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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: March 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
(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 June 14, 1996 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 13 consecutively numbered pages.
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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 March
31, 1996 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 nine months ended March 31, 1996 and 1995, and statements of cash
flows for the nine months ended March 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, 1995 on file with the Securities and Exchange Commission on
October 25, 1995 is hereby incorporated by reference.
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HARRIER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,807 $ 494,068
Accounts receivable trade - net 38,485 33,641
Amount receivable from assets held for sale 0 17,500
Amounts receivable from joint venture and
development agreement, current 8,116 42,795
Related party receivable 62,006 85,885
Inventory 131,932 169,666
Other current assets 6,292 14,102
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Total Current Assets 364,638 857,657
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PROPERTY AND EQUIPMENT, net 10,660 9,109
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Investments, net 244,164 244,164
Intangible assets 167,368 184,648
Total Assets $ 786,830 $ 1,295,578
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 657,946 $ 553,516
Total Current Liabilities 657,946 553,516
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STOCKHOLDERS' EQUITY:
Common Stock 12,144 11,684
Additional paid-in capital 15,163,715 15,013,577
Accumulated deficit (15,009,264) (14,245,547)
Cumulative translation adjustment (37,711) (37,652)
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Total Stockholders' Equity 128,884 742,062
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Total liabilities and
stockholders' equity $ 786,830 $ 1,295,578
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</TABLE>
NOTE: The balance sheet at June 30, 1995 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
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HARRIER, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
March 31, March 31,
-------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SALES $ 9,085 $ 63,836 $ 56,392 $ 179,274
COST OF SALES 6,625 43,308 51,950 123,130
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GROSS PROFIT 2,460 20,528 4,442 56,144
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EXPENSES:
General and administrative 121,638 112,301 331,802 290,565
Amortization and depreciation 8,315 7,899 23,084 24,428
Consulting and management compensation 0 0 0 4,056
Salaries and related expenses 110,183 101,524 317,884 283,558
Research and development 31,632 47,862 212,038 54,809
---------- ---------- ---------- ----------
Total Expenses 271,768 269,586 884,808 657,416
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (269,308) (249,058) (880,366) (601,272)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Collaborative income 0 15,000 46,651 46,392
Royalty income 0 0 14,210 0
Foreign exchange gain (loss) 0 (11,394) 0 (10,456)
Interest income 1,037 6,042 8,384 7,789
Gain on sale of marketable securities 0 0 0 43,200
---------- ---------- ---------- ----------
Total Other Income (Expense) 1,037 9,648 69,245 86,925
---------- ---------- ---------- ----------
Income (loss) from continuing operations before
provision for income taxes (268,271) (239,410) (811,121) (514,347)
Provision for income taxes 5,624 (66,933) 47,405 (67,733)
---------- ---------- ---------- ----------
Net income (loss) before minority interest (262,647) (306,343) (763,716) (582,080)
---------- ---------- ---------- ----------
Minority interest in operations
on consolidated subsidiary (37) 0 (37) 0
---------- ---------- ---------- ----------
New income (loss) (262,610) (306,343) (763,679) (582,080)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per common share $ (0.02) $ (0.03) $ (0.06) $ (0.05)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
4
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HARRIER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
March 31,
---------------------------------
1996 1995
---------------------------------
<S> <C> <C>
Cash Flows from (used for) Operating Activities:
Net Loss $ (763,679) $ (582,080)
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Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 23,084 24,428
Write-down of patents 0
Changes in assets and liabilities:
Accounts receivable (4,844) 60,975
Related party receivable 23,879 (2,585)
Assets held for sale 17,500 0
Receivable from joint venture 34,679 0
Inventory 37,734 (52,960)
Other current assets 7,810 (5,256)
Accounts payable and accrued expenses 104,314 (165,628)
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Total Adjustments 244,156 (141,026)
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Cash Used by Operating Activities $ (519,523) $ (723,106)
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Cash Flows from Investing Activities:
Payment for investment in Limited Liab. Corp. 0 (200,000)
Payment for property and equipment (6,016) (1,075)
Increase in patent costs (1,289) (3,619)
Cash used by Investing Activities $ (7,305) $ (204,694)
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Cash Flows from Financing Activities:
Change in deferred royalty 0 140,583
Issuance of common stock 150,595 1,096,397
Net Cash Flows Provided by
Financing Activities $ 150,595 $ 1,236,980
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Effect of Exchange Rate Changes on Cash $ (28) $ 9,563
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Net Increase in Cash and Cash Equivalents (376,261) 318,743
Cash and Cash Equivalents at Beginning of Period 494,068 140,517
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Cash and Cash Equivalents at End of Period $ 117,807 $ 459,260
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</TABLE>
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
5
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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 March 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, 1995 audited
financial statements. The results of operations for the three and nine months
ended March 31, 1996 and 1995 are not necessarily indicative of the operating
results for the full year.
NOTE 2 - INVENTORIES
Inventories at March 31, 1996 and June 30, 1995 consist of:
March 31, 1996 June 30, 1995
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Finished Goods $131,932 $169,666
NOTE 3- PRIVATE PLACEMENT OFFERING
During the quarter ended March 31, 1996, 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. To date, the
Company has sold a total of 210,000 units at a price of $0.75 per unit.
NOTE 4- RELATED PARTY TRANSACTION
In June 1996, the Company received a loan of $500,000 from an offshore
investment company. The loan is for twelve months and bears interest at a rate
of 12% per year. Payment of the principle and interest is due at the end of
twelve months and may be paid with Harrier, Inc. common stock, Glycosyn
Pharmaceuticals, Inc. common stock, cash or any combination of cash and
securities. Proceeds from the loan will be used for Glycosyn operations,
rescheduling of debt and general working capital needs for the Company. The
investment company that made the loan is directed by an officer and a director
of the Company.
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NOTE 5- SUBSEQUENT EVENTS
Subsequent to March 31, 1996, the Company elected to discontinue the development
of the Calorimeter due to the high cost of research, uncertain market potential
and a lack of internal development resources. The financial impact of the
discontinuance of the Calorimeter will be a fourth quarter write-down in assets
of approximately $135,000.
7
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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. (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, has recently been discontinued by the Company, 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 March
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. 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 molecular chain
can make the critical difference. GLYCOSYLATION, a scientific term used to
8
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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. Submission of an IND
application is planned.
ONGOING BIOLOGICAL AND PRE-CLINICAL STUDIES
In 1995 the Company conducted 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.
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.
9
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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 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-TM-. 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.
METABOLIC GAS EXCHANGE MONITOR-TM- ("CALORIMETER")
The Company has elected to discontinue the development of this product due to
the high costs of development, uncertain market and a lack of development
resources internally. (See Note 5 - Subsequent Events)
$500,000 CONVERTIBLE LOAN
The Company recently recieved a loan from an offshore investment company of
$500,000. This note is accrued at an interest rate of 12% per annum. The
Company has the option to pay the note off in 12 months with common stock
valued at the market, Glycosyn subsidiary shares or a combination of
securities and cash depending on the status of the company at the time of
maturity. The proceeds of the note are to be used for Glycosyn operations,
rescheduling debt and general working capital. The loan was made by an
investment company that is currently being directed by an officer and
director of the company (see Note 4 - RELATED PARTY TRANSACTIONS).
10
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RESULTS OF OPERATIONS
Sales for the quarter ended March 31, 1996 decreased $54,751 from those of
the quarter ended March 31, 1995. The decrease in sales is due to the Company
selling the B1 Lamp below cost in order to deplete its inventory and due to
the Company focusing a majority of its efforts on development of the
Glycosylation process. The B2 Lamp is still sold at a profit.
Operating expenses for the three months ended March 31, 1996 remained
consistent with those for the corresponding quarter in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996 the Company had current assets of $364,638 and current
liabilities of $657,946 resulting in negative working capital of $293,308. Of
the total assets at that date, $117,807 was in cash, $108,607 was in
receivables, $131,932 was in inventory and $6,292 was in other assets.
The Company believes that current working capital, the loan it received
subsequent to quarter end and potential license agreements will provide
sufficient funds to finance its operations for the next 9 months. However, no
assurance can be given that this funding will meet all financial needs of the
Company. External funding will be required over the longer term for ongoing
research and development of the biochemical technologies.
11
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PART II
OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(A) NONE
(B) NONE
12
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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: June 14, 1996 By /s/Kevin DeVito
-----------------------------------
Kevin DeVito - President
/s/Candace M. Beaver
-----------------------------------
Candace M. Beaver
Chief Financial Officer/Secretary
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 117,807
<SECURITIES> 0
<RECEIVABLES> 108,607
<ALLOWANCES> 0
<INVENTORY> 131,932
<CURRENT-ASSETS> 364,638
<PP&E> 61,807
<DEPRECIATION> 51,147
<TOTAL-ASSETS> 786,830
<CURRENT-LIABILITIES> 657,946
<BONDS> 0
0
0
<COMMON> 12,144
<OTHER-SE> 116,740
<TOTAL-LIABILITY-AND-EQUITY> 786,830
<SALES> 9,085
<TOTAL-REVENUES> 9,085
<CGS> 6,625
<TOTAL-COSTS> 6,625
<OTHER-EXPENSES> 271,768
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (262,610)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (262,610)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
