-----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, KQyQ2HYD84nQSgo8iM/AOzcXXYUmYsc1VWo/qS/3fAxlm3/AdCkzIswlHMr/MjOW airhtzcaChk+xPhxrX8vbA== 0000912057-97-030800.txt : 19970918 0000912057-97-030800.hdr.sgml : 19970918 ACCESSION NUMBER: 0000912057-97-030800 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19970915 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: SEC FILE NUMBER: 033-23460 FILM NUMBER: 97680551 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 10QSB - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 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. 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 -2- AQUASEARCH, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS
October 31, July 31, 1996 1997 (Audited) (Unaudited) -------------------------------- 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 -------------------------------- --------------------------------
-3- AQUASEARCH, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
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) ------------------------------------------------------------------------------ OPERATIONS Sales $ 11,077 $ 146 $ 1,077 $ 16 Cost of sales (21,226) 0 0 (28,144) Research and development costs (1,644,309) (152,717) (551,543) (184,973) ------------------------------------------------------------------------------ Gross Profit (loss) (1,654,458) (152,571) (550,466) (213,101) 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 ------------------------------------------------------------------------------- Earnings (loss) before income taxes (4,105,593) (449,632) (1,191,143) (334,835) Federal and State income taxes 0 0 0 (213) ------------------------------------------------------------------------------- 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) ------------------------------------------------------------------------------- Balance, end of period $ (4,139,861) $ (4,139,861) $ (4,139,861) $ (2,246,110) ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Loss per share $ (0.20) $ (0.01) $ (0.03) $ (0.01) ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Weighted average shares outstanding 20,380,495 45,713,543 44,159,602 38,000,000 ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
-4- AQUASEARCH, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS
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) -------------------------------------------------------------- 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 -------------------------------------------------------------- --------------------------------------------------------------
-5- 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 5,070,544 Common Stock Purchase Warrants (the "Warrants") issued and outstanding, of which 5,044,570 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:
SHARES OF ADDITIONAL COMMON TOTAL COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDERS' DESCRIPTION STOCK STOCK CAPITAL DEFICIT EQUITY --------- ---------- ------- ----------- ------------- 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 ---------- ------ ---------- ----------- --------- ---------- ------ ---------- ----------- ---------
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 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 -6- 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. 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. -7- 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 -8- 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 -9- 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 -10- 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. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. 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 -11- Company is planning in the next six months. The Convertible Notes carry an interest rate of 10 per cent and warrants. ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 4. OTHER INFORMATION None. ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K 4.1 Form of Convertible Note 4.2 Form of Warrant 27 Financial Data Schedule -12- 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: September 15, 1997 By: /s/ Mark E. Huntley -------------------------------------- Mark E. Huntley, Ph.D. President and Chief Executive Officer -13- EX-4.1 2 EXHIBIT 4.1 EXHIBIT 4.1 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. AQUASEARCH, INC. PROMISSORY NOTE $___________ Kailua-Kona, Hawaii July _, 1997 FOR VALUE RECEIVED, AQUASEARCH, INC., a Colorado corporation (the "Company") hereby absolutely and unconditionally promises to pay to ____________________________ (the "Lender"), or order, the principal amount of __________________________________ ($_________), together with simple interest at the rate of ten percent (10%) per annum (calculated on the basis of twelve 30-day months). Accrued interest shall be due and payable in cash only at the time the principal amount of this Note becomes due and owing. This Note is one of a series of Notes issued pursuant to one or more Note and Warrant Purchase Agreements dated as of July __, 1997 (as amended and in effect from time to time, the "Purchase Agreements") by and among the Company, the Lender, and certain other lenders named in EXHIBIT A to such Purchase Agreements (the Lender and the certain other lenders are referred to herein as the "Lenders"). All rights under this Note rank equally with all rights under all other Notes, and no holder of this Note shall have rights senior to the rights of the holders of all or any other Notes. 1. REPAYMENTS; PREPAYMENTS AND WARRANTS. (a) This Note shall be due and payable on July __, 1999; PROVIDED, HOWEVER, that, at the option of the Lender, this Note may be converted into shares of the Company's Exchangeable Convertible Preferred Stock (the "Preferred Stock") to be issued in a private placement to be effected through Auerbach, Pollack & Richardson, Inc. ("APR") at a conversion price equal to the purchase price to be paid by purchasers in the Preferred Stock offering (the "Private Placement"). In addition, the Company will issue the Lender a Common Stock Purchase Warrant (the "Warrant") in substantially the form attached hereto as EXHIBIT D to the Purchase Agreements. The Warrant will have an exercise price of $0.50 per share and will have a term of three years from the date of the Preferred Stock Closing. The number of shares of Common Stock underlying the Warrant will be determined by either of two formulas. In the event that Investor converts all principal and accrued interest on this Note into Preferred Stock at the time of the Preferred Stock Closing, then the Warrant would be exercisable for a number of shares equal to the dollar amount of the Note, plus a number of shares equal to the dollar amount of any interest accrued. In the event that the Lender elected not to converts all principal and accrued interest on this Note into Preferred Stock at the time of the Preferred Stock Closing, then the Warrant would be exercisable for a number of shares equal to the dollar amount of this Note multiplied by 40%. Warrants will not be issued for fractional shares. The number of shares of Common Stock underlying the Warrants will be adjusted for any stock splits, combinations or similar events. Any payment of this Note shall be made only at the same time as the Company pays all other Notes issued pursuant to the Purchase Agreement, with such payments to be made pro-rata in proportion to the then outstanding principal amounts of such Notes. Interest shall continue to accrue on this Note until such time as all principal and interest due is paid in full. (b) The Company may prepay this Note at any time, either in whole or in part, without premium or penalty and without the prior consent of the Lender. Any prepayment of this Note shall be made only at the same time as the Company prepays all other Notes issued pursuant to the Purchase Agreements, with such prepayments to be made pro-rata in proportion to the then outstanding principal amounts of such Notes. 2. EVENTS OF DEFAULT; ACCELERATION. (a) The principal amount of this Note is subject to prepayment in whole or in part upon the occurrence and during the continuance of any of the following events (each, an "Event of Default"): (i) failure to pay any amount owing by the Company hereunder when due and payable, or (ii) the initiation of any bankruptcy, insolvency, moratorium, receivership or reorganization by or against the Company, or a general assignment of assets by the Company for the benefit of creditors. Upon the occurrence of any Event of Default, the entire unpaid principal balance of this Note shall be immediately due and payable. (b) No remedy herein conferred upon the Lender is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and in addition to every other remedy hereunder, and under the Purchase Agreement, now or hereafter existing at law or in equity or otherwise. 3. NOTICES. -2- (a) All notices, reports and other communications required or permitted hereunder shall be in writing and may be delivered in person, by telecopy with written confirmation, via overnight delivery service or U.S. mail, in which event it may be mailed by first-class, certified or registered, postage fully prepaid, addressed (i) if to a Lender, at such Lender's address set forth in the Schedule of Investors attached as EXHIBIT A to the applicable Purchase Agreement (or such other address as such Lender shall have furnished the Company in writing) and (ii) if to the Company, at the address set forth at the beginning of the Purchase Agreements (or such other address as the Company shall have furnished the Lenders in writing), attention of Mark E. Huntley, Ph.D., President and Chief Executive Officer. (b) Each such notice, report or other communication shall for all purposes under this Note be treated as effective or having been given when delivered if delivered personally or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or, if sent by telecopier with written confirmation, at the earlier of (i) 24 hours after confirmation of transmission by the sending telecopier machine or (ii) delivery of written confirmation. 4. MISCELLANEOUS. (a) With the written consent of the record holders of a majority of the principal amount of the Notes then outstanding, the obligations of the Company and the rights of the holders under the Notes may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), and with the same consent the Company, when authorized by resolution of its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Note; PROVIDED, HOWEVER, that no such waiver or supplemental agreement shall reduce the above percentage of principal amount, the holders of which are required to consent to any waiver or supplemental agreement, without the consent of the record or beneficial holders of all of the Notes, nor increase the obligations of any holder of a Note without such holder's written consent. Upon the effectuation of each such waiver, consent, agreement, amendment or modification, the Company shall promptly give written notice thereof to the record holders of the Notes who have not previously consented thereto in writing. Neither this Note nor any provisions hereof may be changed, waived, discharged or terminated orally, but only by a signed statement in writing. (b) No failure or delay by the Lender to exercise any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other right, power or privilege. The provisions of this Note are severable and if any one provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, such invalidity or unenforceability shall affect only such provision in such jurisdiction. This Note expresses the entire understanding of the parties with respect to the transactions contemplated hereby. The Company and every endorser and guarantor of this Note regardless of the time, order or place of signing hereby waives presentment, demand, protest and notice of every kind, and assents to any -3- extension or postponement of the time for payment or any other indulgence, to any substitution, exchange or release of collateral, and to the addition or release of any other party or person primarily or secondarily liable. (c) If Lender retains an attorney for collection of this Note, or if any suit or proceeding is brought for the recovery of all, or any part of, or for protection of the indebtedness respected by this Note, then the Company agrees to pay on demand all costs and expenses of the suit or proceeding, or any appeal thereof, incurred by the Lender, including without limitation, reasonable attorneys' fees. (d) This Note shall for all purposes be governed by, and construed in accordance with the laws of the State of California (without reference to conflict of laws). (e) This Note shall be binding upon the Company's successors and assigns, and shall inure to the benefit of the Lender's successors and assigns. IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer to take effect as of the date first hereinabove written. AQUASEARCH, INC. By: ------------------------------------- Mark E. Huntley, Ph.D. President and Chief Executive Officer -4- EX-4.2 3 EXHIBIT 4.2 EXHIBIT 4.2 THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK AND OTHER SECURITIES, IF ANY, ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM SUCH REGISTRATIONS IS AVAILABLE AT THE TIME OF SUCH SALE OR TRANSFER. WARRANTS TO PURCHASE COMMON STOCK OF AQUASEARCH, INC. 1997 BRIDGE WARRANT CERTIFICATE NO. __ VOID AFTER _________, 2000 This certifies that, for value received, _______________ ("Buyer") or registered assigns (the "Holder") is the owner of ______ warrants (the "Warrants") of Aquasearch, Inc., a Colorado corporation (the "Company"). Each Warrant shall entitle the registered holder thereof to purchase one share of the Company's Common Stock, $0.0001 par value (the "Common Stock"), at an exercise price (the "Exercise Price") per share of Common Stock equal to $0.50 per share (the "Exercise Price"), at any time during the period (the "Exercise Period") commencing on the date of this Warrant and expiring at 5:00 p.m. Honolulu, Hawaii time, on ___________, 2000, all upon the terms and subject to the conditions set forth herein. After expiration of the Exercise Period, the Holder shall have no right to purchase any Common Stock hereunder. In the event that the aforesaid expiration date of the Warrants falls on a day that is not a business day, then the Warrants shall expire at 5:00 p.m. Honululu, Hawaii time on the next succeeding business day. For purposes hereof, the term "business day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in Honolulu, Hawaii are authorized or obligated by law to be closed. The Warrants are being issued pursuant to a Note and Warrant Purchase Agreement between the Company and Buyer dated as of July __, 1997 relating to the sale by the Company and the purchase by Buyer of a Note in the aggregate principal amount of $_________ and Warrants to purchase ______ shares of Common Stock (the "Warrant Common Stock"). The Note and Warrant Purchase Agreement is one of a series of Note and Warrant Purchase Agreements between the Company and certain investors (the "Purchase Agreements") entered into in July 1997. The Holder, by its or his acceptance hereof, agrees with the Company that the Warrants have been issued and all rights hereunder shall be held subject to all of the conditions, limitations and provisions set forth herein. 1. EXERCISE OF WARRANTS. The rights represented by the Warrants may be exercised in whole on one occasion at any time within the Exercise Period (a "Warrant Exercise Date") by (i) the surrender of the Warrants (with the purchase form at the end hereof properly executed) at the principal executive office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) along with a Notice of Exercise in the form of EXHIBIT I hereto; and (ii) payment to the Company of the Exercise Price for the number of shares of Common Stock specified in the above-mentioned purchase form, together with applicable stock transfer taxes, if any. Payment of the Exercise Price shall be made in cash or by certified or bank check payable to the Company. The Warrants shall be deemed to have been exercised, in whole, immediately prior to the close of business on the date the Warrants are surrendered and payment is made in accordance with the foregoing provisions of this Paragraph 1, and the person or persons in whose name or names the certificates for the Warrant Common Stock shall be issuable upon such exercise shall become the Holder or Holders of record of such Warrant Common Stock at that time and date. The Warrant Common Stock so purchased shall be delivered to the Holder within a reasonable time, not exceeding ten business days, after the rights represented by the Warrants shall have been so exercised. 2. RESTRICTIONS ON TRANSFER. The Holder, by his or her acceptance hereof, hereby represents and warrants to, and agrees with, the Company as follows: (i) the Holder has been informed that neither the Warrants, nor the shares of Warrant Common Stock or other securities purchasable pursuant to the Warrants, have been registered for sale under any federal or state securities laws and that the Warrants are being offered and issued to the Holder and, upon the exercise of the Warrants by the Holder, the Warrant Common Stock purchasable pursuant to the Warrants will be sold to the Holder, pursuant to the exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"); (ii) the Holder is acquiring the Warrants and will acquire the Warrant Common Stock purchasable upon exercise of the Warrants for the Holder's own account and not with a view to distribution thereof; (iii) neither the Warrants nor such Warrant Common Stock may be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, unless registered under the Securities Act and applicable state securities laws or unless, in the opinion of counsel satisfactory to the Company, an exemption from such registrations is available; and (iv) prior to the exercise of the Warrants the Holder shall provide to the Company in writing such information as the Company may reasonably request to establish that the exercise of the Warrants by the Holder is exempt from registration under such securities laws. Subject to the preceding paragraph, any assignment of Warrants shall be effected by the Holder by (i) completing and executing the Assignment Form attached as EXHIBIT II hereto and (ii) surrendering the Warrants represented hereby with such duly completed and executed transfer form for cancellation, accompanied by funds sufficient to pay any transfer tax, at the office or agency of the Company referred to in Paragraph 1; whereupon the Company shall issue, in the name or names specified by the Holder a new Warrant or Warrants of like tenor and representing in the aggregate rights to purchase the same number of shares of Warrant Common Stock as are then purchasable hereunder. 3. PAYMENT OF TAXES. The Company will pay any documentary stamp taxes attributable to the initial issuance of Common Stock issuable upon the exercise of Warrants; PROVIDED, HOWEVER, that -2- the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance or delivery of any certificates of shares of Warrant Common Stock in a name other than that of the registered Holder of Warrants in respect of which such shares are issued, and in such case the Company shall not be required to issue or deliver any certificate for shares of Warrant Common Stock or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid. 4. RESERVATION OF COMMON STOCK. There have been reserved, and the Company shall at all times keep reserved, out of its authorized shares of Common Stock, a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by the Warrants, and the transfer agent for the shares of Warrant Common Stock and every subsequent transfer agent for any shares of Warrant Common Stock issuable upon the exercise of any of the aforesaid rights of purchase are irrevocably authorized and directed at all times to reserve such number of authorized shares of Common Stock as shall be required for such purpose. The Company agrees that all shares of Warrant Common Stock issued upon exercise of the Warrants shall be, at the time of delivery of the certificates for such shares against payment of the Exercise Price therefor, validly issued and outstanding, fully paid and nonassessable. 5. NO RIGHTS OF SHAREHOLDER. Prior to the exercise of any Warrants represented hereby, the Holder, as such, shall not be entitled to any rights of a shareholder of the Company, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as otherwise provided herein. 6. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as set forth in EXHIBIT III hereto upon the occurrence of certain events described therein. The provisions of EXHIBIT III are incorporated by reference herein with the same effect as if set forth in full herein. 7. NOTICES OF RECORD DATE. In the event of any taking by the Company of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed merger or consolidation of the Company with or into any other corporation (excluding any proposed merger or consolidation in which the shareholders of the Company immediately before such merger or consolidation will own more than 50% of the outstanding voting stock of the surviving entity after such merger or consolidation), or any proposed sale, lease or conveyance of all or substantially all of the assets of the Company, or any proposed liquidation, dissolution or winding up of the Company, then, in connection with each such event, the Company shall mail to the Holder of this Warrant at least twenty days prior written notice of the date on which any such record is to be taken for the purpose of such dividend, distribution, right(s) or vote of the shareholders. Each such written notice shall specify the amount and character of any such dividend, distribution or right(s), and shall set forth, in reasonable detail, the matter requiring any such vote of the shareholders. -3- 8. FRACTIONAL SHARES. The Warrants may only be exercised to purchase full shares of Warrant Common Stock and the Company shall not be required to issue fractions of shares of Warrant Common Stock on the exercise of Warrants. However, if a Holder of Warrants exercises all Warrants then owned of record by him and such exercise would result in the issuance of a fractional share, the Company will pay to such Holder, in lieu of the issuance of any fractional share otherwise issuable, an amount of cash based on the Market Price of the Common Stock on the last trading day prior to the exercise date. "Market Price" means, on any date, the average of the last reported sale price, or, in case no such reported takes place on such day, the average of the last reported sale prices for the last three trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is then listed or admitted to trading or as reported in the Nasdaq Stock Market, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq Stock Market, the closing bid quotation as furnished by the National Association of Securities Dealers, Inc. through Nasdaq or a similar organization if Nasdaq is no longer reporting such information, or if the Common Stock is traded on the NASD Electronic Bulletin Board, the closing bid price as furnished by Nasdaq, or if the the Common Stock is not quoted on Nasdaq or the NASD Electronic Bulletin Board, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it for the day immediately preceding such issuance or sale, the day of such issuance or sale and the day immediately after such issuance or sale. If the Common Stock is listed or admitted to trading on a national securities exchange and also quoted on the Nasdaq Stock Market, the Market Price shall be determined as hereinabove provided by reference to the prices reported in the Nasdaq Stock Market; provided that if the Common Stock is listed or admitted to trading on the New York Stock Exchange, the Market Price shall be determined as hereinabove provided by reference to the prices reported by such exchange. 9. REGISTRATION RIGHTS. The rights of the Holder of this Warrant and the obligations of the Company with respect to registration under the Securities Act and the applicable rules and regulations thereunder shall be as set forth a Registration Rights Agreement to be entered into between the Company and the purchasers of the Company's Exchangeable Convertible Preferred Stock (the "Registration Rights Agreement"). The Holder of this Warrant shall be deemed to be a party to the Registration Rights Agreement, the Warrant Common Stock shall be deemed "Registrable Securities" (as defined in the Registration Rights Agreement), and the Holder of this Warrant shall be deemed to be a "Holder" under the Registration Rights Agreement (as that term is defined in the Registration Rights Agreement), subject to all of the rights and obligations thereunder. 10. MERGERS. The Company agrees to provide the Holder of this Warrant with at least twenty days' prior written notice of the terms and conditions of any proposed transaction, in which the Company would (i) sell, lease, exchange, convey or otherwise dispose of all or substantially all of its property or business, or (ii) merge into or consolidate with any other corporation (other than a wholly-owned subsidiary of the Company), or effect any transaction (including a merger or other reorganization) or series of related transactions, in which more than fifty percent (50%) of the voting power of the Company is disposed of. The Company will cooperate with the Holder in arranging the sale of this Warrant in connection with any such transaction. -4- 11. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, altered, modified, amended, supplemented, discharged or terminated only with the written consent of the holders of a majority of the Warrants then outstanding issued pursuant to the Purchase Agreements. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby, and the parties agree to cooperate with each other to insure that each receives the economic benefits intended by any such provision that is so held to be invalid, illegal or unenforceable. 12. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the Holder hereof or the Company shall be delivered or sent to each such Holder at its address as shown on the books of the Company or to the Company at the address indicated therefor on the signature page of this Warrant and shall be deemed received by the Holder upon the earlier of actual receipt or, if sent by certified mail (postage pre-paid), five (5) days after deposit in the U.S. mail. 13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Warrant Common Stock shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the Holder hereof. The Company will, at the time of the exercise of this Warrant, in whole or in part, upon request of the Holder hereof but at the Company's expense, acknowledge in writing its continuing obligation to the Holder hereof in respect of any rights (including, without limitation, any right to registration of the Warrant Common Stock in accordance with the Registration Rights Agreement) to which the Holder hereof shall continue to be entitled after such exercise in accordance with this Warrant; PROVIDED, HOWEVER, that the failure of the Holder hereof to make any such request shall not affect the continuing obligation of the Company to the Holder hereof in respect of such rights. 14. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant or any stock certificate issued upon exercise thereof and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company shall make and deliver a new Warrant or stock certificate, or like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 15. NO IMPAIRMENT. The Company will not, by amendment of its charter or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment. -5- 16. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. 17. RECOVERY OF LITIGATION COSTS. If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 18. GOVERNING LAW. The Warrants shall be governed by and in accordance with the laws of the State of Hawaii without regard to the conflicts of law principles thereof. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer to take effect as of _________, 1997. AQUASEARCH, INC. By: -------------------------------------- Mark E. Huntley, Ph.D. President and Chief Executive Officer -6- EX-27 4 EXHIBIT 27
5 3-MOS OCT-31-1997 JUL-31-1997 77,506 0 1,519 0 0 154,663 843,786 77,933 920,516 712,382 0 0 0 5,708 202,426 920,516 146 146 0 449,948 (634) 0 0 (449,168) 0 (449,168) 0 (464) 0 (449,632) (0.01) (0.01)
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