<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark one)
/X/ Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended July 31, 1997
or
/ / Transition Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 33-23460-LA
AQUASEARCH, INC.
(Exact name of Registrant as specified in its charter)
COLORADO 33-0034535
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
73-4460 QUEEN KA'AHUMANU HIGHWAY, SUITE 110
KAILUA-KONA, HAWAII 96740
(Address of principal executive offices)
(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 periods as 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 July 31, 1997 was 45,865,058 shares.
<PAGE>
AQUASEARCH, INC.
FORM 10-QSB FOR THE
QUARTER ENDED JULY 31, 1997
CONTENTS
PART I - FINANCIAL INFORMATION
Page
ITEM 1: FINANCIAL STATEMENTS
BALANCE SHEETS 3
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6
ITEM 2: MANAGEMENT'S PLAN OF OPERATION
OVERVIEW 7
RESULTS OF OPERATIONS -- COMPARISON OF QUARTERS AND
YEARS ENDED JULY 31, 1996 AND 1997 10
LIQUIDITY AND CAPITAL RESOURCES 10
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 11
ITEM 2: CHANGES IN SECURITIES 11
ITEM 3: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 12
ITEM 4: OTHER INFORMATION 12
ITEM 5: EXHIBITS AND REPORTS ON FORM 8-K 12
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<PAGE>
AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, July 31,
1996 1997
(Audited) (Unaudited)
--------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 187,166 $ 77,506
Cash in Escrow 460,980 0
Accounts receivable 0 419
Accounts receivable - employees/affiliates 1,933 1,100
Prepaid expenses 5,534 71,568
Refundable deposits 3,145 4,070
--------------------------------
Total Current Assets 658,758 154,663
--------------------------------
Plant and Equipment
Plant 676,709 705,686
Other equipment 68,349 138,100
Less accumulated depreciation (35,876) (77,933)
--------------------------------
Net Plant and Equipment 709,182 765,853
Total Assets $ 1,367,940 $ 920,516
---------------------------------
---------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 466,165 $ 462,382
Deposits Held for Common Stock 460,980 0
10% Convertible Note Payable 0 250,000
Notes payable 150,000 0
---------------------------------
Total Current Liabilities 1,077,145 712,382
Stockholders' Equity
Common stock ($0.0001 par value;
100,000,000 shares authorized;
40,829,331 and 45,865,058 shares
outstanding at Oct 31, 1996 and
Jul 31, 1997, respectively 5,204 5,708
(See Note 1)
Additional paid-in capital 3,234,309 4,342,287
Deficit accumulated during the
development stage (2,948,718) (4,139,861)
--------------------------------
Total Stockholders' Equity 290,795 208,134
--------------------------------
Total Liabilities and Stockholders' Equity $ 1,367,940 $ 920,516
--------------------------------
--------------------------------
</TABLE>
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<PAGE>
AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
For the period For the three For the nine For the three
from inception to months ended months ended months ended
July 31, July 31, July 31, July 31,
1997 1997 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Sales $ 11,077 $ 146 $ 1,077 $ 16
Cost of sales (21,226) 0 0 (28,144)
------------------------------------------------------------------------------
Gross Profit (loss) (10,149) 146 1,077 (28,128)
Research and development costs (1,644,309) (152,717) (551,543) (184,973)
General and Administrative expenses (2,278,075) (297,231) (644,878) (122,407)
-------------------------------------------------------------------------------
Earnings (loss) from operations (3,932,533) (449,802) (1,195,344) (335,508)
OTHER INCOME (EXPENSE)
Interest (5,199) 223 4,448 673
Other (5,799) 411 217 0
Investment in joint venture (147,096) 0 0 0
-------------------------------------------------------------------------------
Total other income and (expense) (158,094) 634 4,665 673
-------------------------------------------------------------------------------
Earnings (loss) before income taxes and
extraordinary item (4,090,627) (449,168) (1,190,679) (334,835)
Extraordinary item -- loss on write down
of assets to liquidation basis (14,966) (464) (464) 0
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Earnings (loss) before income taxes (4,105,593) (449,632) (1,191,143) (334,835)
Federal and State income taxes 0 0 0 (213)
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Net income (loss) (4,105,593) (449,632) (1,191,143) (335,048)
ACCUMULATED DEFICIT
Balance, beginning of period (34,268) (3,690,229) (2,948,718) (1,911,062)
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Balance, end of period $ (4,139,861) $ (4,139,861) $ (4,139,861) $ (2,246,110)
-------------------------------------------------------------------------------
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Loss per share $ (0.20) $ (0.01) $ (0.03) $ (0.01)
-------------------------------------------------------------------------------
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Weighted average shares outstanding 20,380,495 45,713,543 44,159,602 38,000,000
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</TABLE>
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<PAGE>
AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period For the nine For the nine
from inception to months ended months ended
July 31, July 31, July 31,
1997 1996 1997
(Unaudited) (Unaudited) (Unaudited)
--------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (4,105,593) $ (793,324) $ (1,191,143)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization 3,527 - -
Depreciation 83,640 21,023 42,057
Expenses paid with stock 444,165 - -
Loss on write down of assets to
liquidation basis 5,392 - -
Changes in:
Other current assets (75,437) (2,649) (66,959)
Accounts receivables (1,519) - 414
Accounts payable 378,669 53,436 (3,783)
Deposits held 250,000 35,000 (460,980)
--------------------------------------------------------------
Cash used in operating activities (3,017,156) (686,514) (1,430,394)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (753,370) (207,331) (98,728)
--------------------------------------------------------------
Cash used in investing activities (753,370) (207,331) (98,728)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash (held in) released from escrow - - 460,980
Issuance of common stock 4,080,888 954,048 1,264,695
Issuance of 10% Convertible Notes 250,000 - 250,000
Increase (decrease) in notes payable 29,800 - (150,000)
Offering costs (262,710) (40,947) (156,213)
--------------------------------------------------------------
Cash provided by financing activities 3,847,978 913,101 1,419,462
--------------------------------------------------------------
Net increase in cash 77,452 19,256 (109,660)
Cash, beginning of the period 54 27,208 187,166
--------------------------------------------------------------
Cash, end of the period $ 77,506 $ 46,464 $ 77,506
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
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<PAGE>
AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
(UNAUDITED)
1. COMMON STOCK AND STOCK PURCHASE WARRANTS
As of July 31, 1997, there were a total of 5,373,218 Common Stock
Purchase Warrants (the "Warrants") issued and outstanding, of which 5,347,244
Warrants had an exercise price of $1.00 per share and 25,974 Warrants had an
exercise price of $0.21 per share. No Warrants were exercised during the
three months ended July 31, 1997. The Warrants are redeemable by the Company
at $.01 per Warrant during their three-year exercise period upon 30 days'
notice anytime that the closing bid price per share of the Common Stock
exceeds $1.50 per share for 20 trading days out of 30 consecutive trading
days ending on the third day prior to the date of the notice of redemption.
An analysis of the changes in stockholders' equity is as follows:
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL COMMON TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
DESCRIPTION STOCK STOCK CAPITAL DEFICIT EQUITY
--------- ---------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance April 30, 1997........... 45,410,513 $5,663 $4,248,618 $(3,690,229) $ 564,052
Issuance of Common Stock
($0.21 per share)............... 454,545 45 99,955 100,000
Offering costs.................... -- -- (6,286) -- (6,286)
Loss for the three months ended
July 31, 1997................... -- -- -- (449,632) (449,632)
---------- ------ ---------- ----------- ---------
Balance July 31, 1997............ 45,865,058 $5,708 $4,342,287 $(4,139,861) $ 208,134
---------- ------ ---------- ----------- ---------
---------- ------ ---------- ----------- ---------
</TABLE>
The foregoing analysis does not reflect the accrual of up to 544,555 shares
of Common Stock for issuance to certain shareholders of the Company for the
failure by the Company to cause a registration statement covering the resale
of such shares by such shareholders to be declared effective by the SEC prior
to May 29, 1997.
On November 14, 1996, the Company executed a Letter of Intent with C. Brewer
and Company, Limited ("C. Brewer") with respect to the acquisition by the
Company of between 80 and 90 acres of property in the Ka'u region of the Big
Island of Hawaii valued at between $900,000 and $1,000,000 in exchange for
the issuance to C. Brewer of between 2,570,000 and 2,850,000 shares of Common
Stock of the Company (the "C. Brewer Common Stock") at a purchase price of
$0.35 per share. In addition, C. Brewer acquired a three-year warrant (the
"C. Brewer Warrant") to purchase up to 500,000 shares of Common Stock at a
purchase price of $1.25 per share. The stockholders' equity at July 31, 1997
does not reflect the issuance of the C. Brewer Common Stock or the C. Brewer
Warrant because, as of July 31, 1997, the
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<PAGE>
parties had not finally selected the site to be exchanged, which remains
contingent upon Aquasearch's analysis of water and other factors related to
the sites. These analyses are expected to be complete during the third
quarter.
2. ISSUANCE OF CONVERTIBLE NOTES
During the quarter ended July 31, 1997, the Company issued $250,000 of
one-year Convertible Notes bearing interest at 10% per annum. The holders of
these Notes have the option to convert their notes into equity on the terms
of the Company's next offering of preferred or common stock. The noteholders
will also receive warrants to purchase 100 shares of the Company's Common
Stock at an exercise price of $0.50 per share for each $1,000 aggregate
principal amount of Notes.
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.
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
THE FOLLOWING DISCUSSION OF MANAGEMENT'S PLAN OF OPERATION CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS THAT
INDICATE WHAT THE COMPANY "BELIEVES," "EXPECTS" AND "ANTICIPATES" OR SIMILAR
EXPRESSIONS. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS
OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE
INFORMATION CONTAINED UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE
OPERATING RESULTS" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
FISCAL YEAR ENDED OCTOBER 31, 1996 (THE "1996 FORM 10-KSB"). THE READER IS
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS,
WHICH REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE OF THIS QUARTERLY
REPORT ON FORM 10-QSB. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY
RELEASE THE RESULTS OF ANY REVISION OF THESE FORWARD-LOOKING STATEMENTS. THE
READER IS STRONGLY URGED TO READ THE INFORMATION SET FORTH UNDER THE CAPTION
"FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS" IN THE 1996 FORM 10-KSB
FOR A MORE DETAILED DESCRIPTION OF THESE SIGNIFICANT RISKS AND UNCERTAINTIES.
OVERVIEW
INCEPTION THROUGH JULY 31, 1996. Aquasearch, Inc. ("Aquasearch" or the
"Company") has been engaged, since its inception in 1989, in the development
of proprietary photobioreactor technology for commercial cultivation of
microalgae. In 1994, the Company initiated discussions with Cultor Ltd.
("Cultor"), a Helsinki-based foods conglomerate that is the second largest
producer of salmon and trout feed in the world, regarding the purchase of
microalgae rich in astaxanthin - the primary pigment used in salmon and trout
feed. In early 1995, Cultor completed a series of feeding trials with farmed
salmon, using the Company's microalgae product. In July 1995, the Company
entered into a Supply Agreement with Svenska Foder AB (the "Svenska Foder
Supply Agreement"), then a subsidiary of Cultor, pursuant to which Svenska
Foder agreed to act as exclusive distributor of the Company's natural
astaxanthin product for animal feed and animal nutrition applications in
Sweden, Norway and Finland for poultry, pigs, cattle and horses. The Svenska
Foder Supply Agreement had a term of three years, and target production of
five kilograms of natural astaxanthin per month. In October 1995, the Company
completed construction of a one-acre research and development/production
facility in the HOST Business Park at Keahole Point, Kailua-Kona, Hawaii.
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<PAGE>
On May 14, 1996, the Company entered into a three-year Distribution and
Development Agreement with Cultor (the "Cultor Distribution and Development
Agreement"), which was approved by the shareholders of the Company on
September 24, 1996, pursuant to which the Company will act as the exclusive
worldwide supplier of natural astaxanthin derived from microalgae to Cultor
in the field of animal feed and animal nutrition and Cultor will act as the
exclusive worldwide distributor of Aquasearch's natural astaxanthin product
in the field of animal feed and animal nutrition. Production targets under
the Cultor Distribution and Development Agreement were initially 40 kilograms
per month at the end of the first year (September 24, 1997) and 120 kilograms
per month at the end of the second year (September 24, 1998); however, Cultor
and the Company recently agreed to (i) extend the term of the Agreement one
year, (ii) eliminate the September 24, 1997 production target and (iii)
provide that the September 24, 1998 and 1999 production targets will be 40
kilograms and 120 kilograms per month, respectively. In order to meet the
revised production targets, the Company must significantly expand and improve
its production facilities, which will involve many significant risks and
uncertainties. Under the Cultor Distribution and Development Agreement,
Cultor and Aquasearch may, at Cultor's option, mutually develop a new joint
venture company for the sole purpose of producing and selling natural
astaxanthin derived from microalgae in the field of animal feed and animal
nutrition. The terms of the Cultor Distribution and Development Agreement are
more fully described under the caption "Part I, Description of
Business-Corporate Partner Relationships-Cultor" of the 1996 Form 10-KSB.
On July 30, 1996 the Company was awarded U.S. Patent Number 5,541,056 for
a "Method of Control of Microorganism Growth Process," which claims certain
processes that operate in the Company's proprietary, closed-system
photobioreactor system, the Aquasearch Growth Module. The Company's U.S.
filing was made under the provisions of the Patent Cooperation Treaty, and
the Company is in the process of pursuing international patents pursuant
thereto.
AUGUST 1, 1996 THROUGH JULY 31, 1997. The Company has experienced certain
significant developments over the past twelve months.
On September 24, 1996, the Company's shareholders approved: (i) the
Cultor Distribution and Development Agreement; (ii) a Stock Subscription
Agreement with Cultor pursuant to which Cultor agreed to purchase 400,000
shares of the Company's Common Stock (the "Cultor Stock Subscription
Agreement"); and (iii) an amendment to the Company's Articles of
Incorporation to increase the number of shares of Common Stock that the
Company is authorized to issue from 50,000,000 shares to 100,000,000 shares
and authorized the creation and issuance from time to time of up to
5,000,000 shares of Preferred Stock in one or more series with such
designations, rights, preferences, privileges and restrictions as the Board
of Directors may determine.
In October 1996, the Company's consultants completed the initial phase of
the design work for the Company's planned intermediate expansion from a
one-acre facility to a four-acre facility. Construction of expanded
production facilities is anticipated to begin in late 1997 or early 1998 and
is expected to take approximately four to six months. The construction of
these expanded facilities is dependent upon the timely performance of a
variety of contractors and sub-contractors, the availability of supplies and
equipment, and the availability of requisite capital. While the Company has
certain plans to address all these requirements, there can be no assurance
that the Company will be able to complete its expansion in a timely manner.
On October 22, 1996, Cultor acquired 400,000 shares of the Company's
Common Stock at a purchase price of $0.50 per share pursuant to the terms of
the Cultor
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<PAGE>
Stock Subscription Agreement.
In December 1996, Cultor sold its majority stake in Svenska Foder and
acquired all of Svenska Foder's rights under the Svenska Foder Supply
Agreement.
In February 1997, the Company completed a private placement of a total
of 5,044,570 Units, consisting of one share of Common Stock and one Common
Stock Purchase Warrant (the "Warrants"). The purchase price of the Units
ranged from $0.21 per Unit to $0.43 per Unit. The Warrants have a term of
three years and are exercisable at $1.00 per share, subject to adjustment.
The Warrants are redeemable by the Company at $.01 per Warrant upon 30 days'
notice anytime that the closing bid price per share of the Common Stock
exceeds $1.50 per share for 20 trading days out of 30 consecutive trading
days ending on the third day prior to the date of the notice of redemption.
The net proceeds from this offering, net of placement agent fees and
commissions, was $1,105,421.
In February 1997, the Company made an offer of employment to Earl S.
Fusato to take the position of Chief Financial Officer. Mr. Fusato, a
Certified Public Accountant, was formerly employed for thirteen years by the
auditing firms of KPMG Peat Marwick and Ernst & Young. Mr. Fusato joined
VeriFone Inc. as Vice-President, Finance, where he served in that position
as well as other financial positions for eight years until 1992, and then
became Chief Financial Officer of RESCO, Inc. Mr. Fusato's appointment as
Chief Financial Officer of Aquasearch became effective April 22, 1997.
In April 1997, Mr. Fusato purchased 1,000,000 shares of Common Stock for
$210,000. In connection with this transaction, Mr. Fusato received a
non-statutory stock option to purchase 1,000,000 shares of Common Stock at an
exercise price of $1.00 per share.
On June 25, 1997 the Company was awarded a European Patent number
0494887 for the "Process and Apparatus for the Production of Photosynthetic
Microbes" which claims certain processes that operate in the Company's
proprietary, closed-system photobioreactor system, the Aquasearch Growth
Module, and the means for automated process control. The patent was awarded
by the European Patent Office, and applies in all member nations of the
European Union.
Aquasearch intends, during the coming year, to focus its research and
development activities not only in the area of working jointly with Cultor to
further develop its natural astaxanthin production processes and products with
the goal of demonstrating its superiority over competitive products, but
also to initiate the development of new products from microalgae,
particularly natural pigments. The Company believes its has identified
several markets in which additional pigments from microalgae might be sold,
and, based on industry sources, estimates the value of these markets to be in
excess of $1 billion. To finance new product development, the Company intends
to raise additional capital from the sale of equity and/or debt securities
and to apply for state and federal research grants for which it may be
eligible. Sources of financing for product development are subject to many
significant risks and uncertainties, and no assurance can be made that such
funds will be available on terms that are acceptable to the Company or that
will not result in substantial dilution to existing investors.
Aquasearch has incurred net losses in each year since its inception. At
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<PAGE>
July 31, 1997, the Company's accumulated deficit was approximately $4.1
million. Aquasearch expects its annual losses to increase for the next two
years as it expands and develops the physical plant facilities required to
increase its production capacity for microalgae rich in astaxanthin and
continues its research and development activities to develop additional
commercial products from microalgae. In addition, the Company anticipates
quarter-to-quarter and year-to-year fluctuations in revenues, expenses and
losses, some of which could be significant. The timing and extent of such
fluctuations will depend, in part, on the timing and receipt of
astaxanthin-related revenues, the costs of developing additional products
from microalgae, and the time required for the introduction of any new
products to new markets.
The Company is in the process of transitioning from a research and
development company to a full-scale commercial producer of microalgae
products. These changes in its business have placed, and will continue to
place, significant demands on the Company's management, working capital and
financial management control systems. The Company believes that strategic
alliances, patent applications and licenses for the use of those patents are
an important part of its business strategy. There can be no assurance that
the Company will be able to maintain existing corporate partner
relationships, enter into future relationships, or develop additional
proprietary technology, or that any such relationships or patent applications
will be successful.
RESULTS OF OPERATIONS - COMPARISON OF QUARTERS ENDED JULY 31, 1996 AND 1997
Revenues for the quarter ended July 31, 1997 were $146 compared with
revenues of $16 for the quarter ended July 31, 1996. The Company has
continued to supply Cultor with sufficient astaxanthin product to conduct
additional tests, trials and other analyses involved in product development
under the Cultor Distribution and Development Agreement.
The Company's Scientific Advisory Board, in conjunction with the
Company's engineers and representatives from Cultor, have recommended certain
improvements in hardware and procedures that are designed to improve
production. The Company plans to implement these recommendations as soon as
resources allow.
Consistent with the Company's efforts to implement improvements in its
production system, research and development costs decreased by $32,363, or
approximately 17%, during the quarter ended July 31, 1997 compared with the
quarter ended July 31, 1996.
General and administrative expenses increased by $174,824, or
approximately 42% during the quarter ended July 31, 1997 compared with the
quarter ended July 31, 1996. Approximately $135,000 of this represents an
accrual for penalties incurred in connection with the failure to complete the
registration of shares of Common Stock underlying the Units that were issued
in the Company's private placement offering.
The Company incurred a net loss of $449,525, or $0.01 per share, for the
quarter ended July 31, 1997 compared with a net loss of $335,048, or $0.01
per share, for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased by $233,090 in the quarter ended July 31, 1997 from the
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<PAGE>
prior period, resulting in a cash balance of $77,506 at July 31, 1997.
Purchases of fixed assets of $52,164 were made during the quarter, primarily
for equipment, bringing the Company's net plant and equipment assets to
$765,853 and total assets to $920,623, which represents increases of
$163,906, or 27%, and decrease of $257,744, or 39%, at July 31, 1997 from July
31, 1996.
As of July 31, 1997, the Company projects that it will consume
approximately $0.6 million of operating capital in the last quarter of fiscal
1997 prior to any planned capital expenditures. Aquasearch expects to incur
significant additional capital expenditures as a result of its plans to
expand and upgrade its present production facility from a one-acre to a
four-acre production facility. Furthermore, the Company expects to incur
significant additional expenditures as a result of its plans to undertake
research and development of new pigment products from microalgae. Aquasearch
anticipates that the largest portion of its future capital needs will be
dedicated to expanding production capability in order to meet the production
targets under the Cultor Distribution and Development Agreement. To complete
this expansion, the Company must raise between $5 and $10 million of
additional capital, the exact amount of which will depend upon a variety of
factors that may include: the further optimization of production processes;
the time and costs related to construction of its expanded production
facilities, the costs related to construction of its expanded production
facilities, the availability of materials, supplies, equipment and
contractors with appropriate expertise; the costs involved in research and
development of additional products; the costs required for filing, protecting
and enforcing patents and other intellectual property rights; the costs of
commercializing its products; the time and costs associated with the pursuit
of state and federal research and development grants; and the extent to which
the Company is successful in forming other strategic alliances, joint
ventures or partnerships for the sale and distribution of its products. The
Company anticipates additional modifications to its production hardware and
processes both before and during any expansion, some of which may be
significant.
The Company believes that its existing capital resources, and funds
raised through private offerings of equity securities, will be sufficient
for continued operations through the third quarter of fiscal 1997. Aquasearch
is presently pursuing additional sources of capital in order to maintain and
expand its operations. These capital sources include government contracts and
grants, product sales, license agreements and equity or debt financing. There
can be no assurance that the Company will be successful in raising the
additional capital necessary to sustain or expand its operations, or that
such capital will be available on terms that would not result in substantial
dilution to existing investors. The Company's inability to raise sufficient
capital could cause it to significantly curtail operations, which would have
a material adverse effect on the Company's business, financial condition,
results of operations and relationships with its corporate partners. See
"Factors That May Affect Future Operating Results -- Substantial Near-Term
Capital Needs; Uncertainty of Additional Funding; Dilution" and "--
Substantial Long-Term Capital Needs; Uncertainty of Additional Funding;
Dilution" in the Company's Annual Report on Form 10-KSB for the fiscal year
ended October 31, 1996.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the quarter ended July 31, 1997, the Company issued one year
Convertible Notes Payable amounting to $250,000. The holders of these notes
have an option to convert to equity under a planned private placement that the
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<PAGE>
Company is planning in the next six months. The Convertible Notes carry an
interest rate of 10 per cent per annum and warrants to purchase 100 shares of
Common Stock at $0.50 per share for each $1,000 aggregate principal amount of
Convertible Notes.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to Quarterly Report on Form
10-QSB to be signed on its behalf by the undersigned thereunto duly
authorized.
AQUASEARCH, INC.
Dated: October 28, 1997 By: /s/ Mark E. Huntley
--------------------------------------
Mark E. Huntley, Ph.D.
President and Chief Executive Officer
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