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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For
the fiscal year ended March 31, 2002            Commission file 0-146-02

CYANOTECH CORPORATION(Exact name of Registrant as specified in its charter)

|Nevada                                                         |  | 91-1206026                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

73-4460 Queen Kaahumanu Hwy., Suite 102, Kailua-Kona, HI 96740(Address of principal executive offices)

(808) 326-1353(Registrant's telephone number)

Securities
registered pursuant to Section 12(b) of the Exchange Act: NONE

Securities registered pursuant to Section 12(g) of the Exchange Act:

Title of classCommon Stock, Par value $.005 per share

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

At
June 26, 2002, the aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant was approximately $10,558,257.

At
June 26, 2002, the number of shares outstanding of Registrant's Common Stock was 17,558,701.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended March 31, 2002 are incorporated by reference into Part II of
this Report. Portions of the Registrant's Definitive Proxy Statement for its 2002 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission on or prior to July 29,
2002 and to be used in connection with the Annual Meeting of Stockholders expected to be held on August 22, 2002, are incorporated by reference in Part III of this
Form 10-K.

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PART I

Item 1. Business

Except
for historical information contained in this document, the matters discussed in this report contain forward-looking statements that involve risks and uncertainties. These future
risks and uncertainties could cause actual results to differ materially.

General

Cyanotech Corporation is a worldwide leader in the development and commercialization of high value natural products derived from microalgae. Microalgae are a
diverse group of over 30,000 species of microscopic plants which have a wide range of physiological and biochemical characteristics and naturally contain high levels of proteins, amino acids,
vitamins, pigments and enzymes. Since 1983, we have designed, developed and implemented proprietary production and harvesting technologies, systems and processes which eliminate many of the stability
and contamination problems frequently encountered in the production of microalgae. We believe that our technology, systems, processes and favorable growing location permit year-round
harvesting of our microalgal products in a cost-effective manner. We currently produce natural products from microalgae for the nutritional supplement, aquaculture feed, animal nutrition,
and immunological diagnostics markets.

Since
1985, Cyanotech has been producing microalgae-based "Spirulina" products for the vitamin and supplement market.Spirulina
Pacifica®, which is our principal source of revenue, is a unique strain of Spirulina microalga developed by us which provides a vegetable-based, highly absorbable
source of natural beta-carotene, mixed carotenoids, B vitamins, gamma linolenic acid ("GLA"), protein, essential amino acids and other phytonutrients. We currently market our Spirulina
products in more than eighteen countries through a combination of retail, wholesale, and private label channels.

In
early 1997, we introducedNatuRose® to the worldwide aquaculture industry. NatuRoseis the brand name of our natural astaxanthin (pronounced
"asta-zan-thin") product for the animal nutrition market which
we produce from the microalga,Haematococcus pluvialis("Haematococcus"). Astaxanthin is a red pigment used in aquaculture to impart a pink to red color
to pen-raised fish and shrimp. The worldwide astaxanthin market for animal pigmentation is estimated at more than $200 million in annual sales. NatuRosecompetes in this marketplace with
astaxanthin synthesized from petrochemicals and derived from other sources.

In
March of 1999, we announced the development ofBioAstin®, our natural astaxanthin product for the human nutrition market. A
growing body of scientific literature is demonstrating that the beneficial antioxidant properties of natural astaxanthin surpass many of the antioxidant properties of vitamin C, vitamin E,
beta-carotene and other carotenoids. In August 1999, the United States Food and Drug Administration ("FDA"), completed its review of our application to sell BioAstinwithout objection, allowing us
to offer our new product for sale and use as a human nutritional supplement in the United States. The total
market that human astaxanthin products potentially could address is estimated to exceed $5 billion annually.

Cyanotech
Corporation was incorporated in Nevada in 1983. Our principal executive offices are located at 73-4460 Queen Kaahumanu Highway, Suite 102, Kailua-Kona,
Hawaii 96740, and our telephone number is (808) 326-1353. Unless otherwise indicated, all references in this report to the "Company," "we," "us," "our," and "Cyanotech" refer to
Cyanotech Corporation, a Nevada corporation, and its wholly owned subsidiaries, Nutrex Hawaii, Inc. ("Nutrex Hawaii"), a Hawaii corporation and Cyanotech Japan YK ("Cyanotech Japan"), a Japan
corporation.

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Industry Background

Microalgae are a diverse group of microscopic plants that have a wide range of physiological and biochemical characteristics and contain, among other things, high
levels of natural proteins, amino acids, vitamins, pigments and enzymes. Microalgae have the following properties that make commercial production attractive: (1) microalgae grow much faster
than land grown plants, often up to 100 times faster; (2) microalgae have a uniform cell structure with no bark, stems, branches or leaves, permitting easier extraction of products and higher
utilization of the microalgae cells; (3) the cellular uniformity of microalgae makes it practical to manipulate and control growing conditions in order to optimize a particular cell
characteristic; (4) microalgae contain a wide array of vitamins and other important nutrients; (5) microalgae contain natural pigments; and (6) microalgae are a potential source
of medical products.

Current
commercial applications for these microscopic plants include nutritional products, diagnostic products, aquaculture feed and pigments, natural food colorings and research grade
chemicals. We believe that microalgae could potentially be used for other commercial applications, including
nutraceuticals, polyunsaturated fatty acids, and pharmaceuticals. The most significant microalgae products produced today are algae utilized as food supplements.

While
many unique compounds have been identified in microalgae, the efficient and cost-effective commercial production of microalgae is elusive. Many microalgae culture
systems over the last 25 years have failed. Because microalgae produced for food supplements are typically cultivated and harvested outdoors, production is significantly affected by climate,
weather conditions and the chemical composition of the culture media. Without consistent sunlight, warm temperature, low rainfall and proper chemical balance, microalgae will not grow quickly,
resulting in longer harvesting cycles, decreased pond utilization and increased cost. Furthermore, microalgal growth requires a very nutrient rich environment. The high nutrient levels in the ponds
promote the growth of unwanted organisms, or "weeds," when the chemical composition of the ponds changes from its required balance. Once contamination occurs, a pond must be emptied, cleaned and
refilled, a process that further decreases pond utilization and increases production costs.

Cyanotech's Technology

Since 1983, our scientists have designed, developed and implemented proprietary production and harvesting technologies, systems and processes which reduce many of
the stability and contamination problems frequently encountered in the production of microalgae. We believe we were the first Spirulina producer to have its products and processes certified organic
and we were the first microalgae producer to have its quality system registered under the ISO 9002-94 standards. Our proprietary production system is known as Integrated Culture Biology Management("ICBM"). Through the application of this technology, our Spirulina culture ponds can be productive
year-round without any significant loss in productivity due to contamination. We believe that such an accomplishment remains unique to Cyanotech.

In
addition to the advantages of our ICBM technology, we have developed a patented system for the recovery of carbon dioxide from our drying system exhaust gas, called Ocean-Chill Drying.Since
microalgae are essentially microscopic plants, they require sunlight, water, carbon dioxide and nutrients for
optimal growth. By recovering carbon dioxide from the drying system that would otherwise be released into the atmosphere, we can divert the recovered carbon dioxide back to the algae cultures. This
process provides us with another significant cost advantage over other microalgae producers who must purchase carbon dioxide. Moreover,Ocean-Chill
Dryingdries microalgal products in a low oxygen environment, which protects oxygen sensitive nutrients. In addition, we have developed an automated Spirulina processing
system, which enables a single operator to harvest and dry the Spirulina powder.

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Our
efforts in commercial production of our natural astaxanthin products have resulted in an improved, large-scale photobioreactor system referred to as the PhytoDome Closed Culture System, orPhytoDome CCS. To date, this improved technology has
resulted in reduced production costs, increased control of
product purity and has had a positive effect on production yield compared to other photobioreactor systems previously employed.

Another
major advantage for us is the location of our production facility at the Hawaii Ocean Science and Technology ("HOST") Park at Keahole Point, Hawaii. We believe that the
combination of consistent warm temperature, abundant sunlight, and low rainfall at this facility makes this a highly favorable location for the economical, large-scale cultivation of microalgae. In
contrast to our facility, microalgae producers in other regions of the world lacking these favorable characteristics stop producing for up to four months a year because of less favorable climate or
weather conditions. At the HOST Park, we have access to cold, clean, deep sea water that is pumped from a depth of 2,000 feet. This sea water is used both as a source of nutrients for microalga
culture and as a cooling agent in theOcean-Chill Dryingprocess. Additionally, our facility has access to a complete industrial infrastructure and is
located 30 miles from a deep water port and is adjacent to an international airport.

Applying
our experience in cultivating and harvesting Spirulina, we began commercial production of our first natural astaxanthin product, NatuRose, during the fourth quarter of fiscal 1997. By the end of fiscal
1999, our experience with NatuRoseprocessing resulted in the development of its companion product,BioAstin.

Our
primary business objective is to be the leading developer and producer of high-value microalgal products in our existing and future markets. We believe that the
combination of our ICBM technology, ourPhytoDome CCStechnology, ourOcean-Chill Dryingprocess, our
automated processing system and a favorable growing location with year-round production capabilities, can be successfully applied to the commercial cultivation of many other species of
microalgae.

Products

Spirulina

Our principal product, accounting for 74% and 77% of net sales for the years ended March 31, 2002 and 2001, respectively, is a nutritional microalgae
marketed asSpirulina Pacifica.Developed by us and sold worldwide to the health and natural foods market,Spirulina
Pacificais a unique strain of microalgae that is a highly absorbable source of natural beta carotene, mixed carotenoids, B vitamins, GLA, protein, essential amino acids and
other phytonutrients.

Cyanotech
producesSpirulina Pacificain three forms: powder, flake and tablets. Powder is used as an ingredient in nutritional
supplements and health food drinks while flakes are used as a seasoning on
various foods. Tablets are consumed as a daily dietary supplement. We also produce and market a blended nutritional supplement product under theHawaiian
Energizername.Hawaiian Energizertablets containSpirulina Pacifica,Bee
Pollen and Siberian Ginseng.

We
anticipate that sales of ourSpirulina Pacificaproducts will continue to constitute a substantial portion of net sales during fiscal
2003. Any material decrease in the overall level of sales of, or the prices for, ourSpirulina Pacificaproducts, whether as a result of competition,
change in consumer demand, increased worldwide supply of Spirulina or other factors beyond our control, would have a material adverse effect on our business, financial condition and results of
operations.

Natural Astaxanthin

The year ended March 31, 2002 was the fifth year of commercial production ofNatuRose, our natural
astaxanthin product for the animal nutrition market, and the third year of commercial production ofBioAstin, our natural astaxanthin product for the
human nutrition market. Astaxanthin is

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a red pigment used primarily in the aquaculture industry to impart pink color to the flesh of pen-raised fish and shrimp. Since its introduction five years ago, dozens of feeding trials
have been performed by our customers and potential customers which prove the efficacy of NatuRose as an alternative to the petrochemical-based synthetic astaxanthin presently used by most aquaculture
companies. The appeal of our product is that it is derived from a natural source and produces results which are comparable, or in some cases superior, to synthetic astaxanthin. As a result of
continued growth in the world aquaculture industry, the world market for astaxanthin pigment is currently estimated to exceed $200 million per year. We therefore believe that sales of NatuRosemay
increase in future periods.

BioAstin, our natural astaxanthin product for the human nutrition market has been in commercial production since March 1999 and has
been available for sale since we received notice from the FDA in August 1999 that it had completed review of our application to sellBioAstinwithout objection. In January 2000, our wholly-owned subsidiary, Nutrex Hawaii, Inc., began sellingBioAstingelcaps in packaged consumer
form. A growing body of scientific literature is demonstrating that the beneficial antioxidant properties of natural astaxanthin surpass many of the antioxidant properties of vitamin C, vitamin E,
beta-carotene and other carotenoids, with independent scientific studies indicating that natural astaxanthin has up to 550 times the antioxidant activity of vitamin E and 10 times the
antioxidant activity of beta-carotene. We believe that sales of BioAstin, in bulk, packaged consumer form, or as a component of a formulated product, may increase and may ultimately
constitute a significant portion of total sales in future periods.

We
have sponsored several scientific clinical trials since introducing this product and during fiscal 2002, results from some of these trials were announced. Among these results, some of
the more promising findings are:



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Phycobiliproteins

Cyanotech also produces phycobiliproteins which are sold to the medical and biotechnology research industry. Phycobiliproteins are highly fluorescent pigments
purified from microalgae. Their spectral properties make them useful as tags or markers in many kinds of biological assays, such as flow cytometry, fluorescence immunoassays and fluorescence
microscopy. We do not anticipate that phycobiliproteins will represent a significant component of total sales in future periods.

We
maintain product liability insurance in limited amounts for products involving human consumption. In the opinion of management, broader product liability insurance coverage is
prohibitively expensive at this time.

Research & Development Expenses

Cyanotech's expertise is in the development of efficient, stable and cost-effective production systems for microalgal products. Our researchers
investigate specific microalga identified in scientific literature for potentially marketable products and then strive to develop the technology to grow such microalgae on a commercial scale.

The
Company's current research and development efforts are primarily directed at validating the anecdotal indications ofBioAstinthrough
clinical evaluations and trials. In March 2002 we concluded a feeding trial aimed at further validation of the efficacy ofNatuRoseas an
alternative to synthetic pigments in both aquaculture and avian feed markets. As anticipated due to our expanded clinical studies, research and development expenses increased during fiscal 2002 to
$343,000, up 29% from the prior fiscal year's expenditures of $265,000, but 33% less than the $514,000 spent in fiscal 2000. The Company continues to investigate new products and prioritizes its
research and development activities to focus on projects that we believe will have the greatest market acceptance and achieve the highest return on the Company's investment. Successful microalgal
product development is highly uncertain and is dependent on numerous factors, many of which are beyond the Company's control. Products that appear promising in early phases of development may be found
to be ineffective, may be uneconomical because of manufacturing costs or other factors, may be precluded from commercialization due to the proprietary rights of other companies, or may fail to receive
necessary regulatory approvals.

Manufacturing

Cyanotech cultivates and processes its microalgae products at a 90-acre production facility on the Kona coast of the island of Hawaii. We have a total
of 68 large oval culture ponds, 1 media recycling lake and 17 smaller auxiliary culture ponds totaling approximately 200,000 square meters, all of which are currently available for production. Each of
the large ponds has an average surface area of 30,408 square feet (2,825 square meters) and each contain approximately 132,000 gallons (500,000 liters) of culture media. In addition, we have in
production eight large-scale photobioreactors, each with a capacity of approximately 12,000 gallons (45,000 liters). Also located at this facility are two processing plants, our Spirulina tableting
plant, our research and quality control laboratories and three administration buildings.

Spirulina Pacifica

Cyanotech began culturingSpirulina Pacificain 1985 at its present facility at the HOST Park. Since 1994, we have
produced two grades ofSpirulina Pacifica; an all-natural grade cultivated by using conventional agricultural fertilizers and an organic
grade that is cultivated using only organic fertilizers. Our organicSpirulina Pacificais grown and processed in accordance with the California Organic
Food Act of 1990 and is certified annually by Quality Assurance International, a leading third-party agency. Both grades ofSpirulina Pacificaare
certified Kosher and are cultivated without the use of herbicides

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or pesticides. Since 1996, our Company's Spirulina process has also been certified under the ISO 9002-94 international quality standards.

Our Spirulina Pacificais cultivated in a combination of fresh water and a metered amount of nutrient-rich deep ocean water
(containing ninety-six trace elements), drawn from a depth of 2,000 feet below sea level. This water is supplemented with the other major required nutrients such as food-grade
sodium bicarbonate (baking soda) and infused with carbon dioxide. The Spirulina crop in each pond is circulated by paddlewheels to keep an even blend of nutrients in suspension and a uniform exposure
of the algae to sunlight, the other major component of cultivation. Our ponds are engineered to maintain the right media depth for sunlight to permeate each crop completely, facilitating rapid growth.
Our system promotes efficient growing conditions, allowing the Spirulina Pacifica algae to reproduce rapidly. Each pond can be harvested, on average, in six days.

Once
ready for harvest, 70% of the Spirulina culture is pumped from a pond through underground pipes to our processing building where the crop is separated from the culture medium by
stainless steel screens. The remaining 30% serves as an innoculum for the next growth cycle. Harvested Spirulina is washed with fresh water three times and vacuum filtered before moving to the drying
stage. Culture media removed in processing is recycled. Recycled media is treated, tested for nutrient content and, if necessary, fortified with nutrients before being returned to the culture ponds
for another cycle of cultivation. Our ICBM technology for microalgae cultivation has proven to be a reliable and stable operating environment, allowing us to grow and harvest Spirulina without
significant contamination by unwanted algae and associated loss of productivity. We believe that such an accomplishment remains unique to Cyanotech.

Spirulina Pacificafor use in powder and tablets is dried by our patented low-oxygenOcean-Chill
Dryingprocess which preserves high levels of antioxidant carotenoids. This provides a significant quality edge over competing products. The drying process takes about six
seconds and results in a dark green powder. We also employ an alternate proprietary drying method to produceSpirulina Pacificain the flake form. Bulk
Spirulina powder, tablets and flakes are vacuum-sealed in oxygen-barrier foil laminate bags along with a packet of oxygen absorbent. This packaging ensures product freshness and extends the shelf life
of bulkSpirulina Pacificaproducts to three years. Another significant benefit of theOcean-Chill
Dryingsystem is our ability to recover the carbon dioxide produced in the drying process. The recovered carbon dioxide is a major required nutrient for algal culture growth.

Each
lot of Spirulina is sampled and subjected to thorough quality assurance which includes testing for bulk density, moisture, particulate matter, color and taste, among others. In
addition, each lot of ourSpirulina Pacificaundergoes a prescribed set of microbiological food product tests, including total aerobic bacteria,
coliform bacteria and E. coli. All of ourSpirulina Pacificapowder is certified free of pesticides and herbicides, and certified Kosher.

Spirulina
powder is difficult to form into tablets. Most tablet manufacturers either add high amounts (from 10% to 30%) of inert substances to "glue" the tablet together or use a heat
granulation process that destroys nutrients. In contrast, ourSpirulina Pacificatablets contain a maximum of 2% of such substances and are produced in
cold press compression tablet-making machines. OurSpirulina Pacificaflakes are produced by combining freshly harvested Spirulina Pacificawith food-grade
lecithin and drying this blend in a proprietary system. The Company's packaged consumer products are
bottled and labeled by a subcontractor in California. This subcontractor is a cGMP manufacturer with organic and Kosher certifications, subject to regular government inspections.

Natural Astaxanthin

TheHaematococcusmicroalgae which produce natural astaxanthin grow in fresh water supplemented with nutrients. As
such, it is extremely susceptible to contamination by unwanted algae, protozoa, and amoeba. Cyanotech has developed a proprietary system to overcome this problem known

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as ourPhytoDome Closed Culture SystemorPhytoDome CCS. Using this large-scale photobioreactor, we are
able to consistently grow large volumes of contaminant-freeHaematococcuscultures.

For
the final stage of culture, theHaematococcusalgae is transferred to open ponds. There, an environmental stress is applied causing
spores to form which accumulate high levels of astaxanthin. The media containing these spores is transported through underground pipes to our astaxanthin processing building where the culture media
and algal spores are separated. Fresh water recovered from this stage of processing is tested and treated using a proprietary water treatment system. It is then recycled for use in the next production
cycle. The algal spores are dried to a fine powder using the low-oxygenOcean-Chill Dryingsystem. During processing, the spores are cracked
in a proprietary system to assure high bioavailability of astaxanthin. Finally the bulk powder in vacuum-sealed in oxygen-barrier foil laminate bags along with a packet of oxygen absorbent.

Unlike
Spirulina, astaxanthin is produced in a batch-mode and each cultivation pond must be thoroughly cleaned between cycles. While the entire astaxanthin production cycle
takes a total of four weeks, each stage of the four-step process is staggered and continuously feeds the next stage of cultivation. As a result, we are able to produce a new crop of
astaxanthin from each of our fifteen 500,000 liter culture ponds approximately once a week.

Natural
astaxanthin powder for human consumption may be processed further utilizing a carbon dioxide extraction process. All natural astaxanthin products destined for human consumption
undergo a prescribed set of microbiological food product tests, including total aerobic bacteria, coliform bacteria and E. coli.

Distribution and International Sales

The majority of our bulk Spirulina sales are to health food manufacturers and health food formulators with their own Spirulina product lines, many of whom
identify and promote Cyanotech's HawaiianSpirulina Pacificain their products. Our packaged consumer products sell through an established health food
distribution network in the domestic market under the Nutrex Hawaii label. Orders for packaged consumer products are taken at the retail level by one of 25 regional broker representatives and shipped
through one of 27 wholesale distributors. In selected foreign markets, we have exclusive sales distributors for both our bulk Spirulina and packaged consumer products. During fiscal 2002, our
Spirulina Pacifica products were sold in 18 foreign countries and the United States.

NatuRoseis presently being sold through a network of agents and distributors directly to aquaculture farmers, aquaculture feed
manufacturers, poultry feed formulators, vitamin premix suppliers and other end users in 19 foreign countries and the United States for use in aquaculture feed, poultry feed and pet feed industries.
During fiscal 2002, Japan emerged as one of our primary markets for the application ofNatuRosein aquaculture. Feeding trials in Japan have proven that NatuRoseproduces superior results in pen-raised "Tai" or Sea Bream; a major product in that market. Using NatuRose, pen-raised Sea Bream develop an appearance closer to fish caught in the open ocean
than cultivated fish fed synthetic astaxanthin.
In addition to the more desirable natural coloration, a lower volume ofNatuRoseis required compared to synthetic astaxanthin. The increased demand for NatuRosein Japan was a major factor in our decision to establish Cyanotech Japan YK as a new channel of distribution in January 2002. In
addition to aquaculture,NatuRoseis also being used to pigment the yolk of chicken eggs in Scandinavia and Japan and is being used by commercial
tropical fish breeders to produce higher-value tropical fish with more desirable coloration. AsNatuRoseis one of the few non-synthetic
astaxanthin feed ingredients available, many feed formulators identifyNatuRoseand Cyanotech as the source of this component in their feed to
capitalize on the appeal of an all-natural feed/cultivation process.

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BioAstinis presently being sold to nutritional supplement manufacturers and health food formulators as well as through our wholly-owned
subsidiary, Nutrex Hawaii, Inc. During fiscal 2002, increased interest in packagedBioAstinfor the wholesale and retail markets resulted in
sales of $535,000, an increase of $340,000, or 174%, over the prior fiscal year sales. Revenues for this product during fiscal 2002 were derived primarily from sales made to natural products
distributors, to retailers and directly to consumers using our toll-free order line (1-888-922-2107) and our internet e-commerce website,
www.nutrex-hawaii.com. While interest from wholesale distributors and retailers forBioAstinhas increased over prior years, we expect that sales
through retail channels will continue to grow as consumers become more aware of the product and its benefits. As part of our expansion of sales channels, Twinlab Corporation ("Twinlab") introduced new
product formulations containing our natural astaxanthin. Twinlab is a dietary supplement industry leader with extensive distribution in all major consumer channels and markets.

In
our effort to increase the revenue potential of our packaged consumer product, in October 2001 we began development of a national television marketing campaign to promote
Nutrex Hawaii'sBioAstinin the mass market. A key element in this campaign is a 30-minute television infomercial. This infomercial was
tested in several markets in late April and early May 2002. Sales from the infomercial, however, were less than anticipated and the test results are being analyzed to refocus the infomercial to
generate improved response. A new website for direct retail ordering online was launched in April 2002 at www.bioastinxp.com.

In
the years ended March 31, 2002, 2001 and 2000, international sales accounted for approximately 47%, 54% and 46%, respectively, of our net sales. We expect that international
sales will continue to represent a significant portion of our net sales in future periods. Our business, financial condition and results of operations may be materially 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 trade
restrictions. Through December 2001 all of our international sales were denominated in United States dollars which exposed us to a measure of risk resulting from fluctuations in currency
exchange rates. Such fluctuations could cause our products to become relatively more expensive to customers in the affected country, leading to a reduction in sales in that country. To address this
issue in one of our major markets, we formed the Japanese business unit, Cyanotech Japan in January 2002. Through this subsidiary, we will be able to better service our increasing customer base
in Japan, economize on shipping, provide more timely delivery to our Japanese customers and allow these customers to conduct transactions in Japanese Yen rather than US Dollars.

Customers

Spirulina

We market and sell our Spirulina products to a variety of customers, which range in size from $500 million in annual sales to small retail stores. Several
of our major customers are businesses that were established exclusively to market and sell Spirulina products.

Approximately
$1,031,000, or 13% of our net sales for the year ended March 31, 2002 was to a single customer, Spirulina International B. V. ("Spirulina International"), a
Spirulina marketing and distribution company based in the Netherlands. Sales to this customer during the prior fiscal year were $1,533,000 or 19%. We believe that sales to this customer will continue
to represent a significant portion of total net sales in future periods. Any changes in demand from this customer could have a material adverse effect on our business, financial condition and results
of operations.

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We
market and sell our Spirulina products to a variety of other customers, including:

Health Food Manufacturers.Health food manufacturers often use Cyanotech'sSpirulina
Pacificaproducts as a key ingredient in their Spirulina-based products, or as an ingredient in their health food formulations. These customers purchase bulk powder or bulk
tablets and package the products under their brand label for sale to the health and natural food markets. Many of the products produced by these customers are often marketed and sold domestically in
direct competition with our Nutrex Hawaii line of retail consumer products.

Private Label Customers.We currently provide private label retail consumer products to seven international customers.
Products for these customers are manufactured only upon receipt of an order and no finished product inventories are maintained.

Retail Distributors.Retail distributors act as product wholesalers to independent and chain retailers. The majority of
domestic Nutrex Hawaii sales in the year ended March 31, 2002 were to 29 distributors.

Raw Materials Suppliers.In the year ended March 31, 2002, we sold bulk Spirulina products to fifteen domestic and ten
foreign customers engaged in the business of distributing natural raw materials to health and natural food manufacturers. These distributors provide their customers with standardized quality control,
warehousing and distribution services, and charge a mark up on the products for providing these services. These distributors may differentiate the products they sell, but they generally treat the
products as commodities, with price being the major determining factor in their purchasing decision.

Natural Astaxanthin

NatuRoseis presently being sold through a network of agents and distributors directly to aquaculture farmers,
aquaculture feed manufacturers, poultry feed formulators, vitamin premix suppliers and other end users in the United states and in 19 foreign countries. As mentioned earlier, in fiscal 2002 our major
market forNatuRosewas aquaculture customers in Japan. In addition to our aquaculture customers, NatuRoseis also being sold to poultry feed formulators
to naturally pigment the yolk of chicken eggs and to pet feed formulators for commercial
breeders of high-value tropical fish. As our product is a natural astaxanthin derived from microalgae, many of these formulators identify NatuRoseand Cyanotech as the source of this component in their
feed.

BioAstinis presently being sold as an ingredient to dietary supplement manufacturers and health food formulators as well as through our
wholly-owned subsidiary, Nutrex Hawaii, Inc. as a packaged consumer product. During fiscal 2002,BioAstinconsumer product revenues were derived
primarily from sales made directly to natural product distributors, retailers and consumers using our toll-free order line (1-888-922-2107) and our
internet e-commerce website, www.nutrex-hawaii.com.

A BioAstininfomercial was tested in several television markets in late April and early May, 2002. Sales generated from these test airings
were less than anticipated and results are being analyzed to refocus the infomercial to improved the response. To accommodate the orders from this infomercial, we have contracted with a fulfillment
call center and established a new BioAstin website at www.bioastinxp.com for direct retail ordering online.

Competition

Spirulina

OurSpirulina Pacificaproducts compete with a variety of vitamins, dietary supplements, other algal products and
similar nutritional products available to consumers. The nutritional products market is highly competitive. It includes international, national, regional and local producers and distributors,

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many of whom have greater resources than Cyanotech, and many of whom offer a greater variety of products. Our direct competition in the Spirulina market is currently from Dainippon Ink and Chemical
Company's Earthrise facility in California and several farms in China. To a lesser extent, we compete with numerous smaller farms in China, India, Thailand, Taiwan, Cuba and South Africa. Packaged
consumer products marketed under our Nutrex Hawaii brand also compete with products marketed by health food manufacturing customers of Cyanotech who purchase bulk Spirulina from us and package it for
retail sales. A decision by another company to focus on Cyanotech's existing or target markets or a substantial increase in the overall supply of Spirulina could have a material adverse effect on our
business, financial condition and results of operations. There can be no assurance that we will not experience competitive pressure, particularly with respect to pricing, that could adversely affect
us.

Natural Astaxanthin

Our natural astaxanthin product for the animal nutrition market,NatuRose, competes directly with the synthetic
astaxanthin products produced and marketed for the commercial feed and aquaculture industry worldwide by Hoffmann-LaRoche and BASF. The animal nutrition market for astaxanthin is currently dominated
by a single producer, Hoffmann-LaRoche, who produces synthetic astaxanthin from petrochemicals. Hoffmann-LaRoche currently sells astaxanthin synthesized from petrochemicals to the aquaculture industry
at approximately $2,400 per pure kilogram, on average. To a lesser extent, our NatuRose also competes in the marketplace with natural astaxanthin derived from other natural sources.

In
August 2000, the FDA affirmed our development work by approvingNatuRosefor use as a color additive in the feed of salmon and
trout grown worldwide and sold in the United States. During fiscal 2001, two additional producers, Archer Daniels Midland and Igene Biotechnology, Inc., entered the market with natural
astaxanthin products derived fromPhaffiayeast. Several other companies have announced plans to produce commercial quantities of natural astaxanthin
but we believe that these companies are presently producing only small quantities for test purposes.

Although
synthetic astaxanthin has widespread use as a pigmentation source in commercial aquaculture, independent scientific analysis has shown that the molecular structure of the
astaxanthin derived from theHaematococcusmicroalga more closely resembles the astaxanthin obtained naturally by fish in the wild. As mentioned earlier
in this report, this characteristic has shown significant positive results in feeding trials done in Japan on Sea Bream. The results from these feeding trials affirm our belief that there is an
international market demand for pen raised seafood whose diet consists of nutrients derived from natural sources. We believe there is commercial demand for a natural astaxanthin pigment for
animal feed and that ourNatuRoseproduct can compete against such other products on the basis of performance and price.

BioAstin, our natural astaxanthin product for the human nutrition market, was the first natural astaxanthin product for human consumption
to be reviewed without exception by the FDA. Presently,BioAstincompetes directly in the United States with "Asta-Factor," a natural astaxanthin
product produced and marketed by Aquasearch, Inc. ("Aquasearch"), and in Japan with "AstaReal" produced by Fuji Chemicals, as well as a variety of vitamins, dietary supplements and other
antioxidant products available to consumers. In certain portions of the European market,BioAstincompetes directly with "Astaxin", a microalgae-based
natural astaxanthin product produced by AstaCarotene AB of Sweden. The nutritional products market is highly competitive. It includes international, national, regional and local producers and
distributors, many of whom have greater resources than Cyanotech, and many of whom offer a greater variety of products.

11

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Phycobiliproteins

Three major competitors manufacture phycobiliprotein products for sale, including Quantify, Inc., Martek Biosciences Corporation and Prozyme, Inc.
Cyanotech competes with these companies on the basis of price and quality. New synthetic fluorescent compounds have been developed which are superior to phycobiliproteins in some applications. The
advantage of the synthetic compounds is their lower molecular weight and, in some cases, their lower cost. While our phycobiliprotein products may not be able to compete effectively against synthetic
compounds in some applications, Cyanotech's phycobiliproteins have gained a reputation for high quality at a competitive price.

Government Regulation

Cyanotech's products, potential products and its manufacturing and research activities are subject to varying degrees of regulation by a number of government
authorities in the United States and in other countries, including the United States Food and Drug Administration pursuant to the Federal Food, Drug and Cosmetic Act. The FDA regulates, to varying
degrees and in different ways, dietary supplements, other food products, diagnostic medical devices and pharmaceutical products, including their manufacture, testing, exportation, labeling, and, in
some cases, advertising.

Cyanotech
is also subject to other federal, state and foreign laws, regulations and policies with respect to labeling of its products, importation of organisms, environmental protection,
and occupational safety laws, among others. Federal, state and foreign laws, regulations and policies are always subject to change and depend heavily on administrative policies and interpretations. We
work with foreign distributors to ensure our compliance with foreign laws, regulations and policies. 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 our business, financial condition and results of operations. There can be no assurance that any of our potential products will satisfy
applicable regulatory requirements.

The
Federal Dietary Supplement Health and Education Act ("DSHEA") regulates the use and marketing of dietary supplements, including vitamin products. The DSHEA covers only dietary
supplements and contains a number of provisions that differentiate dietary supplements from other foods. The DSHEA also sets forth standards for adulteration of dietary supplements or ingredients and
provides detailed requirements for the labeling of dietary supplements, including nutrition and ingredient labeling. Compliance with relevant requirements can be onerous and time consuming, and there
can be no assurance that Cyanotech can continue to meet relevant FDA manufacturing requirements for existing products or meet such requirements for any future products. Ongoing compliance with
applicable regulatory requirements are monitored through periodic inspections by state and federal agencies, including the FDA, the Hawaii Department of Health and comparable agencies in other
countries. Our processing facility is also inspected annually for organic certification by Quality Assurance International and for Kosher certification by Organized Kashrus Laboratories.

A
portion of our bulk and packaged Spirulina Pacific products are labeled for sale as "Certified organically grown and processed under the California Organic Foods Act of 1990." By
October 2002 all United States products labeled "Organic" will be subject to new guidelines promulgated under the United States Department of Agriculture's ("USDA") National Organic Program
("NOP"). These regulations are primarily directed at soil-based agriculture, a method of cultivation quite different from the aquaculture methodology used to produce microalgae. We have
petitioned the USDA National Organic Standards Board to amend their proposed regulations to include exemptions based on the unique aspects of Spirulina cultivation. There can be no guarantee that the
USDA will grant our request. In order to comply with the proposed regulations without the requested addendum, we may

12

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encounter significant increases in organic Spirulina production costs which in turn may affect our decision to produce "Certified Organic" Spirulina for sale in large quantities.

In
August 2000, we received notice that our natural astaxanthin product for the animal nutrition market,NatuRose, had been
approved by the FDA for use as a color additive in the feed of salmon and trout. The FDA approval ofNatuRoseadds to the clearances we had already
received in Japan and Canada and organic registration for use in feed in New Zealand. With FDA approval, we are able to sellNatuRoseto US salmon and
trout producers as well as to foreign producers whose products are destined for the US market. 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. No assurances can be given that any of our proposed products intended for use as
feed additives will be approved on a timely basis for use in countries other than those mentioned above, if at all.

Asin vitrodiagnostic medical device components, phycobiliprotein products do not currently require pre-market clearances by
the FDA. However, as a component of a medical device, they can be subject to other various medical device requirements, including cGMP requirements.

Patents, Licenses and Trademarks

Cyanotech has received four United States patents; two on aspects of our production methods and two for use of our BioAstin products in treatment of CTS and
Canker/Cold sores. In addition, we have received notice of allowance from the USPTO for the use ofBioAstinas both a topical and oral sunscreen.
Although we regard our proprietary technology, trade secrets, trademarks and similar intellectual property as critical to our success, we rely on a combination of trade secret, contract, patent,
copyright and trademark law to establish and protect our rights in our products and technology. There can be no assurance that we will be able to protect our technology adequately or that competitors
will not be able to develop similar technology independently. In addition, the laws of certain foreign countries may not protect the Company's intellectual property rights to the same extent as the
laws of the United States.

Litigation
in the United States or abroad may be necessary to enforce our patent or other intellectual property rights, to protect our trade secrets, to determine the validity and scope
of the proprietary rights of others or to defend against claims of infringement. Such litigation, even if successful, could result in substantial costs and diversion of resources and could have a
material adverse effect on our business, results of operations and financial condition. Additionally, if any such claims are asserted against us, we may seek to obtain a license under the third
party's intellectual property rights. There can be no assurance, however, that a license would be available on terms acceptable or favorable to us, if at all.

Associates

Cyanotech employed 58 full-time associates as of March 31, 2002. Approximately 35 associates are involved in the harvesting and production
process, 4 are involved in research and product development, and the remainder are involved in sales, administration and support. Management believes that its relations with its associates are good.
We have not experienced difficulty in attracting personnel and none of our associates are represented by a labor union.

Industry Segments and Export Sales

The Company's business consists of one industry segment and is grouped into six geographic areas: United States, Canada/South America, the Netherlands, Europe,
excluding the Netherlands, China, and Asia/Pacific, excluding China. In January 2002, the Company established Cyanotech Japan, a new

13

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subsidiary with an office in Tokyo. The following table (dollars in thousands) summarizes the product sales revenues from unaffiliated customers in each of the six geographic regions:

2002

2001

2000United States

$
4,393

53
%
$
3,676

46
%
$
3992

54
%Canada/South America


394

5
%

509

6
%

371

5
%The Netherlands


1,032

13
%

1,542

19
%

1,715

23
%Europe, excluding the Netherlands


706

8
%

640

8
%

613

8
%China


157

2
%

119

1
%

73

1
%Asia/Pacific, excluding China


1,553

19
%

1,557

20
%

634

9
%Total Product Sales Revenues

$
8,235

100
%
$
8,043

100
%
$
7,398

100
%


The
Company believes that its profit margin on export sales is not significantly different from that realized on sales in the United States. In January 2002, we established
Cyanotech Japan, a new subsidiary with an office in Tokyo. In our consolidated financial reports, sales made through this subsidiary are denominated in Japanese Yen and converted to US Dollars at the
exchange rate in effect at the date of the sale.

Item 2. Properties

Cyanotech
Corporation is located in Kailua-Kona, Hawaii, at the HOST Park and also rents 2,500 square feet of warehouse space in a light industrial area located approximately
four miles from the HOST Park. The HOST Park facility consists of approximately 183 leased acres. Approximately 90 acres have been fully developed and contain production ponds, a processing facility,
a laboratory, and administrative offices. All products are produced at this facility. The property is leased from the State of Hawaii under a 30-year commercial lease expiring in 2025.

During
1997, we reached a preliminary agreement with the State of Hawaii to lease an additional 93 acres at the HOST Park, which increased the total acreage under lease to 183 acres. The
State of Hawaii agreed to allow the Company to lease this additional 93 acres on a year-to-year basis, until such time that the Company determines the need for a longer lease
term. The construction work performed on this expansion acreage was the subject of the asset impairment charge of $2,796,000 recorded during fiscal 2000. Due to improvements made in our astaxanthin
cultivation and processing over the past five years, in April 2002 we determined that only a portion of this reserved expansion area would be needed and reduced the reserved land under this
lease from 93 acres to 30 acres. The State of Hawaii has agreed to allow this change and to continue to lease the 30 acre parcel to us on a year to year basis. Our current lease agreement, as revised,
is effective through December 31, 2002. Subject to available funds, we ultimately plan to use this new property to construct a larger astaxanthin production facility and additional culture
ponds that would use thePhytoDome CCStechnology. We believe that there is sufficient available land at the HOST Park to meet our currently planned
needs.

Item 3. Legal Proceedings

There
were no legal matters addressed during fiscal 2002.

Item 4. Submission of Matters to a Vote of Security Holders

No
matters were submitted to a vote of the stockholders during the fourth quarter of fiscal 2002.

14

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Part II

Item 5. Market for Common Equity and Related Stockholder Matters

The
information required by this Item is incorporated by reference to the Section labeled "Market for Common Equity and Related Stockholder Matters" in the Company's 2002 Annual Report
to Stockholders, attached as Exhibit 13.

Item 6. Selected Financial Data

|                                                                           |                         | Years ended March 31, |       
|-------------------------------------------------------------------------- | ----------------------- | --------------------- | ------
|
|
|Results of Operations                                                      |                         |                       |       
|Net sales                                                                  |                         | $                     | 8,235 
|Gross profit(b)                                                            |                         |                       | 1,562 
|Impairment of long-lived assets                                            |                         |                       |      
|Loss from operations(a)(b)                                                 |                         |                       | (2,185
|Net loss(a)(b)                                                             |                         |                       | (2,589
|Net loss per common share                                                  |                         |                       |       
|                                                                           | Basic and Diluted(a)(b) |                       | $     
|Average Shares Outstanding                                                 |                         |                       |       
|                                                                           | Basic and Diluted       |                       |       
|Selected Balance Sheet Data                                                |                         |                       |       
|Cash and investment securities                                             |                         | $                     | 1,051 
|Working capital                                                            |                         |                       | 1,008 
|Total assets                                                               |                         |                       | 18,400
|Long-term debt and capital lease obligations, excluding current maturities |                         |                       | 2,765 
|Stockholders' equity                                                       |                         |                       | 13,191

---

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The
information required by this Item is incorporated by reference to the Section labeled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's 2002 Annual Report to Stockholders, attached as Exhibit 13.

15

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Item 7a. Quantitative and Qualitative Disclosures About Market Risk

We
have not entered into any transactions using derivative financial instruments or derivative commodity instruments and believe that our exposure to market risk associated with other
financial instruments is not material.

Item 8. Financial Statements and Supplementary Data

The
consolidated balance sheets of the Company and subsidiaries as of March 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended March 31, 2002, together with the accompanying notes and the related Independent Auditors' Report, all contained in
the Company's 2002 Annual Report to Stockholders attached as Exhibit 13, are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not
applicable.

Part III

Item 10. Directors and Executive Officers; Compliance with Section 16(a) of the Exchange Act

(a)  Identification of Directors

The information required by this Item is incorporated by reference from the Sections captioned "Proposal One: Election of Directors," "Certain Transactions,"
"Security Ownership of Certain Beneficial Owners and Management" and "Compliance with Section 16(a) of the Exchange Act" contained in Cyanotech's definitive 2002 Proxy Statement.

(b)  Identification of Executive Officers

The executive officers of Cyanotech and their ages and positions as of March 31, 2002 are as follows:

Name

Age

PositionGerald R. Cysewski, Ph.D

53

Chairman of the Board, President and Chief Executive OfficerRonald P. Scott

47

Executive Vice PresidentFinance and Administration, Secretary and TreasurerGlenn D. Jensen

43

Vice PresidentOperationsKelly J. Moorhead

46

Vice PresidentSales and MarketingR. Shane Rohan

42

Vice PresidentProduction


Dr. Cysewskico-founded Cyanotech in 1983 and has served as a director since that time. Since March 1990,
Dr. Cysewski has served as President and Chief Executive Officer of Cyanotech and in October 1990 was also appointed to the position of Chairman of the Board. From 1988 to
November 1990, he served as Vice Chairman and from 1983 to June, 1996, he served as Scientific Director of the Company. From 1980 to 1982, Dr. Cysewski was group leader of microalgae
research and development at Battelle Northwest, a major contract research and development firm. From 1976 to 1980, Dr. Cysewski was an assistant professor in the Department of Chemical and
Nuclear Engineering at the University of California, Santa Barbara, where he received a two-year grant from the National Science Foundation to develop a culture system for
blue-green algae. Dr. Cysewski received his doctorate in Chemical Engineering from the University of California at Berkeley.

16

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Mr. Scottwas appointed to the Board of Directors of the Company in November 1995, has served as Executive Vice
PresidentFinance and Administration since August 1995, and has served as Secretary and Treasurer since 1990. From 1990 until August 1995, Mr. Scott served as Vice
PresidentFinance and Administration. Prior to 1990, he was Assistant Controller for PRIAM Corporation, a manufacturer of Winchester disk drives and served in various accounting management
positions with Measurex Corporation, a manufacturer of industrial process control systems. Mr. Scott holds a B.S. degree in Finance and Management from California State University, San Jose,
and an M.B.A. degree from the University of Santa Clara.

Mr. Jensenhas served as Vice PresidentOperations since May 1993. He joined Cyanotech in 1984 as Process
Manager and was promoted to Production Manager in 1991, in which position he served until his promotion to Vice PresidentOperations. Prior to joining Cyanotech, Mr. Jensen worked
for three years as a plant engineer at a Spirulina production facility, Cal-Alga, near Fresno, California. Mr. Jensen holds a B.S. degree in Health Science from California State
University, Fresno.

Mr. Moorhead, who joined the Company in 1984, has served as Vice PresidentSales and Marketing since
September 1999; from June, 1998 to September 1999, he was Vice President of New Product Development; from October 1997 to June 1998, he was Vice PresidentSales
and Marketing; from August 1996 to October 1997 he was Vice PresidentInternational Sales; from December 1991 to August 1996 he was Vice
PresidentSales and Marketing and President of Nutrex, Inc; from August 1987 to December 1991, he served as Vice PresidentProduction. Prior to joining Cyanotech,
Mr. Moorhead worked at the Oceanic Institute in Honolulu, Hawaii where he conducted research on production of Spirulina from agricultural waste. Mr. Moorhead holds a B.S. degree in
Aquatic Biology from the University of California, Santa Barbara.

Mr. Rohanhas served as Vice PresidentProduction since July 2000. From April 1994 to July 2000,
he served as Production Manager. Mr. Rohan joined Cyanotech as a Culture Biologist in November 1992. Prior to joining Cyanotech, Mr. Rohan worked as a Senior Research Assistant in
the Marine Biology Department at the Scripps Institute of Oceanography. Mr. Rohan holds a B. S. degree in Marine Natural Products Chemistry from the University of California, San Diego.

Item 11. Executive Compensation

The
information required by this Item is incorporated by reference from the section captioned "Executive Compensation and Other Information," "Director Remuneration" and "Stockholder
Return Performance Graph" contained in Cyanotech's definitive 2002 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The
security ownership information required by this Item is incorporated by reference from the section captioned "Security Ownership of Certain Beneficial Owners and Management"
contained in Cyanotech's definitive 2002 Proxy Statement.

Equity Compensation Plan Information

The following table provides information about the Company's common stock that may be issued upon the exercise of options and rights under all of the Company's
existing equity compensation plans

17

---

as of December 31, 2001, including the 1994 Non-employee Director Stock Option and Stock Grant Plan and the 1995 Stock Option Plan.

|Plan Category                                          |                                                              | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights |              | Weighted-average exercise
price of outstanding
options, warrants and
rights |      | Number of securities remaining
available for future issuance
under equity compensation
plans
|------------------------------------------------------ | ------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------ | --------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders |                                                              |                                                                                             |              |                                                                             |      |                                                                                             
|                                                       | 1994 Non-employee Director Stock Option and Stock Grant Plan |                                                                                             | 15,000 Shr.  |                                                                             | $    | 2.36                                                                                        
|                                                       | 1995 Stock Option Plan                                       |                                                                                             | 725,696 Shr. |                                                                             | $    | 2.10                                                                                        
|                                                       |                                                              |                                                                                             |              |                                                                             |      |                                                                                             
|Total                                                  |                                                              | 740,696 Shr.                                                                                |              | $                                                                           | 2.10 |                                                                                             
|                                                       |                                                              |                                                                                             |              |                                                                             |      |                                                                                             

Item 13. Certain Relationships and Related Transactions

Not
applicable.

18

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Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) (1).The following Consolidated Financial Statements of Cyanotech Corporation and its subsidiaries are incorporated herein by reference pursuant to
Item 8:

| |                                                                                                                                            | Page in 2002
Annual Report
To Stockholders
| | ------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------
| | Independent Auditors' Report                                                                                                               |                                           
| | Consolidated Balance Sheets as of March 31, 2002 and 2001                                                                                  |                                           
| | Consolidated Statements of Operations for each of the years in the three-year period ended March 31, 2002                                  |                                           
| | Consolidated Statements of Stockholders' Equity and Comprehensive Loss for each of the years in the three-year period ended March 31, 2002 |                                           
| | Consolidated Statements of Cash Flows for each of the years in the three-year period ended March 31, 2002                                  |                                           
| | Notes to Consolidated Financial Statements                                                                                                 |                                           

(a) (2).The following financial statement schedule is included in this report on the pages indicated below:

| | Schedule II Valuation and Qualifying Accounts |  | 21
| | --------------------------------------------- |  | --
| | Independent Auditors' Report                  |  | 22

Schedules
not listed above are omitted because of the absence of the conditions under which they are required or because the required information is included in the consolidated
financial statements or notes thereto, which financial statements are incorporated by reference.

19

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(a) (3).Index to exhibits

|Exhibit Number |  | Document Description                                                                                                                                                                                                                                                      
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Restated Articles of Incorporation. (Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 31, 1996, file no. 0-14602.)                                                                                
|3.2            |  | Bylaws of the Registrant, as amended. (Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 31, 1995, file no. 0-14602.)                                                                              
|4.1            |  | Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form SB-2 filed on February 28, 1996, file no. 333-00951.)                                                                                        
|10.1           |  | Stockholders Agreement dated as of May 17, 1993. (Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1994, file no. 0-14602.)                                                                    
|10.2           |  | 1994 Non-Employee Directors Stock Option and Stock Grant Plan. (Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1994, file no. 0-14602.)                                                      
|10.3           |  | 1995 Stock Option Plan for Cyanotech Corporation dated August 9, 1995, as amended. (Incorporated by reference to Exhibit 4(c) to the Company's Registration Statement on Form S-8 filed on October 27, 1995, file no.
33-63789.)                                          
|10.4           |  | Sub-Lease Agreement between the Company and Natural Energy Laboratory of Hawaii Authority dated December 29, 1995. (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1995, file no. 0-14602.)
|10.5           |  | Term Loan Agreement dated April 21, 2000 between the Company and B&I Lending, LLC. (Incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended March 31, 2000, file no
014602.)                                            
|11.1           |  | Statement re: Computation of Earnings per Share.                                                                                                                                                                                                                          
|13             |  | 2002 Annual Report to Stockholders (portions only) as stated herein.                                                                                                                                                                                                      
|21.1           |  | Subsidiaries of the Company.                                                                                                                                                                                                                                              
|23.1           |  | Accountants' Consent.                                                                                                                                                                                                                                                     

(b)Reports on Form 8-K

The Registrant did not file any reports on Form 8-K during the fourth quarter of the 2002 fiscal year.

No
Annual Report to Stockholders or proxy material has been sent to Stockholders as of this date. Such report and proxy material will be furnished to Stockholders after the filing of
this Form and copies of such materials will be furnished to the Commission when they are sent to Stockholders.

20

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Schedule II

Cyanotech Corporation and Subsidiaries  Valuation and Qualifying Accounts (in thousands)  Years Ended March 31, 2002, 2001 and 2000

|Column A                           |  | Column B |    | Column C |    | Column D |   | Column E
|---------------------------------- |  | -------- | -- | -------- | -- | -------- | - | --------
|
|
|Allowance for Doubtful Receivables |  |          |    |          |    |          |   |         
|2002                               |  | $        | 20 |          | 20 |          |  |         
|2001                               |  | $        | 10 |          | 10 |          |  |         
|2000                               |  | $        | 12 |          | 7  |          |  |         



21

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INDEPENDENT AUDITORS' REPORT

The
Board of Directors
Cyanotech Corporation:

Under
date of May 1, 2002, except as to notes 5, 8 and 15 which are as of June 17, 2002, we reported on the consolidated balance sheets of Cyanotech Corporation and
subsidiaries as of March 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity and comprehensive loss, and cash flows for each of the years in the
three-year period ended March 31, 2002, as contained in the 2002 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year ended March 31, 2002. In connection with our audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule as listed in Item 14(a)(2). The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based on our audits.

In
our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects,
the information set forth therein.

The
independent auditors' report on the consolidated financial statements of Cyanotech Corporation referred to above also contains an explanatory paragraph that states that the
consolidated financial statements have been prepared assuming that Cyanotech Corporation will continue as a going concern. As discussed in note 15 to the consolidated financial statements, the
Company has suffered recurring losses from operations and has limited sources of additional liquidity to enable it to sufficiently liquidate its debts, including convertible debentures of $1,238,000
due on October 31, 2002, as they become due that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in
note 15. The consolidated financial statements and financial statement schedule do not include any adjustments that might result from the outcome of this uncertainty.

/s/
KPMG LLP
Honolulu, Hawaii
May 1, 2002

22

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 22nd day of June, 2002.

| |  | CYANOTECH CORPORATION
| |  | ---------------------
| |  | By:                  

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|Signatures                                     |  | Title                                                                                                                                  |  | Date         
|---------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | -------------
|                                               |  |                                                                                                                                        |  |              
|/s/GERALD R. CYSEWSKIGerald R. Cysewski, Ph.D. |  | Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer and Director)                                |  | June 27, 2002
|/s/RONALD P. SCOTTRonald P. Scott              |  | Executive Vice PresidentFinance and Administration, Secretary and Treasurer (Principal Financial and Accounting Officer and Director) |  | June 27, 2002
|/s/ERIC H. REICHLEric H. Reichl                |  | Director                                                                                                                               |  | June 27, 2002
|/s/DAVID I. ROSENTHALDavid I. Rosenthal        |  | Director                                                                                                                               |  | June 27, 2002
|/s/JOHN T. WALDRONJohn T. Waldron              |  | Director                                                                                                                               |  | June 27, 2002
|/s/PAUL C. YUENPaul C. Yuen                    |  | Director                                                                                                                               |  | June 27, 2002

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