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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, 1996 Commission File Number: 1-9925
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HARRIER, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 87-0427731
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2200 Pacific Coast Highway, Suite 301, Hermosa Beach, California 90254
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(Address of Principal Executive Offices) (Zip Code)
Not Applicable
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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
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As of February 14, 1997 the Registrant had 11,967,923 shares of its common
stock, par value $0.001, issued and outstanding.
Transitional Small Business Disclosure Format: Yes X No .
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Page 1 of 15 consecutively numbered pages.
PART 1
FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-QSB
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Harrier, Inc. (the "Registrant") files herewith the unaudited condensed
consolidated balance sheets of the Registrant and its subsidiaries as of
December 31, 1996 and June 30, 1996 (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, 1996 and 1995, and statements of
cash flows for the three and six months ended December 31, 1996 and 1995,
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, 1996 on file with the Securities and Exchange Commission
on December 3, 1996 is hereby incorporated by reference.
2
HARRIER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
December 31, June 30,
1996 1996
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CURRENT ASSETS:
Cash and cash equivalents $ 60,155 $ 347,022
Investments, net 0 61,875
Amount receivable from related party 36,800 56,346
Inventory 87,702 99,453
Other current assets 9,139 12,822
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Total Current Assets 193,796 577,518
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PROPERTY AND EQUIPMENT, net 65,588 12,554
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Investments, net 123,406 123,406
Intangible assets 33,648 35,509
Total Assets $ 416,438 $ 748,987
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 602,620 $ 616,424
Convertible note payable to related party 534,333 503,667
Total Current Liabilities 1,136,953 1,120,091
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STOCKHOLDERS' EQUITY:
Common Stock 11,968 11,968
Additional paid-in capital 15,225,740 15,225,740
Accumulated deficit (15,920,512) (15,571,103)
Cumulative translation adjustment (37,711) (37,709)
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Total Stockholders' Equity (720,515) (371,104)
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Total liabilities and
stockholders' equity $ 416,438 $ 748,987
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NOTE: The balance sheet at June 30, 1996 has been taken from the audited
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,
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1996 1995 1996 1995
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SALES $ 5,330 $ 10,698 $ 12,668 $ 47,307
COST OF SALES 4,837 7,690 11,674 45,325
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GROSS PROFIT 493 3,008 994 1,982
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EXPENSES:
General and administrative 45,626 100,522 84,122 210,164
Amortization and depreciation 3,757 7,384 6,231 14,769
Salaries and related expenses 102,135 106,424 210,299 207,701
Research and development 0 75,048 5,000 180,406
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Total Expenses 151,518 289,378 305,652 613,040
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LOSS FROM OPERATIONS (151,025) (286,370) (304,658) (611,058)
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OTHER INCOME (EXPENSE):
Collaborative income 0 41,651 0 46,651
Royalty income 0 1,260 0 14,210
Loss on investment (15,716) 0 (15,716) 0
Interest income/(expense) (15,241) 2,308 (27,935) 7,347
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Total Other Income (Expense) (30,957) 45,219 (43,651) 68,208
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Income (loss) from continuing operations
before provision for income taxes (181,982) (241,151) (348,309) (542,850)
Provision for income taxes (800) 54,031 (1,100) 41,781
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Net income (loss) (182,782) (187,120) (349,409) (501,069)
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Net income (loss) per common share $ (0.02) $ (0.01) $ (0.03) $ (0.04)
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The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
4
HARRIER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
December 31,
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1996 1995
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Cash Flows from (used for) Operating Activities:
Net Loss $ (349,409) $ (501,069)
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Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 6,231 14,769
Accrued interest 30,666 0
Changes in assets and liabilities:
Related party receivable 19,547 24,020
Accounts receivable 0 (6,101)
Receivable from joint venture 0 34,680
Inventory 11,751 30,962
Other current assets 3,683 7,169
Accounts payable and accrued expenses (13,807) 3,466
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Total Adjustments 58,071 108,965
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Cash Used by Operating Activities $ (291,338) $ (392,104)
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Cash Flows from Investing Activities:
Decrease in investment 61,875 0
Payment for property and equipment (57,404) (16)
Increase in patent costs 0 (1,289)
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Cash used by Investing Activities $ 4,471 $ (1,305)
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Cash Flows from Financing Activities:
Issuance of common stock 0 8,095
Net Cash Flows Provided by
Financing Activities $ 0 $ 8,095
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Effect of Exchange Rate Changes on Cash $ 0 $ 29
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Net Increase in Cash and Cash Equivalents (286,867) (385,285)
Cash and Cash Equivalents at Beginning of Period 347,022 494,068
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Cash and Cash Equivalents at End of Period $ 60,155 $ 108,783
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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, 1996, 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, 1996 audited
financial statements. The results of operations for the three and six months
ended December 31, 1996 are not necessarily indicative of the operating results
for the full year.
NOTE 2 - INVENTORIES
Inventories at December 31, 1996 and June 30, 1996 consist of:
December 31, 1996 June 30, 1996
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Finished Goods $87,702 $99,453
NOTE 3 - CONVERTIBLE NOTE PAYABLE TO RELATED PARTY
On June 9, 1996, the Company entered into a $500,000 loan agreement with an
entity affiliated with the President and the Chairman of the Board. The loan
bears interest of 12% and is due on June 4, 1997. At the Company's option, the
loan's principal and interest can be repaid using the Company's stock (or its
subsidiary's stock, if publicly traded), valued at 75% of the average price 90
days preceding the repayment date. In consideration for entering into the
agreement, Glycosyn Pharmaceuticals, Inc. issued 52,100 shares valued to
represent 1% in loan fees.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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GENERAL:
Harrier, Inc. and its subsidiaries is a Delaware corporation organized in 1985,
and together with its subsidiaries (collectively "the Company") has been engaged
in the discovery, development and sale of selected products and technologies in
the health, fitness and medical markets. The Company's current strategic focus
is to find a merger candidate. A merger is the Company's priority due its
Capital Deficit (See Liquidity and Capital Resources). The Company is also
managing financial and strategic operations of its 95% owned subsidiary,
Glycosyn Pharmaceuticals, Inc. and working with the DermaRay International LLC,
("LLC") its 50% owned partnership in the distribution of a medical device. There
still exists significant technologies primarily in the biochemical field, that
are in various stages of development. The Company has transferred all of those
technologies to its Glycosyn subsidiary. The Company still owns certain rights
to a medical device, the Bioptron-Registered Trademark- Lamp ("Lamp"), which is
currently being marketed as a pain relief medical device in limited quantities.
No assurance can be given that any of the Company's products or technologies
under development will be commercially successful. For the year ending June 30,
1996, Lamp sales accounted for 100% of the Company's operating revenues, and 44%
of the Company's total revenue. Other revenue sources (Sale of Securities,
interest income and miscellaneous revenue) represented 56% of total Company
income.
The Company's strategy is to seek corporate partners to finalize development
and commercialization of the Biochemical Technologies currently under
development. Pursuant to this strategy, the Company entered into a joint drug
discovery and development program 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 in August 1995. (See Item 3 Litigation). Due to the
termination of the American Diagnositca Inc. ("ADI") research and development
agreement, the Company has assumed the financial responsibilities previously
assigned to ADI. Those responsibilities include approximately $350,000 in past
due payables. Because of limited resources, certain development projects have
been suspended and all external development grants have been terminated. The
Company anticipates that the future sales in this business will be predominantly
through glycosylation feasibility and related chemical synthesis work, license
agreements and joint ventures with pharmaceutical concerns. The Company also
owns 50% of a Limited Liability Company with Naturade, Inc. owning the other
50%, to manufacture and market the Lamp in North America and in other selected
international territories.
SBIR GRANT AWARD
The Company's Glycosyn Pharmaceuticals, Inc. subsidiary recently received a
notice of grant award from the National Institute of Health's Small Business
Innovation Research ("SBIR") program. This particular award is for $100,000.
The grant will partially fund late stage preclinical research and development of
Glycosyn's GLYCOSYLATED 7-Hydroxymethyl camptothecin analogues ("HAR Series").
These compounds have shown promising activity in several cancer models including
prostate cancer. One analog, "HAR7", is active against the SK-MES lung cancer
xenograft, producing tumor shrinkage in several mice. This 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, has been shown to be superior to currently marketed
treatments. The company is seeking a partner for co-development of the HAR
Series through NDA submission and market introduction.
7
PRODUCTS AND TECHNOLOGIES
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.
NATURADE JOINT VENTURE
The Company owns certain distribution rights to the Lamp in the western
hemisphere. Its marketing strategy is focused primarily on selling the Lamp in
the pain relief market. The Company has in the past and continues to sell to
wholesalers in various direct selling businesses including health spas and pain
relief centers.
On November 29, 1994 the Company formed the DermaRay International Limited
Liability Company ("LLC"), a manufacturing and marketing joint venture with
Naturade, Inc. ("Naturade"), a 70-year old manufacturer and supplier of health
and beauty products. The objective of the LLC is to develop and sell pain
relief products centered around the medically-approved use of the Lamp. For its
50% equity ownership interest, Naturade contributed 100,000 shares of its
restricted common stock, along with 24 months of unburdened corporate
contribution such as management and administrative services. Both parties have
agreed to continue the partnership beyond the 24 month term where both parties
share in operating income/loss. The Harrier contribution consisted of $200,000
in cash. In addition, both companies contributed manufacturing and distribution
rights to proprietary devices and formulations to be sold under various
trademarks including Bioptron-Registered Trademark- and DermaRay-TM-. The LLC
plans to market the Company's current inventory of lamps for pain relief and
assemble new Bioptron Compact lamps for delivery to customers under current
order schedules.
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. The Company, in conjunction with the LLC, is
selling the Lamp in several consumer catalogues. Assembly of the first 1,000
Compact Lamps has been completed at the DermaRay facility in Los Angeles,
California. Due to a lack of historical selling data with these catalogues, no
estimate can be made at this time regarding the number of Lamps that will be
sold in the future.
8
BIOCHEMICAL TECHNOLOGIES
GLYCOSYN PHARMACEUTICALS, INC. ("GLYCOSYN")
Glycosyn is a majority owned subsidiary of the Company and was formed to further
develop and finance technologies currently owned or licensed by the Company in
the field of carbohydrate chemistry which the Company believes to have broad
applications in the fields of medical therapeutics. Patents have been filed for
several of those technologies. Furthermore, newer technologies are in the
"discovery" stage, meaning chemical activity has been characterized and further
development is underway to support additional patent applications. In the
current fiscal year, the Company transferred 100% of its glycosylation rights
and technologies to Glycosyn. In addition, the Company sold 5% of Glycosyn's
common stock to outside investors.
Glycosyn seeks to fund and manage internal research and support laboratory staff
through fee for service chemistry contracts and Small Business Innovative
Research ("SBIR") and Economic Union ("EU") research grants. Another objective,
the completion of pre-clinical development of HAR7 and related glycosylated
camptothecins, is a work in progress. Glycosyn also seeks to advance one analog
to clinical trials (IND) within 18 months of financing and to seek out and
successfully execute at least one alliance with a major pharmaceutical company
for the development of products based upon technologies of the Company within
two (2) years after the successful completion of the initial financing.
STRATEGIC OVERVIEW
Glycosyn also seeks to apply its technology to additional therapeutics. Based
upon the pre-clinical results, Glycosyn will select ten compounds for IN-VITRO
evaluation and, based upon IN-VITRO results, select three or more compounds for
pre-clinical biological evaluation. The strategies Glycosyn intends to employ in
order to achieve its objectives involves the submission of three SBIR and two EU
grants per year for the first three years of operation. Glycosyn also seeks to
meet with licensing representatives of major pharmaceutical companies to
negotiate an agreement for the further clinical development of a glycosylated
antineoplastic as an anticancer therapeutic.
STRUCTURES TARGETED FOR DEVELOPMENT
Glycosyn is currently synthesizing proprietary glycosylated analogs of two or
more antibiotics. Such antibiotics could relate to, or in fact be, compounds
currently being marketed. Several candidates are in preclinical development in
their NON-GLYCOSYLATED form. Glycosyn also seeks to conduct IN-VIVO
evaluations of two or more antineoplastics chemically GLYCOSYLATED using its
proprietary technologies. Such antineoplastics could relate to, or in fact be,
compounds currently approved for use by the FDA.
Other goals involve the evaluation of current anti-tubercular drugs for their
potential to be glycosylated utilizing current technologies and selection of the
most promising candidate(s) for glycosylation and evaluate these analogs against
drug-resistant strains of M. TUBERCULOSIS. and to evaluate compounds used in the
treatment of AIDS (and possibly other auto-immune diseases) to determine whether
or not Company owned GLYCOSYLATION and other technologies can play a role in
either reducing production costs, enhancing absorption, or improving activity
through cell surface binding, cell penetration, or improved anti-viral activity.
9
COMPANY'S GLYCOSYLATION PROCESSES
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 adverse characteristics such as poor absorption or
unacceptable toxicity. In these cases, which include many commonly used
medications, the starting compound is chemically modified to overcome
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 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.
Glycosyn owns exclusive proprietary rights to a new method of GLYCOSYLATION
which it believes may enhance the effectiveness of current drugs and allow for
the creation of new drugs not previously achievable through standard procedures.
These potential drug categories include anti-fungal drugs, cholesterol-lowering
agents, antibiotics, anti-neoplastics and drugs targeted towards the treatment
of central nervous system disorders ("CNS"). The Company's method of
GLYCOSYLATION appears to have several distinct advantages over standard methods
of GLYCOSYLATION. In addition to its extreme mildness, the process is rapid,
produces high yields, and is relatively inexpensive. The Company believes it is
suitable for industrial purposes and can be applied to various sizes and types
of starting compounds. Using the Company's GLYCOSYLATION process, several
categories of compounds, previously considered difficult or impossible to
perform with other methods, have been successfully modified. The Company
believes that the commercial value of its technology is derived from its ability
to GLYCOSYLATE complex chemical structures. In most cases, these compounds are
large molecules that have several functional groups (atoms or groups of atoms
that project out from the base structure of the compound). Biologically, these
functional groups are essential to obtaining the desired effect of the compound
as a potential drug. However, under the harsh conditions of standard
GLYCOSYLATION methods, many important functional groups would not survive the
reaction. In contrast, large molecules with many sensitive functional groups
have undergone the Company's process of GLYCOSYLATION successfully and remain
intact. The Company is actively pursuing the development of those molecules as
new pharmacological agents. Due to insufficient working capital at this time,
there can be no assurance that any of these development plans can be pursued.
In 1993, the Company was notified that it had received a Notice of Allowance
from the U.S. Patent and Trademark Office covering its claims to a novel method
of using and producing GLYCOSIDES. The patent has since been issued. Utilizing
the Company's method, an alcohol or phenol, especially a hydroxy-steroid such as
a water insoluble cholesterol, is GLYCOSYLATED in a single step through the use
of a mild catalyst. The Company believes that the applicability of the process
can be expanded to include more complex sugars and their attachment at other
bonding sites which are difficult or impossible to accomplish by standard
methods. This patent is the first in a series of patents which the Company
hopes to have issued which utilize the Company's GLYCOSYLATION process in the
development of new pharmaceutical products.
10
GLYCOSYN CHEMICAL SYNTHESIS FACILITIES
On July 31, 1996 Glycosyn concluded the construction of its chemistry
laboratory. Glycosyn plans to continue development of novel glycosylated
compounds and sell services utilizing its proprietary chemical synthesis methods
at this new facility. Previously, the Company conducted its research and
development through various grants with Universities and private organizations.
The laboratory is a fully functional chemical research facility capable of small
scale batch preparation of up to 100 grams of material. Larger quantities will
be contracted out to a Good Manufacturing Practice ("GMP") or GMP-like facility
as necessary
ONGOING PRE-CLINICAL DEVELOPMENT (ANTI-CANCER DRUGS)
To date the Company has contracted pre-clinical development of the HAR series to
the Institute for Drug Development. 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, 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 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.
The Company is refining its biochemical technologies at its current lab
facilities. Prior to moving its drug development efforts to the Durham facility,
the Company conducted research at several institutions including the University
of Michigan in Ann Arbor and The Institute for Drug Development in San Antonio,
Texas ("IDD"). Directed and sponsored by the Company, these projects focused on
all aspects of drug development. Efforts included identification and synthesis
of new proprietary compounds, detailed chemical analysis of these compounds, the
characterization of their toxicity, pharmacokinetics and metabolism, IN-VITRO
and IN-VIVO biological testing, and applications for patent protection. The
pharmaceutical molecules targeted for GLYCOSYLATION are anti-cancer and/or
antibiotic compounds with a number of highly sensitive functional groups.
MERGER OBJECTIVES FOR THE COMPANY
In conjunction or sometime following the spin off of the Glycosyn subsidiary,
the Company plans to merge with a company with significantly larger operations
and financial resources. At this time the Company is in discussion with several
merger candidates based in Germany and Switzerland. There can be no assurance as
to the timing or success of these merger discussions.
The Company will either sell off or continue to operate the DermaRay LLC with
Naturade, Inc. following the planned merger.
11
RESULTS OF OPERATIONS
Sales for the quarter ended December 31, 1996 decreased $5,368 from those of the
prior year. The decrease is due to the Company focusing its efforts on
development of the Glycosyn process and finding additional financing and/or
merger candidates. (See Merger Objectives for the Company)
Operating expenses decreased from $289,378 for the three months ended December
31, 1995 to $151,518 for the three months ended December 31, 1996. The net
decrease of $137,860 is a result of limited operating capital and minimal staff.
The Company's operations are primarily focused on its Glycosyn subsidiary. A
substantial amount of corporate resources are being utilized to continue
operations and prepare the company to emerge as an independent public entity
through the prosposed Harrier, Inc. spin-off. The Company is seeking to exploit
the oportunities available in receiving additional grants pertaining to the
Glycosyn project.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996 the Company had current assets of $193,796 and current
liabilities of $1,136,953 resulting in negative working capital of $943,157. Of
the total assets at that date, $60,155 was in cash, $87,702 was in inventory,
$36,800 was in receivables and $9,139 was in other assets.
The Company continues to concentrate on developing its biochemical technologies
and a distribution network for the Bioptron Lamp. As disclosed in previous
financial statements, the Company invested $200,000 and acquired a 50% interest
in a joint venture that markets, distributes and sells the Bioptron Lamps and
other health-related products. However, there can be no assurance that the
Company will successfully develop its biochemical technologies or establish
profitable distribution networks for the Lamp.
The Company has a significant working capital shortage. Its history of capital
problems were intensified with the termination of the research and development
agreement with ADI that left the Company with significant financial obligations
for past research work. Financing for activities to date have come from the sale
of the Company's stock, limited Lamp sales and short-term borrowings. To
continue the development of its biochemical technologies, the Company will
require substantially more capital than it currently has. There can be no
assurance as to the Company's ability to fully develop and license its
biochemical technologies and other products.
During the year ended June 30, 1996 the Company entered into a $500,000 loan
agreement with an entity affiliated with the President and Chairman of the
Board. The loan bears interest of 12% and is due on June 4, 1997. The proceeds
of the note were utilized to pay approximately $140,000 in past due research
obligations, $160,000 was loaned to Glycosyn for initial working capital, and
the balance was retained by the Company for its own working capital needs
including professional fees related to the ADI lawsuit. Loan obligations can be
paid with public securities of either the Company or it Glycosyn subsidiary.
52,100 common shares of Glycosyn has been paid to the lender at a value of $1.00
per Glycosyn shares. The lender has agreed to extend the term of the note if the
Company does not have funds to pay the loan back or if the value of equity stock
payments is overly dilutive to the Company. Although the note matures in 9
months, the Company can elect to extend the term of the note for another 12
months.
12
This Form 10-QSB contains certain forward looking statements that involve risks
and uncertainties. Certain risks and uncertainties which may impact the accuracy
of forward looking statements with respect to revenues, expenses and operating
results and my include without limitation, the Company;s current and future
liquidity and cash flow deficits, increasing competitive pressures, general
economic conditions, technological advances and the timing of operating and
other expenditures.
13
PART II
OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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In August 1995, ADI filed an action against the Company seeking an unspecified
amount of actual and punitive damages for an allegedly wrongful termination of a
research and development agreement. Management believes that it has meritorious
defenses to ADI's claims and that the claims are without merit, but there can be
no assurances as to the ultimate outcome of the litigation. In September, 1996,
the court granted the Company's motion in the alternative dismissing ADI's
complaint or staying all proceedings pending the conclusion of mandatory
arbitration in California as the parties provided in the research and
development agreement.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(A) NONE
(B) NONE
14
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: February 14, 1997 By /s/ Kevin DeVito
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Kevin DeVito - President
/s/ Candace M. Beaver
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Candace M. Beaver
Chief Financial Officer/Secretary
15