
                                                                   -------------
         TOTAL ASSETS                                              $  7,314,364
                                                                   =============

                                                                        182,904
                                                                   -------------
  OTHER ASSETS:
      Deposits                                                           10,514
                                                                   -------------

         TOTAL ASSETS                                              $  7,311,775
                                                                   =============

  CURRENT LIABILITIES:
     Accounts payable                                              $     13,091
     Accrued expenses                                                   145,782
     Obligation under capital lease - current                            14,376
     Debentures payable - Convertible (Note 11)                       2,550,000
                                                                   -------------
                                               
         TOTAL CURRENT LIABILITIES                                    2,723,249
                                                                   -------------
  LONG-TERM LIABILITIES:
     Obligation under capital lease - non-current                         6,317
                                                                   -------------
                                                  
  STOCKHOLDERS' EQUITY:
     Common Stock, $.01 par value; 100,000,000 shares authorized;
     5,238,022 shares issued and outstanding at February 28, 1998        52,380
     Additional paid-in capital                                      14,578,497
     Deficit accumulated during the development stage               (10,046,079)
                                                                   -------------
                                                     

         TOTAL STOCKHOLDERS' EQUITY                                   4,584,798
                                                                   -------------
                                   

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $  7,314,364
                                                                   =============


                                       48


<PAGE>  49

                               RONALD D. SIMPKINS
                           CERTIFIED PUBLIC ACCOUNTANT





                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors
   And Shareholders of
Harvard Scientific Corp.


I have audited the balance sheet of Harvard Scientific Corp. (A Development
Stage Company) as of December 31, 1997, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended, and
have issued my opinion thereon dated March 5, 1998. Such financial statements
and opinion are included in your 1997 Annual Report to Stockholders and are
incorporated therein by reference. My examination also comprehended Supplemental
Schedules V and VI of Harvard Scientific Corp. (A Development Stage Company). In
my opinion, Schedules V and VI, when considered in relation to the basic
financial statements, present fairly in all material respects the information
shown therein.



Reno, Nevada
March 5, 1998


                                       49

<PAGE>  50

<TABLE>
                                               HARVARD SCIENTIFIC CORP.
                                            (A DEVELOPMENT STAGE COMPANY)

<CAPTION>
                                              SUPPLEMENTAL DISCLOSURE
   
                                                   SCHEDULE V

                                         PROPERTY, PLANT AND EQUIPMENT
                                  For the Years Ended December 31, 1997 and 1996

                Column A                  Column B       Column C       Column D               Column E
     --------------------------------   -------------  -------------  -------------  ----------------------------
                                         Balance at                                  Other changes
                                         Beginning     Additions at                Reclassifications  Balance at
             CLASSIFICATION               of year          Cost        Retirements    Add (Deduct)   end of year
                                        -------------  -------------  -------------  -------------  -------------

<S>                                     <C>            <C>            <C>            <C>            <C>          
December 31, 1997:

     Furniture and Equipment                   9,416         16,018              -              -         25,434
     Intellectual property                     8,995        152,000              -              -        160,995
     Leasehold and Leasehold improvements          -         37,199              -              -         37,199
                                        -------------  -------------  -------------  -------------  -------------
                  Total                 $     18,411   $    205,217   $          -   $          -   $    223,628
                                        =============  =============  =============  =============  =============



December 31, 1996:

     Furniture and Equipment                  11,682          7,399         (9,665)             -          9,416
     Intellectual property                    10,335              -         (1,340)             -          8,995
     Leasehold and Leasehold improvements      5,816              -         (5,816)             -              -
                                        -------------  -------------  -------------  -------------  -------------
               Total                    $     27,833   $      7,399   $    (16,821)  $          -   $     18,411
                                        =============  =============  =============  =============  =============
</TABLE>


                                       50
<PAGE>  51
<TABLE>
                                             HARVARD SCIENTIFIC CORP.
                                          (A DEVELOPMENT STAGE COMPANY)

<CAPTION>
                                            SUPPLEMENTAL DISCLOSURE

                                                 SCHEDULE VI
               ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
                                For the Years Ended December 31, 1997 and 1996

                Column A                  Column B       Column C       Column D               Column E
     --------------------------------   -------------  -------------  -------------  ----------------------------
                                         Balance at                                  Other changes
                                         Beginning     Additions at                Reclassifications  Balance at
             CLASSIFICATION               of year          Cost        Retirements    Add (Deduct)   end of year
                                        -------------  -------------  -------------  -------------  -------------

<S>                                     <C>            <C>            <C>            <C>            <C>          
December 31, 1997:

     Furniture and Equipment                   3,491          4,288              -              -          7,779
     Intellectual property                     1,047          3,100              -              -          4,147
     Leasehold and Leasehold improvements          -          4,150              -              -          4,150
                                        -------------  -------------  -------------  -------------  -------------
                  Total                 $      4,538   $     11,539   $          -   $          -   $     16,077 
                                        =============  =============  =============  =============  =============


December 31, 1996:

     Furniture and Equipment                   4,408          3,235         (4,152)             -          3,491
     Intellectual property                     1,771          2,067         (2,791)             -          1,047
     Leasehold and Leasehold improvements      2,228          1,163         (3,391)             -              -
                                        -------------  -------------  -------------  -------------  -------------
                  Total                 $      8,407   $      6,465   $    (10,334)  $          -   $      4,538
                                        =============  =============  =============  =============  =============
</TABLE>


                                       52




<PAGE>  53


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

               The financial statements of the Company for the year ended
December 31, 1997 included in this filing, have been audited by Ronald D.
Simpkins, independent certified public accountant, as set forth in his report
thereon appearing in Item 6. herein. The financial statements of the Company
included for the years ended December 31, 1996 and 1995 have been audited by
Dale McGhie, independent certified public accountant, as set forth in his report
thereon appearing elsewhere herein. Both Mr. Simpkins' report and Mr. McGhie's
report include an explanatory paragraph stating that, in light of the recurring
losses suffered by the Company, its continued existence depends upon its ability
to resolve its liquidity problems.

        On January 13, 1998, the Company's former accountant, W. Dale McGhie,
was replaced by Ronald D. Simpkins, Certified Public Accountant, 1155 West
Fourth Street, Suite 214, Reno, Nevada 89503, as the Company's independent
accountant in connection with the financial statements for the year ended
December 31, 1997. The Registrant's former accountant, W. Dale McGhie did not
resign and did not decline to stand for reelection. The new management of the
Registrant has determined that a change of auditor is in the best interest of
the company, and therefore, the former accountant simply was replaced as of
January 13, 1998. This decision to change accountants was recommended and
approved by the Board of Directors. There were no disagreements with Mr. McGhie
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to his
satisfaction, would have caused Mr. McGhie to make reference to the subject
matter of any such disagreements in connection with his reports. As required by
Item 304 of Regulation S-B reflecting disclosure of this change in accountants,
on January 20, 1998, the Company filed a Form 8K and an amendment thereto on
January 26, 1998.

        The Company's former accountant, Fair, Anderson & Langerman, was
replaced by W. Dale McGhie, Certified Public Accountant, 1539 Vasser Street,
Reno, Nevada 89502, on March 19, 1997, as the Company's independent accountant
in connection with the financial statements for the year ended December 31,
1996. Fair, Anderson & Langerman did not resign and did not decline to stand for
re-appointment. They were replaced because the Company's headquarters were moved
to Reno, Nevada, where Mr. McGhie is located, from Las Vegas, Nevada, where
Fair, Anderson & Langerman is located, and the Company believed that it would be
more efficient and effective to use Mr. McGhie as a Reno-based accountant. The
decision to change accountants was recommended and approved by the Board of
Directors.

        Fair, Anderson & Langerman's report on the financial statements for the
years ended December 31, 1995 and 1994 was presented on the assumption that the
Company would continue as a going concern and was unqualified. Mr. McGhie in his
report on the financial statements for the years ended December 31, 1996 and
1995 also made this assumption. There were no disagreements with Fair, Anderson
& Langerman on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
that firm's satisfaction, would have caused that firm to make reference to the
subject matter of any such disagreements in connection with its reports. As
required by item 304 of Regulation S-B, the Company filed a Form 8K on July 3,
1997 and an amendment thereto on July 28, 1997.

                                       53

<PAGE>  54

                                    PART III

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibits
(1)     Instruments defining the rights of holders, incl. indentures: None
        during the time covered by this Form 10K-SB.
(2)     Voting trust agreements: None.
(3)     Material Contracts: Incorporated by reference to Form 8K filed (b) 
        below.
(4)     Statement re: computation of per share earnings: See Part II, Item 7.
(5)     Annual or quarterly reports, Form 10-Q for the quarter ending September 
        30, 1997.
(6)     Letter on change in certifying accountant: Incorporated by reference to 
        the Form 8-K filed, see (b) below.
(7)     Letter on change in accounting principles: None.
(8)     Published report regarding matters submitted to vote: None.
(9)     Power of Attorney: None.
(10)    Additional Exhibits: None.

Reports on Form 8-K.
(1)     Date of 8K report - March 19, 1997, filed July 3,1997 - Item No. 4. -
        Changes in Registrant's Certified Accountants.
(2)     Date of 8K/A report - March 19, 1997, filed July 28,1 997 - Item No. 4.
        - Amended - Changes in Registrant's Certified Accountants.
(3)     Date of 8K report - October 1, 1997, filed October 31, 1997 - Item No. 
        5. - Other Events, Infringement on Patent by Vivus.
(4)     Date of 8K report - December 24, 1997, filed December 31, 1997- Item No.
        6. - Resignation of Registrant's Director Alexander Walker Jr.
(5)     Date of 8K report - January 15, 1998, filed January 20, 1998 - Item No.
        4. - Changes in Registrant's Certified Accountants.
(6)     Date of 8K/A report - January 24,1 998, filed January 26, 1998 - Item 
        No. 4. - Amended - Changes in Registrant's Certified Accountants.
(7)     Date of 8K report -January 13, 1998, filed January 26, 1998- Item No. 5.
        - Other Events, Financing Agreement with Thomas E. Waite and Dr. Jackie 
        See.
(8)     Date of 8K report - February 19, 1998, filed February 23, 1998 - Item 
        No. 5.- Other Events, Agreement with Pharma Maehle.

                                       54

<PAGE>  55




                                   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/Thomas E. Waite
                                       -----------------------------------
                                          Thomas E. Waite, President & CEO


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


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

                           Chairman of the Board of Directors,
                           President, and Chief Executive
/s/ Thomas E. Waite        Officer                               March 19, 1998
------------------------
    Thomas E. Waite



/s/ Jackie R. See, M.D.     Director                             March 19, 1998
------------------------
    Jackie R. See, M.D.


                            Director, Treasurer, and
/s/ Curtis A. Orgill        Chief Financial Officer              March 19, 1998
------------------------
    Curtis A. Orgill


                            Secretary and Chief Operating
/s/ Barbara L. Krilich      Officer                              March 19, 1998
------------------------
    Barbara L. Krilich



                                       55