- -------------------------------------------------------------------------------
U.S. SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: December 31, 1995 Commission File Number:1-9925
----------------- ------
HARRIER, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 87-0427731
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2200 Pacific Coast Highway, Suite 301, Hermosa Beach, California 90254
- ---------------------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Not Applicable
--------------------------------------------------
Former Name, Former Address and Former Fiscal Year
(If Changed Since Last Report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
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.
Yes X No
----- -----
As of March 13, 1996 the Registrant had 11,732,923 shares of its common stock,
par value $0.001, issued and outstanding.
Transitional Small Business Disclosure Format: Yes X No .
----- -----
- --------------------------------------------------------------------------------
Page 1 of 13 consecutively numbered pages.
PART 1
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-QSB
- --------------------------------------------------------------------------------
Harrier, Inc. (the "Registrant") files herewith the unaudited condensed
consolidated balance sheets of the Registrant and its subsidiaries as of
December 31, 1995 and June 30, 1995 (the Registrant's most recent fiscal year
end), and the related unaudited condensed consolidated statements of operations
for the three and six months ended December 31, 1995 and 1994, and statements of
cash flows for the six months ended December 31, 1995 and 1994, together with
the unaudited condensed notes thereto. In the opinion of management of the
Registrant, the financial statements reflect all adjustments, all of which are
normal recurring adjustments, necessary to present fairly the financial
condition of the Registrant for the interim periods presented. The financial
statements included in this report on Form 10-QSB should be read in conjunction
with the audited financial statements of the Registrant and the notes thereto
included in the annual report of the Registrant on Form 10-KSB for the year
ended June 30, 1995 on file with the Securities and Exchange Commission on
October 25, 1995 is hereby incorporated by reference.
2
HARRIER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
December 31, June 30,
1995 1995
-------------- --------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 108,793 $ 494,068
Accounts receivable trade - net 39,742 33,641
Amount receivable from assets held for sale 17,500 17,500
Amounts receivable from joint venture and
development agreement, current 8,115 42,795
Related party receivable 61,865 85,885
Inventory 138,704 169,666
Other current assets 6,933 14,102
-------------- --------------------------
Total Current Assets 381,652 857,657
-------------- --------------------------
PROPERTY AND EQUIPMENT, net 6,215 9,109
-------------- --------------------------
Investments, net 244,164 244,164
Intangible assets 174,128 184,648
Total Assets $ 806,159 $ 1,295,578
-------------- --------------------------
-------------- --------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 557,098 $ 553,516
Total Current Liabilities 557,098 553,516
-------------- --------------------------
STOCKHOLDERS' EQUITY:
Common Stock 11,724 11,684
Additional paid-in capital 15,021,635 15,013,577
Accumulated deficit (14,746,617) (14,245,547)
Cumulative translation adjustment (37,681) (37,652)
-------------- --------------------------
Total Stockholders' Equity 249,061 742,062
-------------- --------------------------
Total liabilities and
stockholders' equity $ 806,159 $ 1,295,578
-------------- --------------------------
-------------- --------------------------
NOTE: The balance sheet at June 30, 1995 has been taken from the auditited
financial statements at that date and condensed.
The accompanying notes are an integral part of these unaudited
financial statements.
3
HARRIER, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
December 31, December 31,
-------------------------- -------------------------
1995 1994 1995 1994
-------------------------- -------------------------
SALES $ 10,698 $ 63,973 $ 47,307 $ 115,438
COST OF SALES 7,690 44,188 45,325 79,822
-------- -------- -------- --------
GROSS PROFIT 3,008 19,785 1,982 35,616
-------- -------- -------- --------
EXPENSES:
General and administrative 100,522 105,267 210,164 178,264
Amortization and depreciation 7,384 8,179 14,769 16,529
Consulting and management compensation 0 0 0 4,053
Salaries and related expenses 106,424 87,658 207,701 182,034
Research and development 75,048 897 180,406 6,947
-------- -------- -------- -------
Total Expenses 289,378 202,001 613,040 387,827
-------- -------- -------- -------
LOSS FROM OPERATIONS (286,370) (182,216) (611,058) (352,211)
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Collaborative income 41,651 16,392 46,651 31,392
Royalty income 1,260 0 14,210 0
Foreign exchange gain (loss) 0 0 0 938
Interest income 2,308 919 7,347 1,747
Gain on sale of marketable securities 0 0 0 43,200
-------- -------- -------- -------
Total Other Income (Expense) 45,219 17,311 68,208 77,277
-------- -------- -------- -------
Income (loss) from continuing operations
before provision for income taxes (241,151) (164,905) (542,850) (274,934)
Provision for income taxes 54,031 0 41,781 (800)
-------- -------- -------- --------
Net income (loss) (187,120) (164,905) (501,069) (275,734)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per common share $ (0.02) $ (0.02) $ (0.04) $ (0.03)
-------- -------- -------- --------
-------- -------- -------- --------
The accompanying notes are an integral part
of these unaudited condensed consolidated financial
4
HARRIER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CA
(UNAUDITED)
For the Six Months Ended
December 31,
------------------------
1995 1994
--------- ----------
Cash Flows from (used for) Operating Activities:
Net Loss $(501,069) $ (275,734)
--------- ----------
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 14,769 16,529
Changes in assets and liabilities:
Accounts receivable (6,101) 71,760
Related party receivable 24,020 (1,305)
Receivable from joint venture 34,680 0
Inventory 30,962 72,783
Other current assets 7,169 18,794
Accounts payable and accrued expenses 3,466 (93,581)
--------- ----------
Total Adjustments 108,965 84,980
--------- ----------
Cash Used by Operating Activities $(392,104) $ (190,754)
--------- ----------
Cash Flows from Investing Activities:
Payment for investment in Limited Liab. Corp. 0 (200,000)
Payment for property and equipment (16) (875)
Increase in patent costs (1,289) (645)
Cash used by Investing Activities $ (1,305) $ (201,520)
--------- ----------
Cash Flows from Financing Activities:
Issuance of common stock 8,095 835,460
Net Cash Flows Provided by
Financing Activities $ 8,095 $ 835,460
--------- ----------
Effect of Exchange Rate Changes on Cash $ 29 $ (253)
--------- ----------
Net Increase in Cash and Cash Equivalents (385,285) 442,933
Cash and Cash Equivalents at Beginning of Period 494,068 140,517
--------- ----------
Cash and Cash Equivalents at End of Period $ 108,783 $ 583,450
--------- ----------
--------- ----------
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
5
HARRIER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
------------------------------
The accompanying financial statements have been prepared by the Registrant
without audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at December 31, 1995, and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these unaudited condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Registrant's June 30, 1995 audited
financial statements. The results of operations for the three and six months
ended December 31, 1995 and 1994 are not necessarily indicative of the operating
results for the full year.
NOTE 2 - INVENTORIES
-----------
Inventories at December 31, 1995 and June 30, 1995 consist of:
December 31, 1995 June 30, 1995
----------------- -------------
Finished Goods $138,704 $169,666
NOTE 3 - SUBSEQUENT EVENTS
-----------------
Subsequent to December 31, 1995, the Company began a Private Placement offering
of 1.5 million units. Each unit consists of one (1) share of Harrier, Inc.
Regulation "S" common stock, one (1) Harrier, Inc. common stock warrant and one
(1) share of Glycosyn Pharmaceuticals, Inc. common stock. As of March 15, 1996,
approximately 25% of the units have been sold.
6
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL:
Harrier, Inc. (the "Company") is a Delaware corporation organized in 1985, and
is engaged in the discovery, development and sale of selected products and
technologies in the health, fitness and medical markets. The Company works with
qualified technical and medical professionals and often shares development and
marketing costs with joint venture or strategic partners. At various stages of
development, the Company may license these products and technologies in return
for an up-front payment and/or a continuing royalty, market the products
directly, or when warranted, discontinue development entirely. One product, The
Bioptron-Registered Trademark- Lamp ("Lamp"), is currently being marketed in the
pain relief and skin care markets. Another product, the Calorimeter, is in the
late developmental stage, and products resulting from the application of the
Company's proprietary Biochemical Technologies are in various stages of
development. No assurance can be given that any of the Company's products or
technologies under development will be commercially successful. For the Quarter
ending December 31, 1995, Lamp sales accounted for 100% of the Company's
operating revenues.
Management has elected to focus the Company's financial resources on marketing
the Lamp in a limited fashion and on completing development of the Calorimeter
and its launch into the health and fitness market, as resources are available.
The Company's strategy is to seek corporate partners to finalize development and
commercialization of the Biochemical Technologies currently under development.
The Company anticipates that its future sales in this area will be predominantly
through license agreements and joint ventures with pharmaceutical concerns.
Pursuant to this strategy, the Company entered into a joint drug discovery and
development project with American Diagnostica Inc. ("ADI"), of Greenwich,
Connecticut, in May 1993 under which ADI financed development and testing of
certain new synthetic drugs using the Company's proprietary GLYCOSYLATION
processes. The joint drug development and discovery agreement with ADI was
terminated by the Company in August 1995 and the Company is disputing certain
monetary claims by ADI. The Company also has a 50% partnership with Naturade,
Inc. (the "DermaRay International LLC") to manufacture and market the Bioptron
Lamp in North America and in other selected international territories.
CURRENT PRODUCTS AND TECHNOLOGIES
BIOCHEMICAL TECHNOLOGIES
The Company has a number of biochemical technologies under development. One
technology, a synthetic process called GLYCOSYLATION, may improve the
manufacturing and effectiveness of various physiologics and pharmaceuticals. In
the field of new drug development, the success of a compound depends on several
critical biological factors, including solubility, absorption, distribution,
metabolism, bioavailability and toxicity. Frequently, a newly-discovered
substance demonstrates an important biological effect, but its usefulness as a
drug is limited by such adverse characteristics as poor absorption or
unacceptable toxicity. In these cases, which include many commonly used
medications, the starting compound is chemically modified to overcome such
undesirable attributes. Structural modification of a potential drug may consist
of either removal of certain molecules or addition of new molecules such as
carbohydrates and proteins. In some cases, addition of a single carbohydrate
molecule in a strategic location in the
7
molecular chain can make the critical difference. GLYCOSYLATION, a scientific
term used to describe such a chemical attachment of sugar molecules, is
considered to be one of the most important reactions used by the pharmaceutical
industry. In many cases, however, compounds with significant potential are
unable to withstand the high temperatures and acidic conditions of standard
GLYCOSYLATION procedures and cannot be modified to overcome these limitations.
Development of milder methods of GLYCOSYLATION have been the subject of intense
investigation in both industry and academia during the past several decades.
HAR7 SERIES ANTICANCER TEST RESULTS
On June 12, 1995 the company announced that it had received new IN VIVO data on
HAR7, its proprietary anticancer drug candidate. HAR7 is the most active analog
in the Company's novel HAR series of glycosylated topoisomerase I inhibitors.
HAR7 was active against the SK-MES lung cancer xenograft, producing tumor
shrinkage in several mice. The analog is also efficacious against the PC-3 and
DU-145 prostate carcinoma xenografts. The activity of HAR7 versus three solid
tumor xenografts, generally nonresponsive to anticancer drugs was superior.
Preclinical development work is progressing as scheduled. Submission of an IND
application is planned for late 1996.
ONGOING BIOLOGICAL AND PRE-CLINICAL STUDIES
For the past year, The Company has been conducting a comprehensive anti-cancer
study at the Cancer Therapy Research Institute in San Antonio, Texas. A novel
series of anti-cancer compounds were synthesized by the Company and four
analogs, HAR 4,5,6 and 7, were initially evaluated against three experimental
tumor models. These models included murine P388 Leukemia and B16 melanoma, and
the MX-1 human breast tumor xenografts. The four agents demonstrated high,
curative activity in all three models. There was evidence, based in IN VITRO and
IN VIVO results, that these unique compounds are acting as both pro-drugs and
intrinsically active compounds. One candidate, HAR 7, was then tested against
SK-MES and MV522 Human Lung Tumor xenograft and DU-145 and PC-3 Human Prostate
Tumor xenografts implanted in mice. The results again showed the HAR 7 compound
to be highly active in these tumor models and significantly more active than the
positive control on a multiple and especially single-dose schedule.
Some of the Company's research and development efforts include identification
and synthesis of new proprietary compounds, detailed chemical analysis of these
compounds, the characterization of their pharmacokinetics and metabolism, IN-
VITRO and IN-VIVO biological testing, and applications for patent protection.
METABOLIC GAS EXCHANGE MONITOR-Trademark- ("CALORIMETER")
The Company owns the rights to manufacture and market a unique hand-held device
designed to provide precise measurement of metabolic rate and daily caloric
expenditure. The Calorimeter is designed to measure human consumption of oxygen
and caloric requirements safely, accurately, and inexpensively without
specialized training or administration.
It is believed that the Calorimeter will accomplish in a small hand-held
consumer device what a far more costly piece of hospital equipment provides in
intensive care units. The ability to measure direct caloric consumption should
provide a number of opportunities in the weight loss and health and fitness
markets as well as being suitable for the direct consumer market through various
distribution channels including infomercials.
8
The Calorimeter product package will include a hand-held microprocessor (about
the size of a calculator), a digital sensor attached by cable, and a single-use,
disposable breathing circuit. The device will be completely portable and easy
to use by an untrained person. A compact, disposable breathing circuit (of
proprietary design) will offer the user a convenient means for using the device
routinely. The Calorimeter (microprocessor and digital flow sensor) is expected
to retail between $100-$125.
CALORIMETER CO-DEVELOPMENT AGREEMENT WITH ABBOTT LABORATORIES
The Company recently announced that Abbott Critical Care Systems, a division of
Abbott Laboratories has agreed to share costs of the prototype development,
engineering and tooling of the Calorimeter. Abbott will manufacture and market
the technology in hospital and critical care settings worldwide. Harrier owns
the worldwide rights for the professional health and fitness market along with
home use and other consumer applications. The product is fully patented and
has been under development for the past 12 months by Harrier through a contract
with Medical Graphics, Inc., a cardiopulmonary device developer and manufacturer
located near Minneapolis, Minnesota.
Harrier plans to launch two models some time in late 1996 or early next year.
One product, the professional model, will be sold to health, diet and fitness
centers and another unit, a home use version with disposable components, will be
sold to individual users. The company plans to license the home use rights to a
large company that currently markets personal test kits and diagnostics. A
joint venture for the professional health and fitness market is envisioned later
in 1996. Abbott will utilize the Calorimeter for hospital critical care use and
there is no date set for their market launch. No assurance can be give as to
the timing of the market launch of the Calorimeter.
The company is also engaged in discussions to license the Calorimeter
manufacturing and marketing rights a European-based company for territories
outside the America's and Asia.
BIOPTRON-Registered Trademark- LAMP
The Lamp utilizes linearly polarized incoherent light of specific wavelength
distribution and power density. Independent biological and clinical studies have
confirmed both a biostimulative effect on cells and beneficial results in
general skin care from use of the Lamp. The spectral distribution includes
infrared wavelengths which allow the light from the Lamp to reach underlying
tissues during treatment. The Lamp emits no ultraviolet light.
The consumer model, "B1" Lamp, is a small, hand-held device that directs
polarized light of a yellow shade on the treatment area. The second model,
designated "Bioptron 2" or "B2", is a larger lamp designed to be used in
hospitals, doctors' offices and professional skin care centers.
The U.S. Federal Drug Administration's ("FDA") Radiological Device Division has
granted the Lamp "substantial equivalence" status under Section 510(k) of the
Food, Drug and Cosmetic Act, providing that medical claims for pain relief made
for similar infrared devices are applicable to the Lamp. There can be no
assurance that such regulatory approval will be maintained in the future or that
additional approvals will be received. The Mexican Secretariat of Health has
approved the Lamp as a prescriptive device for sale in that country to doctors
and hospitals for the treatment of dermatological and rheumatological ailments.
9
NATURADE JOINT VENTURE
The Company owns a 50% interest in the DermaRay International Limited Liability
Corporation ("LLC"), a manufacturing and marketing joint venture with Naturade,
Inc., a 61-year old manufacturer and supplier of health and beauty products.
The objective of this joint venture is to develop and sell unique pain relief
and skin care systems centered around the use of the Lamp which has proven
efficacious in these applications. Naturade is developing additional products
to include in the system such as pain relief gels and rubs along with a number
of skin enhancement products to complement the lamp for that particular
application. Both companies contributed common stock, cash or loans as working
capital for the joint venture. For its 50% equity ownership interest, Naturade
contributed 100,000 shares of its restricted common stock currently trading at
approximately $1.75 per share in the OTC market, along with unburdened corporate
contribution such as management and administration. In addition, both companies
will be contributing certain manufacturing and distribution rights to
proprietary devices and formulations that will be sold under various trademarks
including Bioptron-Registered Trademark- and DermaRay-Trademark-. The Company
owns the exclusive distribution rights to the Lamp in the western hemisphere
where its marketing strategy is focused primarily on selling the Lamp in the
pain relief market. The Company is marketing the Lamp through its corporate
offices in a limited fashion. The Company continues to seek additional marketing
partners in the United States, Mexico, and Canada. Primary operations are
conducted through the LLC where there are greater resources to manufacture,
inventory, sell, fulfill and service customers in both the medical and consumer
markets. No estimate can be made at this time regarding the number of Lamps and
skin care or pain relief products that will be sold as a result of this joint
effort.
SUBSEQUENT EVENTS
$1,125,000 UNIT OFFERING TO OVERSEAS INVESTORS
The Company began a Private Placement offering of 1.5 million units apt $0.75
per unit. Each unit consists of one (1) share of Harrier, Inc. Regulation "S"
common stock, one (1) Harrier, Inc. common stock warrant and one (1) share of
Glycosyn Pharmaceuticals, Inc. common stock. As of March 15, 1996,
approximately 25% of the units have been sold. The net proceeds of the offering
are being used to finance development of the Calorimeter-Trademark-, fund
certain obligations related to the terminated research and development agreement
with ADI, and for working capital.
10
RESULTS OF OPERATIONS
- ---------------------
Sales for the quarter ended December 31, 1995 decreased $53,275 from those of
the quarter ended December 31. 1994. The decrease in sales is due to the
Company focusing its efforts on the Calorimeter and Glycosyslation development
and letting Lamp sales be handled by the LLC.
Operating expenses, excluding Research and Development, for the three months
ended December 31, 1995 increased $13,226 mainly due to the increase of an
additional employee. All other expenses remained constant.
Research and Development expenses were significantly higher for the December
1995 quarter as compared to the same quarter of 1994 due to; (i) continuing
obligations from the terminated joint venture with ADI which the Company has
assumed. The Company hopes to recover these expenses through either a settlement
with ADI or a license agreement with a pharameutical company. (ii) Calorimeter
development expense of $41,651 which was off-set by $41,651 in collaborative
income received from Abbott Laboratories.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of December 31, 1995 the Company had current assets of $381,652 and current
liabilities of $557,098 resulting in negative working capital of $175,446. Of
the total assets at that date, $108,793 was in cash, $127,222 was in
receivables, $138,704 was in inventory and $6,933 was in other assets.
The Company believes that current working capital, pending private placement
funding and possible license agreements will provide sufficient funds to finance
its operations for the next 12 months. However, no assurance can be given that
these transactions will be successfully concluded. External funding will be
required over the longer term for ongoing research and development of both the
Calorimeter and the biochemical technologies.
11
PART II
OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
In October 1995, American Diagnostica, Inc. ("ADI") filed a lawsuit against the
Company relating to the August 1995 termination of a research and development
agreement. The Company has been granted an extension of time in which to respond
and is presently considering the appropriate actions to take. The matter is
currently pending in the United States District Court, District of Connecticut,
Case Number 395CV01776 and ADI is claiming damages in an unspecified amount.
The Company terminated the research and development agreement with ADI because
of ADI's stated inability to perform its obligations under the agreement and its
actual failure to meet certain financial obligations under the agreement.
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(A) NONE
(B) NONE
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HARRIER, INC.
Dated: March 14, 1996 By /s/Kevin DeVito
-----------------------
Kevin DeVito - President
/s/Candace M. Beaver
---------------------------------
Candace M. Beaver
Chief Financial Officer/Secretary
13