AQUASEARCH INC, SB-2/A, 1997-09-19

AQUASEARCH INC
SB-2/A, 1997-09-19
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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<PAGE>

As filed with the Securities and Exchange Commission on September 19, 1997
Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
AQUASEARCH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

COLORADO 2833 33-0034535
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
73-4460 QUEEN KA'AHUMANU HIGHWAY,
SUITE 110, KAILUA-KONA, HAWAII 96740
(808) 326-9301

(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------

MARK E. HUNTLEY, PH.D.
73-4460 QUEEN KA'AHUMANU HIGHWAY,
SUITE 110, KAILUA-KONA, HAWAII 96740
(808) 326-9301

(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------------
COPIES TO:
STEVEN L. BERSON, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304-1050
(650) 493-9300
FAX: (650) 496-4088

----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time as the selling shareholders may decide.
----------------------

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act of
1933 registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
Pursuant to Rule 416, there are also being registered such additional
shares and warrants as may become issuable pursuant to the anti-dilution
provisions of the Warrants.

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

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SECURITY(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share (2)............................. 5,607,070 $0.24 $1,345,680 $408.00(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.0001 per
share (4)............................. 1,250,000 $0.0001 $125 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants to Purchase Common Stock,
par value $.0001 per share (5) ....... 5,044,570 $1.00 $5,044,570 $1,529.00
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001
per share (6)......................... 5,044,570 $0.0001 $505 $1.00
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee.
(2) Consists of 562,500 shares of Common Stock sold in the June 1995
private placement and 5,044,570 shares of Common Stock issued as part of
the 5,044,570 Units, consisting of one share of Common Stock and one
Common Stock Purchase Warrant issued in the fall 1996 private placement.
(3) A fee of $271.78 was previously paid on November 13, 1996.
(4) Penalty Shares to be issued to the purchasers of Units in the fall 1996
private placement.
(5) Common Stock Purchase Warrants that are part of the Units sold in the
fall 1996 private placement.
(6) Common Stock issuable upon exercise of the Common Stock Purchase Warrants.

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

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.

<PAGE>

AQUASEARCH, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS ON FORM SB-2

ITEM NUMBER AND HEADING
IN FORM SB-2 REGISTRATION LOCATION IN PROSPECTUS
- --------------------------------------------------------- ---------------------------------------------------------------
<S> <C>
1. Front of Registration Statement and Outside
Front Cover of Prospectus........................ Outside Front Cover Page of Prospectus; Front of Registration
Statement

2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover Pages of Prospectus;
Available Information

3. Summary Information and Risk Factors............... Prospectus Summary; Risk Factors; Inside Front
Cover Page of Prospectus

4. Use of Proceeds.................................... Not Applicable

5. Determination of Offering Price.................... Not Applicable

6. Dilution............................................ Not Applicable

7. Selling Security Holders............................ Selling Shareholders

8. Plan of Distribution................................ Plan of Distribution

9. Legal Proceedings................................... Not Applicable

10. Directors, Executive Officers, Promoters and
Control Persons................................... Management

11. Security Ownership of Certain Beneficial Owners
and Management..................................... Principal Shareholders

12. Description of Securities............................ Prospectus Summary; Capitalization; Description
of Securities

13. Interest of Named Experts and Counsel................ Not Applicable

14. Disclosure of Commission Position on Indemni-
fication for Securities Act Liabilities............ Not Applicable

15. Organization Within Last Five Years.................. Not Applicable

16. Description of Business.............................. Prospectus Summary; Risk Factors, Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business
17. Management's Discussion and Analysis or Plan
of Operation....................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations

18. Description of Property.............................. Business

19. Certain Relationships and Related
Transactions......................................... Not Applicable

20. Market for Common Equity and Related
Stockholder Matters................................ Outside Front Cover Page of Prospectus; Prospectus
Summary; Price Range of Common Stock and Dividend
Policy; Description of Securities

21. Executive Compensation............................... Management

22. Financial Statements................................. Consolidated Financial Statements

23. Changes in and Disagreements with Accountants
on Accounting Financial Disclosure................ Not Applicable

</TABLE>

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement become
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to the registration or qualification under the securities laws
of any such State.

<PAGE>

SUBJECT TO COMPLETION, DATED SEPTEMBER 19, 1997

AQUASEARCH, INC.

5,044,570 COMMON STOCK PURCHASE WARRANTS
AND
11,901,640 SHARES OF COMMON STOCK

This Prospectus covers (i) the resale to the public by shareholders (the
"Selling Shareholders") of Aquasearch, Inc. (the "Company") of certain
securities purchased from the Company by such Selling Shareholders in private
placement transactions and (ii) the issuance by the Company to certain of
such Selling Shareholders of up to 1,250,000 shares of Common Stock (the
"Penalty Shares") as compensation to such Selling Shareholders for the
failure by the Company to cause the registration statement of which this
Prospectus is a part to be declared effective by the Securities and Exchange
Commission (the "Commission") on or before May 29, 1997.

The securities offered by this Prospectus may be sold by one or more
Selling Shareholders from time to time through brokers, to dealers acting as
principals, directly to purchasers in negotiated transactions, or any
combination of these methods of sale. Sales may be made at prevailing market
prices at the time of such sales, at prices related to such prevailing
prices, at fixed prices that may be changed or at negotiated prices. The
Company will not receive any proceeds from the sale by the Selling
Shareholders of the securities offered by this Prospectus or from the
issuance of the Penalty Shares.

Each Warrant entitles the holder to purchase one share of Common Stock at
an exercise price of $1.00 per share, subject to adjustment, on or before
December 31, 1999. The Warrants are redeemable by the Company at $.01 per
Warrant at any time prior to December 31, 1999 upon 30 days notice anytime
that the closing bid price of the Common Stock exceeds $1.50 (subject to
adjustment) for 20 trading days out of 30 consecutive trading days ending on
the third day prior to the notice of redemption.

The Company will pay the expenses of this offering (excluding brokerage
commissions), estimated at $75,000.

The Company's Common Stock is currently traded in the over-the-counter
market on the NASD "Electronic Bulletin Board" under the symbol "AQSE: bb."
The closing bid price of the Company's Common Stock on September 19, 1997
was $0.24 per share. There is no public market for the Warrants and the
Warrants will not be separately transferrable. There is only a limited
market for the Company's Common Stock and, therefore, there is no reliable
source upon which shareholders can base an investment decision and
shareholders may have difficulty selling shares.

_____________________________

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 5 OF THIS PROSPECTUS.

____________________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is September __, 1997

<PAGE>

PROSPECTUS SUMMARY

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"), INCLUDING STATEMENTS, TREND ANALYSIS AND OTHER INFORMATION
RELATIVE TO MARKETS FOR THE COMPANY'S PRODUCTS AND TRENDS IN REVENUES AND
ANTICIPATED EXPENSE LEVELS, AS WELL AS STATEMENTS INCLUDING WORDS SUCH AS
"ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE" AND "INTEND" AND OTHER SIMILAR
EXPRESSIONS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT 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 DESCRIBED UNDER THE CAPTION "RISK FACTORS" COMMENCING
ON PAGE 5 HEREOF AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S
PERIODIC REPORTS AND OTHER INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION"). PROSPECTIVE INVESTORS ARE URGED TO CONSIDER
THE FACTORS DISCUSSED UNDER THE CAPTION "RISK FACTORS" COMMENCING ON PAGE 5
OF THIS PROSPECTUS IN EVALUATING AN INVESTMENT IN THE SHARES OFFERED HEREBY.

THE COMPANY

Aquasearch, Inc. (the "Company") is a development stage company that has
been principally involved in research and development activities since it
commenced operations in 1988. The Company has not generated significant
revenues to date and does not expect to receive significant revenues from
commercial sales of its products until the commencement of volume production,
which is not expected to occur until after completion of the expansion of its
manufacturing facility.

The Company is developing natural products from microalgae using its
proprietary, photosynthetic, closed-system technology known as the Aquasearch
Growth Module (the "AGM"). Microalgae are a diverse group of over 30,000
species of microscopic plants that have a wide range of physiological and
biochemical characteristics. Microalgae produce many different and unusual
fats, sugars, proteins, amino acids, vitamins, enzymes, pigments and other
bioactive compounds that have existing and potential commercial applications
in such fields as animal and human nutrition, food colorings, cosmetics,
diagnostic products, pharmaceuticals, research grade chemicals, pigments and
dyes. Microalgae grow ten times faster than the fastest growing land-based
crops and represent a largely unexploited and renewable natural resource with
a biodiversity comparable to that of land-based plants.

Aquasearch believes that its AGM technology can be used to cultivate
hundreds of species of microalgae. The AGM utilizes computer-controlled
equipment to monitor and adjust the turbulence rate, pH, gas exchange,
temperature and nutrient levels within the AGM to optimize microalgae growth
rates. Aquasearch believes that the AGM offers significant technical and
economic advantages compared with the open pond systems currently used by
certain competitors, including increased yields and the ability to
economically cultivate hundreds of microalgal species at commercial scale
that cannot be produced in open pond systems due to substantially higher
risks of contamination and lack of control. Aquasearch also believes that
the AGM compares favorably with other known closed systems with respect to
both capital and operating costs. Notwithstanding these perceived advantages
of the Company's technology, the production of certain species of microalgae
on a commercial scale involves various risks and uncertainties. See "Risk
Factors--Risks Inherent in Commercial Production of Microalgae."

Aquasearch's first commercial product is astaxanthin, a naturally occurring
red pigment derived from HAEMATOCOCCUS PLUVIALIS, a freshwater microalga. The
primary market for astaxanthin currently is aquaculture. According to industry
sources, the global aquaculture market steadily doubled in value from $13
billion in 1985 to $26 billion in 1990 and is projected to grow to more than $50
billion by the year 2000. Industry sources indicate that farmed salmon and
shrimp (the fastest and fourth fastest growing aquaculture products) will
account for more than half the total value of world aquaculture production by
the year 2000. Free swimming salmon and shrimp acquire pink flesh from natural
astaxanthin contained in microalgae and other species ingested in the wild.
Farmed salmon and shrimp, however, currently acquire pink flesh from the
addition of synthetic astaxanthin (or a less effective substitute product) to
their feed. The world market for astaxanthin in aquaculture was estimated to be
approximately $125 million in 1996, and continued growth is expected.

-2-

<PAGE>

Aquasearch believes it is one of the first companies to produce
commercial quantities of natural astaxanthin from microalgae. The world
market for astaxanthin is currently dominated by a single producer,
Hoffman-LaRoche, which has maintained the market price of its synthetic
astaxanthin product (which is derived from petrochemicals) at approximately
$2,500 per kilogram for more than a decade. Aquasearch's natural astaxanthin
product will compete directly with Hoffman-LaRoche's synthetic astaxanthin
product. There can be no assurance that the market price of synthetic
astaxanthin will be maintained at historical levels or what effect this may
have on the market price of Aquasearch's natural astaxanthin product.

In May 1996, Aquasearch entered into a three-year exclusive Distribution
and Development Agreement (the "Cultor Distribution and Development
Agreement") with Cultor Ltd. ("Cultor") pursuant to which Aquasearch 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.
Cultor is a $2 billion Finnish food conglomerate that is a leading worldwide
producer of animal feed and animal nutrition products. Aquasearch estimates
that Cultor and its affiliated companies currently utilize approximately $30
million of synthetic astaxanthin per year in feed products for the
aquaculture and livestock industries. Astaxanthin is currently used in
poultry feed to impart a more reddish hue to egg yolks. Recently published
studies indicate that natural astaxanthin may have additional benefits with
respect to fertility, weight gain and feed efficiency in broiler chickens and
layer hens.

Over the past eighteen months, Aquasearch has been producing natural
astaxanthin at varying rates of between one and eight kilograms per month at
its existing one-acre research and development/production facility. The
production targets under the Cultor Distribution and Development Agreement
were initially 40 kilograms per month at the end of the first year and 120
kilograms per month at the end of the second year; however, Aquasearch and
Cultor recently agreed to extend the term of the Cultor Distribution and
Development Agreement by one year and to amend the production targets to be
40 kilograms per month at the end of the second year (September 1998) and 120
kilograms per month at the end of the third year (September 1999). In order
to meet these revised production targets, Aquasearch must significantly
expand and improve its production facilities and processes, which will
involve various risks and uncertainties.

Aquasearch has an active Scientific Advisory Board consisting of seven
Ph.D.s with expertise in the fields of aquaculture, marine biology, fluid
dynamics, and the chemistry, photobiology, physiology and mass culture of
microalgae.

Aquasearch is incorporated in Colorado; its principal executive offices are
located at 73-4460 Queen Ka'ahumanu Highway, Suite 110, Kailua-Kona, Hawaii
96740; its telephone number is (808) 326-9301; and its Website is
www.aquasearch.com. Unless otherwise indicated, all references in this
Prospectus to the "Company" and "Aquasearch" refer to Aquasearch, Inc., a
Colorado corporation.

-3-

<PAGE>

RISK FACTORS

Prospective investors are urged to consider the factors discussed under the
caption "Risk Factors" commencing on page 5 of this Prospectus in evaluating an
investment in the Common Stock offered hereby.

THE OFFERING

All of the securities being offered hereby are being sold by shareholders
of the Company. Aquasearch will not receive any of the proceeds from the
sale of the shares offered hereby.

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
-------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
------- ------ ------ ------- ------- ------- -------
(unaudited)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $ -- $ -- $ -- $ -- $ 10 $ 10 $ 1
Earnings (loss) from
operations................ (81) (89) (142) (282) 1,301 (796) (1,195)
Net income (loss) ......... (81) (142) (240) (287) 1,298 (793) (1,191)
Net income (loss) per
share .................... $ (0.01) $ (0.01) $ (0.01) $ (0.01) $ (0.3) $(0.02) $(0.03)
Weighted average shares
outstanding............... 7,287,45 20,132,100 22,782,063 25,541,021 37,679,955 35,000,000 44,159,602

</TABLE>

JULY 31, 1997
-------------
ACTUAL
------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash equivalents................................ $ 78
Total assets.................................... 921
Deficit accumulated during development stage.... (4,140)
Total shareholders' equity...................... 208

-4-
<PAGE>

RISK FACTORS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT,
INCLUDING STATEMENTS, TREND ANALYSIS AND OTHER INFORMATION RELATIVE TO
MARKETS FOR THE COMPANY'S PRODUCTS AND TRENDS IN REVENUES AND ANTICIPATED
EXPENSE LEVELS, AS WELL AS STATEMENTS INCLUDING WORDS SUCH AS "ANTICIPATE,"
"EXPECT," "BELIEVE," "PLAN," "ESTIMATE" AND "INTEND" AND OTHER SIMILAR
EXPRESSIONS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT 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 DESCRIBED IN THIS SECTION ENTITLED "RISK FACTORS" AND
OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S PERIODIC REPORTS AND
OTHER INFORMATION FILED WITH THE COMMISSION.

SUBSTANTIAL NEAR-TERM CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING; DILUTION

The Company currently estimates that it will require between $1.5 million
and $2.0 million in operating capital over the next twelve months before any
planned capital expenditures. In addition, the Company will require
approximately $8 million in funding during fiscal 1998 and an additional $7
million over the subsequent twelve months in order to further commercialize
its natural astaxanthin product and scale-up its production facilities to
satisfy the 1999 production targets under the Cultor Distribution and
Development Agreement and to fund research and development of new microalgal
products. The Company expects to obtain approximately half of this funding
from sales of equity and/or convertible debt securities in the private and/or
public markets and the balance from bank financing. The Company's capital
requirements will depend on many factors including, but not limited to, the
timing of development of the Company's products, the timing of the scale-up
of the existing one-acre research and development/production facility to a
four-acre facility, the timing of the construction and scale-up of the new
ten-acre natural astaxanthin production facility, market acceptance of the
Company's natural astaxanthin product, and the response of competitors to the
Company's natural astaxanthin product and technology. If additional funds
are raised through the issuance of equity securities, the percentage
ownership of the current shareholders of the Company will be reduced and such
equity securities may have rights, preferences, and privileges senior to
those of the holders of the Company's Common Stock. There can be no
assurance that additional capital will be available on terms favorable to the
Company or its shareholders, if at all. Moreover, the Company's cash
requirements may vary materially due to production yield problems, research
and development results, product testing results, changing relationships with
its corporate partners, changes in the focus and direction of the Company's
research and development programs, competitive and technological advances,
litigation and other factors. If adequate funds are not available, the
Company may be required to curtail operations significantly or to obtain
funds through entering into collaboration agreements on unattractive terms
that may require the Company to relinquish certain technology or product
rights, including patent and other intellectual property rights. The
Company's inability to raise capital would have a material adverse effect on
the Company's business, financial condition, results of operations and
relationships with its corporate partners. See "Use of Proceeds,"
"--Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "--Liquidity and Capital Resources" and
"Business--Overview," "--Manufacturing" and "--Corporate Partner
Relationships--Cultor."

SUBSTANTIAL LONG-TERM CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING; DILUTION

Substantial expenditures will be required to enable the Company to continue
its research and development activities and to manufacture and market its
products. The level of expenditures required for these activities will depend
in part on whether the Company develops, manufactures and markets its products
independently or with other companies through collaborative arrangements. The
Company's future capital requirements will also depend on one or more of the
following factors: the Company's ability to scale-up and manufacture its natural
astaxanthin product in cost-effective commercial quantities; market acceptance

-5-
<PAGE>

of the Company's natural astaxanthin product; the extent and progress of its
research and development programs; the time and costs of obtaining regulatory
clearances (for those products subject to such clearance); the progress of
preclinical and clinical studies (where applicable); the costs involved in
filing, protecting and enforcing patent claims; competing technological and
market developments; the cost of developing and/or operating production
facilities for its existing product and potential products (depending on which
products the Company decides to produce itself); and the costs of
commercializing the Company's products. There can be no assurance that funding
to carry on these activities will be available at all or on favorable terms to
permit successful commercialization of the Company's products. In addition, the
Company has no credit facility or other committed sources of capital, and there
can be no assurance that it will be able to establish such arrangements on
satisfactory terms, if at all. To the extent that capital resources are
insufficient to meet future capital requirements, the Company will have to raise
additional funds to continue development of its technologies and products.
There can be no assurance that such funds will be available on favorable terms,
or at all. To the extent that additional capital is raised through the sale of
equity and/or convertible debt securities, the issuance of such securities could
result in dilution to the Company's shareholders. If adequate funds are not
available, the Company may be required to curtail operations significantly or to
obtain funds through entering into collaboration agreements on unattractive
terms that may require the Company to relinquish certain technology or product
rights, including patent and other intellectual property rights. The Company's
inability to raise capital would have a material adverse effect on the Company's
business, financial condition, results of operations and relationships with its
corporate partners. See "--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and "--Liquidity and Capital
Resources," "Business--Products and Potential Products," "--Manufacturing" and
"--Corporate Partner Relationships."

HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES

The Company was founded in 1988 and has experienced quarterly and annual
operating losses since its inception. The Company's net loss in fiscal 1996
was approximately $1.3 million and the Company's accumulated deficit at July
31, 1997 was approximately $4.1 million. The Company's losses to date have
resulted primarily from costs incurred in research and development and from
general and administrative costs associated with the Company's operations.
The Company expects to continue to incur operating losses for at least the
next two years as it expands its production facilities to meet the production
targets under the Cultor Distribution and Development Agreement (as
hereinafter defined) and increases its research and development efforts. The
Company expects to have quarter-to-quarter and year-to-year fluctuations in
revenues, expenses and losses, some of which could be significant. Future
financial results will be affected by, among other things, the following
factors: the Company's ability to successfully manage the transition from a
research and development company to a commercial-scale production enterprise,
the Company's ability to complete successfully the commercialization and cost
optimization of its natural astaxanthin product; production costs and yield
issues associated with the scale-up of production of its natural astaxanthin
product; the progress of the Company's research and development programs with
respect to the development of additional microalgal products; the time and
costs of obtaining regulatory approvals for those products subject to such
approval; the Company's ability to protect its proprietary rights; the costs
of filing, protecting and enforcing the Company's patent claims; competing
technological and market developments and the costs of commercializing and
marketing the Company's existing and potential products. There can be no
assurance that the Company will ever be able to achieve or sustain
profitability in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

RISKS INHERENT IN COMMERCIAL PRODUCTION OF MICROALGAE

The development of technology to cultivate and harvest a wide variety of
microalgae species is a lengthy and technically challenging process. The
Company has faced a number of significant technical problems in the
development of its AGM technology and in its initial production of natural
astaxanthin derived from HAEMATOCOCCUS PLUVIALIS, including various forms of
microbial contamination, variability in production cycle times due to
technical and biological factors, and proportional losses of final product
due to processing inefficiencies. As a result of these factors and, to a
lesser extent, ongoing experimentation with processes and methods and limited
capacity, the Company's production has fluctuated between one and eight
kilograms per month during the past twelve months.

-6-
<PAGE>

The Company expects to encounter additional technical problems in
connection with the scale-up in production of HAEMATOCOCCUS PLUVIALIS (and
any other potential microalgal products). Some of these problems may be
presently unknown, may never have been faced, and may have the effect of
lowering production yields. There can be no assurance that the Company will
be successful in correcting these technical problems. The Company's failure
to satisfy its production targets under the Cultor Distribution and
Development Agreement for an extended period could have a material adverse
effect on the Company's business, financial condition, results of operations
and its relationships with its corporate partners. See "Business--Overview,"
"--The Aquasearch Solution," "--Products and Potential Products,"
"--Manufacturing" and "--Corporate Partner Relationships."

LIMITED MANUFACTURING EXPERIENCE

To be successful, the Company must be able to produce its products at
acceptable costs in compliance with contractual requirements, regulatory
requirements and local health, safety and environmental regulations. The
Company is at an early stage of development and has only limited experience
producing products derived from microalgae. To date, the Company's only
shipments of its first product, natural astaxanthin derived from microalgae,
have been made to one customer, Cultor Ltd. ("Cultor"), a Finnish
multinational corporation, pursuant to a Supply Agreement (the "Svenska Foder
Supply Agreement") entered into in July 1995 between the Company and Svenska
Foder AB ("Svenska Foder"), a former subsidiary of Cultor, and/or pursuant to
the Cultor Distribution and Development Agreement. In connection with the
sale of Svenska Foder to KKR, a Danish animal feeds company, in December
1996, Cultor acquired all of Svenska Foder's rights under the Svenska Foder
Supply Agreement. The Company has not been able consistently to meet the five
kilograms of natural astaxanthin production targets initially set forth in
the Svenska Foder Supply Agreement. The Company may continue to experience
lower than anticipated production yields or production constraints from time
to time that may adversely affect its ability to satisfy customer orders,
including, in particular, the production requirements under the Cultor
Distribution and Development Agreement. While the Company's inability to
satisfy its production targets to date has not disrupted relations with its
corporate partners, continued inability to satisfy demand may have a material
adverse effect on the Company's business, financial condition, results of
operations and its relationships with its corporate partners. See
"Business--Overview," "--Products and Potential Products," "--Manufacturing"
and "--Corporate Partner Relationships."

RISKS ASSOCIATED WITH SCALE-UP OF PRODUCTION FACILITIES

To date, the Company has not produced large quantities of natural
astaxanthin. The Company has experienced significant delays in product
development and cultivation and harvesting process development from time to
time and its product development and cultivation and harvesting processes
will require additional research and development as well as substantial
additional capital and other resources prior to full scale commercialization.
The Company estimates that it will require approximately $8 million in
financing during fiscal 1998 to automate, optimize and expand its existing
research and development facility from a one-acre facility to a four-acre
facility and an additional $7 million over the subsequent twelve months to
complete the construction and commence operation of a ten-acre production
facility dedicated solely to the production of natural astaxanthin derived
from microalgae and to fund research and development of new microalgal
products. Construction and facility scale-up costs as well as research and
development and production costs could substantially exceed budgeted amounts
and estimated time frames may require significant extension. Any such
additional costs or delays could have a material adverse effect on the
Company's business, financial condition, results of operations and
relationships with its corporate partners.

The Company believes that its existing one-acre research and
development/production facility will not be sufficient to meet the September
1998 40 kilogram per month production target under the Cultor Distribution
and Development Agreement. After completion of the expansion of the existing
one-acre research and development/production facility to a four-acre
facility, the Company believes that it will have sufficient production
capacity, based on existing technology and processes, to meet the September
1998 40 kilogram per month production target under the Cultor Distribution
and Development Agreement, but not the September 1999 120 kilogram per month
production target.

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In order to meet the September 1999 120 kilogram per month production target
under the Cultor Distribution and Development Agreement, the Company must
complete construction and scale-up of the new ten-acre production facility.

In order to meet the September 1998 40 kilogram per month production
target and the September 1999 120 kilogram per month production target under
the Cultor Distribution and Development Agreement, the Company will be
required to significantly increase its current production capacity. This
scale-up of the Company's current production technology poses a number of
significant risks that presently cannot be quantified or fully assessed. For
example, the Company's production process is critically dependent upon
supplies of freshwater, cold seawater and utilities provided by the Natural
Energy Laboratory of Hawaii Authority, and any interruption in these supplies
could have a material adverse effect on the Company's production capability.
Furthermore, microbial contamination of the Company's water supplies also
poses significant risks to productivity that may override the Company's
existing efforts and capability to maintain the sterility of its water
supply. The success of the Company's proposed expansion plans will be
dependent upon the timely performance of a large number of contractors,
sub-contractors, suppliers and various agencies of the State of Hawaii that
regulate and license construction, each of which is beyond the control of the
Company. Any failure by these contractors, suppliers or state agencies to
perform in a timely manner could cause delays, cost overruns or changes in
the Company's construction and expansion plans, which could have a material
adverse effect on the Company's business, financial condition, results of
operations and relationships with its corporate partners.

The Company has projected a cost of manufacture for natural astaxanthin
that assumes that its current manufacturing processes can be scaled to larger
AGMs. To date, the Company has not demonstrated that it can culture and harvest
HAEMATOCOCCUS PLUVIALIS using such larger AGMs. If the Company's current AGM
design and processes are not readily scalable to larger sizes, then the Company
may have to expend substantial additional research effort and capital resources
to scale its technology in order to increase yields. Difficulty in scaling the
Company's current processes may translate into higher than projected product
costs or entail significant reengineering efforts in order to meet commercially
viable cost targets, which could have a material adverse effect on the Company's
business, financial condition, results of operations and relationships with its
corporate partners.

There can be no assurance that the Company will be successful in resolving
known or unknown biological and engineering development problems, that the
Company will be able to develop its products within the estimated time schedule,
or in accordance with present cost projections, or that the products developed
by the Company will be commercially viable or widely accepted. See
"Business--Overview," "--Products and Potential Products," "--Manufacturing" and
"--Corporate Partner Relationships."

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CUSTOMER CONCENTRATION

The Company entered into a three-year exclusive Distribution and
Development Agreement with Cultor (recently extended to four years) with
respect to the production, sale and use of natural astaxanthin in the field
of animal feed and animal nutrition worldwide. The failure of the Company to
gain additional customers for its natural astaxanthin product in other
applications and customers for its other potential products, the loss of
Cultor or any potential corporate partner as a customer, or a significant
reduction in the level of sales to Cultor or any potential corporate partner
could have a material adverse effect on the Company's business, financial
condition, results of operations and relationships with its corporate
partners. See "Business--Aquasearch's Strategy--Expand Strategic Alliances"
and "--Corporate Partner Relationships."

EFFECT OF INCREASED COMPETITION ON MARKET PRICE OF SYNTHETIC AND NATURAL
ASTAXANTHIN

The primary competition for the Company's natural astaxanthin product is
currently synthetic astaxanthin. The synthetic astaxanthin market is
currently dominated by a single producer, Hoffman-LaRoche, Inc.
("Hoffman-LaRoche"), which has maintained the market price of its synthetic
astaxanthin (derived from petrochemicals) at approximately $2,500 per
kilogram for more than a decade. The Company does not know Hoffman-LaRoche's
cost of production for synthetic astaxanthin or its probable response to the
introduction of the Company's competitive product. Hoffman-LaRoche has
significantly greater research and development, technical, financial, sales
and marketing resources than the Company and holds a commanding market share.
There can be no assurance that the market price for synthetic astaxanthin
will remain at $2,500 after commercial introduction of the Company's natural
astaxanthin product. Any significant decrease in the market price for
synthetic astaxanthin is likely to have an adverse effect on the market price
for the Company's natural astaxanthin product, which could have a material
adverse effect on the Company's business, financial condition, results of
operations and relationships with its corporate partners. See
"Business--Overview," "--Products and Potential Products--Existing Product:
Astaxanthin--Aquaculture" and "Competition."

RISKS ASSOCIATED WITH POTENTIAL JOINT VENTURE

Pursuant to 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 in the field
of animal feed and animal nutrition. Pursuant to this arrangement, Aquasearch
would contribute the ten-acre natural astaxanthin production facility in return
for its 50% stake in the new company and Cultor would contribute cash equal to
the appraised value of this production facility in return for its 50% stake.
Under the Cultor Distribution and Development Agreement, Cultor also has the
option to acquire a further 25% stake in the new company (thus increasing
Cultor's stake to 75%) for cash based on a formula. The formula provides that
the purchase price for the additional shares to be acquired by Cultor from
Aquasearch will equal the greater of (i) $1 million, (ii) half of the current
replacement value of the astaxanthin production facility initially contributed
by Aquasearch or (iii) an amount equal to X multiplied by Y; where "X" equals
the difference between the Transfer Price (as defined) and the Aquasearch
Production Costs (as defined) for the six-month period commencing on November 1,
1998 and ending on April 30, 1999 and "Y" equals six (or, in other words, an
amount equal to twelve times annual profit in the third year of the contract).

The decision to form, and the timing of the decision to form, the new
joint venture company is solely within the discretion of Cultor and may occur
at any time prior to September 24, 1999. Similarly, the decision to
exercise, and the timing of the decision to exercise, the option to purchase
from Aquasearch a further 25% stake in the new joint venture company (thus
increasing Cultor's stake to 75%) is solely within the discretion of Cultor
and may occur at any time prior to September 24, 1999. There can be no
assurance that the Company will have developed markets for its natural
astaxanthin product other than animal feed and animal nutrition at the time,
if any, that Cultor exercises its option to form the joint venture company.
Similarly, there can be no assurance that the Company will have developed
microalgal products other than natural astaxanthin at the time, if any, that
Cultor exercises its option to form the joint venture company. See
"Business--Overview" and "--Corporate Partner Relationships--Cultor."

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RELIANCE ON CORPORATE PARTNER RELATIONSHIPS

An important element of the Company's business strategy involves
developing strategic relationships with companies that have established
research and development, sales, marketing and distribution capabilities for
the microalgal products that the Company intends to develop. In May 1996,
the Company executed the three-year exclusive Cultor Distribution and
Development Agreement with Cultor (recently extended to four years) covering
the production and distribution of the Company's natural astaxanthin product
worldwide in the field of animal feed and animal nutrition.

The Company intends to enter into strategic relationships with other
companies to apply its technology, fund development, commercialize future
products, and assist in obtaining regulatory approvals. There can be no
assurance that any of the Company's present or future corporate partners will
perform their obligations as expected or devote sufficient resources to the
development, testing or marketing of the Company's potential products developed
under such arrangements. Any parallel development by a strategic partner of
alternative technologies or products, preclusion of the Company from entering
into competitive arrangements, failure to obtain timely regulatory approvals,
premature termination of an agreement, or failure by a strategic partner to
devote sufficient resources to the development and commercialization of the
Company's products could have a material adverse effect on the Company's
business, financial condition, results of operations and relationships with its
corporate partners.

The Company's agreements with its consultants and corporate partners are
complex. There may be provisions within such agreements that give rise to
disputes regarding the rights and obligations of the parties. These and other
possible disagreements could lead to delays in research, development or
commercialization of certain products, or could result in litigation or
arbitration, which could be time-consuming and expensive, and could have a
material adverse effect on the Company's business, financial condition, results
of operations and relationships with its corporate partners.

There can be no assurance that the Company will be able to maintain or
expand its relationships with its existing corporate partners or to replace
its existing corporate partners in the event any such relationship were
terminated. In the event of the termination of the Cultor Distribution and
Development Agreement, the Company's ability to distribute its natural
astaxanthin product in the field of animal feed and animal nutrition would be
materially adversely affected, which would have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company's primary strategy for the development, regulatory approval,
production and commercialization of certain of its products is to enter into
collaborations with various corporate partners, licensors, licensees and others.
There can be no assurance that the Company will be able to negotiate
collaborative arrangements in the future on acceptable terms, if at all, or that
such collaborative arrangements will be beneficial to the Company. To the
extent that the Company is not able to establish such arrangements, it would
face increased capital requirements to undertake such activities at its own
expense and might encounter significant delays in introducing its products into
certain markets or find that the development, manufacture or sale of its
products in such markets is adversely affected. See "Business--Aquasearch's
Strategy--Expand Strategic Alliances" and "--Corporate Partner Relationships."

COMPETITION

Competition in the world market for astaxanthin is intense and is expected
to increase significantly in the near future. The Company's natural astaxanthin
product will compete directly with the synthetic astaxanthin product developed
and

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marketed worldwide by Hoffman-LaRoche. Hoffman-LaRoche has significantly
greater research and development, technical, financial, management, marketing
and sales resources than the Company as well as a worldwide reputation and
dominant market share. In addition, at least three companies, Astacarotene,
Heliosynthese and Cyanotech Corporation ("Cyanotech"), have either announced
plans to produce natural astaxanthin from microalgae or have produced small
quantities for test and commercial purposes. Moreover, Cyanotech has
announced plans to enter into large-scale commercial production of natural
astaxanthin during 1997.

The Company's natural astaxanthin product is expected to compete with
synthetic astaxanthin (and any other alternative products) primarily on the
basis of product performance, price and proprietary position. Although
Hoffman-LaRoche has maintained the market price of synthetic astaxanthin at
approximately $2,500 per kilogram for more than a decade, there can be no
assurance that Hoffman-LaRoche will maintain the price of its synthetic
astaxanthin product in response to the introduction of the Company's natural
astaxanthin product. Any such pricing or other competitive pressure could have
a material adverse effect on the Company's business, financial condition,
results of operations and relationships with its corporate partners. The
existence of products of which the Company is not aware, or products that may be
developed in the future, may also adversely affect the marketability of the
Company's natural astaxanthin product.

Aquasearch anticipates that competition to develop microalgal products
other than natural astaxanthin will also be intense. The Company's competitors
for these potential products are expected to include major pharmaceutical, food
processing, chemical and specialized biotechnology companies, many of which will
have financial, technical and marketing resources significantly greater than
those of Aquasearch. In addition, other emerging marine bioscience companies,
similar to Aquasearch, may form collaborations with large established companies
to support research, development and commercialization of products that may be
competitive with future products of Aquasearch. Also, academic institutions,
governmental agencies and other public and private research organizations are
conducting research activities and seeking patent protection and may
commercialize products competitive with those of Aquasearch on their own or
through joint ventures. The existence of products of which Aquasearch is not
aware, or products that may be developed in the future, may adversely affect the
marketability of additional products developed by Aquasearch.

Aquasearch believes that its AGM and related microalgae cultivation and
harvesting technologies currently offer significant technical and economic
advantages compared with the open pond systems currently used by certain
competitors, including increased yields and the ability to cultivate hundreds of
microalgal species at commercial scale that cannot be produced in open pond
systems due to substantially higher risks of contamination and lack of control.
Aquasearch also believes that its AGM and related microalgae cultivation and
harvesting technologies compare favorably with other known closed systems with
respect to capital and operating costs. However, the existence of technology of
which Aquasearch is not aware, or technology that may be developed in the
future, may adversely affect the technical and competitive advantages that
Aquasearch currently believes it holds compared with competing open pond and
known closed system microalgae cultivation technologies.

Aquasearch's competitive position will also depend on its ability to
attract and retain qualified scientific and other personnel, develop effective
proprietary products, successfully perform its collaboration agreements with its
corporate partners, implement research and development and production plans,
obtain patent protection and secure adequate capital sources. See "Business --
Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's prospects depend to a significant extent upon certain
members of senior management, including, in particular, Mark E. Huntley,
Ph.D., the Company's Chairman, President and Chief Executive Officer. The
Company does not have an employment agreement with Dr. Huntley or any other
senior executives. The loss of any senior executive or other key employee
could have a material adverse effect on the Company's business, financial
condition, results of operations and relationships with its corporate
partners.

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<PAGE>

The Company is highly dependent on its ability to attract and retain key
scientific, technical, management and operating personnel, including
consultants and members of its Scientific Advisory Board. As the number of
qualified marine and aquatic microbiologists is limited, competition for such
personnel is intense. The Company will need to develop expertise and add
skilled employees or retain consultants in such areas as research and
development, clinical testing, government approvals, manufacturing and
marketing in the future. There can be no assurance that the Company will be
able to attract and retain the qualified personnel or develop the expertise
needed in these areas. The Company currently has a small research and
development and management group with limited operating experience. The loss
of the services of one or more members of the research and development or
management group or the inability to hire additional personnel and develop
expertise as needed would have a material adverse effect on the Company's
business, financial condition, results of operations and relationships with
its corporate partners.

Members of the Company's Scientific Advisory Board assist the Company in
optimizing its production and processing methods and formulating research and
development strategy pertaining to both existing and potential microalgal
products. Most members of the Scientific Advisory Board are not employed by the
Company and each of these members may have commitments to other entities that
could limit their availability to the Company. There can be no assurance that
the Company will be able to retain its key Scientific Advisory Board members.
See "Business -- Scientific Advisory Board."

RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH

To date, the Company has been engaged almost exclusively in research and
development activities. The Company is in the process of transitioning
toward becoming 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. Failure to upgrade the Company's
operating, management and financial control systems or difficulties
encountered during such upgrades could adversely affect the Company's
business, financial condition, results of operations and relationships with
its corporate partners. Although the Company believes that its systems and
controls are adequate to address its current needs, there can be no assurance
that such systems will be adequate to address future expansion of the
Company's business. The Company's results of operations will be adversely
affected if revenues do not increase sufficiently to compensate for the
increase in operating expenses resulting from any expansion and there can be
no assurance that any expansion will be profitable or that it will not
adversely affect the Company's results of operations. In addition, the
success of any future expansion plans will depend in part upon the Company's
ability to continue to improve and expand its management and financial
control systems, to attract, retain and motivate key personnel, and to raise
additional required capital. There can be no assurance that the Company will
be successful in these efforts. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" and "--Liquidity and
Capital Resources" and "Business--Aquasearch's Strategy," "--Products and
Potential Products" and "--Manufacturing."

RISKS ASSOCIATED WITH EXPANSION INTO ADDITIONAL MARKETS AND PRODUCT DEVELOPMENT

Other than its natural astaxanthin product, the Company currently has no
products actively under development. The Company believes that its near-term
prospects are substantially dependent on the expansion of the worldwide
market for natural astaxanthin and the Company's ability to successfully
develop and commercialize new products and penetrate new markets. There can
be no assurance that the Company can successfully develop its natural
astaxanthin or any other potential microalgae products, that any such
products will be capable of being produced in commercial quantities at
reasonable cost, or that any such products will achieve market acceptance.
The Company has no experience marketing its products directly and is
presently entirely dependent on the marketing skills and efforts of its
corporate partners. There can be no assurance that the marketing efforts of
such corporate partners will be successful or whether such corporate partners
will eventually compete with the Company or assist the Company's competitors.
Many other companies have significantly greater marketing and product
development experience and resources to devote to marketing and product
development than the Company. The

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Company has entered into, and expects to enter into additional, selected
strategic alliances with third parties for product development, marketing and
sales. There can be no assurances regarding the performance of such third
parties, or the overall success, if any, of such strategic alliances. The
inability of the Company to successfully develop or commercialize its natural
astaxanthin or any potential microalgae products would have a material adverse
effect on the Company's business, financial condition, results of operations and
its relationships with its corporate partners. See "Business--Aquasearch's
Strategy" and "--Products and Potential Products."

DEPENDENCE ON PROPRIETARY TECHNOLOGY AND UNPREDICTABILITY OF INTELLECTUAL
PROPERTY PROTECTION

Aquasearch relies upon a combination of patents, copyright protection,
trade secrets, know-how, continuing technological innovation and licensing
opportunities to develop and maintain its competitive position. The
Company's future prospects depend in part on its ability to obtain patent
protection for its products and processes, to preserve its copyright and
trade secrets and to operate without infringing the proprietary rights of
third parties. Aquasearch has been awarded one patent in the United States,
one patent by the European Patent Office (which is applicable to all member
nations of the European Union), and one patent in Australia for its closed
system microalgae cultivation process. The Company has additional patent
applications pending in the United States and internationally.

The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. There can be no assurance that any of the
Company's pending patent applications will result in issued patents, that the
Company will develop additional proprietary technologies that are patentable,
that any patents issued to the Company or its corporate partners will provide a
basis for commercially viable products or will provide the Company with any
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have a material adverse effect on the ability of the
Company to do business. In addition, patent law relating to the scope of claims
in the technology fields in which the Company operates is still evolving. The
degree of future protection for the Company's proprietary rights, therefore, is
uncertain. Furthermore, there can be no assurance that others will not
independently develop similar or alternative technologies, duplicate any of the
Company's technologies, or, if patents are issued to the Company, design around
the patented technologies developed by the Company. In addition, the Company
could incur substantial costs in litigation if it is required to defend itself
in patent suits brought by third parties or if it initiates such suits.

Others may have filed and in the future are likely to file patent
applications that are similar or identical to those of the Company. To
determine the priority of inventions, the Company may have to participate in
interference proceedings declared by the United States Patent and Trademark
Office that could result in substantial cost to the Company. No assurance can
be given that any such patent application will not have priority over patent
applications filed by the Company. In addition, the laws of certain foreign
countries may not protect the Company's patent and other intellectual property
rights to the same extent as the laws of the United States.

The Company's future prospects also depend in part on the Company neither
infringing patents or proprietary rights of third parties nor breaching any
licenses that may relate to the Company's technologies and products. There can
be no assurance that the Company will not infringe the patents, licenses or
other proprietary rights of third parties. In addition, the Company may in the
future receive notices claiming infringement from third parties as well as
invitations to take licenses under third party patents. Any legal action
against the Company or its collaborative partners claiming damages and seeking
to enjoin commercial activities relating to the affected products and processes
could, in addition to subjecting the Company to potential liability for damages,
require the Company or its corporate partners to obtain a license in order to
continue to manufacture or market the affected products and processes. There
can be no assurance that the Company or its corporate partners would prevail in
any such action or that any license (including licenses proposed by third
parties) required under any such patent would be made available on commercially
acceptable terms, if at all. There may be a significant number of United States
and foreign patents and patent applications in the Company's area of interest,
and the Company believes that there may be significant litigation in the
industry regarding patent and other intellectual property rights. If the
Company becomes involved

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in such litigation, it could consume a substantial portion of the Company's
managerial and financial resources, which could have a material adverse effect
on the Company's business, financial condition, results of operations and
relationships with its corporate partners.

The enactment of legislation implementing the General Agreement on Trade
and Tariffs has resulted in certain changes in United States patent laws that
became effective on June 8, 1995. Most notably, the term of patent protection
for patent applications filed on or after June 8, 1995 is no longer a period of
seventeen years from the date of grant. The new term of United States patents
will commence on the date of issuance and terminate twenty years after the
effective date of filing may result in a substantially shortened term of the
Company's patent protection which may adversely affect the Company's patent
position.

While the disclosure and use of the Company's proprietary technology,
know-how and trade secrets are generally controlled under agreements with the
parties involved, there can be no assurance that all confidentiality agreements
will be honored, that others will not independently develop similar or superior
technology, that disputes will not arise concerning the ownership of
intellectual property, or that dissemination of the Company's proprietary
technology, know-how and trade secrets will not occur. See "Business--Patents,
Licenses and Proprietary Technology."

UNCERTAINTY REGARDING OBTAINING AND MAINTAINING GOVERNMENT APPROVALS

Aquasearch's natural astaxanthin product, potential products and its
research and production activities are or may become subject to varying degrees
of regulation by a number of government authorities in the United States and
other countries, including the United States Food and Drug Administration
("FDA") pursuant to the Federal Food, Drug and Cosmetic Act. Each existing or
potential microalgal product that is developed or marketed by Aquasearch, its
licensees or its corporate partners can present unique regulatory problems and
risks, depending on the product type, uses and method of manufacture. The FDA
regulates, in varying degrees and in different ways, dietary supplements, other
food products, medical devices and pharmaceutical products, including their
manufacture, testing, exportation, labeling, and, in some cases, advertising.
Generally, prescription pharmaceuticals and certain types of medical devices are
regulated more vigorously than foods, such as dietary supplements. Any future
products developed by Aquasearch for use in human nutrition, pharmaceuticals or
cosmetics, if any, will require Aquasearch to develop and adhere to Good
Manufacturing Practices ("GMP") as required by the FDA, ISO standards as
required in Europe, and any other applicable standards mandated by federal,
state, local or foreign laws, regulations and policies. Currently, the
Company's production facilities do not comply with GMP or ISO standards and
significant capital expenditures would have to be made and compliance procedures
implemented before the Company's production facilities could meet GMP and ISO
qualifications.

The Company is also subject to other federal, state and foreign laws,
regulations and policies with respect to labeling of its products,
importation of organisms, and occupational safety, among others. Federal,
state and foreign laws, regulations and policies are always subject to change
and depend heavily on administrative policies and interpretations. The
Company is working with Cultor with respect to compliance with foreign laws,
regulations and policies pertaining to use of its natural astaxanthin product
in the field of animal feed and animal nutrition. There can be no assurance
that any changes with respect to federal, state and foreign laws, regulations
and policies, and, particularly with respect to the FDA or other such
regulatory bodies, with possible retroactive effect, will not have a material
adverse effect on the Company's business, financial condition, results of
operations and relationships with its corporate partners. There can be no
assurance that any of the Company's potential products will satisfy
applicable regulatory requirements. See "Business -- Government Regulation
and Product Testing."

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Aquasearch's natural astaxanthin product and any potential food color
products for use in the United States will require FDA clearance, unless they
meet the requirements of current color additive regulations. The process of
obtaining clearances for a new color additive is expensive and time
consuming. Extensive information is required on the toxicity of the
additive, including carcinogenicity studies and other animal testing.
Although the FDA approved the Hoffman-LaRoche synthetic astaxanthin product
as a food additive in 1995, there can be no assurance that the FDA will grant
similar approval for Aquasearch's natural astaxanthin product. As of the
date of this Prospectus, the Company has not applied for FDA clearance for
the Company's natural astaxanthin product as a food additive. No assurances
can be given that Aquasearch's potential nutrition and food color products,
if any, will be cleared by the FDA on a timely basis, if at all.

Regulatory approvals in other markets in which Aquasearch's natural
astaxanthin product is likely to be distributed, including in particular, the
European Union, Japan, Canada and Australia, vary by market. The Company
believes that the approval process in Australia, Japan and certain other
Asian countries will come under their "natural" status and be approved
relatively quickly; however, there can be no assurances in this regard. The
Aquasearch natural astaxanthin product has not been submitted for approval by
the European Union, and there can be no assurance that the determination by
Swedish authorities that the Company's natural astaxanthin product be
considered a food ingredient (rather than a food additive) will have any
influence on the determination to be made by the European Union.

Under the terms of the Cultor Distribution and Development Agreement,
Cultor has the responsibility to obtain any regulatory and other approvals
necessary in each country in which Cultor determines to distribute the
product.

The Company is subject to numerous environmental and safety laws and
regulations, including those governing the use and disposal of hazardous
materials. Any violation of, and the cost of compliance with, these regulations
could have a material adverse effect on the Company's business, financial
condition, results of operations and relationships with its corporate partners.
See "Business--Government Regulation and Product Testing."

CONCENTRATION OF PRODUCTION CAPACITY; RELIANCE ON CLIMATIC CONDITIONS

All of the Company's production capacity is currently located at its
Kailua-Kona, Hawaii facility, on property leased from the State of Hawaii and
situated on a 200-year-old lava flow adjacent to a dormant volcano. The
Company maintains minimal finished goods inventory. In the event that
production at, or transportation from, such facility (or any facility that
the Company might construct in the Hawaiian Islands) were interrupted by
fire, volcanic eruption, earthquake, tidal wave, hurricane, or other natural
disaster, work stoppage, termination or suspension of the Company's facility
lease by the State of Hawaii for public use or similar purposes, other
regulatory actions or any other cause, the Company would be unable to
continue to produce its products at such facility. Such an interruption
would have a material adverse effect on the Company's business, financial
condition, results of operations and relationships with its corporate
partners. See "Business--The Aquasearch Solution" and "--Properties."

Due to the importance of sunlight and a consistent warm temperature for
microalgae growth, the Company's production may be significantly affected by
weather patterns and unusual seasonal weather changes. Any unseasonably cool or
cloudy weather would adversely impact the Company's production and could have a
material adverse effect on the Company's business, financial condition, results
of operations and relationships with its corporate partners.

RISKS ASSOCIATED WITH INTERNATIONAL SALES

The Company currently has a distribution arrangement with Cultor, a
Finnish company. The Company expects that international sales will represent
a significant portion of its revenue for the foreseeable future because
aquaculture production, the primary market for natural astaxanthin today, is
more highly developed in Europe and Asia than in the United States. The
Company's business, financial condition and results of operations may be
materially and adversely affected by any difficulties associated with
managing accounts receivable from international customers, tariff
regulations, imposition of governmental controls, political and economic
instability or other

-15-

<PAGE>

trade restrictions. Although the Cultor Distribution and Development
Agreement provides that sales will be denominated in United States dollars,
fluctuations in currency exchange rates could cause the Company's products to
become relatively more expensive to customers in the affected country,
leading to a reduction in sales in that country.

PRODUCT LIABILITY

The Company faces an inherent business risk of exposure to product
liability claims alleging that the use of its technology or products resulted in
adverse effects. There can be no assurance that the Company's current level of
product liability insurance together with indemnification rights under its
existing license agreements and other collaborative arrangements will be
adequate to protect the Company. It is uncertain whether the Company will be
able to obtain increased levels of insurance as the Company grows, that any
level of insurance would be economically practical or that it would be able to
renew its current or future policies. A product liability claim or recall in
excess of insured amounts or amounts recoverable under applicable contractual
arrangements could have a material adverse effect on the Company's business,
financial condition, results of operations and relationships with its corporate
partners.

CONCENTRATION OF STOCK OWNERSHIP

Based upon an aggregate of 47,115,058 shares of Common Stock that will be
outstanding upon completion of this offering (assuming the issuance of
1,250,000 Penalty Shares, the Company's directors and executive officers, as
a group, will beneficially own approximately 17.8% of the Company's
outstanding Common Stock. As a result, these shareholders will have the
ability to strongly influence the actions of the Board of Directors and the
outcome of actions that are brought before the shareholders for approval.
Such a high level of ownership may have the effect of delaying or preventing
a change in control of the Company and may adversely affect the voting and
other rights of the holders of Common Stock. See "Management," "Principal
Shareholders", "Selling Shareholders," and "Description of Securities."

POSSIBLE VOLATILITY OF STOCK PRICE; LIMITED LIQUIDITY; ABSENCE OF DIVIDENDS

The market price of the Company's Common Stock has experienced, and may
continue to experience, a high level of volatility, as frequently occurs with
publicly traded life sciences companies and many companies whose securities
trade on the NASD Electronic Bulletin Board. See "Risk Factors--Risks
Associated with Low-Priced Over-The-Counter" Securities." Announcements of
technological innovations or new commercial products by the Company or its
competitors, developments or disputes concerning patent or proprietary
rights, publicity regarding actual or potential benefits relating to products
under development by the Company or its competitors, general regulatory
developments affecting the Company's products in both the United States and
foreign countries, market conditions for life sciences companies in general
and economic and other internal and external factors, as well as
period-to-period fluctuations in financial results, may have a significant
impact on the Company's business or the future market price of the Common
Stock. Since the Company's initial public offering of Common Stock in
January 1989, the average daily trading volume in the Common Stock as
reported on the NASD Electronic Bulletin Board has been relatively low. See
"Price Range of Common Stock." There can be no assurance that a more active
public trading market will ever develop for the Common Stock. The Company
has never declared or paid any cash dividends on its Common Stock and does
not intend to do so for the foreseeable future. See "Dividend Policy."

RISKS ASSOCIATED WITH LOW-PRICED "OVER-THE-COUNTER" SECURITIES

The Company's Common Stock is currently traded in the "over-the-counter
market" in the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. (the "NASD"). See "Price Range of Common Stock."
Securities of companies traded on the NASD Electronic Bulletin Board are
generally more difficult to dispose of and to obtain accurate quotations as to
price than securities of companies that are traded on the Nasdaq National
Market, the Nasdaq SmallCap Market or the major stock exchanges.

The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Securities and Exchange

-16-
<PAGE>

Commission regulations generally define a penny stock to be an equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include any equity security listed on Nasdaq or a
national securities exchange and any equity security issued by an issuer that
has (i) net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average annual revenue of at least $6,000,000, if such issuer
has been in continuous operation for less than three years. Unless an exception
is available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.

In addition, trading in the Company's securities is currently subject to
Rule 15g-9 promulgated under the Exchange Act for non-Nasdaq and non-exchange
listed securities. Pursuant to Rule 15g-9, broker/dealers who recommend the
Company's securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if their market price is at least
$5.00 per share.

The impact of the regulations applicable to penny stocks on the Company's
securities is to reduce the market liquidity of the Company's securities by
limiting the ability of broker/dealers to trade the Company's securities and the
ability of purchasers of the Company's securities to sell their securities in
the secondary market. The low price of the Company's Common Stock also has a
negative effect on the amount and percentage of transaction costs paid by
individual shareholders and the potential ability of the Company to raise
additional capital by issuing additional shares. The primary reasons for these
effects include the internal policies of certain institutional investors that
prohibit the purchase of low-priced stocks, the fact that many brokerage houses
do not permit low-priced stocks to be used as collateral for margin accounts or
to be purchased on margin and certain brokerage house policies and practices
that tend to discourage individual brokers from dealing in low-priced stocks.
In addition, since broker's commissions on low-priced stocks represent a higher
percentage of the stock price than commissions on higher priced stocks, the
current low share price of the Common Stock results in individual shareholders
paying transaction costs that are a higher percentage of their total share value
than would be the case if the Company's share price were substantially higher.

The Company intends to apply for listing on the Nasdaq SmallCap Market as
soon as it meets the eligibility requirements. Under recently implemented
Nasdaq rules, in order to be eligible for listing on the Nasdaq SmallCap
Market, (i) the Company's Common Stock must have a minimum bid price of
$4.00, (ii) the Company must have minimum tangible net assets (total assets
less total liabilities and goodwill) of $4 million or a market capitalization
of at least $50 million or net income of at least $750,000 in two of the
three prior years, (iii) the Company must have a public float of at least one
million shares with a market value of at least $5 million and (iv) the Common
Stock must have at least three market makers and be held of record by at
least 300 shareholders. If at any time the Company were to satisfy all
listing requirements other than the minimum bid price of $4.00 per share,
then the Board of Directors is likely to recommend that the Company effect a
reverse stock split in order to meet this minimum trading price listing
requirement. Any such reverse stock split would require shareholder
approval. There can be no assurance that at any time the Company would be
able to satisfy some or all listing requirements or that any proposed reverse
stock split will be approved by the shareholders or successfully implemented
following such approval.

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<PAGE>

CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED

The purchasers of any securities offered hereby will be able to resell
such securities (or the Common Stock issuable upon exercise thereof) in the
public market only if there is then a current prospectus relating to the
securities and only if the securities are qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the proposed purchasers reside. The Company has undertaken and intends
to file and keep current a prospectus which will permit the purchase and sale
of the securities offered hereby, but there can be no assurance that the
Company will be able to do so. Although the Company intends to seek to
qualify for sale the securities offered hereby in those states in which the
securities are to be offered, no assurance can be given that such
qualifications will occur. The securities may be deprived of any value and
the market for the securities may be limited if a current prospectus covering
the securities is not kept effective or if the securities are not qualified
or exempt from qualification in the jurisdictions in which the prospective
purchasers of the securities then reside.

POTENTIAL ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK

The Company's Articles of Incorporation authorize the issuance of up to
5,000,000 shares of "blank check" Preferred Stock, with such designations,
rights, preferences, privileges and restrictions as determined by the Board
of Directors from time to time. As a result, the Board of Directors is
empowered, without further shareholder approval, to issue Preferred Stock
with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of the
Common Stock. In the event of issuance, the Preferred Stock could be used,
under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. Although the Company has no
present plans to issue any shares of Preferred Stock, there can be no
assurance that the Company will not issue Preferred Stock at some time in the
future. See "Description of Securities--Preferred Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, the Company had 45,865,058 shares of
Common Stock outstanding. Of the shares outstanding immediately prior to
this offering, 40,104,386 have either been registered under the Securities
Act or are freely tradeable without volume limitations under Rule 144(k)
under the Securities Act; and the balance of the outstanding shares are
freely tradeable under Rule 144(d) of the Securities Act. In addition, the
Company recently filed a registration statement covering the sale by certain
shareholders of the Company of an aggregate of 1,051,138 shares of Common
Stock. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have
on the market prices prevailing from time to time. The possibility exists,
however, that substantial amounts of Common Stock may be sold in the public
market which may adversely affect prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.

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<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is currently traded in the "pink sheets" (OTC
Bulletin Board Symbol: AQSE). The following table sets forth for the periods
indicated the high and low bid quotations for the Company's Common Stock as
reported by M.H. Myerson & Company, one of the Company's market makers. These
quotations are believed to represent inter-dealer quotations, without adjustment
for retail mark-up, mark-down or commissions and may not represent actual
transactions.

HIGH BID LOW BID
-------- -------
FISCAL 1994
First Quarter . . . . . . . . . . . . . . . . . $0.10 $0.03125
Second Quarter . . . . . . . . . . . . . . . . $0.15 $0.02
Third Quarter . . . . . . . . . . . . . . . . . $0.125 $0.02
Fourth Quarter. . . . . . . . . . . . . . . . . $0.125 $0.08

FISCAL 1995
First Quarter . . . . . . . . . . . . . . . . . $0.20 $0.10
Second Quarter . . . . . . . . . . . . . . . . $0.25 $0.10
Third Quarter . . . . . . . . . . . . . . . . . $0.25 $0.125
Fourth Quarter . . . . . . . . . . . . . . . . $0.36 $0.125

FISCAL 1996
First Quarter . . . . . . . . . . . . . . . . . $0.74 $0.21
Second Quarter . . . . . . . . . . . . . . . . $0.75 $0.50
Third Quarter . . . . . . . . . . . . . . . . . $0.97 $0.53
Fourth Quarter . . . . . . . . . . . . . . . . $0.66 $0.31

FISCAL 1997
First Quarter . . . . . . . . . . . . . . . . . $0.63 $0.33
Second Quarter . . . . . . . . . . . . . . . . $0.39 $0.20
Third Quarter . . . . . . . . . . . . . . . . . $0.28 $0.17
Fourth Quarter (through September 19, 1997) . . $0.25 $0.19

As of the date of this Prospectus, the Company had approximately
2,000 record holders of its 45,865,058 shares of Common Stock.

DIVIDEND POLICY

The Company has never paid cash dividends on its capital stock.
The Company currently intends to retain all available funds for use in the
operation and expansion of its business. The Company does not anticipate
paying any cash dividends in the foreseeable future. As of July 31, 1997,
the Company had an accumulated deficit at approximately $4.1 million, and
until this deficit is eliminated will be prohibited from paying dividends
except out of net profits.

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<PAGE>

CAPITALIZATION

The following table sets forth the unaudited total capitalization of
the Company as of July 31, 1997:

July 31, 1997
--------------
(IN THOUSANDS)
<S> <C>
Long-term obligations, including current portion....................................... $ --
-------
-------
Stockholders' equity:
Common Stock, par value $0.001 per share, 100,000,000 shares authorized,
45,865,058 shares issued and outstanding, actual and as adjusted (1)(2)......... $ 6
Additional paid-in capital........................................................ $ 4,342
Deficit accumulated during the development stage.................................. $ (4,140)
---------

Total stockholders' equity ............................................. $ 208
--------

Total capitalization.......................................... $ 921
--------
--------
__________________________

</TABLE>

(1) Excludes (i) 8,964,769 shares of Common Stock issuable upon exercise of
options outstanding as of July 31, 1997 (ii) 5,070,544 shares of Common
Stock issuable upon exercise of the Warrants and (iii) 1,250,000 Penalty
Shares.
(2) Excludes: (i) 45,530 shares of Common Stock earned (but not yet issued) as
payment for services rendered to the Company by consultants, and
(ii) 5,000,000 shares of Common Stock reserved for future issuance pursuant
to the Company's 1996 Stock Option Plan. See "Management--Employee Benefit
Plans."

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<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the financial statements and the notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus. The statement of operations data for the years
ended October 31, 1994, 1995 and 1996 and the balance sheet data at October
31, 1994, 1995 and 1996 are derived from, and are qualified by reference to,
the audited financial statements included elsewhere in this Prospectus and
should be read in conjunction with the audited financial statements and notes
thereto. The statement of operations data at October 31, 1992 and 1993 and
the balance sheet data at October 31, 1992 and 1993 are derived from audited
financial statements that are not included in this Prospectus. The
historical results are not necessarily indicative of results for any future
period.

NINE MONTHS
YEAR ENDED OCTOBER 31, ENDED JULY 31,
--------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $ -- $ -- $ -- $ -- $ 10 $ 10 $ 1
Cost of sales..................... $ -- $ -- $ -- $ -- 21 $ 28 $ --

Research and development costs.. 9 4 27 89 649 495 552
General and administrative
expenses.................. 72 85 115 393 641 283 645
-------- ------- ---------- --------- ------- ------- ---------
Earnings (loss) from
operations.................. (81) (89) (142) (482) (1,301) (796) (1,195)
-------- ------- ---------- --------- ------- ------- ---------
Other income (expense)............ -- (52) (98) (4) 3 3 4
Net income (loss)................. $ (81) $ (142) $ (240) $ (487) $(1,298) $ (793) $ (1,191)
-------- ------- -------- ------- ------- -------- ---------
-------- ------- -------- ------- ------- -------- ---------
Net income (loss) per share....... $ (0.01) $ (0.01) $ (0.01) $ (0.02) $ (0.03) $ (0.02) $ (0.03)
Weighted average shares
outstanding................. 17,287,454 20,132,100 22,782,063 25,541,021 37,679,955 35,000,000 44,159,602

OCTOBER 31, JULY 31,
--------------------------------------------------------- ----------
1992 1993 1994 1995 1996 1997
-------- --------- -------- ------- -------- ----------
(IN THOUSANDs) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ -- $ 146 $ 87 $ 27 $ 187 $ 78

Working capital...................... (95) 131 (19) (159) (418) (557)

Total assets......................... -- 146 87 490 1,368 921

Long-term obligations, including
current portion..................... -- -- -- -- -- --
Deficit accumulated during
development stage ................... (782) (924) (1,164) (1,651) (2,949) (4,140)
Total shareholders' equity (deficit).. (95) 131 (19) 256 291 208

</TABLE>

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<PAGE>

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

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT,
INCLUDING STATEMENTS, TREND ANALYSIS AND OTHER INFORMATION RELATIVE TO
MARKETS FOR THE COMPANY'S PRODUCTS AND TRENDS IN REVENUES AND ANTICIPATED
EXPENSE LEVELS, AS WELL AS STATEMENTS INCLUDING WORDS SUCH AS "ANTICIPATE,"
"EXPECT," "BELIEVE," "PLAN," "ESTIMATE" AND "INTEND" AND OTHER SIMILAR
EXPRESSIONS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT 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 DESCRIBED UNDER THE CAPTION "RISK FACTORS" COMMENCING
ON PAGE 5 HEREOF AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S
PERIODIC REPORTS AND OTHER INFORMATION FILED WITH THE COMMISSION.

OVERVIEW

Aquasearch is a development stage company that is developing a
proprietary, photosynthetic, closed-system known as the Aquasearch Growth
Module to cultivate microalgae. 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 the summer of 1988. During the period from the
summer of 1988 until March 1993, the Company conducted additional research
and development to refine its production technology.

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.

In the summer of 1994, Aquasearch initiated discussions with Cultor
regarding the purchase of astaxanthin-rich microalgae. While awaiting a
response from Cultor, Cyanotech 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 small 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.

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<PAGE>

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) 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 "Business--Cultor Distribution and Development Agreement."

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

Since inception, the Company's primary operating activities have
consisted of basic research and development and production process
development; recruiting personnel; purchasing operating assets; and raising
capital. From inception through July 31, 1997, the Company had an
accumulated deficit of approximately $4.1 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

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<PAGE>

as it expands its production facilities to meet the production targets under the
Cultor Distribution and Development Agreement and increases its research and
development efforts. The Company expects to have quarter-to-quarter and
year-to-year fluctuations in revenues, expenses and losses, some of which could
be significant.

The Company has a limited operating history and any assessment of the
Company's prospects must include the technology risks, market risks, expenses
and other difficulties frequently encountered by development stage companies,
and particularly companies attempting to enter competitive industries with
significant technology risks and barriers to entry. Although the Company has
attempted to address these risks by, among other things, hiring and retaining
highly qualified persons and forging strategic alliances with companies that
complement the Company's technical strengths, there can be no assurance that the
Company will overcome these risks in a timely manner, if at all.

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

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. In the second quarter of
fiscal 1996, the Company made its first shipment of its natural astaxanthin
product to Svenska Foder under the Svenska Foder Supply Agreement, which
resulted in revenues of approximately $10,000. No revenues have been
generated in subsequent quarters due to significant fluctuations in the
Company's production processes that prohibited it from consistently meeting
the production targets under the Svenska Foder Supply Agreement. On the other
hand, 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.

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 were approximately $649,000 for the
fiscal year ended October 31, 1996 compared with $89,000 and $27,000 in 1995
and 1994, respectively. These increases were primarily attributable to
increases in staffing, consultant costs, and costs associated with completion
of the Company's one-acre research and development/ production facility.
During the nine-month period ended July 31, 1997, the Company had research
and development costs of approximately $552,000 compared with approximately
$495,000 during the nine-month period ended July 31, 1996. Substantially all
of these funds were expended to improve the Company's natural astaxanthin
production system. From inception through July 31, 1997, the Company's total
research and development costs were approximately $1,644,000. Aquasearch
believes it will need 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 were
approximately $641,000, $393,000 and $115,000 for the fiscal years ended
October 31, 1996, 1995 and 1994, respectively, and $645,000 and $283,000 for
the nine-month periods ended July 31, 1997 and 1996, respectively. The
increase in annual general and administrative expenses since 1994 and in the
nine-month period ended July 31, 1997 versus July 31, 1996 reflects
additional costs associated with personnel additions, legal fees incurred in
connection with

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<PAGE>

developing and protecting the Company's intellectual property position and
raising capital, as well as other expenses. From inception through July 31,
1997, the Company's total general and administrative expenses were
approximately $2.3 million. The Company anticipates that its general and
administrative expenses will increase over time as it expands its production
capacity, expands its intellectual property protection and raises additional
capital.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations to date through public and
private sales of equity securities. In the past twelve months, Aquasearch
raised approximately $1.2 million of net proceeds from the sale of 5,044,570
units consisting of one share of Common Stock and one Common Stock Purchase
Warrant, in private placement transactions; $210,000 from the private
placement of 1,000,000 shares of Common Stock; and $250,000 from the private
placement of convertible notes. In the fiscal years ended October 31, 1996,
1995 and 1994, Aquasearch raised approximately $1.3 million, $552,000 and
$7,500 of net proceeds from the sale of 7,901,643, 7,622,500 and 250,000
shares of Common Stock, respectively, in private placement transactions.
From inception through July 31, 1997, the Company had raised total net
proceeds of approximately $4.6 million through public and private sales of
equity and debt securities.

In the nine months ended July 31, 1997, operating activities consumed
approximately $1.4 million compared with $687,000 in the nine months ended
July 31, 1996. The primary reason for this increase was an increase in
staffing and research and development activities in the 1997 period. In the
fiscal year ended October 31, 1996, operating activities consumed
approximately $470,000 compared with $295,000 in 1995 and $68,000 in 1994.
From inception through July 31, 1997, operating activities have consumed
approximately $3.0 million.

Capital expenditures for the nine months ended July 31, 1997 amounted to
approximately $98,000 compared with $207,000 in the comparable period in the
prior year. Capital expenditures for the fiscal year ended October 31, 1996,
1995 and 1994 were $329,000, $315,000 and $0, respectively. From inception
through July 31, 1997, total capital expenditures have been approximately
$844,000.

As of July 31, 1997, the Company's sole source of liquidity was
approximately $78,000 in cash and cash equivalents.

The Company currently estimates that it will require between $1.5 million
and $2.0 million in operating capital over the next twelve months before any
planned capital expenditures. The Company anticipates that it will require
approximately $8 million in financing during fiscal 1998 to automate,
optimize and expand its existing research and development/production facility
from a one-acre facility to a four-acre facility and an additional $7 million
over the subsequent twelve months to complete construction and begin
operation of a ten-acre production facility dedicated solely to the
production of natural astaxanthin derived from microalgae and to fund
research and development of new microalgal products. The Company believes
that its existing capital resources, funds to be raised through public and/or
private offerings of equity and/or debt securities and bank financing will be
sufficient for continued operations through fiscal 1997. 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. See "Risk Factors--Substantial Near-Term
Capital Needs; Uncertainty of Additional Funding; Dilution" and
"--Substantial Long-Term Capital Needs; Uncertainty of Additional Funding;
Dilution."

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BUSINESS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT,
INCLUDING STATEMENTS, TREND ANALYSIS AND OTHER INFORMATION RELATIVE TO
MARKETS FOR THE COMPANY'S PRODUCTS AND TRENDS IN REVENUES AND ANTICIPATED
EXPENSE LEVELS, AS WELL AS STATEMENTS INCLUDING WORDS SUCH AS "ANTICIPATE,"
"EXPECT," "BELIEVE," "PLAN," "ESTIMATE" AND "INTEND" AND OTHER SIMILAR
EXPRESSIONS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT 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 DESCRIBED UNDER THE CAPTION "RISK FACTORS" COMMENCING
ON PAGE 5 HEREOF AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S
PERIODIC REPORTS AND OTHER INFORMATION FILED WITH THE COMMISSION.

OVERVIEW

Aquasearch, Inc. is a development stage company that has been principally
involved in research and development activities since it commenced operations
in 1988. The Company has not generated significant revenues to date and does
not expect to receive significant revenues from commercial sales of its
products until the commencement of volume production, which is not expected
to occur until after completion of the expansion of its manufacturing
facility.

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

Aquasearch has spent more than $1.2 million over the last two years on
research and development of its AGM technology. Aquasearch believes that its
AGM technology can be used to cultivate hundreds of species of microalgae.
The AGM utilizes computer-controlled equipment to monitor and adjust the
turbulence rate, pH, gas exchange, temperature and nutrient levels within the
AGM to optimize microalgae growth rates. Aquasearch believes that the AGM
offers significant technical and economic advantages compared with the open
pond systems currently used by certain competitors, including increased
yields and the ability to economically cultivate hundreds of microalgal
species at commercial scale that cannot be produced in open pond systems due
to substantially higher risks of contamination and lack of control.
Aquasearch also believes that the AGM compares favorably with other known
closed systems with respect to both capital and operating costs.
Notwithstanding these perceived advantages of the Company's technology, the
production of various species of microalgae on a commercial scale involves
various risks and uncertainties.

Aquasearch's first commercial product is astaxanthin, a naturally occurring
red pigment derived from HAEMATOCOCCUS PLUVIALIS, a freshwater microalga. The
primary market for astaxanthin currently is aquaculture. According to industry
sources, the global aquaculture market steadily doubled in value from $13
billion in 1985 to $26 billion in 1990, and is projected to grow to more than
$50 billion by the year 2000. Industry sources indicate that farmed salmon and
shrimp (the fastest and fourth fastest growing aquaculture products) will
account for more than half the total value of world aquaculture production by
the year 2000. Free swimming salmon and shrimp acquire pink flesh from natural
astaxanthin contained in microalgae and other species ingested in the wild.
Farmed salmon and shrimp, however, currently acquire pink flesh only from the
addition of synthetic astaxanthin (or a less effective substitute product) to
their feed. The world market for astaxanthin in aquaculture was estimated to be
approximately $125 million in 1996, and continued growth is expected.

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Hoffman-LaRoche, which has maintained the market price of its synthetic
astaxanthin product (which is derived from petrochemicals) at approximately
$2,500 per kilogram for more than a decade. Aquasearch's natural astaxanthin
product will compete directly with Hoffman-LaRoche's synthetic astaxanthin
product. There can be no assurance that the market price of synthetic
astaxanthin will be maintained at historical levels or what effect this may have
on the market price of Aquasearch's natural astaxanthin product.

In May 1996, Aquasearch entered into a three-year exclusive Distribution
and Development Agreement with Cultor (recently extended to four years)
pursuant to which Aquasearch 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. Cultor is a $2 billion Finnish food
conglomerate that is a leading worldwide producer of animal feed and animal
nutrition products. Aquasearch estimates that Cultor and its affiliated
companies currently utilize approximately $30 million of synthetic
astaxanthin per year in feed products for the aquaculture and livestock
industries. Astaxanthin is currently used in poultry feed to impart a more
reddish hue to egg yolks. Recently published studies indicate that natural
astaxanthin, as compared with synthetic astaxanthin, may have additional
benefits with respect to fertility, weight gain and feed efficiency in
broiler chickens and layer hens.

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.
Pursuant to this arrangement, Aquasearch would contribute a ten-acre natural
astaxanthin production facility to be constructed late 1997 or the first half
of 1998 in return for its 50% stake in the new company and Cultor would
contribute cash equal to the appraised value of the new ten-acre production
facility in return for its 50% stake. Under the Cultor Distribution and
Development Agreement, Cultor also has the option to increase its stake in
the new company by purchasing from Aquasearch a further 25% of the new
company (thus increasing Cultor's stake to 75%) for cash based on a formula.
The formula provides that the purchase price for the additional shares to be
acquired by Cultor from Aquasearch will equal the greater of (i) $1 million,
(ii) half of the current replacement value of the astaxanthin production
facility initially contributed by Aquasearch or (iii) an amount equal to X
multiplied by Y; where "X" equals the difference between the Transfer Price
(as defined) and the Aquasearch Production Costs (as defined) for the
six-month period commencing on November 1, 1998 and ending on April 30, 1999
and "Y" equals six (or, in other words, an amount equal to twelve times
annual profit in the third year of the contract). Aquasearch will license
certain technology to the new company to make, use and sell natural
astaxanthin derived from microalgae within the field of animal feed and
animal nutrition only and will retain the right to make, use and sell natural
astaxanthin derived from microalgae in all fields other than animal feed and
nutrition as well as the right to make, use and sell any microalgal products
other than natural astaxanthin in all fields, including the field of animal
feed and animal nutrition. The Company's obligations and performance under
the Cultor Distribution and Development Agreement and the potential formation
of a new joint venture company with Cultor involve various risks and
uncertainties.

Over the past eighteen months, the Company has been producing natural
astaxanthin at varying rates of between one and eight kilograms per month at
its existing one-acre research and development/production facility. The
production targets under the Cultor Distribution and Development Agreement
were initially 40 kilograms per month at the end of the first year and 120
kilograms per month at the end of the second year; however, Aquasearch and
Cultor recently agreed to extend the term of the Cultor Distribution and
Development Agreement by one year and to amend the production targets to be
40 kilograms per month at the end of the second year (September 1998) and 120
kilograms per month at the end of the third year (September 1999). In order
to meet these production targets, Aquasearch must significantly expand and
improve its production facilities and processes, which will involve various
risks and uncertainties.

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INDUSTRY BACKGROUND

Microalgae have the following properties that make their commercial
production attractive: (i) microalgae grow ten times faster than sugar cane, the
fastest growing land-based crop (which makes it possible to harvest new crops
every two to three days utilizing optimal culture and processing technologies),
(ii) microalgae have a uniform cell structure with no bark, stems, branches or
leaves (which permits easier extraction of products and higher utilization of
cells and makes it practical to manipulate and control growing conditions in
order to optimize particular cell characteristics), (iii) microalgae naturally
produce many different and unusual fats, sugars, proteins, amino acids,
vitamins, enzymes, pigments and other bioactive compounds and (iv) the raw
materials required for microalgae growth are abundant and include sunlight,
carbon dioxide and nitrogen.

Existing and potential commercial applications for microalgae include
animal and human nutrition, natural food colorings, cosmetics ingredients and
colorings, diagnostic products, pharmaceuticals, research grade chemicals and
pigments and dyes. The largest volume of microalgae products produced today are
algae used as human food and nutritional supplements. These include forms of
SPIRULINA spp., CHLORELLA spp., lake grown blue green algae (APHANIZOMENON
FLOS-AQUAE) and natural beta carotene from DUNALIELLA SALINA. These microalgae
food supplements contain, in varying degrees, highly absorbable sources of
phytonutrients including mixed carotenoids, B vitamins, GLA, protein and
essential amino acids. Emerging commercial applications for microalgae include
products for drug design, pharmaceuticals and diagnostics. One company has
developed an infant formula ingredient from microbial oils enriched with
microbial fatty acid components derived from microalgae and fungi that may be
linked to the development and function of the brain and retina.

Although many potentially valuable compounds have been identified in
microalgae, until recently there was no technology to provide for cost effective
production of multiple species of microalgae in commercial quantities. To the
Company's knowledge, and with the exception of the infant formula product,
substantially all other commercial quantities of microalgal products are
currently produced in open pond environments with microalgal species that thrive
in harsh environments which eliminate or neutralize competing species, predators
and contaminants. These few species, such as SPIRULINA spp., CHLORELLA spp.,
and DUNALIELLA SALINA require a medium for growth characterized by either an
extremely high salinity or pH or another chemistry that is hostile to most
competing species, predators and contaminants. Accordingly, the problem of
contamination is drastically reduced in such abnormal environments, as is the
number of microalgal species that can be produced.

Commercial cultivation of the other three principal groups of microbes --
bacteria, yeasts and fungi -- is currently accomplished in closed, controlled
bioreactors (fermentors), and provides the basis for multi-billion dollar
industries (such as pharmaceuticals) based on natural products produced by these
microbes. The Company believes that microalgae are the only major group of
microbes that are not currently widely cultivated in closed, controlled
cultivation systems and that such closed systems are essential for commercial
exploitation of the estimated 30,000 species of microalgae.

THE AQUASEARCH SOLUTION

Aquasearch has designed, developed and implemented proprietary production
technologies, systems and processes that provide a controlled environment for
the principal conditions required to optimize and maintain microalgae growth.
This technology includes the AGM, which is a closed-system, photosynthetic,
bioreactor, that utilizes computer-controlled equipment to monitor and adjust
the turbulence rate, pH, gas exchange, temperature and nutrient levels within
the AGM to optimize microalgae growth rates. To date, the AGM has produced at
least a doubling of growth rate in tested species compared with conventional
open pond technology. Equally important, the AGM is a closed, sterile,
controlled, photosynthetic system that protects the cultured microalgal species
from the bacteria and other microbial contaminants that frequently destroy them
in conventional open pond systems.

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As a result, the AGM enables the continuous growth and harvesting of
microalgae for periods of up to six months without re-inoculation, thus enabling
a semi-batch continuous production cycle. The specific processes and controlled
conditions are designed to meet the unique requirements of each microalgal
species. To date, Aquasearch has conducted experiments on five different
microalgal species, each with significantly different optimal growth
environments. In each case, the AGM has provided a stable environment that
fostered sustained continuous growth. Based on these preliminary studies, the
Company believes that the AGM can be used to cultivate hundreds of species of
microalgae.

The Company has also designed, developed and implemented proprietary
harvesting technologies, systems and processes for the production of microalgae
that it believes provide significant competitive advantages over traditional
microalgae production techniques.

Aquasearch believes that the capital cost of operating the AGM compares
favorably with other known closed, cultivation systems, thus reducing the
Company's costs of production and potentially expanding the number of microalgae
species that can be commercially exploited.

Notwithstanding these perceived advantages of the Company's technology, the
production of certain species of microalgae on a commercial scale involves many
significant technical challenges, some of which may never have been faced
before.

The Company believes that the location of its research and development and
production facility in the Hawaii Ocean Science and Technology ("HOST") Business
Park at Keahole Point, Kailua-Kona, Hawaii is an important competitive
advantage. Aquasearch believes that the combination of consistent warm
temperatures, abundant sunlight, low rainfall and the provision of cold, clean
deep seawater at this facility makes this a favorable location to economically
cultivate microalgae on a large scale year round. The Company believes that, in
contrast to its facility (and others in the HOST Business Park), other
microalgae production facilities located in areas lacking these characteristics
are likely to be subject to significantly higher costs of production and fewer
production days per year.

At the HOST Business Park, Aquasearch has access to cold, clean deep
seawater that is pumped up from a depth of 2,000 feet. This seawater is used as
a means of controlling the temperature of the AGM and may be used by Aquasearch
as a source of nutrients for culture of marine microalgae. Additionally,
Aquasearch's facility has access to a complete industrial infrastructure and is
located 30 miles from a deep water port and immediately adjacent to an
international airport.

The concentration of the Company's existing and planned production
capacity in the HOST Business Park (as well as any other potential production
sites in the Hawaiian Islands) involves certain risks and uncertainties
relating to potential natural disasters such as volcanic eruptions,
earthquakes, tidal waves, hurricanes and related matters indigenous to
Hawaii.

AQUASEARCH'S STRATEGY

The Company's objective is to become the leader in cost-effective
cultivation technology to produce natural commercial products from
microalgae. The Company's strategies to achieve this goal may be summarized
as follows:

- - BUILD SIGNIFICANT MARKET SHARE IN THE ASTAXANTHIN MARKET. Aquasearch
intends to build upon its position as one of the first producers of
commercial quantities of natural astaxanthin from microalgae. Through its
collaboration with Cultor, Aquasearch's products will gain faster access to
the world market than would have been possible if Aquasearch had attempted
to build its own marketing and distribution channel first. The Company
believes that the combination of its microalgae cultivation technology and
expertise with Cultor's animal feed and

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animal nutrition research and development capabilities and worldwide sales,
marketing and distribution network is an important competitive advantage.
Aquasearch plans to independently develop and/or collaborate with Cultor
and other corporate partners with respect to the development of additional
applications for its natural astaxanthin product.

- - CONTINUALLY IMPROVE AND ENHANCE ITS CORE PLATFORM TECHNOLOGY. Aquasearch
has developed proprietary, cost effective, microalgae cultivation and
harvesting technologies and processes that it believes provide it with a
significant competitive advantage over other known cultivation
technologies. Aquasearch plans to continue to improve upon its AGM
technology and other technologies in order to improve yields of natural
astaxanthin from HAEMATOCOCCUS PLUVIALIS and to develop additional products
from other microalgae species.

- - DEVELOP OTHER COMMERCIAL PIGMENTS. Aquasearch plans to undertake
additional research and development of potential commercial pigments from
other species of microalgae. In particular, Aquasearch plans to determine
whether canthaxanthin, another carotenoid pigment, can be derived
cost-effectively from microalgae in commercial quantities. Synthetic
canthaxanthin is currently used in cakes, candy, soda and processed meats.
The Company believes that the world market for synthetic canthaxanthin is
currently approximately $200 million per year.

- - EXPAND STRATEGIC ALLIANCES. Aquasearch intends to strengthen existing and
develop new relationships with companies interested in commercializing
microalgae products. In particular, Aquasearch is targeting potential
partners, like Cultor, that have greater research and development,
scientific, technical, financial, marketing, sales and/or distribution
resources than Aquasearch. The Company's primary objective in expanding
relationships with these companies is to gain visibility into their product
requirements in order further develop Aquasearch's technology and expand
the markets for its existing and potential products.

- - DEVELOP PHARMACEUTICALS, COSMETICS AND OTHER APPLICATIONS. Aquasearch
currently plans to conduct research and development of potential
pharmaceutical, cosmetics and other applications from microalgae.
Aquasearch intends to identify such potentially marketable compounds
through the efforts of its existing technical staff, its Scientific
Advisory Board and the scientific institutes and universities (such
as Scripps Institute of Oceanography, University of California,
San Diego; University of Hawaii at Manoa and the University of
Southern Mississippi) at which members of the Company's Scientific
Advisory Board are conducting teaching and research activities.

PRODUCTS AND POTENTIAL PRODUCTS

The following discussion describes the Company's existing natural
astaxanthin product and potential future products:

EXISTING PRODUCT: ASTAXANTHIN

Substantially all of Aquasearch's efforts to date have been focused on the
development of its AGM technology and the initial production of natural
astaxanthin derived from HAEMATOCOCCUS PLUVIALIS. The two primary markets for
natural astaxanthin are currently aquaculture and poultry feed.

AQUACULTURE. Astaxanthin is the red pigment that occurs in the natural
diets of a number of marine species (including, for example, salmon, shrimp,
carp, trout, red sea bream, ornamental fish, lobsters and crabs) which
provides the red coloring in their flesh or shells. In nature, astaxanthin,
like other marine pigments, is produced only by microalgae and is then passed
up the food chain. Farmed salmon, trout and shrimp do not obtain astaxanthin
in non-pigmented commercial fish feed. The resulting salmon, trout and
shrimp taste the same as pink salmon, trout and shrimp, but, due to consumer
preference, fetch about half the price. (Industry studies have demonstrated
that color is the most significant factor influencing consumer salmon
purchases.) For this reason, fish farmers have an important incentive to add
astaxanthin (in synthetic or natural form) or an alternative product into
their fish feed in order to increase the value of their produce.

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The aquaculture market for synthetic astaxanthin is currently estimated
to be approximately $125 million per annum, and continued growth is expected.
This market is currently dominated by a single producer, Hoffman-LaRoche,
which has maintained the market price of synthetic astaxanthin at about
$2,500 per kilogram for more than a decade. Aquasearch has entered into an
exclusive distribution and development agreement with Cultor with respect to
the production and distribution of Aquasearch's natural astaxanthin product
derived from HAEMATOCOCCUS PLUVIALIS. Cultor owns Ewos, a Finnish company
with production facilities worldwide, which Aquasearch believes currently
sells approximately one-third of the world's salmon feed. Aquasearch's
natural astaxanthin product has compared favorably with synthetic astaxanthin
in tests conducted by Cultor. Aquasearch's natural astaxanthin product will
compete directly with Hoffman-LaRoche's synthetic astaxanthin product in the
aquaculture feed market. There can be no assurance that the market price of
synthetic astaxanthin will be maintained at historical levels or what effect
this may have on the market price of Aquasearch's natural astaxanthin product.

POULTRY FEED. The amount of natural pigments ingested in the diet
determines the hue of the egg yolks produced by poultry. For many years,
poultry producers have added synthetic canthaxanthin -- a closely related
pigment to astaxanthin -- and other natural pigments (such as marigolds) to
livestock feeds in order to satisfy consumer preferences for various colored
egg yolks. Recent legislation in Sweden, however, requires that all
colorants added to animal feeds be derived from natural sources. This
legislation prompted Svenska Foder, the largest poultry feed producer in
Sweden (and a subsidiary of Cultor prior to December 1996), to seek out
Aquasearch to provide natural astaxanthin as an alternative colorant for
poultry feed. Aquasearch's natural astaxanthin product has compared
favorably with synthetic astaxanthin in tests performed by Svenska Foder. In
addition, recently published studies by Svenska Foder suggest that natural
astaxanthin may have additional benefits with respect to fertility, weight
gain and feed efficiency in broiler chickens and layer hens. In December
1996, Cultor sold its majority interest in Svenska Foder to KKR, a Danish
animal feeds company. In connection with this sale, Cultor acquired all of
Svenska Foder's rights under the Svenska Foder Supply Agreement.

OTHER POTENTIAL APPLICATIONS. Aquasearch intends to explore, independently
and jointly with its corporate partners, additional applications of natural
astaxanthin in the field of animal feed and animal nutrition and in other
fields, such as human nutrition and food coloring. The Company believes that
the potential market for astaxanthin in human health and nutrition is large. No
assurance can be given that Aquasearch or any of its corporate partners will be
successful in developing additional commercial applications for the Company's
natural astaxanthin product.

POTENTIAL PRODUCTS

OTHER PIGMENTS FROM MICROALGAE. Using its AGM technology, Aquasearch has
the capability of cultivating additional microalgal species rich in pigments.
Microalgae contain the entire spectrum of colors found in aquatic
environments, including more than 1,000 specific pigments. These pigments
may be useful in other feeds for the aquaculture and animal feed markets. In
addition, the Company believes that natural pigments found in microalgae can
be substituted for synthetic pigments currently used in the food processing
industry. For example, canthaxanthin is used widely in the food industry
today for colorings in cakes, candy, soda and processed meats. The Company
believes that the worldwide market for synthetic canthaxanthin is currently
in excess of $200 million. Aquasearch is aware of a number of microalgae
species that contain a high percentage of canthaxanthin. Similarly, there is
a growing demand for natural pigments in cosmetics, skin and hair care
products that could be derived from microalgal species. Aquasearch believes
it has the technical expertise to identify microalgae species that produce
pigments that could be useful in the food processing, cosmetics and consumer
products industries, among others. The Company believes that the combined
worldwide market for canthaxanthin and three other pigments currently being
evaluated by the Company is in excess of $1 billion. The Company's
development of additional microalgae pigmentation products involves many
significant risks and uncertainties.

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AQUACULTURE FEEDS. Microalgae are the primary source of food for most
aquatic species in their larval stages. According to independent sources, the
aquaculture market currently produces approximately 18% of the world's fisheries
consumption based on 1994 figures (which are the most recent data available) and
was estimated to be a $35 billion market in 1996. Aquaculture feeds typically
represent the highest cost of production for the aquaculture farmer and many are
required to grow or purchase microalgae or microalgae sources for their
hatcheries. Problems of contamination are a significant business risk and some
farmers are currently purchasing prepared larval feeds. One of the significant
obstacles to the development of aquaculture has been the difficulty of feeding
the larvae. Aquasearch believes that the AGM can provide a cost-effective
technology for growing feed for the aquaculture industry, both for existing
species and future aquaculture species. The Company's development of microalgae
aquaculture feed products involves many significant risks and uncertainties.

COSMETICS. Aquasearch believes that microalgae contain several significant
features of importance to the cosmetics industry. First, the natural colors
that occur in microalgae can be used directly as coloring agents in cosmetics.
Second, many species of microalgae possess light blocking compounds that
regulate the amount of ultraviolet and other wavelengths they absorb and have
potential applications in sunscreens and other products containing sun blocking
agents. Last, bioactive agents derived from microalgae may be useful as
cosmetics themselves. For example, Aquasearch is aware that an extract from a
marine organism is an active ingredient in a wrinkle-reducing skin cream
marketed by Estee Lauder. This product currently generates more than a million
dollars a year in royalties to its developer. Aquasearch believes that the
market for cosmetics derived from microalgae is a potentially large market.
Aquasearch does not currently have the expertise to develop and commercialize
cosmetics products on its own. Aquasearch's strategy will be to establish the
AGM as a core technology for the cultivation of commercial quantities of
microalgae and to seek collaborative research and development and marketing,
sales and distribution relationships with established cosmetics and consumer
goods companies in order to develop and commercialize potential microalgal
cosmetics products. The Company's development of microalgae cosmetics products
involves many significant risks and uncertainties.

PHARMACEUTICALS. Most pharmaceutical products developed to date have been
derived from land-based plants, and the biodiversity of microalgae is comparable
to that of land-based plants. Aquasearch is aware of at least one company,
Martek Biosciences Corporation, that is collaborating with Merck & Co. and
others to develop pharmaceuticals from microalgae. Aquasearch is also aware
that in clinical trials certain compounds derived from microalgae enhanced the
production of an anti-cancer drug. In connection with this project, Aquasearch
was awarded a Master Agreement from the U.S. National Cancer Institute for large
scale production of biomass for isolation of agents from natural sources,
although no contracts have yet been issued. Aquasearch believes that the market
for pharmaceuticals derived from microalgae is potentially a large market.
Aquasearch does not currently have the expertise to develop and commercialize
pharmaceutical products on its own. Aquasearch's strategy will be to establish
the AGM as a core technology for the cultivation of commercial quantities of
microalgae and to seek collaborative research and development and sales,
marketing and distribution relationships with established pharmaceutical
companies in order to develop and commercialize potential microalgal
pharmaceutical products. The Company's development of pharmaceutical products
from microalgae involves many significant risks and uncertainties.

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MANUFACTURING

ASTAXANTHIN

Aquasearch began culturing HAEMATOCOCCUS PLUVIALIS at its current facility
in the HOST park in 1995. HAEMATOCOCCUS PLUVIALIS is cultured using a series of
photobioreactors of varying sizes to achieve culturing consistency before
entering the AGM. The AGM is a large photobioreactor that utilizes
computer-controlled equipment to monitor and adjust the turbulence rate, pH,
gas exchange, temperature and nutrient levels within the AGM to optimize
microalgae growth rates.

The AGMs are harvested regularly and the extracted amount is pumped from
the AGM into open ponds where, using proprietary processes, the microalgae is
caused to turn red (biosynthesis of astaxanthin). Once the optimal reddening
has occurred, the microalgae are drained from the ponds and dewatered. The
microalgae slurry is then further processed, dried and packaged using
proprietary equipment and processes.

Over the past eighteen months, Aquasearch has been producing natural
astaxanthin at varying rates of between one and eight kilograms per month.
In order to meet the Cultor Distribution and Development Agreement production
targets of 40 and 120 kilograms of natural astaxanthin per month by the end
of the second and third years, respectively, the Company will have to
significantly increase its plant and production capacity in the near future.
Aquasearch plans to accomplish this expansion in two steps: first, the
existing one-acre facility will be expanded to four acres and second, a
separate, stand-alone facility of approximately ten acres will be
constructed. The ten-acre site will be designed and developed as a dedicated
facility solely for the production of natural astaxanthin to meet the
production targets under the Cultor Distribution and Development Agreement.
After construction of the ten-acre site is completed, the existing facility
will be used primarily for the research and development of new microalgal
products. This expansion and improvement will place significant additional
responsibilities on management; require massive scale-up of the Company's
existing manufacturing facility and techniques; require significant
additional capital; and require additional scientific, technical and
manufacturing expertise. Although there can be no assurances that Aquasearch
will be successful in meeting these challenges, management is in the process
of securing the necessary expertise and resources to accomplish them.

OTHER MICROALGAE SPECIES

In addition to HAEMATOCOCCUS PLUVIALIS, the Company has used its AGM
technology to successfully culture the following species of microalgae:
CHLORELLA SOROKINIENSIS, LYNGBYA LAGERHEIMII, SPIRULINA PLATENSIS and
HAEMATOCOCCUS LACUSTRIS. Commercial production of additional species of
microalgae will require the development of custom processes to create optimal
conditions for the cultivation and harvesting of each species. Based on
preliminary studies, Aquasearch believes that the fundamental aspects of the
technology used to produce HAEMATOCOCCUS PLUVIALIS will be directly applicable
to the production of hundreds other species of microalgae and that principal
variations are likely to occur in the modification of harvesting processes
rather than adaptation of the AGM.

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MARKETING AND SALES

Aquasearch's primary business strategy is to continue development of its
platform technology and to establish its expertise and reputation as a cost
effective developer and manufacturer of high value microalgal products. The
Company presently plans to develop strategic research and development, sales and
marketing and distribution arrangements with established companies that have
significant market shares in the fields in which Aquasearch intends to develop
and sell products. The Company believes that this approach reduces the time to
market for its products and increases the likelihood of market acceptance for
its products. Alternatively, Aquasearch does not believe that acquiring or
developing the legal, regulatory, sales and marketing expertise necessary to
compete with established vertically integrated companies with significant market
shares is likely to yield the best return on investment for the Company or its
shareholders. In general, Aquasearch intends to follow substantially the same
strategy with respect to the development, marketing and sale of future products
that it followed in connection with the development, marketing and sale of its
natural astaxanthin product; namely, to identify potential corporate partners
already familiar with the potential product as part of their own research and
development efforts and to enter into strategic development agreements to
manufacture value-added products to the specifications of these corporate
partners. Once new products are in production, the Company may create one or
more separate operating companies with licenses to use the technology solely for
the specific microalgal species and end use.

CORPORATE PARTNER RELATIONSHIPS

SVENSKA FODER

In July 1995, Aquasearch signed the Svenska Foder Supply Agreement with
Svenska Foder, pursuant to which Svenska Foder agreed to act as the exclusive
distributor of Aquasearch's natural astaxanthin for animal feed and animal
nutrition applications in Sweden, Denmark, Norway and Finland for poultry,
pigs, cattle and horses. The Svenska Foder Supply Agreement had a term of
three years and required Aquasearch to deliver five kilograms of natural
astaxanthin per month. Svenska Foder used the natural astaxanthin in place
of synthetic astaxanthin in chicken feed to increase the reddish hue in egg
yolks. Recently published studies suggest that natural astaxanthin may have
additional benefits with respect to fertility, weight gain and feed
efficiency in broiler chickens and layer hens. Development of additional
commercial applications for the Company's natural astaxanthin product by
Svenska Foder or Aquasearch involves many significant risks and uncertainties.

CULTOR

The Cultor Distribution and Development Agreement initially provided that
from and after September 24, 1997 the target production requirement for the
Company and the target purchase requirement for Cultor would be 40 kilograms
of natural astaxanthin per month, and that the target production requirement
for the Company and the target purchase requirement for Cultor from and after
September 24, 1998 would be 120 kilograms of

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natural astaxanthin per month; however, the Company and Cultor recently
agreed to extend the term of the Cultor Distribution and Development
Agreement by one year and to amend the production targets to be 40 kilograms
per month at the end of the second year (September 1998) and 120 kilograms
per month at the end of the third year (September 1999). Under the Agreement,
Cultor has the obligation to obtain all governmental approvals for, promote
and distribute the product, at its own expense, in each country in which it
proposes to sell the product. During the term of the Agreement, the Company
and Cultor will share equally in the margin (the "Transfer Price") between
the production costs of Aquasearch (the "Aquasearch Production Costs") and
the net sales price (which is equal to the gross sales price to the end user
less volume bonuses, freight and agent's commissions).

The Agreement provides that 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 in the field of animal feed and
animal nutrition. Pursuant to this arrangement, Aquasearch would contribute
a ten-acre natural astaxanthin production facility to be constructed in late
1997 or the first half of 1998 in return for its 50% stake in the new company
and Cultor would contribute cash equal to the appraised value of the ten-acre
production facility in return for its 50% stake. Under the Agreement, Cultor
also has the option to increase its stake in the new company by purchasing
from Aquasearch a further 25% of the new company (thus increasing Cultor's
stake to 75%) for cash based on a formula. The formula provides that the
purchase price for the additional shares to be acquired by Cultor from
Aquasearch will equal the greater of (i) $1 million, (ii) half of the current
replacement value of the astaxanthin production facilities initially
contributed by Aquasearch or (iii) an amount equal to X multiplied by Y;
where "X" equals the difference between the Transfer Price and the Aquasearch
Production Costs for the six-month period commencing on November 1, 1998 and
ending on April 30, 1999 and "Y" equals six (or, in other words, an amount
equal to twelve times annual profit in the third year of the contract).

Under the Agreement, Aquasearch will license certain technology to the new
company to make, use and sell natural astaxanthin within the field of animal
feed and animal nutrition only and will retain the right (i) to make, use and
sell natural astaxanthin in all fields other than animal feed and nutrition and
(ii) to make, use and sell any microalgal products other than natural
astaxanthin in all fields, including the field of animal feed and animal
nutrition. The Agreement contains detailed provisions regarding the financing
and management of the new company, procedures for resolving deadlocks between
the parties, mechanisms governing the buy-out of one party by the other,
covenants mandating the distribution of 40% of the annual profits of the new
company to its shareholders and establishing royalty rates under a marketing
agreement that may be entered into between the new company and Cultor,
provisions restricting the transfer of ownership interests by Aquasearch and
Cultor and providing for rights of first refusal and registration rights,
termination provisions and detailed provisions governing the allocation of
intellectual property rights upon termination.

In connection with the execution of the Cultor Distribution and Development
Agreement, Cultor and Aquasearch also entered into a Stock Subscription
Agreement pursuant to which Cultor purchased 400,000 shares of Aquasearch
Common Stock at a purchase price of $0.50 per share.

The Company believes that the Cultor Distribution and Development Agreement
is beneficial to the Company in the following ways. First, the arrangement will
substantially reduces the time to market for the Company's natural astaxanthin
product because Cultor, at its own expense, will be responsible for obtaining
all regulatory approvals and promoting and selling the product. Second, by
establishing an exclusive arrangement with Cultor (along with its affiliated
entities, the second largest consumer of synthetic astaxanthin in the world),
the Company believes it has established an additional barrier to entry

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to potential competitors. Third, the Company retains all of its intellectual
property rights to develop applications for astaxanthin outside the field of
animal feed and animal nutrition and will obtain an exclusive license to use
all microalgae technology developed by the new company, if any. Fourth, the
Company believes that the collaboration with Cultor to develop the market for
astaxanthin in animal feed and nutrition will enhance the Company's
reputation in the industry and stimulate additional research and development
with respect to microalgae products other than astaxanthin. The Company's
obligations and performance under the Cultor Distribution and Development
Agreement and the potential formation of a new joint venture company with
Cultor involve various risks and uncertainties. In addition, in order to meet
the production targets under the Cultor Distribution and Development
Agreement, Aquasearch must significantly expand and improve its production
facilities and processes which will involve various risks and uncertainties.

Notwithstanding the foregoing, if the Company is unable to develop any
commercial uses for natural astaxanthin outside of the field of animal feed and
animal nutrition and if the Company is unable to develop, cultivate and sell
microalgae products other than astaxanthin, then the Company and its
shareholders will have sold the Company's sole product and source of revenues to
Cultor for the purchase price set forth in the Cultor Distribution and
Development Agreement. The Company believes that its ability to develop
additional uses for astaxanthin outside of the field of animal feed and
nutrition and its ability to develop microalgal products other than astaxanthin
will be significantly enhanced by its collaboration with Cultor in developing
the astaxanthin market for animal feed and animal nutrition.

COMPETITION

The Company's natural astaxanthin product will compete directly with the
synthetic astaxanthin product developed and marketed worldwide by
Hoffman-LaRoche. Hoffman-LaRoche has significantly greater research and
development, technical, financial, management, marketing and sales resources
than Aquasearch as well as a worldwide reputation and a dominant market
share. In addition, at least three companies, Astacarotene, Heliosynthese and
Cyanotech, have either announced plans to produce natural astaxanthin from
microalgae or are producing small quantities for test and commercial
purposes. Moreover, Cyanotech recently announced plans to enter into large
scale commercial production of natural astaxanthin in 1997. Aquasearch
believes that competition in the astaxanthin market will intensify
significantly in the near future. Alternative sources of pigmentation that
have been tested include astaxanthin from shrimp shells, paprika and a yeast
strain PFAFFIA RHODOZYMA. Aquasearch believes that only PFAFFIA RHODOZYMA
continues to be evaluated as a potential alternative to synthetic or natural
astaxanthin. Aquasearch's natural astaxanthin product is expected to compete
with synthetic astaxanthin (and any other alternative products) primarily on
the basis of product performance, price and proprietary position. In this
regard, although Hoffman-LaRoche maintained the market price of synthetic
astaxanthin at approximately $2,500 per kilogram for more than a decade when
there was no viable competitive product available, there can be no assurance
that Hoffman-LaRoche will not cut the price of its synthetic astaxanthin
product significantly in response to the introduction of any competing
natural astaxanthin product. Any such pricing or other competitive pressure
could have a material adverse effect on Aquasearch's business, financial
condition, results of operations and relationships with corporate partners.
The existence of products of which Aquasearch is not aware, or products that
may be developed in the future, may also adversely affect the marketability
of Aquasearch's natural astaxanthin product.

Aquasearch intends to develop other natural products from microalgae that
will compete with existing natural and synthetic products. Aquasearch
anticipates that competition to develop additional microalgal products will
be intense. Aquasearch's future competitors are expected to include major
pharmaceutical, food processing, chemical and

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specialized biotechnology companies, many of which will have financial,
technical and marketing resources significantly greater than those of
Aquasearch. In addition, specialized biotechnology companies may form
collaborations with large established companies to support research, development
and commercialization of products that may be competitive with future products
of Aquasearch. Also, academic institutions, governmental agencies and other
public and private research organizations are conducting research activities and
seeking patent protection and may commercialize products competitive with those
of Aquasearch on their own or through joint ventures. The existence of products
of which Aquasearch is not aware, or products that may be developed in the
future, may adversely affect the marketability of additional products developed
by Aquasearch.

Aquasearch believes that its AGM and related microalgae cultivation and
harvesting technologies currently offer significant technical and economic
advantages compared with the open pond systems currently used by certain
competitors, including increased yields and the ability to cultivate hundreds of
microalgal species that cannot be produced in open pond systems due to
substantially higher risks of contamination and lack of control. Aquasearch
also believes that its AGM and related microalgae cultivation and harvesting
technologies compare favorably with other known closed systems with respect to
capital and operating costs. However, the existence of technology of which
Aquasearch is not aware, or technology that may be developed in the future, may
adversely affect the technical and competitive advantages that Aquasearch
currently believes it holds compared with competing open pond and known closed
system microalgae cultivation technologies.

Aquasearch's competitive position will also depend on its ability to
attract and retain qualified scientific and other personnel, develop effective
proprietary products, successfully perform under the Cultor Distribution and
Development Agreement, implement research and development and production plans,
obtain patent protection and secure adequate capital sources.

PATENTS, LICENSES AND PROPRIETARY TECHNOLOGY

Aquasearch relies upon a combination of patents, copyright protection,
trade secrets, know-how, continuing technological innovation and licensing
opportunities to develop and maintain its competitive position. The
Company's future prospects depend in part on its ability to obtain patent
protection for its products and processes, to preserve its copyright and
trade secrets and to operate without infringing the proprietary rights of
third parties. Aquasearch has been awarded one patent in the United States,
one patent by the European Patent Office (which is applicable to all member
nations of the European Union), and one patent in Australia for its closed
system microalgae cultivation process. The Company has additional patents
pending internationally and in the United States.

The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, which are analogous to the Company, are generally uncertain and
involve complex legal and factual questions. There can be no assurance that any
of the Company's pending patent applications will result in issued patents, that
the Company will develop additional proprietary technologies that are
patentable, that any patents issued to the Company or its strategic partners
will provide a basis for commercially viable products or will provide the
Company with any competitive advantages or will not be challenged by third
parties, or that the patents of others will not have a material adverse effect
on the ability of the Company to do business. In addition, patent law relating
to the scope of claims in the technology fields in which the Company operates is
still evolving. The degree of future protection for the Company's proprietary
rights, therefore, is uncertain. Furthermore, there can be no assurance that
others will not independently develop similar or alternative technologies,
duplicate any of the Company's technologies, or, if patents are issued to the
Company, design around the patented technologies developed by the Company. In
addition, the Company could incur substantial costs in litigation if it is
required to defend itself in patent suits brought by third parties or if it
initiates such suits.

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can be given that any such patent application will not have priority over patent
applications filed by the Company. In addition, the laws of certain foreign
countries may not protect the Company's patent and other intellectual property
rights to the same extent as the laws of the United States.

The Company's future prospects also depend in part on the Company neither
infringing patents or proprietary rights of third parties nor breaching any
licenses that may relate to the Company's technologies and products. There can
be no assurance that the Company will not infringe the patents, licenses or
other proprietary rights of third parties. In addition, the Company may in the
future receive notices claiming infringement from third parties as well as
invitations to take licenses under third party patents. Any legal action
against the Company or its strategic partners claiming damages and seeking to
enjoin commercial activities relating the affected products and processes could,
in addition to subjecting the Company to potential liability for damages,
require the Company or its strategic partners to obtain a license in order to
continue to manufacture or market the affected products and processes. There
can be no assurance that the Company or its strategic partners would prevail in
any such action or that any license (including licenses proposed by third
parties) required under any such patent would be made available on commercially
acceptable terms, if at all. The Company has not conducted an exhaustive patent
search and no assurance can be given that patents do not exist or could not be
filed that would have a material adverse effect on the Company's ability to
develop and market its products. There are a significant number of United
States and foreign patents and patent applications in the Company's area of
interest, and the Company believes that there may be significant litigation in
the industry regarding patent and other intellectual property rights. If the
Company becomes involved in such litigation, it could consume a substantial
portion of the Company's managerial and financial resources, which could have a
material adverse effect on the Company's business, financial condition, results
of operations and relationships with corporate partners.

GOVERNMENT REGULATION AND PRODUCT TESTING

Aquasearch's natural astaxanthin product, potential products and its
manufacturing and research activities are or may become subject to varying
degrees of regulation by a number of government authorities in the United
States and other countries, including the FDA pursuant to the Federal Food,
Drug and Cosmetic Act. Each existing or potential microalgal product that is
developed or marketed by Aquasearch, its licensees or its strategic partners
for use by humans may present unique regulatory problems and risks, depending
on the product type, uses and method of manufacture. The FDA regulates, in
varying degrees and in different ways, dietary supplements, other food
products, medical devices and pharmaceutical products, including their
manufacture, testing, exportation, labeling, and, in some cases, advertising.
Generally, prescription pharmaceuticals and certain types of medical devices
are regulated more vigorously than foods, such as dietary supplements. Any
future products developed by Aquasearch for use in human nutrition,
pharmaceuticals or cosmetics, will require Aquasearch to develop and adhere
to GMP as

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required by the FDA, ISO standards as required in Europe, and any other
applicable standards mandated by federal, state, local or foreign laws,
regulations and policies. Currently, the Company's production facilities do not
comply with GMP or ISO standards and significant capital expenditures and
compliance procedures would have to be made and implemented before the Company's
production facilities could meet GMP and ISO qualifications.

The Company is or may become subject to other federal, state and foreign
laws, regulations and policies with respect to labeling of its products,
importation of organisms, and occupational safety, among others. Federal,
state and foreign laws, regulations and policies are always subject to change
and depend heavily on administrative policies and interpretations. The
Company is working with Cultor with respect to compliance with foreign laws,
regulations and policies pertaining to use of its natural astaxanthin product
in the field of animal feed and animal nutrition. There can be no assurance
that any changes with respect to federal, state and foreign laws, regulations
and policies, and, particularly with respect to the FDA or other such
regulatory bodies, with possible retroactive effect, will not have a material
adverse effect on the Company's business, financial condition, results of
operations and relationships with corporate partners. There can be no
assurance that any of the Company's potential products will satisfy
applicable regulatory requirements.

The Company's natural astaxanthin product is viewed as a food ingredient
by regulatory authorities in Sweden. Regulatory authorities in other
jurisdictions may view the Company's natural astaxanthin product as a food
additive. All new color additives for ultimate human consumption in the
United States require premarket clearances from the FDA. Therefore,
Aquasearch's natural astaxanthin product and any additional food color
products for use in the United States will require FDA clearance, unless they
meet the requirements of current color additive regulations. The process of
obtaining clearances for a new color additive is expensive and time
consuming. Extensive information is required on the toxicity of the
additive, including carcinogenicity studies and other animal testing.
Although the FDA approved the Hoffman-LaRoche synthetic astaxanthin product
as a food additive in 1995, there can be no assurance that the FDA will grant
similar approval for Aquasearch's natural astaxanthin product. As of the
date of this Prospectus, the Company has not applied for FDA clearance for
the Company's natural astaxanthin product as a food additive. No assurances
can be given that any potential Aquasearch food color product will be cleared
by the FDA on a timely basis, if at all.

Although the FDA approved the Hoffman-LaRoche synthetic astaxanthin product
as a food ingredient in 1995, there can be no assurances that the FDA will grant
similar approval for Aquasearch's natural astaxanthin product.

Regulatory approvals in other markets in which Aquasearch's natural
astaxanthin product is likely to be distributed, including in particular, the
European Union, Japan, Canada and Australia, vary by market. Currently, the
Aquasearch natural astaxanthin product has been approved in Sweden for use in
poultry feed and is considered by the Swedish authorities as a feed
ingredient rather than a food additive. The Company believes that the
approval process in Australia, Japan and certain other Asian countries will
come under their "natural" status and be approved relatively quickly;
however, there can be no assurances in this regard. The Aquasearch natural
astaxanthin product has not been submitted for approval by the European
Union, and there can be no assurance that the determination by Swedish
authorities will have any influence on the determination to be made by the
European Union.

Under the terms of the Cultor Distribution and Development Agreement,
Cultor has the responsibility to obtain any FDA and other approvals necessary in
each country in which Cultor determines to distribute the product.

The Company is also subject to numerous environmental and safety laws and
regulations, including those governing the use and disposal of hazardous
materials. Any violation of, and the cost of compliance with, these regulations
could have a material adverse effect on the Company's business, financial
condition, results of operations and relationships with corporate partners.

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EMPLOYEES

As of September 1, 1997, Aquasearch has 14 full-time employees, of whom
five have Ph.D.s, nine are involved in the production and harvesting process,
five are involved in research and development and two are involved in
administration and support. The Company considers relations with its
employees to be good. None of the Company's employees is covered by a
collective bargaining agreement.

PROPERTIES

The Company is located in Kailua-Kona, Hawaii, at the HOST Business Park.
The facility in Kailua-Kona currently consists of approximately five leased
acres containing a number of AGMs, reddening ponds, a processing facility, a
laboratory, administrative offices and additional space for production and
research and development. All products are currently produced at this facility.
Aquasearch has no production facilities or offices outside the State of Hawaii.

The Company has initiated the application process for a thirty-year lease
of its current five acre parcel from the Natural Energy Laboratory of Hawaii
Authority ("NELHA"), the state entity which administers the HOST Business Park.
Leases of thirty years have historically been awarded to companies once they
have completed their research and development stage, which the Company plans to
complete this year. The government-administered process to award a thirty-year
lease has usually taken less than two years. More than half of the 800-acre
HOST Business Park facility is currently undeveloped and the Company believes
that, as one of the fastest growing and largest employers in HOST Business Park,
its lease application is likely to be considered favorably, although there can
be no assurances in this regard.

Construction to expand the Company's existing one-acre research and
development/production facility to a four-acre facility is scheduled to begin
in the winter of 1997. The design and engineering process for this expansion
was initiated in April 1996 when Aquasearch solicited bids from various
engineering firms. As a result of the bidding process, Aquasearch retained
Harris Group, Inc. of Seattle, an engineering firm with extensive experience
in the design of biotech, microbe-based production plants, to design the
build-out of the facility. The engineering process for this expansion was
completed in September 1996.

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 July 31, 1997 does not reflect the
issuance of the C. Brewer Common Stock or the C. Brewer Warrant because, as
of July 31, 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
completed during the fourth quarter of fiscal 1997.

LEGAL PROCEEDINGS

Aquasearch is not currently a party to any legal proceedings.

SCIENTIFIC ADVISORY BOARD

The Aquasearch Scientific Advisory Board is composed of leading experts in
aquaculture, marine biology and fluid dynamics and the chemistry, photobiology
and mass culture of microalgae. The Scientific Advisory Board provides guidance
to the Company regarding the optimization of its production and processing
methods and research and development pertaining to both existing and potential
microalgal products. The Scientific Advisory Board held its inaugural meeting
in May 1996 and is scheduled to meet approximately four times per year. Between
meetings, individual Scientific Advisory Board members consult with the Company
on an as-needed basis. Aquasearch believes that the individual and collective
knowledge and experience of its Scientific Advisory Board provides the Company
with an important competitive advantage. The current members of the Aquasearch
Scientific Advisory Board are as follows:

DR. JOHN BARDACH received a B.Sc. in Zoology from Queen's University,
Canada in 1946 and a Ph.D. in Zoology from University of Wisconsin in 1949.
Dr. Bardach has served as Director of the Bermuda Biological Station, the
Hawaii Institute of Marine Biology and the East-West Center, as well as
Professor at the University of Hawaii. Dr. Bardach's numerous international
appointments have included Chairmanship of the U.S. National Academy of
Sciences Panel on Aquatic Food Sources, the

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World Bank-FAO Panel on Aquaculture Research Needs of Developing Countries, and
the State of Hawaii Aquaculture Advisory Council. Two of his books, HARVEST OF
THE SEA and AQUACULTURE (now in its 25th printing), establish him as one of the
fathers of modern aquaculture.

DR. ROBERT R. BIDIGARE received a B.S. (SUMMA CUM LAUDE) in Aquatic Biology
from Eastern Michigan University in 1977 and a Ph.D. in Biological Oceanography
from Texas A&M University in 1981. Dr. Bidigare currently is Associate
Professor of Oceanography at University of Hawaii. Dr. Bidigare serves on the
Advisory Board for the National Center for the Culture of Marine Phytoplankton,
is a member of the NASA SeaWIFS Science Working Team and an observer on the
International Oceanographic Commission Group of Experts on Standards and
Reference Materials. Dr. Bidigare has authored more than 75 scientific papers,
and is a recognized expert on plant pigment chemistry, bio-optics and
biochemistry of microalgae.

DR. JOHN CULLEN received a B.Se. (Honors in Biology) from University of
California, Santa Cruz in 1974 and a Ph.D. in Biological Oceanography from
Scripps Institution of Oceanography, University of California, San Diego, in
1980. Dr. Cullen has held faculty positions at the University of Texas, the
Bigelow Laboratory for Ocean Sciences and Dalhousie University in Halifax,
Canada, where he now holds the Chair of Environmental Observation Technology.
Dr. Cullen's research has focused in the area of microalgae growth rates,
productivity, nutrient requirements and bio-optics.

DR. WILLIAM FENICAL received a B.S. in Biochemistry from California State
Polytechnic University in 1963, an M.S. in Organic Chemistry from San Jose State
University in 1965 and a Ph.D. in Organic Chemistry from University of
California, Riverside in 1968. Dr. Fenical joined the faculty of Scripps
Institution of Oceanography, University of California, San Diego, in 1973, where
he has served as Director of the University of California-wide Institute of
Marine Resources (1988-1993) and Director of the Marine Research Division since
1989. Dr. Fenical is recognized as one of the world's authorities on the
chemistry of marine natural products, an area in which he has published more
than 250 scientific articles. Dr. Fenical has served as an advisor on marine
natural product chemistry to the National Institutes of Health, the National
Research Council, and numerous pharmaceutical companies, including Sterling
Winthrop, Ligand, Pharmagenesis and Bristol-Myers. He serves on the editorial
boards of the JOURNAL OF NATURAL PRODUCTS, MOLECULAR MARINE BIOLOGY AND
BIOTECHNOLOGY, and the JOURNAL OF MARINE BIOTECHNOLOGY. He holds seven patents
for novel chemical compounds of a biomedical nature, including a wrinkle
reducing agent that is the active ingredient in a skin cream marketed by Estee
Lauder, which produces more than $1 million per year in royalties for the
University of California.

DR. MARK E. HUNTLEY received a B.Sc. degree (SUMMA CUM LAUDE) in Biology
from the University of Victoria, Canada in 1976 and earned a Ph.D. in Biological
Oceanography from Dalhousie University in Halifax, Canada in 1980. Dr. Huntley
is a research biologist at Scripps Institution of Oceanography, University of
California, San Diego, and President, Chief Executive Officer and Chairman of
the Board of Directors of Aquasearch. Dr. Huntley has won numerous awards and
grants in his field, published more than 75 articles and a book, and lectured
throughout the world. He serves on the Executive Committee of the Global Ocean
Ecosystem Dynamics program, a component of the U.S. Global Change Research
Program, and the only element of the International Geosphere-Biosphere Program
that is examining the impact of global climate change on marine ecosystems. He
has served as an advisor to numerous international, national and state agencies,
including the United States State Department, the United States Department of
Interior and the White House Office of Science and Technology Policy. Dr.
Huntley is a co-founder of Aquasearch and a co-inventor of the Aquasearch Growth
Module.

DR. EDWARD A. LAWS received a B.A. (MAGNA CUM LAUDE) in Chemistry from
Harvard College in 1967 and a Ph.D. in Chemical Physics from Harvard College in
1971. He was an instructor in Oceanography at Florida State University from
1971 through 1974, and then joined the faculty at the University of Hawaii,
where he is now a Professor of Oceanography. Dr. Laws has served as Chairman of
the Oceanography Department, School of Ocean and Earth Science and Technology at
the University of Hawaii, which was ranked by the National Academy of Sciences
in 1995 as the fifth best program of its kind in the nation. Dr. Laws recently
was appointed Assistant Vice President, Graduate Research and Education, of the
University

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of Hawaii. Dr. Laws is an expert on the large-scale cultivation of microalgae,
an area in which he has focused his research and has graduated a number of
Ph.D.s.

DR. PETER P. NIILER received his B.S. degree from Lehigh University in
1960, earned honors as a Fulbright Scholar at Cambridge University, England in
1961, and was awarded a Ph.D. as a Woodrow Wilson Fellow from Brown University
in 1964. Dr. Niiler has taught and conducted research at Harvard College, Nova
University and Oregon State University. He is currently a Professor of
Oceanography at Scripps Institution of Oceanography, University of California,
San Diego, where he heads one of the largest oceanographic research programs in
the nation. Dr. Niiler has published more than 125 scientific papers and has
invented various oceanographic instrumentation technologies that are now in
commercial production with sales of $6 million annually. Dr. Niiler is an
expert in applied mathematics and fluid mechanics and was a co-inventor of
processes used in the Aquasearch Growth Module.

DR. DONALD REDALJE received his B.S. in Environmental Biology from the
University of California, Santa Barbara in 1971 and his Ph.D. from University of
Hawaii in 1980. He has conducted research and taught at Scripps Institution of
Oceanography, University of California, San Diego, the Naval Postgraduate
School, Moss Landing Marine Laboratory, and the University of Southern
Mississippi, where he recently served as Director of the Center for Marine
Science. Dr. Redalje is internationally recognized for his development of a
method to measure the productivity of microalgae, and is an expert on the
biochemistry and physiology of marine plants. Dr. Redalje is a co-founder of
Aquasearch and co-inventor of the Aquasearch Growth Module.

Most members of the Scientific Advisory Board are not employed by the
Company and each of these members may have commitments to other entities that
could limit their availability to the Company. There can be no assurance that
the Company will be able to retain its key Scientific Advisory Board members.

-42-

<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of Aquasearch and their respective
ages and positions with Aquasearch are set forth in the following table.

<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Mark E. Huntley, Ph.D................................. 46 President, Chief Executive Officer,
and Chairman
Pearn P. Niiler, Ph.D................................. 59 Director
Earl S. Fusato........................................ 50 Chief Financial Officer and Director
Edward E. David, Ph.D................................. 72 Director
John J. Emerick....................................... 32 Vice President of Operations
Steven L. Berson...................................... 42 Secretary
</TABLE>

MARK E. HUNTLEY, PH.D., is a co-founder of Aquasearch, a co-inventor of the
Aquasearch Growth Module and has served as the President, Chief Executive
Officer and Chairman of the Board since inception. Dr. Huntley has served as a
research biologist at Scripps Institution of Oceanography, University of
California, San Diego since 1980. Dr. Huntley has won numerous awards and
grants in his field, published more than 75 articles and a book, and lectured
throughout the world. Dr. Huntley serves on the Executive Committee of the
Global Ocean Ecosystem Dynamics program, a component of the United States Global
Change Research Program, and the only element of the International
Geosphere-Biosphere Program that is examining the impact of global climate
change on marine ecosystems. Dr. Huntley has served as an advisor to numerous
international, national and state agencies, including The United States State
Department, the United States Department of the Interior and the White House
Office of Science and Technology Policy. Dr. Huntley received a B.Sc. degree
(SUMMA CUM LAUDE) in Biological Oceanography from the University of Victoria,
Canada 1976 and a Ph.D. in Biological Oceanography from Dalhousie University in
Halifax, Canada in 1980.

PEARN P. NIILER, PH.D., has been a consultant to the Company since 1990 and
has served as a director of the Company since 1991. Dr. Niiler is an expert in
applied mathematics and fluid dynamics and was a co-inventor of various
processes used in the Aquasearch Growth Module. Dr. Niiler is a Professor of
Oceanography at Scripps Institution of Oceanography, University of California,
San Diego, where he heads one of the largest oceanographic research programs in
the nation. Dr. Niiler has taught and conducted research at Harvard College,
Nova University and Oregon State University and has published more than 125
scientific papers. Dr. Niiler received his B.S. degree from Lehigh University,
earned honors as a Fulbright Scholar at Cambridge University, England, and was
awarded a Ph.D. as a Woodrow Wilson Fellow from Brown University.

EARL S. FUSATO joined the Company as Chief Financial Officer in April
1997. Mr. Fusato served as chief financial officer for RESCO, Inc., a Hawaii
based real estate firm from 1992 to 1994, and as a sales representative and
consultant in the real estate industry from 1994 to April 1997. During the
period from 1983 to 1992, Mr. Fusato served in various financial positions
with VeriFone, including Vice President, Finance from 1983 to 1987 and
Treasurer from 1987 to 1990. Prior to that, Mr. Fusato spent 13 years as an
auditor at KPMG Peat Marwick, LLP and Ernst & Young, LLP. Mr. Fusato is a
Certified Public Accountant.

EDWARD E. DAVID, PH.D., has served as a director of the Company since
September 1997. Dr. David is currently President of EED, Inc., an industrial
and governmental consulting firm, and Vice President and Principal of the
Washington Advisory Group, a science and technology consulting firm. Dr.
David served as President of Exxon Research and Engineering from 1977 to
1986; as Executive Vice President of Research and Development of Gould Inc.
and as President of Gould Laboratories from 1973 to 1977; and as Executive
Director of the Communications Systems Division of Bell Laboratories from
1965 to 1970. Dr. David served as Science Advisor to the President of the
United States and Director of the White House Office of Science and
Technology from 1970 to 1973. Dr. David holds 12 honorary degrees, has
received numerous national awards and is a member of the National Academy of
Engineering and the National Academy of Sciences.

-43-
<PAGE>

JOHN J. EMERICK has served as the Company's Business Manager since July
1995 and its Vice President of Operations since August 1996. Prior to joining
Aquasearch, Mr. Emerick served as Team Manager in a Florida pulp mill for
Proctor & Gamble, where he was engaged in production management and engineering
development during the period from June 1985 to June 1987. From June 1987 to
March 1992, Mr. Emerick served in various positions, including Top Engineering
Executive, for Tetra-Pak Materials, Inc., an international packaging
conglomerate, in which he was responsible for all engineering processes in the
plant, including research, implementation and training. During the period from
July 1992 to February 1995, Mr. Emerick served as General Manager of Advanced
Neuro Dynamics of Honolulu, the largest NLP seminar and training company in the
world. Mr. Emerick received his B.A. in Mechanical Engineering (HIGH HONORS)
from Georgia Tech University in 1985.

STEVEN L. BERSON has served as the Secretary of the Company since March
1996. Mr. Berson is a partner in the law firm of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, counsel to the Company. Mr. Berson received a
B.A. from the University of North Carolina at Chapel Hill in 1977 and a J.D.
from Vanderbilt University in 1981.

-44-

<PAGE>

BOARD OF DIRECTORS COMMITTEES AND OTHER INFORMATION

All directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. Officers are
elected by and serve at the discretion of the Board of Directors. There are no
family relationships among the directors or officers of the Company.

The Board of Directors currently has an Audit Committee and a Compensation
Committee. The Audit Committee oversees the actions taken by the Company's
independent auditors and reviews the Company's internal financial and accounting
controls and policies. The Compensation Committee is responsible for
determining salaries, incentives and other forms of compensation for officers,
employees and consultants of the Company and administers the Company's incentive
compensation and benefit plans.

DIRECTOR COMPENSATION

Directors of the Company do not receive cash for services they provide as
directors. From time to time, certain directors who are not employees of the
Company have served as consultants to the Company for which they have been paid
customary fees based on the value of the services rendered and/or received
grants of options to purchase shares of the Company's Common Stock. The Company
does not provide additional compensation for committee participation or special
assignments of the Board of Directors.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION

The following table sets forth the information, on an accrual basis, with
respect to the compensation of Mark E. Huntley, Ph.D., the Chief Executive
Officer of the Company, for the three fiscal years ended October 31, 1996.

-45-

<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED SALARY/OTHER STOCK NO. OF SECURITIES
NAME AND POSITION OCTOBER 31, COMPENSATION AWARDS(1) UNDERLYING OPTIONS
- -------------------------- ----------- ------------ ----------- ------------------
<S> <C> <C> <C> <C>
Mark E. Huntley,Ph.D., 1996 $ 0(2) $0 0
President and Chief 1995 $ 0(2) $198,000(3) 1,665,250(4)
Executive Officer 1994 $ 0(2) $ 60,000(5) 0

</TABLE>

(1) The dollar value of each of the restricted stock awards in the table above
was determined by multiplying the closing bid price of the Company's
Common Stock on the date of grant of the stock award by the number of
shares awarded.

(2) Dr. Huntley has at all times during 1994, 1995 and 1996 served as a
consultant to the Company while continuing his employment as a research
biologist at Scripps Institute of Oceanography, University of California,
San Diego. Pursuant to the rules and regulations of the Commission,
however, Dr. Huntley's position as President and Chief Executive Officer
of the Company qualifies him as an employee of the Company.
Notwithstanding this, all compensation paid to Dr. Huntley to date has
been as though he was an independent consultant to the Company.

(3) On August 24, 1995, the Company returned to Dr. Huntley 1,320,000 shares of
Common Stock from the 4,635,575 shares of Common Stock that Dr. Huntley had
gifted to the Company in 1989. Although the Company had intended this
transaction to qualify as a return of capital to Dr. Huntley without any
tax or other consequences to the Company or Dr. Huntley, under the rules
and regulations of the Commission, this transaction qualifies as a stock
grant in return for prior services. The closing bid price of the Common
Stock on the date of grant was $0.15 per share.

(4) On August 1, 1995, the Board of Directors granted a stock option to Dr.
Huntley, with a term of seven years, payable, if exercised, by a
promissory note payable over 3 years with interest at 5% per annum, to
purchase up to 1,665,250 shares of Common Stock at an exercise price of
$0.0625 per share.

(5) On May 2, 1994, the Board of Directors authorized and approved the
issuance of 400,000 shares of Common Stock to Dr. Huntley for past
services. The closing bid price of the Company's Common Stock on May 2,
1994 was at $0.08 per share.

The total annual salary and bonus for any other executive officer did not
exceed $100,000 for the fiscal year ended October 31, 1996.

-46-

<PAGE>

OPTION GRANTS IN FISCAL 1996

STOCK OPTION GRANTS

There were no stock option grants made to any executive officers or
directors for the year ended October 31, 1996. The following table sets forth
information concerning individual grants of stock options made to all
employees of the Company during the fiscal year ended October 31, 1996:

<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES IN OR BASE EXPIRATION
NAME AND POSITION OPTIONS FISCAL YEAR PRICE ($/SH) DATE
- -------------------------- ---------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
John J. Emerick, Vice 100,000(1) 55.6% $0.61/share 8/1/2002
President of Operations

Alexander B. Leonard, Ph.D., 50,000(2) 27.8% $0.61/share 8/1/2002
Vice President of Manufacturing

Georgia Malan 30,000(3) 16.6% $0.61/share 8/1/2002
</TABLE>

(1) On August 1, 1995, the Company granted a stock option to Mr. Emerick
to purchase 100,000 shares that would vest on July 25, 1996 at an
exercise price equal to the closing bid price of the Common Stock on
July 25, 1996. The closing bid price of the Common Stock on July 25,
1996 was $0.61 per share.

(2) On August 1, 1995, the Company granted a stock option to Dr. Leonard
to purchase 50,000 shares that would vest on July 25, 1996 at an
exercise price equal to the closing bid price of the Common Stock on
July 25, 1996. The closing bid price of the Common Stock on July 25,
1996 was $0.61 per share.

(3) On August 1, 1995, the Company granted a stock option to Ms. Malan to
purchase 30,000 shares that would vest on July 25, 1996 at an exercise
price equal to the closing bid price of the Common Stock on July 25,
1996. The closing bid price of the Common Stock on July 25, 1996 was
$0.61 per share.

STOCK OPTIONS EXERCISED DURING FISCAL YEAR

No stock options or stock appreciation rights were exercised by any
executive officers or directors of the Company during the fiscal year ending
October 31, 1996.

OPTION VALUES

The following table sets forth information with respect to the value of
unexercised options held by executive officers as of October 31, 1996:

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
------------------------------ -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark E. Huntley, Ph.D. . . . . . 1,665,250 -0- $528,717 -0-

</TABLE>

- --------------
(1) Value of unexercised options is based on the closing bid price of the
Company's Common Stock on the Nasdaq Electronic Bulletin Board on
October 31, 1996 ($0.38) minus the exercise price.

<PAGE>

LTIP AWARDS DURING FISCAL YEAR

No long term incentive plan awards were made to any executive officers or
directors of the Company during the fiscal year ending October 31, 1996.

COMPENSATION OF DIRECTORS

As of October 31, 1996, no director had received any compensation for any
service provided to the Company as a director.

EMPLOYMENT CONTRACTS

There are currently no employment contracts or change-in-control
arrangements between the Company and any director or executive officer.

EMPLOYEE BENEFIT PLANS

1996 STOCK OPTION PLAN. In March 1996, the Board of Directors
adopted the 1996 Stock Option Plan. The 1996 Stock Option Plan provides for
the grant of incentive stock options to employees and nonstatutory stock
options and stock purchase rights to employees and consultants. A total of
5,000,000 shares of Common Stock have been reserved for issuance under the
1996 Stock Option Plan, all of which are currently available for grant. The
1996 Stock Option Plan will be administered by the Board of Directors, except
that with respect to option grants to executive officers, the 1996 Stock
Option Plan is administered by the Compensation Committee of the Board of
Directors. Options and stock purchase rights granted under the 1996 Stock
Option Plan will vest as determined by the relevant administrator, and may
accelerate and become fully vested in the event of an acquisition of the
Company if so determined by the relevant administrator. The exercise price of
options and stock purchase rights granted under the 1996 Stock Option Plan
will be as determined by the relevant administrator, although the exercise
price of incentive stock options must be at least equal to the fair market
value of the Company's Common Stock on the date of grant. The Board of
Directors may amend or modify the 1996 Stock Option Plan at any time. The
1996 Stock Option Plan will terminate in March 2006, unless terminated
earlier by the Board of Directors.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Company has adopted provisions in its Restated Articles of
Incorporation that eliminate the personal liability of its directors for
monetary damages arising from a breach of their fiduciary duties in certain
circumstances to the fullest extent permitted by law and authorize the Company
to indemnify its directors and officers to the fullest extent permitted by law.
Such limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.

The Company's Restated Articles of Incorporation provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by Colorado law, including circumstances in which indemnification
is otherwise discretionary under Colorado law. The Company has entered into
indemnification agreements with its officers and directors containing
provisions which will in some respects be broader than the specific
indemnification provisions contained in the Colorado Corporations Code. The
indemnification agreements require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other
than liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified.

At present, there is no pending material litigation or proceeding
involving a director or officer of the Company where indemnification will be
required or permitted. The Company is not aware of any threatened material
litigation or proceeding which may result in a claim for such
indemnification.

<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information with respect to
the beneficial ownership of the Company's Common Stock as of the date of this
Prospectus for (i) each entity or group that is known by the Company to
beneficially own five percent or more of the outstanding Common Stock of the
Company, (ii) each director, (iii) each executive officer and (iv) the
Company's directors and officers as a group. Except pursuant to applicable
community property laws or as indicated in the footnotes to this table, to
the Company's knowledge, each shareholder identified in the table possesses
voting and investment power with respect to all shares of Common Stock shown
as beneficially owned by such shareholder.

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF SHARES PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER (1) OWNED OFFERING OFFERING
- ---------------------------------------------- ---------------- -------------------- --------------------
<S> <C> <C> <C>
Mark E. Huntley, Ph.D.(2)..................... 5,683,186 12.0% 11.5%
c/o Aquasearch, Inc.
73-4460 Queen Ka'ahumanu Highway
Suite 110
Kailua-Kona, Hawaii 96740
Pearn P. Niiler, Ph.D. (3).................... 1,918,402 4.1% 3.7%
c/o Aquasearch, Inc.
73-4460 Queen Ka'ahumanu Highway
Suite 110
Kailua-Kona, Hawaii 96740
Earl S. Fusato (4)............................ 1,365,384 3.0% 2.6%
c/o Aquasearch, Inc.
73-4460 Queen Ka'ahumanu Highway
Suite 110
Kailua-Kona, Hawaii 96740
Edward E. David, Ph.D. (5).................... 150,000 * *
c/o Aquasearch, Inc.
73-4460 Queen Ka'ahumanu Highway
Suite 110
Kailua-Kona, Hawaii 96740
John J. Emerick (6)........................... 184,280 * *
c/o Aquasearch, Inc.
73-4460 Queen Ka'ahumanu Highway
Suite 110
Kailua-Kona, Hawaii 96740
All directors and officers as a
group (5 persons)........................... 9,301,252 18.9% 17.8%

</TABLE>

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

* Less than one percent

(1) Applicable percentage of beneficial ownership before the offering made
hereby is based on 45,865,058 shares outstanding as of September 15, 1997,
together with applicable options for each shareholder. Applicable
percentage of beneficial ownership after the offering reflects the issuance
of 1,250,000 Penalty Shares immediately prior to the date hereof.
Beneficial ownership is determined in accordance with the rules and
regulations of the Commission, and includes voting and investment power
with respect to shares. Shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after September 15, 1997 are
deemed outstanding for purposes of computing the percentage ownership of the
person holding such options, but are not deemed outstanding for computing
the percentage of any other shareholder.
(2) Includes options to purchase 1,665,250 shares of Common Stock at an exercise
price of $0.0625 per share, with a term of seven years, payable by a
promissory note payable over 3 years with interest at 5% per annum.
(3) Includes options to purchase 1,291,050 shares of Common Stock at an exercise
price of $0.0625 per share, with a term of seven years, payable by a
promissory note payable over 3 years with interest at 5% per annum.
(4) Includes 250,000 shares subject to options that are exercisable within
60 days of September 15, 1997.
(5) Includes 50,000 shares subject to options that are exercisable within 60
days of September 15, 1997.
(6) Includes 131,863 shares subject to options that are exercisable within 60
days of September 15, 1997.

<PAGE>

SELLING SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership by the Selling Shareholder of shares of the Company's
Common Stock. The shares offered by this Prospectus were purchased from the
Company in private placements by the persons listed under the caption "Summer
1995 Purchasers" at a purchase price of $0.125 per share and by the persons
listed under the caption "Fall 1996 Purchasers" at purchase prices ranging
from $0.21 per share to $0.45 per share. Applicable percentage of beneficial
ownership before the offering made hereby is based on 45,865,058 shares
outstanding as of September 15, 1997, together with applicable options for
each shareholder. Applicable percentage of beneficial ownership after the
offering reflects the issuance of 1,250,000 Penalty Shares in the offering.
Beneficial ownership is determined in accordance with the rules and
regulations of the Commission, and includes voting and investment power with
respect to shares. Shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after September 15, 1997 are deemed
outstanding for purposes of computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage of any other shareholder. The Selling Shareholders may sell the
shares of Common Stock offered hereby from time to time and may choose to
sell less than all or none of such shares.

BENEFICIAL NUMBER OF BENEFICIAL
OWNERSHIP SHARES OWNERSHIP
NAME BEFORE OFFERING OFFERED AFTER OFFERING
- ----------------------------- ------------------- ---------- -----------------------
NUMBER PERCENT NUMBER PERCENT(1)
--------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Summer 1995 Purchasers:
Tana Alcalay 1,731,050 3.8% 125,000 1,606,050 3.4%
Edward Brill 62,500 * 62,500 0 *
Gary Davidson 615,750 1.5% 125,000 490,750 1.0%
Mark Huntley 5,683,186 12.0% 62,500 5,620,686 11.5%
Pearn Niiler 1,918,402 4.1% 125,000 1,793,402 3.7%
Rod Wood 62,500 * 62,500 0 *

Fall 1996 Purchasers:
Bernadette A. Ahuna 23,255 * 23,255 0 *
Dorothy Y. C. Ako 33,333 * 33,333 0 *
Steve Berson 117,965 * 117,965 0 *
Alfredo R. Briones 23,255 * 23,255 0 *
J.W. A. Buyers Rev Liv Trust 41,666 * 41,666 0 *
David F. Coury 90,909 * 90,909 0 *
William and Bernice Frankoff 17,857 * 17,857 0 *
Edward M. Fukuyama 45,454 * 45,454 0 *
Ralph Fuller 23,255 * 23,255 0 *
Earl S. Fusato, Trustee, Earl S.
Fusato Rev. Trust 1,365,384 3.0% 115,384 1,250,000 2.6%
Paul F. Glenn Rev. Trust 37,037 * 37,037 0 *
Solomon and Alice Goldsmith 33,333 * 33,333 0 *
Francis A. Gray 45,454 * 45,454 0 *
Martin Gutlove 250,000 * 250,000 0 *
Christopher and Lynne Harrison 75,000 * 75,000 0 *
Hawaiian Trust Co., Ltd,
S/D L. Richard Fried 416,666 * 416,666 0 *
Winston Healy, Jr. 34,482 * 34,482 0 *
Dan Hirashima 68,965 * 68,965 0 *
Raymond and Anna Kam 219,531 * 219,531 0 *
Gerald E. and Patricia E. Kammier 45,454 * 45,454 0 *
Gregory F. Kowal 476,190 1.0% 476,190 0 *
Eddy J. Louis 37,037 * 37,037 0 *
Amy M. Matsuda Rev. Living Trust 38,461 * 38,461 0 *
Alan H. and Amina Miyasaki 24,390 * 24,390 0 *
Grace M. Morrow 301,002 * 301,002 0 *
David Murakami 222,642 * 222,642 0 *
Donald Y. and Kimika Nakama 238,095 * 238,095 0 *
Lance S. and Elaine Nakamura 261,363 * 261,363 0 *
Calvin T. and Eunice Nakata 100,000 * 100,000 0 *
Clarence K. and Margaret Okimoto 69,323 * 69,323 0 *
Charles Parl 43,478 * 43,478 0 *
Michie Proctor 687,228 * 687,228 0 *
Scott Family Trust, Thomas Scott,
TTEE 292,207 * 292,207 0 *
Gene Seltzer 43,478 * 43,478 0 *
Yoshiko Takara 23,255 * 23,255 0 *
Izidor Tischler 43,478 * 43,478 0 *
F. Joseph Triggs 232,558 * 232,558 0 *
Bruce Tyson 45,454 * 45,454 0 *
Robert A. Walker 47,619 * 47,619 0 *
Eileen Winter 50,000 * 50,000 0 *
Alvin Kuo Wong 41,666 * 41,666 0 *
Russell Yamamoto 217,391 * 217,391 0 *

</TABLE>

* Less than 1%.
(1) Assumes that all shares offered by this Prospectus are sold and no
beneficially owned shares are sold other than by this Prospectus.

Certain of the Selling Shareholders have been officers of the Company or
held positions in the Company during the past three years. Dr. Huntley has
been the Company's President, Chief Executive Officer and Chairman of the
Board for the past three years. Prior to June 1996, Tana Alcalay was a member
of the Board of Directors and the Secretary of the Company. Pearn Niiler has
been a member of the Board of Directors for more than three years. Mr. Fusato
became a member of the Board of Directors and the Company's Chief Financial
Officer in the spring of 1997. Mr. Berson has been the Company's corporate
secretary since March 1996.

-50-

<PAGE>

DESCRIPTION OF SECURITIES

The authorized securities of the Company consist of: (i) 100,000,000
shares of Common Stock, par value $0.0001 per share (the "Common Stock"),
(ii) 5,000,000 shares of Preferred Stock, par value $0.0001 per share (the
"Preferred Stock"), (iii) warrants to purchase an aggregate of 25,974 shares
of Common Stock at an exercise price of $0.21 per share issued to three
investors in connection with the August 1996 bridge financing (the "Bridge
Loan Warrants") and (iv) the Warrants to purchase an aggregate of 5,044,570
shares of Common Stock at an exercise price of $1.00 per share issued to 42
persons in connection with the fall 1996 private placement.

The following summary of certain provisions of the Common Stock, the
Preferred Stock, the Bridge Loan Warrants and the Warrants does not purport
to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Amended and Restated Articles of Incorporation,
the Bridge Loan Warrants and the Warrants, where such rights are set forth in
full, and the provisions of applicable law.

COMMON STOCK

As of July 31, 1997, there were outstanding: (i) 45,865,058 shares of
Common Stock held of record by approximately 2,000 shareholders, (ii) options
to purchase an aggregate of 8,964,769 shares of Common Stock, (iii) the
Bridge Loan Warrants, (iv) the Warrants and (v) 45,530 shares of Common Stock
earned (but not yet issued) as payment for services rendered to the Company
by consultants. The holders of Common Stock are entitled to one vote for
each share held of record upon such matters and in such manner as may be
provided by law. Subject to preferences applicable to any outstanding shares
of Preferred Stock, the holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors
out of funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities and liquidation preferences of any outstanding shares of the
Preferred Stock. Holders of Common Stock have no preemptive rights or rights
to convert their Common Stock into any other securities. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and all shares of Common Stock
issuable upon exercise of the Bridge Loan Warrants and the Private Placement
Warrants will be, fully paid and nonassessable. See "Dividend Policy."

PREFERRED STOCK

As of the date of this Prospectus, no shares of Preferred Stock were
authorized or outstanding. The Board of Directors has the authority, without
further action by the shareholders, to issue Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. Preferred Stock could thus be issued
quickly with terms calculated to delay or prevent a change in control of the
Company or to serve as an entrenchment device for incumbent management.
Additionally, the issuance of Preferred Stock may have the effect of decreasing
the market price of the Common Stock, and may adversely affect the voting and
other rights of the holders of Common Stock.

-51-

<PAGE>

WARRANTS

BRIDGE LOAN WARRANTS. In connection with the 1996 Bridge Loans, the
Company issued warrants to purchase a total of 25,974 shares of Common Stock
at an exercise price of $0.21 per share to the holders of the Bridge Loan
Notes. The Bridge Loan Warrants are entitled to certain registration rights
with respect to the Common Stock issuable upon exercise of the Bridge Loan
Warrants. See "--Registration Rights--Registration Rights of Holders of
Bridge Loan Warrants."

WARRANTS

The Company recently closed a private offering of a total of 5,044,570
Units to "accredited investors" as defined in Rule 501 under the Securities
Act. Each Unit consisted of one share of Common Stock (the "Unit Common
Stock"), and one redeemable Warrant to purchase one share of Common Stock
(the "Warrant Common Stock"). The Warrants will be exercisable at $1.00 per
share, subject to adjustment, at any time prior to December 31, 1999. The
Warrants will be redeemable by the Company at $.01 per Warrant at any time
prior to December 31, 1999 upon 30 days' notice anytime that the closing bid
price per share of the Common Stock exceeds $1.50 per share (subject to
adjustment) 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 Warrants and
the shares of Warrant Common Stock are being registered hereby. The Warrants
are not separately transferable.

-52-

<PAGE>

REGISTRATION RIGHTS

REGISTRATION RIGHTS OF EXISTING COMMON STOCK HOLDERS. As of the date of
this Prospectus, the holders of an aggregate of 562,500 shares of Common Stock
purchased in a private placement in July 1995 (the "July 1995 Shares") and the
holders of 4,000,000 shares of Common Stock purchased in a private placement in
January 1996 (the "January 1996 Shares"), respectively, have certain demand
rights to register those shares under the Securities Act. The holders of the
July 1995 Shares have requested the Company to register their shares pursuant to
this registration statement and the holders of the January 1996 Shares may
request the Company to register their shares at any time. The registration
rights of the holders of the July 1995 Shares and the January 1996 Shares are
in all respects identical.

Upon the written request of the holders of a majority of the January
1996 Shares, the Company would be required to use its best efforts to prepare
and file a registration statement covering the aggregate number of shares
requested to be registered. The holders of the January 1996 Shares are
entitled to only one demand registration with respect to their shares. The
costs and expenses of each such registration shall be payable as follows: (i)
the Company shall pay $10,000 and (ii) the holders of the shares of Common
Stock to be covered by such registration statement shall pay the balance pro
rata. The Company shall not be required to prepare and file a registration
statement until such time as the holders of the shares of Common Stock to be
covered by such registration statement as specified in the demand
registration request deposit funds with the Company sufficient, in the
Company's reasonable belief, to pay the costs for the registration estimated
to exceed $10,000.

The holders of the July 1995 Shares and the January 1996 Shares are also
entitled to certain piggyback registration rights. If at any time the Company
proposes to register shares of Common Stock for sale by the Company, the Company
shall provide the holders of the July 1995 Shares and the January 1996 Shares
with at least thirty days notice prior to such filing. Upon the written request
of a holder of the July 1995 Shares or the January 1996 Shares, given within
five days after notice from the Company, the Company will take such action as is
required to cause such shares to be included in the registration statement to be
filed by the Company. The costs and expenses of all such registrations shall be
paid by the Company.

This Prospectus relates to the request by the holders of the July 1995
Shares to file a registration statement covering the resale to the public of
such shares and includes the Warrants and the Warrant Common Stock.

-53-

<PAGE>

TRANSFER AGENT

The Transfer Agent and Registrar for the Common Stock and the Warrants is
American Securities Transfer & Trust, Inc.

PLAN OF DISTRIBUTION

The sale of all or a portion of the shares of Common Stock offered hereby
by the Selling Shareholders may be effected from time to time at prevailing
market prices at the time of such sales, at prices related to such prevailing
prices, at fixed prices that may be changed or at negotiated prices. The
Selling Shareholders may effect such transactions by selling directly to
purchasers in negotiated transactions, to dealers acting as principals or
through one or more brokers, or any combination of these methods of sale.
Dealers or brokers may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders. The Selling
Shareholders and any brokers or dealers that participate in the distribution may
under certain circumstances be deemed to be "underwriters" within the meaning of
the Securities Act, and any commissions received by such brokers or dealers and
any profits realized on the resale of shares by them may be deemed to be
underwriting discounts and commissions under the Securities Act. The Company
and the Selling Shareholders may agree to indemnify such brokers or dealers
against certain liabilities, including liabilities under the Securities Act. In
addition, the Company has agreed to indemnify the Selling Shareholders and any
underwriter with respect to the shares of Common Stock offered hereby against
certain liabilities, including, without limitation, certain liabilities under
the Securities Act, or, if such indemnity is unavailable, to contribute toward
amounts required to be paid in respect of such liabilities.

The Company has advised the Selling Shareholders that the anti-manipulative
Rules 10b-6 and 10b-7 promulgated under the Exchange Act may apply to sales in
the market, has furnished the Selling Shareholders with a copy of these Rules
and has informed the Selling Shareholders of the possible need for delivery of
copies of this Prospectus.

To the extent required under the Securities Act or the rules of the
Commission, a supplemental prospectus will be filed, disclosing (a) the name of
any such brokers or dealers, (b) the number of shares involved, (c) the price at
which such shares are to be sold, (d) the commissions paid or discounts or
concessions allowed to such brokers or dealers, where applicable, (e) that such
brokers or dealers did not conduct any investigation to verify the information
set out or incorporated by reference in this prospectus, as supplemented, and
(f) other facts material to the transaction.

There is no assurance that the Selling Shareholders will sell any or all of
the shares of Common Stock offered hereby.

The Company has agreed to pay certain costs and expenses incurred in
connection with the registration of the shares of Common Stock offered hereby,
except that the Selling Shareholders shall be responsible for all selling
commissions, transfer taxes and related charges in connection with the offer and
sale of such shares.

LEGAL MATTERS

Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich &
Rosati, Palo Alto, California.

-54-

<PAGE>

EXPERTS

The consolidated financial statements of Aquasearch Corporation as of
October 31, 1996, 1995, as restated, and 1994 and the related statements of
loss and accumulated deficit, cash flows, and stockholders' equity for the
then ended and for the period from inception to October 31, 1996, have been
included herein and in the Registration Statement in reliance on the report
of Ernst & Young, LLP, and Johnson, Holscher & Company, P.C., independent
certified public accountants, and upon the authority of said firms as experts
in accounting and auditing.

AVAILABLE INFORMATION

Aquasearch is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files annual and quarterly reports and other information with the
Commission. The Company has filed a registration statement on Form SB-2
(herein, together with all amendments and exhibits referred to as the
"Registration Statement") with the Commission under the Securities Act of
1933, as amended (the "Securities Act"). This Prospectus, which constitutes
a part of the Registration Statement, does not contain all of the
information, exhibits and schedules set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is hereby made to the Registration
Statement, exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or any other document referred
to are not necessarily complete and, in each instance, if such contract or
document is filed as an exhibit to the Registration Statement or pursuant to
a filing under the Exchange Act, reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement or
pursuant to a filing under the Exchange Act, and each such statement being
qualified in all respects by such reference to such exhibit. Copies of such
materials may be inspected, without charge, at the offices of the Commission,
or obtained at prescribed rates from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at
Seven World Trade Center (13th Floor), New York, New York 10019. In addition,
the Commission maintains a World Wide Web site on Internet at www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.

-55-

<PAGE>

FINANCIAL STATEMENTS

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

INDEX TO FINANCIAL STATEMENTS

Report of Independent Auditors.................................... F-2
Independent Auditor's Report...................................... F-3

Audited Financial Statements:
Balance Sheets as of October 31, 1994, 1995 and 1996.............. F-4
Statements of Loss and Accumulated Deficit from Inception to
October 31, 1996 and for the Fiscal Years Ended October 31,
1994, 1995 and 1996............................................. F-5
Statements of Cash Flows from Inception to October 31, 1996
and for the Fiscal Years Ended October 31, 1994, 1995 and 1996.. F-6
Statements of Stockholders' Equity (Deficit) from Inception to
October 31, 1996 ............................................... F-7
Notes to Financial Statements..................................... F-13

Unaudited Financial Statements:
Balance Sheets as of October 31, 1996 and July 31, 1997
(Unaudited)..................................................... F-20
Statements of Loss and Accumulated Deficit for the Period from
Inception to July 31, 1997, for the Three Months Ended
July 31, 1997 and for the Nine Months Ended July 31, 1997
(Unaudited)..................................................... F-21
Statements of Loss and Accumulated Deficit for the Period from
Inception to July 31, 1997, for the Three Months Ended
July 31, 1996 and for the Nine Months Ended July 31, 1996
(Unaudited)..................................................... F-22
Statements of Cash Flows for the Period from Inception to
July 31, 1997, for the Nine Months Ended July 31, 1996
and for the Nine Months Ended July 31, 1997 (Unaudited)......... F-23
Notes to Financial Statements (Unaudited)......................... F-24

<PAGE>

Report of Independent Auditors

The Board of Directors
Aquasearch, Inc.

We have audited the accompanying balance sheet of Aquasearch, Inc. (a
development stage enterprise) as of October 31, 1996, and the related
statements of loss and accumulated deficit, cash flows, and stockholders'
equity (deficit) for the year then ended and for the period from inception to
October 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements as of
October 31, 1995 and 1994, and for the period from inception to October 31,
1995, were audited by other auditors whose report dated December 2, 1995 except
for Note 5 dated January 26, 1996, and Note 8 dated April 6, 1997, expressed an
unqualified opinion on those statements. The financial statements for the
period from inception to October 31, 1995 include no revenues and a net loss of
$1,616,518. Our opinion on the statements of loss and accumulated deficit,
cash flows, and stockholders' equity (deficit) for the period from inception to
October 31, 1996, insofar as it relates to amounts for prior periods through
October 31, 1995, is based solely on the report of the other auditors.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Aquasearch, Inc. (a development stage
enterprise) as of October 31, 1996, and the results of its operations and its
cash flows for the year then ended and the period from inception to October 31,
1996, in conformity with generally accepted accounting principles.

As discussed in Note 1 to the financial statements, the Company's recurring
losses from operations and working capital deficit at October 31, 1996 raise
substantial doubt about its ability to continue as a going concern. The
October 31, 1996 financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ Ernst & Young LLP

March 11, 1997
Honolulu, Hawaii

F-2

<PAGE>

[LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Aquasearch, Inc.
San Diego, California

We have audited the accompanying balance sheets of Aquasearch, Inc. (a
development stage enterprise) (a Colorado corporation) as of October 31,
1995, 1994 and 1993, and the related statements of loss and accumulated
deficit, cash flows, and stockholders' equity for the years then ended and
for the period from inception to October 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aquasearch, Inc. (a
development stage enterprise) as of October 31, 1995, 1994 and 1993, and the
results of its operations, cash flows, and changes in stockholders' equity
for the years then ended and for the period from inception to October 31,
1995, in conformity with generally accepted accounting principles.

Englewood, Colorado
December 2, 1995 except
Note 5 dated January 26, 1996
and Note 8 dated April 6, 1997 /s/ Johnson, Holscher & Co.
PROFESSIONAL CORPORATION

F-3
<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEETS

<TABLE>
<CAPTION>
OCTOBER 31
1995
(AS RESTATED)
1994 (NOTE 8) 1996
--------- -------------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,213 $ 27,208 $ 187,166
Cash in escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000 -- 460,980
Accounts receivable - employees/affiliates. . . . . . . . . . . . . . . -- -- 1,933
Stock subscriptions receivable. . . . . . . . . . . . . . . . . . . . . -- 35,000 --
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 9,177 5,534
Refundable deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,207 2,535 3,145
---------- ---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,420 73,920 658,758
---------- ---------- ----------

Plant and equipment - at cost: . . . . . . . . . . . . . . . . . . . . . .
Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 408,219 676,709
Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 7,740 68,349
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . -- (320) (35,876)
---------- ---------- ----------
Net plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . -- 415,639 709,182
---------- ---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,420 $ 489,559 $1,367,940
---------- ---------- ----------
---------- ---------- ----------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,866 $ 233,181 $ 466,165
Deposits held . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000 -- 460,980
Notes payable (NOTE 2). . . . . . . . . . . . . . . . . . . . . . . . . -- -- 150,000
---------- ---------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 106,866 233,181 1,077,145
---------- ---------- ----------

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock ($0.0001 par value, 100,000,000 shares authorized,
40,829,331 shares outstanding). . . . . . . . . . . . . . . . . . . . . 3,467 4,379 5,204
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 1,141,060 1,902,785 3,234,309
Deficit accumulated during the development stage . . . . . . . . . . . . . (1,163,973) (1,650,786) (2,948,718)
---------- ---------- ----------
Total stockholders' equity (deficit) . . . . . . . . . . . . . . . . . . . (19,446) 256,378 290,795
---------- ---------- ----------
Total liabilities and stockholders' equity (deficit) . . . . . . . . . . . $ 87,420 $ 489,559 $1,367,940
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

SEE ACCOMPANYING NOTES.

F-4
<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF LOSS AND ACCUMULATED DEFICIT

<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31
FROM INCEPTION 1995
TO OCTOBER 31, (AS RESTATED)
1996 1994 (NOTE 8) 1996
------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,000 $ -- $ -- $ 10,000
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,226 -- -- 21,226
Research and development costs . . . . . . . . . . . . . . . . . . . . 1,092,766 27,063 89,264 648,601
------------ ------------ ------------ ------------
Gross profit (loss). . . . . . . . . . . . . . . . . . . . . . . . . . (1,103,992) (27,063) (89,264) (659,827)

General and administrative expenses. . . . . . . . . . . . . . . . . . 1,633,197 115,131 393,171 640,702
------------ ------------ ------------ ------------

Earnings (loss) from operations. . . . . . . . . . . . . . . . . . . . (2,737,189) (142,194) (482,435) (1,300,529)

OTHER INCOME (EXPENSE)
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,647) -- (1,762) 2,597
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,016) (800) (2,616) --
Investment in joint venture. . . . . . . . . . . . . . . . . . . . . . (147,096) (97,096) -- --
------------ ------------ ------------ ------------

Total other income and (expense) . . . . . . . . . . . . . . . . . . . (162,759) (97,896) (4,378) 2,597
------------ ------------ ------------ ------------

Earnings (loss) before income taxes and extraordinary item . . . . . . (2,899,948) (240,090) (486,813) (1,297,932)

Extraordinary item - loss on write down of assets
to liquidation basis. . . . . . . . . . . . . . . . . . . . . . . . (14,502) -- -- --
------------ ------------ ------------ ------------

Earnings (loss) before income taxes. . . . . . . . . . . . . . . . . . (2,914,450) (240,090) (486,813) (1,297,932)

Federal and State income taxes . . . . . . . . . . . . . . . . . . . . -- -- -- --
------------ ------------ ------------ ------------

Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . (2,914,450) (240,090) (486,813) (1,297,932)

ACCUMULATED DEFICIT
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . (34,268) (923,883) (1,163,973) (1,650,786)
------------ ------------ ------------ ------------
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . $(2,948,718) $(1,163,973) $(1,650,786) $(2,948,718)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.14) $ (0.01) $ (0.02) $ (0.03)
------------ ------------- ------------- -----------
------------ ------------- ------------- -----------

Weighted average shares outstanding. . . . . . . . . . . . . . . . . . 20,380,495 22,782,063 25,541,021 37,679,955
------------ ------------- ------------- -----------
------------ ------------- ------------- -----------
</TABLE>

SEE ACCOMPANYING NOTES.

F-5

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31
FROM INCEPTION 1995
TO OCTOBER 31, (AS RESTATED)
1996 1994 (NOTE 8) 1996
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,914,450) $(240,090) $(486,813) $(1,297,932)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,527 -- -- --
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,583 -- 320 35,556
Expenses paid with common stock . . . . . . . . . . . . . . . . . . 444,165 82,000 210,998 62,800
Loss on write down of assets to liquidation basis . . . . . . . . . 5,392 -- -- --
Changes in:
Other current assets . . . . . . . . . . . . . . . . . . . . . . (8,478) (1,207) (10,505) 3,033
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . (1,933) -- (35,000) 33,067
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 382,452 6,425 110,536 232,968
Deposits held. . . . . . . . . . . . . . . . . . . . . . . . . . 460,980 85,000 (85,000) 460,980
------------ ---------- ---------- ------------
Cash used in operating activities. . . . . . . . . . . . . . . . . . . (1,586,762) (67,872) (295,464) (469,528)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets . . . . . . . . . . . . . . . . . . . . . . . (654,642) -- (315,180) (329,099)
------------ ---------- ---------- ------------
Cash used in investing activities. . . . . . . . . . . . . . . . . . . (654,642) -- (315,180) (329,099)

CASH FLOWS FROM FINANCING ACTIVITIES
Cash (held in) released from escrow. . . . . . . . . . . . . . . . . . (460,980) (85,000) 85,000 (460,980)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . 2,816,193 7,500 571,580 1,326,600
Increase in notes payable. . . . . . . . . . . . . . . . . . . . . . . 179,800 -- -- 150,000
Offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . (106,497) -- (19,941) (57,035)
------------ ---------- ---------- ------------
Cash provided by financing activities. . . . . . . . . . . . . . . . . 2,428,516 (77,500) 636,639 958,585
------------ ---------- ---------- ------------

Net increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . 187,112 (145,372) 25,995 159,958
Cash, beginning of the period. . . . . . . . . . . . . . . . . . . . . 54 146,585 1,213 27,208
------------ ---------- ---------- ------------
Cash, end of the period. . . . . . . . . . . . . . . . . . . . . . . . $ 187,166 $ 1,213 $ 27,208 $ 187,166
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-6

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FROM INCEPTION TO OCTOBER 31, 1996

<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
----------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1988. . . . . . . . 20,000,000 $2,000 $ 72,730 $(101,984) $(27,254)

Issuance of stock for cash
($0.05 per share)
January 12, 1989. . . . . . . . . . . 4,000,000 400 165,291 -- 165,691

Treasury shares acquired at
no cost, January 1989 . . . . . . . . (1,207,972) -- -- -- --

Exercise of A warrants for cash
($0.12 per share)
March 3, 1989 . . . . . . . . . . . . 55,000 5 6,595 -- 6,600

Exercise of A warrants for
cash ($0.12 per share)
April 21, 1989. . . . . . . . . . . . 95,000 10 11,390 -- 11,400

Exercise of A warrants for
cash ($0.12 per share)
June 5, 1989. . . . . . . . . . . . . 20,000 2 2,398 -- 2,400

Treasury shares acquired at
no cost, June 1989. . . . . . . . . . (601,912) -- -- -- --

Exercise of A warrants for
cash ($0.12 per share)
September 1989. . . . . . . . . . . . 177,500 19 21,281 -- 21,300

Exercise of A warrants for
cash ($0.12 per share)
August 28, 1989 . . . . . . . . . . . 145,000 14 17,386 -- 17,400

Exercise of A warrants for
cash ($0.12 per share)
October 30, 1989. . . . . . . . . . . 63,500 6 7,614 -- 7,620

Treasury shares acquired at
no cost, October 1989 . . . . . . . . (9,388,954) -- -- -- --

</TABLE>

SEE ACCOMPANYING NOTES.

F-7

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)

<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
----------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Rent provided at no charge . . . . . . . -- $ -- $ 1,000 $ -- $ 1,000

Loss for the year ended
October 31, 1989. . . . . . . . . . . -- -- -- (183,333) (183,333)
---------- ------- ---------- ----------- ----------

Balance, October 31, 1989. . . . . . . . 13,357,162 2,456 305,685 (285,317) 22,824

Exercise of A warrants for
cash ($0.12 per share)
December 1989 . . . . . . . . . . . . 390,000 39 41,440 -- 41,479

Exercise of A warrants for
cash ($0.12 per share)
January 1990. . . . . . . . . . . . . 224,000 23 26,857 -- 26,880

Exercise of A warrants for
cash ($0.12 per share)
February 9, 1990. . . . . . . . . . . 80,000 8 9,592 -- 9,600

Exercise of A warrants for
cash ($0.12 per share)
April 25, 1990. . . . . . . . . . . . 30,000 3 3,597 -- 3,600

Exercise of A warrants for
cash ($0.12 per share)
May 14, 1990. . . . . . . . . . . . . 30,000 3 3,597 -- 3,600

Issuance of stock for services
($0.05 per share) May 31, 1990. . . . 300,000 30 12,778 -- 12,808

Exercise of A warrants for cash
($0.12 per share) June 28, 1990 . . . 15,000 1 1,789 -- 1,790

Issuance of restricted stock for
cash ($0.07 per share)
August 8, 1990. . . . . . . . . . . . 140,000 14 9,786 -- 9,800

Exercise of A warrants for
cash ($0.12 per share)
August 1990 . . . . . . . . . . . . . 110,000 11 13,169 -- 13,180

</TABLE>

SEE ACCOMPANYING NOTES.

F-8

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)

<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
----------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Services provided at no
charge, August 27, 1990 . . . . . . . -- -- (263) -- (263)

Exercise of A warrants for
cash ($0.12 per share)
September 5, 1990 . . . . . . . . . . 160,000 $ 16 $ 19,114 $ -- $ 19,130

Exercise of A warrants for
cash ($0.12 per share)
October 1990. . . . . . . . . . . . . 1,753,000 175 209,385 -- 209,560

Rent provided at no charge . . . . . . . -- -- 1,000 -- 1,000

Loss for the year ended
October 31, 1990. . . . . . . . . . . -- -- -- (163,839) (163,839)
---------- ------- ---------- ----------- ----------

Balance, October 31, 1990. . . . . . . . 16,589,162 2,779 657,526 (449,156) 211,149

Issue stock in consideration for
loans ($0.04 per share)
September 1991. . . . . . . . . . . . 290,000 29 11,571 -- 11,600

Sale of restricted stock for
cash ($0.04 per share)
October 1991. . . . . . . . . . . . . 125,000 13 4,988 -- 5,000

Rent provided without charge . . . . . . -- -- 1,000 -- 1,000

Loss for the year. . . . . . . . . . . . -- -- -- (251,401) (251,401)
---------- ------- ---------- ----------- ----------

Balance, October 31, 1991. . . . . . . . 17,004,162 2,821 675,085 (700,557) (22,652)

Restricted stock for past
services ($0.04 per share)
November 1991 . . . . . . . . . . . . 34,000 3 1,357 -- 1,360

Restricted stock for
services ($0.01 per share)
February 1992 . . . . . . . . . . . . 247,500 25 2,900 -- 2,925

Restricted stock for
services ($0.04 per share)
February 1992 . . . . . . . . . . . . 12,000 1 479 -- 480

</TABLE>

SEE ACCOMPANYING NOTES.

F-9

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)

<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
----------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Restricted stock for
cash ($0.15 per share)
February 1992 . . . . . . . . . . . . 20,000 2 2,998 -- 3,000

Restricted stock for
services ($0.04 per share)
May 1992. . . . . . . . . . . . . . . 10,000 $ 1 $ 398 $ -- $ 399

Restricted stock for services
($0.0001 per share)
August 1992 . . . . . . . . . . . . . 150,000 15 -- -- 15

Rent provided without charge
during the year . . . . . . . . . . . -- -- 1,000 -- 1,000

Loss during the year . . . . . . . . . . -- -- -- (81,128) (81,128)
---------- ------- ---------- ----------- ----------

Balance, October 31, 1992. . . . . . . . 17,477,662 2,868 684,217 (781,685) (94,601)

Sale of stock ($0.08 per
share) February 1993. . . . . . . . . 975,000 98 73,367 -- (21,136)

Sale of stock ($0.08 per
share) April 1993 . . . . . . . . . . 2,200,000 220 170,704 -- 149,788

Stock issued for services
($0.08 per share)
May 1993. . . . . . . . . . . . . . . 673,751 68 53,833 -- 203,689

Conversion of notes and
advances for stock ($0.08
per share) May 1993 . . . . . . . . . 861,900 87 69,315 -- 273,091

Rent provided at no charge . . . . . . . -- -- 250 -- 273,341

Loss for the period. . . . . . . . . . . -- -- -- (142,197) 131,144
---------- ------- ---------- ----------- ----------

Balance, October 31, 1993. . . . . . . . 22,188,313 3,341 1,051,686 (923,883) 131,144

</TABLE>

SEE ACCOMPANYING NOTES.

F-10

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)

<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
----------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Stock issued ($0.03 per
share) January 1994 . . . . . . . . . 250,000 $ 25 $ 7,475 $ -- $ 7,500

Stock issued for services
($0.08 per share)
May 1994. . . . . . . . . . . . . . . 775,000 76 61,924 -- 62,000

Stock issued for services
($0.08 per share)
June 1994 . . . . . . . . . . . . . . 250,000 25 19,975 -- 20,000

Loss for the year ended
October 31, 1994. . . . . . . . . . . -- -- -- (240,090) (240,090)
---------- ------- --------- ----------- ----------

Balance, October 31, 1994. . . . . . . . 23,463,313 3,467 1,141,060 (1,163,973) (19,446)

Stock issued for cash
($0.10 per share)
March 1995. . . . . . . . . . . . . . 1,710,000 171 166,408 -- 166,579

Stock issued for services
($0.10 per share)
June 1995 . . . . . . . . . . . . . . 50,000 5 4,995 -- 5,000

Stock subscribed for cash
($0.0625 per share)
July 1995 . . . . . . . . . . . . . . 3,200,000 320 199,680 -- 200,000

Reissue stock previously
canceled at no cost
August 1995 . . . . . . . . . . . . . 1,320,000 132 (132) -- --

Stock issued for cash
($0.08 per share),
September 1995. . . . . . . . . . . . 2,712,500 271 184,795 -- 185,066

Stock issued for services
(valued at $0.0625 per
share) October 1995 . . . . . . . . . 127,875 13 7,979 -- 7,992

</TABLE>

SEE ACCOMPANYING NOTES.

F-11

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)

<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
----------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Loss for the year ended October 31, 1995 -- $ -- $ -- $ (288,813) $ (288,813)
---------- ------- ---------- ------------ -----------

Balance, October 31, 1995, as
previously reported . . . . . . . . . 32,583,688 4,379 1,704,785 (1,452,786) 256,378

Correction of reissuance of
stock previously canceled,
October 1995 (NOTE 8) . . . . . . . . -- -- 198,000 (198,000) --
---------- ------- ---------- ------------ -----------

Balance, October 31, 1995, as
restated. . . . . . . . . . . . . . . 32,583,688 4,379 1,902,785 (1,650,786) 256,378

Stock issued for services
($0.125 per share)
November 1995 . . . . . . . . . . . . 264,000 26 32,974 -- 33,000

Stock issued for services
($0.125 per share)
December 1995 . . . . . . . . . . . . 40,000 4 4,996 -- 5,000

Stock issued for cash
($0.15 per share)
January 1996. . . . . . . . . . . . . 4,000,000 400 570,534 -- 570,934

Stock issued for cash
($0.125 per share)
January 1996. . . . . . . . . . . . . 2,492,800 249 296,266 -- 296,515

Stock issued for services
($0.62 per share)
February 1996 . . . . . . . . . . . . 40,000 4 24,796 -- 24,800

Stock issued for cash
($0.50 per share)
October 1996. . . . . . . . . . . . . 400,000 40 199,960 -- 200,000

Stock issued for cash
($0.21 to $0.23 per share)
October 1996. . . . . . . . . . . . . 1,008,843 102 201,998 -- 202,100

Loss for the year ended
October 31, 1996. . . . . . . . . . . -- -- -- (1,297,932) (1,297,932)
---------- ------- ---------- ------------ -----------

Balance, October 31, 1996. . . . . . . . 40,829,331 $ 5,204 $3,234,309 $(2,948,718) $ 290,795
---------- ------- ---------- ------------ -----------
---------- ------- ---------- ------------ -----------

</TABLE>

SEE ACCOMPANYING NOTES.

F-12

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

October 31, 1996, 1995 and 1994

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Aquasearch, Inc. (Aquasearch) was founded in February 1988 as a Colorado
corporation which designs and markets aquaculture technology. The Company
has been engaged, since its inception, in the development of proprietary
photobioreactor technology for commercial cultivation of microalgae. The
Company's principal operations are located in Kailua-Kona, Hawaii.

Substantially all of Aquasearch's efforts to date have been focused on the
development of the Aquasearch Growth Module and the initial production of
natural astaxanthin, a naturally occurring red pigment derived from a
freshwater microalgae. The two primary markets for natural astaxanthin are
currently aquaculture and poultry feed.

In July 1995, the Company entered into a three-year supply agreement with
Svenska Foder AB, a subsidiary of Cultor, Ltd., a European producer of animal
feed. The contract requires Aquasearch to deliver five kilograms of natural
astaxanthin per month. During the year ended October 31, 1996, the Company
made its first shipment of product to Svenska Foder AB under the supply
agreement resulting in revenues of $10,000. Because no significant sales
have occurred and because the Company has devoted most of its efforts to
research and development, the Company is considered to be in the development
stage.

BASIS OF PRESENTATION

The Company's financial statements have been presented on the basis that it
is able to continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred operating losses since inception totaling
approximately $3 million. At October 31, 1996 the Company had a working
capital deficit of approximately $420,000. During December 1996 and January
1997, the Company sold additional shares of stock through a private
placement which were sufficient to fund its immediate operating financial
needs.

In May 1996, the Company entered into a three-year Distribution and
Development Agreement with Cultor, Ltd. (the Cultor Agreement) pursuant to
which the Company will act as the exclusive worldwide supplier and Cultor,
Ltd. will act as the exclusive worldwide distributor of Aquasearch's natural
astaxanthin in the field of animal feed and animal nutrition. The terms of
the Cultor Agreement require that from September 1997 the Company is to
provide Cultor, Ltd. with 40 kilograms of natural astaxanthin per month
increasing to 120 kilograms per month beginning in September 1998. The
Cultor Agreement provides that Aquasearch and Cultor, Ltd. share equally in
the gross margin of the product shipped.

F-13

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Cultor Agreement also provides that Cultor, Ltd. and Aquasearch may, at
Cultor, Ltd.'s option, mutually develop a new joint venture company for the
sole purpose of producing and selling natural astaxanthin in the field of
animal feed and animal nutrition. Pursuant to this arrangement, Aquasearch
would contribute a ten-acre natural astaxanthin production facility to be
constructed in 1997 in return for its 50% stake in the new company and
Cultor, Ltd. would contribute cash equal to the appraised value of the
facility for its 50% stake.

In connection with the execution of the Cultor Agreement, Cultor, Ltd.
purchased 400,000 shares of the Company's common stock at a purchase price of
$0.50 per share.

The Company currently has begun planning for the expansion of its present
one-acre research and development facility to a four-acre production facility
that will allow it to meet its September 1997 40 kilogram per month target
production requirement under the Cultor Agreement. To complete the expansion,
the Company estimates that it must obtain between $5 and $10 million of
additional capital. In order to meet the September 1998 120 kilogram per
month target, the Company anticipates that it must construct a ten-acre
production facility.

The Company currently projects that it will require between $1.2 and $1.5
million in operating capital in 1997, before any planned capital expenditures
related to the construction of its new production facility. The Company is
presently pursuing additional sources of capital in order to maintain and
expand its operations in fiscal 1997. These capital sources include
government contracts and grants, product sales, license agreements and equity
and debt financing.

The Company's continued existence is dependent upon its ability to obtain
working capital and long-term financing to meet its obligations on a timely
basis and to fund expansion of its production facilities and continued
research and development of new microalgae products. The Company is
presently unable to reasonably determine the likelihood of obtaining such
financing. In addition, the failure of the Company to gain additional
customers for its natural astaxanthin product in other applications and
customers for its other potential products, the loss of Cultor, Ltd. or any
potential corporate partner as a customer, or a significant reduction in the
level of sales to Cultor, Ltd. or any potential corporate partner could have
a material adverse effect on the Company's business, financial condition and
results of operations.

The accompanying financial statements do not include any adjustments,
including those related to the classification of recorded asset amounts or
classification of liabilities, that might result from the outcome of the
aforementioned uncertainties.

F-14

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents.

PLANT AND EQUIPMENT

Plant and equipment is stated at cost. Depreciation is provided on the
straight-line method over ten years for plant and five years for equipment.

STOCK ISSUED FOR SERVICES

Stock issued for services is based on management's estimate of the fair value
of the Company's restricted stock at the date of issue.

INCOME TAXES

The Company uses the asset and liability method of accounting for income
taxes as required by Statement of Financial Accounting Standards No. 109
(SFAS 109), ACCOUNTING FOR INCOME TAXES. SFAS 109 requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the
tax basis of certain assets and liabilities.

Since its inception, the Company has incurred net operating losses.
Accordingly, no provision has been made for income taxes.

LOSS PER SHARE

Loss per share was based on the average common shares outstanding during the
period. Average common share equivalents have not been included in the
computation of loss per share as their effect would be anti-dilutive.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, including cash,
cash in escrow, accounts payable, deposits held and notes payable are deemed
to approximate fair value due to their short-term nature.

F-15

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain prior years' balances have been reclassified to be comparable to the
current year presentation.

2. COMMON STOCK WARRANTS

On January 12, 1989, the Company sold to the public 4,000,000 shares of its
$0.0001 par value common stock. The shares were sold as part of a unit for
$0.05 per unit. Each unit consisted of one share of common stock and one
common stock purchase warrant ("A" warrant). The "A" warrant entitled the
holder thereof to purchase one additional share of common stock and one
common stock purchase warrant ("B" warrant) for $0.12 per share. The "B"
warrant entitles the holder to purchase one additional share of common stock
for $ 1.00. The warrants may be redeemed by the Company at $0.0001 per
warrant. The offering netted $165,691 to the Company on the date of closing.

During the years ended October 31, 1989 and 1990, 3,348,000 "A" warrants were
exercised at $0.12 per share which netted the Company $393,523 (after issue
costs). All remaining "A" warrants have been canceled. The 3,348,000 "B"
warrants expired on September 15, 1996.

During the year ended October 31, 1996, the Company sold to the public
1,008,843 shares of its $0.0001 par value common stock. The shares were sold
under a 12,000,000 unit private placement offering, each unit consisting of
one share of common stock and one common stock purchase warrant. The
warrants have a term of three years and are exercisable at $1.00 per share.
The warrants may be redeemed by the Company at $0.01 per warrant upon 30
days' notice anytime that the closing price per share of the Company's 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. Pursuant to the private placement offering, the placement agent
received 60,531 warrants as of October 31, 1996.

F-16

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. COMMON STOCK WARRANTS (CONTINUED)

In August and September 1996 the Company obtained approximately $150,000 of
short-term bridge financing from four individual investors pursuant to a note
and warrant purchase agreement dated August 1, 1996. The notes bear
interest at 6.25% and matured on September 30, 1996. No interest payments
were made on the notes as of October 31, 1996. As of January 31, 1997,
$135,000 of the notes payable was paid.

In conjunction with the execution of the notes the investors received a total
of 25,974 warrants entitling the holder to purchase one share of common stock
at an exercise price of $0.21 per share. The warrants expire on December 31,
1999.

No warrants were exercised during the year ended October 31, 1996. At
October 31, 1996, the Company had reserved a sufficient number of shares of
its common stock for issuance pursuant to the exercise of the warrants.

3. COMMON STOCK OPTIONS

In August 1995, the Company granted stock options, exercisable immediately,
to seven individuals to purchase a total of 5,732,462 shares of the Company's
common stock at an exercise price of $0.0625 per share. In addition, the
Company also granted stock options to three individuals which became
exercisable in July 1996 to purchase a total of 180,000 shares of the
Company's common stock at an exercise price of $0.61 per share.

In July 1996, the Company granted stock options to an individual to purchase
a total of 400,000 shares of the Company's common stock at an exercise price
of $0.56 per share. The options were immediately exercisable with respect to
200,000 shares. The remaining options become exercisable in January 1997 for
100,000 shares and July 1997 for 100,00 shares.

No common stock options have been exercised as of October 31, 1996.

4. RELATED PARTY TRANSACTIONS

During the year ended October 31, 1991, the Company borrowed $29,000 from
stockholders. The four separate notes were unsecured, carried an interest of
12% and were due in August 1992. As an inducement for the loans, the Company
issued a total of 290,000 shares of restricted stock to the lenders. For
purposes of the financial statements, this stock was valued at $0.04 per
share based on recent sales of restricted stock. Loan issue costs of $5,322
were charged to interest expense in 1991 and unamortized

F-17

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. RELATED PARTY TRANSACTIONS (CONTINUED)

loan issue costs of $6,693 were written off. During the year ended October
31, 1993, these loans were converted to 430,650 shares of common stock.

During the year ended October 31, 1995, the Company reissued 1,320,000 shares
of common stock to its president and chief executive officer. These were
shares which had been previously returned to the Company.

The Company has also issued restricted stock for services to various officers
as follows:

Number of
Shares Value
--------- ----------
YEAR
1996 40,000 $ 5,000
1995 177,875 12,992
1994 1,025,000 82,000
1993 650,938 52,075
1992 300,000 30

5. INCOME TAXES

Since its formation the Company has incurred net operating losses. As of
October 31, 1996, the Company had a net operating loss carryforward available
to offset future taxable income for federal and state income tax purposes of
approximately $2.5 million. The net operating loss carryforward for tax
reporting purposes expires in the years from 1999 to 2011. The Company also
has a research credit carryover approximating $40,000 which expires between
the years 2003 and 2011.

No deferred tax benefit or liability has been recorded for temporary
differences between book and tax reporting due to the uncertainty of any
eventual recovery or payment.

6. INVESTMENT IN OCEANCOLOR

In March 1993, the Company invested $50,000 in a joint venture (OceanColor,
Inc.) with Cyanotech Corporation. The Company and Cyanotech each owned 50%
of OceanColor. During the year ended October 31, 1994, the Company invested
an additional $97,100 in this joint venture. In November 1994, the joint
venture was dissolved with the licensing rights to its proprietary technology
reverting entirely to the Company. At the time of dissolution, there was
approximately $7,500 of equipment in the joint venture which was distributed
to the Company.

F-18

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES

During the year ended October 31, 1995, the Company constructed its plant
facility at a cost of $408,219. At October 31, 1995, there remained in
accounts payable approximately $100,800 of this cost. Accordingly, the
amount which remained in accounts payable was removed from cash paid for the
purchase of fixed assets in the statement of cash flows for the year ended
October 31, 1995.

8. CORRECTION OF ACCOUNTING FOR REISSUANCE OF STOCK PREVIOUSLY CANCELED

During the year ended October 31, 1995, the Company reisssued 1,320,000
shares of restricted stock to its president and chief executive officer.
These were shares which had been previously returned to the Company by the
president and chief executive officer at no cost to the Company. The
reissuance was recorded at par value in the financial statements for the year
ended October 31, 1995 with no effect on net loss for that year. The Company
has subsequently valued the reissued stock at $0.15 per share based on the
quoted market price of the restricted stock at the date of reissuance. As a
result, the Company's financial statements for the year ended October 31,
1995 have been restated as follows:

AS ORIGINALLY
REPORTED AS RESTATED
------------- -----------
Balance sheet:
Additional paid-in capital $1,704,785 $1,902,785
Deficit accumulated during the development stage (1,452,786) (1,650,786)

Statement of loss and accumulated deficit:
General and administrative expenses 195,171 393,171
Net income (loss) (288,813) (486,813)
Loss per share (0.01) (0.02)

Statement of cash flows:
Expenses paid with common stock 12,998 210,998

9. SUBSEQUENT EVENT

In November 1996, the Company announced that it would acquire between 80 and
90 acres of property on the Big Island of Hawaii valued at between $900,000
and $1,000,000 from C. Brewer and Company, Limited in exchange for C. Brewer
and Company, Limited's acquisition of approximately 6% of the outstanding
common stock of the Company. In connection with this transaction, C. Brewer
also acquired a warrant to purchase up to 500,000 shares of the Company's
common stock at an exercise price of $1.25 per share.

F-19

<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEETS

<TABLE>
<CAPTION>
October 31, July 31,
1996 1997
(Audited) (Unaudited)
--------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 187,166 $ 77,506
Cash in Escrow 460,980 0
Accounts receivable 0 419
Accounts receivable - employees/affiliates 1,933 1,100
Prepaid expenses 5,534 71,568
Refundable deposits 3,145 4,070
--------------------------------
Total Current Assets 658,758 154,663
--------------------------------

Plant and Equipment
Plant 676,709 705,686
Other equipment 68,349 138,100
Less accumulated depreciation (35,876) (77,933)
--------------------------------
Net Plant and Equipment 709,182 765,853

Total Assets $ 1,367,940 $ 920,516
---------------------------------
---------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 466,165 $ 462,382
Deposits Held for Common Stock 460,980 0
10% Convertible Note Payable 0 250,000
Notes payable 150,000 0
---------------------------------
Total Current Liabilities 1,077,145 712,382

Stockholders' Equity
Common stock ($0.0001 par value;
100,000,000 shares authorized;
40,829,331 and 45,865,058 shares
outstanding at Oct 31, 1996 and
Jul 31, 1997, respectively 5,204 5,708
(See Note 1)
Additional paid-in capital 3,234,309 4,342,287

Deficit accumulated during the
development stage (2,948,718) (4,139,861)
--------------------------------
Total Stockholders' Equity 290,795 208,134
--------------------------------
Total Liabilities and Stockholders' Equity $ 1,367,940 $ 920,516
--------------------------------
--------------------------------

</TABLE>

F-20
<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF LOSS AND ACCUMULATED DEFICIT

<TABLE>
<CAPTION>
For the period For the three For the nine
from inception to months ended months ended
July 31, July 31, July 31,
1997 1997 1997
(Unaudited) (Unaudited) (Unaudited)
--------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Sales $ 11,077 $ 146 $ 1,077
Cost of sales (21,226) 0 0
Research and development costs (1,644,309) (152,717) (551,543)
--------------------------------------------------------
Gross Profit (loss) (1,654,458) (152,571) (550,466)

General and Administrative expenses (2,278,075) (297,231) (644,878)
--------------------------------------------------------
Earnings (loss) from operations (3,932,533) (449,802) (1,195,344)

OTHER INCOME (EXPENSE)
Interest (5,199) 223 4,448
Other (5,799) 411 217
Investment in joint venture (147,096) 0 0
--------------------------------------------------------
Total other income and (expense) (158,094) 634 4,665
--------------------------------------------------------
Earnings (loss) before income taxes and
extraordinary item (4,090,627) (449,168) (1,190,679)

Extraordinary item -- loss on write down
of assets to liquidation basis (14,966) (464) (464)
--------------------------------------------------------
Earnings (loss) before income taxes (4,105,593) (449,632) (1,191,143)

Federal and State income taxes 0 0 0
--------------------------------------------------------
Net income (loss) (4,105,593) (449,632) (1,191,143)

ACCUMULATED DEFICIT
Balance, beginning of period (34,268) (3,690,229) (2,948,718)
--------------------------------------------------------
Balance, end of period $ (4,139,861) $ (4,139,861) $ (4,139,861)
--------------------------------------------------------
--------------------------------------------------------
Loss per share $ (0.20) $ (0.01) $ (0.03)
--------------------------------------------------------
--------------------------------------------------------
Weighted average shares outstanding 20,380,495 45,713,543 44,159,602
--------------------------------------------------------
---------------------------------------------------------
</TABLE>

F-21
<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT

FOR THE PERIOD FOR THE THREE FOR THE NINE
FROM INCEPTION MONTHS ENDED MONTHS ENDED
TO JULY 31, JULY 31, JULY 31,
1997 1996 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
-------------- ------------- ------------
<S> <C> <C> <C>
OPERATIONS
Sales $ 11,077 $ 16 $ 10,000
Cost of sales (21,226) 28,144 28,144
Research and development costs (1,644,309) (184,973) (494,883)
----------- ----------- -----------
Gross profit (loss) (1,654,458) (213,101) (513,017)

General and administrative expenses (2,278,075) (122,407) (282,568)
----------- ----------- -----------
Earnings (loss) from operations (3,932,533) (355,508) (795,595)

OTHER INCOME (EXPENSE)
Interest (5,199) 673 2,484
Other (5,799) -- --
Investment in joint venture (147,096) -- --
----------- ----------- -----------
Total other income and (expense) (158,094) 673 2,484
----------- ----------- -----------
Earnings (loss) before income taxes
and extraordinary item (4,090,627) (334,835) (793,111)

Extraordinary item - loss on write down
of assets to liquidation basis (14,966) -- --
----------- ----------- -----------
Earnings (loss) before income taxes (4,105,593) (334,835) (793,111)

Federal and state income taxes -- 213 213
----------- ----------- -----------
Net income (loss) (4,105,593) (335,048) (793,324)

ACCUMULATED DEFICIT
Balance, beginning of period (34,268) (1,911,062) (1,452,786)
----------- ----------- -----------
Balance, end of period $(4,139,861) $(2,246,110) $(2,246,110)
----------- ----------- -----------
----------- ----------- -----------
Loss per share $ (0.20) $ (0.01) $ (0.02)
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding 20,380,495 38,000,000 35,000,000
----------- ----------- -----------
----------- ----------- -----------

</TABLE>

F-22
<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CASH FLOWS

For the period For the nine For the nine
from inception to months ended months ended
July 31, July 31, July 31,
1997 1996 1997
(Unaudited) (Unaudited) (Unaudited)
--------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (4,105,593) $ (793,324) $ (1,191,143)
Adjustments to reconcile net loss
to net cash used in operating activities:

Amortization 3,527 - -
Depreciation 83,640 21,023 42,057
Expenses paid with stock 444,165 - -
Loss on write down of assets to
liquidation basis 5,392 - -
Changes in:
Other current assets (75,437) (2,649) (66,959)
Accounts receivables (1,519) - 414
Accounts payable 378,669 53,436 (3,783)
Deposits held 250,000 35,000 (460,980)
--------------------------------------------------------------
Cash used in operating activities (3,017,156) (686,514) (1,430,394)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (753,370) (207,331) (98,728)
--------------------------------------------------------------
Cash used in investing activities (753,370) (207,331) (98,728)

CASH FLOWS FROM FINANCING ACTIVITIES
Cash (held in) released from escrow - - 460,980
Issuance of common stock 4,080,888 954,048 1,264,695
Issuance of 10% Convertible Notes 250,000 - 250,000
Increase (decrease) in notes payable 29,800 - (150,000)
Offering costs (262,710) (40,947) (156,213)
--------------------------------------------------------------
Cash provided by financing activities 3,847,978 913,101 1,419,462
--------------------------------------------------------------
Net increase in cash 77,452 19,256 (109,660)
Cash, beginning of the period 54 27,208 187,166
--------------------------------------------------------------
Cash, end of the period $ 77,506 $ 46,464 $ 77,506
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>

F-23
<PAGE>

AQUASEARCH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
(UNAUDITED)

1. COMMON STOCK AND STOCK PURCHASE WARRANTS

As of July 31, 1997, there were a total of 5,070,544 Common Stock
Purchase Warrants (the "Warrants") issued and outstanding, of which 5,044,570
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 July 31, 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.

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

<TABLE>
<CAPTION>
SHARES OF ADDITIONAL COMMON TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
DESCRIPTION STOCK STOCK CAPITAL DEFICIT EQUITY
--------- ---------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance April 30, 1997........... 45,410,513 $5,663 $4,248,618 $(3,690,229) $ 564,052

Issuance of Common Stock
($0.21 per share)............... 454,545 45 99,955 100,000
Offering costs.................... -- -- (6,286) -- (6,286)

Loss for the three months ended
July 31, 1997................... -- -- -- (449,632) (449,632)
---------- ------ ---------- ----------- ---------

Balance July 31, 1997............ 45,865,058 $5,708 $4,342,287 $(4,139,861) $ 208,134
---------- ------ ---------- ----------- ---------
---------- ------ ---------- ----------- ---------
</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 July 31, 1997 does not reflect the issuance of
the C. Brewer Common Stock or the C. Brewer Warrant because, as of July 31,
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.

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.

F-24
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article Eight Section (b) of the Registrant's Articles of Incorporation
provides for the indemnification of officers and directors to the extent
permitted by law and further provides that such person shall not be liable to
the corporation for any loss or damage suffered by the corporation on account of
any action taken by him as a director or officer of the corporation if he acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to a criminal matter, if he
had no reasonable cause to believe that his conduct was unlawful.

The Registrant has entered into indemnification agreements with its
directors and executive officers, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.

ITEM 25 . OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered. All of the amounts
shown are estimates except the Securities and Exchange Commission registration
fee. The Selling Shareholders have paid $30,000 toward the following fees and
expenses:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.... $ 322.00

Printing and engraving expenses........................ 10,000.00

Legal fees and expenses................................ 62,000.00

Accounting fees and expenses........................... 2,000.00

Miscellaneous expenses................................. 678.00
------------
Total.................................................. $ 75,000
------------
------------
</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

In October 1996, the Company sold an aggregate of 1,008,843 Units,
consisting of one share of Common Stock and one Common Stock Purchase Warrant
(the "Warrants"), to 26 individuals in a private placement under Section 4(2)
of the Securities Act of 1933, as amended. The purchase price of the Units
ranged from $0.21 per Unit to $0.23 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 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 (subject to
adjustment) 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 gross
proceeds from this offering through October 31, 1996 were $215,000. The
Placement Agent for this offering, First Honolulu Securities, Inc., received
total commissions of $12,900 (equal to 6% of the gross proceeds from the sale
of the Units) and 60,531 Common Stock Purchase Warrants (equal to 6% of the
number of Units sold) through October 31, 1996. The terms of the Warrants
issued to First Honolulu Securities, Inc. are identical to the terms of the
Warrants issued to the purchasers in the offering.

In October 1996, the Company sold 400,000 shares of Common Stock at $0.50
per share to Cultor pursuant to the Cultor Stock Subscription Agreement. The
total proceeds to the Company from this transaction were $200,000. No
underwriters were used. This offering was made in reliance on the exemption
provided under Section 4(2) of the Securities Act.

In February 1996, the Company issued 40,000 shares of Common Stock at
$0.62 per share, to Seth Huntley, one of the Company's production
technicians, for services rendered during the period from August 1995 through
January 1996. No underwriter was used. This offering was made to Mr.
Huntley without registration pursuant to the exemption provided under Section
4(2) of the Securities Act.

In January 1996, the Company sold 4,000,000 shares of Common Stock at
$0.15 per share to 15 individuals in a private placement under Section 4(2)
of the Securities Act. The total proceeds to the Company from this
transaction were $600,000. No underwriters were used.

In January 1996, the Company sold 2,492,800 shares of Common Stock at
$0.125 per share to one non-U.S. purchaser under Regulation S under the
Securities Act. The total proceeds to the Company from this transaction were
$311,600. No underwriters were used.

In December 1995, the Company issued 40,000 shares of Common Stock at
$0.125 per share to John J. Emerick, the Company's Vice President of
Operations, for services rendered during the period from July 1995 through
December 1995. No underwriter was used. This offering was made to Mr.
Emerick without registration pursuant to the exemption provided under Section
4(2) of the Securities Act.

II-1
<PAGE>

In November 1995, the Company issued an aggregate of 264,000 shares of
Common Stock at $0.125 per share to nine persons as partial payment for their
services in constructing the Company's research and development facility at
Keahole Point. No underwriters were used. This offering was made in
reliance on the exemption provided under Section 4(2) of the Securities Act.

In October 1995, the Company issued 127,875 shares at $0.0625 to 8
individuals for prior services rendered to the Company. No underwriters were
used. This offering was made under Section 4(2) of the Securities Act.

In September 1995, the Company sold 2,712,500 shares of Common Stock at
$0.08 per share to 15 individuals in a private placement under Section 4(2)
of the Securities Act. No underwriters were used.

In August 1995, the Company returned to Mark E. Huntley, Ph.D., the
Company's President and Chief Executive Officer, 1,320,000 shares of Common
Stock out of the 4,635,575 shares of Common Stock gifted to the Company by
Dr. Huntley in 1989. The closing bid price of the Company's Common Stock on
the date the 1,320,000 shares were returned to Dr. Huntley was $0.15 per
share. No underwriters were used. This offering was made to Dr. Huntley
under Section 4(2) of the Securities Act.

In July 1995, the Company sold 3,200,000 shares of Common Stock at
$0.0625 per share to one non-U.S. purchaser under Regulation S under the
Securities Act. The total proceeds to the Company from this transaction were
$200,000. No underwriters were used.

In June 1995, the Company issued 50,000 shares of Common Stock at $0.10
per share to Robert Bidigare, Ph.D., for services rendered in connection with
the analysis of scientific data from feed trials with Cultor. No
underwriters were used. These shares were issued to Dr. Bidigare without
registration pursuant to the exemption provided under Section 4(2) of the
Securities Act.

In March 1995, the Company sold 1,710,000 shares of Common Stock at
$0.10 per share to 33 individuals in a private placement under Section 4(2)
of the Securities Act. No underwriters were used. The total proceeds to the
Company were $171,000.

In June 1994, the Company issued 250,000 shares of Common Stock at $0.08
per share to 3 individuals for prior services rendered to the Company. No
underwriters were used. This offering was made under Section 4(2) of the
Securities Act.

In May 1994, the Company issued 775,000 shares of Common Stock at $0.08
per share to 3 individuals for prior services rendered to the Company. No
underwriters were used. This offering was made under Section 4(2) of the
Securities Act.

In January 1994, the Company sold 250,000 shares of Common Stock at
$0.03 per share to one individual in a private placement under Section 4(2)
of the Securities Act. No underwriters were used. The total proceeds to the
Company were $7,500.

ITEM 27. EXHIBITS
3.1* Articles of Incorporation of Registrant

3.2* By-laws of Registrant

4.1+ Form of 1996 Bridge Note

4.2+ Form of Private Placement Warrant

5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C.

10.1# Distribution and Development Agreement between Cultor Ltd. and
Aquasearch, Inc., dated May 14, 1996

10.2# Stock Subscription Agreement between Cultor Ltd. and Aquasearch,
Inc., dated May 14, 1996

10.3+ The Amended Keahole Point Facilities Use Agreement dated August
22, 1996 by and between The National Energy Laboratory of Hawaii
Authority and the Registrant

10.4$ Letter of Intent between C. Brewer and Company Limited and the
Registrant

11.1 Statement Regarding Computation of Per Share Earnings

15.1 Letter of Unaudited Interim Financial Information

23.1 Consent of Ernst & Young LLP (See II-5)

23.2 Consent of Johnson, Holscher & Company, P.C. (See II-6)

24.1 Power of Attorney

II-2

<PAGE>

* Incorporated by reference to the exhibit filed with Registrant's Annual
Report on Form 10-KSB filed October 31, 1995.

# Incorporated by reference to the exhibit filed with Registrant's Current
Report on Form 8-K filed September 13, 1996.

+ Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended October 31, 1996.

$ Incorporated by reference to the Registrant's Current Report on Form 8-K
dated November 13, 1996.

ITEM 28. UNDERTAKING

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer of controlling persons of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes:

(1) File during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in a form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of the
Registration Fee" table in the effective registration
statement; and

(iii) Include any additional or changed material information on the
plan of distribution.

(2) For purposes of determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
bona fide offering.

(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.

II-3

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Honolulu, State of Hawaii, on this 19th day of
September, 1997.

AQUASEARCH, INC.

/s/ MARK E. HUNTLEY
--------------------------------------------
Mark E. Huntley
President and Chief Executive Officer

Pursuant to the requirements of the
Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities indicated on the date signed by the Company:

Signature Title
---------------------------------- ----------------------------

/s/ MARK E. HUNTLEY Chairman of the Board,
-------------------------- Chief Executive Officer and
(Mark E. Huntley) President (Principal Executive
Officer)

/s/ PEARN P. NIILER Director
--------------------------
(Pearn P. Niiler)

Director
--------------------------
(Edward E. David, Ph.D.)

/s/ EARL S. FUSATO Director and Chief Financial
-------------------------- Officer (Chief Accounting
(Earl S. Fusato) Officer)

II-4

<PAGE>

Exhibit 23.1

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 11, 1997, in Amendment No. 1 to the
Registration Statement (Form SB-2 No. 333-16047) and related Prospectus of
Aquasearch, Inc. for the registration of 5,044,570 common stock purchase
warrants and 11,901,640 shares of its common stock.

/s/ Ernst & Young LLP

Honolulu, Hawaii
September 19, 1997

II-5
<PAGE>

Exhibit 23.2

CONSENT OF JOHNSON, HOLSCHER & COMPANY, P.C.

We consent to the reference of our firm under the captions "Consolidated
Financial Statements" and "Experts" and to the use of our report dated
December 2, 1995 except as to Note 5 dated January 26, 1996 and Note 8 dated
April 8, 1997, in the Registration Statement (Form SB-2) and the related
Prospectus of Aquasearch, Inc. for the registration of 11,901,640 shares of
Common Stock and 5,044,570 Common Stock Purchase Warrants.

/s/ JOHNSON, HOLSCHER & COMPANY
Professional Corporation

Englewood, Colorado
September 19, 1997

II-6
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibits Page
<S> <C>
3.1 Articles of Incorporation of Registrant.............................................................. (A)

3.2 By-Laws of Registrant................................................................................. (A)

4.1 Form of Bridge Note................................................................................... (B)

4.2 Form of Warrant....................................................................................... (B)

5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C.................................................... (__)

10.1 Distribution and Development Agreement between Cultor Ltd. and Aquasearch, Inc., dated May 14,
1996.................................................................................................. (C)

10.2 Stock Subscription Agreement between Cultor Ltd. and Aquasearch, Inc., dated May 14,
1996.................................................................................................. (C)

10.3 The Amended Keahole Point Facilities Use Agreement dated August 23, 1996 by and between The
National Energy Laboratory of Hawaii and the Registrant............................................... (B)

10.4 Letter of Intent between C. Brewer and Company Limited and the Registrant............................. (D)

23.1 Consent of Ernst & Young LLP (See II-5).............................................................. (__)

23.2 Consent of Johnson, Holscher & Company, P.C (See II-6)................................................ (__)

</TABLE>

(A) Incorporated by reference to the exhibit filed with Registrant's Annual
Report on Form 10-KSB filed October 31, 1995.
(B) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended October 31, 1996.
(C) Incorporated by reference to the exhibit filed with Registrant's Current
Report on Form 8-K filed September 13, 1996.
(D) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated November 13, 1996.

<PAGE>

Exhibit 5.1

[LETTERHEAD]

September 19, 1997

Aquasearch, Inc.
73-4460 Queen Ka'ahumanu Hwy.
Suite 110
Kailua-Kona, HI 96740

RE: REGISTRATION STATEMENT ON FORM SB-2

Ladies and Gentlemen:

We have examined the Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission (the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as
amended, of 11,901,640 shares (the "Registered Shares") of your Common Stock
(the "Shares") and 5,044,570 Common Stock Purchase Warrants (the "Warrants").
Of the Registered Shares, 1,250,000 shares (the "New Shares") are authorized
but heretofore unissued. These New Shares are to be issued as described in
the Registration Statement. As your counsel, we have examined the proceedings
proposed to be taken in connection with the issuance of the New Shares.

It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of
the New Shares, and upon completion of the proceedings being taken in order
to permit such transactions to be carried out in accordance with the
securities laws of the various states, where required, the New Shares, when
issued in the manner referred to in the Registration Statement, will be
legally and validly issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in
the Registration Statement, including the Prospectus constituting a part
thereof, and any amendment thereto.

Very truly yours,

WILSON SONSINI GOODRICH & ROSATI
Professional Corporation

/s/Wilson Sonsini Goodrich & Rosati