UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                    For Quarterly Period Ended June 30, 2000

                         Commission File Number 0-14602


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


            NEVADA                                           91-1206026
    (State or other jurisdiction                          (IRS Employer
     of incorporation or organization)                    Identification Number)



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

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



         Check whether the registrant (1) filed all reports required to be filed
by  Section  13 or 15(d) of the  Exchange  Act during the past 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 xx No


            Number of common shares outstanding as of July 31, 2000:

        Title of Class                                Shares Outstanding
        --------------                                ------------------
Common stock - $.005 par value stock                       15,837,297


<PAGE>
                              CYANOTECH CORPORATION
                                    FORM 10-Q

                                      INDEX

PART I.   FINANCIAL INFORMATION


Item 1.  Financial Statements                                               Page
                                                                            ----

         Consolidated Balance Sheets (unaudited)
                  June 30, 2000 and March 31, 2000.............................3

         Consolidated Statements of Operations (unaudited)
                  Three month periods ended
                  June 30, 2000 and 1999.......................................4

         Consolidated Statements of Cash Flows (unaudited)
                  Three month periods ended
                  June 30, 2000 and 1999.......................................5


         Notes to Consolidated Financial Statements (unaudited)................6


Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations................................10


PART II.  OTHER INFORMATION

Item 1.         Legal Proceedings.............................................15

Item 6.         Exhibits and Reports on Form 8-K .............................15


SIGNATURES....................................................................16


                                        2
<PAGE>

PART I. FINANCIAL INFORMATION
     Item 1.   Financial Statements
<TABLE>
<CAPTION>
                              CYANOTECH CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                   (Dollars in thousands except share amounts)
                                                                          June 30,       March 31,
                                                                            2000            2000
ASSETS                                                                  (Unaudited)       (Audited)
Current assets:                                                         -----------     -----------
<S>                                                                     <C>             <C>
     Cash and cash equivalents                                          $    2,070      $      405
     Accounts receivable, net                                                1,564           1,613
     Refundable income taxes                                                   162             154
     Inventories  (note 2)                                                   1,756           1,609
     Prepaid expenses                                                           59              50
                                                                        -----------     -----------
              Total current assets                                           5,611           3,831

Equipment and leasehold improvements, net (note 3)                          15,495          15,746
Restricted cash                                                                500              --
Other assets                                                                   668             112
                                                                        -----------     -----------
              Total assets                                              $   22,274      $   19,689
                                                                        ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current maturities of long-term debt                               $      213      $      186
     Accounts payable                                                          512           1,130
     Accrued expenses                                                          279             421
                                                                        -----------     -----------
              Total current liabilities                                      1,004           1,737

Long-term debt, excluding current maturities
     Term loan                                                               3,271           1,307
     Convertible debentures                                                  1,250              --
                                                                        -----------     -----------
             Total liabilities                                               5,525           3,044
                                                                        -----------     -----------
Stockholders' equity:
     Cumulative  preferred  stock,  Series  C, of  $.001
        par  value  (aggregate  involuntary  liquidation
        preference $1,855 ($5 per  share),  plus  unpaid
        cumulative  dividends).    Authorized  5,000,000
        shares; issued and outstanding 371,031 shares at
        June  30,  2000  and 471,031 shares at March 31,
        2000                                                                    --               1
     Common   Stock  of  $0.005  par  value,  authorized
        25,000,000   shares;   issued   and  outstanding
        15,087,297   shares   at   June   30,  2000  and
        14,582,297 shares at March 31, 1999                                     75              73

     Additional paid-in capital                                             24,499          24,374
     Accumulated deficit                                                    (7,825)         (7,803)
                                                                        -----------    ------------
                Total stockholders' equity                                  16,749          16,645
                                                                        -----------    ------------
                     Total liabilities and stockholders'
                        equity                                          $   22,274     $    19,689
                                                                        ===========    ============
</TABLE>
          See accompanying notes to consolidated financial statements.


                                        3
<PAGE>

                              CYANOTECH CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                   (Unaudited)

                                                     Three Months Ended
                                                          June 30,
                                                ---------------------------
                                                    2000            1999
                                                -----------     -----------
NET SALES                                       $    2,166      $    1,599
COST OF PRODUCT SALES                                1,462           1,332
                                                -----------     -----------
                Gross Profit                           704             267

OPERATING EXPENSES
        Research and development                        74             166
        General and administrative                     325             387
        Sales and marketing                            259             193
                                                -----------     -----------
                Total operating expenses               658             746
                                                -----------     -----------
        Income (loss) from operations                   46            (479)
                                                -----------     -----------

OTHER INCOME (EXPENSE):
        Interest income                                 24               4
        Interest expense                               (98)            (55)
        Other income, net                                6               3
                                                -----------     -----------
                Total other expense                    (68)            (48)
                                                -----------     -----------
                Loss before income taxes               (22)           (527)
                Income taxes                            --              --
                                                -----------     -----------
NET LOSS                                        $      (22)     $     (527)
                                                ===========     ===========

NET LOSS PER COMMON SHARE
     Basic                                      $     0.00      $    (0.04)
     Diluted                                    $     0.00      $    (0.04)

SHARES USED IN CALCULATION OF:
     Basic                                          14,951          13,610
     Diluted                                        14,951          13,610

          See accompanying notes to consolidated financial statements.

                                       4

<PAGE>
<TABLE>
<CAPTION>
                              CYANOTECH CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (Unaudited)
                                                                                      Three Months Ended
                                                                                           June 30,
                                                                                ----------------------------
                                                                                   2000              1999
                                                                                -----------      -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>             <C>
          Net loss                                                              $      (22)     $     (527)
          Adjustments to reconcile net loss to net cash used in
          operating activities:
                    Depreciation and amortization                                      339             328
                    Amortization of debt issue costs                                    23              --
                    Net (increase) decrease in:
                            Accounts receivable                                         49            (104)
                            Inventories                                               (147)            181
                            Refundable income taxes                                     (8)             --
                            Prepaid expenses and other assets                           20              16
                    Net increase (decrease) in:
                            Accounts payable                                          (618)             93
                            Accrued expenses                                          (142)           (106)
                                                                                -----------     -----------
Net cash used in operating activities                                                 (506)           (119)
                                                                                -----------     -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
          Investment in equipment and leasehold improvements                           (87)            (62)
                                                                                -----------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
          Proceeds from issuance of term loan                                        3,500              --
          Proceeds from issuance of convertible debentures                           1,250              --
          Net proceeds from exercise of stock options                                    5              28
          Net proceeds from issuance of common stock                                    --              99
          Principal payments on long-term debt                                      (1,509)            (50)
          Debt issue costs                                                            (488)             --
          Restricted cash requirement                                                 (500)             --
          Repayment of borrowings on short-term revolving line of
          credit                                                                        --              63
          Principal payments on capital lease obligation                                --             (23)
                                                                                -----------     -----------
Net cash provided by (used in) financing activities                                  2,258              (9)
                                                                                -----------     -----------
Net increase (decrease) in cash and cash equivalents                                 1,665            (190)
Cash and cash equivalents at beginning of period                                       405             323
                                                                                -----------     -----------
Cash and cash equivalents at end of period                                      $    2,070      $      133
                                                                                ===========     ===========
Supplemental disclosure of non-cash financing activity
-issuance of warrants in connection with issuance of long-term
debt                                                                            $      121      $       --
                                                                                ===========     ===========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                        5
<PAGE>
                              CYANOTECH CORPORATION
                                    FORM 10-Q
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2000
                                   (Unaudited)


1.      BASIS OF PRESENTATION

        The  accompanying  unaudited consolidated financial statements have been
        prepared in  accordance with generally  accepted  accounting  principles
        for interim financial information and with the instructions to Form 10-Q
        and  Regulation  S-X.  Accordingly,  they  do  not  include  all  of the
        information  and  footnotes  required by generally  accepted  accounting
        principles   for   complete   financial statements.  These  consolidated
        financial  statements  and notes should be read in conjunction  with the
        Company's  consolidated  financial statements contained in the Company's
        previously  filed report on Form 10-K for the year ended March 31, 2000.

        The  Company  consolidates  enterprises  in  which it has a  controlling
        financial interest.  The accompanying  consolidated financial statements
        include  the  accounts of  Cyanotech  Corporation  and its  wholly-owned
        subsidiaries,  Nutrex,  Inc. and Cyanotech  International FSC, Inc.  All
        significant intercompany  balances and transactions have been eliminated
        in consolidation.  While  the financial  information furnished as of and
        for  the three  month  period  ended  June 30,  2000 is  unaudited,  the
        statements  in  this report  reflect all material  items  which,  in the
        opinion  of  management,  are necessary for a fair  presentation  of the
        results  of  operations  for  the  interim  periods  covered  and of the
        financial  condition  of  the  Company at the dates of the  consolidated
        balance  sheets.  The operating results for the interim period presented
        are  not necessarily  indicative of the results that may be expected for
        the year ending March 31, 2001.

        As  the  Company's  operations  are solely  related to  microalgae-based
        products,  management  considers  its  operations  to  be  one  industry
        segment.

        The  preparation  of financial  statements in conformity  with generally
        accepted  accounting  principles  requires  management to make estimates
        and  assumptions  that  affect  the  reported  amounts  of   assets  and
        liabilities  and disclosure of contingent  assets and liabilities at the
        date  of the financial statements,  and the reported amounts of revenues
        and  expenses during the reporting  period.  Actual results could differ
        significantly from those estimates.

2.      INVENTORIES

        Inventories  are  stated  at  the  lower  of  cost  (which  approximates
        first-in,  first-out) or market and consist of the following (dollars in
        thousands):

                                        June 30, 2000           March 31, 2000
                                        --------------          --------------
                Raw materials           $           72          $           72
                Work in process                    227                     278
                Finished goods                   1,188                   1,060
                Supplies                           269                     199
                                        --------------          --------------
                                        $        1,756          $        1,609
                                        ==============          ==============
                                       6
<PAGE>

3.      EQUIPMENT AND LEASEHOLD IMPROVEMENTS

        Owned   equipment  and  leasehold   improvements  are  stated  at  cost.
        Depreciation  and  amortization  are  provided  using the  straight-line
        method over  the  estimated  useful lives for furniture and fixtures and
        the shorter  of the lease terms or estimated  useful lives for leasehold
        improvements as follows:


        Equipment                                       3 to 10 years
        Leasehold improvements                         10 to 26 years
        Furniture and fixtures                                7 years

        Equipment and  leasehold  improvements consist of the following (dollars
        in thousands):
<TABLE>
<CAPTION>


                                                                June 30, 2000     March 31, 2000
                                                                ---------------   ---------------
<S>                                                             <C>               <C>
        Equipment                                               $        8,990    $        8,961
        Leasehold improvements                                          13,664            13,642
        Furniture and fixtures                                              83                83
                                                                ---------------    --------------
                                                                        22,737            22,686
        Less accumulated depreciation and amortization                  (7,722)           (7,383)
        Construction in-progress                                           480               443
                                                                ---------------    --------------
        Equipment and leasehold improvements, net               $       15,495     $      15,746
                                                                ===============    ==============
</TABLE>

4.      SERIES C PREFERRED STOCK

        Series  C preferred  stock is convertible  into common stock at the rate
        of  one share of preferred stock for five shares of common stock through
        February 23, 2002,  after which date the conversion feature is no longer
        applicable.  Series  C preferred  stock has voting  rights  equal to the
        number  of shares of common stock into which it is convertible and has a
        preference  in liquidation  over all other series of preferred  stock of
        $5  per share  plus any  accumulated  but unpaid  dividends.  Holders of
        Series  C preferred stock are entitled to 8% cumulative annual dividends
        at  the rate of $.40 per share;  cumulative  dividends  in arrears as of
        June  30, 2000 amount to $1,636  ($4.41 per share).  Upon  conversion of
        Series  C preferred stock,  cumulative dividends in arrears on converted
        shares  are  no  longer  payable.  The  consent  of  Series C  preferred
        stockholders  is  required to modify their present rights or sell all or
        substantially all of the Company's assets.

        In  April 2000, 100,000 shares of Series C preferred stock was converted
        into 500,000 shares of common stock.

                                       7
<PAGE>

5.      EARNINGS (LOSS) PER SHARE

        For  the three months ended June 30, 2000 and 1999, warrants and options
        to  purchase Common Stock of the Company and convertible preferred stock
        were  outstanding,  but  were not included in the computation of Diluted
        net  loss per common share  because the  inclusion  of these  securities
        would  have had an antidilutive effect on the net loss per common share.
        For  the three months ended June 30, 2000,  convertible  debentures were
        outstanding,  but  were not included in the  computation  of Diluted net
        loss  per common share because the inclusion of these  instruments would
        have  had an antidilutive effect on the net loss per common share. As of
        June 30, 2000,  warrants  and options to acquire  918,430  shares of the
        Company's  common stock,  preferred  stock  convertible  into  1,855,155
        shares  of the Company's  common stock and debentures  convertible  into
        833,333  shares of the Company's  common stock were  outstanding.  As of
        June 30, 1999,  warrants  and options to acquire  802,300  shares of the
        Company's  common  stock and preferred stock  convertible into 2,975,155
        shares of the Company's common stock were outstanding.

        Following  is a reconciliation of the numerators and denominators of the
        Basic  and  Diluted  EPS  computations  for the  periods  presented  (in
        thousands except share data):
<TABLE>
<CAPTION>
                                                          June 30,        June 30,
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE                 2000            1999
                                                        -----------     -----------
<S>                                                     <C>             <C>
Net loss                                                $      (22)     $     (527)
Less: Requirement for Preferred Stock dividends                (39)            (60)
                                                        -----------     -----------
Loss available to Common stockholders                   $      (61)     $     (587)
                                                        ===========     ===========
Weighted average Common Shares outstanding               14,951,363      13,610,241
                                                        ===========     ===========
Net loss per Common Share                               $     0.00      $    (0.04)
                                                        ===========     ===========
</TABLE>

6.      RECENT ACCOUNTING PRONOUNCEMENTS

        ACCOUNTING  FOR  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.  In June
        1998, the  Financial  Accounting Standards Board (FASB) issued Statement
        of  Financial  Accounting  Standard  (SFAS)  No.  133,  "Accounting  for
        Derivative  Instruments  and  Hedging   Activities,"  which  establishes
        accounting  and  reporting standards for derivative  instruments and for
        hedging activities.  SFAS No. 133 requires that an entity  recognize all
        derivatives  as  either  assets  or  liabilities  in  the  statement  of
        financial  position and measure  those  instruments at fair value.  SFAS
        No.  133 is  effective for all fiscal quarters of fiscal years beginning
        after  June 15, 1999.  In  July 1999,  the  FASB  issued  SFAS No.  137,
        "Accounting for Derivative Instruments and Hedging Activities - Deferral
        of the Effective Date for FASB Statement No.   133, an Amendment of FASB
        Statement  No. 133",  which defers the effective date of SFAS No. 133 to
        be  effective  for all fiscal  quarters  of fiscal years beginning after
        June 15, 2000. In June 2000, the FASB issued SFAS No.  138,  "Accounting
        for Certain  Derivative  Instruments and Certain Hedging Activities,  An
        Amendment  of FASB Statement  No. 133," which addresses a limited number
        of issues causing  implementation difficulties for certain entities that
        apply   SFAS  No.  133.   The  Company  currently  holds  no  derivative
        instruments, nor is it currently participating  in  hedging  activities.
        Management  does not expect adoption of SFAS No. 133, as amended by SFAS
        No. 138,  will  have  a  material  effect  on  the  Company's  financial
        condition, results of operations or liquidity.

                                        8

<PAGE>

        ACCOUNTING  FOR  CERTAIN  TRANSACTIONS  INVOLVING STOCK COMPENSATION  In
        March 2000, the FASB Issued  FASB Interpretation No. 44, "Accounting for
        Certain Transactions involving Stock Compensation, an  Interpretation of
        APB  Opinion  No.  25."    FASB  Interpretation  No.  44  clarifies  the
        application of APB  Opinion No. 25 for certain issues involving employee
        stock compensation and is generally effective July 1, 2000.  Adoption of
        FASB  Interpretation No. 44 is not expected to have a material effect on
        the Company's financial condition, results of operations or liquidity.



                                        9

<PAGE>

                              CYANOTECH CORPORATION

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

        This  report on Form 10-Q contains forward-looking  statements regarding
the future  performance  of Cyanotech  and future  events that involve risks and
uncertainties  that could cause  actual  results to differ  materially  from the
statements  contained  herein.  This document,  and the other documents that the
Company  files from time to time with the  Securities  and Exchange  Commission,
such as its reports on Form 10-K, Form 10-Q, Form 8-K, and its proxy  materials,
contain  additional  important factors that could cause actual results to differ
from our  current  expectations  and the  forward-looking  statements  contained
herein.

RESULTS OF OPERATIONS

        The  following  table  sets  forth  certain  consolidated  statement  of
operations data as a percentage of net sales for the periods indicated:

                                                          Three Months Ended
                                                                 June 30,
                                                         2000            1999
                                                        -------         -------
                Net Sales                               100.0 %         100.0 %
                Cost of product sales                    67.5            83.3
                                                        -------         -------
                        Gross profit                     32.5            16.7
                                                        -------         -------
                Operating expenses:
                        Research and development          3.4            10.4
                        General and administrative       15.0            24.2
                        Sales and marketing              12.0            12.1
                                                        -------         -------
                        Total operating expenses         30.4            46.7
                                                        -------         -------
                        Income (loss) from operations     2.1           (30.0)
                                                        -------         -------
                Other income (expense):
                        Interest income                   1.1             0.2
                        Interest expense                 (4.5)           (3.4)
                                                        -------         -------
                        Other income, net                 0.3             0.2
                                                        -------         -------
                        Total other expense              (3.1)           (3.0)
                                                        -------         -------
                        Loss before income taxes         (1.0)          (33.0)
                        Income taxes                       --              --
                                                        -------         -------
                Net Loss                                 (1.0)%         (33.0)%
                                                        =======         =======

                                       10

<PAGE>

FIRST QUARTER OF FISCAL 2001 COMPARED TO FIRST QUARTER OF FISCAL 2000

Net Sales

        Net  sales  for  the  three  month  period  ended  June  30,  2000  were
$2,166,000, an increase of 35% from $1,599,000 recorded in the comparable period
in fiscal  2000.  This  increase is  primarily  due to  increased  sales of bulk
Spirulina powder,  natural astaxanthin products and packaged Spirulina products,
partially offset by decreased sales of bulk Spirulina  tablets.  The decrease in
bulk  Spirulina  tablet  sales was  primarily  due to lower sales to our largest
customer,  a European  distributor of natural products.  Sales to this customer,
Spirulina International, B.V., accounted for 13 % and 26% of total net sales for
the three month periods ended June 30, 2000 and 1999, respectively.

        International  sales  represented 48% and 53% of net sales for the three
month  periods   ended  June  30,  2000,   and  1999,   respectively.   Although
international  sales decreased as a percent of total sales,  international sales
increased  21% for the three month  period  ended June 30, 2000  compared to the
comparable period in fiscal 2000, due to increased total sales volume.

Gross Profit

        Gross  profit  represents  net sales less the cost of goods sold,  which
includes  the cost of  materials,  manufacturing  overhead  costs,  direct labor
expenses and depreciation and  amortization.  Gross profit increased to $704,000
for the three months ended June 30, 2000,  an increase of 164% from  $267,000 in
the comparable  period of fiscal 2000. Our gross profit margin  increased to 33%
for the  three  month  period  ended  June  30,  2000,  compared  to 17% for the
comparable  period of fiscal 2000.  This increase in gross profit from the prior
year period is primarily  attributable to improved margins on increased sales of
natural astaxanthin products and packaged Spirulina consumer products.

Operating Expenses

        Operating  expenses  were  $658,000  during the three month period ended
June 30,  2000,  a decrease  of 12% from  $746,000 in the  comparable  period of
fiscal 2000. This decrease was primarily due to reduced research and development
and general and administrative expenses, partially offset by increased sales and
marketing costs.

        Research and Development.  Research and development expenses amounted to
$74,000 for the three month  period  ended June 30, 2000, a decrease of 55% from
$166,000 for the comparable  period of fiscal 2000. This decrease from the prior
year was  primarily  due to reduced  personnel  expenditures,  lower  supply and
material  costs and reduced  outside  service and consulting  expenses  totaling
approximately  $90,000 in the aggregate,  resulting from  suspension of research
work on the  mosquitocide  project  and the  Aldolase  Catalytic  Antibody  38C2
project during the third quarter of fiscal 2000.

        Sales  and Marketing.  Sales and marketing expenses amounted to $259,000
for the three month period ended June 30, 2000, an increase of 34% from $193,000
for the comparable  period of fiscal 2000.  This increase from the prior year is
primarily  due to  increased  expenditures  for sales  consulting  services  and
increased  advertising and promotion expenses totaling  approximately $62,000 in
the aggregate.

                                       11

<PAGE>

        General  and  Administrative.   General  and   administrative   expenses
amounted to $325,000  for the three month period ended June 30, 2000, a decrease
of 16% from  $387,000 for the  comparable  period of fiscal 2000.  This decrease
from the prior year is  primarily  attributable  to reduced  legal  fees,  lower
travel expenses and reduced outside  services  totaling  approximately  $72,000,
offset  in  part  by  higher  corporate  administrative  overhead  amounting  to
approximately $16,000.

Other Income (Expense)

        Other  expense amounted to $68,000 for the three month period ended June
30,  2000,  an increase of 42% from  $48,000 for the same period of fiscal 2000,
primarily from an increase in interest expense on higher balances of outstanding
debt and higher amortization of capitalized debt issue costs.

Income Taxes

        A  provision  for  income  taxes  was not  recorded  in the three  month
periods  ended  June 30,  2000  and  1999,  due to the  Company's  taxable  loss
position.

Net Loss

        The  Company  recorded  a net loss of $22,000  for the first  quarter of
fiscal 2001,  compared to the net loss of $527,000 for the comparable  period of
fiscal 2000. The  improvement in results is primarily  attributable  to improved
margins  on  increased  sales  of  natural  astaxanthin  products  and  packaged
Spirulina products and reduced operating expenses.

VARIABILITY OF RESULTS

        The  Company  has  experienced  significant  quarterly  fluctuations  in
operating results and anticipates that these fluctuations may continue in future
periods.  Future operating results may fluctuate as a result of changes in sales
levels  to  our  largest  customers,   new  product  introductions,   production
difficulties,  weather  patterns,  the mix between  sales of bulk  products  and
packaged  consumer  products,  start-up costs  associated  with new  facilities,
expansion into new markets,  sales  promotions,  competition,  increased  energy
costs, the announcement or introduction of new products by competitors,  changes
in our customer mix,  overall trends in the market for our products,  government
regulations and other factors beyond our control. While a significant portion of
our expense levels are relatively  fixed, and the timing of increases in expense
levels is based in large part on  forecasts  of future  sales,  if net sales are
below  expectations  in any given  period,  the  adverse  impact on  results  of
operations may be magnified by our inability to adjust  spending  quickly enough
to compensate  for the sales  shortfall.  We may also choose to reduce prices or
increase  spending in response to market  conditions,  which may have a material
adverse effect on our financial condition and results of operations.

LIQUIDITY AND CAPITAL RESOURCES

        Our  working  capital  at  June 30,  2000  increased  by  $2,513,000  to
$4,607,000  from  $2,094,000  at March 31,  2000,  primarily  as a result of the
convertible  debenture and term loan transactions that were completed during the
quarter  ended  June  30,  2000.  Our cash and  cash  equivalents  increased  by
$1,665,000 to $2,070,000 at June 30, 2000 and is primarily  attributable to cash
flows provided by financing activities of $2,258,000.


                                       12

<PAGE>

        Cash  used in  operating  activities  during the first  three  months of
fiscal 2001 increased by $387,000 to $506,000 compared to cash used in operating
activities of $119,000 in the comparable  period of fiscal 2000. The primary use
of cash flows in  operating  activities  during the first three months of fiscal
2001 was to satisfy outstanding current liabilities.

        Cash  used in investing activities (for capital expenditures) during the
first three  months of fiscal  2001  increased  slightly to $87,000  compared to
$62,000 for the comparable period of fiscal 2000.

        Cash  provided by financing  activities during the first three months of
fiscal  2001  amounted  to  $2,258,000,  compared  to  cash  used  in  financing
activities  of $9,000 for the  comparable  period of fiscal  2000.  The  primary
sources of cash flows in financing activities during the first quarter of fiscal
2001 were  proceeds from  completion of a new term loan  agreement of $3,500,000
and proceeds from issuance of convertible  debentures of  $1,250,000,  offset in
part by  repayment of  long-term  debt of  $1,509,000,  debt  issuance  costs of
$488,000  paid in  connection  with  obtaining  the term  loan and  issuing  the
convertible  debentures  and  the  deposit  of  $500,000  in an interest-bearing
restricted cash account as required by the term loan agreement.

Term Loan Agreement

        On  April 21, 2000,  the Company  executed a Term Loan  Agreement  (Term
Loan) with a lender which provided for up to $3.5 million in credit  facilities,
secured  by  substantially  all the assets of the  Company.  The Term Loan has a
maturity date of May 1, 2010 and is payable in 120 equal  monthly  principal and
interest  payments  of  approximately  $48,000,  commencing  June 1,  2000.  The
interest  rate  under  this Term Loan,  in the  absence  of a default  under the
agreement,  is the prime rate, as defined, in effect as of the close of business
on the first day of each calendar quarter, plus 1% (at April 21, 2000, the prime
rate was 9.5%, at June 30, 2000, the prime rate was 10%). Interest is calculated
on the  unpaid  balance of  principal  based on a normal  amortization  schedule
commencing May 1, 2000.  $500,000 of the loan proceeds have been deposited in an
interest-bearing restricted cash account per the terms of the loan.

        A warrant  to purchase  20,000 shares of the Company's  common stock was
issued in  conjunction  with this Term Loan  agreement.  The warrant  expires in
April 2011 and has an exercise price of $2.55 per share. The warrant may only be
exercised after the Company has repaid the Term Loan in full.

        On  April  26,  2000,  approximately  $1,593,000  of  the  $3.5  million
proceeds  from  this  Term  Loan  was  used to repay  the  balance  outstanding,
including  interest and related fees,  under the Loan and Security  Agreement of
July 1998.

Convertible Debentures

        On  May 2, 2000, the Company completed a private placement of $1,250,000
principal amount 6% convertible subordinated debentures due April 30, 2002. This
transaction  provided net proceeds to the Company of approximately $1.1 million.
Interest on these debentures is payable quarterly,  in arrears, on April 1, July
1, October 1, and January 2 in each year  commencing  on July 1, 2000, at a rate
of 6% per annum.  The debentures are convertible  into shares of common stock of
the Company at a conversion  price equal to $1.50 per share, the market price of
the Company's common stock at the date of issuance.  Warrants to purchase 83,334
shares of the Company's  common stock were issued to the placement  agent of the
debentures, exercisable for five years from the issue date, at $1.80 per share.


                                       13

<PAGE>

        The  Company  believes  that working  capital  provided by its Term Loan
Agreement,  convertible debentures and estimated cash flows from operations will
be sufficient to sustain operations for fiscal 2001.

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.

OUTLOOK

        This outlook  section contains a number of  forward-looking  statements,
all of which  are based on  current  expectations.  Actual  results  may  differ
materially. See also the note at the beginning of this Item 2.

        The Company  continues  to experience  efficiencies  from the downsizing
and asset management program initiated during the fourth quarter of fiscal 1999.
Gross margin on sales of astaxanthin products continues to improve due primarily
to production  efficiencies  resulting  from the  optimization  program begun in
April 1999.  Increased  demand for  Spirulina  products and natural  astaxanthin
products for animal and human markets continues to result in year-to-year  sales
growth.

        During  the three months ended June 30, 2000, the Company  continued its
aquaculture  industry sales efforts for  NatuRose(R)  natural  astaxanthin  into
Chile and Japan.  We believe that our efforts in both of these  markets may lead
to increased sales of NatuRose in future periods.

        Our   natural  astaxanthin  product  for  the  human  nutrition  market,
BioAstin(TM), was introduced in January 2000.  The  potential  market  for human
astaxanthin  products  is estimated to exceed $1.5 billion  annually.  Increased
sales of BioAstin during the first quarter of this fiscal  year  contributed  to
the  improvement  in results compared to the results of the first quarter of the
prior  fiscal  year.  The Company has filed patent  applications  for the use of
natural astaxanthin in the treatment of fever  blisters  (cold sores) and canker
sores, carpal tunnel syndrome, ultraviolet (UV) radiation (sunburn) sensitivity,
and relief of muscle  soreness.  Patent filings  contribute to our business goal
of  developing  proprietary  positions  for  our present and future products and
support our strategic  plan.  Our strategy is to combine the results of clinical
trials with patent protection and to develop strategic  alliances with companies
that target the specific areas of our product application. During the last month
of  fiscal  2000,  we  initiated a clinical trial for the effects of BioAstin on
carpal   tunnel   syndrome   and   have  plans  for  other  clinical  trials  on
ultraviolet radiation and muscle soreness.  We will be  monitoring  the  results
of  these  studies  closely  to  uncover  potential  uses  of BioAstin for other
applications.  Cyanotech's strategy has been,  and  continues  to be, to produce
higher value natural products from microalgae.

        The Company's future results of operations and the other forward-looking
statements  contained  in  this  Outlook, in particular the statements regarding
revenues, gross margin, research and development, and capital spending,  involve
a number of risks and uncertainties.  In addition to the factors discussed above
that could cause actual results to differ materially are the following: business
conditions  and  growth  in  the  natural  products  industry and in the general
economy; changes in customer order patterns, and changes in demand  for  natural
products in general; changes in weather conditions; competitive factors, such as
competing  Spirulina  producers  increasing  their production capacity and their
impact on world market prices for Spirulina;  government  actions;  shortage  of
manufacturing  capacity;  and other factors beyond our control.

                                       14
<PAGE>

        Cyanotech  believes  that  it has  the  product  offerings,  facilities,
personnel,  and  competitive  and financial  resources  for  continued  business
success, but future revenues, costs, margins and profits are all influenced by a
number of factors, as discussed above, all of which are inherently  difficult to
forecast.



PART II.        OTHER INFORMATION

Item 1.         Legal Proceedings.

        On  July 13, 1998, the Company filed a complaint  (Case No.  CV98-00600)
in United  States  District  Court for the  District of Hawaii  (Court)  against
Aquasearch,   Inc.   (Aquasearch),   seeking  declaratory  judgement  of  patent
noninfringement,  patent invalidity,  and  non-misappropriation of trade secrets
relating to closed culture production of astaxanthin. The complaint was filed in
response to assertions by Aquasearch,  a competitor in the  astaxanthin  market,
regarding its alleged intellectual property rights.  Aquasearch has answered the
complaint and filed counter claims  alleging patent  infringement,  trade secret
misappropriation,  unfair  competition  and breach of contract.  The Court later
granted  Cyanotech's  motion to amend its  complaint  against  Aquasearch to add
claims of  misappropriation  of trade secrets  regarding  open pond  technology,
unfair competition and breach of contract.

On December 30, 1999, the Court denied  Cyanotech's  motion for summary judgment
of  non-infringement  and patent  invalidity as to Aquasearch's  U.S. Patent No.
5,541,056 and granted  Aquasearch's partial summary judgment motion finding that
Cyanotech  infringes  its patent.  The Court also granted  Aquasearch's  partial
summary judgment motion finding that Cyanotech misappropriated  Aquasearch trade
secrets and  committed a breach of  contract.  In  response,  Cyanotech  filed a
motion for  reconsideration  on January 14,  2000,  with the Court.  On March 3,
2000, United States District Court Judge Alan C. Kay denied  Cyanotech's  motion
for  reconsideration.  Although  the  resolution  of this  matter is  uncertain,
management does not expect that damages,  if any, against  Cyanotech will have a
material  adverse  effect  on the  Company's  consolidated  financial  position,
results of operations or liquidity.


Item 6.         Exhibits and Reports on Form 8-K

                (a)     The following exhibits are furnished with this report:

                        Exhibit 27.1 - Financial Data Schedule

                (b)     Reports on Form 8-K

                        No reports on Form 8-K were filed  during the quarter
                        ended June 30, 2000.

                                       15

<PAGE>


                                   SIGNATURES

         In accordance with the  requirements of the Securities  Exchange Act of
1934,  the  registrant  caused  this  report to be  signed on its  behalf by the
undersigned, thereunto duly authorized.



                                  CYANOTECH CORPORATION (Registrant)



    August 11, 2000               By: /s/  Gerald R. Cysewski
--------------------------            -----------------------------
    (Date)                                 Gerald R. Cysewski
                                           Chairman of the Board,
                                           President and Chief Executive Officer



                                  By: /s/  Ronald P. Scott
                                      -----------------------------
                                           Ronald P. Scott
                                           Executive Vice President - Finance &
                                           Administration
                                           (Principal Financial and
                                            Accounting Officer)


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