-----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, M08mir/XskPuIZtTtQoXCh8wwveggaQ0f3ZdJSLsift0erNTOOB1PlFcGb1YyQJu WQpZFB5QwINyC4Yf9gYGVQ== 0000912057-97-018272.txt : 19970520 0000912057-97-018272.hdr.sgml : 19970520 ACCESSION NUMBER: 0000912057-97-018272 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970519 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AQUASEARCH INC CENTRAL INDEX KEY: 0000837490 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 330034535 STATE OF INCORPORATION: CO FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-23460 FILM NUMBER: 97610999 BUSINESS ADDRESS: STREET 1: 73-4460 QUEEN KA AHUMANU HWY STREET 2: STE 110 CITY: KAILUA KONA STATE: HI ZIP: 96740 BUSINESS PHONE: 6194580011 MAIL ADDRESS: STREET 1: 73-4460 QUEEN KA AHUMANU HWY STREET 2: STE 110 CITY: KAILUA KONA STATE: HI ZIP: 96740 10QSB 1 10-QSB - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 -2- AQUASEARCH, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS
October 31, January 31, 1996 1997 (Audited) (Unaudited) ----------- ------------- 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 ----------- ----------- ----------- -----------
-3- AQUASEARCH, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
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) -------------- ------------- ------------- 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 ----------- ----------- ----------- ----------- ----------- -----------
-4- AQUASEARCH, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS
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) -------------- ------------- ------------- 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 ----------- --------- --------- ----------- --------- ---------
-5- 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:
Shares of Additional Common Total Common Common Paid-In Accumulated Stock Stockholders' DESCRIPTION Stock Stock Capital Deficit Subscribed Equity --------- ------ ----------- ----------- ----------- ------------- 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 ---------- ------- ----------- ----------- --------- --------- ---------- ------- ----------- ----------- --------- ---------
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. -6- 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. -7- 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 -8- 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. -9- 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. -10- 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. -11- 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 -12- EX-27 2 EXHIBIT 27 FDS
5 3-MOS OCT-31-1996 JAN-31-1997 296,133 0 1,130 0 0 539,386 763,165 50,049 1,252,502 547,554 0 0 0 5,556 699,392 1,252,502 570 570 0 450,806 2,984 0 0 (447,822) 0 (447,822) 0 0 0 (447,822) (0.01) (0.01)
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