<PAGE>

                         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 Quarter Ended April 30, 1998
                                         or
         / /  Transition Report Under Section 13 or 15(d) of the Securities
                                Exchange Act of 1934
                                          
                        Commission File Number:  33-23460-LA
                                          
                                  AQUASEARCH, INC.
               (Exact name of Registrant as specified in its charter)
                                          
               Colorado                                    33-0034535
   (State or other jurisdiction of        (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
                 Registrant's telephone number, including area code
                                          
                                   Not Applicable
                   Former Name, Former Address and Former Fiscal
                         Year, if Changes Since Last Report

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                          
                                          
                                YES   X       NO 
                                     ---          ----     
                                          
The number of shares outstanding of Registrant's Common Stock, $0.0001 par
value at April 30, 1998 was 47,819,881 shares.

<PAGE>

                                  AQUASEARCH, INC.
                                          
                                FORM 10-QSB FOR THE
                            QUARTER ENDED APRIL 30, 1998
                                          
                                      CONTENTS

PART I - FINANCIAL INFORMATION

                                                       Page
    ITEM 1:  FINANCIAL STATEMENTS

         BALANCE SHEETS. . . . . . . . . . . . . . . . . . . . . . . . . 3

         STATEMENTS OF LOSS AND ACCUMULATED DEFICIT  . . . . . . . . .4, 5

         STATEMENTS OF CASH FLOWS. . . . . . . . . . . . . . . . . . . . 6

         NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 7


    ITEM 2:  MANAGEMENT'S PLAN OF OPERATION

         OVERVIEW  . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

         MANAGEMENT'S PLAN OF OPERATION FOR FISCAL 1998. . . . . . . . .11

         RESULTS OF OPERATIONS -- COMPARISON OF QUARTERS AND                 
           YEARS ENDED APRIL 30, 1997 AND 1998 . . . . . . . . . . . . .14

         LIQUIDITY AND CAPITAL RESOURCES . . . . . . . . . . . . . . . .14


PART II - OTHER INFORMATION

     ITEM 1:  LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . .15

     ITEM 2:  CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . .15

     ITEM 3.  DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . .15
     
     ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . .15

     ITEM 5:  OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . .15

     ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . .15


                                       2

<PAGE>  
                                          
                                    Aquasearch, Inc.
                           (A Development Stage Enterprise)
                                          
                                     Balance Sheets

<TABLE>
<CAPTION>
                                                           October 31,                 April 30,
                                                             1997                        1998
                                                            (Audited)                 (Unaudited)
                                                        ------------------------------------------
<S>                                                       <C>                     <C> 

Assets
Current assets:
     Cash                                                  $    47,006             $      6,128
     Accounts receivable                                         1,219                       --  
     Prepaid expenses                                           24,439                    4,503
     Refundable deposits                                         4,570                    6,225
                                                        ------------------------------------------
Total current assets                                            77,234                   16,856
                                                        ------------------------------------------

Notes receivable                                                30,516                   30,516
Plant and equipment:
     Plant                                                     738,889                  741,160
     Equipment                                                 173,052                  240,416
     Less accumulated depreciation                            (104,894)                (145,961)
                                                       -------------------------------------------
Net plant and equipment                                        807,047                  835,615
                                                        ------------------------------------------
Total assets                                               $   914,797             $    882,987
                                                        ------------------------------------------
                                                        ------------------------------------------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
     Accounts payable                                      $   446,344             $    541,772
     Notes payable                                             575,000                1,445,000
                                                        ------------------------------------------
Total current liabilities                                    1,021,344                1,986,772
                                                        ------------------------------------------

Stockholders' Equity (Deficit)
     Preferred stock (5,000,000 shares authorized)                  --                       --
     Common stock ($0.0001 par value, 100,000,000
        shares authorized, 47,819,881, shares
        outstanding at October 31, 1997, and                                        
        April 30, 1998)                                          5,904                    5,904
    Additional paid-in capital                               4,699,470                4,699,470
    Deficit accumulated during the development stage        (4,811,921)              (5,809,159)
                                                        ------------------------------------------
Total stockholders' equity (deficit)                          (106,547)              (1,103,785)
                                                        ------------------------------------------
Total liabilities and stockholders' equity (deficit)       $   914,797             $    882,987
                                                        ------------------------------------------
                                                        ------------------------------------------
</TABLE>

                                       3

<PAGE>
                                                   Aquasearch, Inc.
                                          (A Development Stage Enterprise)

                                      Statements of Loss and Accumulated Deficit
<TABLE>
<CAPTION>

                                                        For the Period        For the Three      For the Six
                                                        From inception        Months Ended       Months Ended
                                                         To April 30,           April 30,          April 30,
                                                             1998                 1998               1998
                                                         (Unaudited)           (Unaudited)        (Unaudited)
                                                        -------------------------------------------------------
<S>                                                     <C>                   <C>                <C>

Sales                                                   $     11,077          $         -        $         -
Cost of sales                                                 23,464                    -                  -
                                                        -------------------------------------------------------
Gross profit (loss)                                          (12,387)                   -                  -

Research and development costs                             2,432,226              319,677            545,690
General and administrative expenses                        3,121,132              218,361            415,884
                                                        -------------------------------------------------------

Loss from operations                                      (5,565,745)            (538,038)          (961,574)

Other Income (Expense)
Interest                                                     (40,522)             (16,508)           (35,340)
Other                                                         (7,026)                (324)              (324)
Investment in joint venture                                 (147,096)                   -                  -
                                                        -------------------------------------------------------
Total other income (expense)                                (194,644)             (16,382)           (35,664)
                                                        -------------------------------------------------------
Loss before income taxes and
   extraordinary item                                     (5,760,389)            (554,870)          (997,238)

Extraordinary item - loss on write down
   of assets to liquidation basis                            (14,502)                   -                  -
                                                        -------------------------------------------------------
Loss before income taxes                                  (5,774,891)            (554,870)          (997,238)

Federal and State income taxes                                     -                    -                  -
                                                        -------------------------------------------------------
Net loss                                                  (5,774,891)            (554,870)          (997,238)

Accumulated Deficit
Balance, beginning of period                                 (34,268)          (5,254,289)        (4,811,921)
                                                        -------------------------------------------------------
Balance, end of period                                  $ (5,809,159)         $(5,809,159)       $(5,809,159)
                                                        -------------------------------------------------------
                                                        -------------------------------------------------------

Loss per share                                          $      (0.25)         $     (0.01)       $     (0.02)
                                                        -------------------------------------------------------
                                                        -------------------------------------------------------

Weighted average shares outstanding                       22,936,599           47,819,881         47,819,881
                                                        -------------------------------------------------------
                                                        -------------------------------------------------------
</TABLE>

                                       4

<PAGE>

                                                 Aquasearch, Inc.
                                        (A Development Stage Enterprise)

                                    Statements of Loss and Accumulated Deficit

<TABLE>
<CAPTION>
                                                        For the Period        For the Three      For the Six
                                                        From inception        Months Ended       Months Ended
                                                         To April 30,           April 30,          April 30,
                                                             1998                 1997               1997
                                                         (Unaudited)          (Unaudited)         (Unaudited)
                                                        -------------------------------------------------------
<S>                                                     <C>                   <C>                 <C>
Sales                                                   $     11,077          $       361         $      931
Cost of sales                                                 23,464                    -                  -
                                                        -------------------------------------------------------
Gross profit (loss)                                          (12,387)                   -                931

Research and development costs                             2,432,226              190,877            398,826
General and administrative expenses                        3,121,132              104,220            347,647
                                                        -------------------------------------------------------

Loss from operations                                      (5,565,745)            (294,736)          (745,542)

Other Income (Expense)
Interest                                                     (40,522)               1,047              4,225
Other                                                         (7,026)                   -               (194)
Investment in joint venture                                 (147,096)                   -                  -
                                                        -------------------------------------------------------
Total other income (expense)                                (194,644)               1,047              4,031
                                                        -------------------------------------------------------
Loss before income taxes and
extraordinary item                                        (5,760,389)            (293,689)          (741,511)

Extraordinary item - loss on write down 
of assets to liquidation basis                               (14,502)                   -                  -
                                                        -------------------------------------------------------
Loss before income taxes                                  (5,774,891)            (293,689)          (741,511)

Federal and State income taxes                                     -                    -                  -
                                                        -------------------------------------------------------
Net loss                                                  (5,774,891)            (293,689)          (741,511)

Accumulated Deficit
Balance, beginning of period                                 (34,268)          (3,396,540)        (2,948,718)
                                                        -------------------------------------------------------
                                                        -------------------------------------------------------
Balance, end of period                                  $ (5,809,159)         $(3,690,229)       $(3,690,229)
                                                        -------------------------------------------------------
                                                        -------------------------------------------------------

Loss per share                                          $      (0.25)         $     (0.01)       $     (0.02)
                                                        -------------------------------------------------------
                                                        -------------------------------------------------------

Weighted average shares outstanding                       22,936,599           44,388,873         43,382,631
                                                        -------------------------------------------------------
                                                        -------------------------------------------------------

</TABLE>

                                       5

<PAGE>

                                                      Aquasearch, Inc.
                                             (A Development Stage Enterprise)

                                                 Statements of Cash Flows
<TABLE>
<CAPTION>

                                                        For the Period        For the Six        For the Six
                                                        From inception        Months Ended       Months Ended
                                                          To April 30,          April 30,          April 30,
                                                              1998                1997               1998
                                                           (Unaudited)         (Unaudited)       (Unaudited)
                                                       --------------------------------------------------------
<S>                                                    <C>                    <C>                <C>
Cash Flows from Operating Activities
Net loss                                                $  (5,887,891)        $  (741,511)       $ (997,238)
Adjustments to reconcile net loss to net
    cash used in operating activities:
       Amortization                                             3,527                   -                 -
       Depreciation                                           151,668              28,886            41,067
       Expenses paid with common stock                        755,319                   -                 -
       Loss on write down of assets to
          liquidation basis                                     5,392                   -                 -
       Changes in:
          Other current assets                                (10,527)            (89,785)           18,281
          Receivables                                                                 547             1,219
          Accounts payable                                    458,059              (7,911)           95,428
          Deposits held                                             -            (390,980)                -
                                                       --------------------------------------------------------
Cash used in operating activities                          (4,411,453)         (1,170,754)         (841,243)

Cash Flows from Investing Activities
Purchase of fixed assets                                     (891,160)            (46,564)          (69,635)
                                                       --------------------------------------------------------
Cash used in investing activities                            (891,160)            (46,564)          (69,635)

Cash Flows from Financing Activities
Cash (held in) released from escrow                                 -             360,980                 -
Increase in notes receivable                                  (30,516)                  -                 -
Issuance of common stock                                    4,136,322           1,170,981                 -
Increase (decrease) in notes payable                        1,474,800            (135,000)          870,000
Offering costs                                               (271,919)           (156,213)                -
                                                      ---------------------------------------------------------
Cash provided by financing activities                       5,308,687           1,240,748           870,000
                                                      ---------------------------------------------------------
Net increase (decrease) in cash                                 6,074              23,430           (40,878)
Cash, beginning of the period                                      54             187,166            47,006
                                                      ---------------------------------------------------------
Cash, end of the period                                 $       6,128         $   210,596        $    6,128
                                                      ---------------------------------------------------------
                                                      ---------------------------------------------------------
</TABLE>

                                       6

<PAGE>

                                Aquasearch, Inc.
                        (A Development Stage Enterprise)

                         NOTES TO FINANCIAL STATEMENTS
                                April 30, 1998
                                 (Unaudited)


1.   COMMON STOCK AND STOCK PURCHASE WARRANTS

     As of April 30, 1998, there were a total of 5,373,218 Common Stock 
Purchase Warrants (the "Warrants") issued and outstanding, of which 
5,347,244.  Warrants had an exercise price of $1.00 per share and 25,974 
Warrants had an  exercise price of $0.21 per share.  No Warrants were 
exercised during the three months ended April 30, 1998.  The Warrants are 
redeemable by the Company 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.  Additionally, there are warrants to be issued under 
the Convertible Notes Payable and the Short-Term Notes.  

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

<TABLE>
<CAPTION>
                                       Shares of                     Additional                       Total
                                        Common             Common     Paid-In      Accumulated     Stockholders'
  Description                           Stock              Stock      Capital        Deficit      Equity (Deficit)
<S>                                    <C>                <C>        <C>           <C>            <C>
Balance, January 31, 1998              47,819,881         $5,904     $4,699,470    $(5,254,289)   $(548,915)
                                       --------------------------------------------------------------------------
  Loss for the three months
   ended April 30, 1998                        --             --             --       (554,870)       (554,870)
                                       --------------------------------------------------------------------------
Balance, April 30, 1998                47,819,881         $5,904     $4,699,470    $(5,809,159)    $(1,103,785)
                                       --------------------------------------------------------------------------
                                       --------------------------------------------------------------------------
</TABLE>

     On November 14, 1996, the Company executed a Letter of Intent with C. 
Brewer and Company, Limited ("C. Brewer") with respect to the acquisition by 
the Company of 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 exchange 
for  the issuance to C. Brewer of between 2,570,000 and 2,850,000 shares of 
Common Stock of the Company (the "C. Brewer Common Stock") at a purchase 
price of $0.35 per share. In addition, C. Brewer acquired a three-year 
warrant (the "C. Brewer Warrant") to purchase up to 500,000 shares of Common 
Stock at a purchase price of $1.25 per share. The stockholders' equity at 
April 30, 1998 does not reflect the issuance of the C. Brewer Common Stock or 
the C. Brewer Warrant.  The Company does not yet wish to finalize its 
agreement with C. Brewer.  Aquasearch had intended to complete the C. Brewer 
transaction in order to have sufficient property on which to expand its 
production capability to 40 kg astaxanthin per month.  However, improvements 
in productivity of astaxanthin have rendered the Brewer land acquisition 
unnecessary at present.

2.   ISSUANCE OF SHORT-TERM NOTES

     During the quarter ended April 30, 1998, the Company issued $470,000 of 
Short-Term Notes and one-year convertible notes


                                     7
<PAGE>

bearing interest at 10% per annum. The note holders will also receive 
warrants to purchase shares of the Company's Common Stock at an exercise 
price of $0.50 per share. The number of shares underlying the warrant is 
computed based on 10% of the face value of the short-term note divided by the 
closing bid price at the time the note was funded, and 100 shares of common 
stock for each $1,000 aggregate principal amount of the convertible notes.  
As of April 30, 1998, none of the warrants were issued.

3.   MANAGEMENT'S REPRESENTATIONS OF INTERIM FINANCIAL INFORMATION

     These financial statements reflect all adjustments which are, in the 
opinion of management, necessary to a fair statement of the results of 
operations for the interim period presented. These adjustments are of a 
normal and recurring nature.

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. 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, 1997  (THE "1997 FORM 10-KSB"). THE READER IS 
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. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY 
RELEASE THE RESULTS OF ANY REVISION OF THESE FORWARD-LOOKING STATEMENTS. THE  
READER IS STRONGLY URGED TO READ THE INFORMATION SET FORTH UNDER THE CAPTION  
"FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS" IN THE 1997 FORM 10-KSB 
FOR A MORE DETAILED DESCRIPTION OF THESE SIGNIFICANT RISKS AND UNCERTAINTIES.

OVERVIEW

     INCEPTION THROUGH APRIL 30, 1998. Aquasearch, Inc. ("Aquasearch" or the 
"Company") has been engaged, since its inception in 1989, in the development 
of proprietary photobioreactor technology for commercial cultivation of 
microalgae. In 1994, the Company initiated discussions with Cultor Ltd. 
("Cultor"), a Helsinki-based foods conglomerate that is the second largest  
producer of salmon and trout feed in the world, regarding the purchase of 
microalgae rich in astaxanthin - the primary pigment used in salmon and trout 
feed.  In early 1995, Cultor completed a series of feeding trials with farmed 
salmon, using the Company's microalgae product.  In July 1995, the Company 
entered into a Supply Agreement with Svenska Foder AB (the "Svenska Foder 
Supply Agreement"), then a subsidiary of Cultor, pursuant to which Svenska 
Foder agreed to act as exclusive distributor of the Company's natural 
astaxanthin product for animal feed and animal nutrition applications in  
Sweden, Norway and Finland for poultry, pigs, cattle and horses.  The 


                                      8
<PAGE>

Svenska Foder Supply Agreement had a term of three years and target 
production of five kilograms of natural astaxanthin per month.  In October 
1995, the Company completed construction of a one-acre research and 
development/production facility in the HOST Business Park at Keahole Point, 
Kailua-Kona, Hawaii.

     On May 14, 1996, the Company entered into a three-year Distribution and 
Development Agreement with Cultor (the "Cultor Distribution and Development 
Agreement"), which was approved by the shareholders of the Company on 
September 24, 1996, pursuant to which the Company will act as the exclusive 
worldwide supplier of natural astaxanthin derived from microalgae to Cultor 
in the field of animal feed and animal nutrition and Cultor will act as the 
exclusive worldwide distributor of Aquasearch's natural astaxanthin product 
in the field of animal feed and animal nutrition.  Production targets under 
the Cultor Distribution and Development Agreement were initially 40 kilograms 
per month at the end of the first year (September 24, 1997) and 120 kilograms 
per month at the end of the second year (September 24, 1998); however, Cultor 
and the Company agreed to:  (i) extend the term of the Agreement one year, 
(ii) eliminate the September 24, 1997 production target and (iii) provide 
that the September 24, 1998 and 1999 production targets will be 40 kilograms 
and 120 kilograms per month, respectively.  In order to meet the revised 
production targets, the Company must significantly expand and improve its 
production facilities, which will involve many significant risks and 
uncertainties.  Under the Cultor Distribution and Development Agreement, 
Cultor and Aquasearch may, at Cultor's option, mutually develop a new joint 
venture company for the sole purpose of producing and selling natural 
astaxanthin derived from microalgae in the field of animal feed and animal  
nutrition.  The terms of the Cultor Distribution and Development Agreement 
are more fully described under the caption "Part I, Description of 
Business-Corporate Partner Relationships-Cultor" of the 1997 Form 10-KSB.

     On July 30, 1996, the Company was awarded U.S. Patent Number 5,541,056 
for a "Method of Control of Microorganism Growth Process," which claims 
certain processes that operate in the Company's proprietary, closed-system 
photobioreactor system, the Aquasearch Growth Module.  The Company's U.S. 
filing was made under the provisions of the Patent Cooperation Treaty, and 
the Company is in the process of pursuing international patents pursuant 
thereto.

     On September 24, 1996, the Company's shareholders approved:  (i) the 
Cultor Distribution and Development Agreement; (ii) a Stock Subscription 
Agreement with Cultor pursuant to which Cultor agreed to purchase 400,000 
shares of the Company's Common Stock at a purchase price of $0.50 per share 
(the "Cultor Stock Subscription Agreement"); and (iii) an amendment to the 
Company's Articles of Incorporation to increase the number of shares of 
Common Stock that the Company is authorized to issue from 50,000,000 shares 
to 100,000,000 shares and authorized the creation and issuance from time to 
time of up to 5,000,000 shares of Preferred Stock in one or more series with 
such designations, rights, preferences, privileges and restrictions as the 
Board of Directors may determine.

     In October 1996, the Company's consultants completed the initial phase 
of the design work for the Company's planned intermediate expansion from a 
one-acre facility to a four-acre facility.  Construction of expanded 
production facilities began in the second quarter of 1998 and is expected to 
take approximately four to six months.  The construction of these expanded 
facilities is dependent upon the timely performance of a variety of 
contractors and sub-contractors, the availability of supplies and equipment, 
and the availability of requisite capital.  While the Company has certain 
plans to address all these requirements, there can be no assurance that the 
Company will be able to complete its expansion in a timely manner.

     On October 22, 1996, Cultor acquired 400,000 shares of the Company's 
Common Stock pursuant to the terms of the Cultor Stock Subscription Agreement.


                                     9
<PAGE>

     In December 1996, Cultor sold its majority stake in Svenska Foder and 
acquired all of Svenska Foder's rights under the Svenska Foder Supply 
Agreement.

     In February 1997, the Company completed a private placement of a total 
of 5,044,570 Units, consisting of one share of Common Stock and one Common 
Stock Purchase Warrant (the "Warrants").  The purchase price of the Units 
ranged from $0.21 per Unit to $0.43 per Unit.  The Warrants have a term of 
three years and are exercisable at $1.00 per share, subject to adjustment.  
The Warrants are redeemable by the Company at $.01 per Warrant 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.  
The net proceeds from this offering, net of placement agent fees and 
commissions, were $1,105,421.

MAY 1, 1997 THROUGH APRIL 30, 1998. The Company has experienced certain 
significant developments over the past twelve months.

     On June 25, 1997, the Company was awarded a European Patent number 
0494887 for the "Process and Apparatus for the Production of Photosynthetic 
Microbes" which claims certain processes that operate in the Company's 
proprietary, closed-system photobioreactor system, the Aquasearch Growth  
Module ("AGM"), and the means for automated process control. The patent was 
awarded by the European Patent Office, and applies in all member nations of 
the European Union.

     Aquasearch placed great emphasis in the past six months on optimizing 
the AGM and its performance.  The Company believes that the most important 
advances that can be made concern the size of the AGM and the sustainability 
of its performance.  Any increase in size has the effect of reducing capital 
costs of the system by a comparable amount because the greatest costs relate 
to automated sensors and computer-controlled devices.  Thus, a double-size 
AGM costs approximately the same amount as a unit half the size, and reduces 
the amount of labor by half.  Furthermore, most experts agree that 
photobioreactor technology cannot be commercially viable until the unit size 
exceeds about 1,000 gallons.
     
     During the past six months, the Company has increased the size of its 
largest AGM from 1,000 gallons to 4,000 gallons.  To date, the larger AGM has 
not only been less costly, but also has required less labor, has operated for 
longer periods, and has demonstrated significantly greater productivity than 
previous smaller versions of the AGM.  The Company has conducted intensive 
engineering studies on an even larger model AGM of more than 7,000 gallons 
that has now been designed, and is slated for construction in summer of 1998. 
 Management anticipates replacing all production capacity with the new, very 
large AGMs in 1998, contingent upon available capital.  The Company believes 
that the use of these very large AGMs will increase total production capacity 
by a factor of more than five with no increase in labor costs.
     
     Aquasearch began replacing its computer control system with a 
state-of-the-art industrial process control in 1997.  Improvements that are 
still underway have already reduced labor and hardware costs, and have 
provided significantly better quality control.  The Company believes that its 
process control system is already greatly advanced compared to the standard 
in biology-based manufacturing.  Aquasearch continues to develop certain 
proprietary software that it believes will couple strongly with its AGM 
hardware to confer a significant advantage over competitive technologies.
          
      The Company introduced in late 1997 certain changes resulting from its 
research.  These changes yielded a sustained improvement of AGM productivity 
by a factor of five by comparison to performance over the preceding year.


                                     10
<PAGE>

     In July 1997, Aquasearch agreed to become a charter member of the Marine 
Bioprocess Engineering Center (MarBEC) initiative launched by the University 
of Hawaii at Manoa.  Ten universities, including the University of Hawaii, 
are now competing nationwide for a total of five Engineering Research Centers 
to be awarded by the U.S. National Science Foundation.  MarBEC, if funded in 
mid-1998 at approximately $30 million for a 10-year period, will focus 
entirely on the development of new enzymes and pigments from microalgae.  
Charter industry members (including Aquasearch, Merck, Monsanto, Hoechst and 
Eastman Chemical) will have equal preferential rights to new products from 
microalgae developed by MarBEC.  Aquasearch believes that it is the only 
charter member of MarBEC that has developed photobioreactor technology, which 
is likely to be required for the commercial exploitation of any new product 
from microalgae.

     In September 1997, Aquasearch executed a Letter of Intent with Inflazyme 
Pharmaceuticals, Limited ("Inflazyme") to enter into a ten-year drug 
development and manufacturing agreement.  Under the terms of the agreement, 
Aquasearch would produce large-scale research quantities of several thousand 
different microalgae in its AGM photobioreactors.  Inflazyme intends to 
investigate each species for therapeutic activity in the areas of 
inflammation, cancer, blood and cardiovascular diseases.  Aquasearch would 
receive cost-plus reimbursement of all its research costs (including 
dedicated physical facilities), potential milestone payments associated with 
steps in the U.S. Food and Drug Administration drug approval process, and 
royalties on future net product sales.
     
     The Company believes that its agreements with C. Brewer, University of 
Hawaii, and Inflazyme represent important strategic alliances that form the 
basis of long-term business opportunities.  In Aquasearch's view, C. Brewer 
would provide the real property required for expansion of production 
capacity; MarBEC would provide a strongly leveraged product development 
effort at the level of $3 million per year; and agreements similar to that 
with Inflazyme could directly pay for the bulk of Aquasearch's research and 
development costs in pharmaceutical drug development.
     
     The Company has added three new members to its Scientific Advisory Board 
in the past quarter, increasing its expertise in genetics and  microbiology. 
Aquasearch has an active Scientific Advisory Board consisting of eleven 
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.

MANAGEMENT'S PLAN OF OPERATION FOR FISCAL 1998

     During fiscal 1998, Aquasearch intends to focus its efforts on 
strengthening its intellectual property position, optimizing the performance 
of its proprietary AGM technology, expanding its production capacity to meet 
the targets under the Cultor Distribution and Development Agreement, 
initiating a business in pharmaceutical drug development, and improving 
productivity through employee incentives.

-   INTELLECTUAL PROPERTY:  The Company is maintaining several international
    patent applications under the aegis of the Patent Cooperation Treaty, and
    contemplates new filings that will enhance its formal claims to
    intellectual property.  At the same time, Aquasearch continues to develop
    certain trade secrets that management believes would consolidate its
    competitive stance.

-   TECHNOLOGY IMPROVEMENT:  Aquasearch enlarged the size of its proprietary
    AGM technology by a factor of more than two during the second quarter of
    1998, and intends to create further enlargements in the next 6 months. 
    Furthermore, the process control system is scheduled 


                                    11
<PAGE>

    for continuing hardware and software improvements.  The Company believes 
    that, as in 1997, this effort will continue to reduce capital costs, 
    reduce labor costs, and improve productivity.

-   EXPANSION OF PRODUCTION CAPACITY:  Aquasearch began construction during 
    the past quarter to significantly increase its production capacity. 
    Construction is expected to be complete by September 1998, and is 
    expected to increase its production capacity by at least five-fold. 
    Furthermore, the Company has the opportunity to increase its production 
    capacity by the construction of a separate ten-acre facility dedicated to 
    astaxanthin production for Cultor.  All increases in production capacity 
    are contingent upon the availability of financing.

-   PHARMACEUTICAL DRUG DEVELOPMENT:  Aquasearch intends, during 1998, to 
    pursue drug development agreements with biotechnology and pharmaceutical 
    companies, in addition to its pending agreement with Inflazyme 
    Pharmaceuticals.  The Company believes that the consummation of such 
    agreements will pay for a large fraction of the Company's pharmaceutical 
    research and development costs.  The Company believes that additional 
    personnel will need to be hired to perform such projects, but the Company 
    intends to keep its current personnel entirely focused on 
    astaxanthin-related science and technology.  New personnel hired for drug 
    development work will be dedicated entirely to those projects and will 
    function as a separate team, which costs will be borne by strategic 
    partners.  The Company believes that additional laboratory facilities may 
    also be required for drug development activities.  The Company intends 
    that costs for such dedicated facilities will be borne by strategic 
    partners.

-   IMPROVEMENTS IN PRODUCTIVITY THROUGH EMPLOYEE INCENTIVES:  At the outset 
    of fiscal year 1998 Aquasearch implemented an incentive compensation 
    program to award significant cash bonus incentives to all employees 
    provided that the Company meets certain quarterly production targets.  
    Targets are planned that management believes would significantly advance 
    the Company's research and production efforts.  Under the incentive 
    program, cash bonuses would represent as much as a 25% increase in salary 
    on a quarterly basis. The Company also intends to award stock options to 
    all employees as a further incentive to increase productivity.  
    Aquasearch believes that employee incentives will significantly enhance 
    productivity.

    Significant improvements in productivity were realized by the Company in 
    the second quarter of fiscal 1998.  During the quarter, the Company 
    achieved:

          -    Increase of three-fold in productivity (weight of astaxanthin 
               per unit of production capacity) over the previous quarter, 
               during which a five-fold increase was attained;

          -    Sustained operation, for 6 months, of the largest 
               photobioreactor the Company has ever operated, and which the 
               Company believes to be the largest photobioreactor in 
               existence; and

          -    Increase of 25% in production capacity, through installation 
               of large AGM photobioreactors in existing space.
      
     The Company has set a yield target for the third quarter which, if
     achieved, will make it possible to further reduce its previous estimate of
     capital requirements.  Attainment of the next yield 


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<PAGE>

     target will make it possible for the Company to achieve its 1998 
     production commitment to Cultor after expanding its facility to three 
     acres (rather than to four acres, as previously estimated).  The Company 
     believes that further improvements in productivity are likely to be 
     derived from additional research and automation, which have been solely 
     responsible for the Company's productivity improvements to date. 

     The Company expects to continue producing relatively small amounts of 
     astaxanthin (less than 6 kg dry weight per month) until September 1998, 
     when its first monthly shipment of 40 kg (dry weight) is due under 
     contract.  The Company is currently satisfying Cultor's requirements for 
     product testing, regulatory approvals and related developmental 
     activities.  The Company will focus in the forthcoming quarter on 
     continuing to improve yields and increasing the cost-effectiveness of 
     its production.

          The Company believes that strategic relationships and 
collaborations will continue to be an important part of its business 
strategy.  There can be no assurances that the Company will be able to 
maintain existing corporate partner relationships, enter into future 
relationships to develop additional applications for natural astaxanthin or 
to develop new microalgae products or that any such relationships will be 
successful.

     Since inception, the Company's primary operating activities have 
consisted of basic research and development and production process 
development.  From inception through April 30, 1998, the Company had an 
accumulated deficit of approximately $5.8 million.  The Company's losses to 
date have resulted primarily from costs incurred in research and development 
and from general and administrative costs associated with the Company's 
operations.  The Company expects to continue to incur operating losses for at 
least the next two years as it expands its production facilities to meet the 
production targets under the Cultor Distribution and Development Agreement 
and increases its research and development efforts.  The Company expects to 
have quarter-to-quarter and year-to-year fluctuations in revenues, expenses 
and losses, some of which could be significant.

     The Company has a limited operating history and any assessment of the 
Company's prospects must 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.  Although the Company has 
attempted to address these risks by, among other things, hiring and retaining 
highly qualified persons and forging strategic alliances with companies that 
complement the Company's technical strengths, there can be no assurance that 
the Company will overcome these risks in a timely manner, if at all.

     The Company is in the process of transitioning to a full-scale 
commercial producer of microalgal products.  These changes in its business 
have placed and will continue to place significant demands on the Company's 
management, working capital and financial and management control systems.


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<PAGE>

RESULTS OF OPERATIONS - COMPARISON OF QUARTERS ENDED APRIL 30, 1997 AND 1998

     Revenues for the quarter ended April 30, 1998 were $ -0-  compared with 
revenues of $361 for the quarter ended April 30, 1997.  The Company has
continued to supply Cultor with sufficient astaxanthin product to conduct
additional tests, trials and other analyses involved in product development
under the Cultor Distribution and Development Agreement.  The Company has also
supplied test product to several other potential strategic partners that are
investigating uses of astaxanthin other than in animal feeds.

     The Company's staff, in conjunction with consultants and representatives
from Cultor, have designed certain improvements in hardware and procedures that
are intended to improve production. The Company is implementing and will
continue to implement these improvements as resources allow.

     Consistent with the Company's efforts to implement improvements in its
production system, research and development costs increased by $128,800, or
approximately 67%, during the quarter ended April 30, 1998, compared with the
quarter ended April 30, 1997.  The increase includes additional compensation,
maintenance cost on pond equipment, and cost of automation improvements.

     General and administrative expenses increased by $114,141, or
approximately 110%, during the quarter ended April 30, 1998, compared with the
quarter ended April 30, 1997.  The increase in general and administrative
expenses was primarily due to increases in legal, insurance and consulting
expenses. 

     The Company incurred a net loss of  $554,870, or $0.01 per share, for the
quarter ended April 30, 1998, compared with a net loss of  $293,689, or $0.01
per share, for the same period in 1997.


LIQUIDITY AND CAPITAL RESOURCES

     Cash decreased by $17,904 in the quarter ended April 30, 1998, from the
prior period, resulting in a cash balance of $6,128 at April 30, 1998. 
Purchases of fixed assets of $61,613 were made during the quarter, primarily
for equipment, bringing the Company's net plant and equipment assets to
$835,615 and total assets to $882,987.

     The Company currently estimates that it will require between $1.9 
million and $2.5 million in  operating capital over the next twelve months 
before any planned capital expenditures.  Beginning with the shipment of 
increased amounts of astaxanthin to Cultor in September 1998, the Company 
expects to generate revenues of $0.7 to $1.1 million per annum (depending 
upon the global market price of astaxanthin), which would substantially 
offset operating capital requirements.  As a result of continuing increases 
in productivity, the Company has reduced its estimate of further capital 
requirements to a total of $2.4 million (a decrease of $1.3 million from 
previous estimates).  This $2.4 million in financing is required during the 
next twelve months to automate, optimize and expand the Company's existing 
research and development/production facility from a one-acre

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<PAGE>

facility to a three-acre facility, and repayment of $0.7 million short-term
debt.

     Taking into account all factors over the next nine months, the Company 
anticipates a need for a total of approximately $3.0 to 3.6 million in 
financing.  Management expects this amount to repay short-term debt, and to 
complete the construction of an expanded production facility.  In 1999 the 
Company will seek additional financing to complete construction and begin 
operation of a separate production facility dedicated solely to the 
production of natural astaxanthin derived from microalgae and to fund 
research and development of new microalgal products.  If the Company is not 
able to raise sufficient capital to automate, optimize and expand its 
one-acre facility to a three-acre facility or to construct the separate 
facility, the Company's ability to meet its production targets under the 
Cultor Distribution and Development Agreement would be adversely affected as 
would its ability to fund the research and development of new microalgal 
products.  

     The Company believes that its 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 fiscal 1998.  Aquasearch is presently pursuing additional sources of
capital in order to maintain and expand its operations.  These capital sources
include government contracts and grants, product sales, license agreements, and
equity or debt financing.  There can be no assurance that the Company will be
successful in raising the additional capital necessary to sustain or expand its
operations, or that such capital will be available on terms that would not
result in substantial dilution to existing investors.  The Company's inability
to raise sufficient capital could cause it to significantly curtail operations,
which would have a material adverse effect on the Company's business, financial
condition, results of operations and relationships with its 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
1997 Form 10-KSB.


                              PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS  -- None

ITEM 2.  CHANGES IN SECURITIES  -- None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES  -- None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  -- None

ITEM 5.  OTHER INFORMATION  -- None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  EXHIBITS  -- None

     (b)  REPORTS ON FORM 8-K  -- None

                                    15

<PAGE>

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this  Quarterly Report on Form 10-QSB to be signed
on its behalf by the undersigned thereunto duly authorized.


                                        AQUASEARCH, INC.

Dated: June 14, 1998                    By:  /s/ Mark E. Huntley
                                              -----------------------
                                        Mark E. Huntley, Ph.D.
                                        President and Chief Executive Officer




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