<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended June 30, 1996
Commission file No. 1-9925
Harrier, Inc.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
Delaware 87-0427731
- ------------------------------------ -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
2200 Pacific Coast Hwy. No. 301, Hermosa Beach, California 90254
- ---------------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (310) 376-7721
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.001
Check whether the issuer (1) filed all reports 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.
Yes No X
-- ---
Check if there is no disclosure on delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or other
information statements incorporated by reference in Part III of this Form 10-KSB
or by amendment to this Form 10-KSB X
---
The revenues for the issuers most recent fiscal year, June 30, 1996 are
$66,687.
The aggregate market value of the issuers voting stock held by
nonaffiliates as of October 7, 1996, computed with reference to the average bid
and asked price on that date was approximately $1,469,348
As of October 7, 1996, the issuer had 11,967,923 shares of its common
stock, par value $0.001, issued and outstanding.
- --------------------------------------------------------------------------------
Page 1 of 54 consecutively numbered pages
1
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Item Number and Caption Page
- ----------------------- ----
PART I
1. Business 3
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
PART II
5. Market for Issuer's Common Equity and Related Stockholder Matters 11
6. Management's Discussion and Analysis or Plan of Operation 12
7. Financial Statements 13
8. Changes in and Disagreements with Accountants on Financial Disclosure 13
PART III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 14
10. Executive Compensation 15
11. Security Ownership of Certain Beneficial Owners and Management 17
12. Certain Relationships and Related Transactions 18
13. Exhibits and Reports on Form 8-K 18
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
2
<PAGE>
PART 1
ITEM. 1 BUSINESS
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 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.
RECENT EVENTS:
GLYCOSYN CHEMICAL SYNTHESIS FACILITIES
On July 31, 1996 the Company's 95% owned subsidiary, Glycosyn Pharmaceuticals,
Inc. ("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 these new
facilities. 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
3
<PAGE>
CURRENT 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.
CURRENT OPERATIONS / 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. The Company continues to seek additional marketing partners in
the United States, Mexico, and Canada.
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.
Naturade is developing additional products to include in the system such as pain
relief gels, rubs and skin enhancement products to complement 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. Currently eight of these
catalogues have begun promotion. Initial orders have been received from several
of these distributors with slightly over 800 Lamps units sold over the last 3
months starting in July of this year. Assembly of the first 1,000 Compact Lamps
has been
4
<PAGE>
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.
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, existing
successfully marketed compounds. 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.
5
<PAGE>
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.
6
<PAGE>
HAR7 SERIES ANTICANCER TEST RESULTS
Approximately one year ago, 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 is 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, is superior.
Preclinical development work is progressing as resources become available.
Submission of an IND application is planned for 1997.
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.
METABOLIC GAS EXCHANGE MONITOR-TM- ("CALORIMETER")
During fiscal year 1996, the Company elected to discontinue the development of
the Calorimeter due to the high cost of research, uncertain market potential and
lack of internal development resources. The financial impact of the
discontinuance of the Calorimeter is a write-down in intangible assets of
$134,923. All technology rights have been given back to the inventor.
MANUFACTURING AND ASSEMBLY
In the past, the Lamp was manufactured for the Company by Bioptron AG in
Switzerland. Currently, the LLC is assembling components purchased from
Bioptron AG and has made arrangements to purchase components for the assembling
of a low-cost Compact unit. In this case, components for assembly will be
purchased from various vendors including those currently supplying Bioptron AG
and will be assembled at the DermaRay LLC facility.
7
<PAGE>
Glycosyn's main office is located in Durham, North Carolina and the laboratory
is located in Raleigh, North Carolina. The laboratory is 1,200 square feet with
5 fume hoods (one walk-in) and one 240 square foot office. The Company
synthesizes GLYCOSYLATED compounds for research and pre-clinical evaluation at
its facilities in Raleigh, North Carolina.
PATENTS AND TRADEMARKS
The Company has filed individual and continuation-in-part patents on its
modified compounds and related chemical processes since January 1990. In
September 1992, the Company filed new patent applications covering significant
additions to its GLYCOSYLATION process. These patents, which have subsequently
been issued, are co-owned by the Company and the University of Michigan because
they involve technologies developed pursuant to research agreements entered into
with the University.
In July, 1992, the Company sold its worldwide patents and trademarks to the Lamp
to the owner of Bioptron AG. The Company retains distribution and certain
manufacturing rights to the Lamp in the Western Hemisphere.
There can be no assurance that the Company will be successful in obtaining
patents for its products and processes in the countries in which applications
are still pending. Patents are difficult to obtain and only provide protection
to the holder for a specified period of time. In addition, it may be possible
for a competitor to successfully avoid an infringement action by making changes
to the technology or method of application. The Company believes that the
ability to obtain and enforce patents is essential to certain elements of its
business.
COMPETITION
BIOPTRON-Registered Trademark- LAMP
The Company considers its Bioptron-Registered Trademark- Lamp unique.
Nevertheless, it competes with a variety of other products designed for similar
or competing applications. In addition to the more traditional wound
treatments, such as antiseptics and ointments, lasers emitting some form of
polarized light are also used in many of the same medical applications.
Although comparable results seem to have been obtained through the use of the
Lamp without the expense of technical expertise necessary for laser treatments,
such treatments have been available for a significantly longer time. Suppliers
of these devices often have substantially greater managerial and financial
resources than the Company. In the cosmetic market, the Company believes that
the use of polarized light provides a uniquely beneficial effect to skin
texture, color, and blemish reduction. The Company competes with a number of
other suppliers which have substantially greater resources and which make
similar claims as to the effectiveness of their skin care products.
BIOCHEMICAL TECHNOLOGIES
The Company competes in the pharmaceutical industry where many competitors have
far greater financial, scientific and management resources. Although such
companies often license products to and form strategic alliances with smaller
companies, substantial resources are required to develop and clinically test
pharmaceutical products to the point where such relationships can be
established. Current resources are not sufficient to fully exploit the
Company's technology. Strategic alliances or other additional resources will be
necessary to develop proprietary GLYCOSYLATED molecules outside the scope of
the Company's internal drug development efforts.
8
<PAGE>
PERSONNEL
As of June 30, 1996, the Company had seven (7) employees engaged in management,
product development, marketing, and administrative functions. In addition, the
Company retains a number of consultants for specialized services. Glycosyn
currently employs three (3) of the six full time employees and one (1) part-time
employee.
REGULATION
The Bioptron Lamp is a medical device subject to regulation by the Food and
Drug Administration ("FDA"). Pursuant to the Federal Food Drug and Cosmetic Act
(the "FDCA") the FDA regulates the development, manufacture, packaging,
labeling, distribution and promotion of medical devices in the United States.
Various states and foreign countries in which the Company's products are sold
may impose additional regulatory requirements.
Most of the Company's products are subject to extensive regulation by federal
and state agencies, and similar agencies in foreign countries with safety
standards applicable to the manufacture and marketing of such products. In the
pharmaceutical area, all clinical testing protocols must be submitted for
review by the FDA, and the results of testing are subject to extensive analysis.
The FDA's approval cannot normally be obtained until a significant number of
tests have been conducted. There are similar requirements for obtaining
approval of pharmaceuticals in most foreign countries. There can be no
assurances of the likelihood or timing of any such approvals. The failure to
receive approvals for the Company's pharmaceutical products would prevent their
sale in the applicable jurisdictions.
In addition to the regulations governing pharmaceutical products, all medical
devices and cosmetic products marketed in the United States are subject to the
FDCA. Since the Lamp is currently being marketed for both pain relief and as a
cosmetic device, it will continue to be subject to the FDCA.
Following the enactment of the Medical Device Amendments to the FDCA in May
1976, the FDA classified medical devices in commercial distribution into one of
three classes: Class I, II, or III. This classification is based on the
controls necessary to reasonably assure the safety and effectiveness of the
medical device. Class I devices are those devices whose safety and
effectiveness can reasonably be assured through general controls, such as
adequate labeling, premarket notification and adherence to the FDA's Good
Manufacturing Policies (GMP) including regulations and compliance with
provisions prohibiting misbranding or adulteration. Some Class I devices are
further exempted from some of the general controls. Class II devices are those
devices whose safety and effectiveness can reasonably be assured through the use
of general controls plus special controls, such as performance standards,
post-market surveillance, patient registries and FDA guidelines. Class III
devices are devices which must eventually receive premarket approval by the FDA
to assure their safety and effectiveness. Generally, Class III devices are
limited to life-sustaining, life-supporting or implantable devices.
If the manufacturer or distributor of medical devices can establish that a
proposed device is "substantially equivalent" to a legally marketed Class I or
Class II medical device or to a Class III medical device not requiring FDA
premarket approval, the manufacturer or distributor may seek FDA marketing
clearance for the device by filing a 510(K) Premarket Notification. The 510(K)
Premarket Notification must contain information showing substantial equivalence
(of the device sought to be marketed) to a legally marketed device. The claim
of equivalence may have to be supported by data and materials, including test
results. The Bioptron Lamp is registered as a Class II medical device based on
its 510(K) approval.
9
<PAGE>
Following submission of the 510(K) Premarket Notification, the manufacturer or
distributor may not place the device into commercial distribution until an order
of substantial equivalence is issued by the FDA. By regulation, the FDA has no
time limit by which it must respond to a 510(K) Premarket Notification. The FDA
typically responds to the submission of a 510(K) Premarket Notification within
150 to 200 days, but there can be no assurances that the FDA will respond with
this time. The FDA order may declare that the device is substantially
equivalent to another legally marketed device and allow the proposed device to
be marketed in the United States.
The FDA may determine that the proposed device is not substantially equivalent,
or may require further information, such as additional test data, before the FDA
is able to make a determination regarding substantial equivalence. Such
determination or request for additional information could delay the Company's
introduction of its products and could have a material adverse effect on the
Company. If a device that has obtained 510(K) Premarket Notification clearance
is changed or modified in design, components, method of manufacture, or intended
use, such that the safety or effectiveness of the device could be significantly
affected, a new 510(K) Premarket Notification clearance must be obtained before
the modified device can be marketed in the United States. Having obtained the
necessary clearance, the Lamp may be manufactured and marketed in the United
States.
ITEM 2. PROPERTIES
During the fiscal year ended June 30, 1996, the Company occupied facilities
located in Hermosa Beach, California and in Durham and Raleigh, North Carolina.
All three properties are leased under arrangements from third parties.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE>
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock currently is traded on the Over The Counter market,
("OTC") under the symbol "HARE".
The following table sets forth, for the respective periods indicated, the high
and low bid prices for the common stock of the Company. The quotations
presented reflect inter-dealer prices, without retail markup, markdown, or
commissions, and may not necessarily represent actual transactions in the common
stock of the Company.
Quarter Ended High Bid Low Bid
------------- -------- -------
September 30, 1994 $0.625 $0.281
December 31, 1994 $0.438 $0.281
March 31, 1995 $0.625 $0.500
June 30, 1995 $0.875 $0.875
September 30, 1995 $0.875 $0.375
December 31, 1995 $0.625 $0.281
March 31, 1996 $0.218 $0.218
June 30, 1996 $0.220 $0.220
On October 7, 1996, the bid and ask prices as quoted on the OTC for the
Company's common stock were $0.07 and $0.19 respectively.
On October 7, 1996 there were approximately 390 holders of record of the
11,967,923 shares of the Company's common stock issued and outstanding.
Since its inception, no dividends have been paid on the Company's common stock,
and the Company does not presently have retained earnings to permit the payment
of a dividend. Although there are no restrictions on the declaration or payment
of dividends set forth in the Articles of Incorporation of the Company or any
other agreement with stockholders, the Company expects future earnings will be
utilized for the development of its business. Therefore, the Company does not
anticipate paying dividends on its common stock in the foreseeable future.
11
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
For the year ended June 30, 1996, sales of $66,687 decreased $167,621 as
compared to those of 1995. The decrease is a result of the Federal Trade
Commission closing down several of the telemarketing companies that had
previously sold the Lamp. The high cost of sales of $123,724 is due to a
year-end inventory valuation write-down of $62,267. The adjustment reduces the
carrying value of the inventory to the lower of cost or market.
Selling, general and administrative expenses had a net increase of approximately
$28,000. A reduction of $131,000 in shareholder relations, travel, advertising,
legal and consulting was off-set by a net increase of $159,000 in public
relations, bad-debt and Professional fees for Glycosyn. The professional fees
accounted for $93,000 of the $159,000 increase.
Salaries and related expenses rose $27,035 due to the addition of two (2)
full-time chemists at the Raleigh, North Carolina facility.
Research and development decreased $317,110 as compared to the year ended June
30, 1995. In 1995, the company assumed all outstanding liabilities that were
previously the responsibility of ADI. In 1996, research and development
expenses were a result of winding down existing contracts. Continued
development will begin again after Glycosyn has completed its funding.
Total other expense is comprised of three significant items (i) a $134,923
write-off of intangible assets related to the Calorimeter (See Item I, Business
), (ii) $50,108 in amortization and equity loss in the value of a joint
venture and (iii) miscellaneous income of $78,500 of which $66,000 is from
deferred royalty and $12,500 was from various small items.
The benefit from income taxes of $47,405 is the result of a refund related to
operations at Harrier Gmbh.
LIQUIDITY AND CAPITAL RESOURCES:
On June 30, 1996, the Company had total current assets of $577,518 and total
current liabilities of $1,120,091 resulting in negative working capital of
$542,573. Of the total current assets, $347,022 was in cash, $61,875 was in
investments, $56,346 was in receivables from related parties, $99,453 was in
inventory and $12,822 was in other assets.
During the year ended June 30, 1996 the Company raised approximately $157,000 in
a Regulation "S" private placement of 210,000 units consisting of common stock
and warrants. All proceeds raised from the private placement were used for
working capital and funding of certain obligations related to the terminated
research and development agreement with ADI.
The Company continues to concentrate on developing its biochemical technologies
and a distribution network for the Bioptron Lamp. As disclosed in Note 6, 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.
12
<PAGE>
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 has 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
related 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 its Glycosyn
subsidiary. 52,100 common shares of Glycosyn has been paid to the lender at a
value of $1.00 per Glycosyn share. 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.(See Note 8 to the
financial statements included herein.). Although the note matures in 12 months,
the Company can elect to extend the term of the note for another 12 months.
This Form 10-KSB 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 may 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.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company, as indicated under ITEM 13, with the
reports of Raimondo, Pettit and Glassman for fiscal year 1996 and Coopers &
Lybrand for fiscal year 1995 are included beginning on page 22.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
In May, 1996 the Company changed accountants from Coopers & Lybrand to Raimondo,
Pettit & Glassman. Such change was reported on a Form 8K filed on October 28,
1996. Both accountants reports include an uncertainty paragraph with respect to
the Company's ability to continue as a going concern.
The Company and its accounting firms have not disagreed on any item of
accounting treatment or financial disclosure.
13
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(A)
NAME AGE POSITION SINCE
- ---- --- -------- -----
Jurg Kehrli 54 Chairman/Director February, 1987
William P. Cordeiro 52 Director June, 1994
Kevin DeVito 36 President/Director July, 1992
Candace Beaver 35 Secretary and June, 1991
Chief Financial Officer
All Directors and Executive Officers of the Company, are elected or appointed,
respectively, to serve for a one year term and hold their office until their
successors are elected or appointed and qualified.
The following is a brief resume of each Director and Executive Officer of the
Company:
Jurg Kehrli, Chairman, was formerly the President and a principal shareholder of
Kehrli Rontgen A.G. from which the Company originally acquired the rights to a
substantial number of its products. Mr. Kehrli is the son of the founder of
Kehrli Rontgen, A.G., a manufacturer of X-ray equipment which he managed for 22
years prior to his affiliation with the Company. Mr. Kehrli is currently an
independent financial and management consultant for European-based companies.
Dr. William P. Cordeiro, Director, holds a B. S. in Biology from the University
of San Francisco, an MBA in Finance from the University of Southern California,
and a Ph.D. in Executive Management from the Peter Drucker Graduate Management
Center, the Claremont Graduate School. He is an associate professor in the
Management Department of California State University's School of Business and
Economics in Los Angeles, co-founder of Bartik, Cordeiro and Associates, Inc.
and was previously Vice chairman of the Veta Grande Companies, Inc. and Planning
Manager for ARCO.
Kevin DeVito, President and Director, is a former financial consultant, having
previously been employed in this function with Cigna Financial Services, Inc. He
graduated from the University of California, Los Angeles. Mr. DeVito joined the
Company in 1990 as marketing manager and was promoted to President in July
1992. Mr. DeVito's initial project for the Company was the attainment of the
Company's initial medical-use approvals for the Bioptron Lamp.
Candace Beaver, Secretary and Chief Financial Officer, was formerly the
Controller of Addison Design Consultants, Inc., an international design and
corporate identity firm. She is a graduate of the University of California,
Berkeley. Mrs. Beaver has worked in both the public and private accounting
profession for the past 10 years.
Those required to make filings under Section 16(a) have done so on a timely
basis.
14
<PAGE>
ITEM 10 EXECUTIVE COMPENSATION
The Summary Compensation Table below includes, for each of the fiscal years
ended June 30, 1996, 1995, and 1994 individual compensation for services to
the Company and its subsidiaries of the Chief Executive Officer (the "Named
Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
------------------- ---------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position (4) Year Salary($) Bonus ($) ($) (1) ($) SARs (#) ($) ($)
- ------------- ---- --------- --------- ------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kevin DeVito 1996 94,994 (2) -0- (1) --- --- --- (2)
President 1995 116,233 (3) -0- (1) --- --- --- (3)
1994 131,800 (4) -0- (1) --- --- --- (4)
</TABLE>
(1) Include $3,600 per year for car allowance and $1,680 per year for executive
insurance.
(2) Includes $10,994 in deferred compensation earned in fiscal years 1995 and
1996.
(3) Includes $4,802 in deferred compensation earned in fiscal year 1994 and
paid in fiscal year 1995.
(4) Includes $26,000 in deferred compensation earned in fiscal year 1993 and
paid in fiscal year 1994.
(5) No other employees earned in excess of $100,000 during the year ended June
30, 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No options were granted in fiscal year 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Shown below is information with respect to the exercise of options granted under
the 1990 Incentive Stock Option Award Plan to the Named Officer and held by him
at June 30, 1996.
Value of
Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
6/30/96 6/30/96
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized(s) Unexercisable (#) Unexercisable ($)
- ------------ --------------- ----------- ----------------- -----------------
Kevin DeVito -0- -0- 216,666/0 $0.00/0
15
<PAGE>
DIRECTOR COMPENSATION
Dr. Cordeiro is paid a Director's fee of $500 per month. No other Director
compensation was paid during fiscal year 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, all matters concerning executive officer compensation were
addressed by the entire Board of Directors since the Company did not have a
compensation committee.
EMPLOYMENT AGREEMENTS AND STOCK OPTIONS
Effective July 1,1992, the Company entered into a five year employment agreement
with Kevin DeVito, (the "1992 Agreement"). Under the 1992 Agreement, Mr. DeVito
will receive an annual salary of $110,000, to be increased each year by a factor
equal to increases in the Consumer Price Index. Mr. DeVito will also receive an
incentive bonus, following the end of each fiscal year during which Mr. DeVito
is employed by the Company, if the Company meets certain profitability levels.
To date, Mr. DeVito has received no salary increases. During the normal course
of business Mr. DeVito and the staff provide certain professional and consulting
services for Corporate Assistance Company, Inc. ("CAC") which is owned by Mr.
DeVito. A portion of the fees earned by CAC are paid to the Company for use of
staff time.
Mr. DeVito will receive a bonus of: (i) $1,000 if the Company has profits of
between $50,000 and $99,000, (ii) $2,000 if the Company has profits of between
$100,000 and $249,000, (iii) $5,000 if the Company has profits of between
$251,000 and $500,000, and (iv) $10,000 if the Company has profits of between
$501,000 and $999,000. If the Company has profits in excess of $1,000,000, the
Board of Directors will determine the amount of the bonus.
STOCK OPTION PLAN
During the year ended June 30, 1990, the Company adopted the 1990 Plan. A total
of 1,500,000 shares of common stock may be issued under the 1990 Plan and have
been reserved by the Board of Directors for that purpose. Options may be granted
to Directors, Officers, employees and other individuals at terms and exercise
prices as determined by the Board of Directors.
No options were granted to officers and directors during the year ended June 30,
1996.
16
<PAGE>
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1996, the number of shares
of the Company's common stock, par value $0.001 per share, held beneficially by
each person who was known by the Company to own beneficially more than 5% of the
Company's common stock, each current Director and all Officers and Directors as
a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the common stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares subject to community property laws where applicable.
Name & Amount &
Title Address of Nature of Percent
of Beneficial Beneficial of
Class Owner Owner Class(7)
- ----- ---------- ---------- --------
Common Secom Co., Ltd. 1,028,000 8.6%
Stock Shinjuku Nomura Bldg.
1-26-2 Nishi Shinjuku
Tokyo 163, Japan
Common Jurg Kehrli (3) 791,666 (1) 4.8%
Stock
Common Kevin DeVito (3) 266,916 (2) 0.0%
Stock
Common William P. Cordeiro (3), (4)
Stock Bartik, Cordeiro & Associates 95,000 (5) 0.0%
Common All Officers and 1,176,580 (6) 5.6%
Stock Directors as a (1) (2) (5)
group (4 persons)(3)
(1) Includes 141,666 stock options and warrants.
(2) Includes 216,666 stock options.
(3) The address for individuals listed is kept on file at the Harrier, Inc.
corporate office.
(4) Dr. Cordeiro owns 44% of Bartik, Cordeiro & Associates
(5) Includes 75,000 stock options
(6) Includes 511,332 stock options and warrants
(7) Percentage includes common stock only - options have been omitted from the
calculation
17
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following transactions were entered into by the Company with Officers,
Directors, principal shareholders or affiliates of the Company. Because of the
related party nature of these transactions, they cannot be considered the result
of arm's length negotiations.
TRANSACTIONS WITH RELATED PARTIES
During the year ended June 30, 1994, the Company entered into a management
consulting arrangement with Bartik, Cordeiro & Associates, Inc. (BCA). Dr.
Cordeiro, a Director of the Company, is a partner in BCA. Total payments made to
BCA through June 30, 1996 were approximately $7,875. Dr Cordeiro has provided
various consulting services for New Capital AG and certain New Capital AG.
clients. New Capital AG is a partnership owned primarily by the Chairman and the
President of the Company. Dr. Cordeiro did not consult with New Capital on any
services connected with the $500,000 loan described below.
During the year ended June 30, 1996, the Company sold 346 Bioptron Lamps to its
50%-owned joint venture for $17,300.
During the year ended June 30, 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. Loan
obligations can be paid with securities of either the Company or its Glycosyn
subsidiary. Common shares of Glycosyn have been paid to the lender at a value of
$1.00 per Glycosyn share. 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
common stock payments is overly dilutive to the Company.(See Note 8 to the
financial statements included herein.). The lender (New Capital Investment Fund)
is currently advised on certain transactions by two of the Company's Director's,
Mr. Kehrli and Mr. DeVito. Both Mr. Kehrli and Mr. DeVito abstained from voting
on the approval of the loan by the Company's board.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Filed as an Exhibit I to the Form 10-KSB for the year ended June 30, 1996 is
the loan agreement between Harrier, Inc. and New Capital Investment Fund.
Form 8-K for the change in accountants was filed with the Securities and
Exchange Commission on October 28, 1996.
FINANCIAL STATEMENTS AND SCHEDULES
Report of Raimondo, Pettit & Glassman, independent accountants with respect to
the year ended June 30, 1996.
Report of Coopers & Lybrand, independent accountants with respect to the year
ending June 30, 1995.
Consolidated Balance Sheet as of June 30, 1996.
Consolidated Statements of Operations for the years ending June 30, 1996 and
1995.
Consolidated Statements of Stockholders Equity, for the years ending June 30,
1996 and 1995.
Consolidated Statements of Cash Flows for the years ending June 30, 1996 and
1995.
Notes to Consolidated Financial Statements.
Financial Statement Schedules are omitted because they are not applicable or
because the required information is contained in the Consolidated Financial
Statements or the notes thereto.
18
<PAGE>
EXHIBITS
Exhibit
No. Description
3(i) Articles of Incorporation (1)
Amendment to Articles of Incorporation
3(ii) Bylaws (1)
10.1 Agreement with Licensia Export Trading Co. dated
December 12, 1986 (2)
10.2 Agreement with Erich Klemke, Ph.D., dated June 6,
1988 (3)
10.3 Amendment to agreement with European Investment
and Equity Trading dated March 30, 1989 (5)
10.4 Distribution agreement with Mobal AG, dated
January 17, 1989 (4)
10.5 1989 Stock Option and Stock Award Plan (1)
10.6 Warrant Agreement dated as of November 13, 1989
among Harrier, Inc. ASFAG AG and Martin S.
Wohnlich (5)
10.7 Agreement dated November 10, 1989 between Tibech
AG and Bioptron AG (5)
10.8 Agreement dated February 7, 1990 between Tibech AG
and Bioptron AG (5)
10.9 Sales Agreement for HDC AG stock between Dr. Carl
Odermatt and the Company (5)
10.10 Distribution Agreement with Planeta, dated
September 1, 1991 (with accompanying unofficial
translation. (6)
10.11 University of Michigan Agreement dated October 17,
1992. (10)
10.12 University of Michigan Agreement dated March 18,
1992. (10)
10.13 Sale of Assets Agreement by and between the
Registrant and a German Investor (8)
19
<PAGE>
10.14 Agreement to Dissolve Joint Research and
Development Project by and between the Registrant
and Tecno-Bio CO., Ltd. (9)
10.15 Purchase and License Agreement of HDC AG by and
between the Registrant and Tecno-Bio CO., Ltd. T
(9)
10.16 Harrier, Inc. / American Diagnostica Inc. R&D
Joint Venture Agreement (11)
10.17 Loan Agreement between New Capital Investment Fund
and Harrier, Inc.
21 Subsidiaries of the Registrant (6)
- ---------------
(1) Filed as an exhibit to Proxy Statement dated May 14, 1990, filed on May 16,
1990 (File No 1-9925), incorporated herein by reference.
(2) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1987, filed on March 18, 1988 (File No 1-9925), incorporated by reference.
(3) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1988, filed on November 3, 1988 (File No 1-9925), incorporated herein by
reference.
(4) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1989, filed on October 13, 1989 (File No 1-9925), incorporated herein by
reference.
(5) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1990, filed on October 13, 1990 (File No 1-9925), incorporated herein by
reference.
(6) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1991, filed on October 13, 1991 (File No 1-9925), incorporated herein by
reference.
(7) Filed as an exhibit to Report on form 8-K dated July 27, 1990,, filed on
September 6, 1990 (File No 1-9925), incorporated herein by reference.
(8) Filed as an exhibit to Report on Form 8-K dated July 10, 1992, filed on
July 31, 1992 (File No 1-9925), incorporated herein by reference.
(9) Filed as an exhibit to Report on form 8-K dated August 1, 1992, filed on
August 26, 1992 (File No 1-9925), incorporated herein by reference.
(10) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1992, filed on October, 24, 1992 (File No. 1-9925), incorporated herein by
reference.
(11) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1993, filed on November 25, 1993 (File No. 1-9925), incorporated herein by
reference.
REPORTS ON FORM 8-K
A change of accountants was filed on Form 8-K on October 28, 1996.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, as amended, the Registrant has caused this report to be
signed on its behalf by the undersigned, hereunto duly authorized.
HARRIER, INC.
Date: November 27, 1996 By /s/Jurg Kehrli
------------------------------
Jurg Kehrli, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Date: November 27, 1996 By /s/Jurg Kehrli
------------------------------
Jurg Kehrli, Chairman
Date: November 27, 1996 By /s/Kevin DeVito
------------------------------
Kevin DeVito, President
and Director
Date: November 27, 1996 By /s/William P. Cordeiro
------------------------------
William P. Cordeiro
Director
Date: November 27, 1996 By /s/Candace M. Beaver
------------------------------
Candace M. Beaver
Secretary and CFO
21
<PAGE>
HARRIER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 23
REPORT OF INDEPENDENT ACCOUNTANTS 24 - 25
FINANCIAL STATEMENTS
Consolidated Balance Sheet 26
Consolidated Statements of Operations 27
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) 28
Consolidated Statements of Cash Flows 29 - 30
Notes to Consolidated Financial Statements 31 - 44
22
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Harrier, Inc.
Hermosa Beach, California
We have audited the accompanying consolidated balance sheet of Harrier, Inc.,
for the year ended June 30, 1996 and the related statement of operations,
changes in stockholders' equity (deficit), and cash flows for the year then
ended. The financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of the Company for the
year ended June 30, 1995 were audited by other auditors, whose report, included
elsewhere in this Form 10-KSB, included an explanatory paragraph with respect to
the Company's ability to continue as a going concern and an explanatory
paragraph with respect to a contingency.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Harrier, Inc. as of June 30, 1996 and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring losses
from operations and has negative working capital and a stockholders' deficit.
The Company's continued existence depends primarily on its ability to raise
additional debt or equity financing, to develop and market its biochemical
technologies, and the attainment of profitable results with respect to the sales
and royalty income relating to the Bioptron Lamps. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Manage- ment's plans in regard to these matters are also described in Note 1.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Raimondo, Pettit & Glassman
RAIMONDO, PETTIT & GLASSMAN
Torrance, California
September 6, 1996
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
-----------
Board of Directors
Harrier, Inc.
We have audited the consolidated statements of operations, stockholders' equity,
cash flows for the year ended June 30, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of Harrier, Inc.'s
operations and cash flows for the year ended June 30, 1995, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going-concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring losses
from operations and has a significant accumulated deficit. The Company's
continued existence depends primarily on its ability to develop and market its
biochemical technologies and the Calorimeter, which will require additional
equity and/or debt financing, and the attainment of profitable results, in terms
of sales and royalty income, with the Bioptron Lamps. The realization of the
above factors and plans must be viewed as questionable, thereby raising
substantial doubt about the Company's ability to continue as a going-concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
24
<PAGE>
As discussed in Note 13 to the consolidated financial statements, the Company is
a defendant in a civil action alleging wrongful termination, substantial
compliance and that the Company was indebted to the plaintiff for unspecified
damages. Although the Company believes it has mentorious defenses to these
claims and that the claims are substantially without merit, the ultimate outcome
of this litigation cannot presently be determined. Accordingly, no provision
for any liability that may result upon adjudication has been made in the
accompanying consolidated financial statements.
/s/ Coopers & Lybrand L.L.P.
Newport Beach, California
September 1, 1995
25
<PAGE>
HARRIER, INC.
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
JUNE 30, 1996
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 347,022
Investments, net 61,875
Amounts receivable from related parties 56,346
Inventory 99,453
Other current assets 12,822
- --------------------------------------------------------------------------------
Total current assets 577,518
- --------------------------------------------------------------------------------
Property and equipment, net 12,554
Investments, net 123,406
Intangible assets, net 35,509
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 748,987
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Accounts payable and accrued expenses $ 616,424
Convertible note payable to related party 503,667
- --------------------------------------------------------------------------------
Total current liabilities 1,120,091
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCY (NOTES 9, 10, 12 AND 13)
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value - authorized,
30,000,000 shares; issued and outstanding,
11,968,394 shares 11,968
Additional paid-in capital 15,225,740
Accumulated deficit (15,571,103)
Cumulative translation adjustment (37,709)
- --------------------------------------------------------------------------------
Total stockholders' deficit (371,104)
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 748,987
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
HARRIER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1996 1995
- --------------------------------------------------------------------------------
SALES $ 66,687 $ 234,308
COST OF SALES 123,724 190,909
- --------------------------------------------------------------------------------
GROSS PROFIT (57,037) 43,399
- --------------------------------------------------------------------------------
EXPENSES
Selling, general and administrative 587,410 559,000
Salaries and related expenses 418,445 391,410
Research and development 176,773 493,883
Amortization and depreciation 23,895 31,553
- --------------------------------------------------------------------------------
TOTAL EXPENSES 1,206,523 1,475,846
- --------------------------------------------------------------------------------
LOSS FROM OPERATIONS (1,263,560) (1,432,447)
- --------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Collaborative agreements with related parties - 79,647
Interest income, net 5,905 14,767
Write off of intangible assets (134,923) -
Gain on sale of marketable securities - 43,200
Miscellaneous income 78,500 105,750
Amortization and equity in loss of joint venture (50,108) (26,486)
Unrealized loss on investment (8,775) (30,600)
- --------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (109,401) 186,278
- --------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (1,372,961) (1,246,169)
PROVISION FOR (BENEFIT FROM) INCOME TAXES (47,405) 86,186
- --------------------------------------------------------------------------------
NET LOSS $ (1,325,556) $ (1,332,355)
- --------------------------------------------------------------------------------
NET LOSS PER COMMON SHARE $ (0.11) $ (0.12)
- --------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 11,783,861 10,573,520
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
27
<PAGE>
HARRIER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Common Stock Additional Cumulative Stockholders
------------ Paid-in Accumulated Translation Equity
Shares Amount Capital Deficit Adjustment (Deficit)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, July 1, 1994 9,626,180 $ 9,626 $ 13,604,092 $ (12,913,192) $ (46,153) $ 654,373
Issuance of common stock,
net of $160,313 in
offering costs 2,058,086 2,058 1,409,485 1,411,543
Net loss for the year
ended June 30, 1995 (1,332,355) (1,332,355)
Translation adjustment as
of June 30, 1995 8,501 8,501
- ------------------------------------------------------------------------------------------------------------------
Balances, July 1, 1995 11,684,266 11,684 15,013,577 (14,245,547) (37,652) 742,062
Issuance of common stock,
net of $15,750 in
offering costs 284,128 284 212,163 212,447
Net loss for the year
ended June 30, 1996 (1,325,556) (1,325,556)
Translation adjustment as
of June 30, 1996 (57) (57)
- ------------------------------------------------------------------------------------------------------------------
Balances, June 30, 1996 11,968,394 $ 11,968 $ 15,225,740 $ (15,571,103) $ (37,709) $ (371,104)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
HARRIER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1996 1995
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,325,556) $ (1,332,355)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 23,895 31,553
Provision for uncollectible amounts (16,014) (789)
Write-down of inventory 74,767 -
Write-off of uncollectible amounts 61,811 -
Miscellaneous income recognized upon sale
of inventory (66,000) (105,750)
Amortization and equity in loss of joint venture 50,108 26,486
Unrealized loss on investment 8,775 30,600
Write-off of intangible assets 134,979 -
Services received and loan fees in exchange
for stock 55,100 16,682
Accrued interest 3,667 -
Increase (decrease) resulting
from changes in:
Accounts receivable, trade (3,541) 7,844
Amount receivable from sale of assets 17,000 70,000
Receivables from joint research and
development agreement 34,680 (21,087)
Receivables from related parties 29,539 (51,190)
Inventory 61,446 141,665
Other current assets 1,280 20,862
Accounts payable and accrued expenses 62,908 396,001
Income tax payable - (60,616)
- --------------------------------------------------------------------------------
Net cash used in operating activities (791,156) (830,094)
- --------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (7,841) (1,227)
Intangible assets expenditures (5,339) (9,989)
Investment in joint venture - (200,000)
- --------------------------------------------------------------------------------
Net cash used in investing activities (13,180) (211,216)
- --------------------------------------------------------------------------------
29
<PAGE>
HARRIER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1996 1995
- --------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Issuance of common stock $ 157,290 $ 1,394,861
Borrowings from related party 500,000 -
- --------------------------------------------------------------------------------
Net cash provided by financing activities 657,290 1,394,861
- --------------------------------------------------------------------------------
Net (decrease) increase in cash (147,046) 353,551
Cash and cash equivalents, beginning of year 494,068 140,517
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 347,022 $ 494,068
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ - $ -
Taxes $ 1,711 $ 81,186
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for services and loan fees $ 55,100 $ 16,682
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
30
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Harrier, Inc. was organized under the laws of the State of Utah on October 8,
1985 and later was reincorporated in the State of Delaware. The Company is
engaged in research, development and marketing of a number of products which are
at various stages of development. It is selling the Bioptron Lamp (cosmetic and
medical uses) in the Western Hemisphere and is in the pre-clinical development
stage of its biochemical technologies.
In March 1993, Pollution Reduction Technology, Inc. ("PRT") was organized as a
wholly-owned subsidiary of the Company under the laws of the State of Delaware.
PRT was initially created to facilitate the marketing and sales of the Harrier
Diesel Cleaner ("HDC") product, but, due to the sale of the HDC described
elsewhere, this subsidiary currently has no operations. In June 1994, the
Company sold all of its HDC-related patents to an unaffiliated third party. In
June 1995, PRT was renamed as Glycosyn Pharmaceuticals, Inc. ("GPI") and the
Company transferred its biomedical technologies rights and obligations to GPI.
The accompanying consolidated financial statements include the accounts of
Harrier, Inc. and its wholly-owned subsidiary, Harrier GmbH, a German
corporation and GPI (collectively, the "Company"). All significant intercompany
transactions and balances have been eliminated.
The Company has incurred losses from inception of $15,571,103 including
$1,325,556 during the year ended June 30, 1996 and, as disclosed in Note 3, the
Company in September 1992 disposed of its European operations that had
accounted, to that date, for a significant part of its business. In addition,
as disclosed in Note 13, the Company has been informed that its partner in a
drug development agreement will be unable to fund further development of the
Company's biochemical technologies. The Company continues to concentrate on
developing its biochemical technologies and a distribution network for the
Bioptron Lamp. As disclosed in Note 6, the Company invested $200,000 and
acquired a 50% interest in a joint venture that markets, distributes and sells
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 its products.
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern. Financing for activities to date has previously
come from the sale of the Company's European subsidiaries, sale of the Company's
stock and short-term borrowings. To continue the development of its biochemical
technologies beyond the pre-clinical testing phase, 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. The consolidated financial statements do not
include any adjustments that might result from the outcome of the
above-mentioned uncertainties.
31
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT'S ESTIMATES
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVENTORY
Inventory, consisting primarily of finished goods, is recorded at the lower of
cost or market, with cost being determined using the first-in, first-out
("FIFO") method. In fiscal year 1996, an inventory write down of $62,267 was
recorded to reflect the inventory market value and is included in cost of sales.
PROPERTY AND EQUIPMENT
Property and equipment, including significant improvements thereto, are stated
at cost and are depreciated using the straight-line method over an estimated
useful life of 5 years. Maintenance and repairs are charged to expense as
incurred.
INVESTMENTS
Investments represent equity securities and a 50% interest in an unconsolidated
joint venture.
The equity securities are classified as available-for-sale and are stated at
their fair market value based on quoted market prices.
The Company has no majority control over the joint venture's operations or
management; accordingly, the investment in joint venture is accounted for under
the equity method. The Company's share of the income or loss of the joint
venture is recognized as an increase or decrease, respectively, in the Company's
investment. Profits and losses on transactions with the joint venture are
eliminated to the extent of the Company's ownership interest.
The Company assesses whether there has been a permanent impairment in the value
of its investments by considering factors such as quoted market prices,
estimated joint venture revenues and prospects and other economic factors.
32
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets include patents, product rights and technology costs. All
patent, product rights and technology costs are capitalized and amortized over
ten years using the straight-line method. The Company assesses whether there
has been a permanent impairment in the value of intangible assets by considering
factors such as expected future product revenues, anticipated product demand and
prospects and other economic factors.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and the tax basis of assets and liabilities using enacted
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign operations where the local currency is the
functional currency are translated using exchange rates in effect at period-end
for assets and liabilities and average exchange rates during the period for
results of operations. Related translation adjustments are reported as a
separate component of stockholders' equity. The Company has determined that the
local currency of its international subsidiary is the functional currency.
Gains and losses from foreign currency transactions are generally included in
operations. All references to foreign currencies in the following notes to the
financial statements have been translated using June 30 year-end exchange rates,
except where otherwise noted.
LOSS PER COMMON SHARE
The computation of loss per common share is based on the weighted average number
of shares of common stock outstanding during the periods presented. Common
stock equivalents have not been included in the loss per common share because
their effect would be anti-dilutive.
33
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers short-term investments which have maturities of three
months or less at the date of acquisitions to be cash equivalents. At June 30,
1996, the Company's cash was on deposit at four banks and exceeded the
federally-insured limit by approximately $175,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments included in current assets and
liabilities approximates fair value because of the short maturity of these
items.
CONCENTRATION OF CREDIT RISK
For the years ended June 30, 1996 and 1995, the Company earned approximately 32%
and 19%, respectively, of its operating revenues from one customer.
RECENT ACCOUNTING DEVELOPMENT
In October, 1995, the FASB adopted Statement No. 123, "Accounting for
Stock-Based Compensation." This Statement encourages entities to adopt a fair
value method of accounting for stock-based compensation plans, including stock
options and warrants issued to employees. For entities which do not adopt this
method, the Statement requires disclosure of the effect that the fair-value
method would have on net income and earnings per share. The Statement is
effective for transactions entered into in fiscal years that begin after
December 15, 1995. The Company has not determined the effect of this Statement
nor has it decided when it will adopt the provisions of this Statement.
3. SALE OF ASSETS
SALE OF BIOPTRON A.G.
Bioptron A.G. ("Bioptron") was the Company's former subsidiary which developed,
manufactured and marketed the Bioptron Lamps. In September 1992, the Company
sold Bioptron's assets and its share capital to an unaffiliated entity. The
aggregate consideration was of approximately $3,000,000 plus a 4% royalty on
future Bioptron Lamp sales. The Company retained exclusive rights to market and
distribute the Bioptron Lamps in the Western Hemisphere (the "Territory") and is
marketing and selling Bioptron Lamps directly and through distributors in the
Territory.
34
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. SALES OF ASSETS (CONTINUED)
On June 30, 1994, the Company amended the Bioptron sales agreement and received
5,000 B1 lamps and twenty B2 lamps as payment in full, in lieu of future
Bioptron royalty payments. Accordingly, the Company recorded $60,000, which was
net of a $290,000 allowance, as inventory at June 30, 1994 related to this
transaction. Based on sales activity during fiscal year 1996 and 1995, a
$66,000 and $105,750 reduction of such allowance was recognized as miscellaneous
income in 1996 and 1995.
SALE OF HDC A.G. AND RELATED TECHNOLOGIES
The Company entered into a separate agreement (the "HDC Agreement"), effective
July 1, 1992, pursuant to which the Company sold the outstanding shares of HDC
A.G. to the same unaffiliated party acquiring Bioptron A.G. Pursuant to the HDC
Agreement, the Purchaser owns the rights to manufacture and market HDC
technology and related products worldwide. As consideration, the Company was
due to receive 500 SFrs per unit sold by the Purchaser, plus certain royalties.
No patent or trademark rights were included in the transaction. No royalties
were paid pursuant to the HDC Agreement and this agreement has been terminated
as a result of the HDC technology sales agreement discussed below.
In 1993, the Company entered into an agreement with the Purchaser whereby the
Purchaser agreed to pay the Company $175,000 to facilitate the Company in
conducting and managing an independent third-party development study to
manufacture a prototype HDC product unit. The Company received $157,500 in 1995
and collected the remaining $17,500 during fiscal year 1996.
Effective June 30, 1994 and prior to the completion of the development study,
the agreement was amended to provide for the sale of all HDC-related patents to
the Purchaser for a total of $100,000 inclusive of $87,500 which was then
outstanding under the agreement discussed above. The Company retained exclusive
rights to market and distribute the HDC in the Western Hemisphere.
35
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. AMOUNTS RECEIVABLE FROM RELATED PARTIES
The following is a summary of amounts receivable from related parties as of June
30, 1996:
Employee receivable $ 11,276
Receivable from joint venture partner 24,000
Receivable from joint venture 21,070
--------
$ 56,346
--------
--------
The employee receivable is collateralized by the related employee's deferred
income, bears interest at prime plus 1% (9.25% at June 30, 1996) and has no
specified due date.
During the year ended June 30, 1995, the Company sold 600 Bioptron Lamps to its
joint venture partner for $30,000, of which $24,000 is outstanding at June 30,
1996. Management anticipates to collect the remaining balance during fiscal
year 1997.
During the year ended June 30, 1996 and 1995, the Company sold 346 Bioptron
Lamps for $17,300, and 75 Bioptron Lamps and 20 Bioptron Lamp holders for $3,770
to its 50%-owned joint venture. In addition, the Company paid $13,621 in
startup costs on behalf of the joint venture during the year ended June 30,
1995.
5. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation as of June 30, 1996:
Equipment $ 44,493
Furniture and fixtures 16,950
--------
61,443
Accumulated depreciation (48,889)
--------
$ 12,554
--------
--------
Total depreciation expense for the years ended June 30, 1996 and 1995 was $4,396
and $8,158, respectively.
36
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. INVESTMENTS
The following is a summary of investments, net as of June 30, 1996:
Available-for-sale equity securities $ 101,250
Valuation allowance (39,375)
----------
Amortized cost (and fair market value) $ 61,875
----------
----------
Investment in joint venture $ 123,406
----------
----------
During the year ended June 30, 1996 and 1995, the Company recorded a $8,775 and
$30,600 valuation allowance to reduce its investment in equity securities to its
estimated net realizable value based on quoted market prices. Since management
believes that the decline in market price is permanent, the Company has recorded
the change in valuation allowance in the 1996 and 1995 consolidated statement of
operations.
During the year ended June 30, 1995, the Company acquired a 50% interest in
Derma Ray International Limited Liability Corporation ("Derma Ray") for a
$200,000 initial capital contribution. The excess of the Company's contribution
over its equity in the joint venture's net amount amounted to $50,000 and is
amortized over five years. Derma Ray was formed to market, distribute and sell
various health and cosmetic products, including the Company's Bioptron Lamps.
During the year ended June 30, 1996 and 1995, Derma Ray incurred losses of
$68,550 and $52,976, of which $34,275 and $26,486 were allocated to the Company
and recorded in the 1996 and 1995 Consolidated Statements of Operations.
37
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. INVESTMENTS (CONTINUED)
Condensed financial information (unaudited) relating to Derma Ray is as follows:
CONDENSED BALANCE SHEET JUNE 30
----------------------- ------------
1996
ASSETS
Cash $ 1,055
Inventories 121,879
Investment in Naturade, Inc.'s common stock 100,000
------------
$ 222,934
------------
------------
LIABILITIES AND EQUITY
Accounts payable and accrued expenses $ 44,455
Equity 178,479
------------
$ 222,934
------------
------------
November, 1994
CONDENSED INCOME STATEMENT 12 MONTHS Inception to
ENDED June 30, 1995
---------------------------
1996 1995
Sales $ 1,814 $ 7,341
--------------------------
--------------------------
Gross Profit $ (1,211) $ 4,671
--------------------------
--------------------------
Expenses $ 67,339 $ 57,647
--------------------------
--------------------------
Net Loss $ (68,550) $ (52,976)
--------------------------
--------------------------
38
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. INTANGIBLE ASSETS
The following is a summary of intangible assets, net as of June 30, 1996:
Patents and patent applications $ 37,220
Accumulated amortization (1,711)
----------
$ 35,509
----------
----------
The Company has filed individual and continuation-in-part patents on its
modified glycosylation compounds and related chemical processes since January
1990. In September, 1992, the Company filed new patent applications covering
significant additions to its glycosylation process. These patents, which have
subsequently been issued, are co-owned by the Company and the University of
Michigan because they involve technologies developed pursuant to research
agreements entered into with the University. Compensation to the University for
future revenues generated from technology related to the co-owned patents has
not been determined at this time.
Total amortization charged to operations was $19,499 and $23,395 for the years
ended June 30, 1996 and 1995, respectively.
During fiscal year 1996, the Company abandoned and wrote off all intangibles
relating to the Calorimeter. The net write off of $134,923 is included in the
fiscal 1996 Consolidated Statement of Operations.
8. 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, GPI issued 52,100 shares, valued to represent 1% in loan fees.
39
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMMON STOCK AND STOCK OPTION PLAN
During the year ended June 30, 1996, the Company issued 284,128 shares for a
total of $212,447 ($157,290 in cash), net of approximately $15,750 in stock
offering costs, and including 290,000 common stock purchase warrants (see Note
10).
During the year ended June 30, 1995, the Company issued 2,058,086 shares for a
total of $1,411,543 ($1,394,861 in cash), net of approximately $160,313 in stock
offering costs, and including 1,964,367 common stock purchase warrants (see Note
10).
During the year ended June 30, 1990, the Company adopted an incentive stock
option and award plan. A total of 1,500,000 shares of common stock may be
issued under the plan and have been reserved by the board of directors for that
purpose. Options may be granted to directors, officers, employees and other
individuals at terms and exercise prices as determined by the board of
directors. The following is a summary of all common stock options outstanding:
June 30,
--------------------------
1996 1995
Outstanding, beginning of year 1,052,998 978,000
Granted - 450,000
Cancelled (239,002) (375,002)
Exercised - -
Outstanding, end of year 813,996 1,052,998
----------- ----------
----------- ----------
Exercisable, end of year 813,996 1,052,998
----------- ----------
----------- ----------
In 1996, there were no options granted by the Company. In 1995, the Company
granted 450,000 options at an exercise price of $0.50 per share to directors and
executives. Each option allows the holder to purchase one share of common stock
at the exercise price at any time after the vesting date, which has been
immediate, and before the expiration date.
40
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. WARRANTS
Convertibility rights attached to the warrants outstanding are as follows:
- - SERIES C AND D COMMON STOCK PURCHASE WARRANTS - Each Series C warrant
allows the holder to purchase one share of the Company's common stock at
$0.70 per share through December 31, 1996. Each Series D warrant allows
the holder to purchase one share of the Company's common stock at $1.00 per
share through June 30, 1997. No warrants were exercised during the years
ended June 30, 1996 and 1995. As of June 30, 1996, 213,240 Series C and
213,240 Series D warrants remain outstanding.
- - 1994 PRIVATE PLACEMENT COMMON STOCK PURCHASE WARRANTS - Each 1994 private
placement warrant allows the holder to purchase one share of the Company's
common stock at prices ranging from $0.70 to $1.50 per share for two years
from the date of the related 1994 private placement purchase. One warrant
was granted for every two shares purchased in the private placement. 0 and
50,000 warrants were exercised during the years ended June 30, 1996 and
1995, respectively. As of June 30, 1996, 352,250 such warrants remain
outstanding and expire from September 1996 through June 1997.
- - 1995 PRIVATE PLACEMENT COMMON STOCK PURCHASE WARRANTS - Each 1995 private
placement warrant allows the holder to purchase one share of the Company's
common stock at prices ranging from $0.70 to $1.50 per share for two years
from the date of the related private placement purchase. One warrant was
issued for every two shares purchased in the private placement. No
warrants were exercised during the years ended June 30, 1996 and 1995. As
of June 30, 1996, 1,964,367 warrants remain outstanding and expire from
September 1996 through August 1997.
- - 1996 COMMON STOCK PURCHASE WARRANTS - Each warrant allows the holder to
purchase one share of the Company's common stock at prices ranging from
$0.22 to $0.70 per share from between one and two years from the date of
the related purchase. One warrant was granted for each share purchased.
No warrants were exercised during the year ended June 30, 1996. As of June
30, 1996, 290,000 warrants remain outstanding and expire from November 1997
through March 1998.
41
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. INCOME TAXES
The components of the provision for income taxes (tax benefit) are as follows:
For the Years Ended June 30,
----------------------------
1996 1995
---- ----
Current:
State $ 800 $ 800
Foreign (48,205) 85,386
--------- ---------
(47,405) 86,186
Deferred - -
$ (47,405) $ 86,186
--------- ---------
--------- ---------
The tax benefit in the current year relates to a foreign tax refund on taxes
paid in the previous year.
The reconciliation of the effective tax rates and U.S. statutory tax rates are
as follows:
For the Years Ended June 30,
----------------------------
1996 1995
---- ----
Tax benefit at statutory rate (34%) (34%)
Foreign tax ( 3%) 6%
Change in valuation allowance 34% 34%
----- -----
3% 6%
----- -----
----- -----
At June 30, 1996, the Company has net operating loss carryforwards, for income
tax reporting purposes, of approximately $11,027,947 and $3,436,315 available to
offset future federal and California taxable income, respectively. The federal
carryforwards expire in 2009 and the California carryforwards expire in 1998.
The utilization of net operating loss carryforwards may be limited under the
provisions of Internal Revenue Code Section 382.
42
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. INCOME TAXES (CONTINUED)
At June 30, 1996, the Company had available tax credit carryforwards comprised
of federal and state research and experimentation credits of $57,467 and $9,673,
respectively. The California federal and research and experimentation credit
carryforwards expire in 2009 and 1998, respectively.
At June 30, 1996, the Company had approximately $3.9 million in capital loss
carryforwards which are available until 1998 to offset capital gains for federal
and California state tax purposes. Since it is not determinable at this time
whether such credits will ever be realizable, they are not considered as
deferred tax assets.
The components of the net deferred tax asset and (liability) are as follows:
For the Years Ended June 30,
----------------------------
1996 1995
---- ----
State taxes $ 340 $ 272
Inventory obsolescence reserve 0 13,047
Royalty income 51,202 118,750
Net operating loss carryforward 4,059,141 3,490,666
Patents (118) 40,030
Credits 67,140 36,022
Other 33,601 24,345
------------ ------------
Subtotal 4,211,306 3,723,132
Valuation allowance (4,211,306) (3,723,132)
------------ ------------
Total $ - $ -
------------ ------------
------------ ------------
12. COMMITMENTS
OPERATING LEASES
The Company leases office space under operating leases that expire throughout
fiscal year 1999. Total rent expense amounted to $41,597 and $42,628 for the
years ended June 30, 1996 and 1995, respectively.
43
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. COMMITMENTS (CONTINUED)
OPERATING LEASES (CONTINUED)
Minimum future rental payments under the noncancelable operating leases are as
follows as of June 30:
1997 $ 40,685
1998 29,310
1999 3,760
--------
$ 73,755
--------
--------
13. CONTINGENCY - JOINT RESEARCH AND DEVELOPMENT AGREEMENT
On May 1, 1993, the Company completed a drug development agreement with American
Diagnostica, Inc. ("ADI"), a private company located in Greenwich, Connecticut.
Pursuant to the agreement, ADI is required to develop and test synthetic drugs
using the Company's proprietary glycosylation processes. ADI has committed to
pay the Company $5,000 per month over 100 months and expend at least $800,000
for research and development. In exchange, ADI will acquire a 40% interest in
the Company's glycosylation processes. Amounts due the Company from ADI
pursuant to this agreement are recorded as amounts receivable from joint
research and development agreement at June 30, 1995 and are substantially offset
by corresponding amounts of deferred revenue.
During June 1995, ADI informed the Company that it was unable to fund any
further obligations pursuant to the research and development portion of the drug
development agreement. The Company then terminated the related agreement for,
among other things, anticipatory repudiation. On August 24, 1995, ADI filed a
civil action for money damages alleging wrongful termination, substantial
compliance under the agreement, and that the Company was indebted to the
plaintiff for damages in an unspecified amount, plus punitive damages, attorney
fees and interest. In December, 1995, Harrier moved the court for an order
compelling the plaintiff to submit the dispute to arbitration. In September,
1996, the court granted the Company's motion, staying all proceedings pending
the conclusion of mandatory arbitration in California, as the parties provided
in the research and development agreement. Management believes that it has
meritorious defenses to all of ADI's claims and that the claims are
substantially without merit. Under current circumstances, no determination can
be made as to the ultimate outcome of the litigation or as to the necessity for
any provision in the accompanying consolidated financial statements for any
liability that may result from an unfavorable outcome.
44
<PAGE>
EXHIBIT 10.17
LOAN AGREEMENT
LOAN AGREEMENT (the "Agreement") dated as of June 9, 1996 by and between
Harrier, Inc., a Delaware corporatio (the "Borrower") and New Capital Investment
Fund, a Cayman Islands corporation (the "Lender").
RECITALS:
A. The Borrower desires to borrow from the Lender an amount of up to five
hundred thousand U.S. DOLLARS (USD $500,000) upon the terms and conditions set
forth herein, and
B. The Lender is willing, subject to and upon the terms and conditions herein
set forth, to lend this amount to the Borrower.
AGREEMENTS:
NOW, THEREFORE: in consideration of the foregoing recitals and of the mutual
undertakings set forth herein, it is hereby agreed as follows:
1. AMOUNT AND TERMS OF LOAN
1.1 LOAN AND CLOSING DATE. Subject to the terms and conditions herein set
forth, the Lender shall lend to the Borrower five hundred thousand U.S. DOLLARS
(USD $500,000). The loan is being made simultaneously with the execution of this
Agreement (the "Closing Date") at the offices of the Borrower.
1.2 INTEREST. The loan shall bear interest from the Closing Date to
maturity on the unpaid principal balance at an annual rate equal to twelve
percent (12%) and, after maturity, whether by acceleration or otherwise, at an
annual rate of fifteen percent (15~), or the highest rate allowed by law,
whichever is less. Interest shall be accrued monthly from the Closing Date until
the entire loan amount (principal and interest) is paid in full. Interest shall
be payable in full at the maturity date of the loan. Therefore, interest shall
be accrued during the term of the loan and payable at the maturity of the loan.
1.3 MATURITY AND REPAYMENT. Maturity is defined as 360 days from the day
and year first above written, on which day the entire principal amount of five
hundred
45
<PAGE>
thousand (USD $500,000) and all unpaid interest (accrued and other) shall be due
and payable in full.
(a) At the sole discretion of the Borrower, the loan principal shall be
payable in cash or in the common stock of Harrier, Inc. (or any successor
company or corporation or of its subsidiary, Glycosyn, Inc.), or a combination
thereof. If the Lender elects to be paid in the common stock of Harrier (or any
successor company or corporation or of its subsidiary, Glycosyn), the common
stock will be valued at seventy-five percent (75%) of the average public market
price of Harrier stock for the immediate 90 days preceding the repayment date
(or in the case of Glycosyn, at 75% of the initial public offering price of
Glycosyn, if Glycosyn stock is offered for sale through a registered public
underwriting governed by the regulations of the US Securities and Exchange
Commission.)
(b) At the sole discretion of the Borrower, the loan interest (accrued and
other) will be payable in cash or in the common stock of Harrier (or any
successor company or corporation or of its subsidiary, Glycosyn), or a
combination thereof. If the Borrower elects to be paid in the common stock of
Harrier (or any successor company or corporation or of its subsidiary,
Glycosyn), the common stock will be valued at seventy-five percent (75%) of the
average public market price of Harrier stock for the immediate 90 days preceding
the repayment date (or in the case of Glycosyn, at 75% of the initial public
offering price of Glycosyn, if Glycosyn stock is offered for sale through a
registered public underwriting governed by the regulations of the US Securities
and Exchange Commission.)
2. USE OF PROCEEDS
2.1 The proceeds from this loan shall be used exclusively for the
expenditure categories listed in Appendix "A" to the Agreement. Any change in
the actual use of proceeds must be approved, in writing by the Lender, prior to
the expenditure of funds by the Borrower.
3. PREPAYMENTS
3.1 REQUIRED PREPAYMENTS. The Borrower shall not be required to make any
prepayment of principal prior to the maturity thereof, except in the Event of
Default as defined herein.
3.2 OPTIONAL PREPAYMENT. The Borrower shall have the absolute right from
time-to-time and at any time to pay the outstanding balance, in whole or in
part, provided that, in no event, shall the total interest payment payable by
the Borrower to the Lender be less than the amount of interest which would have
accrued if the Total Loan Amount were outstanding in full on the Closing Date
46
<PAGE>
and for a continuous period of three (3) months thereafter: a minimum of three
months interest is due and payable at the time of any prepayment.
4. CONDITIONS
4.1 CORRECTNESS OF WARRANTIES. All representations and warranties contained
herein or otherwise made by the Borrower to the Lender in connection herein
shall be true and correct.
4.2 PROCEEDINGS: RECEIPT OF DOCUMENTS. All corporate and legal proceedings
and all documents and instruments in connection with the borrowing under this
Agreement shall be satisfactory in form and substance to the Lender and Raiskin
and Revitz, counsel to the Lender. The Lender shall have received all
information and copies of all documents, including records of corporate
proceedings which the Lender has reasonably requested. Such documents where
requested by the Lender shall be certified by appropriate corporate or
governmental authorities.
5. COVENANTS
The Borrower covenants and agrees that, until the entire principal balance
together with interest thereon and all its other indebtedness to the Lender
under this Agreement are paid in full, unless specifically waived by the Lender
in writing:
5.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower shall provide
the Lender the following financial statements prepared in accordance with U.S.
generally accepted accounting principles (GAAP):
(a) As soon as practical and within 45 days after the close of each of the
first three quarters of each fiscal year of the Borrower, an unaudited
consolidated and consolidating balance sheet of the Borrower and its
subsidiaries, a consolidated and consolidating statement of income and surplus
account of the Borrower and its subsidiaries, and a consolidated and
consolidating statement of cash flows of the Borrower and its subsidiaries. Each
financial statement shall contain a comparison to the appropriate comparable
period of the previous fiscal year. All statements shall be in reasonable detail
and certified by the Chief Accounting Officer of the Borrower to be true and
correct, subject to normal year-end audit adjustments.
(b) As soon as practical and within 90 days after the close of each fiscal
year of the Borrower, a consolidated and consolidating balance sheet of the
Borrower and its subsidiaries, a consolidated and consolidating statement of
income and surplus account of the Borrower and its subsidiaries, and a
consolidated and consolidating statement of cash flows of the Borrower and its
subsidiaries. Each financial statement shall contain a comparison
47
<PAGE>
to the appropriate comparable period of the previous two fiscal years. All
statements shall be in reasonable detail and prepared by independent public
accountants selected by the Borrower and satisfactory to the Lender.
Concurrently with such financial statement, the Borrower shall submit a written
statement signed by such independent accountants to the effect that, in making
the examination necessary for their review of financial statements, they have
not obtained any knowledge of the existence of any Event of Default or other
act, condition of event which, with the giving of notice of lapse of time, or
both, as specified in Articles 7 and 8 of the Agreement, would constitute such
an Event of Default, or, if such independent accountants shall have obtained
from such review any such knowledge they shall disclose in such written
statement the Event of Default or other act, condition or event and the nature
thereof.-GREATER THAN SYMBOL
(c) As soon as practical and within 45 days after the close of each of the first
three quarters of each fiscal year of the Borrower and within 9o days after the
close of each fiscal year of the Borrower, and promptly upon the concurrence of
any Event of Default, a certificate signed by the Chief Executive Officer and
the Chief Financial Officer of the Borrower, stating that a review of the
activities of the Borrower and its subsidiaries during such period has been made
under their immediate supervision with a view to determining the Borrower has
observed, performed and fulfilled all of its obligations under the Agreement.
(d) Promptly upon receipt thereof, copies of all financial reports, if any,
submitted to the Borrower or any of its subsidiaries by its auditors, in
connection with each annual or interim audit of their respective books by such
auditors.
(e) Promptly upon receipt thereof, copies of all notices and financial
reports from the US Securities and Exchange Commission (SEC) or any other
governmental agency or any other securities exchange and all reports, notices or
statements sent to its stockholders.
(f) With reasonable promptness, such other information respecting the
business, operations and financial condition of the Borrower or any subsidiary
of the Borrower as the Lender may from time-to-time request. The Lender is
hereby authorized to deliver a copy of any financial statement or any other
information relating to the business, operations, or financial conditions of the
Borrower or any subsidiary which may be furnished to it or come to its attention
pursuant to the Agreement or otherwise, to any regulatory body or agency having
jurisdiction over the Lender or to any person which shall have the right or
obligation to succeed to all or any part of the Lender's interest on the
Agreement.
48
<PAGE>
5.2 TAXES AND CLAIMS. The Borrower shall duly pay and discharge and shall
cause each of its subsidiaries to pay and discharge: (a) all taxes, assessments
and governmental charges upon or against the Borrower or its subsidiaries or
their respective properties or assets prior to the date of which penalties
attach thereto, unless and to the extent that such appropriate proceedings and
appropriate reserves thereof have been established and (b)) all lawful claims,
whether for tort damages, labor, materials, supplies, services, repairs, wages
or otherwise, which might or could if unpaid, become a lien or charge upon the
properties or assets of the Borrower or its subsidiaries, unless and to the
extent only that the same are being diligently contested on good faith and by
appropriate proceedings and appropriate reserves thereof have been established.
6. OTHER REQUIREMENTS
6.1 BOOKS AND RECORDS. The Borrowers shall:
(a) Maintain at all times true and complete books, records and accounts in
which true and correct entries shall be made of its transactions in accordance
with U.S. GAAP consistently applied and consistent with those applied in the
preparation of financial statements.
(b) By means of appropriate quarterly entries, reflect in its accounts and
in all financial statements proper liabilities and reserves for all taxes and
proper reserves for depreciation, renewable and replacements, obsolescence and
amortization of its properties and consistently applied, as above described.
6.2 PROPERTIES IN GOOD CONDITION. The Borrower shall keep its properties in
good repair, working order and condition and, from time-to-time, make all
needful and proper repairs, renewal, replacements, additions and improvements
thereto, so that the business carried on may be properly and advantageously
conducted at all times in accordance with prudent business management.
6.3 INSPECTION BY LENDER. The Borrower shall allow any representative of
the Lender to visit and inspect any of the properties of the Borrower, to
examine the books of account and other records and files of the Borrower, to
make copies thereof and to discuss the affairs, business, finances and accounts
of the Borrower with its officers and employees, all at such reasonable times
and as often as the Lender may request.
6.4 BUSINESS OF THE BORROWER. The Borrower shall only conduct those
businesses and activities in which it is presently engaged, except for new
activities related to the Use of Proceeds.
6.4 PAY INDEBTEDNESS AND PERFORM COVENANTS. The Borrower shall:
49
<PAGE>
(a) Make full and timely payment of the principal and interest of
indebtedness of the Borrower to the Lender, whether now existing of hereafter
arising.
(b) Duly comply with all terms and covenants with or pursuant to this
Agreement, all at the times and places and in the manner set forth therein.
6.5 FURTHER ASSURANCE. The Borrower shall, at its own cost and expense,
upon the request of the Lender, duly execute and deliver to the Lender such
further instruments and do and cause to be done such further acts as may be
necessary or proper in the opinion of the Lender to carry our more effectively
the provisions and purposes of this Agreement.
7. EVENTS OF DEFAULT AND REMEDIATION
The following shall constitute events of defaults:
(a) Failure to pay interest or principal within ten (10) days of due
dates,
(b) Failure to provide accounting of Use of Proceeds,
(c) Failure to use proceeds in accordance with provisions of Section 2 of
the Agreement,
(d) Failure to comply with covenants and other requirements contained in
Sections 5 and 6 of this Agreement,
(e) Upon discovery of any misrepresentations made by the Borrower in
connection with this Agreement.
Upon any default, the principal and unpaid interest shall become due and
payable from the Borrower on demand by the Lender.
8. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the loan as
herein provided for, the Borrower makes the following representations and
warranties to the Lender, which shall survive the execution and delivery of this
Agreement and any inspection or examination at any time made by or on behalf of
the Lender:
8.1 CORPORATE STATUS. The Borrower has the corporate power and authority to
own its properties and to transact the business in which it is engaged or
presently proposes to engage in. The Borrower is duly qualified as a business
organization under the laws of California and is in good standing in all legal
entities in which its business or the ownership and use of its properties
requires such qualification.
8.2 NO VIOLATION OF AGREEMENT. Neither the Borrower nor any subsidiary is
in default under any indenture, mortgage, deed of trust, agreement, or other
instruments to which it is a party or by which it may be bound. Neither the
execution and delivery of
50
<PAGE>
this Agreement, or any of the instruments and documents to be delivered pursuant
to this Agreement, nor the consummation of the transactions herein or therein
contemplated, nor compliance with the provisions thereof or thereof will violate
any law or regulation or any order or decree or any court of governmental
instrumentality, or will conflict with, or result in the breach of, or
constitute a default under, any indenture, mortgage, deed of trust, agreement or
other instrument to which the Borrower or any subsidiary is a party or by which
any of them may be bound, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the property of the Borrower, or any
subsidiary thereunder, or violate any provision of the Articles or Certificate
of Incorporation or Bylaws of the Borrower or any subsidiary.
9. MISCELLANEOUS
9.1 COLLECTION COSTS. In the event that the Lender shall retain or engage
an attorney or attorneys to collect, enforce or protect its interests with
respect to this Agreement or any instrument or document delivered pursuant to
this Agreement, the Borrower shall pay all of the costs and expenses or such
collection, enforcement or protection, including, without limitation, reasonable
attorneys' fees and coupt costs, and the lender may take judgement for all such
amounts, in addition to the unpaid principal and accrued interest.
9.1 MODIFICATION AND WAIVER. No modification or waiver of this Agreement
and no consent by the Lender to any departure therefrom by the Borrower shall be
effective unless such modification or waiver shall be in writing and signed by
the duly authorized officer of the Lender, and the same shall then be effective
only for the period, on conditions and for specific instances an purposes
specified in such writing. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
circumstances.
9.3 LAW. This Agreement shall be construed to be in accordance with and
governed by the laws of Switzerland.
9.4 NOTICES. All notices, requests, demands or other communications
provided for herein shall be in the written English language and shall be deemed
to have been given when sent by registered or certified mail, return receipt
requested, addressed, as the case may be to:
51
<PAGE>
The Lender: Jurg Kehrli, Director
New Capital Investment Fund
------------------------------
Georgetown, Grand Cayman
Cayman Islands, British West Indies
With a Copy to Raiskin and Revitz
Attn: Dan Raiskin
10390 Santa Monica Boulevard
Los Angeles, CA 90254 USA
The Borrower Harrier, Inc.
Attn: Candace Beaver, CFO
2200 Pacific Coast Highway #301
Hermosa Beach, CA 90254
With a Copy to
------------------------------
------------------------------
------------------------------
------------------------------
9.5 WAIVER OF JURV TRIAL AND SETOFF. The Borrower hereby waives trial by
jury in any litigation in any court with respect to, in connection with, or
arising out of this Agreement or any other instrument or document delivered
pursuant to this Agreement or the validity, protection, interpretation,
collection or enforcement thereof or any other claim or dispute howsoever
arising between the Borrower and the Lender; and the Borrower hereby waives the
right to interpose any setoff, counterclaim or cross-claim in connection with
any such litigation, irrespective of the nature of such setoff, counterclaim or
cross-claim. Borrower and Lender agree to use a Swiss mediator of mutual choice.
9.6 U.S. CURRENCY. All dollar amounts set forth in the Agreement shall be
designated and payable in the currency of the United States of America (USD $).
9.7 ENGLISH. All communications, letters and documents related to any and
all aspects of this Agreement shall be made in the English language.
9.8 COUNTERPART EXECUTION. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single original Agreement.
52
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement
consisting of nine (9) pages, including a one page Appendix "A", to be duly
executed by their respective officers "hereunto duly authorized as of the day
and year first above written.
THE BORROWER: Harrier, Inc.
/s/ Candace Beaver
Candace Beaver
Chief Financial Officer
THE LENDER: NEW CAPITAL INVESTMENT FUND, a
Cayman Islands Corporation
/s/ Jurg Kehrli
Jurg Kehrli, Director
53
<PAGE>
Appendix "A"
USE OF PROCEEDS
Legal fees $ 60,000
Accounting fees $ 40,000
Capitalize/Start-up of Glycosyn laboratory $ 60,000
Pay/Reschedule outstanding payables $ 150,000
Working capital $ 190,000
Total Proceeds $ 500,000
54
<PAGE>
Appendix "B"
In addition to the Repayment terms specified in section 1.3, the borrower agrees
to pay the lender a consideration of 1% of the outstanding shares of its
subsidiary Glycosyn Pharmaceuticals, Inc. which amounts to 52,100 shares of
common stock.
The Borrower: /s/ Candace Beaver
Harrier, Inc.
The Lender: /s/ Jurg Kehrli
New Capital Investment Fund
55
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 347,022
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 99,453
<CURRENT-ASSETS> 577,518
<PP&E> 61,443
<DEPRECIATION> 48,889
<TOTAL-ASSETS> 748,987
<CURRENT-LIABILITIES> 1,120,091
<BONDS> 0
0
0
<COMMON> 11,968
<OTHER-SE> (383,072)
<TOTAL-LIABILITY-AND-EQUITY> 748,987
<SALES> 66,687
<TOTAL-REVENUES> 66,687
<CGS> 123,724
<TOTAL-COSTS> 123,724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,372,961)
<INCOME-TAX> (47,405)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,325,556)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> 0
</TABLE>
