<PAGE>

                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-QSB/A

(Mark one)
        /X/ Quarterly Report Under Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

                  For the quarterly period ended July 31, 1999
                                       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 small business issuer 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
                (Issuer's telephone number, including area code)

                                 NOT APPLICABLE
                 (Former name, former address and former fiscal
                       year, if changes since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 July 31, 1999, the number of shares outstanding of issuer's Common Stock,
$0.0001 par value, was 83,932,698 shares.


<PAGE>

                                Aquasearch, Inc.

                               Form 10-QSB For The
                           Quarter Ended July 31, 1999

                                    Contents

<TABLE>
<CAPTION>
                                                                                          Page
<S>                                                                                       <C>
Part I - Financial Information

     Item 1:  Financial Statements

         Condensed Balance Sheets                                                            3

         Condensed Statements of Operations                                               4, 5

         Condensed Statements of Cash Flows                                                  6

     Notes to Condensed Financial Statements                                                 7

     Item 2:  Management's Plan of Operation

         Overview                                                                            9

         Management's Plan of Operation for the Next Twelve Months                          18

         Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                                          26

Part II - Other Information

         Item 1:  Legal Proceedings                                                         28

         Item 2:  Changes In Securities                                                     29

         Item 3.  Defaults Upon Senior Securities                                           29

         Item 4:  Submission of Matters to a Vote of Security Holders                       29

         Item 5:  Other Information                                                         29

         Item 6:  Exhibits And Reports on Form 8-K                                          29
</TABLE>

                                       2

<PAGE>

                                Aquasearch, Inc.
                        (A Development Stage Enterprise)

                            Condensed Balance Sheets

<TABLE>
<CAPTION>

                                                                    October 31,          July 31,
                                                                       1998                1999
                                                                   (as restated)       (as restated)
                                                                     (Audited)          (Unaudited)
                                                               -----------------------------------------
   <S>                                                         <C>                    <C>
   Assets
   Current assets:
      Cash                                                       $     151,473        $      75,124
      Accounts receivable                                                    -                6,131
      Prepaid expenses                                                  48,703               22,297
      Refundable deposits                                                3,081                3,053
                                                               -----------------------------------------
   Total current assets                                                203,257              106,605
                                                               -----------------------------------------

   Notes receivable from officer                                        50,000               50,000
   Plant and equipment:
      Plant                                                          2,519,044            3,694,922
      Equipment                                                        167,203              186,917
      Less accumulated depreciation                                   (201,292)            (353,753)
                                                               -----------------------------------------
   Net plant and equipment                                           2,484,955            3,528,086
                                                               -----------------------------------------
   Total assets                                                  $   2,738,212        $   3,684,691
                                                               =========================================

   Liabilities and stockholders' equity
   Current liabilities:
      Accounts payable                                           $     968,429        $   1,196,165
      Due to officer                                                   131,400              214,200
      Notes payable                                                    300,000              145,000
      Notes payable to officer                                         265,000            1,405,000
                                                               -----------------------------------------
   Total current liabilities                                         1,664,829            2,960,365
                                                               -----------------------------------------

   Stockholders' equity
      Preferred stock (5,000,000 shares authorized)                          -                    -
      Common stock ($0.0001 par value, 100,000,000 shares
        authorized, 68,564,013 and 83,932,698 shares
        outstanding at October 31, 1998 and July 31, 1999,
        respectively)                                                    7,979                9,515
      Additional paid-in capital                                     8,784,120           11,695,507
      Notes receivable                                                 (59,696)             (58,133)
      Deficit accumulated during the development stage              (7,659,020)         (10,922,563)
                                                               -----------------------------------------
   Total stockholders' equity                                        1,073,383              724,326
                                                               -----------------------------------------
   Total liabilities and stockholders' equity                    $   2,738,212        $   3,684,691
                                                               =========================================

</TABLE>


                                       3
<PAGE>

                                Aquasearch, Inc.
                        (A Development Stage Enterprise)

                       Condensed Statements of Operations

<TABLE>
<CAPTION>

                                              For the Period From    For the Three      For the Three
                                                   Inception         Months Ended       Months Ended
                                                  To July 31,          July 31,           July 31,
                                                      1999               1999               1998
                                                 (as restated)       (as restated)      (as restated)
                                                  (Unaudited)         (Unaudited)        (Unaudited)
                                              -----------------------------------------------------------
 <S>                                          <C>                   <C>                <C>
  Operations
  Sales                                         $       11,077      $            -     $            -
  Cost of sales                                         23,464                   -                  -
                                              -----------------------------------------------------------
  Gross loss from operations                           (12,387)                  -                  -
  Research and development costs                     4,294,093             515,318            320,514
  General and administrative expenses                5,174,530             366,945            218,562
                                              -----------------------------------------------------------
  Loss from operations                              (9,481,010)           (882,263)          (539,076)

  Other income (expense)
  Interest                                          (1,279,730)           (116,528)          (366,087)
  Other                                                   (225)              7,227             (2,291)
  Investment in joint venture                         (147,096)                  -                  -
                                              -----------------------------------------------------------
  Total other income (expense)                      (1,427,051)           (109,301)          (368,378)
                                              -----------------------------------------------------------
  Loss before income taxes and extraordinary
     item                                          (10,908,061)           (991,564)          (907,454)
  Extraordinary item - loss on write down of
     assets to liquidation basis                       (14,502)                  -                  -
                                              -----------------------------------------------------------
  Net loss                                      $  (10,922,563)     $     (991,564)    $     (907,454)
                                              ===========================================================

  Loss per share                                $       (0.42)      $       (0.01)     $       (0.02)
                                              ===========================================================

  Weighted average shares outstanding               25,701,408          71,283,181         47,819,881
                                              ===========================================================

</TABLE>


                                       4
<PAGE>

                                Aquasearch, Inc.
                        (A Development Stage Enterprise)

                       Condensed Statements of Operations

<TABLE>
<CAPTION>

                                              For the Period From    For the Nine       For the Nine
                                                   Inception         Months Ended       Months Ended
                                                  To July 31,          July 31,            July 31,
                                                      1999               1999               1998
                                                 (as restated)       (as restated)      (as restated)
                                                  (Unaudited)         (Unaudited)        (Unaudited)
                                              -----------------------------------------------------------
  <S>                                         <C>                   <C>                <C>
  Operations
  Sales                                         $       11,077      $            -     $            -
  Cost of sales                                         23,464                   -                  -
                                              -----------------------------------------------------------
  Gross loss from operations                           (12,387)                  -                  -
  Research and development costs                     4,294,093           1,206,523            866,204
  General and administrative expenses                5,174,530           1,505,162            634,446
                                              -----------------------------------------------------------
  Loss from operations                              (9,481,010)         (2,711,685)        (1,500,650)

  Other income (expense)
  Interest                                          (1,279,730)           (558,687)          (510,839)
  Other                                                   (225)              6,829             (2,615)
  Investment in joint venture                         (147,096)                  -                  -
                                              -----------------------------------------------------------
  Total other income (expense)                      (1,427,051)           (551,858)          (513,454)
                                              -----------------------------------------------------------
  Loss before income taxes and extraordinary
     item                                          (10,908,061)         (3,263,543)        (2,014,104)
  Extraordinary item - loss on write down of
     assets to liquidation basis                       (14,502)                  -                  -
                                              -----------------------------------------------------------
  Net loss                                      $  (10,922,563)     $   (3,263,543)    $   (2,014,104)
                                              ===========================================================

  Loss per share                                $       (0.42)      $       (0.05)     $       (0.04)
                                              ===========================================================

  Weighted average shares outstanding               25,701,408          71,283,181         47,819,881
                                              ===========================================================

</TABLE>


                                       5
<PAGE>

                                Aquasearch, Inc.
                        (A Development Stage Enterprise)

                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>

                                                   For the Period From    For the Nine     For the Nine
                                                        Inception         Months Ended     Months Ended
                                                       To July 31,          July 31,          July 31,
                                                          1999                1999             1998
                                                      (as restated)      (as restated)     (as restated)
                                                       (Unaudited)        (Unaudited)       (Unaudited)
                                                  ---------------------------------------------------------
   <S>                                            <C>                    <C>               <C>
   Cash flows from operating activities
   Net loss                                        $  (10,922,563)       $  (3,263,543)    $  (2,014,104)
   Adjustments to reconcile net loss to net cash
      used in operating activities:
        Depreciation                                      353,753              152,461            68,490
        Expenses paid with common stock                   970,140               41,981           157,839
        Discount on convertible notes payable           1,035,847              441,141           396,177
        Changes in:
          Other current assets                            (25,350)              26,434           (44,532)
          Receivables                                      (6,131)              (6,131)            1,219
          Accounts payable and due to officer           1,410,365              310,537            55,870
                                                  ---------------------------------------------------------
   Cash used in operating activities                   (7,183,939)          (2,297,120)       (1,379,041)

   Cash flows from investing activities
   Purchases of fixed assets                           (3,881,839)          (1,195,592)         (446,939)
                                                  ---------------------------------------------------------
   Cash used in investing activities                   (3,881,839)          (1,195,592)         (446,939)

   Cash flows from financing activities
   (Increase) decrease in notes receivable                (48,437)               1,563           (50,000)
   Proceeds from issuance of common stock               5,191,458              500,000           500,000
   Proceeds from notes payable                          6,269,800            2,914,800         1,995,000
   Offering costs                                        (271,919)                   -                 -
                                                  ---------------------------------------------------------
   Cash provided by financing activities               11,140,902            3,416,363         2,445,000
                                                  ---------------------------------------------------------

   Net increase (decrease) in cash                         75,124              (76,349)          619,020
   Cash, beginning of the period                                -              151,473            47,006
                                                  ---------------------------------------------------------
   Cash, end of the period                          $      75,124        $      75,124     $     666,026
                                                  =========================================================

   Supplemental disclosure of cash flow
      information:
      Non-cash financing transactions:
        Conversion of convertible notes payable
          to common stock                           $   4,734,800        $   1,929,800     $   2,805,000

</TABLE>


                                       6
<PAGE>

                                Aquasearch, Inc.
                        (A Development Stage Enterprise)

                     Notes To Condensed Financial Statements
                                  July 31, 1999
                                   (Unaudited)

1.  General

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included.

These financial statements should be read in conjunction with the Financial
Statements in the Company's Annual Report on Form 10-KSB for the fiscal year
ended October 31, 1998.

2.  Common Stock and Common Stock Purchase Warrants

As of July 31, 1999, there were a total of 11,241,731 Common Stock Purchase
Warrants (the "Warrants") issued and outstanding, of which 5,347,244 Warrants
had an exercise price of $1.00 per share, 25,974 Warrants had an exercise price
of $0.21 per share, and 4,868,513 Warrants had an exercise price of $0.50 per
share. No Warrants were exercised during the three months ended July 31, 1999.
Aquasearch can redeem the $1.00 per share Warrants 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. At July 31, 1999, we had reserved a sufficient
number of shares of our Common Stock to issue when the Warrants are exercised.

An analysis of the changes in stockholders' equity is as follows:

<TABLE>
<CAPTION>

                                  Shares of                 Additional                                        Total
                                   Common        Common       Paid-In         Notes        Accumulated    Stockholders'
                                    Stock        Stock        Capital       Receivable       Deficit          Equity
                                -------------- ----------- -------------- ------------- ---------------- ---------------
<S>                             <C>            <C>         <C>            <C>           <C>              <C>
Balance, April 30, 1999            76,401,020  $   8,762    $10,407,999    $  (59,696)   $   (9,930,999)     $  426,066
Issuance of stock on
  conversion of convertible
  notes payable ($0.14 to
  $0.19 per share)                  7,531,678        753      1,211,626             -                 -       1,212,379
Payment on notes receivable
  issued upon exercise of
  common stock options                      -          -              -         1,563                 -           1,563
Discount on convertible notes
  payable                                   -          -         75,882             -                 -          75,882
Loss for the three months
  ended July 31, 1999                       -          -              -             -          (991,564)       (991,564)
                                -------------- ----------- -------------- ------------- ---------------- ---------------
Balance, July 31, 1999             83,932,698  $   9,515    $11,695,507    $  (58,133)   $  (10,922,563)     $  724,326
                                ============== =========== ============== ============= ================ ===============

</TABLE>


                                       7
<PAGE>

In November 1996, we executed a Letter of Intent with C. Brewer and Company,
Limited ("C. Brewer"). Under the proposed agreement, we would acquire 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 return, C. Brewer would receive between
2,570,000 and 2,850,000 shares of our Common Stock at a purchase price of $0.35
per share. In addition, C. Brewer acquired a three-year warrant to purchase up
to 500,000 shares of our Common Stock at a purchase price of $1.25 per share.
The stockholders' equity at July 31, 1999 does not reflect the issuance of the
Common Stock or the warrant to C. Brewer. We have not consummated the
transaction with C. Brewer. We have decided that we do not yet need 80 to 90
acres of land, because production at our current facility has increased beyond
expectation. We want to delay any transaction with C. Brewer until we determine
the best strategy and location for future development.

3.  July 31, 1999 and 1998 Restatements

The July 31, 1999 and 1998 financial statements have been restated to recognize
the discount and related expense resulting from the difference between the
conversion price and the fair value of the common stock underlying the
convertible notes on their issuance dates for convertible notes issued during
the respective periods. The impact of the aforementioned on the July 31, 1999
and 1998 financial statements was as follows:

<TABLE>
<CAPTION>

                                             For the Three Months Ended           For the Three Months Ended
                                                   July 31, 1999                         July 31, 1998
                                         ----------------------------------- -----------------------------------
                                          As originally                       As originally
                                             reported        As restated         reported        As restated
                                         ----------------- ----------------- ----------------- -----------------
   <S>                                   <C>               <C>               <C>               <C>
   Balance sheet:
     Additional paid-in capital            $  10,659,660     $ 11,695,507      $   7,689,735     $  8,184,736
     Deficit accumulated during the
      development stage                       (9,886,716)     (10,922,563)        (6,429,848)      (6,924,849)
   Statement of operations:
     Interest expense                            (40,646)        (116,528)           (79,322)        (366,087)
     Net loss                                   (915,682)        (991,564)          (620,689)        (907,454)
     Loss per share                        $       (0.01)    $      (0.01)     $       (0.01)    $      (0.02)

</TABLE>


<TABLE>
<CAPTION>

                                              For the Nine Months Ended           For the Nine Months Ended
                                                     July 31, 1999                       July 31, 1998
                                         ----------------------------------- -----------------------------------
                                          As originally                       As originally
                                             reported        As restated         reported        As restated
                                         ----------------- ----------------- ----------------- -----------------
   <S>                                   <C>               <C>               <C>               <C>
   Statement of operations:
     Interest expense                      $    (117,546)    $   (558,687)     $    (114,662)    $   (510,839)
     Net loss                                 (2,822,402)      (3,263,543)        (1,617,927)      (2,014,104)
     Loss per share                        $       (0.04)    $      (0.05)     $       (0.03)    $      (0.04)


</TABLE>

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.


                                       8
<PAGE>

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, 1998 (the "1998 Form 10-KSB"). You are
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. We undertake no obligation to publicly release the
results of any revision of these forward-looking statements. You are strongly
urged to read the information set forth under the caption "factors That May
Affect Future Operating Results" in the 1998 Form 10-KSB for a more detailed
description of these significant risks and uncertainties.

OVERVIEW

We are a development stage company that develops and commercializes natural
products from microalgae using our proprietary photobioreactor technology known
as the Aquasearch Growth Module, or AGM.

Microalgae are a diverse group of over 30,000 species of microscopic plants that
have a wide range of physiological and biochemical characteristics. Microalgae
produce many different and unusual fats, sugars, proteins, amino acids,
vitamins, enzymes, pigments and other bioactive compounds that have existing and
potential commercial applications in such fields as animal and human nutrition,
food colorings, cosmetics, diagnostic products, pharmaceuticals, research grade
chemicals, pigments and dyes. Microalgae grow ten times faster than the fastest
growing land-based crops and represent a largely unexploited and renewable
natural resource with a biodiversity comparable to that of land-based plants.

Although microalgae are believed to be a potential source for many valuable
commercial applications, less than 5,000 species of microalgae have ever been
isolated from nature, and fewer than 10 species of microalgae - less than
one-third of one percent of all such species - have ever been cultivated
commercially.

We believe that the development of a large biotechnology industry, based on
thousands of species of microalgae, has been impeded only by a lack of
technology. We anticipate that our commercial production technology will allow
us to create a market for new and valuable substances derived from microalgae.
Our Company, since its inception, has been dedicated to this proposition.

Our key achievements in the past year include major advances in our platform
technology, the AGM, including:

                  -        created the new "Ultra-AGM," which has six-fold
                           greater capacity than the previous AGM model -- an
                           increase from 1,060 to 6,600 gallons;
                  -        tripled the capacity-per-unit-cost of the AGM;
                  -        tripled the productivity-per-unit-capacity of
                           HAEMATOCOCCUS -- our astaxanthin-rich microalgae; and
                  -        doubled the astaxanthin content of HAEMATOCOCCUS --
                           from 1.5% to 3.0%.

At the same time, we have:

                  -        tripled the size of our production facility;
                  -        tripled our patents - from three to nine;


                                       9
<PAGE>

                  -        tripled our total production capacity;
                  -        initiated sales of our products;
                  -        expanded our product pipeline to include
                           nutraceuticals and pharmaceuticals;
                  -        strengthened our management team in areas of
                           strategic development and marketing; and
                  -        augmented our research team in natural products
                           chemistry and drug development

In the past year we focused primarily on technology and infrastructure. This
year we are focused on marketing, sales, and further expanding our product
pipeline.

HISTORY: KEY EVENTS

1984
         AQUASEARCH FOUNDED. Scientists from Scripps Institution of Oceanography
         in La Jolla, California founded Aquasearch, Inc. as a California
         corporation.

1988
         FEB:     We incorporated Aquasearch Inc. in Colorado.

         MAY:     Aquasearch (Colorado) acquired all the assets of Aquasearch
                  (California) in a stock-for-stock exchange.

         JUN:     OPERATIONS BEGIN in Borrego Springs, California.

1988-1993
         RESEARCH AND DEVELOPMENT. We developed our first prototype of the AGM.
         Over the next few years we refined certain details of engineering in
         the AGM. At the same time, we cultivated microalgal species of markedly
         different varieties.

1993
         MAR:     AQUASEARCH-CYANOTECH JOINT VENTURE FORMED. We formed a joint
                  venture company with Cyanotech Corporation ("Cyanotech"), an
                  unaffiliated producer of microalgae. Our goal was to develop
                  commercial systems for producing astaxanthin-rich microalgae.
                  We contributed approximately $147,000 in capital and licensed
                  our AGM technology to the joint venture. Cyanotech contributed
                  approximately $15,000 in capital to the joint venture and made
                  available its facilities and personnel at the Hawaii Ocean
                  Science and Technology (HOST) Business Park at Keahole Point,
                  Kailua-Kona, Hawaii.

1994
         JUN:     CULTOR NEGOTIATION BEGINS. We began discussions with Cultor,
                  Ltd. ("Cultor"), a Finnish food conglomerate, regarding the
                  purchase of astaxanthin-rich microalgae.

         JUL:     FIRST ASTAXANTHIN PRODUCED. We constructed AGMs that
                  demonstrated the economics of the production process. We also
                  produced samples of astaxanthin-rich microalgae for analysis
                  and trial applications. Samples were sent to Cultor for
                  testing.

         NOV:     AQUASEARCH-CYANOTECH JOINT VENTURE TERMINATED. We decided to
                  discontinue the joint venture with Cyanotech. Under our
                  dissolution agreement, all intellectual property rights to AGM
                  technology reverted to Aquasearch.


                                       10

<PAGE>


         DEC:     CULTOR STARTS FEEDING TRIALS on farmed salmon using
                  astaxanthin-rich microalgae we produced.

1995
         APR:     CONSTRUCTION BEGINS on our own half-acre facility in Hawaii,
                  leased from the HOST Business Park. We designed the facility
                  for research and development, and for production of small
                  amounts of astaxanthin-rich microalgae for marketing.

         JUN:     CONSTRUCTION COMPLETED. Our first facility was comprised of
                  AGMs and an operating laboratory.

         JUL:     SVENSKA FODER CONTRACT. We entered into a three-year Supply
                  Agreement with Svenska Foder, then a subsidiary of Cultor.
                  Svenska Foder agreed to act as the exclusive distributor of
                  our natural astaxanthin product for animal feed applications
                  in Sweden, Norway and Finland. In December 1996, Cultor sold
                  Svenska Foder to KKR, a Danish animal feeds company, and
                  assumed all of Svenska Foder's rights and obligations under
                  the Supply Agreement.

                  FACILITY EXPANSION BEGINS. We leased additional space in the
                  HOST Business Park to expand our half-acre research and
                  development facility to one acre.

         OCT:     ONE-ACRE EXPANSION COMPLETED. We expanded the facility to
                  include finishing ponds (the second stage of our production
                  process), and additional laboratory space.

1996
         MAY:     CULTOR AGREEMENT. We entered into a three-year Distribution
                  and Development Agreement with Cultor (recently extended to
                  four years). We agreed to act as the exclusive worldwide
                  supplier to Cultor of natural astaxanthin derived from
                  microalgae for animal feed applications. Cultor agreed to act
                  as the exclusive worldwide distributor of our natural
                  astaxanthin product for animal feed applications. Under our
                  agreement, Cultor and Aquasearch may, at Cultor's option,
                  create a new joint venture company for the sole purpose of
                  producing and selling natural astaxanthin derived from
                  microalgae for animal feed applications.

                  SCIENTIFIC ADVISORY BOARD FORMED. We created an active
                  Scientific Advisory Board consisting of Ph.D.s with expertise
                  in the fields of aquaculture; marine biology; fluid dynamics;
                  and the chemistry, photobiology, physiology, genetics and mass
                  culture of microalgae.

         JUL:     PROCESS PATENT IN THE U.S. We were awarded U.S. Patent Number
                  5,541,056 for a "Method of Control of Microorganism Growth
                  Process." This patent claims certain processes that operate in
                  our proprietary, closed-system photobioreactor, the AGM. Our
                  U.S. filing was made under the Patent Cooperation Treaty. We
                  began to pursue international patents in certain treaty-member
                  nations.

         OCT:     CULTOR ACQUIRES AQUASEARCH STOCK. Cultor acquired 400,000
                  shares of our Common Stock at a purchase price of $0.50 per
                  share.

         NOV:     C. BREWER AGREEMENT. We executed a Letter of Intent with C.
                  Brewer and Company,


                                       11
<PAGE>

                  Limited ("C. Brewer"). Under the proposed agreement we
                  would acquire between 80 and 90 acres of C. Brewer property
                  in the Ka'u region of the Big Island of Hawaii, valued at
                  between $900,000 and $1,000,000. In return, C. Brewer would
                  acquire approximately 4% of our outstanding Common Stock.
                  In addition, C. Brewer acquired a three-year warrant to
                  purchase up to 500,000 shares of Aquasearch Common Stock at
                  $1.25 per share. To date, we have not consummated the
                  transaction with C. Brewer because production at our
                  current facility has increased beyond expectation.

1997
         APR:     EARL FUSATO NAMED CHIEF FINANCIAL OFFICER, JOINS BOARD. Mr.
                  Fusato brought considerable experience to our management team.
                  At VeriFone, Inc., global leader in the transaction automation
                  industry, he served as VP Finance (1983-87), Treasurer
                  (1987-90) and Director of Internal Audit and Manager of
                  Transaction Automation (1990-92). He served as CFO of RESCO
                  Inc., a residential real estate brokerage company (1992-94).
                  He also served in various key positions at Ernst and Young
                  (1978-83) and KPMG Peat Marwick (1971-77).

         JUN:     APPARATUS PATENT IN EUROPE. We were awarded European Patent
                  Number 0494887 for a "Process and Apparatus for the Production
                  of Photosynthetic Microbes." This patent not only claims
                  certain processes, but also certain features of our core
                  technology, the Aquasearch Growth Module. The European patent
                  complements, but does not supplant claims made in the U.S.
                  Patent awarded in 1996. Our European filing was made under the
                  Patent Cooperation Treaty. We are pursuing additional patents
                  in certain treaty-member nations.

         SEP:     DR. EDWARD DAVID JOINS BOARD. Dr. David has a long history of
                  management experience in the fields of science and technology.
                  During his career he has served as President of Exxon Research
                  and Engineering, Science Advisor to the President of the
                  United States, Executive Director of the Communications
                  Systems Division at Bell Laboratories, and Director of the
                  White House Office of Science and Technology Policy.

1998
         APR:     EXPANSION BEGINS TO TRIPLE OUR PRODUCTION FACILITY. We began
                  construction to expand our production facility in Kona, Hawaii
                  from one acre to three acres. At the same time, we began
                  upgrading every component of our production system hardware.

         JUN:     WE QUESTION CYANOTECH REGARDING INTELLECTUAL PROPERTY. We
                  formally notified Cyanotech of our concern that their use of
                  photobioreactor technology may violate one of our patents
                  (U.S. patent No. 5,541,056) relating to processes for
                  controlling microalgae growth. We also expressed concern
                  regarding possible trade secret misappropriation.

         JUL:     DAVID WATUMULL NAMED EXECUTIVE VP, CORPORATE FINANCE AND
                  STRATEGIC DEVELOPMENT. Mr. Watumull brought more strength to
                  our management team. He has been a respected biotechnology
                  industry analyst, investment banker and money manager for more
                  than 15 years, serving at both Paine Webber and First Honolulu
                  Securities.

                  WE TEST A NEW PHOTOBIOREACTOR - THE ULTRA-AGM. In previous
                  months we designed and engineered the Ultra-AGM. The Ultra-AGM
                  is more than six times larger than any standard production
                  growth module we have used. To our knowledge, the Ultra-AGM is
                  larger than any closed-system photobioreactor ever operated. A
                  six-month testing period


                                       12
<PAGE>

                  begins.

                  CYANOTECH FILES LAWSUIT. Our former joint venture partner
                  filed a complaint in the United States District Court for the
                  District of Hawaii (Case No. CV98-00600ACK) against us. They
                  sought a declaratory judgment of:
                           -        invalidity of our U.S. patent (No.
                                    5,541,056) for a method to grow microalgae;
                           -        non-infringement (by Cyanotech) of our same
                                    patent; and
                           -        non-misappropriation of our trade secrets
                                    regarding the Aquasearch Growth Module.

         SEP:     WE COUNTER-SUE CYANOTECH. We asserted the validity of our U.S.
                  patent. We also alleged that Cyanotech:
                           -        infringed our U.S. patent;
                           -        misappropriated trade secrets related to our
                                    AGM technology;
                           -        breached our joint venture dissolution
                                    agreement; and
                           -        engaged in unfair competition.
                  We requested a combination of damages, injunctive relief and
                  attorney's fees on each count.

                  APPARATUS PATENT IN HONG KONG. We were awarded patent number
                  HK1001232 for the "Process and Apparatus for the Production of
                  Photosynthetic Microbes." This patent was awarded under the
                  Patent Cooperation Treaty, based on the original filing
                  approved by the European Patent Office in 1997.

         NOV:     CHARTER MEMBERSHIP IN THE MARINE BIOPRODUCTS ENGINEERING
                  CENTER (MARBEC). MarBEC is a 10-year, $40 million Engineering
                  Research Center, funded by the U.S. National Science
                  Foundation. MarBEC is focused on developing new enzymes,
                  pigments and pharmaceuticals, primarily from microalgae. It is
                  based at the University of Hawaii and the University of
                  California, Berkeley. Aquasearch, Monsanto and Eastman
                  Chemical are among the charter industry members, which have
                  certain preferential rights to new products developed by
                  MarBEC. We are the only member of MarBEC that has developed
                  photobioreactor technology, which we believe is likely to be
                  required for the commercial exploitation of any new product
                  from microalgae.

         DEC:     ENZYMED AGREEMENT. We entered into a Compound Library
                  Agreement with EnzyMed, Inc. of Iowa, a privately-held
                  biotechnology company. Under the agreement, we will provide
                  extracts of microalgae that contain unexplored or unexploited
                  substances with biomedical value. EnzyMed agreed to generate
                  compounds from our microalgae extracts using their method of
                  "combinatorial biocatalysis." This method generally produces
                  several hundred compounds from a single extract. We expect
                  some of these compounds to be novel and proprietary. Both
                  companies intend to commercialize the resulting compound
                  "libraries." Compound libraries are typically screened for
                  possible medical applications by the pharmaceutical industry.
                  The pharmaceutical company typically pays an "access fee" for
                  the right to screen the library for a limited time and for
                  limited applications. Under our agreement, Aquasearch and
                  EnzyMed will share revenues from commercialization, including
                  access fees, licensing fees, milestone payments, royalties,
                  and commercial sales.


                                       13
<PAGE>


1999

         JAN:     MARTIN GUERIN NAMED VP, SALES AND MARKETING. Mr. Guerin has
                  international experience with world-leading groups in food and
                  feed industries. He held top management positions for
                  marketing and business development with Finfeeds International
                  (1996-98) and EWOS (1994-96), both Cultor companies. His
                  previous experience includes management positions with BP
                  Nutrition (now Nutreco) and Champagnes Cereales.

                  NEW EQUIPMENT INSTALLATION BEGINS. With construction nearly
                  complete on our expanded 3-acre facility, we began to install
                  new equipment for process control and for final processing of
                  raw products.

                  THE ULTRA-AGM GOES INTO OPERATION. After a successful 6-month
                  testing period, we installed and began to operate the new
                  Ultra-AGM. This new photobioreactor is much larger, more
                  efficient, and less costly than any previous AGM. It also
                  requires 75% less manpower to operate.

         FEB:     CONSTRUCTION COMPLETED ON 3-ACRE PHYSICAL PLANT. We completed
                  all new structures at our production facility. We tripled the
                  area for both AGMs and finishing ponds. We quadrupled the area
                  under roof to more than 8,000 square feet. We added a
                  multi-purpose building for product processing, packaging and
                  storage. The processing building can accommodate further
                  increases in production at our current site. We laid the
                  foundation for a 10,000 square-foot laboratory that will
                  accommodate expansion of our drug discovery program.

                  NEW PLANT BEGINS PRODUCTION AT FULL CAPACITY. While installing
                  our final processing equipment, we increased our production of
                  raw product to full capacity. We began to store raw product.
                  Final processing of the product will be done once equipment
                  installation is complete.

                  DAVID TARNAS JOINS BOARD. Mr. Tarnas brings political
                  experience to our Board of Directors. As a Hawaii State
                  Representative and Chairman of the House Committee on Ocean
                  Recreation and Marine Resources, he led many important policy
                  initiatives in Hawaii until 1998.

                  PROCESS PATENT IN EUROPE. We were awarded European Patent
                  Number 0772676 for a "Method of Control of Microorganism
                  Growth Process." This patent, originally granted in the U.S.,
                  was awarded in Europe under the Patent Cooperation Treaty. It
                  claims certain processes that operate in our proprietary,
                  closed-system photobioreactor, the AGM.

         MAR:     PROCESS PATENT IN U.S. We received U.S. Patent Number
                  5,882,849 for a "Method of Control of HAEMATOCOCCUS Species
                  Growth Process." This patent applies to proprietary techniques
                  we use to grow HAEMATOCOCCUS, our principal source of
                  astaxanthin. We are pursuing international patents in certain
                  member nations that are signatories of the Patent Cooperation
                  Treaty.

         APR:     APPARATUS PATENT IN NORWAY. We were awarded Norwegian Patent
                  Number 304556 for a "Process and Apparatus for the Production
                  of Photosynthetic Microbes." This patent not only claims
                  certain processes, but also certain features of our core
                  technology, the


                                       14
<PAGE>

                  Aquasearch Growth Module. Originally granted in Europe,
                  this patent was awarded in Norway under the Patent
                  Cooperation Treaty.

                  PRODUCT FORMULATION BEGINS ON OUR FIRST NUTRACEUTICAL PRODUCT.
                  A large U.S. chemical company began collaborating with us -
                  under a confidentiality agreement - to formulate an
                  astaxanthin-rich nutraceutical product.

         MAY:     PROCESS PATENT IN AUSTRALIA. We were awarded Australian Patent
                  Number 698772 for a "Method of Control of Microorganism Growth
                  Process." This patent, originally granted in the U.S., was
                  awarded in Australia under the Patent Cooperation Treaty.

                  APPARATUS PATENT IN SOUTH KOREA. We received South Korea
                  Patent Number 700834 for a "Process and Apparatus for the
                  Production of Photosynthetic Microbes." Originally granted in
                  Europe, this patent was awarded in South Korea under the
                  Patent Cooperation Treaty.

                  MICROALGAE FOR OUR SECOND NUTRACEUTICAL PRODUCT APPROVED. The
                  State of Hawaii Department of Agriculture approved our permit
                  application to import a new microalgae species. This species
                  is the basis for our second nutraceutical product, planned for
                  product launch in 2000.

         JUN:     PROCESSING EQUIPMENT INSTALLED. Our manufacturing process
                  became fully operational as final processing equipment came on
                  line.

                  RECORD ASTAXANTHIN LEVELS ACHIEVED. We achieved an astaxanthin
                  content of more than 3% in our final processed product -
                  sustained over the previous three months. This content is at
                  least double the amount claimed by any other known producer of
                  natural astaxanthin. Some of our production runs approached 4%
                  content, and we achieved 6% content at smaller scales.

         JUL:     WE BEGIN SHIPPING NATURAL ASTAXANTHIN to an undisclosed
                  European company.

THE MARINE BIOTECHNOLOGY INDUSTRY

There are 30,000 species of microalgae. Many of these are known to contain
valuable substances, including pharmaceuticals, nutraceuticals, and certain
commodities. Fewer than one-tenth of one percent of these 30,000 species have
been produced commercially.

The total market for only three species of microalgae that are now produced
commercially (SPIRULINA, CHLORELLA and HAEMATOCOCCUS) is estimated to be in the
range of $200-300 million per year. We believe that the total market for all
products derived from microalgae could eventually range into the billions of
dollars, provided that: (1) the products are unique, valuable, and numerous; and
(2) production technology is reliable and cost-effective.

Scientific literature demonstrates that:

         -        microalgae contain unique substances;
         -        these unique substances are potentially valuable as
                  pharmaceuticals and nutraceuticals; and


                                       15
<PAGE>


         -        these unique substances are numerous among the microalgae.

Until recently, however, there was no technology to provide for the
cost-effective production of microalgae in commercial quantities. We believe
that our AGM provides a reliable and cost-effective production technology that
will contribute to the development of a multi-billion dollar marine
biotechnology industry. However, there can be no assurance that such an industry
will develop.

OUR KEY ACHIEVEMENTS

(1) RELIABLE AND COST EFFECTIVE PRODUCTION TECHNOLOGY

The Aquasearch Growth Module is a novel, reliable and cost-effective production
technology. We have proven the efficacy of the AGM through a 10-year process of
engineering, development, and demonstration.

We continue to achieve targeted improvements in AGM technology and performance,
as this table shows:

<TABLE>
<CAPTION>

-------------------------------------------- ---------------------------------- ----------------------------------
                IMPROVEMENT                           PLANNED IN 1998                   ACHIEVED IN 1999
-------------------------------------------- ---------------------------------- ----------------------------------
<S>                                          <C>                                <C>
             Increase AGM size                              6X                           Greater than 6X

           Decrease capital cost                            2X                                 3X
           (per gallon capacity)

       Increase AGM production cycle                      30 days                            60 days

       HAEMATOCOCCUS production rate                    Increase 3X                      Greater than 3X

      Astaxanthin content of product                2.0% of dry weight           Greater than 3.0% of dry weight
-------------------------------------------- ---------------------------------- ----------------------------------

</TABLE>

These improvements to the AGM have reduced costs and increased productivity. We
believe the AGM is the largest commercial photobioreactor in operation. To our
knowledge, our current HAEMATOCOCCUS production rate is higher than any reported
in the scientific literature.

(2) INTELLECTUAL PROPERTY

We now have issued patents relating to:

         -        the AGM apparatus (Europe, Australia, Norway, Hong Kong, South
                  Korea)
         -        general processes for cultivating microalgae in
                  photobioreactors (U.S., Europe, Australia)
         -        specific processes for cultivating HAEMATOCOCCUS (U.S.)

Five of these patents issued in the first 5 months of 1999 alone. Additional
patents are pending.

We continue to develop trade secrets. We believe that our trade secrets have
been critical to our recent improvements in production rates and product
quality.

(3) PRODUCTION CAPACITY


                                       16
<PAGE>

In the past year we expanded our physical plant by a factor of three. We now
have a completely new manufacturing plant. The plant includes new processing
equipment and an upgraded process-control system.

Our HAEMATOCOCCUS cultivation process is done in two steps. We use two types of
large-scale production systems: (1) Aquasearch Growth Modules, and (2)
"finishing" ponds. This table shows the key features of these two production
systems:

<TABLE>
<CAPTION>

------------------------ --------------------------------------------- ---------------------------------------------
        FEATURE                    AQUASEARCH GROWTH MODULE                           FINISHING POND
------------------------ --------------------------------------------- ---------------------------------------------
<S>                      <C>                                           <C>
       Function                 Produce HAEMATOCOCCUS biomass                 Convert biomass to astaxanthin

      Technology                         Proprietary                                  Public domain

   Utilized capacity                         20%                                           100%
------------------------ --------------------------------------------- ---------------------------------------------

</TABLE>

We have achieved much greater improvements in AGM performance than anticipated.
As a result, we are now using only 20% of our AGM production capacity. If the
market demands, we could increase total production by 5X by increasing our
finishing pond capacity. Relative to AGMs, finishing ponds are less costly to
construct.

(4) SALES

In 1998 we projected sales to begin as soon as our expanded facility was
constructed, and our new processing equipment was installed.

We completed construction of the expanded facility in February 1999. New
processing equipment was installed in June 1999. Sales began immediately.

(5) PRODUCT PIPELINE

In 1998 our pipeline consisted of a single product: natural astaxanthin for use
in animal nutrition. We have now expanded our pipeline to include:

         1)       Nutraceuticals
                  -        Natural astaxanthin
                  -        A second microalgae-based product

         2)       Drug discovery
                  -        Compound libraries

These products are all in active development. A large U.S. chemical company is
collaborating with us - under a confidentiality agreement - to formulate our
natural astaxanthin nutraceutical. However, we cannot guarantee that the
collaboration will extend beyond product formulation. The State of Hawaii
Department of Agriculture has just approved our import permit for a new species
of microalgae that is the basis of our second nutraceutical product. EnzyMed has
received our first microalgae extracts, and has begun work to produce our first
compound library.

(6) OUR TEAM


                                       17
<PAGE>

NEW MANAGEMENT. We believe our team is stronger than ever - at all levels.
Within the last year we added important experience and expertise at the
management level, including David Watumull, Martin Guerin and David Tarnas.

Together, these individuals bring us new experience and expertise in:

                  -        international marketing and sales in food and feed
                           industries;
                  -        strategic development in biotechnology and
                           pharmaceutical industries;
                  -        public/private sector collaboration; and
                  -        fund raising.

NEW RESEARCH SCIENTISTS. Dr. Walter Nordhausen, Dr. Mai Lopez, and Dr. Mia Unson
have joined our research team in the past six months. Together, they more than
double our research effort, and bring us proven experience in:

                  -        biopharmaceutical product development;
                  -        marine biology and biochemistry;
                  -        natural products chemistry; and
                  -        research program management.

EMPLOYEES. We believe our employees are strongly motivated for success. In 1998
we introduced a pay-for-performance compensation plan that includes both stock
options and cash bonus programs. We structured the compensation plan to reward
both teamwork and individual excellence. Rewards are generated by performance on
quarterly targets. We believe that our employees are directly responsible for
Aquasearch's recent achievements.

(7) RECENT FINANCING ACTIVITY

From June 1997 to September 1998, the Company raised $3,305,000 through the
private placement of convertible notes. Between July and September 1998, all of
the outstanding convertible notes (together with accrued interest), were
converted into 20,075,648 shares of Common Stock. We also issued 3,305,000
Warrants under the terms of the Notes. The Warrants have an exercise price of
$0.50 per share and have a term of three years.

Additionally, from September 1998 through July 1999, the Company raised
$3,700,000 through the private placement of convertible notes. These convertible
notes bear interest at 10 percent per annum, have a term of one year and are
convertible into shares of Common Stock. Upon conversion of the notes, each note
holder will receive warrants to purchase 1,000 shares of Common Stock at $0.50
per share for each $1,000 aggregate principal amount of convertible notes
purchased. In the nine months ended July 31, 1999, some of these convertible
note holders along with other outstanding convertible note holders converted
their notes into a total of 15,368,685 shares of the Company's Common Stock and
received an aggregate of 2,449,800 warrants.

MANAGEMENT'S PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS

Last year we focused on technology and infrastructure. We strengthened our
intellectual property, expanded our physical plant, and augmented production
capacity.

During the next twelve months we will focus on sales and product development,
specifically:


                                       18
<PAGE>


                  -        initiating sales of our first nutraceutical product,
                           natural astaxanthin;
                  -        formulating our second nutraceutical product;
                  -        growing sales of AQUAXAN-TM-;
                  -        marketing and selling compound libraries for drug
                           discovery; and
                  -        expanding our product pipeline.

(1) NUTRACEUTICAL ASTAXANTHIN

THE PRODUCT. Our first major nutraceutical product is a dietary supplement rich
in astaxanthin. Astaxanthin is a powerful, bioactive anti-oxidant (approximately
100 times more potent than Vitamin E). Astaxanthin has demonstrated efficacy in
animal or human models of:

                  -        ALZHEIMER'S AND PARKINSON'S DISEASE: major
                           neurodegenerative diseases
                  -        MACULAR DEGENERATION: the leading cause of blindness
                           in the U.S.
                  -        CHOLESTEROL DISEASE: ameliorates the effects of LDL
                           (the "bad" cholesterol)
                  -        STROKE: repairs damage caused by lack of oxygen
                  -        CANCER: protects against several types of cancer

THE MARKET. We believe a strong market could develop for our nutraceutical
astaxanthin product among persons afflicted with these ailments because of:

                  -        LARGE SIZE OF POTENTIAL MARKET: millions of Americans
                           are affected
                  -        POOR PROGNOSIS: some of these diseases have
                           ineffective or no approved treatments
                  -        PROMISING DATA: quality of data in relevant human and
                           animal models to date is promising.

Our analysis of reasonable dosage and customary pricing in the nutraceutical
industry suggests that nutraceutical astaxanthin may command retail prices in
the range of $50,000 per kilogram, depending on various factors. If this
estimate proves to be accurate, then we would estimate the potential U.S. market
to exceed $500 million per year. This estimate is based on just one of the six
diseases described above, and is derived from the number of persons affected by
the condition, as estimated by physicians who provide treatment for the disease,
and the conventional price of an appropriate daily dosage. Certain consumers may
be highly motivated to use nutraceutical astaxanthin because:

                  -        treatment alternatives do not exist for some
                           ailments; and
                  -        sufferers have used nutraceuticals with less
                           demonstrated efficacy than astaxanthin

PRODUCTION CAPACITY. Our current production capacity would satisfy approximately
1% of the estimated U.S. market. We estimate this would generate retail sales of
more than $5 million per year. We can expand most cost-effectively by adding
only finishing ponds on adjacent property. We do have space available for
expansion. We estimate this would allow a 5-fold expansion at a cost of
approximately $1.8 million.

PRODUCT FORMULATION. We are collaborating in product formulation with a large
U.S. chemical company that has significant experience in nutraceutical products.
Our collaboration is being carried out under a confidentiality agreement.
However, we cannot guarantee that the collaboration will extend beyond product
formulation.


                                       19
<PAGE>

MARKETING STRATEGY. We intend to sell this product directly to consumers.
Several wholesale purchasers of nutraceutical products have also contacted us
regarding our product. We may or may not enter into supply agreements with one
or more wholesalers.

REGULATORY ISSUES. The U.S. Food and Drug Administration (FDA) has primary
regulatory responsibility in nutraceutical markets. Many regulations apply. The
DSHEA Act of 1994 governs certain conditions of sale of all nutraceutical
products or dietary supplements in the U.S. The FDA details certain procedures
that comprise "Good Manufacturing Practice" (GMP) with which we will have to
comply. The State of Hawaii Department of Health imposes certain regulations on
the preparation of substances for human consumption. We are taking action to
comply with all relevant regulations and recommended procedures. We plan to
achieve compliance in 1999.

COMPETITION. AstaCarotene AB of Sweden produces and sells an astaxanthin-rich
nutraceutical product in Europe that, like ours, is based on HAEMATOCOCCUS
microalgae. AstaCarotene must produce their product in a controlled climate,
rather than in Sweden's natural climate. We believe their cost of production is
significantly higher than ours.

Cyanotech recently announced its intention to launch a HAEMATOCOCCUS-based
nutraceutical. Cyanotech advertises its natural astaxanthin product to contain
1.5% astaxanthin. Our product contains 3%. To produce the same amount of
astaxanthin, therefore, Aquasearch requires only half the HAEMATOCOCCUS
production capacity. We therefore believe our cost of production may be less
than Cyanotech's. We also believe that customers may perceive our 3% product as
superior to a 1.5% product, which could confer a competitive advantage over
Cyanotech's product.

Igene Biotechnology, Inc. produces astaxanthin from yeast. The chemical form of
astaxanthin in HAEMATOCOCCUS is the one that prevails in nature, and is
different from that in yeast. We believe the nutraceutical market will view the
prevailing natural form of astaxanthin - from HAEMATOCOCCUS - as superior as its
astaxanthin content is also 10 times more than that of yeast.

Itano of Japan produces an astaxanthin extract from Antarctic krill, a marine
microcrustacean. The product is distributed in the U.S. in very small amounts
and at very high prices (greater than $650,000 per kilogram). Krill fishing in
Antarctica is very expensive and highly regulated. Krill fishing vessels must
travel for more than two weeks, at a cost of approximately $50,000 per day to
complete the voyage between Japan and the Southern Ocean. Suitably equipped
vessels cost approximately $30 million and typically have a lifetime of only 20
years. The krill fishery is regulated by the Committee for Conservation of
Antarctic Living Resources, an international body comprised of scientists from
Antarctic Treaty member nations. The krill fishery reached its peak in the
mid-1980s and has since declined.

BASF and Hoffman La-Roche both produce synthetic astaxanthin from
petrochemicals. Their compound is chemically different than natural astaxanthin.
The effect of the difference has not been studied. However, the natural form of
a closely related antioxidant, Vitamin E, was found by its manufacturer (Eastman
Chemical) to be four times more potent than the synthetic form. We believe the
nutraceutical market shows less interest in synthetic products than in natural
products, and will pay a premium for a natural product.

TIMING OF PRODUCT RELEASE. We plan to release our nutraceutical astaxanthin
product in the first quarter of 2000.

(2) OUR SECOND NUTRACEUTICAL PRODUCT


                                       20

<PAGE>

THE PRODUCT. Our second nutraceutical product is a dietary supplement rich in a
certain carotenoid pro-vitamin. The pro-vitamin is known to perform certain
vital functions in human physiology. Like astaxanthin, it is a potent
anti-oxidant. Like astaxanthin, which has very similar molecular properties, it
is present in trace quantities in certain common foods. Also like astaxanthin,
it is overproduced in certain microalgae.

THE MARKET. We believe the market for this product is similar to that for
nutraceutical astaxanthin. Animal and human models have demonstrated the
efficacy of this product in its effect on certain common illnesses. We believe
the potential market for this product could exceed $100 million per year.

PRODUCTION CAPACITY. In mid-1999 we received approval from the State of Hawaii
Department of Agriculture to import the microalgae that is the basis of our
second nutraceutical product. We plan to begin cultivation at AGM (commercial)
scale in late 1999. We intend to devote approximately six months to optimizing
production in AGMs. Based on our knowledge and observations of this microalgae,
we believe we have enough production capacity to sustain product introduction.
After approximately one year of production, we project that initial sales would
support the cost of expanding our physical plant.

PRODUCT FORMULATION. The pro-vitamin in this product has chemical properties
that are similar to astaxanthin, and therefore we believe the product
formulation would also be very similar. We have not yet conducted any studies on
product formulation.

MARKETING STRATEGY. We intend to market this product directly to consumers,
building on the experience we will have developed with nutraceutical
astaxanthin. We may also sell limited amounts to wholesalers.

REGULATORY ISSUES. We expect this product to be subject to the same regulatory
issues that govern nutraceutical astaxanthin.

COMPETITION. We know of no competition for this product, nor for the pro-vitamin
it contains.

TIMING OF PRODUCT RELEASE. We plan to release this product within the next 12 to
18 months.

(3) AQUAXAN-TM- - NATURAL ASTAXANTHIN FOR ANIMAL FEED

THE PRODUCT. We have spent several years developing astaxanthin rich AQUAXAN-TM-
in conjunction with Cultor. Astaxanthin is proven to be a vital dietary
component in salmon, trout, red sea bream, and several other species of
cultivated seafood products. In salmon, the primary market, astaxanthin is
important as the main source of their pink flesh color. Recent studies have also
demonstrated the importance of astaxanthin in enhancing the growth rate, vision,
and fertility of salmon. Astaxanthin is routinely used as a feed additive in
poultry feeds, for the purpose of improving the coloration of eggs and reducing
the incidence of infections. Astaxanthin in the diet of swine has been shown to
increase fertility. Several feeding studies with our astaxanthin-rich microalgae
in fish diets have produced the desired results.

THE MARKET. The market for astaxanthin in aquaculture has grown at about 10% per
year over the past 15 years. The markets for astaxanthin in feeds for poultry,
swine, and other domestic animals are not yet well developed, and are much
smaller. The 1998 global market for astaxanthin was estimated at approximately
$185 million. The sales price for astaxanthin has remained at about $2,500 per
kilogram for the past decade. Consumers in certain niche markets are willing to
pay a premium price. Global annual consumption of astaxanthin is in excess of
65,000 kilograms. Almost all astaxanthin is consumed


                                       21
<PAGE>

in five countries which are, in order of importance, Norway, Chile, Scotland,
Canada and Japan.

PRODUCTION CAPACITY. Our current production capacity amounts to less than 1.0%
of the global market. We plan to increase production capacity only in response
to demand. We have the option to increase capacity in two phases. The first
phase would involve constructing more finishing ponds, which would result in an
expansion of our current production capacity by a factor of five. We estimate
this first phase would cost less than $1.8 million, and could generate annual
sales approaching $2.0 million. The second phase would probably require a new
site, because adjacent space is limited at our current site. The modular nature
of the AGM-based production system lends itself well to expansion at any
foreseeable scale. We believe that the experience gained in our recent plant
expansion will make it easier for us to expand our capacity at our existing site
or at adjacent or other sites.

PRODUCT FORMULATION. Any feed ingredient, including astaxanthin-rich microalgae,
requires careful formulation and testing prior to market. Our primary goal has
been to create a product that is at least equal, if not superior to, competitive
feed ingredients. We have focused on creating a product with longer shelf life
that is safer and easier to handle, and produces a better result in the diet. We
believe we have achieved these and other goals to a great degree, some on our
own, and some in collaboration with Cultor. We also believe that further
improvement is possible. If significant changes are made in product formulation,
then new regulatory approvals may have to be obtained. Therefore, we have been
very careful to develop our product to a high standard before placing it on the
market.

MARKETING STRATEGY. We believe that astaxanthin-rich microalgae could occupy a
significant niche within the global astaxanthin market. We intend to be a leader
in this niche for the following reasons:

         1)       A SUPERIOR PRODUCT. We believe a product that is safer, easier
                  to handle, has a longer shelf life, and provides equal or
                  greater efficacy per unit cost will eventually establish its
                  place in this market.

         2)       CONSUMER AWARENESS. Farmed salmon now account for almost 40%
                  of global salmon production. Consumers are generally not aware
                  that the farmed salmon they eat contain a synthetic,
                  petrochemical-based coloring. Recent studies by the U.S. FDA
                  have shown that farmed salmon are easily distinguished from
                  wild salmon because they do not contain the natural form of
                  astaxanthin. All other factors being equal, we believe that
                  informed consumers will generally prefer a natural astaxanthin
                  product over a synthetic one.

The former lead manager of sales and marketing of astaxanthin at Cultor, Martin
Guerin, is now our VP, Sales and Marketing. We recently re-negotiated our
Distribution and Development Agreement with Cultor.

REGULATORY ISSUES. All feed ingredients are regulated in the countries where
they are sold. Regulations differ among astaxanthin-consuming nations. Product
specifications may differ, the stringency of regulations may differ, and the
time required for the application process may differ. In Europe, for example, we
expect regulatory approval could take up to three years, whereas in Chile we
expect such approval should take substantially less time.

COMPETITION. AQUAXAN-TM- competes directly with only one product produced from
HAEMATOCOCCUS microalgae, NATUROSE-TM-, manufactured and sold by Cyanotech.
NATUROSE-TM- is advertised to contain 1.5% astaxanthin. AQUAXAN-TM- contains 3%
astaxanthin. Cyanotech recently announced a possible joint venture to produce
NATUROSE-TM- with Norsk-Hydro, the world's dominant salmon farming company. The
Cyanotech/Norsk-Hydro joint venture appears to be contingent on the results of
"production


                                       22
<PAGE>

optimization" that has yet to take place. We believe such a joint venture, if
it occurs, could substantially contribute to developing the market for
AQUAXAN-TM-.

TIMING OF PRODUCT RELEASE. We began our first sales of astaxanthin-rich
microalgae for use in animal feeds in June 1999.

(4) DRUG DISCOVERY LIBRARIES

THE DRUG DISCOVERY PROCESS. A large number of modern medicines were originally
discovered in plants. The drug discovery process generally starts by identifying
a plant that has "bioactive" properties. The compound responsible for
bioactivity is identified through a sequence of chemical extraction, testing,
and purification. The pure compound is tested, first in animal models and then
in human clinical trials. If the entire process is completed, the result is a
new drug.

In conjunction with EnzyMed, we have developed a drug discovery process adapted
to microalgae. Our role in this process is to (1) identify and cultivate
bioactive microalgae species, and (2) chemically extract, test, and purify the
bioactive fractions. Our tests rely on cell cultures, human tissue cultures and
genomic screens, conducted in collaboration with certain university research
laboratories. Bioactive compounds or fractions are then subjected to
Combinatorial Biocatalysis, a process which creates derivative compounds from
each pure bioactive compound using EnzyMed's proprietary enzymatic methods. The
resulting Microalgae Compound Libraries are then ready to market.

THE PRODUCT. Compound libraries are a major source of drug discovery in today's
pharmaceutical industry. The "library" consists of pure compounds, commonly in
sets of 96, packaged in special containers designed for "High-Throughput
Screening." The screening process identifies new drug candidates by testing for
bioactivity, often targeted at certain diseases. Tests might be based on the
ability to kill certain types of cells (e.g. bacteria, cancer), or they might be
based on genetic pathways involved in specific diseases. Any positive result
from a screening test could eventually lead to a new medicine.

We believe the Aquasearch/EnzyMed Microalgae Compound Library is unique because
it has these features:

         1)       Unexplored resource
                  -        Few microalgae have been screened by the
                           pharmaceutical industry

         2)       Quantity
                  -        Species: 30,000
                  -        Bioactive compounds: thousands
                  -        Average derivatives of each bioactive compound:
                           hundreds via Combinatorial Biocatalysis

         3)       Possible Patentability
                  -        Bioactive compounds in microalgae may be new to
                           science
                  -        Bioactive derivatives from Combinatorial Biocatalysis
                           may be new to science

THE MARKET. Consumers of compound libraries are biopharmaceutical companies.
These companies are strongly motivated to find new sources of drugs. According
to a 1997 study by Andersen Consulting, the pharmaceutical industry must
increase its rate of discovery of new drugs by a factor of 10 in five years in
order to maintain its historic growth rate.


                                       23
<PAGE>

Compound libraries are typically marketed as a package that includes the
following terms and conditions:

         1)       Library Access Fee
                  -        access time: limited to 3-12 months
                  -        application: limited to certain diseases or disease
                           areas
                  -        multiple customers allowed

         2)       Licensing Fee
                  -        $3 million to $15 million per compound
                  -        activated by decision to begin trials

         3)       Milestone Payments
                  -        $500,000 to $25 million per event
                  -        activated by the results of pre-clinical and clinical
                           trials

         4)       Royalties
                  -        activated by FDA approval and full commercialization

PRODUCTION CAPACITY. We are producing our first compound library in
collaboration with EnzyMed. We have provided EnzyMed with a purified extract of
a known bioactive compound, and they are now producing derivatives using
Combinatorial Biocatalysis.

We have demonstrated capability in identification, microalgae cultivation,
extraction, purification, and testing of bioactivity. Our research team includes
professional scientists with expertise in all these areas. However, we have only
limited facilities and equipment for chemistry (extraction, purification) and
biochemistry (testing). In these areas, we now rely on collaborations with
several universities and members of our Scientific Advisory Board. We plan to
expand capacity with a 6,000 sq. ft. laboratory dedicated to drug discovery and
appropriate equipment, at an estimated cost of $2.0 million. Our ability to
finance this expansion depends on funds we would have to raise through revenues,
debt or equity.

EnzyMed has demonstrated capability in Combinatorial Biocatalysis. Its contract
customers for this type of "lead optimization" currently include leading
pharmaceutical and biopharmaceutical companies.

MARKETING STRATEGY. Both Aquasearch and EnzyMed have considerable marketing
know-how in the drug discovery market. A number of major pharmaceutical and
biotech companies have already expressed an interest in our first compound
library. Senior officers of both companies are responsible for marketing the
compound libraries.

TIMING OF PRODUCT RELEASE. We plan to release our first library for access
within six months.

(5) EXPANDING OUR PRODUCT PIPELINE

PRODUCT AREAS.  We have established two areas to expand our product pipeline:

                  -        Nutraceuticals
                  -        Pharmaceutical drug development

BASIC STRATEGY: NUTRACEUTICALS. We plan to expand our nutraceutical product
pipeline using a common process. A fundamental principle of this process is that
we rely on strategic collaborations and alliances whenever special Aquasearch
expertise and technology is not required. We have already identified many


                                       24
<PAGE>

potential nutraceutical products among the microalgae, mostly through the
published scientific literature.

We are focused on markets for high-value products that, like those for natural
astaxanthin and our second nutraceutical product, have potential sales of more
than $100 million, and few or no known competitors. At our recently completed
facility, we can directly measure economic feasibility from data gathered during
a six-month production run in our commercial-scale Ultra-AGM.

We are well aware that nutraceutical products, because they are not highly
regulated, have caused concern among some consumers. Our goal is to
self-regulate at a higher standard than required by law. We are implementing a
variety of testing procedures designed to maximize product safety and product
efficacy.

Our marketing approach may determine many aspects of product development. We
would prefer to sell products directly to the consumer. However, if a strategic
partner can contribute significantly to product development or marketing, then
we will consider an alliance that could accelerate or maximize the process.

BASIC STRATEGY: PHARMACEUTICAL DRUG DEVELOPMENT. Our process for expanding the
pipeline in drug development is firmly founded on strategic collaborations and
alliances. We have leveraged our ability to identify, extract, test, and purify
novel bioactive substances from microalgae through partnerships with major
universities. Additionally, we have enhanced our ability to produce Microalgae
Compound Libraries through our collaboration with EnzyMed.

We are focused in the next year on developing strategic license agreements with
biopharmaceutical companies. We expect many biopharmaceutical companies will be
interested to access our Compound Libraries for drug discovery. We believe our
management team has well-developed networks and relationships in the
biotechnology industry that bring credibility to our marketing approach.

PRODUCT DEVELOPMENT: MARBEC. The Marine Bioproducts Engineering is a 10-year,
$40 million Engineering Research Center ("ERC"), funded in 1998 by the U.S.
National Science Foundation. There are fewer than two dozen ERCs in the U.S. In
1998, more than 160 universities competed for only 5 ERCs awarded by the
National Science Foundation.

MarBEC combines the expertise of world-leading marine science and ocean
engineering programs at the School of Ocean and Earth Sciences and Technology at
University of Hawaii with the nationally-famous chemical engineering program at
the Department of Chemical Engineering at University of California, Berkeley.

         CORE RESEARCH: Discovery and development of new products from
         microalgae
         COST:  Industrial Partnership, $20,000 annually
         BENEFITS TO AQUASEARCH:
                  -        New research results prior to public disclosure
                  -        Preferential rights to intellectual property
                  -        Privilege to sponsor focused research, resulting in
                           exclusive intellectual property rights
                  -        Preferred access to specialized and unique facilities
                           and equipment
                  -        Preferred access to microalgae culture collections
                  -        Membership on Industrial Advisory Board (current
                           members: Aquasearch, Monsanto, Eastman Chemical,
                           Cyanotech)


                                       25
<PAGE>

                  -        Opportunity to influence specific research
                  -        Preferential access to student interns

In the first ten years of the ERC program, two dozen centers generated more than
1,000 patents. Industry members in other ERCs have cited the principal benefits
as (1) strategic relationships arising out of the academic/industry network, (2)
access to specialized equipment and facilities, and (3) better educated ERC
graduates.

PRODUCT DEVELOPMENT: OTHER UNIVERSITIES. We are currently negotiating
research agreements with medical schools at four universities. If
consummated, these agreements will strongly leverage our own product
development efforts. Our goals are as follows:

         CORE RESEARCH:  Pre-clinical screening for drug candidates
                  -        Purification of extracts from approximately 1,200
                           species of microalgae in 3 years
                  -        Tissue culture screening
                  -        Genomic screening: allows extracts to be tested for
                           effects on specific diseases
                  -        Genetic control of microalgae biochemistry
                  -        Targets: skin cancer, breast cancer, antivirals,
                           antifungals

         COST: Approximately $500,000 per year. Projects range from 1 to 3
         years. One project requires no funds.

         BENEFITS TO AQUASEARCH:
                  -        Ownership of intellectual property
                  -        Increases value of drug candidates to $3 to $15
                           million per compound

We recognize that pre-clinical screening is costly. However, we believe it is a
very cost-effective investment. The industry-standard license fee for one
compound alone would more than double our anticipated investment.

If we are able to enter into agreements with all four universities, we expect to
generate and screen approximately 10,000 extracts over 3 years at a cost of $1.5
million. If our pre-clinical trials yield only one bioactive compound, the
minimum license fee we expect would be $3 million.

We have three options for screening and pre-clinical trials. We can do them
ourselves, with a corporate partner, or with a university partner. The cost of
facilities, equipment and expertise dictates that we work with a partner. The
advantage of the university partners we have chosen is significant, because the
universities perform contract research and we retain ownership of the compounds.

TIMING OF PRODUCT RELEASE. Our pipeline expansion is a process designed to yield
many more products at minimal cost. Our goal is two products per year. The
result could be less, or it could be far greater.

GENERAL ASPECTS OF PLANNED OPERATIONS

We expect to steadily increase revenues from sales of our natural astaxanthin
for animal feed. However, we do not expect this product alone to be profitable,
because we intend to reserve significant production capacity for nutraceutical
astaxanthin.

We intend to launch our nutraceutical astaxanthin product in early 2000. We
anticipate that we will


                                       26
<PAGE>

become profitable within one year of the launch if we hit our targets - with
no increase in production capacity. However, there can be no assurance that
this will occur.

Strategic relationships and collaborations will continue to be an important part
of our business strategy. We now have such relationships with EnzyMed, MarBEC
and Cultor. We expect collaborations will expand to include other corporations
and other universities. However, we cannot be certain to maintain existing
partner relationships, nor can we guarantee to develop other successful
relationships.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Since inception, our primary operating activities have consisted of basic
research and development and production process development; recruiting
personnel; purchasing operating assets; and raising capital. From inception
through July 31, 1999, we had an accumulated deficit of approximately $10.9
million. Our losses to date have resulted primarily from costs incurred in
research and development and from general and administrative costs associated
with operations. We expect to continue to incur operating losses for at least
the next year as we increase the expansion of our product pipeline. We expect to
have quarter-to-quarter and year-to-year fluctuations in revenues, expenses and
losses, some of which could be significant.

We do have a limited operating history. Your assessment of our prospects should
include the technology risks, market risks, expenses and other difficulties
frequently encountered by development stage companies, and particularly
companies attempting to enter competitive industries with significant technology
risks and barriers to entry. We have attempted to address these risks by, among
other things, hiring and retaining highly qualified persons and forging
strategic alliances with companies and universities that complement and leverage
our technical strengths. However, our best efforts cannot guarantee that we will
overcome these risks in a timely manner, if at all.

We are in the process of transition to a full-scale commercial producer of
microalgae products. These changes in our business have placed and will continue
to place significant demands on our management, working capital and financial
and management control systems.

RESULTS OF OPERATIONS

REVENUES. Since inception, our main activities have been basic research and
development and manufacture process development; recruiting personnel;
purchasing operating assets; and raising capital. We had no revenues for the
quarter ended July 31, 1998. During the quarter ended July 31, 1999, we started
to ship our natural astaxanthin product. This revenue amounting to $8,400 is
classified as other income. Most of the product we produced in 1997 and 1998 was
used for product development and testing. The product we have produced in 1999
is in inventory, and most of this awaits final formulation before it can be
sold.

RESEARCH AND DEVELOPMENT COSTS. Research and development costs include
salaries, consulting fees, development materials, equipment depreciation and
costs associated with operating our three-acre research and
development/production facility. Research and development costs increased by
approximately $195,000, or 60%, during the quarter ended July 31, 1999
compared to the quarter ended July 31, 1998. Most of these funds were
expended to develop the very large Ultra-AGM, to expand production capacity,
to implement improved computerized process control, and to reduce capital
costs of the AGM technology. From inception through July 31, 1999, our total
research and development costs were approximately $4.3 million. We expect to
incur significant additional research and development


                                       27
<PAGE>

expenses in the future.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
principally of salaries and fees for professional services. General and
administrative costs increased approximately $148,000, or 67%, for the quarter
ended July 31, 1999 compared with the quarter ended July 31, 1998. The increase
in general and administrative expenses reflects additional costs associated with
personnel additions, legal fees incurred in connection with developing and
protecting the Company's intellectual property position and raising capital, as
well as other expenses. From inception through July 31, 1999, our total general
and administrative expenses were approximately $5.2 million. We anticipate that
general and administrative expenses will increase over time as we expand
production capacity, develop more new products, increase our intellectual
property protection, and raise additional capital.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations until now through public and private sales of
equity securities. In the past nine months, we raised approximately $2.9 million
from the private placement of convertible notes. In the fiscal years ended
October 31, 1998 and 1997, we raised approximately $3.4 million and $1.3 million
(net), respectively, from the sale of shares of Common Stock and/or the issuance
of Convertible Notes in private placement transactions. From inception through
July 31, 1999, we had raised total net proceeds of approximately $11.5 million
through public and private sales of equity and debt securities.

During the quarter ended July 31, 1999, operating activities consumed
approximately $860,000 compared with $538,000 in the quarter ended July 31,
1998. From inception through July 31, 1999, operating activities have consumed
approximately $7.2 million.

Capital expenditures for the quarters ended July 31, 1999 and 1998 were $60,500
and $446,900, respectively. From inception through July 31, 1999, total capital
expenditures have been approximately $3.9 million.

As of July 31, 1999, our liquidity was approximately $75,000 in cash and cash
equivalents.

We estimate a need for approximately $3.0 million in operating capital over the
next twelve months. We need an additional $0.5 million to consummate strategic
research agreements with three university medical schools. Projected product
sales will begin to pay some operating costs. We now believe that product sales
could lead to profitability within twelve months after the start of astaxanthin
nutraceutical product sales, and that some future expansion could be financed
out of profits. In the near term, we believe that existing capital resources,
funds to be raised through public and/or private offerings of equity and/or debt
securities and bank financing will be sufficient for continued operations
through the next twelve months. We are now pursuing more sources of capital to
maintain operations and, more importantly, to expand our product pipeline. These
capital sources include government contracts and grants, product sales, license
agreements and equity or debt financing. We cannot guarantee success in raising
the additional capital necessary to sustain or expand operations, nor are we
certain that such capital will be available on terms that prevent substantial
dilution to existing investors. If we cannot raise sufficient capital, then we
might be forced to significantly curtail operations. Any reduction in operating
activity could have a material adverse effect on our business, financial
condition, results of operations, and relationships with corporate partners. See
"Factors That May Affect Future Operating Results--Substantial Near-Term Capital
Needs; Uncertainty of Additional Funding; Dilution" and "--Substantial Long-Term
Capital Needs; Uncertainty of Additional Funding; Dilution" in the 1998 Form
10-KSB.


                                       28
<PAGE>

Part II - Other Information

Item 1.  Legal Proceedings

On July 13, 1998, Cyanotech filed a complaint (the "Complaint") in the United
States District Court for the District of Hawaii (Case No. CV98-00600ACK)
against our company. In the Complaint, Cyanotech seeks declaratory judgment of
noninfringement of our U.S. Letters Patent No. 5,541,056 (the "5,541,056
Patent"); invalidity of the 5,541,056 Patent; and non-misappropriation of our
trade secrets relating to closed culture production of astaxanthin. Cyanotech
filed the Complaint after we expressed to Cyanotech our concern that Cyanotech
infringed the 5,541,056 Patent and misappropriated Aquasearch trade secrets. We
do not believe that Cyanotech's Complaint is meritorious. However, we may be
required to dedicate significant management time and incur significant legal
fees and expenses to pursue this action, which could have a material adverse
effect on our business, financial condition, results of operations and
relationships with corporate partners. In addition, in the event that Cyanotech
were to prevail in this action, a finding of noninfringement or declaration of
invalidity of the 5,541,056 Patent could have a material adverse effect on our
business, financial condition, results of operations and relationships with
corporate partners.

On September 11, 1998, we filed an answer denying all of Cyanotech's allegations
and a counter claim, alleging infringement of the 5,541,056 Patent;
misappropriation of trade secrets; unfair competition; and breach of contract
relative to our 1994 Dissolution Agreement with Cyanotech.

On December 14, 1998, Cyanotech filed a motion for partial summary judgment of
noninfringement and invalidity of the 5,541,056 Patent. We do not believe that
this motion is meritorious.

On March 1, 1999, we filed a motion for partial summary judgement against
Cyanotech for breach of contract and misappropriation of trade secrets. On March
26, 1999, we filed a cross-motion for summary judgment of patent infringement.
All motions for summary judgment are currently scheduled to be heard in November
1999.

Item 2.  Changes In Securities

         During the quarter ended July 31, 1999, we issued $830,000 aggregate
principal amount of one-year convertible notes bearing interest at 10% per
annum, of which $635,000 was issued to an officer of the company. The holders of
the convertible notes have an option to convert their convertible notes into our
Common Stock. The convertible notes provide that upon conversion, the holders
would receive warrants to purchase shares of our Common Stock. The warrants have
an exercise price of $0.50 per share and a term of three years. During the
quarter ended July 31, 1999, some of the holders of these convertibles notes and
other outstanding convertible note holders (amounting to $1,190,000 aggregate
principal amount) exercised their option to convert their convertible notes into
shares of Common Stock. Upon conversion of the outstanding principal of, and
interest on , the convertible notes, we issued 7,531,678 shares of Common Stock
and also issued 1,190,000 warrants in connection thereof. These transactions
were exempt from registration under the Securities Act of 1933 pursuant to
Section 4(2). No underwriters were involved in these transactions.

Item 3.  Defaults Upon Senior Securities  -- None

Item 4.  Submission of Matters To A Vote of Security Holders  -- None


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<PAGE>


Item 5.  Other Information  -- None

Item 6.  Exhibits And Reports on Form 8-K

         (a)  Exhibits  -- Exhibit 27.1 Financial Data Schedule

         (b)  Reports on Form 8-K  -- None


                                    SIGNATURE

         In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

                                           AQUASEARCH, INC.

Dated:  April 19, 2000                     By: /s/ Mark E. Huntley
                                               ------------------------------
                                           Mark E. Huntley, Ph.D.
                                           President and Chief Executive Officer


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