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, 1996 or ( ) Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 33-23460-LA AQUASEARCH, INC. ---------------------------------------------------- Exact Name of Registrant as Specified in its Charter Colorado 33-0034535 - -------------------------------------- ---------------------------- State or Other Jurisdiction of IRS Employer Incorporation or Organization Identification Number 4350 Executive Drive, Suite 246 San Diego, California 92128 - -------------------------------------- ---------------------------- Address of Principal Executive Offices Zip Code (800) 471-0711 --------------------------------------------- Registrant's Telephone Number, Including Area Code Not Applicable --------------------------------------------- Former Name, Former Address and Former Fiscal Year, if Changes Since Last Report Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of Registrant's common stock, $0.0001 par value at January 31, 1996 was 37,527,688 shares. Transitional Small Business Disclosure Format Yes No X --- --- PART I - FINANCIAL INFORMATION Item 1. Financial Statements - ------ -------------------- CONTENTS Page BALANCE SHEETS F-2 STATEMENTS OF LOSS AND ACCUMULATED F-3 DEFICIT STATEMENTS OF CASH FLOWS F-4 NOTES TO FINANCIAL STATEMENTS F-5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION F-6 Aquasearch, Inc. (a development stage enterprise) BALANCE SHEETS January 31, October 31, 1996 1995 (Unaudited) (Audited) --------------- -------------- Assets Current Assets Cash $ 363,034 $ 27,208 Stock subscriptions receivable 231,600 35,000 Prepaid expenses 17,707 9,177 Other current assets 1,735 2,535 ------------ ----------- Total current assets 619,076 73,920 Plant and Equipment - At Cost Plant 447,988 408,219 Other equipment 16,200 7,740 Less accumulated depreciation (10,912) (320) ------------ ----------- Net plant equipment 453,276 415,639 Other Assets Organization costs (net) - - ------------ ----------- Total assets $ 1,067,352 $ 489,559 ============ =========== Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 82,061 $ 233,181 Accounts payable - related parties - - Deposits held - - Accrued payroll - - Accrued interest - - Deposits payable - - ------------ ----------- Total current liabilities 82,061 233,181 Stockholders' Equity Common stock, $0.0001 par value, 50,000,000 shares authorized 4,873 4,379 Additional paid-in capital 2,400,842 1,704,785 Common stock subscribed 231,600 - Accumulated deficit (1,652,024) (1,452,786) ------------ ----------- Total stockholders' equity (deficit) 990,291 256,378 ------------ ----------- Total liabilities and stockholders' equity $ 1,067,352 $ 489,559 ============ =========== F-2 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, 1996 January 31, 1996 January 31, 1995 (unaudited) (unaudited) (unaudited) ------------------- ---------------- ----------------- OPERATIONS Revenues $ - $ - $ - Cost of sales 101,029 101,029 - Research and development costs 444,165 - - ------------- ------------ ----------- Total cost of sales and research costs 545,194 101,029 - ------------- ------------ ----------- Gross profit (loss) (545,194) (101,029) - General and administrative expenses 892,704 98,209 14,571 ------------- ------------ ----------- Earnings (loss) from operations (1,437,898) (199,238) (14,571) OTHER INCOME (EXPENSE) Interest (12,244) - - Other - - - Investment in joint venture (147,096) - - ------------- ------------ ----------- Total other income and (expense) (159,340) - - ------------- ------------ ----------- Earnings (loss) before income taxes and extraordinary item (1,597,238) (199,238) (14,571) Extraordinary item - loss on write down of assets to liquidation basis (14,502) - - ------------- ------------ ----------- Earnings (loss) before income taxes (1,611,740) (199,238) (14,571) Federal and state income taxes (6,016) - - ------------- ------------ ----------- Net income (loss) (1,617,756) (199,238) (14,571) ACCUMULATED DEFICIT Balance, beginning of period (34,268) (1,452,786) (1,163,973) ------------- ------------ ----------- Balance, end of period $ (1,652,024) $ (1,652,024) $(1,178,544) ============= ============ =========== Loss per share $ (0.09) $ (0.01) Nil ============= ============ =========== Weighted average shares outstanding 19,000,000 32,583,688 23,463,313 ============= ============ =========== F-3 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, 1996 January 31, 1996 January 31, 1995 (unaudited) (unaudited) (unaudited) ------------------- ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(1,617,756) $(199,238) $(14,571) Adjustments to reconcile net loss to net cash cash provided by operating activities: Amortization 3,527 - - Depreciation 16,619 10,592 - Expenses paid with stock and additional paid in capital 218,865 35,500 - Loss on write down of assets to liquidation basis 5,392 - - Changes in: Other current assets (19,442) (7,730) 1,207 Accounts payable (1,637) (151,121) 13,986 ----------- --------- -------- Cash used by operating activities (1,394,432) (311,997) 622 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (373,773) (48,230) - ----------- --------- -------- Cash used by investing activities (373,773) (48,230) - CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock 2,199,593 715,000 - Increase in notes payable - - - Offering costs (68,409) (18,947) - ----------- --------- -------- Cash provided by financing activities 2,131,184 696,053 - ----------- --------- -------- Net increase in cash 362,979 335,826 622 Cash - beginning of period 55 27,208 1,213 ----------- --------- -------- Cash - end of period $ 363,034 $ 363,034 $ 1,835 =========== ========= ======== Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 4,400 $ - $ - Income taxes $ 12,244 $ - $ 800 F-4 Aquasearch, Inc. (A development stage enterprise) NOTES TO FINANCIAL STATEMENTS January 31, 1996 (Unaudited) 1. Related party transactions -------------------------- The Company uses office space provided by an officer of the Company. Monthly rent expense for this space is $380. 2. Common stock and stock purchase warrants ---------------------------------------- As of January 31, 1996, there were 3,348,000 Class B warrants issued and outstanding. No Class B warrants were exercised during the three months ended January 31, 1996. The Class B warrants are exercisable at $1 per share. The exercise period for the Class B warrants will expire on March 15, 1996 unless extended by the Board of Directors. An analysis of the changes in stockholders' equity is as follows: Total Shares of Additional Common Stock- Common Common Paid-in Accumulated Stock holders' Stock Stock Capital Deficit Subscribed Equity - ------------------------------------------------------------------------------------------------------------------- Balance, October 31, 1995 (audited) 32,583,688 $4,379 $1,704,785 $(1,452,786) $ 256,378 Stock issued during the quarter in a regulation D offering 4,000,000 400 580,651 581,051 Stock issued during the quarter in a regulation S offering 640,000 64 79,936 80,000 Stock issued during the quarter for services 304,000 30 35,470 35,500 Common Stock Subscribed 231,600 231,600 Loss for the three months ended January 31, 1996 - - - (199,238) (199,238) ---------- ------- ---------- ----------- --------- --------- Balance, January 31, 1996 37,527,688 $4,873 $2,400,842 $(1,652,024) $231,600 $ 990,291 ========== ======= ========== =========== ========= ========= - ------------------------------------------------------------------------------------------------------------------- 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. The Company's results of operations for the three months ended January 31, 1996 are not necessarily indicative of the results to be expected for the full year. The unaudited condensed financial statements have been prepared in accordance with the instructions for Form 10-QSB and, therefore, certain information and footnote disclosures normally contained in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the Financial Statements and notes thereto included in the Company's Annual Report to Shareholders on Form 10-KSB for the fiscal year ended October 31, 1995. F-5 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDTION AND RESULTS ---------------------------------------------------------------------- OF OPERATIONS ------------- PLAN OF OPERATION. The Company has completed the initial testing of its astaxanthin product and the specifications for this product have been approved by Svenska Fodor AB. The Company is currently working to increase production of astaxanthin to the levels required under its contract with Svenska Fodor AB and anticipates making its first shipment of product under the contract with Svenska Fodor AB in March 1996. The Company's production of astaxanthin is currently limited by the lack of a suitable process dryer. The Company expects to complete specifications and testing and commence operation of a small prototype process dryer in the first quarter. After a satisfactory testing of the prototype unit, the Company plans to lease or purchase a custom-built commercial process dryer designed to meet and exceed its manufacturing requirements under Svenska Fodor AB contract. The Company estimates a six month lead time for the manufacture and installation of the commercial dryer at a cost, if purchased rather than leased, of approximately $300,000. During the fiscal quarter ended January 31, 1996, the Company sold 4,640,000 shares of its Common Stock for $661,051 in two private placements. The Company also received subscriptions to purchase an additional 1,800,000 shares of Common Stock for $231,600 in another private placement. The Company will use the net proceeds from these offerings to provide working capital and to purchase or finance the acquisition of additional capital equipment. The Company believes that the net proceeds from these offerings will be sufficient to sustain the Company's operations for four to eight months depending upon the level of capital expenditures and the timing of receipt of any revenues under the contract with Svenska Fodor AB. In order to sustain operations and acquire the capital equipment necessary to expand the Company's business in accordance with its current business plan (including, but not limited to, acquisition of the commercial drying unit), the Company anticipates that it will be necessary to raise additional capital during the next six months. PART II - OTHER INFORMATION Item 1. Legal Proceedings. ----------------- None. Item 2. Changes in Securities. --------------------- None. Item 3. Defaults upon Senior Securities. ------------------------------- None. Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- None. Item 5. Other Information. ----------------- None. Item 6. Exhibits and Reports of Form 8-K. -------------------------------- a) Exhibits. None. -------- b) Reports on Form 8-K. None. ------------------- 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: March 13, 1996 By: /s/Tana Alcalay ------------------------- Tana Alcalay, Secretary