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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, 1997
Commission file No. 1-9925
Harrier, Inc.
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(Name of Small Business Issuer in its Charter)
Delaware 87-0427731
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
2200 Pacific Coast Hwy. No. 301, Hermosa Beach, California 90254
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(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
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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
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The revenues for the issuers most recent fiscal year, June 30, 1997 are
$48,069.
The aggregate market value of the issuers voting stock held by
nonaffiliates as of November 21, 1997, computed with reference to the average
bid and asked price on that date was approximately $1,126,548.
As of November 21, 1997, the issuer had 15,317,923 shares of its common
stock, par value $0.001, issued and outstanding.
Documents incorporated by reference: None.
Page 1 of 43 consecutively numbered pages
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TABLE OF CONTENTS
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Item Number and Caption Page
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PART I
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1. Description of Business 1
2. Description of Property 6
3. Legal Proceedings 6
4. Submission of Matters to a Vote of Security Holders 6
PART II
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5. Market for Common Equity and Related Stockholder Matters 7
6. Management's Discussion and Analysis or Plan of Operation 7
7. Financial Statements 9
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 10
PART III
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9. Directors, Executive Officers, Promoters and Control Persons; 10
Compliance with Section 16(a) of the Exchange Act
10. Executive Compensation 11
11. Security Ownership of Certain Beneficial Owners and Management 13
12. Certain Relationships and Related Transactions 14
13. Exhibits and Reports on Form 8-K 14
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PART 1
ITEM. 1 DESCRIPTION OF BUSINESS
GENERAL
Harrier, Inc., a Delaware corporation ("Harrier" or "the Company"), has
historically been engaged in the discovery, development and sale of selected
products and technologies in the health, fitness and medical markets. Since
1996, the Company's strategic focus has been to find a merger candidate. The
Company has considered a merger to be a priority due to the absence of
significant sales of the Company's Bioptron lamps and the Company's continuing
inability to obtain the additional capital necessary to fund its pharmaceutical
research and development operations.
Unless the context otherwise requires, the term "Company" refers to
Harrier, Inc., a Delaware corporation, and its majority owned subsidiary,
Glycosyn Pharmaceuticals, Inc., a Delaware corporation, and its equity interest
in DermaRay International, LLC, a California limited liability company.
COPE REORGANIZATION
On October 30, 1997, the Company entered into a Securities Purchase
Agreement and Plan of Reorganization ("Reorganization Agreement") with COPE AG
("COPE"), a Swiss stock corporation engaged in the business of providing high
volume information management consulting, services and solutions to Swiss,
German and Austrian companies. Pursuant to the Reorganization Agreement, the
shareholders of COPE will become the controlling stockholders of the Company and
COPE will become a wholly-owned subsidiary of the Company (referred to herein as
the "COPE Reorganization"). In connection with the proposed COPE
Reorganization, the Company has terminated its Bioptron operations and entered
into an agreement with a related party, New Capital Investment Fund ("NCIF"), to
sell 2,850,000 shares of the $.001 par value common stock ("Glycosyn Common
Stock") of its subsidiary, Glycosyn Pharmaceuticals, Inc., a Delaware
corporation ("Glycosyn"), to NCIF in exchange for NCIF's cancellation of
$590,000 of indebtedness owed by the Company (referred to herein as the
"Glycosyn Recapitalization"). See "Glycosyn Recapitalization" below.
The Reorganization Agreement provides that immediately prior to the closing
("Closing") of the COPE Reorganization, the Company shall effect the Glycosyn
Recapitalization and file an amendment (the "Amendment") to the Company's
Certificate of Incorporation to: (i) change the name of the Company to COPE
Inc.; and (ii) reverse split the outstanding shares of Common Stock of the
Company on a one for 45 basis. At the Closing, and subject to the satisfaction
of the foregoing, the Company will issue 2,862,000 shares (post-split) of the
Company's $.001 par value common stock ("Harrier Common Stock"), representing
89.4% of the issued and outstanding shares of Harrier Common Sock after giving
effect to the Closing, in exchange for the COPE shareholders' transfer of all of
the issued and outstanding capital shares of COPE to the Company. The Closing
shall occur when: (i) the Company's stockholders shall have adopted and approved
the Reorganization Agreement and the Glycosyn Recapitalization; (ii) the
Amendment shall have been filed with the Secretary of State of Delaware; and
(iii) all conditions to closing of the Reorganization Agreement shall have been
met and all closing documents shall have been delivered. The Reorganization
Agreement contains typical representations and warranties of the parties for
transactions of this type.
The consummation of the COPE Reorganization and the Glycosyn
Recapitalization are subject to the approval of the stockholders of the Company.
An annual meeting of the stockholders of the Company has been scheduled for
January 30, 1998 at which the COPE Reorganization and the Glycosyn
Recapitalization will be submitted for shareholder approval. Additional
information concerning COPE, the COPE Reorganization and the Glycosyn
Recapitalization will be included in a Proxy Statement to be filed with the
Securities and Exchange Commission and distributed to the shareholders of the
Company.
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BIOPTRON LAMP
On November 29, 1994, the Company and Naturade, Inc. ("Naturade"), a
70-year old manufacturer and supplier of health and beauty products, formed
DermaRay International Limited Liability Company ("DermaRay"). The objective of
Dermaray was to develop and sell pain relief products centered around the
medically-approved use of the Bioptron Lamp ("Lamp"). During the fiscal years
ended June 30, 1997 and 1996, the Company had earned revenues of $48,069 and
$66,687 from the sale of the Bioptron Lamps. The Company and Naturade have
mutually agreed to terminate all operations relating to the Bioptron Lamp. The
Company's and Naturade's decision was based on their inability to compete
effectively in the market place and Naturade's decision to pursue its core
product line, natural based health vitamins and related products. The Company's
decision was also influenced by COPE's demand that the Company substantially
divest itself of or terminate all operations as a condition to the consummation
of the Reorganization Agreement.
Pursuant to an Asset Transfer and Plan of Liquidation and Dissolution
("Dissolution Agreement") dated June 30, 1997 between the Company, Naturade and
DermaRay, the parties agreed to terminate the DermaRay joint venture. Under
the Dissolution Agreement, Naturade has agreed to purchase the Company's 50%
interest in DermaRay and its inventory of Lamps for $175,000, payable over time
with payment in full no later than March 31, 1998. As of October 31, 1997, the
Company has received $75,000 from Naturade.
GLYCOSYN RECAPITALIZATION
Glycosyn is APPROXIMATELY A 94% owned subsidiary of the Company and was
formed to further develop and finance technologies currently owned or licensed
by the Company in a field of carbohydrate chemistry called glycosylation, which
the Company believes to have broad applications in the fields of medical
therapeutics. Patents have been filed and issued for several pharmaceutical
compounds created through the Company's glycosylation process. Furthermore,
newer technologies are in the "discovery" stage, meaning chemical activity has
been characterized and further development is underway to support additional
patent applications.
The Glycosyn Recapitalization is part of a broader recapitalization of the
Company in connection with the COPE Reorganization. COPE conditioned its
agreement to reorganize with the Company upon the Company's substantial
divestiture of all assets, liabilities and operations, including Harrier's
ownership interest in Glycosyn. Company management considered and pursued
alternative means of satisfying COPE's demands, including the analysis of a
spin-off or sale of the Company's interest in Glycosyn. After consideration of
the available alternatives and in the absence of any equitable offers to
purchase Glycosyn, the Company has structured the following series of
transactions (referred to herein as the "Glycosyn Recapitalization") for
purposes of satisfying COPE's demands:
- Concurrent with the close of the COPE Reorganization, Harrier will
transfer all of its assets and liabilities to Glycosyn. In connection
therewith, the principal creditors of Harrier, except NCIF which is presently
owed $590,000 by Harrier, will agree to release Harrier of any further liability
for their claims.
- Concurrent with the close of the COPE Reorganization, Harrier will
sell to NCIF 2,850,000 shares of its 5,000,000 Glycosyn Common Stock shares in
consideration of NCIF's agreement to cancel the $590,000 of indebtedness owed by
Harrier. NCIF is an investment fund in which Harrier's Chairman of the Board,
Jurg Kehrli, and President, Kevin DeVito, are retained as managers.
The Company's decision to sell 2,850,000 shares of Glycosyn Common Stock to
NCIF was motivated by (i) the Company's desire to retain ownership of Glycosyn
in the absence of an acceptable purchase offer and (ii) COPE's demand that
Harrier substantially divest all of its assets and liabilities. Upon the sale
of the 2,850,000 shares of Glycosyn Common stock, Harrier's interest in Glycosyn
will be reduced to approximately 40% and, as a result, the financial condition
and results of operations of Glycosyn will not be consolidated with the
Company's subsequent to the close of the COPE Reorganization. The Company's
reduction of its ownership interest in Glycosyn to a level which terminated the
Company's requirement to consolidate Glycosyn's financial statements has
satisfied COPE's demand for the substantial distribution of all operations and,
at the same time, allowed the Company to retain a significant ownership interest
in the subsidiary.
The consummation of the Glycosyn Recapitalization is subject to the
approval of the stockholders of the Company and the receipt of an opinion of the
fairness of the terms of Harrier's sale of 2,850,000 shares of Glycosyn
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Common Stock. An annual meeting of the stockholders of the Company has
tentatively been scheduled for January 30, 1998 at which the Glycosyn
Recapitalization will be submitted for shareholder approval. Additional
information concerning the Glycosyn Recapitalization will be included in a Proxy
Statement to be filed with the Securities and Exchange Commission and
distributed to shareholders of the Company.
GLYCOSYN OPERATIONS
Glycosyn seeks to fund and manage internal research and support laboratory
staff through fee for service chemistry contracts and the sale of glycosylated
delivery systems for anti-cancer therapies. 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.
RECENT DEVELOPMENTS - NEW CONCEPT THERAPEUTICS
Glycosyn acquired a minority equity interest in New Concept Therapeutics,
Inc., a North Carolina corporation ("NCT"), pursuant to an agreement ("NCT
Agreement") dated October 30, 1997. NCT was formed on July 1, 1997 for the
purpose of manufacturing and distributing boron-containing pharmaceutical
products for the treatment of cancer. NCT's products are used in connection
with boron neutron capture therapy, an experimental cancer treatment currently
under clinical trials in the United States and Europe. NCT is a start-up
business with nominal assets and results of operations as of November 15, 1997.
Pursuant to the NCT Agreement, Glycosyn has agreed to purchase 23 shares of
the common stock of NCT, representing approximately 19% of the issued and
outstanding common shares of NCT, in consideration for Glycosyn's delivery of an
unsecured promissory note in the original principal amount of $250,000. The
Note bears interest at the rate of 10% per annum. Glycosyn is required to pay a
minimum of $50,000 of the principal amount under the Note on or before
December 31, 1997, with the payment of the remaining $200,000 balance, and all
accrued interest thereon on or before April 30, 1998. Glycosyn has also agreed
to use its best efforts to prepay the principal amount under the Note as soon as
practicable As of November 15, 1997, Glycosyn has advanced $35,000 to NCT under
the Note. As additional consideration for its receipt of the Note, NCT and its
principal shareholders have granted Glycosyn an option ("NCT Option") to
purchase all 49 of the issued and outstanding shares of NCT at an exercise price
of $7,500 per share for a two year period. The NCT Option is exercisable by
Glycosyn subject to its payment of the entire principal amount of the Note. The
NCT Option provides that Glycosyn may pay for the additional underlying NCT
common shares by Glycosyn's delivery of 1,225,000 shares of Glycosyn common
stock (at a rate of $0.30 per Glycosyn share).
The Company's intention with regard to NCT is to assist it in the
development and marketing of its boron-containing pharmaceutical products and,
in the event of the commercial success of NCT's products, acquire all of the
issued and outstanding common shares of NCT.
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. 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.
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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.
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.
HAR7 SERIES ANTICANCER TEST RESULTS
Approximately one year ago, the Company announced that it had received new
IN VIVO data on HAR7, its
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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 1998.
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 Raleigh
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.
GLYCOSYN CHEMICAL SYNTHESIS FACILITIES
On July 31, 1996 the Company's 95% owned subsidiary, Glycosyn, concluded
the construction of its chemistry laboratory. 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.
PATENTS AND TRADEMARKS
The Company has filed individual and continuation-in-part patents on its
modified compounds and related chemical processes since January 1990. On
October 14, 1997, the Company received notice of allowance on its patent
entitled "Glycosylated Analogs of Camptothecin", a group of natural compounds
used for cancer treatment. This patent and several others 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.
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
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
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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.
PERSONNEL
As of June 30, 1997, the Company had five (5) 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 two (2) of the five employees.
REGULATION
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.
ITEM 2. DESCRIPTION OF PROPERTY
During the fiscal year ended June 30, 1997, the Company occupied facilities
located in Hermosa Beach, California and in Raleigh, North Carolina. Both
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. As of November 15, 1997, neither party has
commenced an arbitration proceeding on this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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, 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
September 30, 1996 $0.188 $0.125
December 31, 1996 $0.062 $0.062
March 31, 1997 $0.160 $0.130
June 30, 1997 $0.065 $0.065
On November 21, 1997, the bid and ask prices as quoted on the OTC for the
Company's common stock were $ .09 and $ .09 respectively.
On November 20, 1997, there were approximately 380 holders of record of the
15,317,923 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
On October 30, 1997, the Company entered into a Securities Purchase
Agreement and Plan of Reorganization ("Reorganization Agreement") with COPE AG
("COPE"), a Swiss stock corporation engaged in the business of providing high
volume information management consulting, services and solutions to Swiss,
German and Austrian industries. Pursuant to the Reorganization Agreement, the
shareholders of COPE will become the controlling stockholders of the Company and
COPE will become a wholly-owned subsidiary of the Company (referred to herein as
the "COPE Reorganization"). In connection with the COPE Reorganization, the
Company has terminated its Bioptron Lamp operations and intends to conduct the
following series of transactions (referred to herein as the "Glycosyn
Recapitalization"):
- Concurrent with the close of the COPE Reorganization, Harrier will
transfer all of its assets and liabilities to Glycosyn. In connection
therewith, the principal creditors of Harrier, except NCIF which is presently
owed $590,000 by Harrier, will agree to release Harrier of any further liability
for their claims.
- Concurrent with the close of the COPE Reorganization, Harrier will
sell to NCIF 2,850,000 shares of its 5,000,000 Glycosyn Common Stock in
consideration of NCIF's agreement to cancel the $590,000 of indebtedness owed by
Harrier. See Part I, Item 1 "Description of Business - COPE Reorganization" and
"-Glycosyn Recapitalization."
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This report contains various forward-looking statements that are based on
the Company's beliefs as well as assumptions made by and information currently
available to the Company. When used in this registration statement, the words
"believe," "expect," "anticipate," "estimate" and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks, uncertainties and assumptions, including, without limitation, the
Company's continuing losses and working capital deficit; The Company's lack of
adequate working capital; the miscellaneous risks associated with the proposed
COPE reorganization, including the risk that the transaction will not be
consummated; and general economic conditions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, or
projected. The Company cautions potential investors not to place undue reliance
on any such forward-looking statements all of which speak only as of the date
made.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
During the 1997 fiscal year the Company discontinued its marketing and sale
of the Bioptron Lamps. See Part I, Item 1 "Description of Business - Bioptron
Lamps." For the year ended June 30, 1997, sales were $48,069 as compared to
sales of $66,687 in fiscal 1996. The decline in sales is attributable to the
declining emphasis of activity related to the Bioptron Lamps. Selling, general
and administrative expenses also declined from $587,410 in fiscal 1996 to
$290,442 in fiscal 1997 due to a decline in the Bioptron operations. Research
and development expenses declined from $176,773 in fiscal 1996 to $0 in fiscal
1997 due to a lack of funds with which to further development.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1997, the Company had total current assets of $263,059 and
total current liabilities of $1,198,272 resulting in working capital deficit of
$(935,213), which has worsened since the balance sheet date due to continuing
losses form operations. For the purpose of preserving the Company as a going
concern, the Company has entered in to the COPE Reorganization Agreement. In
connection with the proposed COPE Reorganization, Harrier will transfer all of
its assets and liabilities to Glycosyn. In connection therewith, the principal
creditors of Harrier, except NCIF which is presently owed $590,000 by Harrier,
will agree to release Harrier of any further liability for their claims. At the
same time, Harrier will sell to NCIF 2,850,000 shares of its Glycosyn Common
Stock in consideration of NCIF's agreement to cancel the $590,000 of
indebtedness owed by Harrier. See Part I, Item 1 "Description of Business -
COPE Reorganization" and "-Glycosyn Recapitalization."
During the year ended June 30, 1997, the Company financed its operations
primarily with the proceeds from the sale of its equity securities, the
liquidation of its Bioptron Lamp operations and the receipt of $80,000 of grant
funds from the National Cancer Institute. During the 1997 fiscal year, the
Company raised approximately $100,000 from the private placement of 2 million
shares of common stock. Since June 30, 1997, the Company raised an additional
$120,000 from the private placement sale of its securities. All proceeds raised
from the private placement were used for working capital, transactional costs
associated with the COPE Reorganization and funding of certain obligations
related to the acquisition of minority interest in New Concept Therapeutics,
Inc. See Part I, Item 1 "Description of Business - "Glycosyn Operations" - New
Concept Therapeutics." During the 1997 fiscal year, the Company sold its 50%
interest in the DermaRay joint venture and its inventory of Bioptron Lamps for
$175,000, payable over time with payment in full no later than March 31, 1998.
As of October 31, 1997, the Company has received $75,000 from the sale of its
Bioptron interests.
In the event the Company fails to consummate the COPE Reorganization and
the Glycosyn recapitalization, the Company will require substantial additional
capital in order to continue its present level of operations, of which there can
be no assurance. The report of the Company's independent accountants for the
Company's 1997 fiscal year includes an explanatory paragraph with respect to
substantial doubt existing about the Company's ability to continue as a going
concern in the absence of additional capital.
-8-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Page
Harrier, Inc. (A Delaware corporation):
Independent Auditor's Repor . . . . . . . . . . . . . . . . . . . . . . .F-1
Consolidated Balance Sheet as of June 30, 1997. . . . . . . . . . . . . .F-2
Consolidated Statements of Operations for the twelve month periods
ended June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . .F-3
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the twelve month periods ended June 30, 1997 and 1996 . . . . . . .F-4
Consolidated Statements of Cash Flow for the twelve month periods
ended June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . . .F-5-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . F-7-24
-9-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(a)
NAME AGE POSITION SINCE
- ---- --- -------- -----
Jurg Kehrli 55 Chairman/Director February, 1987
William P. Cordeiro 53 Director June, 1994
Kevin DeVito 37 President/Director July, 1992
Candace Beaver 36 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:
Mr. 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. 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.
Mr. 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 11 years.
Those required to make filings under Section 16(a) have done so to the best
of the Company's knowledge.
-10-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The Summary Compensation Table below includes, for each of the fiscal years
ended June 30, 1997, 1996, and 1995 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 ($) ($) ($) SARs (#) ($) ($)
- ------------- ---- --------- --------- -------- ----------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kevin DeVito 1997 64,147 (2) -0- (2) --- --- --- (5)
President 1996 94,994 (2) -0- (1) --- --- --- (3)
1995 116,233 (3) -0- (1) --- --- --- (4)
</TABLE>
(1) Include $3,600 per year for car allowance and $1,680 per year for executive
insurance.
(2) Includes $900 per year for car allowance and $1,680 per year for executive
insurance.
(3) Includes $10,994 in deferred compensation earned in fiscal year 1995 and
paid in fiscal year 1996.
(4) Includes $4,802 in deferred compensation earned in fiscal year 1994 and
paid in fiscal year 1995.
(5) Includes $14,574 in deferred compensation earned in fiscal year 1996 and
paid in fiscal year 1997.
Option/SAR Grants in Last Fiscal Year
No options were granted in fiscal year 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Shown below is information with respect to the exercise of options granted under
the 1990 Incentive Stock Option Award Plan to the Named Officer and held by him
at June 30, 1997.
<TABLE>
<CAPTION>
Value of
Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
6/30/97 6/30/97
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized (s) Unexercisable (#) Unexercisable ($)
- ------------ ---------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Kevin DeVito -0- -0- 150,000 $0.00/0
</TABLE>
-11-
<PAGE>
DIRECTOR COMPENSATION
Dr. Cordeiro is paid a Director's fee of $500 per month. No other Director
compensation was paid during fiscal year 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, all matters concerning executive officer compensation
were addressed by the entire Board of Directors since the Company did not have a
compensation committee.
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 and 1997.
-12-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 20, 1997, 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 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 &
Address of Nature of Percent
Beneficial Beneficial of
Owner Owner Class (9)
--------------- --------------- ---------
Secom Co., Ltd. 1,028,000 5.7%
Shinjuku Nomura Bldg.
1-26-2 Nishi Shinjuku
Tokyo 163, Japan
Daniel Huber (1) 1,800,000(8) 10.0%
Jurg Kehrli (1) 791,666 (2) 4.4%
Kevin DeVito (1) 266,916 (3) 1.5%
Bartik, Cordeiro
& Associates (1), (4) 95,000 (5) (6)
All Officers and 1,256,500 (7) 6.9%
Directors as a
group (4 persons)
(1) Address is 2200 Pacific Coast Highway, Suite 301, Hermosa Beach,
California 90254.
(2) Includes 75,000 stock options and warrants.
(3) Includes 150,000 stock options.
(4) Dr. William P. Cordeiro, a director of the Company, owns 44% of
Bartik, Cordeiro & Associates.
(5) Includes 75,000 stock options.
(6) Less than one percent.
(7) Includes 375,000 stock options and warrants.
(8) Includes 900,000 warrants
(9) Fully diluted basis, 18,157,923 shares
-13-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended June 30, 1996 the Company entered into a $500,000
loan agreement with New Capital Investment Fund ("NCIF"), an entity affiliated
with the President and the Chairman of the Board. The loan bears interest of
12%. The loan was extended for one (1) year and is now due on June 4, 1998. Loan
obligations can be paid with securities of either the Company or its Glycosyn
subsidiary. Common shares of Glycosyn have been paid to NCIF at a value of
$1.00 per Glycosyn share. NCIF 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.). NCIF is currently advised on certain transactions
by two of the Company's Directors, 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.
As of November 15, 1997, the Company was indebted to NCIF in the amount of
$590,000. In connection with the Glycosyn Recapitalization, the Company
proposes to issue 2,850,000 shares of Glycosyn Common Stock to NCIF in
consideration of NCIF's cancellation of the entire $590,000 of indebtedness.
The consummation of Harrier's sale of 2,850,000 shares of Glycosyn Common Stock
to NCIF is subject to the approval of the Company's shareholders and Harrier's
receipt of an opinion from an independent business appraiser that the terms of
the transaction are fair to the Company's shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 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)
-14-
<PAGE>
10.10 Distribution Agreement with Planeta, dated September 1,
1991 (with accompanying unofficial translation. (6)
10.11 Univ. of Michigan Agreement dated October 17, 1992.
(10)
10.12 Univ. of Michigan Agreement dated March 18, 1992. (10)
10.13 Sale of Assets Agreement by and between the Registrant
and a German Investor (8)
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. (12)
10.18 Asset Transfer and Plan of Liquidation and Dissolution
dated June 30, 1997 between the Registrant, Naturade,
Inc. and DermaRay, LLC
10.19 Securities Purchase Agreement and Plan of
Reorganization dated October 30, 1997 between
Registrant and COPE AG
10.20 Agreement dated October 30, 1997 between Registrant and
New Concept Therapeutics, Inc.
10.21 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.
-15-
<PAGE>
(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.
(12) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1996, filed on December 3, 1996 (File No. 1-9925), incorporated herein by
reference.
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.
(b) REPORTS ON FORM 8-K
During the three months ended June 30, 1997, the Company filed a Current
report on Form 8-K May 9, 1997 to report the sale of securities pursuant to
Regulation S.
-16-
<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: December 9, 1997 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: December 9, 1997 By /s/Jurg Kehrli
---------------------------
Jurg Kehrli, Chairman
Date: December 9, 1997 By /s/Kevin DeVito
---------------------------
Kevin DeVito, President and
Director
Date: December 9, 1997 By /s/William P. Cordeiro
---------------------------
William P. Cordeiro, Director
Date: December 9 , 1997 By /s/Candace M. Beaver
---------------------------
Candace M. Beaver, Secretary
and CFO
-17-
<PAGE>
HARRIER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) F-4
Consolidated Statements of Cash Flows F-5 to F-6
Notes to Consolidated Financial Statements F-7 - F-24
<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. as
of June 30, 1997, and the related statement of operations, changes in
stockholders' equity (deficit), and cash flows for the two years in the period
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide 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, 1997 and the consolidated results of their
operations and their cash flows for the two years in the period 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 complete a
merger with an operational entity or to raise additional debt or equity
financing to develop and market its biochemical technologies. These matters
raise 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.
RAIMONDO, PETTIT & GLASSMAN
Torrance, California
August 29, 1997, except for the last
sentence of the penultimate paragraph
of Note 4 and Note 16, as to which
the date is October 31, 1997
F-1
<PAGE>
HARRIER, INC.
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------
JUNE 30, 1997
- ------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 58,237
Amounts receivable from related parties 160,478
Grant contribution receivable 20,000
Other current assets 24,344
- ------------------------------------------------------------------------------
Total current assets 263,059
- ------------------------------------------------------------------------------
Property and equipment, net 30,636
Intangible assets, net 31,787
- ------------------------------------------------------------------------------
TOTAL ASSETS $ 325,482
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Accounts payable and accrued expenses $ 609,322
Convertible note payable to related party 564,500
Deferred grant revenue 20,000
Dividend payable to Glycosyn preferred stockholders 4,450
- ------------------------------------------------------------------------------
Total current liabilities 1,198,272
- ------------------------------------------------------------------------------
MINORITY INTERESTS 89,000
COMMITMENTS AND CONTINGENCY (NOTES 10, 11, 13 AND 14)
- ------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value - authorized,
5,000,000 shares; issued and outstanding,
0 shares -
Common stock, $.001 par value - authorized,
30,000,000 shares; issued and outstanding,
13,968,394 shares 13,968
Additional paid-in capital 15,323,740
Accumulated deficit (16,261,789)
Cumulative translation adjustment (37,709)
- ------------------------------------------------------------------------------
Total stockholders' deficit (961,790)
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 325,482
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
HARRIER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1997 1996
- -------------------------------------------------------------------------------
SALES $ 48,069 $ 66,687
COST OF SALES 50,383 123,724
- -------------------------------------------------------------------------------
GROSS PROFIT (LOSS) (2,314) (57,037)
- -------------------------------------------------------------------------------
EXPENSES
Selling, general and administrative 290,442 587,410
Salaries and related expenses 357,049 418,445
Research and development - 176,773
Amortization and depreciation 40,489 23,895
- -------------------------------------------------------------------------------
TOTAL EXPENSES 687,980 1,206,523
- -------------------------------------------------------------------------------
LOSS FROM OPERATIONS (690,294) (1,263,560)
- -------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
National Cancer Institute grant 80,000 -
Interest income (expense), net (57,638) 5,905
Write off of intangible assets - (134,923)
Loss on sale of marketable securities (15,716) -
Miscellaneous income 6,600 78,500
Amortization and equity in loss of joint venture - (50,108)
Loss on sale of investment in joint venture (7,448) -
Unrealized loss on investment - (8,775)
- -------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) 5,798 (109,401)
- -------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (684,496) (1,372,961)
PROVISION FOR (BENEFIT FROM) INCOME TAXES 1,740 (47,405)
- -------------------------------------------------------------------------------
NET LOSS $ (686,236) $ (1,325,556)
- -------------------------------------------------------------------------------
NET LOSS PER COMMON SHARE $ (.06) $ (0.11)
- -------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 12,468,780 11,783,861
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
HARRIER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<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, 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, July 1, 1996 11,968,394 11,968 15,225,740 (15,571,103) (37,709) (371,104)
Issuance of common stock 2,000,000 2,000 98,000 100,000
Dividend payable to Glycosyn
preferred stockholders (4,450) (4,450)
Net loss for the year
ended June 30, 1997 (686,236) (686,236)
Translation adjustment as
of June 30, 1997 - -
- -------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 1997 13,968,394 $ 13,968 $ 15,323,740 $ (16,261,789) $ (37,709) $ (961,790)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
HARRIER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (686,236) $ (1,325,556)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 40,489 23,895
Provision for uncollectible amounts - (16,014)
Write-down of inventory - 74,767
Write-off of uncollectible amounts - 61,811
Miscellaneous income recognized upon sale
of inventory - (66,000)
Amortization and equity in loss of joint venture - 50,108
Loss on sale of investment in joint venture 7,448 -
Unrealized loss on investment - 8,775
Loss on sale of marketable securities 15,716 -
Write-off of intangible assets - 134,979
Services received and loan fees in exchange
for stock - 55,100
Accrued interest 60,833 3,667
Increase (decrease) resulting
from changes in:
Accounts receivable, trade - (3,541)
Amount receivable from sale of assets - 17,000
Receivables from joint research and
development agreement - 34,680
Receivables from related parties 45,070 29,539
Inventory 40,411 61,446
Other current assets (11,522) 1,280
Accounts payable and accrued expenses (7,102) 62,908
- ---------------------------------------------------------------------------------------
Net cash used in operating activities (494,893) (791,156)
- ---------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
HARRIER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment $ (54,849) (7,841)
Proceeds from sale of marketable securities 46,159
Intangible assets expenditures - (5,339)
Collection on note receivable for sale of equity in
joint venture and inventory 20,000 -
Collection of receivable from related party 5,798 -
- ---------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 17,108 (13,180)
- ---------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Issuance of common stock 100,000 157,290
Issuance of preferred stock of subsidiary 89,000
Borrowings from related party - 500,000
- ---------------------------------------------------------------------------------------
Net cash provided by financing activities 189,000 657,290
- ---------------------------------------------------------------------------------------
Net decrease in cash (288,785) (147,046)
Cash and cash equivalents, beginning of year 347,022 494,068
- ---------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 58,237 $ 347,022
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ - $ -
Taxes $ 1,740 $ 1,711
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for services and loan fees $ - $ 55,100
Note receivable in consideration for sale of
equity in joint venture and inventory $ 175,000 $ -
- ---------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<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. Until June 30, 1997, the Company was selling
the Bioptron Lamp (cosmetic and medical uses) in the Western Hemisphere.
Glycosyn Pharmaceuticals, Inc. ("Glycosyn") is organized as a majority-owned
subsidiary under the laws of the State of Delaware. Glycosyn holds all of the
Company's biomedical technologies rights and obligations. The biomedical
technologies are currently in the pre-clinical development phase. In December
1996, Glycosyn was awarded a $100,000 grant from the National Cancer Institute
to cover certain research costs.
The accompanying consolidated financial statements include the accounts of
Harrier, Inc., its wholly-owned subsidiary, Harrier GmbH, a German corporation,
and Glycosyn (collectively, the "Company"). All significant intercompany
transactions and balances have been eliminated.
The Company has incurred losses from inception of $16,261,789 including $686,236
during the year ended June 30, 1997 and with the sale of its investment in Derma
Ray (see Note 3) has no on-going revenue generating operations. As disclosed in
Note 3, in September 1992 the Company disposed of its European operations that
had accounted, to that date, for a significant part of its business. The
Company continues to concentrate on developing its biochemical technologies and
is in the process of seeking a merger partner (see Note 16 - Subsequent Event -
COPE Reorganization). However, there can be no assurance that the Company will
successfully acquire or merge with an operational entity, or develop its
biochemical technologies.
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 Company assets, 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.
F-7
<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 of finished goods, is recorded at the lower of cost or
market, with cost being determined using the first-in, first-out ("FIFO")
method. All inventory was sold at June 30, 1997 (see Note 3).
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.
F-8
<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.
F-9
<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. From time to
time, the Company's cash on deposit with banks exceeds the $100,000
federally-insured limit.
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, 1997 and 1996, the Company earned approximately
100% and 32%, respectively, of its operating revenues from one customer.
ISSUANCE OF STOCK FOR SERVICES
Shares of the Company's common stock issued for services are recorded in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations" and Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), at the fair market value
of the stock issued or the fair market value of the services provided, whichever
value is the more clearly evident.
STOCK COMPENSATION PLAN
SFAS 123 encourages, but does not require, companies to record compensation cost
for stock-based employee compensation plans at fair value. The Company elected
to account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
F-10
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING DEVELOPMENT
In February, 1997, the FASB adopted Statement No. 128, "Earnings Per Share."
This new standard requires dual presentation of basic and diluted earnings per
share ("EPS") on the face of the statement of income and requires reconciliation
of the numerators and the denominators of the basic and diluted EPS
calculations. This statement will be effective for the second quarter of the
Company's 1998 fiscal year. The Company has not yet quantified what effect, if
any, the adoption of SFAS 128 will have on its earnings per share of common
stock.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in an entity's
financial statements. This statement requires an entity to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital in the equity section of a statement of
financial position. This pronouncement is effective for fiscal years beginning
after December 15, 1997 and the Company expects to adopt the provision of this
statement in fiscal year 1998. Management does not expect this statement to
significantly impact the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement requires public enterprises
to report financial and descriptive information about its reportable operating
segments and establishes standards for related disclosurres about product and
services, geographic areas, and major customers. This pronouncement is
effective for fiscal years beginning after December 15, 1997 and the Company
expects to adopt the provisions of this statement in fiscal year 1998.
Management does not expect this statement to significantly impact the Company's
financial statements.
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.
F-11
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. SALE 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, a $66,000
reduction of such allowance was recognized as miscellaneous income in 1996. The
allowance was reversed in connection with the sale of inventory to Derma Ray.
SALE OF BIOPTRON LAMP INVENTORY AND REDEMPTION OF DERMA RAY'S INTEREST
During the year ended June 30, 1995, the Company acquired a 50% interest in
Derma Ray International Limited Liability Corporation ("Derma Ray"). Derma Ray
was formed to market, distribute and sell various health and cosmetic products,
including the Company's Bioptron Lamps.
On June 30, 1997, the Company sold its Bioptron Lamp inventory to Derma Ray and
agreed to the redemption of its entire membership in consideration for $175,000
(see Note 4).
4. AMOUNTS RECEIVABLE FROM RELATED PARTIES
The following is a summary of amounts receivable from related parties as of June
30, 1997:
Receivable from Derma Ray $ 155,000
Employee receivable 5,478
-----------
$ 160,478
-----------
-----------
On June 30, 1997, the Company sold its entire inventory and its interest in
Derma Ray in consideration for $40,000 in cash (of which $20,000 was paid before
year end) and a note receivable of $135,000. The note is non-interest bearing
and is due no later than June 30, 1998, provided that Derma Ray shall apply all
of the gross proceeds of the sale of the Bioptron Lamps towards the
reimbursement of the note and use its best efforts to repay the note principal
as soon as possible. As of October 31, 1997, $75,000 had been repaid on the
note.
The employee receivable amount was applied after year-end against compensation
due to the employee.
F-12
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation as of June 30, 1997:
Equipment $ 66,062
Furniture and fixtures 17,645
Leasehold improvements 32,585
-----------
$ 116,292
Accumulated depreciation 85,656
-----------
$ 30,636
-----------
-----------
Total depreciation expense for the years ended June 30, 1997 and 1996 was
$36,766 and $4,396, respectively.
6. INVESTMENTS
During fiscal 1997, the Company sold $61,875 in marketable securities for
$46,159, recognizing a $15,716 loss included in the consolidated statement of
operations.
During the year ended June 30, 1996, the Company recorded a $8,775 valuation
allowance to reduce its investment in equity securities to its estimated net
realizable value based on quoted market prices. Since management believed that
the decline in market price is permanent, the Company recorded the change in
valuation allowance in the 1996 consolidated statement of operations.
During the year ended June 30, 1995, the Company acquired a 50% interest in
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. During the years ended
June 30, 1997 and 1996, Derma Ray incurred gains (losses) of $16,803 and
($68,550), of which $8,402 and ($34,275) were allocated to the Company and
recorded in the 1997 and 1996 consolidated statements of operations. As
disclosed in Note 3, the Company sold the Bioptron lamps and its membership
interest to Derma Ray and recorded a net loss of $7,448. The last $5,000
payment under the note will be deemed to have redeemed the Company's entire
membership interest.
F-13
<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, 1997
----------------------- ---------------------
ASSETS
Cash $ 36,578
Inventories and other current assets 213,704
Investment in Naturade, Inc.'s common stock 150,000
----------
$ 400,282
----------
----------
LIABILITIES AND EQUITY
Payable to Harrier, Inc. $ 155,000
Equity 245,282
----------
$ 400,282
----------
----------
CONDENSED INCOME STATEMENT
--------------------------
YEAR ENDED JUNE 30
-------------------------
1997 1996
Sales $ 163,520 $ 1,814
----------- -----------
----------- -----------
Gross Profit $ 44,933 $ (1,211)
----------- -----------
----------- -----------
Expenses $ 28,130 $ 67,339
----------- -----------
----------- -----------
Net Gain (Loss) $ 16,803 $ (68,550)
----------- -----------
----------- -----------
F-14
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. INTANGIBLE ASSETS
The following is a summary of intangible assets, net as of June 30, 1997:
Patents and patent applications $ 37,219
Accumulated amortization 5,432
------------
$ 31,787
------------
------------
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 $3,723 and $19,499 for the years
ended June 30, 1997 and 1996, respectively.
During fiscal year 1996, the Company abandoned and wrote off all intangibles
relating to a product under development designated as 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 at 12% and is due on June 4, 1998. 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 Glysosyn issued 52,100 shares, with a value representative of 1% of
loan fees.
F-15
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. MINORITY INTEREST
At June 30, 1997, the Company owns approximately 94% of Glycosyn. During the
year ended 1997, Glycosyn sold 44,500 shares of its Series A preferred stock for
$89,000 to a related party. The stock has a liquidation preference of $2 per
share ($89,000), is convertible into shares of Glycosyn common stock and
entitles the holder to a dividend of 12% of the liquidation preference, payable
quarterly in common stock of Glycosyn. The preferred stock has been presented
in the accompanying financial statements as minority interest.
10. COMMON STOCK AND STOCK OPTION PLAN
During the year ended June 30, 1997, the Company issued 2,000,000 shares of
common stock (total value $100,000) and 2,000,000 common stock purchase warrants
(see Note 11) to existing share-holders and related parties.
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, 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 to be determined by the Board of
Directors. The following is a summary of all common stock options outstanding:
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
----------------------- ---------------------
Shares Weighted Shares Weighted
Average Average
Exercise Exercise
Price Price
<S> <C> <C> <C> <C>
Outstanding, beginning of year 813,996 2.72 1,052,998 3.19
Granted - - - -
Canceled-expired (363,996) 5.46 (239,002) 4.78
Exercised - - - -
---------- ----------
Outstanding, end of year 450,000 .50 813,996 2.72
---------- ----------
---------- ----------
Exercisable, end of year 450,000 .50 813,996 2.72
---------- ----------
---------- ----------
</TABLE>
F-16
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. COMMON STOCK AND STOCK OPTION PLAN (CONTINUED)
In 1997 and 1996, there were no options granted by the Company. 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.
Options outstanding at June 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Number Remaining Number of Shares
Exercise Price Outstanding Contractual Life Exercisable
-------------- ----------- ---------------- ----------------
<S> <C> <C> <C>
$ .50 450,000 11 Months 450,000
</TABLE>
F-17
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. WARRANTS
Convertibility rights, weighted average exercise price and remaining contractual
life attached to the common stock purchase warrants issued in connection with
public and private stock offerings are as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997
SERIES C AND D WARRANTS WARRANTS WARRANTS WARRANTS
---------------- ----------------- ------------------ -------------------- -------------------
SHARES WAEP* SHARES WAEP SHARES WAEP SHARES WAEP SHARES WAEP
-------- ----- -------- ----- ---------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding 426,480 $ .85 352,250 $1.08 1,964,367 $ .70 290,000 $ .44 - -
beginning of
the year
Issued - - - - - - - - 2,000,000 $.13
Cancelled- (426,480) .85 (352,250) 1.08 (1,964,367) .70 - - - -
expired
Exercised - - - - - - - - - -
Outstanding & 0 - 0 - 0 - 290,000 .44 2,000,000 .13
exercisable -
end of year
Weighted average 7 mos. 33 mos.
remaining
contractual life
Range of exercise - - - - - - $ .22-.70 $ .13 -
price
</TABLE>
* Weighted average exercise price
price
F-18
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. INCOME TAXES
The components of the provision for income taxes (tax benefit) are as follows:
FOR THE YEARS ENDED JUNE 30,
-----------------------------
1997 1996
Current:
State $ 1,740 $ 800
Foreign - (48,205)
--------- ---------
1,740 (47,405)
Deferred - -
--------- ---------
$ 1,740 $ (47,405)
--------- ---------
--------- ---------
The reconciliation of the effective tax rates and U.S. statutory tax rates are
as follows:
FOR THE YEARS ENDED JUNE 30,
-----------------------------
1997 1996
Tax benefit at statutory rate (34%) (34%)
Foreign tax - (3%)
Change in valuation allowance 34% 34%
----- -----
0% 3%
----- -----
----- -----
At June 30, 1997, the Company has net operating loss carryforwards, for income
tax reporting purposes, of approximately $11,783,000 and $3,180,000 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.
At June 30, 1997, the Company had available tax credit carryforwards comprised
of federal and state research and experimentation credits of $57,467 and $8,007,
respectively. The California federal and research and experimentation credit
carryforwards expire in 2009 and 1998, respectively.
At June 30, 1997, 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.
F-19
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. INCOME TAXES (CONTINUED)
The components of the net deferred tax asset and (liability) are as follows:
FOR THE YEARS ENDED JUNE 30,
---------------------------
1997 1996
State taxes $ 354 $ 340
Royalty income 0 51,202
Net operating loss carryforward 4,383,141 4,059,141
Patents 1,738 (118)
Credits 65,474 67,140
Other 28,270 33,601
------------ ------------
Subtotal 4,478,977 4,211,306
Valuation allowance (4,478,977) (4,211,306)
------------ ------------
Total $ - $ -
------------ ------------
------------ ------------
13. COMMITMENTS
OPERATING LEASES
The Company leases office space under operating leases that expire throughout
fiscal year 1999. Total rent expense amounted to $46,390 and $41,597 for the
years ended June 30, 1997 and 1996, respectively.
Minimum future rental payments under the noncancelable operating leases are as
follows as of June 30:
1998 $ 29,310
1999 3,760
-----------
$ 33,070
-----------
-----------
F-20
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. 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 was 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 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. As of the date of the financial
statements, no arbitration proceeding has been commenced by either party.
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.
15. NATIONAL CANCER INSTITUTE GRANT
In December 1996, Glycosyn was awarded a $100,000 grant to finance research on
its medical technologies. $80,000 was received and expensed before year end,
whereas the remaining $20,000 was received and expensed after year end.
F-21
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
16. SUBSEQUENT EVENTS
STOCK ISSUANCE
Subsequent to year end the Company issued 1,200,000 shares at $.10 per share
(total value $120,000) and common stock purchase warrants allowing the holders
to purchase 900,000 shares of the Company's common stock at $.13 a share through
September, 2000.
COPE REORGANIZATION
On October 30, 1997, the Company entered into a Securities Purchase Agreement
and Plan of Reorganization ("Reorganization Agreement") with COPE AG ("COPE"), a
Swiss stock corporate engaged in the business of providing high volume
information management consulting, services and solutions to Swiss, Germany and
Austrian companies. Pursuant to the Reorganization Agreement, the shareholders
of COPE will become the controlling stockholders of the Company and COPE will
become a wholly-owned subsidiary of the Company (referred to herein as the "COPE
Reorganization"). In connection with the proposed COPE Reorganization, the
Company has terminated its Bioptron operations and entered into an agreement
with a related party, New Capital Investment Fund ("NCIF"), to sell 2,850,000
shares of the $.001 par value common stock ("Glycosyn Common Stock") of its
subsidiary, Glycosyn, to NCIF in exchange for NCIF's cancellation of $590,000 of
indebtedness owed by the Company (referred to herein as the "Glycosyn
Recapitalization"). See "Glycosyn Recapitalization" below.
The Reorganization Agreement provides that immediately prior to the closing
("Closing") of the COPE Reorganization, the Company shall effect the Glycosyn
Recapitalization and file an amendment (the "Amendment") to the Company's
Certificate of Incorporation to: (i) change the name of the Company to COPE
Inc.; and (ii) reverse split the outstanding shares of Common Stock of the
Company on a one for 45 basis. At the Closing, and subject to the satisfaction
of the foregoing, the Company will issue 2,862,000 shares (post-split) of the
Company's $.001 par value common stock ("Harrier Common Stock"), representing
89.4% of the issued and outstanding shares of Harrier Common Stock after giving
effect to the Closing, in exchange for the COPE shareholders' transfer of all of
the issued and outstanding capital shares of COPE to the Company. The Closing
shall occur when: (i) the Company's stockholders shall have adopted and approved
the Reorganization Agreement and the Glycosyn Recapitalization; (ii) the
Amendment shall have been filed with the Secretary of State of Delaware; and
(iii) all conditions to closing of the Reorganization Agreement shall have been
met and all closing documents shall have been delivered. The Reorganization
Agreement contains typical representations and warranties of the parties for
transactions of this type.
F-22
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
16. SUBSEQUENT EVENTS (CONTINUED)
The consummation of the COPE Reorganization and the Glycosyn Recapitalization
are subject to the approval of the stockholders of the Company. An annual
meeting of the stockholders of the Company has been tentatively scheduled for
January, 1998, at which the COPE Reorganization and the Glycosyn
Recapitalization will be submitted for shareholder approval.
Additional information concerning COPE, the COPE Reorganization and the Glycosyn
Recapitalization will be included in a Proxy Statement to be filed with the
Securities and Exchange Commission and distributed to shareholders of the
Company.
GLYCOSYN RECAPITALIZATION
The Glycosyn Recapitalization is part of a broader recapitalization of the
Company in connection with the COPE Reorganization. The Company has structured
the following series of transactions (referred to herein as the "Glycosyn
Recapitalization"):
- Concurrent with the close of the COPE Reorganization, Harrier will
transfer all of its assets and liabilities to Glycosyn. In connection
therewith, the principal creditors of Harrier, except NCIF which is
presently owed $590,000 by Harrier, will be requested to agree to
release Harrier of any further liability for their claims.
- Concurrent with the close of the COPE Reorganization, Harrier will
sell to NCIF 2,850,000 shares of its 5,000,000 Glycosyn Common Stock
shares in consideration of NCIF's agreement to cancel the $590,000 of
indebtedness owed by Harrier. NCIF is an investment fund in which
Harrier's Chairman of the Board, Jurg Kehrli, and President, Kevin
DeVito, are retained as managers.
Upon the sale of the 2,850,000 shares of Glycosyn Common stock, Harrier's
interest in Glycosyn will be reduced to approximately 40% and, as a result, the
financial condition and results of operations of Glycosyn will not be
consolidated with the Company's subsequent to the close of the COPE
Reorganization.
The consummation of the Glycosyn Recapitalization is subject to the approval of
the stockholders of the Company and the receipt of an opinion of the fairness of
the terms of Harrier's sale of 2,850,000 shares of Glycosyn Common Stock. An
annual meeting of the stockholders of the Company has tentatively been scheduled
for January 30, 1998 at which the Glycosyn Recapitalization will be submitted
for shareholder approval.
F-23
<PAGE>
HARRIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
16. SUBSEQUENT EVENTS (CONTINUED)
CONCEPT THERAPEUTICS INVESTMENT ACQUISITION
Glycosyn acquired a minority interest in New Concept Therapeutics, Inc., a North
Carolina corporation ("NCT"), pursuant to an agreement ("NCT Agreement") dated
October 30, 1997. NCT was formed on July 1, 1997 for the purpose of
manufacturing and distributing boron-containing pharmaceutical products for the
treatment of cancer. NCT's products are used in connection with boron neutron
capture therapy, an experimental cancer treatment currently under clinical
trials in the United States and Europe. NCT is a start-up business with nominal
assets and results of operations as of October 30, 1997.
Pursuant to the NCT Agreement, Glycosyn has agreed to purchase 23 shares of the
common stock of NCT, representing approximately 19% of the issued and
outstanding common shares of NCT, in consideration of Glycosyn's delivery of an
unsecured promissory note in the original principal amount of $250,000. The
Note bears interest at the rate of 10% per annum. Glycosyn is required to pay a
minimum of $50,000 of the principal amount under the Note on or before December
31, 1997, with the payment of the remaining $200,000 balance, and all accrued
interest thereon on or before April 30, 1998. Glycosyn has also agreed to use
its best efforts to prepay the principal amount under the Note as soon as
practicable. As of October 31, 1997, Glycosyn has advanced $43,000 to NCT under
the Note. As additional consideration for its receipt of the Note, NCT and its
principal shareholders have granted Glycosyn an option ("NCT Option") to
purchase all 49 of the issued and outstanding shares of NCT at an exercise price
of $7,500 per share for a two year period. The NCT Option is exercisable by
Glycosyn subject to its payment of the entire principal amount of the Note. The
NCT Option provides that Glycosyn may pay for the underlying NCT common shares
by Glycosyn's delivery of 1,225,000 shares of Glycosyn common stock (at a rate
of $0.30 per Glycosyn share).
The Company's intention with regard to NCT is to assist it in the development
and marketing of its boron-containing pharmaceutical products and, in the event
of the commercial success of NCT's products, acquire all of the issued and
outstanding common shares of NCT.
F-24
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