**Exhibit 99.1**

 

**RISKFACTORS**

 

You should carefully consider the risksdescribed below.  The risks describedare not the only ones we face.  Any ofthe following risks could have a material adverse effect on our business,financial condition and operating results. You should also refer to the other information contained in this report,including our financial statements and the related notes.

 

**ASignificant or Prolonged Economic Downturn Could have a Material Adverse Effecton Our Results of Operations.**

 

Our results of operations are affected by thelevel of business activity of our clients and customers, which in turn isaffected by the level of economic activity in the industries and markets thatthey serve.  A decline in the level ofbusiness activity of our clients could have a material adverse effect on ourrevenues and profit margin.

 

**OurQuarterly Operating Results May vary from Quarter to Quarter, WhichMay Result in Increased Volatility of Our Share Price.**

 

We have experienced, and may in the future continueto experience, fluctuations in our quarterly operating results.  These fluctuations could reduce the marketprice of our Common Stock.

 

Factors that may cause our quarterlyoperating results to vary include, but are not limited to:

 

• the business decisions of our customersregarding orders for our products;

• increased energy costs;

• increased raw material costs;

• production difficulties;

• the introduction of new products by us orour competitors;

• changes in our pricing policies or those ofour competitors;

• seasonal trends in our customers’ buyingpatterns;

• changes in government regulation, bothdomestic and foreign;

• fluctuation in foreign currency exchangerates;

• global economic and political conditions andrelated risks, including acts of terrorism; and

• other factors beyond our control.

 

A significant portion of our expense levelsare relatively fixed, and the timing of increases in expense levels is based inlarge part on our forecasts of future sales. If net sales are below expectations in any given period, the adverseimpact on results of operations may be magnified by our inability to adjustexpenses quickly enough to compensate for the sales shortfall.

 

**Our GlobalOperations Post Complex Management, Foreign Currency, Legal, Tax and EconomicRisks, Which We May Not Adequately Address**

 

We conduct business in a number of countriesaround the world.  In the quarter endedJune 30, 2003, approximately 56% of our net revenues were from sales toforeign customers.  As a result, we aresubject to a number of risks which include, but are not limited to:

 

• the burden of complying with a wide varietyof national and local laws;

• potentially longer payment cycles forforeign sales;

• multiple and possibly overlapping andconflicting tax laws;

• coordinating geographically separatedlocations;

• restrictions (government and otherwise)restrictions on the movement of cash;

• the absence in some jurisdictions ofeffective laws to protect our intellectual property rights;

 

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• changes in government regulation, bothdomestic and foreign;

• global economic and political conditions andrelated risks, including acts of terrorism; and

• fluctuation in foreign currency exchangerates.

 

**Competitionin Our Industry is Intense**

 

The nutritional products market is highlycompetitive.  It includes international,national, regional and local producers and distributors, many of whom havegreater resources than Cyanotech and many of whom offer a greater variety ofproducts.  Increased competition in ourindustry could result in price reductions, reduced gross profit margin or lossof market share, any of which could have a material effect on our business,results of operations and financial condition.

 

**OurRevenues Could Be Adversely Affected by the Loss of a Significant Customer orthe Failure to Collect a Large Accounts Receivable.**

 

We have in the past derived, and may continuein the future to derive, a significant portion of our revenues from arelatively limited number of major customers. From quarter to quarter, revenues from one or more individual customersmay exceed 10% of our revenues for the quarter.  During the quarter ended June 30, 2003, sales to onecustomer, Spirulina International, were approximately 16% of net revenues.  If sales to this customer or other suchmajor customers, decrease significantly, this may materially affect our resultsof operations.  In addition, if we failto collect large accounts receivable from such major customers we could besubject to significant financial exposure.

 

**If We AreUnable to Protect Our Intellectual Property Rights of If We Infringe Upon theIntellectual Property Rights of Others Our Business May Be Harmed.**

 

Cyanotech has received five United Statespatents; two on aspects of our production methods and three for use of our *BioAstin* products.  Although we regard our proprietarytechnology, trade secrets, trademarks and similar intellectual property ascritical to our success, we rely on a combination of trade secret, contract,patent, copyright and trademark law to establish and protect our rights in ourproducts and technology.  There can beno assurance that we will be able to protect our technology adequately or thatcompetitors will not be able to develop similar technology independently.  In addition, the laws of certain foreigncountries may not protect the Company’s intellectual property rights to thesame extent as the laws of the United States. Litigation in the United States or abroad may be necessary to enforceour patent or other intellectual property rights, to protect our trade secrets,to determine the validity and scope of the proprietary rights of others or todefend against claims of infringement. Such litigation, even if successful, could result in substantial costsand diversion of resources and could have a material adverse effect on ourbusiness, results of operations and financial condition.  Additionally, if any such claims areasserted against us, we may seek to obtain a license under the third party’sintellectual property rights.  There canbe no assurance, however, that a license would be available on terms acceptableor favorable to us, if at all.

 

**MarketPrice for Our Common Stock Has Been Unpredictable; Potential Delisting.**

 

Our Common Stock is presently listed on theNASDAQ SmallCap Market.  The Company’sCommon Stock has until September 10, 2003 to demonstrate compliance withMarketplace Rule 4450(a)(5) in order to remain listed.  If at anytime before September 10,2003, the bid price of the Company’s Common Stock closes at $1.00 per share ormore for a minimum of 10 consecutive trading days, NASDAQ Staff will providewritten notification that the Company complies with listing requirements forthe SmallCap Market.  If compliance withthis rule cannot be demonstrated by September 10, 2003, NASDAQ Staff willprovide written notification that the Company’s securities will be delistedfrom the SmallCap Market and begin trading on the NASDAQ Over-The-CounterBulletin Boards.  In such case theCommon Stock of the Company will be traded on a less active market to thepossible detriment of the stockholders.

 

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**WeMay Need to Raise Additional Capital in the Future Which May Not BeAvailable.**

 

During the years ended March 31, 2003,2002 and 2001, the Company incurred losses of $1,775,000, $2,589,000 and$1,067,000, respectively.  AtJune 30, 2003 the Company’s working capital was $2,436,000 with cashbalances amounting to $681,000.  TheCompany’s continuation as a going concern is dependent upon its ability togenerate sufficient cash flow to meet its obligations on a timely basis, tocomply with the terms of its financing agreements, to obtain additionalfinancing or refinancing as may be required, to attain profitability, or acombination thereof.  There can be noassurance that our efforts will be successful or that the Company will returnto generating profit on either a quarterly or annual basis.

 

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