<PAGE>
                                       
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
(Mark One)

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
    EXCHANGE ACT OF 1934

    For the quarterly period ended March 31, 1999
                                       
                                       OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
    EXCHANGE ACT OF 1934

     For the transition period from ________ to ___________

                         Commission file number: 0-21130


                          ENERGY BIOSYSTEMS CORPORATION
             (Exact name of registrant as specified in its charter)

       Delaware                                   04-3078857
(State or other jurisdiction of                (I.R.S. Employer
incorporation or organization)                 Identification No.)

4200 Research Forest Drive
The Woodlands, Texas                           77381
(address of principal executive offices)       (zip code)

                                  281-364-6100
              (Registrant's telephone number, including area code)

         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 _____


         As of May11, 1999, there were outstanding 2,180,358 shares of Common 
Stock, par value $.01 per share, of the registrant.

<PAGE>


                          ENERGY BIOSYSTEMS CORPORATION

                 FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999

                                      INDEX

<TABLE>
<CAPTION>
                                                                                            Page
                                                                                            ----
<S>                                                                                         <C>
Factors Affecting Forward-Looking Statements                                                  3

PART I.        FINANCIAL INFORMATION

Item 1.        Financial Statements                                                           4

               Balance Sheets as of March 31, 1999 (Unaudited)
               and December 31, 1998                                                          5

               Statements of Operations for the Three Months
               Ended March 31, 1999 and 1998 (Unaudited)                                      6

               Statements of Cash Flows for the Three Months Ended
               March 31, 1999 and 1998 (Unaudited)                                            7

               Notes to Financial Statements                                                  8

Item 2.        Management's Discussion and Analysis of Financial                             11
               Condition and Results of Operations

PART II.       OTHER INFORMATION

Item 6.        Exhibits and Reports on Form 8-K                                              15

SIGNATURES                                                                                   16
</TABLE>


                                       2
<PAGE>

                  FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

         This Quarterly Report on Form 10-Q includes "forward-looking 
statements" within the meaning of Section 27A of the Securities Act of 1933, 
as amended, and Section 21E of the Securities Exchange Act of 1934, as 
amended. The words "anticipate", "believe", "expect", "estimate", "project" 
and similar expressions are intended to identify forward-looking statements. 
Such statements are subject to certain risks, uncertainties and assumptions. 
Should one or more of these risks or uncertainties materialize, or should 
underlying assumptions prove incorrect, actual results may vary materially 
from those anticipated, believed, expected, estimated or projected. These 
risks and uncertainties include technological uncertainty and risks 
associated with the commercialization of the Company's technology, the 
Company's history of operating losses and uncertainty of future 
profitability, manufacturing risks and uncertainties, uncertainty of market 
acceptance of the Company's technology, the Company's reliance on 
environmental regulations, uncertainties as to the protection offered by the 
Company's patents and proprietary technology, the Company's dependence on 
collaborations, the Company's need for additional funds, limited marketing 
experience and dependence on key personnel, government regulations, 
competition and other risks and uncertainties described in the Company's 
filings with the Securities and Exchange Commission. For additional 
discussion of such risks, uncertainties and assumptions ("Cautionary 
Statements"), see "Item 2. Management's Discussion and Analysis of Financial 
Condition and Results of Operations - Liquidity and Capital Resources" 
included elsewhere in this report and "Item 1. Business - Risk Factors" in 
the Company's Annual Report on Form 10-K for the year ended December 31, 
1998. All subsequent written and oral forward-looking statements attributable 
to the Company or persons acting on its behalf are expressly qualified in 
their entirety by the Cautionary Statements.














                                       3
<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

         The following unaudited financial statements have been prepared 
pursuant to the rules and regulations of the Securities and Exchange 
Commission. Certain information and note disclosures normally included in 
annual financial statements prepared in accordance with generally accepted 
accounting principles have been condensed or omitted pursuant to those rules 
and regulations, although the Company believes that the disclosures made 
herein are adequate to make the information presented not misleading. These 
financial statements should be read in conjunction with the Company's Annual 
Report on Form 10-K for the year ended December 31, 1998.

         The information presented in the accompanying financial statements 
is unaudited, but in the opinion of management, reflects all adjustments 
(which include only normal recurring adjustments) necessary to present fairly 
such information.







                                       4
<PAGE>

                          ENERGY BIOSYSTEMS CORPORATION

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         March 31,           December 31,
                                                                            1999                   1998
                                                                      -----------------    -----------------
                                                                        (Unaudited)
<S>                                                                   <C>                  <C>
     ASSETS
Current assets:
     Cash and cash equivalents                                         $    1,078,577        $   2,795,429
     Prepaid expenses and other current assets                                657,907              512,487
                                                                       --------------        -------------
         Total current assets                                               1,736,484            3,307,916

Furniture, equipment and leasehold improvements, net                        1,484,880            1,675,992
Intangible and other assets, net                                            1,208,504            1,142,837
                                                                       --------------        -------------
         Total assets                                                   $   4,429,868         $  6,126,745
                                                                       --------------        -------------
                                                                       --------------        -------------

     LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued liabilities                           $     456,337       $      513,673
     Deferred revenue                                                         180,000              180,000
     Note payable                                                              98,477              126,613
                                                                       --------------        -------------
         Total current liabilities                                            734,814              820,286

Stockholders' equity:
     Series B Convertible Preferred Stock, $0.01 par value 
        (liquidation value $35,105,000; 760,000 shares authorized, 
        696,400 and 702,100 shares, respectively,  issued and 
        outstanding)                                                       34,842,604           33,955,166
     Common Stock, $0.01 par value (30,000,000 shares
        authorized, 2,180,358 and 2,179,142 shares,
        respectively, issued and outstanding)                                  21,804               21,791
     Additional paid-in capital                                            38,430,096           38,529,097
     Accumulated deficit                                                  (69,599,450)         (67,199,595)
                                                                       --------------        -------------
          Total stockholders' equity                                        3,695,054            5,306,459
                                                                       --------------        -------------
          Total liabilities and stockholders' equity                    $   4,429,868         $  6,126,745
                                                                       --------------        -------------
                                                                       --------------        -------------
</TABLE>
                                       
              The accompanying notes are an integral part of these
                             financial statements.

                                       5
<PAGE>

                          ENERGY BIOSYSTEMS CORPORATION

                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                         Three Months Ended
                                                                                             March 31,
                                                                                 -----------------------------------
                                                                                      1999               1998
                                                                                 ----------------   ---------------
<S>                                                                              <C>                <C>
REVENUES:
    Sponsored research revenues                                                       $  510,873          $ 168,593
    Interest and investment income                                                        21,146             93,713
                                                                                 ----------------   ---------------

          Total revenues                                                                 532,019            262,306

COSTS AND EXPENSES:
    Research and development                                                           1,601,376          2,524,194
    General and administrative                                                           547,048            546,744
                                                                                 ----------------   ---------------

          Total costs and expenses                                                     2,148,424          3,070,938
                                                                                 ----------------   ---------------

NET LOSS                                                                            $ (1,616,405)      $ (2,808,632)
                                                                                 ----------------   ---------------
                                                                                 ----------------   ---------------

NET LOSS PER COMMON SHARE -
    BASIC AND DILUTED                                                                   $  (1.15)         $   (2.06)
                                                                                 ----------------   ---------------
                                                                                 ----------------   ---------------
                                                                                  

SHARES USED IN COMPUTING
    NET LOSS PER COMMON SHARE                                                          2,179,882          1,750,204
                                                                                 ----------------   ---------------
                                                                                 ----------------   ---------------
</TABLE>

                                       
            The accompanying notes are an integral part of these
                         financial statements.


                                       6
<PAGE>

                          ENERGY BIOSYSTEMS CORPORATION

                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     Three Months Ended
                                                                                         March 31,
                                                                           ---------------------------------------
                                                                                  1999                1998
                                                                           ------------------- -------------------
<S>                                                                        <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                $ (1,616,405)        $(2,808,632)
      Adjustments to reconcile net loss to net cash provided by
         (used in) operating activities:
           Depreciation and amortization                                           202,811             352,514
      Issuance of common stock for services                                          5,000                  --
      Changes in assets and liabilities:
           Decrease (increase) in prepaid expenses and other  current
           assets                                                                 (145,420)            492,060
           Increase in intangible and other assets and notes
               receivable                                                          (74,666)            (32,658)
           Decrease in accounts payable and accrued
               liabilities                                                         (57,336)           (309,955)
           Increase in deferred revenues                                                --             200,000
                                                                           ------------------- -------------------
      Net cash used in operating activities                                     (1,686,016)         (2,106,671)
                                                                           ------------------- -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Capital expenditures                                                          (2,700)            (74,990)
      Net sale of investments                                                          ---             693,279
                                                                           ------------------- -------------------
         Net cash provided by (used in) investing activities                        (2,700)            618,289
                                                                           ------------------- -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Payment on capital lease obligations                                              --              (2,159)
      Payments on notes payable                                                    (28,136)            (81,597)
      Issuance of stock and warrants                                                    --             404,500
                                                                           ------------------- -------------------
         Net cash provided by (used in) financing activities                       (28,136)            320,744
                                                                           ------------------- -------------------

NET DECREASE IN CASH AND CASH
      EQUIVALENTS                                                               (1,716,852)         (1,167,638)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
      PERIOD                                                                     2,795,429           9,661,310
                                                                           ------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                    $  1,078,577        $  8,493,672
                                                                           ------------------- -------------------
                                                                           ------------------- -------------------
</TABLE>

                                       
              The accompanying notes are an integral part of these
                            financial statements.

                                       7
<PAGE>

                          ENERGY BIOSYSTEMS CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1999

NOTE 1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

         Energy BioSystems Corporation (the "Company") was incorporated in 
the State of Delaware on December 20, 1989. Since inception, the Company has 
devoted substantially all of its resources to research and development. To 
date, all of the Company's revenues resulted from sponsored research payments 
from collaborative agreements and interest and investment income. The Company 
has incurred cumulative losses since inception and expects to incur 
substantial losses for at least the next several years, due primarily to its 
research and development activities and the development of its biocatalyst, 
fermentation and bioreactor programs. The Company expects that losses will 
fluctuate from quarter to quarter and that such fluctuations may be 
substantial.

         Effective March 30, 1999, EBC implemented a restructuring, including 
a substantial employee reduction, in order to reduce expenses and focus its 
limited resources on the critical elements leading to commercialization of 
its patented BDS process. EBC is retaining certain key technical and 
administrative personnel. The Company accrued approximately $125,000 related 
to severance costs at March 31, 1999. EBC is currently seeking additional 
financing through various alternatives that include: an equity financing, 
government funding and alliances with chemical companies and corporate 
partners. However, there can be no assurance that EBC will be able to obtain 
financing on acceptable terms. In the event EBC is unable to obtain 
financing, EBC will consider other alternatives, including: (i) a license, 
sale or other disposition of EBC's BDS or other technologies, or certain 
rights relating thereto; (ii) a sale or other reorganization of EBC; or (iii) 
the combination of EBC with another entity.

     EBC's property and equipment and intangible and other assets are unique 
to the proprietary technology and processes that EBC has and continues to 
develop. Realization of EBC's investments in these assets is dependent upon 
the success of future operations or the sale or licensing of intellectual 
properties. If EBC is unable to continue as a going concern, the recorded 
asset carrying amounts may be greater than the amounts that will be realized 
in the event of liquidation.

         EBC's BDS process will require substantial additional research, 
development and testing in order to determine its commercial viability. EBC 
has proven its BDS technology only to a limited extent in laboratory, 
bench-scale and pilot plant trials, which is not yet sufficient for full 
commercialization. If EBC successfully field tests its BDS technology, the 
commercialization of the BDS technology will require significant additional 
time and expenditures. The commercialization of the technology will depend 
on, among other things, EBC's success in achieving improvement of its 
biocatalyst and success in developing fermentation processes, as well as 
EBC's ability to manufacture or contract for the manufacture of sufficient 
biocatalyst for use in commercial BDS units; to apply process engineering to 
design bioreactor systems capable of accomplishing the BDS process on a 
commercial scale; and to market its BDS systems effectively. The 
accomplishment of some or all of these objectives may be delayed or may never 
occur. EBC will require additional capital to continue as a going concern and 
to continue the development and commercialization of its BDS technology, and 
there can be no assurance that such capital will be available or that EBC 
will be able to successfully commercialize its BDS technology.

                                       8
<PAGE>

                          ENERGY BIOSYSTEMS CORPORATION

                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

         As previously disclosed in the Company's Form 10-K for the year 
ended December 31, 1998, as filed with the Securities and Exchange 
Commission, the opinion of Arthur Andersen LLP, the independent public 
accountants for the Company, included an explanatory fourth paragraph in 
their report on the Company's financial statements as of and for the year 
ended December 31, 1998, that described the substantial doubt regarding the 
Company's ability to continue as a going concern.

         The accompanying unaudited interim financial statements reflect all 
adjustments which, in the opinion of management, are necessary for a fair 
presentation of the results for the interim periods presented. These 
financial statements should be read in conjunction with the Company's Annual 
Report on Form 10-K, as filed with the Securities and Exchange Commission, 
for the fiscal year ended December 31, 1998.

Net Loss Per Common Share

         Net loss per share has been computed by dividing the net loss, which 
has been increased for periodic accretion and accrued dividends on the Series 
B Convertible Preferred Stock issued in February and March 1997, by the 
weighted average number of shares of common stock outstanding during the 
period.

         In December 1998, the Company declared a one-for-seven reverse stock 
split which was effective December 18, 1998. All references to earnings per 
share, number of shares and share amounts prior to December 18, 1998 have 
been retroactively restated to reflect the reverse stock split.

Use of Estimates

         The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the reported amounts of assets and liabilities and 
disclosures of contingent assets and liabilities at the date of the financial 
statements and the reported amounts of revenues and expenses during the 
reporting period. Actual results could differ from those estimates.

NOTE 2.  SERIES B CONVERTIBLE PREFERRED STOCK

         In February and March 1997, the Company sold an aggregate of 224,100 
shares of Series B Convertible Preferred Stock ("Series B Preferred Stock") 
at $50.00 per share in a private placement. The net proceeds from the 
offering were approximately $10.2 million. The placement agent for the Series 
B Preferred Stock received warrants to purchase an aggregate of 20,319 shares 
of Series B Preferred Stock at an exercise price of $50.00 per share of 
Series B Preferred Stock, in addition to customary commissions. The warrants 
have been recorded at an estimated fair value of $466,000, which was computed 
using the Black-Scholes option pricing model and the following assumptions: 
risk free interest rate of 6.51 percent; expected dividend yield of zero; 
expected life of three years; and an expected volatility of 68 percent.

                                       9
<PAGE>

                          ENERGY BIOSYSTEMS CORPORATION

                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

         Dividends on the Series B Preferred Stock are cumulative from 
February 27, 1997 and payable semi-annually commencing May 1, 1997, at an 
annual rate equal to (i) $4.00 per share of Series B Preferred Stock to the 
extent the dividend is paid in cash and (ii) $4.50 per share of Series B 
Preferred Stock to the extent the dividend is paid in common stock. Dividends 
on shares of Series B Preferred Stock are payable in cash or common stock of 
the Company, or a combination thereof, at the Company's option. The Company 
elected to defer payment of the May 1, 1999 dividend in accordance with the 
Series B Preferred Stock Agreement.

         Shares of Series B Preferred Stock are convertible into shares of 
common stock at a conversion price equal to $50.75 per share, subject to 
certain adjustments. The Series B Preferred Stock may be redeemed by the 
Company under certain circumstances after February 26, 1999 and is required 
to be redeemed, subject to certain limitations, on February 26, 2002 at a 
redemption price of $50.00 per share, plus accrued and unpaid dividends. It 
is the Company's intent, however, to redeem the Series B Preferred Stock for 
common stock. Accordingly, the Series B Preferred Stock is included in 
stockholders' equity. In April and July 1998, 4,000 shares and 1,700 shares 
of the Series B Preferred Stock were converted to 3,940 shares and 1,674 
shares of common stock, respectively.

         The carrying amount of the Series B Preferred Stock is increased for 
accrued and unpaid dividends plus periodic accretion, using the effective 
interest method, such that the carrying amount will equal the redemption 
amount on the Series B Preferred Stock on February 26, 2002.




                                       10
<PAGE>

                          ENERGY BIOSYSTEMS CORPORATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

OVERVIEW

         Since its inception in December 1989, the Company has devoted 
substantially all resources to its research and development. To date, all of 
the Company's revenues have resulted from interest and investment income and 
sponsored research payments from collaborative agreements. The Company has 
incurred cumulative net losses since inception and expects to incur 
substantial losses for at least the next several years, due primarily to its 
research and development activities and the development of its biocatalyst, 
fermentation and bioreactor programs. The Company expects that losses will 
fluctuate from quarter to quarter and that such fluctuations may be 
substantial. As of March 31, 1999, the Company's accumulated deficit was 
$69,599,450.

         Effective March 30, 1999, the Company implemented a restructuring, 
including a substantial employee reduction, in order to reduce expenses and 
focus its limited resources on the critical elements leading to 
commercialization of its patented BDS process. The Company accrued 
approximately $125,000 related to severance costs at March 31, 1999. EBC is 
currently seeking additional financing through various alternatives that 
include: an equity financing, government funding and alliances with chemical 
companies and corporate partners.

RESULTS OF OPERATIONS

         The Company had total revenues for the three months ended March 31, 
1999 and 1998 of $532,019 and $262,306, respectively. The increase of 
$269,713 in total revenues was attributable to increases in sponsored 
research revenues offset in part by a decrease in interest and investment 
income. The Company had sponsored research revenues of $510,873 during the 
first three months of 1999 as compared to $168,593 during the first three 
months of 1998. The increase of $342,280 in sponsored research revenues 
resulted primarily from the increase in sponsored research revenues from a 
Department of Energy ("DOE") grant to $510,873 in the first three months of 
1999 compared to $134,639 in the first three months of 1998.

         The Company had interest and investment income of $21,146 for the 
first three months of 1999 compared to $93,713 for the first three months of 
1998. The decrease of $72,567 in interest and investment income resulted 
primarily from a decrease in the available cash from which interest and other 
investment income are generated.

          The Company had research and development expenses for the three 
months ended March 31, 1999 and 1998 of $1,601,376 and $2,524,194, 
respectively. The decrease in research and development expenses of $922,818 
for the three months ended March 31, 1999 as compared to the corresponding 
prior year period resulted primarily from a reduction in research and 
development personnel and the one time charge to research and development 
expense in the first quarter of 1998 for warrants issued to Petro Star in the 
amount of $404,500. The Company expects its research and development expenses 
to remain below 1998 levels for the remainder of 1999, reflecting a reduction 
in the workforce at the end of the first quarter of 1999.

         The Company had general and administrative expenses for the three 
months ended March 31, 1999 and 1998 of $547,048 and $546,744, respectively. 
General and administrative 

                                       11
<PAGE>

expenses remained constant for the three months ended March 31, 1999 as 
compared to the corresponding period of 1998 reflecting the Company's intent 
to maintain general and administrative expenses at prior year levels. The 
Company expects a slight decrease from 1998 levels in its general and 
administrative expenses during the remainder of 1999, reflecting a reduction 
in administrative personnel at the end of the first quarter of 1999 and the 
planned subleasing of approximately 20% of its office space at the end of the 
second quarter 1999.

LIQUIDITY AND CAPITAL RESOURCES

         In February and March 1997, the Company sold an aggregate of 224,100 
shares of Series B Preferred Stock in a private placement, resulting in net 
cash proceeds of approximately $10.2 million. Concurrently with the private 
placement, the Company conducted an exchange offering and consent 
solicitation pursuant to which 478,000 shares of its Series A Convertible 
Preferred Stock were exchanged for the same number of shares of Series B 
Preferred Stock. In April and July 1998, 4,000 and 1,700 shares of Series B 
Preferred Stock were converted to 3,940 and 1,674 shares of common stock, 
respectively. Dividends on the Series B Preferred Stock are cumulative from 
the date of the initial closing, February 27, 1997, and are payable in cash 
or common stock of the Company, or a combination thereof, at an annual rate 
equal to (i) $4.00 per share to the extent the dividend is paid in cash and 
(ii) $4.50 per share to the extent the dividend is paid in common stock. The 
Company elected to defer payment of the May 1, 1999 dividend in accordance 
with the Series B Preferred Stock Agreement.

         At March 31, 1999, the Company had cash and cash equivalents 
totaling $1,078,577 and working capital of $1,001,670.

         The Company intends to spend approximately $50,000 during the 
remainder of 1999 for the purchase of analytical instrumentation and 
renovation of office space in preparation of subleasing approximately 20% of 
the Company's current leased space. The Company also expects to incur 
substantial additional research and development expenses, including expenses 
associated with biocatalyst, fermentation and bioreactor development. In 
addition, the Company is subject to cost sharing arrangements under various 
collaboration agreements.

         To supplement its research and development budgets, the Company 
intends to seek additional collaborative research and development agreements 
with corporate partners. In this regard, the Company has entered into 
collaborative agreements with Exploration and Production Technology Division 
of Texaco, Inc., Total Raffinage Distribution S.A. ("Total"), The M. W. 
Kellogg Company and Koch Refining Company, among others, as more fully 
described in the Company's Annual Report on Form 10-K for the year ended 
December 31, 1998.

         In March 1998, the Company entered into a site license agreement 
with Petro Star regarding the design and installation of a biocatalytic 
desulfurization ("BDS") unit at Petro Star's refinery in Valdez, Alaska. The 
agreement involves several stages of work, the first of which, involving the 
completion of scoping economics, is completed. In addition, the agreement 
provides the Company with certain rights to conduct development work and 
demonstrations of its BDS technology at Petro Star's refinery. The agreement 
calls for the payment of staged site license fees and royalties to the 
Company, including a $200,000 initial site license fee which was paid upon 
execution of the agreement. As is customary in such agreements in the 
petroleum refining industry, the agreement provides certain approval and 
termination rights to Petro Star at 

                                       12
<PAGE>

the completion of each stage prior to commercialization. In connection with 
the execution of the agreement, the Company issued a four-year warrant 
entitling Petro Star to purchase 28,571 shares of its common stock at an 
exercise price of $21.77 per share. The warrants have been recorded at an 
estimated fair value of $404,500, which was computed using the Black-Scholes 
option pricing model and the following assumptions: risk free interest rate 
of 5.37 percent; expected dividend yield of zero; expected life of four 
years; and expected volatility of 75.43 percent.

         In addition, the Company is continuing to develop its BDS technology 
in collaboration with Total using deeply desulfurized diesel fuel provided by 
Total. The Company and Total have extended the term of their collaboration 
agreement and are evaluating the conditions under which the Company's BDS 
technology could be implemented. The Company's ability to reach agreements 
with Petro Star, Total or other parties with respect to commercial 
applications of its BDS technology, and its ability to commercialize such 
technology generally, will depend upon its ability to achieve additional 
improvements in the productivity of the biocatalyst (e.g., specific activity, 
production and longevity) and process engineering (e.g., bioreactor design, 
separations technology and byproduct disposition), and is subject to numerous 
risks and uncertainties. Although the Company has made substantial progress 
to date in improving the productivity of the biocatalyst and the process 
engineering used in its pilot BDS unit, no assurance can be made that the 
Company will be able to achieve the improvements necessary for its BDS 
technology to become commercially viable or to reach agreements with respect 
to the commercial application of its technology within the time anticipated 
or at all. See "Factors Affecting Forward-Looking Statements".

         In August 1997, the Company was awarded funding by the DOE for a 
$2.4 million, three year program dedicated to the development of a BDS 
application for gasoline. Through March 31, 1999 the Company had recognized 
$1,088,677 in sponsored research revenue from the grant, of which $510,873 
was receivable at March 31, 1999.

         The Company has experienced negative cash flow from operations since 
its inception and has funded its activities to date primarily from equity 
financings and sponsored research revenues. The Company will continue to 
require substantial funds to continue its research and development activities 
and to market, sell and commercialize its technology. The Company believes 
that its available cash, investments and interest income will be adequate to 
fund its operations through mid 1999. The Company will need to raise 
substantial additional capital to fund its operations thereafter. The 
Company's capital requirements will depend on many factors, including the 
problems, delays, expenses and complications frequently encountered by 
companies developing and commercializing new technologies; the progress of 
the Company's research and development activities; timing of environmental 
regulations; the rate of technological advances; determinations as to the 
commercial potential of the Company's technology under development; the 
status of competitive technology; the establishment of biocatalyst 
manufacturing capacity or third-party manufacturing arrangements; the 
establishment of collaborative relationships; the success of the Company's 
sales and marketing programs; the cost of filing, prosecuting and defending 
and enforcing patents and intellectual property rights; and other changes in 
economic, regulatory or competitive conditions in the Company's planned 
business. Estimates about the adequacy of funding for the Company's 
activities are based upon certain assumptions, including assumptions that the 
research and development programs relating to the Company's technology can be 
conducted at projected costs and that progress towards the commercialization 
of its technology will be timely and successful. There can be no assurance 
that changes in the Company's research and development plans, acquisitions or 
other events will 

                                       13
<PAGE>

not result in accelerated or unexpected expenditures. To satisfy its capital 
requirements, the Company is currently seeking additional funding through 
various alternatives that include: an equity financing, government funding, 
and alliances with chemical companies and corporate partners. There can be no 
assurance that any such funding will be available to the Company on favorable 
terms or at all. If adequate funds are not available when needed, the Company 
may be required to delay, scale back or eliminate some or all of its research 
and product development programs. If the Company is successful in obtaining 
additional financing, the terms of such financing may have the effect of 
diluting or adversely affecting the holdings or the rights of the holders of 
the Company's Common Stock.

YEAR 2000 ISSUES

         Certain computer programs or computerized equipment are unable to 
accurately calculate, store or use dates subsequent to December 31, 1999. The 
erroneous date can be interpreted in a number of different ways; typically 
the year 2000 is represented as the year 1900. Year 2000 problems may result 
in system failure or miscalculations causing disruptions of operations, 
including, among other things, a temporary inability to process transactions, 
send invoices or engage in similar normal business transactions.

         The Company is in the process of assessing all financial and 
operational systems and equipment to ensure year 2000 compliance, and plans 
to complete the assessment by June 30, 1999. Based on reviews to date and 
preliminary information, the Company does not anticipate that it will incur 
any significant costs relating to the assessment and remediation of year 2000 
issues. The Company believes that the potential impact, if any, of its 
systems not being year 2000 compliant should not impact the Company's ability 
to continue its research and development activities. However, there can be no 
assurance that the Company, its business partners, vendors or customers will 
successfully be able to identify and remedy all potential year 2000 problems 
or that a system failure resulting from a failure to identify any such 
problems would not have a material adverse effect on the Company.








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<PAGE>

PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

           a.   Exhibits

                11.1  Statement regarding Computation of Per Share Earnings.

                27.1  Financial Data Schedule.

           b.   Reports on Form 8-K

                None.






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<PAGE>

                          ENERGY BIOSYSTEMS CORPORATION

                                   SIGNATURES

           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.

Energy BioSystems Corporation

By:      /s/ William E. Nasser                                
         ---------------------
         William E. Nasser
         Chairman of the Board, Chief Executive Officer and President

Date: May 14, 1999

By:      /s/ Paul G. Brown III                                
         ---------------------
         Paul G. Brown III
         Vice President, Finance and Administration and
         Chief Financial Officer

Date: May 14, 1999





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