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

                                     FORM 10-QSB
    (Mark one)
         /X/  Quarterly Report Under Section 13 or 15(d) of the Securities
              Exchange Act of 1934

                           For Quarter Ended April 30, 1997
                                          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          NO   X
                                 -----       -----


    The number of shares outstanding of Registrant's Common Stock, $0.0001 par
value at April 30, 1997 was 45,410,513 shares.



--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


<PAGE>

                                   AQUASEARCH, INC.

                                 FORM 10-QSB FOR THE
                             QUARTER ENDED APRIL 30, 1997


                                       CONTENTS


PART I - FINANCIAL INFORMATION
                                                                           Page

    ITEM 1:   FINANCIAL STATEMENTS

         BALANCE SHEETS                                                      3

         STATEMENTS OF LOSS AND ACCUMULATED DEFICIT                          4

         STATEMENTS OF CASH FLOWS                                            6

         NOTES TO FINANCIAL STATEMENTS                                       7


    ITEM 2:  MANAGEMENT'S PLAN OF OPERATION

         OVERVIEW                                                            8

         RESULTS OF OPERATIONS -- COMPARISON OF QUARTERS AND

           YEARS ENDED APRIL 30, 1996 AND 1997                              10

         LIQUIDITY AND CAPITAL RESOURCES                                    11


PART II - OTHER INFORMATION


    ITEM 1:  LEGAL PROCEEDINGS                                              12

    ITEM 2:  CHANGES IN SECURITIES                                          12

    ITEM 3:  DEFAULTS UPON SENIOR SECURITIES                                12

    ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
             HOLDERS                                                        12

    ITEM 5:  OTHER INFORMATION                                              12

    ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K                               12


                                         -2-
<PAGE>

                                   AQUASEARCH, INC.
                           (A DEVELOPMENT STAGE ENTERPRISE)

                                    BALANCE SHEETS

<TABLE>
<CAPTION>
 
                                                                    OCTOBER 31,     APRIL 30,
                                                                       1996           1997
                                                                     (AUDITED)     (UNAUDITED)
                                                                    -----------    -----------
<S>                                                                 <C>            <C>
ASSETS
Current Assets:
   Cash                                                              $  187,166     $  210,596
   Cash in Escrow                                                       460,980        100,000
   Accounts receivable                                                        0            578
   Accounts receivable - employees/affiliates                             1,933            808
   Prepaid expenses                                                       5,534         94,414
   Refundable deposits                                                    3,145          4,050
                                                                     ----------     ----------
Total Current Assets                                                    658,758        410,446
                                                                     ----------     ----------
Plant and Equipment - at cost:
   Plant                                                                676,709        699,611
   Other equipment                                                       68,349         92,011
   Less accumulated depreciation                                        (35,876)       (64,762)
                                                                     ----------     ----------
Net Plant and Equipment                                                 709,182        726,860
Total Assets                                                         $1,367,940     $1,137,306
                                                                     ----------     ----------
                                                                     ----------     ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                                                  $  466,165     $  458,254
   Deposits Held for Common Stock                                       460,980        100,000
   Notes payable                                                        150,000         15,000
                                                                     ----------     ----------
Total Current Liabilities                                             1,077,145        573,254

STOCKHOLDERS' EQUITY
Common stock ($0.0001 par value, 100,000,000 shares
   authorized; 40,829,331 and 45,410,513 shares outstanding at
   October 31, 1996 and April 30, 1997, respectively)
     (SEE NOTE 1)                                                         5,204          5,663
Additional paid-in capital                                            3,234,309      4,248,618
Deficit accumulated during the development stage                     (2,948,718)    (3,690,229)
                                                                     ----------     ----------

Total Stockholders' Equity                                              290,795        564,052
                                                                     ----------     ----------

Total Liabilities and Stockholders' Equity                           $1,367,940     $1,137,306
                                                                     ----------     ----------
                                                                     ----------     ----------

</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,
                                             1997              1997              1997
                                          (UNAUDITED)       (UNAUDITED)       (UNAUDITED)
                                        --------------     -------------     ------------
<S>                                     <C>                <C>               <C>
OPERATIONS
Sales                                     $    10,931      $       361       $       931

Cost of sales                                 (21,226)              --                --
Research and development costs             (1,491,592)        (190,877)         (398,826)
                                          -----------      -----------       -----------
Gross profit (loss)                        (1,501,887)        (190,516)         (397,895)

General and administrative expenses        (1,980,844)        (104,220)         (347,647)
                                          -----------      -----------       -----------
Earnings (loss) from operations            (3,482,731)        (294,736)         (745,542)

OTHER INCOME (EXPENSE)
Interest                                       (5,422)           1,047             4,225
Other                                          (6,210)              --              (194)
Investment in joint venture                  (147,096)              --                --
                                          -----------      -----------       -----------
Total other income and (expense)             (158,728)           1,047             4,031
                                          -----------      -----------       -----------
Earnings (loss) before income taxes
   and extraordinary item                  (3,641,459)        (293,689)         (741,511)

Extraordinary item - loss on write down
   of assets to liquidation basis             (14,502)              --                --
                                          -----------      -----------       -----------
Earnings (loss) before income taxes        (3,655,961)        (293,689)         (741,511)

Federal and state income taxes                     --               --                --
                                          -----------      -----------       -----------
Net income (loss)                          (3,655,961)        (293,689)         (741,511)

ACCUMULATED DEFICIT
Balance, beginning of period                  (34,268)      (3,396,540)       (2,948,718)
                                          -----------      -----------       -----------
Balance, end of period                    $(3,690,229)     $(3,690,229)      $(3,690,229)
                                          -----------      -----------       -----------
                                          -----------      -----------       -----------
Loss per share                            $     (0.18)     $     (0.01)      $     (0.02)
                                          -----------      -----------       -----------
                                          -----------      -----------       -----------
Weighted average shares outstanding        20,380,495       44,388,873        43,382,631
                                          -----------      -----------       -----------
                                          -----------      -----------       -----------

</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,
                                             1997              1996              1996
                                          (UNAUDITED)       (UNAUDITED)      (UNAUDITED)
                                        --------------     -------------     ------------
<S>                                     <C>                <C>               <C>
OPERATIONS
Sales                                    $    10,931       $     9,984       $     9,984
Cost of sales                                (21,226)               --                --
Research and development costs            (1,491,592)         (137,545)         (238,574)
                                         -----------       -----------       -----------
Gross profit (loss)                       (1,501,887)         (127,561)         (228,590)

General and administrative expenses       (1,980,844)         (132,636)         (231,498)
                                         -----------       -----------       -----------
Earnings (loss) from operations           (3,482,731)         (260,197)         (460,088)

OTHER INCOME (EXPENSE)
Interest                                      (5,422)               --                --
Other                                         (6,210)            1,812             1,812
Investment in joint venture                 (147,096)               --                --
                                         -----------       -----------       -----------
Total other income and (expense)            (158,728)            1,812             1,812
                                         -----------       -----------       -----------
Earnings (loss) before income taxes
   and extraordinary item                 (3,641,459)         (258,385)         (458,276)

Extraordinary item - loss on write down
   of assets to liquidation basis            (14,502)               --                --
                                         -----------       -----------       -----------
Earnings (loss) before income taxes       (3,655,961)         (258,385)         (458,276)

Federal and state income taxes                    --                --                --
                                         -----------       -----------       -----------
Net income (loss)                         (3,655,961)         (258,385)         (458,276)

ACCUMULATED DEFICIT
Balance, beginning of period                 (34,268)       (1,652,677)       (1,452,786)
                                         -----------       -----------       -----------
Balance, end of period                   $(3,690,229)      $(1,911,062)      $(1,911,062)
                                         -----------       -----------       -----------
                                         -----------       -----------       -----------
Loss per share                           $     (0.18)      $     (0.01)      $     (0.01)
                                         -----------       -----------       -----------
                                         -----------       -----------       -----------
Weighted average shares outstanding       20,380,495        38,000,000        35,000,000
                                         -----------       -----------       -----------
                                         -----------       -----------       -----------

</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,
                                                1997              1996              1997
                                            (UNAUDITED)        (UNAUDITED)       (UNAUDITED)
                                           --------------     ------------      ------------
<S>                                        <C>                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                     $(3,655,961)       $(458,726)        $(741,511)

Adjustments to reconcile net loss to net
  cash used in operating activities:
    Amortization                                   3,527               --                --
    Depreciation                                  70,469           21,184            28,886
    Expenses paid with stock                     444,165               --                --
    Loss on write down of assets to
      liquidation basis                            5,392               --                --
    Changes in:
      Other current assets                       (98,263)              60           (89,785)
      Accounts receivables                        (1,386)         (11,348)              547
      Accounts payable                           374,541         (185,738)           (7,911)
      Deposits held                              100,000           35,000          (360,980)
                                              ----------       ----------        ----------

Cash used in operating activities             (2,757,516)        (599,568)       (1,170,754)

CASH FLOWS FROM INVESTING ACTIVITIES

  Purchase of fixed assets                      (701,206)         (96,314)          (46,564)
                                              ----------       ----------        ----------
Cash used in investing activities               (701,206)         (96,314)          (46,564)

CASH FLOWS FROM FINANCING ACTIVITIES
  Cash (held in) released from escrow           (100,000)              --           360,980
  Issuance of common stock                     3,987,174          954,048         1,170,981
  Increase (decrease) in notes payable            44,800               --          (135,000)
  Offering costs                                (262,710)         (18,947)         (156,213)
                                              ----------       ----------        ----------
Cash provided by financing activities          3,669,264          935,101         1,240,748
                                              ----------       ----------        ----------
Net increase in cash                             210,542          239,219            23,430
Cash, beginning of the period                         54           27,208           187,166
                                              ----------       ----------        ----------
Cash, end of the period                       $  210,596       $  266,427        $  210,596
                                              ----------       ----------        ----------
                                              ----------       ----------        ----------

</TABLE>
 

                                         -6-
<PAGE>

                                   AQUASEARCH, INC.
                           (A DEVELOPMENT STAGE ENTERPRISE)

                            NOTES TO FINANCIAL STATEMENTS
                                    APRIL 30, 1997
                                     (UNAUDITED)


1.  COMMON STOCK AND STOCK PURCHASE WARRANTS

    As of April 30, 1997, there were a total of 4,616,701 Common 
Stock Purchase Warrants (the "Warrants") issued and outstanding, of which 
4,071,261 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, 1997.  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.

    At April 30, 1997, the Company held subscriptions to purchase a total of
64,921 Units, consisting of one share of Common Stock and one Common Stock
Purchase Warrant.

    An analysis of the changes in stockholders' equity is as follows:
<TABLE>
<CAPTION>
 
                                        SHARES OF     ADDITIONAL      COMMON          TOTAL
                                         COMMON         COMMON        PAID-IN      ACCUMULATED       STOCK     STOCKHOLDERS'
             DESCRIPTION                  STOCK          STOCK        CAPITAL        DEFICIT       SUBSCRIBED     EQUITY
                                       ----------       --------    -----------    -----------     ----------  -------------
<S>                                    <C>              <C>         <C>            <C>             <C>         <C>
Balance, January 31, 1997. . . . .     44,345,592       $  5,556    $ 4,095,932    $(3,396,540)       519,466    $ 704,948

Issuance of Common Stock
  ($0.21 per share). . . . . . . .      1,064,921            107        234,894                      (454,545)     235,001

Offering costs . . . . . . . . . .             --             --        (82,208)            --                     (82,208)


Loss for the three months ended
  April 30, 1997 . . . . . . . . .             --             --             --       (293,689)            --     (293,689)
                                       ----------       --------    -----------    -----------       --------    ---------

Balance, April 30, 1997. . . . . .     45,410,513       $  5,663    $ 4,248,618    $(3,690,229)        64,921    $ 564,052
                                       ----------       --------    -----------    -----------       --------    ---------
                                       ----------       --------    -----------    -----------       --------    ---------

</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 C. Brewer's
acquisition of approximately between 2,570,000 and 2,850,000 shares of Common
Stock of the Company (the "C. Brewer Common Stock").  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, 1997 does not reflect the issuance of the C.
Brewer Common Stock or the C. Brewer Warrant because, as of April 30, 1997, the
parties had not finally selected the site to be exchanged, which remains
contingent upon Aquasearch's analysis of water and other factors related to the
sites.  These analyses are expected to be complete during the third quarter.


                                         -7-
<PAGE>

2.  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, 1996 (THE
"1996 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 1996 FORM 10-KSB FOR A MORE DETAILED DESCRIPTION OF
THESE SIGNIFICANT RISKS AND UNCERTAINTIES.

OVERVIEW

      INCEPTION THROUGH APRIL 30, 1996.  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 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.

    MAY 1, 1996 THROUGH APRIL 30, 1997.  The Company has experienced certain
significant developments over the past twelve months.

    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



                                         -8-
<PAGE>

Agreement are 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).  In order to meet the agreed 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 1996 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 (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 is anticipated to begin in late 1997 or early 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 at a purchase price of $0.50 per share pursuant to the terms of the Cultor
Stock Subscription Agreement.

    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
4,590,025 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, was $1,105,421.


                                         -9-
<PAGE>

    In February 1997, the Company made an offer of employment to Earl S. Fusato
to take the position of Chief Financial Officer.  Mr. Fusato, a Certified Public
Accountant, was formerly employed for thirteen years by the auditing firms of
KPMG Peat Marwick and Ernst & Young.  Mr. Fusato joined VeriFone Inc. as
Vice-President, Finance, where he served in that position as well as other
financial positions for eight years until 1992, and then became Chief Financial
Officer of RESCO, Inc.  Mr. Fusato's appointment as Chief Financial Officer of
Aquasearch became effective April 22, 1997.  

    In April 1997, Mr. Fusato purchased 1,000,000 shares of Common Stock for 
$210,000.  In connection with this transaction, Mr. Fusato received a 
non-statutory stock option to purchase 1,000,000 shares of Common Stock at an 
exercise price of $0.21 per share. 

    Aquasearch intends, during the coming year, to focus its research and 
development activities not only in the area of working jointly with Cultor to 
further develop its natural astaxanthin production processes and products 
with the goal of demonstrating its superiority over competitive products, but 
also to initiate the development of new products from microalgae, 
particularly natural pigments.  The Company believes it has identified 
several markets in which additional pigments from microalgae might be sold, 
and, based on industry sources, estimates the value of these markets to be in 
excess of $1 billion.  To finance new product development, the Company 
intends to raise additional capital from the sale of equity and/or debt 
securities and to apply for state and federal research grants for which it 
may be eligible.  Sources of financing for product development are subject to 
many significant risks and uncertainties, and no assurance can be made that 
such funds will be available on terms that are acceptable to the Company or 
that will not result in substantial dilution to existing investors.

    Aquasearch has incurred net losses in each year since its inception.  At
April 30, 1997, the Company's accumulated deficit was approximately $3.7
million.  Aquasearch expects its annual losses to increase for the next two
years as it expands and develops the physical plant facilities required to
increase its production capacity for microalgae rich in astaxanthin and
continues its research and development activities to develop additional
commercial products from microalgae.  In addition, the Company anticipates
quarter-to-quarter and year-to-year fluctuations in revenues, expenses and
losses, some of which could be significant.  The timing and extent of such
fluctuations will depend, in part, on the timing and receipt of
astaxanthin-related revenues, the costs of developing additional products from
microalgae, and the time required for the introduction of any new products to
new markets.

    The Company is in the process of transitioning from a research and
development company to a full-scale commercial producer of microalgae products.
These changes in its business have placed, and will continue to place,
significant demands on the Company's management, working capital and financial
management control systems.  The Company believes that strategic alliances,
patent applications and licenses for the use of those patents are an important
part of its business strategy.  There can be no assurance that the Company will
be able to maintain existing corporate partner relationships, enter into future
relationships, or develop additional proprietary technology, or that any such
relationships or patent applications will be successful.

RESULTS OF OPERATIONS - COMPARISON OF QUARTERS ENDED APRIL 30, 1996
AND 1997

    Revenues for the quarter ended April 30, 1997 were $361 compared with
revenues of $9,984 for the quarter ended April 30, 1996.  The Company has
continued to supply Cultor with sufficient astaxanthin product


                                         -10-
<PAGE>

to conduct additional tests, trials and other analyses involved in product
development under the Cultor Distribution and Development Agreement.

    The Company's Scientific Advisory Board, in conjunction with the Company's
engineers and representatives from Cultor, have recommended certain improvements
in hardware and procedures that are designed to improve production.  The Company
plans to implement these recommendations as soon as resources allow.

    Consistent with the Company's efforts to implement improvements in its
production system, research and development costs increased by $53,332, or
approximately 39%, during the quarter ended April 30, 1997 compared with the
quarter ended April 30, 1996.

    General and administrative expenses decreased by $28,416, or approximately
21%, during the quarter ended April 30, 1997 compared with the quarter ended
April 30, 1996.

    The Company incurred a net loss of $293,689, or $0.01 per share, for the
quarter ended April 30, 1997 compared with a net loss of $258,385, or $0.01 per
share, for the same period in 1996.

LIQUIDITY AND CAPITAL RESOURCES

    Cash decreased by $85,437 in the quarter ended April 30, 1997 from the
prior period, resulting in a cash balance of $210,596 at April 30, 1997.  In
addition, the Company had $100,000 in cash held in escrow with respect to the
private placement.  Purchases of fixed assets of $15,345 were made during the
quarter, primarily for equipment, bringing the Company's net plant and equipment
assets to $726,860 and total assets to $1,137,306, which represents increases of
$214,587, or 42%, and $356,660, or 47% , at April 30, 1997 from April 30, 1996.

    As of April 30, 1997, the Company projects that it will consume
approximately $1.0 million of operating capital in the last two quarters of
fiscal 1997 prior to any planned capital expenditures.  Aquasearch expects to
incur significant additional capital expenditures as a result of its plans to
expand and upgrade its present production facility from a one-acre to a
four-acre production facility.  Furthermore, the Company expects to incur
significant additional expenditures as a result of its plans to undertake
research and development of new pigment products from microalgae.  Aquasearch
anticipates that the largest portion of its future capital needs will be
dedicated to expanding production capability in order to meet the production
targets under the Cultor Distribution and Development Agreement.  To complete
this expansion, the Company must raise between $5 and $10 million of additional
capital, the exact amount of which will depend upon a variety of factors that
may include: the further optimization of production processes; the time and
costs related to construction of its expanded production facilities, the
availability of materials, supplies, equipment and contractors with appropriate
expertise; the costs involved in research and development of additional
products; the costs required for filing, protecting and enforcing patents and
other intellectual property rights; the costs of commercializing its products;
the time and costs associated with the pursuit of state and federal research and
development grants; and the extent to which the Company is successful in forming
other strategic alliances, joint ventures or partnerships for the sale and
distribution of its products.  The Company anticipates additional modifications
to its production hardware and processes both before and during any expansion,
some of which may be significant.

    The Company believes that its existing capital resources, and funds raised
through private offerings of equity securities, will be sufficient for continued
operations through the third quarter of fiscal 1997.  Aquasearch is presently
pursuing additional sources of capital in order to maintain and expand its
operations.  These capital


                                         -11-
<PAGE>

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.


                             PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None.

ITEM 2.  CHANGES IN SECURITIES

    In April 1997, the Company sold a total 1,000,000 shares of its Common 
Stock to an officer of the Company at a purchase price of $0.21 per share.  In 
addition, the Company granted this person a non-statutory stock option to 
purchase 1,000,000 shares of Common Stock at an exercise price of $0.21 per 
share.  The option has a term of ten years.  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.

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         27     Financial Data Schedule


                                      SIGNATURE

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

                                        AQUASEARCH, INC.

Dated:   June 13, 1997                  By:/s/ Mark E. Huntley
                                           -----------------------------
                                           Mark E. Huntley, Ph.D.
                                           President and Chief Executive Officer


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