Tuesday, November 20, 2001

opposes trustee

The Big Island biotech firm is
fending off a suit for involuntary
Ch. 11 bankruptcy

By Alan Vaughn

Big Island aquaculture company Aquasearch Inc. yesterday filed court documents opposing an attempt by creditors to appoint a bankruptcy trustee to take control of the firm's finances.

The company's motion comes three weeks after a group of five local and mainland businesspeople filed suit in U.S. Bankruptcy Court to place the Kona-based company into involuntary Chapter 11 reorganization bankruptcy. The group, two of whom have minority ownership in Aquasearch, says it is owed $553,430. Last week, a sixth creditor, Daniel Delbrel joined the suit, saying he is owed $25,000 for a promissory note that has become due.

Aquasearch yesterday responded that the company needs to keep its current management to maintain normal operations, and that an outside trustee appointed by the court would not have the necessary knowledge or training to run the business.

The company's business would disintegrate within days of being placed in the hands of a trustee, the filing says.

The microalgae that Aqua-search cultivates, the company's response says, requires six months of training in the company's processes in addition to graduate-level work in microbiology. In addition, the filing says, Aquasearch Chief Executive and founder Mark Huntley is the co-inventor of all of Aquasearch's patents.

Aquasearch's primary product is The AstaFactor, a nutritional supplement created from microalgae.

"To appoint a trustee would put the company in its death throes," Huntley said. Any interruption in company operation could jeopardize current contracts with the U.S. Department of Energy and the University of Hawaii, major revenue sources.

Aquasearch also argues that the petition for bankruptcy -- filed by Gregory Kowal, Edward Sun, Lance Nakamura, Virginia Tiu and Kenneth Crowder -- inaccurately portrays Aqua-search's finances, noting the company's accounts payable have dropped 30 percent in three months and net losses have fallen more than 80 percent. The firm said it expects to make a profit by February, the end of its current fiscal year.

Part of the company's financial problems, Aquasearch's filing claims, were caused by Kowal and other shareholders attempting a proxy fight in August for seats on the board of directors. Until that action, Huntley said, further equity investment in the company was imminent. "Our feeling is that they did this ... to take over our company," Huntley said. "This is a bad faith effort of these individuals to gain control of the company by using the bankruptcy courts."

Kowal, a creditor and owner of First Honolulu Securities, owns about 11 percent of Aquasearch. Nakamura and his wife own about 5 percent of the company.

The dispute is scheduled to be heard before U.S. Bankruptcy Judge Lloyd King on Dec. 7.

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