<PAGE>
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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 January 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 NO X
------- -------
The number of shares outstanding of Registrant's Common Stock, $0.0001
par value at January 31, 1997 was 44,345,592 shares.
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AQUASEARCH, INC.
FORM 10-QSB FOR THE
QUARTER ENDED JANUARY 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 9
YEARS ENDED JANUARY 31, 1996 AND 1997
LIQUIDITY AND CAPITAL RESOURCES 10
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 11
ITEM 2: CHANGES IN SECURITIES 11
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY 11
HOLDERS
ITEM 5: OTHER INFORMATION 12
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 12
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AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, January 31,
1996 1997
(Audited) (Unaudited)
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 187,166 $ 296,133
Cash in escrow 460,980 125,000
Accounts receivable -- 895
Accounts receivable - employees/affiliates 1,933 235
Prepaid expenses 5,534 112,133
Refundable deposits 3,145 4,990
----------- -----------
Total current assets 658,758 539,386
----------- -----------
Plant and equipment - at cost:
Plant 676,709 684,266
Other equipment 68,349 78,899
Less accumulated depreciation (35,876) (50,049)
----------- -----------
Net plant and equipment 709,182 713,116
Total assets $ 1,367,940 $ 1,252,502
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 466,165 $ 418,109
Deposits held 460,980 114,445
Notes payable 150,000 15,000
----------- -----------
Total current liabilities 1,077,145 547,554
STOCKHOLDERS' EQUITY
Common stock ($0.0001 par value, 100,000,000 shares
authorized, 40,829,331 and 44,345,592 shares outstanding
at October 31, 1996 and January 31, 1997, respectively)
(SEE NOTE 1) 5,204 5,556
Additional paid-in capital 3,234,309 4,095,932
Deficit accumulated during the development stage (2,948,718) (3,396,540)
----------- -----------
Total stockholders' equity 290,795 704,948
----------- -----------
Total liabilities and stockholders' equity $ 1,367,940 $ 1,252,502
----------- -----------
----------- -----------
</TABLE>
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AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
For the Period For the Three For the Three
From Inception Months Ended Months Ended
To January 31, January 31, January 31,
1997 1996 1997
(Unaudited) (Unaudited) (Unaudited)
-------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS
Sales $ 10,570 $ -- $ 570
Cost of sales (21,226) -- --
Research and development costs (1,300,715) (101,029) (207,949)
----------- ----------- -----------
Gross profit (loss) (1,311,371) (101,029) (207,379)
General and administrative expenses (1,876,624) (98,209) (243,427)
----------- ----------- -----------
Earnings (loss) from operations (3,187,995) (199,238) (450,806)
OTHER INCOME (EXPENSE)
Interest (6,469) -- 3,178
Other (6,210) -- (194)
Investment in joint venture (147,096) -- --
----------- ----------- -----------
Total other income and (expense) (159,775) -- 2,984
----------- ----------- -----------
Earnings (loss) before income taxes
and extraordinary item (3,347,770) (199,238) (447,822)
Extraordinary item - loss on write down
of assets to liquidation basis (14,502) -- --
----------- ----------- -----------
Earnings (loss) before income taxes (3,362,272) (199,238) (447,822)
Federal and state income taxes -- -- --
----------- ----------- -----------
Net income (loss) (3,362,272) (199,238) (447,822)
ACCUMULATED DEFICIT
Balance, beginning of period (34,268) (1,452,786) (2,948,718)
----------- ----------- -----------
Balance, end of period $(3,396,540) $(1,652,024) $(3,396,540)
----------- ----------- -----------
----------- ----------- -----------
Loss per share $ (0.17) $ (0.01) $ (0.01)
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding 20,380,495 32,583,688 42,376,389
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
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AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period For the Three For the Three
From Inception Months Ended Months Ended
To January 31, January 31, January 31,
1997 1996 1997
(Unaudited) (Unaudited) (Unaudited)
-------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,362,272) $(199,238) $(447,822)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 3,527 -- --
Depreciation 55,756 10,592 14,173
Expenses paid with common stock 444,165 35,500 --
Loss on write down of assets to
liquidation basis 5,392 -- --
Changes in:
Other current assets (116,922) (7,730) (108,444)
Accounts receivables (1,130) -- 803
Accounts payable 334,397 (151,121) (48,055)
Deposits held 114,445 -- 346,535
----------- --------- ---------
Cash used in operating activities (2,522,642) (311,997) (935,880)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (672,749) (48,230) (18,107)
----------- --------- ---------
Cash used in investing activities (672,749) (48,230) (18,107)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash (held in) released from escrow 125,000 -- 335,980
Issuance of common stock 3,752,172 715,000 935,979
Increase (decrease) in notes payable 44,800 -- (135,000)
Offering costs (180,502) (18,947) (74,005)
----------- --------- ---------
Cash provided by financing activities 3,491,470 696,053 1,062,954
----------- --------- ---------
Net increase in cash 296,079 335,826 108,967
Cash, beginning of the period 54 27,208 187,166
----------- --------- ---------
Cash, end of the period $ 296,133 $ 363,034 $ 296,133
----------- --------- ---------
----------- --------- ---------
</TABLE>
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Aquasearch, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
January 31, 1997
(Unaudited)
1. COMMON STOCK AND STOCK PURCHASE WARRANTS
As of January 31, 1997, there were a total of 4,097,235 warrants issued and
outstanding, of which 4,071,261 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 January 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.
At January 31, 1997, the Company held subscriptions to purchase a total of
519,466 Units, consisting of one share of Common Stock and one Common Stock
Purchase Warrant.
An analysis of the changes in stockholders' equity is as follows:
<TABLE>
<CAPTION>
Shares of Additional Common Total
Common Common Paid-In Accumulated Stock Stockholders'
DESCRIPTION Stock Stock Capital Deficit Subscribed Equity
--------- ------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1996........ 40,829,331 $ 5,204 $ 3,234,309 $(2,948,718) 1,972,843 $ 290,795
Issuance of Common Stock
($.21 to $.43 per share)....... 3,516,261 352 935,628 (1,972,843) 935,980
Offering costs................... -- -- (74,005) -- (74,005)
Adjust stock subscribed.......... -- -- -- -- 519,466
Loss for the three months ended
January 31, 1997............... -- -- -- (447,822) -- (447,822)
---------- ------- ----------- ----------- --------- ---------
Balance, January 31, 1997........ 44,345,592 $ 5,556 $ 4,095,932 $(3,396,540) 519,466 $ 704,822
---------- ------- ----------- ----------- --------- ---------
---------- ------- ----------- ----------- --------- ---------
</TABLE>
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 C.
Brewer's acquisition of approximately between 2,570,000 and 2,850,000 shares
of Common Stock of the Company (the "C. Brewer Common Stock"). 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 January 31, 1997 does not reflect the issuance of
the C. Brewer Common Stock or the C. Brewer Warrant because, as of January
31, 1997, the parties had not finally selected the site to be exchanged.
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2. RELATED PARTY TRANSACTIONS
The Company uses office space provided by an officer of the Company.
Monthly rent expense for this space is $4,000.
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 JANUARY 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.
FEBRUARY 1, 1996 THROUGH JANUARY 31, 1997. The Company has experienced
several significant developments over the past twelve months.
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In April 1996, the Company realized its first revenue from the sale of
its natural astaxanthin product to Svenska Foder under the Svenska Foder
Supply Agreement.
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 are 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). In order to meet the
agreed 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.
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 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
4,590,025 Units, consisting of one share of Common Stock and one Common Stock
Purchase Warrant (the "Warrants"). The purchase price
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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.
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 it 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
January 31, 1997, the Company's accumulated deficit was approximately $3.4
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 AND YEARS ENDED JANUARY 31,
1996 AND 1997
Revenues for the quarter ended January 31, 1997 were $570 compared with
no revenues for the quarter ended January 31, 1996. This increase was due to
the Company's shipment of products under the Cultor Distribution and
Development Agreement. The Company made changes in senior production
personnel in November and December 1996 that resulted in significant changes
to its production process. These production process improvements were
implemented in January 1997 and have yielded modest increases in productivity
to date. 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.
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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 increased by $106,920, or
approximately 106%, during the quarter ended January 31, 1997 compared with
the quarter ended January 31, 1996.
General and administrative expenses increased by $145,218, or
approximately 148%, during the quarter ended January 31, 1997 compared with
the quarter ended January 31, 1996. The primary reason for this increase was
due to increased headcount and increased legal expenses incurred in
connection with additional patent filings. The current quarter also
reflected the full number of staff necessary to operate the Company's
research and development/production facility whereas in the prior period the
facility was understaffed.
Other income was $2,984 during the quarter ended January 31, 1997
compared with no other income in the same quarter in 1996.
The Company incurred a net loss of $447,822, or $0.01 per share, for the
quarter ended January 31, 1997 compared with a net loss of $199,238, or $0.01
per share, for the same period in 1996. The primary reason for the 125%
increase in the net loss during the current period compared with the prior
period was the significant increase in research and development staffing,
which more than doubled from the prior period.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased by $108,967 in the quarter ended January 31, 1997 from
the prior period, resulting in a cash balance of $296,133 at January 31,
1997. In addition, the Company had $125,000 in cash held in escrow with
respect to the private placement. Purchases of fixed assets of $18,107 were
made during the quarter, primarily for equipment, bringing the Company's net
plant and equipment assets to $713,117 and total assets to $1,252,502, which
represents increases of $259,841, or 57%, and $180,150, or 17%, at January 31,
1997 from January 31, 1996.
As of January 31, 1997, the Company projects that it will consume
approximately $1.2 million of operating capital in the last three quarters 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 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.
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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 second 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
In November 1996, the Company executed a Letter of Intent with C. Brewer
pursuant to which C. Brewer would be issued between 2,570,000 shares and
2,850,000 shares of the Company's Common Stock in exchange for certain land.
As of the date hereof, the particular parcels to be swapped and the value
thereof has not been determined; therefore the total number of shares to be
issued to C. Brewer is not known at this time. In connection with this
transaction, C. Brewer also received a three-year warrant to purchase up to
500,000 shares of Aquasearch Common Stock at a purchase price of $1.25 per
share. See "Part II - Other Information, Item 6. (a) and (b)" below.
During the period from October 1996 to February 1997, the Company
completed a private placement of a total of 4,590,025 Units, consisting of
one share of Common Stock and one Common Stock Purchase Warrant, to a total
of 43 individuals pursuant to Section 4(2) of the Securities Act. 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 $1,088,616.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
10.1 Letter of Intent between the Company and C. Brewer and Company,
Limited, dated November 13, 1996.
(b) REPORTS ON FORM 8-K.
On November 14, 1996, the Company filed a Current Report on Form 8-K
reporting the execution of a Letter of Intent with 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 C. Brewer's acquisition of approximately 6% of the
outstanding Common Stock of the Company. In addition, C. Brewer acquired a
three-year warrant to purchase up to 500,000 shares of Aquasearch Common
Stock at a purchase price of $1.25 per share. See "Part II - Other
Information, Item 2."
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: April 30, 1997 By: /s/ Mark E. Huntley
-------------------------------------
Mark E. Huntley, Ph.D.
President and Chief Executive Officer
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<PAGE>
<ARTICLE> 5
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