-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GT7wkcNKchvKHtaUqsy+C6jJuQKDt+tycD6oBMWZ6BdCerbN0Ys1lHiUmdL+xuMq Q2g2t+n98p0GiSJQBTBjNQ== 0001047469-98-014765.txt : 19980415 0001047469-98-014765.hdr.sgml : 19980415 ACCESSION NUMBER: 0001047469-98-014765 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19980414 SROS: BSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRIER INC CENTRAL INDEX KEY: 0000789847 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 870427731 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 001-09925 FILM NUMBER: 98592711 BUSINESS ADDRESS: STREET 1: 2200 PACIFIC COAST HWY # 301 CITY: HERMOSA BEACH STATE: CA ZIP: 90254 BUSINESS PHONE: 3103767721 MAIL ADDRESS: STREET 1: 2200 PACIFIC COAST HIGHWAY STREET 2: STE 301 CITY: HERMOSA BEACH STATE: CA ZIP: 90254 10KSB/A 1 FORM 10KSB/A ` - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A 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. - -------------------------------------------------------------------------------- (Name of Small Business Issuer in its Charter) Delaware 87-0427731 ------------------------------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation of Organization) Identification No.) 2200 Pacific Coast Hwy. No. 301, Hermosa Beach, California 90254 - ---------------------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (310) 376-7721 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 Check whether the issuer (1) filed all reports to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- Check if there is no disclosure on delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-KSB or by amendment to this Form 10-KSB X --- The revenues for the issuers most recent fiscal year, June 30, 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 - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- Item Number and Caption Page - ----------------------- ---- PART I - ------- 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 - ------- 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 - -------- 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 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. -1- 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 -2- 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. -3- 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 -4- 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 -5- 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. -6- 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." -7- 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 conduct further development. If the Company fails to consummate the COPE Reorganization and does not acquire significant additional capital with which to fund further development of its glycoslyation technologies, the Company expects to incur in future periods general and administrative expenses at a level similar to fiscal 1997. 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 is unable to consummate the COPE Reorganization for any reason, the Company will have to either locate a new reorganization candidate or pursue the development of the business of its Glycosyn subsidiary. In either event, the Company's future will be jeopardized by its present lack of working capital and the absence of revenue producing operations. Should the Company fail to consummate the COPE Reorganization, there can be no assurance that the Company will be able to locate a new reorganization candidate or obtain the capital necessary to either develop the business of Glycosyn or, at a minimum, sustain its present level of operations, which consists of nominal research and development by Glycosyn, and the Company's continued existance. 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. Year 2000 The Company considers its hardware and software to be Year 2000 compliant and does not expect to incur material costs with Year 2000 issues. -8- ITEM 7. FINANCIAL STATEMENTS Page Harrier, Inc. (A Delaware corporation): Independent Auditor's Repor . . . . . . . . . . . . . . . . . . . . . . . 10 Consolidated Balance Sheet as of June 30, 1997. . . . . . . . . . . . . . 11 Consolidated Statements of Operations for the twelve month periods ended June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . 12 Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the twelve month periods ended June 30, 1997 and 1996 . . . . . . . 13 Consolidated Statements of Cash Flow for the twelve month periods ended June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . 14 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . 15 -9- RAIMONDO, PETTIT & GLASSMAN A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS CERTIFIED PUBLIC ACCOUNTANTS UNION BANK TOWER, SUITE 1250 21515 HAWTHORNE BOULEVARD Telephone (910) 540-5990 TORRANCE, CALIFORNIA 90503 Fax (310) 543-3066 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 10
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. 11 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 274,142 587,410 Salaries and related expenses 311,249 418,445 Research and development 62,100 176,773 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. 12 HARRIER, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - ------------------------------------------------------------------------------- FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 - -------------------------------------------------------------------------------
Total Additional Cumulative Stockholders Common Stock Paid-in Accumulated Translation Equity Capital Deficit Adjustment (Deficit) Shares Amount 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) ---------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 13 HARRIER, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1997 1996 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)
14 HARRIER, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1997 1996 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 expenditure - (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 $ -
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 15 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. 16 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 up to their disposition (see note 6) equity securities and a 50% interest in an unconsolidated joint venture. The equity securities were classified as available-for-sale and stated at their fair market value based on quoted market prices. The Company had no majority control over the joint venture's operations or management; accordingly, the investment in joint venture was accounted for under the equity method. The Company's share of the income or loss of the joint venture was recognized as an increase or decrease, respectively, in the Company's investment. Profits and losses on transactions with the joint venture were 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. 17 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. There were no foreign currency transaction gains or losses included in the statements of operations for the year ended June 30, 1997 and 1996. 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. 18 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. 19 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 disclosures 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. 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. 20 HARRIER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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. 21 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 assets 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. 22 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) ------------ ----------
23 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 Glycosyn issued 52,100 shares, with a value representative of 1% of loan fees. 24 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 11). 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:
JUNE 30, 1997 JUNE 30, 1996 --------------------------- ----------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE 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 -------- -------- -------- --------
25 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:
WEIGHTED AVERAGE NUMBER REMAINING NUMBER OF SHARES EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE -------------- ----------- ----------------- ---------------- $ .50 450,000 11 Months 450,000
26 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:
1994 1995 1996 1997 SERIES C AND D WARRANTS WARRANTS WARRANTS WARRANTS --------------- ------------------- ------------------- ------------------ ----------------- SHARES WAEP* SHARES WAEP SHARES WAEP SHARES WAEP SHARES WAEP ------- ------ --------- -------- --------- ------ -------- ------ -------- ------ Outstanding 426,480 $ .85 352,250 $ 1.08 1,964,367 $ .70 290,000 $ .44 - - beginning of the year Issued - - - - - - - - - - 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
*Weighted average exercise price 27 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 state 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. 28 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 ------- -------
29 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. 30 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, 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, 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 89.2% 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. 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 31 HARRIER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 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 (March 12, 1998) at which the Glycosyn Recapitalization will be submitted for shareholder approval. 32 HARRIER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 16. SUBSEQUENT EVENTS (CONTINUED) NEW 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 123 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. 33 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 - ---- --- -------- Jurg Kehrli 55 Chairman/Director William P. Cordeiro 53 Director Kevin DeVito 37 President/Director Candace Beaver 36 Secretary and 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 has served as Chairman of the Board of the Company since 1987. Since 1996, Mr. Kehrli has also served as a principal of New Capital A.G., a Zurich based financial and management consulting firm for European-based companies. Dr. Cordeiro has served as a director of the Company since June 1994. Since 1990, Dr. Cordeiro has served as Professor in the Management Department of California State University's School of Business and Economics in Los Angeles. Dr. Cordeiro 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. Dr. Cordeiro is also a director of Virtual Telecom, Inc. Mr. DeVito has served as President and Director of the Company since July 1992. Since 1996, Mr. DeVito has served as a principal of New Capital A.G., a Zurich based financial and management consulting firm for European-based companies. Candace Beaver has served as Secretary and Chief Financial Officer of the Company since June 1991. Those required to make filings under Section 16(a) have done so to the best of the Company's knowledge. 34 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 - --------------------------
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 ($) ($) ($) SARs (#) ($) ($) - ------------- ---- --------- --------- -------- ----------- -------- ------- ---------- Kevin DeVito 1997 64,147 (2) -0- (2) --- --- --- (5) President 1996 94,994 (2) -0- (1) --- --- --- (3) 1995 116,233 (3) -0- (1) --- --- --- (4)
(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 $14,574 in deferred compensation earned in fiscal year 1996 and paid in fiscal year 1997. Option/SAR Grants in Last Fiscal Year No options were granted in fiscal year 1997. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES Shown below is information with respect to the exercise of options granted under the 1990 Incentive Stock Option Award Plan to the Named Officer and held by him at June 30, 1997.
Value of Unexercised Unexercised In-the-Money Options/SARs at Options/SARs at 6/30/97 6/30/97 Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized (s) Unexercisable (#) Unexercisable ($) - ------------ ---------------- ------------ ----------------- ----------------- Kevin DeVito -0- -0- 150,000 $0.00/0
-35- 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. -36- 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 -37- 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) -38- 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. -39- (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. -40- 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: April 13, 1998 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: April 13, 1998 By /s/Jurg Kehrli --------------------------- Jurg Kehrli, Chairman Date: April 13, 1998 By /s/Kevin DeVito --------------------------- Kevin DeVito, President and Director Date: April 13, 1998 By /s/William P. Cordeiro --------------------------- William P. Cordeiro, Director Date: April 13, 1998 By /s/Candace M. Beaver --------------------------- Candace M. Beaver, Secretary and CFO -41- EX-27 2 EXHIBIT 27
5 12-MOS JUN-30-1997 JUL-1-1996 JUN-30-1996 58,237 0 180,478 0 0 263,059 30,636 0 325,482 1,198,272 0 0 0 13,968 (975,758) 325,482 48,069 48,069 50,383 50,383 687,980 0 57,638 (684,496) 1,740 (686,236) 0 0 0 (686,236) (.06) 0
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