<PAGE>
                                          
                         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 January 31, 1999
                                         or
         / /  Transition Report Under Section 13 or 15(d) of the Securities
                                Exchange Act of 1934
                                          
                        Commission File Number:  33-23460-LA
                                          
                                  AQUASEARCH, INC.
               (Exact name of 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 Changed 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 January 31, 1999 was 70,963,112 shares.



                                       1

<PAGE>

                                 AQUASEARCH, INC.

                               FORM 10-QSB FOR THE
                          QUARTER ENDED JANUARY 31, 1999

                                     CONTENTS


<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION

                                                                           Page
<S>                                                                        <C>
  ITEM 1:  FINANCIAL STATEMENTS

     BALANCE SHEETS                                                         3

     STATEMENTS OF LOSS AND ACCUMULATED DEFICIT                             4

     STATEMENTS OF CASH FLOWS                                               5

  NOTES TO FINANCIAL STATEMENTS                                             6


  ITEM 2:  MANAGEMENT'S PLAN OF OPERATION
  
     OVERVIEW                                                               7

     MANAGEMENT'S PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS             11

     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
     AND RESULTS OF OPERATIONS                                             12


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

     SIGNATURE                                                             16
</TABLE>



                                       2

<PAGE>


                                Aquasearch, Inc.
                        (A Development Stage Enterprise)

                                 Balance Sheets


<TABLE>
<CAPTION>
                                                                    October 31,         January 31,
                                                                       1998                1999
                                                                     (Audited)          (Unaudited)
                                                               -----------------------------------------
<S>                                                              <C>                  <C>
   Assets
   Current assets:
      Cash                                                       $     151,473        $     114,489     
      Accounts receivable                                                    -                    -
      Prepaid expenses                                                  48,703               45,873
      Refundable deposits                                                3,081                3,006
                                                               -----------------------------------------
   Total current assets                                                203,257              163,368
                                                               -----------------------------------------

   Notes receivable from officer                                        50,000               50,000
   Notes receivable                                                     59,696               59,696
   Plant and equipment:
      Plant                                                          2,519,044            3,445,142
      Equipment                                                        167,203              174,893
      Less accumulated depreciation                                   (204,292)            (226,287)
                                                               -----------------------------------------
   Net plant and equipment                                           2,484,955            3,393,748
                                                               -----------------------------------------
   Total assets                                                  $   2,797,908        $   3,666,812
                                                               -----------------------------------------
                                                               -----------------------------------------

   Liabilities and Stockholders' Equity
   Current liabilities:
      Accounts payable                                           $   1,084,829        $   1,216,644
      Notes payable                                                    315,000              765,000
      Notes payable to officer                                         265,000              915,000
                                                               -----------------------------------------
   Total current liabilities                                         1,664,829            2,896,644
                                                               -----------------------------------------

   Stockholders' Equity
      Preferred stock (5,000,000 shares authorized)                          -                    -
      Common stock ($0.0001 par value, 100,000,000 shares
        authorized, 68,564,013 and 70,963,112 shares
        outstanding at October 31, 1998 and January 31, 1999,
        respectively)                                                    7,979                8,218
      Additional paid-in capital                                     8,189,414            8,587,744
      Deficit accumulated during the development stage              (7,064,314)          (7,825,794)
                                                               -----------------------------------------
   Total stockholders' equity                                        1,133,079              770,168
                                                               -----------------------------------------
   Total liabilities and stockholders' equity                    $   2,797,908        $   3,666,812
                                                               -----------------------------------------
                                                               -----------------------------------------
</TABLE>


                                       3

<PAGE>


                                Aquasearch, Inc.
                        (A Development Stage Enterprise)

                   Statements of Loss and Accumulated Deficit

<TABLE>
<CAPTION>
                                              For the Period From    For the Three      For the Three
                                                   Inception         Months Ended       Months Ended
                                                 To January 31,       January 31,        January 31,
                                                      1999               1999               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                    3,379,397             326,095            226,013
  General and administrative expenses               4,073,046             403,678            197,523
                                              -----------------------------------------------------------

  Loss from operations                             (7,464,830)           (729,773)          (422,536)

  Other Income (Expense)
  Interest                                           (157,497)            (31,160)           (18,832)
  Other                                                (7,301)               (247)                 -
  Investment in joint venture                        (147,096)                  -                  -
                                              -----------------------------------------------------------
  Total other income (expense)                       (311,894)            (31,407)           (81,832)
                                              -----------------------------------------------------------
  Loss before income taxes and extraordinary
     item                                          (7,776,724)           (761,180)          (442,368)

  Extraordinary item - loss on write down of
     assets to liquidation basis                      (14,502)                  -                  -
                                              -----------------------------------------------------------
  Loss before income taxes                         (7,791,226)           (761,180)          (442,368)

  Federal and State income taxes                            -                   -                  -
                                              -----------------------------------------------------------
  Net loss                                         (7,791,226)           (761,180)          (442,368)

  Accumulated Deficit
  Balance, beginning of period                        (34,268)         (7,064,314)        (4,811,921)
                                              -----------------------------------------------------------
  Balance, end of period                        $  (7,825,494)     $   (7,825,494)    $   (5,254,289)
                                              -----------------------------------------------------------
                                              -----------------------------------------------------------

  Loss per share                                $       (0.30)      $       (0.01)     $       (0.01)
                                              -----------------------------------------------------------
                                              -----------------------------------------------------------

  Weighted average shares outstanding              25,701,408          57,888,524         47,819,881
                                              -----------------------------------------------------------
                                              -----------------------------------------------------------
</TABLE>


                                       4

<PAGE>



                                Aquasearch, Inc.
                        (A Development Stage Enterprise)

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                   For the Period       For the Three    For the Three
                                                   From Inception       Months Ended      Months Ended
                                                    To January 31,       January 31,      January 31,
                                                         1999               1999              1998
                                                      (Unaudited)        (Unaudited)      (Unaudited)
                                                 ---------------------------------------------------------
<S>                                               <C>                   <C>              <C>
   Cash Flows from Operating Activities
   Net loss                                       $   (7,791,226)       $    (761,180)   $    (442,368)
   Adjustments to reconcile net loss to net cash
      used in operating activities:
        Amortization                                       3,527                    -                -
        Depreciation                                     231,994               24,995           20,715
        Expenses paid with common stock                  801,198                    -                -
        Loss on write down of assets to
          liquidation basis                                5,392                    -                -
        Changes in:
          Other current assets                           (48,678)               2,905            9,882
          Receivables                                          -                    -           (3,712)
          Accounts payable                             1,132,631              131,515             (279)
          Deposits held                                        -                    -                -
                                                 ---------------------------------------------------------
   Cash used in operating activities                  (5,665,162)            (601,765)        (415,762)

   Cash Flows from Investing Activities
   Purchase of fixed assets                           (3,529,619)            (933,788)          (8,022)
                                                 ---------------------------------------------------------
   Cash used in investing activities                  (3,529,619)            (933,788)        (329,099)

   Cash Flows from Financing Activities
   Cash (held in) released from escrow                         -                    -                -
   Increase in notes receivable                         (109,696)                   -                -
   Issuance of common stock                            7,981,031              398,569                -
   Increase in notes payable                           1,709,800            1,100,000          400,000
   Offering costs                                       (271,919)                   -                -
                                                 ---------------------------------------------------------
   Cash provided by financing activities               9,309,216            1,498,569          400,000
                                                 ---------------------------------------------------------

   Net increase (decrease) in cash                       114,435              (36,984)         (23,784)
   Cash, beginning of the period                              54              151,473           47,006
                                                 ---------------------------------------------------------
   Cash, end of the period                         $     114,489        $     114,489    $      23,222
                                                 ---------------------------------------------------------
                                                 ---------------------------------------------------------
</TABLE>



                                       5

<PAGE>

                                   Aquasearch, Inc.
                           (A Development Stage Enterprise)

                           NOTES TO FINANCIAL STATEMENTS
                                  January 31, 1999
                                    (Unaudited)

1.   COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS

          As of January 31, 1999, there were a total of 9,185,731 Common Stock
Purchase Warrants (the "Warrants") issued and outstanding, of which 5,347,244
Warrants had an exercise price of $1.00 per share, 25,974 Warrants had an 
exercise price of $0.21 per share, and 3,812,513 Warrants had an exercise price
of $0.50 per share.  No Warrants were exercised during the three months ended
January 31, 1999.  The $1.00 per share 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 January 31, 1999,
the Company had reserved a sufficient number of shares of its Common Stock for
issuance upon exercise of the Warrants.

     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, October 31, 1998        68,564,013     $  7,979      $8,189,414   $ (7,064,314)      $  1,133,079
 Conversion of convertible
 notes to common stock
 ($0.166 per share)                2,399,099          239         398,330             --            398,569
  Loss for the three months
   ended January 31, 1999                 --           --              --       (761,180)          (761,180)
                                ---------------------------------------------------------------------------
 Balance, January 31, 1999        70,963,112     $  8,218      $8,587,744   $ (7,825,494)        $  770,468
                                ---------------------------------------------------------------------------
                                ---------------------------------------------------------------------------
</TABLE>


     In November 1996, the Company executed a Letter of Intent with C. Brewer 
and Company, Limited ("C. Brewer") with respect to the acquisition 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 Aquasearch Common Stock at a 
purchase price of $1.25 per share.  The stockholders' equity at January 31, 
1999 does not reflect the issuance of the C. Brewer Common Stock or the C. 
Brewer Warrant. In light of the Company's recent advances in production 
technology and yields, the consummation of this transaction has been delayed 
until the Company and Cultor determine the best strategy and location for 
future development of a natural astaxanthin production facility dedicated 
solely to satisfying the requirements of an expanded Aquasearch/Cultor 
relationship.

                                       6

<PAGE>

2.  MANAGEMENT'S REPRESENTATIONS OF INTERIM FINANCIAL INFORMATION

     These financial statements reflect all adjustments that 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, 1998  (THE
"1998 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 1998 FORM 10-KSB FOR A MORE DETAILED DESCRIPTION OF
THESE SIGNIFICANT RISKS AND UNCERTAINTIES.

OVERVIEW

     Aquasearch is a development stage company that is developing a proprietary,
closed-system technology for the large-scale, commercial cultivation of
photosynthetic microalgae.  The Company's microalgae cultivation technology is
known as the Aquasearch Growth Module (the "AGM").

     The Company was founded in February 1988 as a Colorado corporation and
acquired all the assets of Aquasearch, Inc., a California corporation, in May
1988 in a stock-for-stock exchange.  The Company commenced operations in Borrego
Springs, California and developed its first prototype of the AGM in 1988. Until
March 1993, the Company conducted research and development focused on refining
its production technology and cultivating microalgal species of several markedly
different varieties.

     In March 1993, the Company formed a joint venture company with Cyanotech,
an unaffiliated producer of microalgae, to develop commercial systems for the
production of astaxanthin-rich microalgae. Aquasearch contributed approximately
$147,000 in capital to the joint venture company and licensed its AGM technology
to the joint venture company.  Cyanotech contributed approximately $15,000 in
capital to the joint venture company and made available its facilities and
personnel at the HOST Business Park at Keahole Point, Kailua-Kona, Hawaii.  AGMs
were constructed in July 1993 that demonstrated the economics of the production
process and provided samples of astaxanthin-rich microalgae for analysis and
trial applications.


                                       7

<PAGE>

     In the summer of 1994, Aquasearch initiated discussions with Cultor, a
Finnish food conglomerate, regarding the purchase of astaxanthin-rich
microalgae.  While awaiting a response from Cultor, Aquasearch elected to
discontinue its participation in the joint venture company and the joint venture
agreement was terminated by mutual consent in November 1994.  The Dissolution
Agreement provided that all intellectual property rights to the AGM technology
reverted to Aquasearch.

     In December 1994, Cultor initiated a series of feeding trials with farmed
salmon using astaxanthin-rich microalgae produced by the Company.

     In April 1995, the Company leased a half-acre site within the HOST Business
Park and began construction of a research and development facility capable of
producing small amounts of microalgae containing astaxanthin for marketing
purposes.  This half-acre facility, comprised of AGMs and an operating
laboratory, was completed in June 1995.

     In July 1995, the Company entered into a three-year Supply Agreement with
Svenska Foder, then a subsidiary of Cultor, pursuant to which Svenska Foder
agreed to act as the 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.  In December 1996, Cultor sold
Svenska Foder to KKR, a Danish animal feeds company, and assumed all of Svenska
Foder's rights and obligations under the Svenska Foder Supply Agreement.

     In July 1995, the Company leased additional space in the HOST Business Park
to expand its half-acre research and development facility to a one-acre research
and development/production facility.  Construction of the one-acre research and
development/production facility was completed in October 1995.

     In May 1996, the Company entered into a three-year Distribution and
Development Agreement with Cultor (recently extended to four years) (the "Cultor
Distribution and Development Agreement") 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. 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.  See "Description of
Business--Cultor Distribution and Development Agreement" in the 1998 Form
10-KSB.

     In July 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, 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.  

     In October 1996, Cultor acquired 400,000 shares of the Company's Common 
Stock at a purchase price of $0.50 per share pursuant to the Cultor Stock 
Subscription Agreement.

     In November 1996, the Company executed a Letter of Intent with C. Brewer
and Company, Limited ("C. Brewer") with respect to the acquisition 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 6% of the Company's outstanding Common Stock.  In addition,


                                       8

<PAGE>

C. Brewer acquired a three-year warrant (the "C. Brewer Warrant") to purchase up
to 500,000 shares of Aquasearch Common Stock at a purchase price of $1.25 per
share.  In light of the Company's recent advances in production technology and
yields, the consummation of this transaction has been delayed until the Company
and Cultor determine the best strategy and location for future development of a
natural astaxanthin production facility dedicated solely to satisfying the
requirements of an expanded Aquasearch/Cultor relationship.
 
     In June 1997, Aquasearch was awarded European Patent Number 0494887 for a
"Process and Apparatus for the Production of Photosynthetic Microbes," which not
only claims certain processes, but also certain features of its core technology,
the Aquasearch Growth Module.  The European patent complements, but does not
supplant claims made in the U.S. patent awarded in 1996.  The Company's European
filing was made under the Patent Cooperation Treaty, and the Company is in the
process of pursuing international patents pursuant thereto.

     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 would 
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 conversion of this Letter of 
Intent into a final Screening and Drug Development Agreement has been delayed 
due to management changes within Inflazyme.  Given the extended delay, there 
can be no assurances as to when or if a final agreement will be consummated.

     Aquasearch has an active Scientific Advisory Board consisting of thirteen
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.

     INTELLECTUAL PROPERTY AND TECHNOLOGY OPTIMIZATION - 1998
     
     In September 1998, Aquasearch was awarded its first patent in Asia under
Hong Kong Patent Number HK1001232 for a "Process and Apparatus for the
Production of Photosynthetic Microbes," which not only claims certain processes,
but also certain features of its core AGM technology. This patent and the
European patent complement, but do not supplant claims made in the U.S. Patent
awarded in 1996.  The Company is continuing its process of pursuing
international patents pursuant thereto.

     Aquasearch placed great emphasis in the past year on optimizing the AGM and
its performance.  The Company believes that it has made significant advances in
several key areas of its production technology during this period, including: 
(i) biology-based improvements; (ii) advanced production procedures; (iii)
significant increases in AGM size; and (iv) production automation advancements. 
These improvements resulted in a fifteen-fold increase in productivity (weight
of astaxanthin per unit of production capacity) and sustained operation for a 
twelve-month period of the largest photobioreactor the Company has operated to
date, and which the Company believes to be the largest photobioreactor in
existence.

     During the 1998 fiscal year, the Company increased the size of its largest
AGM from 1,000 gallons to 4,000 gallons.  Following the close of the 1998 fiscal
year, the Company further increased the capacity of its AGMs to 7,000 gallons. 
The larger AGM is not only less costly, but requires less labor, 


                                       9

<PAGE>

operates for a longer period of time and has significantly greater 
productivity than the smaller version.  Management anticipates replacing all 
production capacity with the new 7,000 gallon AGMs in 1999, contingent on 
available capital.  The Company believes that the use of these very large 
AGMs will increase total production capacity by a factor of more than six 
(with no increase in labor costs), when compared with 1,000 gallon AGMs.

     DEVELOPMENT OF NATURAL ASTAXANTHIN PRODUCTS - 1998

     During the past twelve months, Aquasearch and Cultor have jointly carried
out expensive and essential projects aimed at demonstrating efficacy of the
Company's natural astaxanthin product in salmon and trout feed.  
     
     Two important projects were undertaken in 1997 and 1998.  The first
project, conducted under contract with the Norwegian Fisheries Research
Institute, demonstrated equivalence between Aquasearch's natural astaxanthin
product and Hoffman-LaRoche's synthetic astaxanthin with regard to efficacy of
pigmentation of salmonid fish (salmon and trout).  The second project, still
underway, has demonstrated a shelf life of more than six months for the
Company's natural astaxanthin product.  The shelf life experiments will continue
for at least six months more.

     The results of these product development projects have demonstrated,
largely at Cultor's expense, that Aquasearch's product has viable commercial
applications.  To the knowledge of Aquasearch, no other company has yet
demonstrated equivalent results for any products that might compete with the
synthetic astaxanthin produced by Hoffman-LaRoche.  Aquasearch believes the
results of these projects provide it with a significant competitive advantage.

     NEW STRATEGIC BUSINESS RELATIONSHIPS - 1998

     In July 1997, Aquasearch agreed to become a charter member of the Marine
Bioproducts Engineering Center (MarBEC) initiative launched by the University of
Hawaii at Manoa.  More than 160 universities -- including University of Hawaii
-- competed nationwide for a total of five Engineering Research Centers to be
awarded by the National Science Foundation.  In November 1998, the National
Science Foundation announced that MarBEC had been selected as one of five
recipients to receive estimated funding of approximately $40 million over an
expected period of 10 years.  MarBEC will focus entirely on the development of
new enzymes and pigments from microalgae.  
     
     Charter industry members of MarBEC (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 December 1998, Aquasearch entered into a drug discovery agreement with
Enzymed, Inc., a U.S.-based, privately-held biotechnology company.  Enzymed uses
its proprietary technology, "Combinatorial Biocatalysis," for lead optimization
of promising new drug candidates, under contract to a variety of major
pharmaceutical companies, including Merck, Hoffman LaRoche, and Novartis.  Under
the terms of the agreement with Aquasearch, Enzymed will generate a large number
of novel compounds based upon the starting materials found originally in
microalgae and provided by Aquasearch.  Both companies will share in the
potential revenues from the commercialization of the resulting compound
libraries, including access fees, licensing fees, milestone payments, royalties
and commercial sales.


                                       10

<PAGE>

     The Company is currently in preliminary discussions with a major U.S.
chemical company and a major Japanese food/pharmaceutical company with respect
to the development of certain human nutritional supplements or nutraceuticals. 
There can be no assurances as to when or if these discussions will lead to the
execution of a letter of intent or final agreement, or whether the terms of such
arrangements will be attractive to the Company.

     RECENT FINANCING ACTIVITY

     During the period from June 1997 to September 1998, the Company raised 
$3,305,000 through the private placement of convertible notes.  Between July 
and September 1998, all of the outstanding convertible notes (together with 
accrued interest), were converted into 20,075,648 shares of Common Stock.  In 
connection with the conversion of the convertible notes, the Company also 
issued a total of 3,305,000 warrants to purchase a total of 3,305,000 shares 
of Common Stock.  The warrants have an exercise price of $0.50 per share and 
have a term of three years.

     From September 1998 through January 1999, the Company raised $1,800,000
through the private placement of convertible notes.  These convertible notes
bear interest at 10 percent per annum, have a term of one year and are
convertible into shares of Common Stock.  In addition, upon conversion of the
notes, each note holder shall receive warrants to purchase 1,000 shares of
Common Stock at $0.50 per share for each $1,000 aggregate principal amount of
convertible notes purchased.  In the quarter ended January 31, 1999, some of
these convertible note holders along with other outstanding convertible note
holders converted their notes into a total of 2,399,099 shares of the Company's
Common Stock and received an aggregate of 393,800 warrants.

MANAGEMENT'S PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS

     During the next twelve months, Aquasearch intends to focus its efforts on
strengthening its intellectual property position, optimizing the performance of
its proprietary AGM technology, expanding its production capacity, initiating a
business in pharmaceutical drug development, and improving productivity through
employee incentives.

-    INTELLECTUAL PROPERTY:  The Company is maintaining numerous 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 will enhance its
     intellectual property position.

-    TECHNOLOGY IMPROVEMENT:  Aquasearch intends to enlarge the size of all its
     proprietary AGMs from 4,000 gallons to 7,000 gallons during 1999. 
     Furthermore, the process control system is slated for hardware and software
     improvements, which the Company believes will further reduce capital and
     labor costs and improve productivity.

-    EXPANSION OF PRODUCTION CAPACITY:  Aquasearch began construction in early
     1998 to increase the size of its Keahole Point research and
     development/production facility from one acre to three acres.  Construction
     was substantially completed in January 1999, and is anticipated to augment
     production capacity to approximately 20 kilograms per month (given existing
     pond finishing constraints).  Pending further discussions with Cultor (or
     other potential partners, provided Aquasearch can be released from its
     exclusivity with Cultor), the Company currently plans to develop a second
     site for large-scale astaxanthin production.  It is currently contemplated
     that this second site would be larger than the ten-acre second site
     initially contemplated in the Cultor 


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<PAGE>

     Distribution and Development Agreement and would have a production 
     capacity significantly greater than 120 kilograms per month.

-    PHARMACEUTICAL DRUG DEVELOPMENT:  Aquasearch continues to pursue drug
     development agreements with several biotechnology and pharmaceutical
     companies in addition to the agreement recently consummated with Enzymed. 
     The Company believes that the consummation of such agreements would cover a
     significant portion of the Company's pharmaceutical research and
     development costs.  Although the Company believes that additional personnel
     will need to be hired to perform such projects, it currently intends to
     keep its existing personnel focused on astaxanthin-related science and
     technology only.  New personnel hired for drug development work will be
     dedicated entirely to those projects and will function as a separate team. 
     The Company intends that the costs associated with the drug development
     team 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:  At the outset of fiscal year 1998,
     Aquasearch implemented an incentive compensation program to award cash
     bonus incentives to all employees provided that the Company met certain
     quarterly production targets.  Targets were planned that management
     believed would significantly advance the Company's research and production
     efforts.  Under the incentive program, cash bonuses represented as much as
     a 25% increase in salary on a quarterly basis.  The Company also awarded
     stock options to all of its employees as a further incentive to increase
     productivity.  Aquasearch believes that the implementation of its incentive
     compensation program at the outset of fiscal 1998 was a significant factor
     in the Company's productivity gains in fiscal 1998, and the Company intends
     to implement a similar program in fiscal 1999.

     The Company expects to continue producing relatively small amounts of
astaxanthin (less than six kilograms dry weight per month) until early 1999,
when it expects to begin shipping its product.  To date, the Company has
satisfied its requirements for product testing, regulatory approvals and related
developmental activities.  The Company will focus in the next twelve months 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.

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

     Since inception, the Company's primary operating activities have consisted
of basic research and development and production process development; recruiting
personnel; purchasing operating assets; and raising capital.  From inception
through January 31, 1999, the Company had an accumulated deficit of
approximately $7.8 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 continues to expand its production facilities and increases its research and
development efforts.  The Company expects to have quarter-to-quarter and
year-to-year fluctuations in revenues, expenses and 


                                       12

<PAGE>

losses, some of which could be significant.  Management believes that the 
forthcoming year will continue to require significant investment in the 
Company's strategic development plan.

     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 transition 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 and management control systems.

     RESULTS OF OPERATIONS

     REVENUES.  Since inception, the Company has been primarily engaged in basic
research and development and manufacture process development; recruiting
personnel; purchasing operating assets; and raising capital.   The Company had
no revenues for the quarters ended January 31, 1999 and 1998.  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 in the fields other than animal feeds and
animal nutrition.
     
     RESEARCH AND DEVELOPMENT COSTS.  Research and development costs include
salaries, consulting fees, development materials, equipment depreciation and
costs associated with operating the Company's one-acre research and
development/production facility. Research and development costs increased by
approximately $100,000, or 31%, during the quarter ended January 31, 1999
compared with the quarter ended January 31, 1998. Substantially all of these
funds were expended to improve the Company's natural astaxanthin production
system, to implement improved computerized process control, and to reduce
capital costs of the AGM technology.  From inception through January 31, 1999,
the Company's total research and development costs were approximately $3.4
million.  Aquasearch expects to incur significant additional research and
development expenses in future periods.

     GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
consist principally of salaries and fees for professional services.  General and
administrative costs increased  approximately $206,000, or 51%,  for the quarter
ended January 31, 1999 compared with the quarter ended January 31, 1998.  The
increase in  general and administrative expenses reflects additional costs
associated with personnel additions, legal fees incurred in connection with
developing and protecting the Company's intellectual property position and
raising capital, as well as other expenses.   From inception through January 31,
1999, the Company's total general and administrative expenses were approximately
$4.1 million.  The Company anticipates that its general and administrative
expenses will increase over time as it expands its production capacity, enhances
its intellectual property protection and raises additional capital.


                                       13

<PAGE>

     LIQUIDITY AND CAPITAL RESOURCES

     In the fiscal years ended October 31, 1998 and 1997, Aquasearch raised
approximately $3.4 million and $1.3 million of net proceeds from the sale of
shares of Common Stock and/or the issuance of convertible notes, respectively,
in private placement transactions.  From inception through January 31, 1999, the
Company had raised total net proceeds of approximately $9.3 million through
public and private sales of equity and debt securities.

     During the quarter ended January 31, 1999, operating activities consumed
approximately $602,000 compared with $416,000 in the quarter ended January 31,
1998.  From inception through January 31, 1999, operating activities have
consumed approximately $5.7 million.

     Capital expenditures for the quarters ended January 31, 1999 and 1998 were 
$934,000 and $8,000, respectively.  From inception through January 31, 1999,
total capital expenditures have been approximately $3.5 million.

     As of January 31, 1999, the Company's liquidity was approximately $114,000
in cash and cash equivalents.

     The Company currently estimates that it will require between $2.0 million
and $2.5 million in operating capital over the next twelve months after planned
capital expenditures.  In addition, the Company will require approximately
$700,000 in funding to complete its current expansion.
     
     Further expansion of the Company's activities and facilities are dependent
upon contracts, sales agreements or product development agreements that may or
may not be consummated or pursued.  For example, the Company may require up to
an additional $5.0 million over the next twelve months to fund construction of
an additional production facility if Cultor and Aquasearch were to enter into
either a joint venture or other relationship to produce astaxanthin on a large
scale (assuming that Cultor does not provide any portion of the financing for
this project).  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 the next twelve months.  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 1998 Form 10-KSB. 



                                       14

<PAGE>

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

     On September 11, 1998, the Company filed an answer denying all of
Cyanotech's allegations and a counter claim, alleging infringement of the
5,541,056 Patent; misappropriation of trade secrets; unfair competition; and
breach of contract relative to its 1994 Dissolution Agreement with Cyanotech.
     
     On December 14, 1998, Cyanotech filed a motion for partial summary judgment
of noninfringement and invalidity of the 5,541,056 Patent.  The Company does not
believe that this motion is meritorious.  The Cyanotech summary judgment motion
is scheduled to be heard on March 29, 1999.
     
     The trial in the lawsuit with Cyanotech is currently set to begin on
September 27, 1999.

ITEM 2.  CHANGES IN SECURITIES

     During the quarter ended January 31, 1999, the Company issued $1,500,000
aggregate principal amount of one-year convertible notes bearing interest at 10%
per annum.  The holders of the convertible notes have an option to convert their
convertible notes into the Company's Common Stock.   The convertible notes
provide that upon conversion, the holders would receive warrants to purchase
shares of the Common Stock of the Company.  The warrants have an exercise price
of $0.50 per share and a term of three years.  As of January 31, 1999, some of
the holders of these convertibles notes and other outstanding convertible note
holders (amounting to $393,800 aggregate principal amount) exercised their
option to convert their convertible notes into shares of Common Stock.  Upon
conversion of the outstanding principal of, and interest on, the convertible
notes, the Company issued 2,399,099 shares of Common Stock and also issued
393,800 warrants in connection thereof.  These transactions were exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2).  No
underwriters were involved in these transactions.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES  -- None

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

ITEM 5.  OTHER INFORMATION  -- None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

          (a)  EXHIBITS  -- None

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


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<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: March 16, 1999             By:  /s/ Mark E. Huntley
                                           ------------------------- 
                                           Mark E. Huntley, Ph.D.
                                           President and Chief Executive Officer



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