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The Honolulu Advertiser

Posted on: Friday, November 2, 2001

Biotech firm vows to fight lawsuit

By John Duchemin
Advertiser Staff Writer

Several shareholders who seek control of Big Island biotechnology firm Aquasearch are trying to force the company into bankruptcy, a move that company officials called meritless and vowed to fight.

Honolulu securities broker Gregory Kowal, 'Aiea resident Lance Nakamura and three co-claimants filed a claim against Aquasearch in U.S. District Court on Tuesday. The claimants allege Aquasearch owes them more than $550,000.

Kowal and Nakamura, who own about 16 percent of Aquasearch stock, are seeking to push Aquasearch into involuntary Chapter 11 bankruptcy, which would involve reorganization of the company's assets, and possible removal of board members and managers.

Mark E. Huntley, Aquasearch chairman and its founder, said yesterday that he has not had time to review the bankruptcy petition, but that the company will fight the suit and seek court sanctions against the claimants.

Huntley said he believes the bankruptcy petition is clearly related to a failed effort by Kowal, Nakamura and several other investors to depose Huntley and take several seats on the seven-member board of directors. Shareholders at the Aqua-search annual meeting in September voted to re-elect the board.

Huntley said the bankruptcy petition was made in "bad faith," with four of the five claimants making no attempt to discuss their claims with Aquasearch management before the filing.

"I believe this is another try by a small minority of shareholders to take over the company," he said. "They have made this clear by their actions over the past several months. ... I think that they have been disingenuous in their actions, which have clearly not been in the best interests of the majority of shareholders."

Kowal, owner of local brokerage First Honolulu Securities, owns 11 percent of Aquasearch stock and has helped finance the company with several million dollars' worth of convertible debenture. He seeks $75,000 from Aquasearch.

Over the past 20 years, Kowal has been sanctioned more than 10 times by federal regulators, who found that he has sold stock or bonds at unfair prices, according to documents from the National Association of Securities Dealers. The regulators have fined Kowal tens of thousands of dollars, at one point forcing him to divest ownership of First Honolulu and revoking his broker's license.

Kowal referred questions yesterday to bankruptcy attorney Ted Pettit, who is handling the Aquasearch petition. Pettit did not return a phone call seeking comment.

Co-claimant Nakamura has made several investments in Aquasearch, including a $350,000 stock transaction this past summer. Nakamura seeks $350,000 from Aquasearch.

Other claimants in the bankruptcy case include Edward Sun, former marketing director for Aquasearch, who seeks $28,000; Kenneth Crowder of San Bernardino, Calif., who seeks $75,000; and Virginia Tiu, who seeks $25,000.

Kowal and Nakamura in August wrote a letter to several Aquasearch shareholders claiming management needed to be replaced.

In the letter, the writers said they were "concerned about the lack of representation of shareholders on the board of directors," and asked shareholders to vote to install several new board members and a new company president.

Aquasearch is at a delicate stage of existence. After years of research into algae growth and tens of millions of dollars in investments, the company in 2000 began production of its signature product AstaFactor, an algae-derived nutritional supplement.

Revenues have been negligible — less than $500,000 per quarter — and annual losses have ranged into the millions. The company has racked up losses of more than $19 million since inception, and recently had to furlough about 16 of its 32 workers as AstaFactor inventories expanded faster than sales.

But a new distribution deal has brought the company's products to the Mainland. Under a deal with product marketer Morgan & Sampson, AstaFactor is in Longs Drugs stores in Southern California. Huntley said revenues from California sales should push Aquasearch closer to profitability over the next few quarters, and cash flow has greatly improved.