<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Mark one
(X) Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended April 30, 1996
or
( ) Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 33-23460-LA
AQUASEARCH, INC.
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Exact Name of Registrant as Specified in its Charter
Colorado 33-0034535
- ------------------------------ ---------------------
State or Other Jurisdiction of IRS Employer
Incorporation or Organization Identification Number
73-4460 Queen Ka'ahumanu Highway Suite 110
Kailua-Kona, Hawaii 96740
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Address of Principal Executive Offices Zip Code
(808) 326-9301
------------------------------
Registrant's Telephone Number,
Including Area Code
Not Applicable
---------------------------------------------
Former Name, Former Address and Former Fiscal
Year, if Changes Since Last Report
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 X No
----- -----
The number of shares outstanding of Registrant's common stock, $0.0001 par value
at April 30, 1996 was 39,419,688 shares.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONTENTS
Page
BALANCE SHEETS F-2
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT F-3
STATEMENTS OF CASH FLOWS F-4
NOTES TO FINANCIAL STATEMENTS F-5
<PAGE>
Aquasearch, Inc.
(a development stage enterprise)
BALANCE SHEETS
April 30 October 31,
1996 1995
ASSETS (Unaudited) (Audited)
----------- -----------
CURRENT ASSETS
Cash $ 266,427 $ 27,208
Stock subscriptions receivable - 35,000
Accounts receivable 11,348 -
Prepaid expenses 7,449 9,177
Other current assets 4,653 2,535
---------- ----------
Total current assets 289,877 73,920
PLANT AND EQUIPMENT - AT COST
Plant 463,639 408,219
Other equipment 48,634 7,740
Less accumulated depreciation (21,504) (320)
---------- ----------
Net plant equipment 490,769 415,639
OTHER ASSETS
Organization costs (net) - -
---------- ----------
Total assets $ 780,646 $ 489,559
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 47,443 $ 233,181
Accounts payable - related parties - -
Deposits held - -
Accrued payroll - -
Accrued interest - -
Deposits payable - -
---------- ----------
Total current liabilities 47,443 233,181
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value,
50,000,000 shares authorized 5,063 4,379
Additional paid-in capital 2,639,202 1,704,785
Common stock subscribed - -
Accumulated deficit (1,911,062) (1,452,786)
---------- ----------
Total stockholders' equity (deficit) 733,203 256,378
---------- ----------
Total liabilities and
stockholders' equity $ 780,646 $ 489,559
---------- ----------
---------- ----------
F-2
<PAGE>
Aquasearch, Inc.
(a development stage enterprise)
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
For the period For the three For the six For the three For the six
From inception months ended months ended months ended months ended
to April 30, 1996 April 30, 1996 April 30, 1996 January 31, 1995 April 30, 1995
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
----------------- -------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Revenues $ 9,984 $ 9,984 $ 9,984 $ - $ -
Cost of sales 238,574 137,545 238,574 - -
Research and development costs 444,165 - - - -
------------ ------------ ------------ ------------ ------------
Total cost of sales and research costs 682,739 137,545 238,574 - -
------------ ------------ ------------ ------------ ------------
Gross profit (loss) (672,755) (127,561) (228,590) - -
General and administrative expenses 1,025,993 132,636 231,498 29,157 43,729
------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations (1,698,748) (260,197) (460,088) (29,157) (43,729)
OTHER INCOME (EXPENSE)
Interest (12,244) - - - -
Other 1,812 1,812 1,812 - -
Investment in joint venture (147,096) - - - -
------------ ------------ ------------ ------------ ------------
Total other income and (expense) (157,528) 1,812 1,812 - -
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes and
extraordinary item (1,856,276) (258,385) (458,276) (29,157) (43,729)
Extraordinary item - loss on write down
of assets to liquidation basis (14,502) - - - -
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes (1,870,778) (258,385) (458,276) (29,157) (43,729)
Federal and state income taxes (6,016) - - - -
------------ ------------ ------------ ------------ ------------
Net income (loss) (1,876,794) (258,385) (458,276) (29,157) (43,729)
ACCUMULATED DEFICIT
BALANCE, BEGINNING OF PERIOD (34,268) (1,652,677) (1,452,786) (1,178,545) (1,163,973)
------------ ------------ ------------ ------------ ------------
Balance, end of period $ (1,911,062) $ (1,911,062) $ (1,911,062) $ (1,207,702) $ (1,207,702)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Loss per share $ (0.09) $ (0.01) $ (0.01) Nil Nil
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average shares outstanding 22,000,000 38,000,000 35,000,000 23,463,313 23,463,313
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
F-3
<PAGE>
Aquasearch, Inc.
(a development stage enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period For the six For the six
From inception months ended months ended
to April 30, 1996 April 30, 1996 April 30, 1995
(unaudited) (unaudited) (unaudited)
----------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,876,794) $ (458,276) $ (43,729)
Adjustments to reconcile net loss to net cash
cash provided by operating activities:
Amortization 3,527 - -
Depreciation 27,211 21,184 -
Expenses paid with stock and additional paid in capital 183,365 - -
Loss on write down of assets to liquidation basis 5,392 - -
Changes in:
Accounts receivable (11,348) (11,348)
Stock subscriptions receivable - 35,000
Prepaid expenses (8,703) 1,728
Other current assets (4,653) (2,118) 1,207
Accounts payable - (185,738) (4,083)
------------ ------------ ------------
Cash used by operating activities (1,682,003) (599,568) (46,605)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (421,857) (96,314) (7,748)
------------ ------------ ------------
Cash used by investing activities (421,857) (96,314) (7,748)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 2,438,641 954,048 171,000
Increase in notes payable - - -
Offering costs (68,409) (18,947) (4,421)
------------ ------------ ------------
Cash provided by financing activities 2,370,232 935,101 166,579
------------ ------------ ------------
Net increase in cash 266,372 239,219 112,226
Cash - beginning of period 55 27,208 1,213
------------ ------------ ------------
Cash - end of period $ 266,427 $ 266,427 $ 113,439
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 4,400 $ - $ 500
Income taxes $ 12,244 $ - $ 800
</TABLE>
F-4
<PAGE>
Aquasearch, Inc.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
April 30, 1996 (Unaudited)
1. RELATED PARTY TRANSACTIONS
The Company uses office space provided by an officer of the Company.
Monthly rent expense for this space is $380.
2. COMMON STOCK AND STOCK PURCHASE WARRANTS
As of April 30, 1996, there were 3,348,000 Class B warrants issued and
outstanding. No Class B warrants were exercised during the three months
ended April 30, 1996. The Class B warrants are exercisable at $1 per
share. The exercise period for the Class B warrants will expire on
September 15, 1996 unless extended by the Board of Directors.
An analysis of the changes in stockholders' equity is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL
SHARES OF ADDITIONAL STOCK-
COMMON COMMON PAID-IN ACCUMULATED COMMON STOCK HOLDERS'
DESCRIPTION STOCK STOCK CAPITAL DEFICIT SUBSCRIBED EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1996
(unaudited) 37,527,688 $4,874 $2,400,842 $(1,652,677) 236,600 $989,639
Issuance of Common Stock
(March, 1996, $.125 per
share) 1,852,000 185 231,415 (231,600) -
Offering costs (3,051) (3,051)
Adjust stock subscribed (5,000) (5,000)
Issuance of Common Stock
(April, 1996, $.25 per
share) 40,000 4 9,996 10,000
Loss for the six months ended
April 30, 1996 - - - (258,385) - (258,385)
---------- ---------- ---------- ---------- ---------- ----------
Balance, April 30, 1996 39,419,688 $5,063 $2,639,202 $(1,911,062) - $733,203
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
3. MANAGEMENT'S REPRESENTATIONS OF INTERIM FINANCIAL INFORMATION
These financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results of
operations for the interim period presented. These adjustments are of a
normal and recurring nature.
F-5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATION.
The following Plan of Operation contains certain forward-looking information.
These statements involve certain risks and uncertainties. The Company's
performance could differ materially from the results anticipated in these
forward-looking statements as a result of various events and circumstances,
some of which may be unanticipated at this time.
The Company completed the installation of a prototype process dryer in
February and placed the unit in operation in March. Management is currently
evaluating the performance of the prototype unit prior to purchasing or
leasing a custom-built commercial process dryer to meet the Company's
anticipated manufacturing requirements. The Company estimates a six-month
lead time for the manufacture and installation of the commercial process
dryer at a cost, if purchased rather than leased, of approximately $300,000.
Initial results from the use of the prototype unit have been positive.
In March and April, the Company made the first commercial shipments of its
astaxanthin microalgae product to Svenska Foder AB under the Company's Supply
Agreement with Svenska Foder AB.
At the end of April, production yields declined due to difficulties in
controlling cultivation conditions. The Company believes the cause of these
difficulties has been identified and corrected and that this will not impair
its ability to meet production schedules under the Svenska Foder AB Supply
Agreement. The Company has previously experienced, and expects to continue to
experience, fluctuations in its production yields due to the risks inherent
in developing and scaling-up its microalgae production technology.
Operating expenses in the fiscal quarter ended April 30, 1996 increased
primarily due to the hiring of additional production technicians and increased
legal and consulting fees. The increase in staff was made in anticipation of
the execution of a new distribution and development agreement with Cultor,
Ltd. (the "Cultor Agreement"), which was announced on May 14, 1996. The
increase in legal expense was primarily due to the first quarter closing of
two private placements of equity securities and activity related to the
Company's existing patent applications. The increase in consultant fees was
primarily attributable to services rendered in production-related research
and public relations.
The Cultor Agreement will require the Company to significantly increase
its manufacturing capacity and processes over the next few years. Management
plans to award a design and engineering contract for construction of a new
manufacturing facility in the third fiscal quarter, with construction
scheduled to commence in calendar 1997. The scale-up of the Company's
manufacturing capacity and processes will place significant additional
responsibilities upon management; require significant additional capital;
and require additional scientific, technical and manufacturing expertise.
Although there can be no assurances that the Company will be successful
in meeting these challenges, management is in the process of securing the
necessary expertise and resources to accomplish them.
The Company anticipates increasing its research and development activities in
the second half of calendar 1996 in order to develop future microalgae
products.
In order to sustain operations, acquire necessary capital equipment, expand
its manufacturing capacity and fund its research and development activities, it
will be necessary for the Company to raise additional capital during the next
few months. The Company plans to raise this additional capital through one or
more public or private offerings of debt or equity securities, or a
combination thereof.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS OF FORM 8-K.
a) EXHIBITS. None.
b) REPORTS ON FORM 8-K. None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
AQUASEARCH, INC.
Dated: June 14, 1996 By: /s/ Mark E. Huntley
---------------
Mark E. Huntley,
President and Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATMENTS OF OPERATIONS OF THE COMPANY'S FORM 10-QSB FOR THE SIX
MONTHS ENDED APRIL 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<CASH> 266,427
<SECURITIES> 0
<RECEIVABLES> 11,348
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 289,877
<PP&E> 512,273
<DEPRECIATION> 21,504
<TOTAL-ASSETS> 780,646
<CURRENT-LIABILITIES> 47,443
<BONDS> 0
0
0
<COMMON> 5,063
<OTHER-SE> 728,140
<TOTAL-LIABILITY-AND-EQUITY> 780,646
<SALES> 9,984
<TOTAL-REVENUES> 9,984
<CGS> 238,574
<TOTAL-COSTS> 470,072
<OTHER-EXPENSES> 1,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (458,276)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (458,276)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
