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 September 30, 1999

                         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 October 31, 1999:

             Title of Class                               Shares Outstanding

        Common stock - $.005 par value stock                   13,765,575
<PAGE>

                              CYANOTECH CORPORATION
                                    FORM 10-Q

                                      INDEX



PART I.   FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S>                                                                                                      <C>
Item 1.  Financial Statements                                                                            Page

         Consolidated Balance Sheets (unaudited)
                  September 30, 1999 and March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 3

         Consolidated Statements of Operations (unaudited)
                  Three and six month periods ended
                  September 30, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

         Consolidated Statements of Cash Flows (unaudited)
                  Six month periods ended
                  September 30, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

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

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .11


PART II.  OTHER INFORMATION

Item 1.           Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Item 3.           Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Item 4.           Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . 21

Item 6.           Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21



SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
                                        2

<PAGE>

PART I. FINANCIAL INFORMATION
     Item 1.   Financial Statements
<TABLE>
<CAPTION>

                                                 CYANOTECH CORPORATION
                                              CONSOLIDATED BALANCE SHEETS
                                   (Dollars in thousands, except per share amounts)
                                                      (Unaudited)
<S>                                                                             <C>                 <C>
                                                                                September 30,         March 31,
                                                                                    1999                 1999
                                                                                 (Unaudited)          (Audited)
                                                                                -------------       -------------
ASSETS
Current assets:
     Cash and cash equivalents                                                  $        221        $        323
     Accounts receivable, net                                                            847               1,012
     Refundable income taxes                                                             157                 273
     Inventories  (note 2)                                                             1,744               2,105
     Prepaid expenses                                                                    106                 105
                                                                                -------------       -------------
              Total current assets                                                     3,075               3,818

Equipment and leasehold improvements, net (note 3)                                    19,140              19,623
Other assets                                                                             128                 180
                                                                                -------------       -------------
              Total assets                                                      $     22,343        $     23,621
                                                                                =============       =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current maturities of long-term debt                                       $        575        $        700
     Short-term revolving line of credit                                                 942                 994
     Current maturities of capital lease obligations                                      --                  67
     Accounts payable                                                                    735                 746
     Other accrued liabilities                                                           345                 394
     Deferred Revenue                                                                     30                  --
                                                                                -------------       -------------
              Total current liabilities                                                2,627               2,901

Long-term debt, excluding current maturities                                              --                  13
                                                                                -------------       -------------
              Total liabilities                                                        2,627               2,914

Stockholders' equity:
     Cumulative  preferred  stock,  Series  C, of  $.001  par  value
     (aggregate involuntary  liquidation  preference  $2,975 ($5 per
     share),  plus  unpaid cumulative dividends). Authorized
     5,000,000 shares; issued and outstanding 595,031 shares at
     September 30, 1999 and March 31, 1999.                                                1                   1
     Common Stock of $0.05 par value, authorized 25,000,000
     shares;  issued and outstanding 13,760,575 shares at September
     30, 1999 and 13,599,572 shares at  March 31, 1999                                    69                  68
     Additional paid-in capital                                                       24,100              23,956
     Accumulated deficit                                                              (4,454)             (3,318)
                                                                                -------------       -------------
              Total stockholders' equity                                              19,716              20,707
                                                                                -------------       -------------
                    Total liabilities and stockholders' equity                  $     22,343        $     23,621
                                                                                =============       =============

          See accompanying notes to consolidated financial statements.
</TABLE>
                                        3
<PAGE>
<TABLE>
<CAPTION>
                              CYANOTECH CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                   (Unaudited)
                                                                  Three Months Ended                        Six Months Ended
                                                                    September 30,                             September 30,
                                                               1999                  1998               1999                1998
                                                            ------------        ------------        ------------        ------------
<S>                                                         <C>                 <C>                 <C>                 <C>
NET SALES                                                   $     1,496         $     1,525         $     3,095         $     3,288
COST OF PRODUCT SALES                                             1,370               1,124               2,702               2,708
                                                            ------------        ------------        ------------        ------------
               Gross Profit                                         126                 401                 393                 580
                                                            ------------        ------------        ------------        ------------
OPERATING EXPENSES:
        Research and development                                    156                 245                 322                 467
        General and administrative                                  337                 358                 724                 689
        Sales and marketing                                         192                 242                 385                 499
                                                            ------------        ------------        ------------        ------------
               Total operating expenses                             685                 845               1,431               1,655
                                                            ------------        ------------        ------------        ------------
        Loss from operations                                       (559)               (444)             (1,038)             (1,075)
                                                            ------------        ------------        ------------        ------------
OTHER INCOME (EXPENSE):
        Interest income                                               1                   1                   5                   3
        Interest expense                                            (51)                (35)               (106)                (70)
        Other income (expense), net                                   -                   2                   3                  (5)
                                                            ------------        ------------        ------------        ------------

               Total other expense                                  (50)                (32)                (98)                (72)
                                                            ------------        ------------        ------------        ------------

               Income (loss) before income taxes                   (609)               (476)             (1,136)             (1,147)
               Income taxes                                           -                  34                   -                  74
                                                            ------------        ------------        ------------        ------------
NET LOSS                                                           (609)               (442)             (1,136)             (1,073)
                                                            ============        ============        ============        ============
Other comprehensive income                                            -                   -                   -                   -
                                                            ------------        ------------        ------------        ------------
COMPREHENSIVE LOSS                                          $      (609)        $      (442)        $    (1,136)        $    (1,073)
                                                            ============        ============        ============        ============

NET LOSS PER COMMON SHARE
     Basic                                                  $     (0.05)        $     (0.04)        $     (0.09)        $     (0.09)
     Diluted                                                $     (0.05)        $     (0.04)        $     (0.09)        $     (0.09)

SHARES USED IN CALCULATION OF:
     Basic                                                       13,744              13,600              13,678              13,600
     Diluted                                                     13,744              13,600              13,678              13,600

          See accompanying notes to consolidated financial statements.
</TABLE>
                                        4
<PAGE>
<TABLE>
<CAPTION>
                              CYANOTECH CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (Unaudited)

                                                                                          Six Months Ended
                                                                                            September 30,
                                                                                     1999                1998
                                                                                -------------       -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>                 <C>
     Net loss                                                                   $     (1,136)       $      (1,073)
     Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
          Depreciation and amortization                                                  656                  687
          Amortization of debt issue costs                                                19                    6
          Issuance of stock in exchange for services                                      31                    -
          Net (increase) decrease in:
               Accounts receivable                                                       165                   59
               Refundable income taxes                                                   116                    -
               Inventories                                                               361                  (38)
               Prepaid expenses and other assets                                          32                  (24)
          Net increase (decrease) in:
               Accounts payable                                                          (11)                (150)
               Deferred revenue                                                           30                    -
               Other accrued liabilities                                                 (49)                   5
                                                                                -------------        -------------
Net cash provided by (used in) operating activities                                      214                 (528)
                                                                                -------------        -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Investment in equipment and leasehold improvements                                 (173)                (289)
                                                                                -------------        -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net proceeds from exercise of warrants and options                                   16                    -
     Net proceeds from issuance of common stock                                           98                    -
     Debt issue costs paid                                                                 -                 (103)
     Proceeds from issuance of long-term debt                                              -                  750
     Principal payments on long-term debt                                               (138)                 (25)
     Borrowings (repayment) on short-term revolving line of
          credit, net                                                                    (52)                 184
     Principal payments on note payable                                                    -                 (975)
     Principal payments on capital lease obligations                                     (67)                 (66)
                                                                                -------------        -------------
Net cash used in financing activities                                                   (143)                (235)
                                                                                -------------        -------------
Net decrease in cash and cash equivalents                                               (102)              (1,052)
Cash and cash equivalents at beginning of period                                         323                1,397
                                                                                -------------        -------------

Cash and cash equivalents at end of period                                      $        221         $        345
                                                                                =============        =============
          See accompanying notes to consolidated financial statements.
</TABLE>

                                        5
<PAGE>
                              CYANOTECH CORPORATION
                                    FORM 10-Q
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1999
                                   (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, 1999.

         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 for the
         three and six month periods ended September 30, 1999 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, 2000.

         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):
<TABLE>
<CAPTION>
<S>                                                                        <C>                           <C>
                                                                           September 30, 1999              March 31, 1999
                                                                           ------------------            ------------------
                    Raw materials                                          $               44            $               63
                    Work in process                                                       193                           287
                    Finished goods                                                      1,322                         1,555
                    Supplies                                                              185                           200
                                                                           ------------------            ------------------
                                                                           $            1,744            $            2,105
                                                                           ==================            ==================
</TABLE>
                                        6
<PAGE>

3.       EQUIPMENT AND LEASEHOLD IMPROVEMENTS

         Owned  equipment  and  leasehold   improvements  are  stated  at  cost.
         Equipment  under  capital  lease is stated at the lower of the  present
         value of the minimum  lease  payments or fair value of the equipment at
         the inception of the lease.  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  and  equipment  under capital
         lease as follows:

         Equipment                                                 3 to 10 years
         Leasehold improvements                                   10 to 27 years
         Furniture and fixtures                                          7 years
         Equipment under capital lease                                  10 years

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


                                                            September 30, 1999         March 31, 1999
                                                            ------------------       ------------------
<S>                                                         <C>                      <C>
         Equipment                                          $           8,674        $           8,421
         Leasehold improvements                                        13,781                   13,779
         Furniture and fixtures                                            96                       83
         Equipment under capital lease                                    160                      388
                                                            ------------------       ------------------
                                                                       22,711                   22,671
         Less accumulated depreciation and amortization                (6,763)                  (6,107)
         Construction in-progress                                       3,192                    3,059
                                                            ------------------       ------------------
         Equipment and leasehold improvements, net          $          19,140        $          19,623
                                                            ==================       ==================
</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, 2000, 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
         September 30, 1999 amount to $2,446 ($4.11 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.

                                       7
<PAGE>

5.       EARNINGS PER SHARE

         For the  three  and six  months  ended  September  30,  1999 and  1998,
         warrants and options to purchase Common Stock shares 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.  As of September 30, 1999,  warrants and
         options to acquire  784,700  shares of the  Company's  common stock and
         preferred  stock  convertible  into  2,975,155  shares of the Company's
         common stock were outstanding.  As  of September 30, 1998, warrants and
         options  to  acquire  638,925  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>
                                                               Three Months Ended                      Six Months Ended
                                                                  September 30,                           September 30,
                                                            1999                1998                1999                1998
BASIC EARNINGS PER SHARE                               -------------       -------------       -------------       -------------
<S>                                                    <C>                 <C>                 <C>                 <C>
Net loss                                               $       (609)       $       (442)       $     (1,136)       $     (1,073)
Less: Requirement for Preferred Stock
      dividends                                                 (59)                (59)               (119)               (119)
                                                       -------------       -------------       -------------       -------------
Loss to Common stockholders                            $       (668)       $       (501)       $     (1,255)       $     (1,192)
                                                       =============       =============       =============       =============
Weighted average Common Shares outstanding               13,743,993          13,600,413          13,677,826          13,599,858
                                                       =============       =============       =============       =============
Net Loss per Common Share                              $      (0.05)       $      (0.04)       $      (0.09)       $      (0.09)
                                                       =============       =============       =============       =============

DILUTED EARNINGS PER SHARE
Loss to Common stockholders                            $       (668)       $       (501)       $     (1,255)       $     (1,192)
Plus: Requirement for Preferred Stock
      dividends                                                   -                   -                   -                   -
                                                       -------------       -------------       -------------       -------------
Loss to Common stockholders, as adjusted               $       (668)       $       (501)       $     (1,255)       $     (1,192)
                                                       =============       =============       =============       =============

Weighted average Common Shares outstanding               13,743,993          13,600,143          13,677,826          13,599,858
Effect of dilutive securities:
     Stock options and warrants                                   -                   -                   -                   -
     Convertible preferred stock                                  -                   -                   -                   -
                                                       -------------       -------------       -------------       -------------
Weighted average Common Shares
     outstanding, as adjusted                            13,743,993          13,600,413          13,677,826          13,599,858
                                                       =============       =============       =============       =============
Net loss per Common Share                              $      (0.05)       $      (0.04)       $      (0.09)       $      (0.09)
                                                       =============       =============       =============       =============
</TABLE>
                                       8

<PAGE>
6.       ACCOUNTING CHANGES

         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.  The  Company   currently  holds  no
         derivative  instruments,  nor is it currently  participating in hedging
         activities. Management does not expect adoption of SFAS No. 133 to have
         a material  effect on the  Company's  financial  condition,  results of
         operations or liquidity.

         Accounting for the Costs of Computer Software Developed or Obtained for
         Internal Use. In March 1998, the American Institute of Certified Public
         Accountants  ("AICPA")  Accounting Standards Executive Committee issued
         Statement  of  Position  ("SOP")  98-1,  "Accounting  for the  Costs of
         Computer  Software  Developed  or  Obtained  for  Internal  Use," which
         requires   that   certain   costs,   including   certain   payroll  and
         payroll-related  costs, be capitalized and amortized over the estimated
         useful life of the software.  The  provisions of SOP 98-1 are effective
         for fiscal years beginning after December 15, 1998. The Company adopted
         the  provisions of SOP 98-1  effective  April 1, 1999.  Adoption of SOP
         98-1  did  not  have  a  material  effect  on the  Company's  financial
         condition, results of operations or liquidity.

         Reporting on the Costs of Start-up Activities. In April 1998, the AICPA
         Accounting Standards Executive Committee issued SOP 98-5, "Reporting on
         the Costs of  Start-up  Activities."  SOP 98-5  requires  that costs of
         start-up  activities,  including  organization  costs,  be  expensed as
         incurred.  The  provisions  of SOP 98-5 are  effective for fiscal years
         beginning   after   December  15,  1998  and  earlier   application  is
         encouraged.  The Company  adopted the  provisions of SOP 98-5 effective
         April 1, 1999.  Adoption of SOP 98-5 did not have a material  effect on
         the Company's financial condition, results of operations or liquidity.

7.       LINE OF CREDIT AND LONG-TERM DEBT

         In  July  1998,  the Company entered into a Loan and Security Agreement
         (Agreement) with a lender which provides for up to $3 million in credit
         facilities,  secured by all the assets of the Company.  This  Agreement
         is discussed in detail in the section describing Liquidity and  Capital
         Resources  in  Item  2  of this report.  On October 8, 1999, the lender
         informed  the  Company of its intent to terminate its lending agreement
         with the Company, effective December 31, 1999 due to the Company  being
         in  default  on  certain  financial  covenants.  The Company is seeking
         alternate  sources  of  financing  to replace this Agreement.  However,
         there can be no assurance that the Company will be successful,  or that
         if  successful,  that  it  will be able to obtain replacement financing
         under favorable terms.  Failure to obtain  alternative  financing would
         have  a  material  adverse effect on the Company's financial condition,
         results of operations and liquidity.

                                       9
<PAGE>
8.       GOING CONCERN

         The  consolidated  financial statements at September 30, 1999 have been
         prepared  on  a  going  concern  basis,  which  assumes  continuity  of
         operations and realization  of assets and liquidation of liabilities in
         the ordinary course of business.  During the years ended March 31, 1999
         and  1998,  the  Company  incurred  losses  of  $2,557,000 and $300,000
         respectively.   During  the  six  months  ended September 30, 1999, the
         Company incurred a loss of $1,136,000.  During these two fiscal  years,
         and  for  the  six  months  ended September 30, 1999, the  Company  has
         experienced declining sales which management believes can be attributed
         to increased competition for sales of Spirulina products in all  of its
         major markets.  The  major  effect  of the decrease in sales has been a
         decrease in liquidity. Due to the significant decrease in sales and the
         decline  in  working  capital,  the  Company has taken action to reduce
         expenditures and obtain additional sources of external financing  while
         concurrently continuing to diversify its product offerings and  explore
         opportunities  for  expanding the markets for its products.  Management
         believes that this plan may increase revenues and return the Company to
         profitability.

         The  Company's  continuation  as  a going concern is dependent upon its
         ability  to  generate sufficient cash flow to meet its obligations on a
         timely basis,  to comply with the terms of its financing agreement,  to
         obtain  additional  financing  or  refinancing  as may be required,  to
         attain profitability, or a combination thereof.  The Company is seeking
         other  possible  sources  of  external  financing,  but  unless  it  is
         successful, there may be liquidity shortfalls in future periods.  There
         can  be  no  assurance that the Company will be successful in obtaining
         additional financing or will have sufficient  cash resources to support
         its  continued  operations.   The  accompanying  consolidated financial
         statements  do  not  include any adjustments that might result from the
         outcome of this uncertainty.

                                       10
<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 the  Company's  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:
<TABLE>
<CAPTION>
                                                                     Three Months Ended                Six Months Ended
                                                                         September 30,                    September 30,
<S>                                                                   <C>       <C>                 <C>       <C>
                                                                       1999      1998                1999      1998
                                                                      ------    ------              ------    ------
          Net Sales                                                   100.0 %   100.0 %             100.0 %   100.0 %
          Cost of product sales                                        91.6      73.7                87.3      82.4
                                                                      ------    ------              ------    ------
               Gross profit                                             8.4      26.3                12.7      17.6
                                                                      ------    ------              ------    ------
          Operating expenses:
               Research and development                                10.4      16.1                10.4      14.2
               General and administrative                              22.5      23.4                23.4      20.9
               Sales and marketing                                     12.9      15.9                12.4      15.2
                                                                      ------    ------              ------    ------
               Total operating expenses                                45.8      55.4                46.2      50.3
                                                                      ------    ------              ------    ------

               Loss from operations                                   (37.4)    (29.1)              (33.5)    (32.7)
                                                                      ------    ------              ------    ------
          Other income (expense):
               Interest income                                          0.1       0.1                 0.1       0.1
               Interest expense                                        (3.4)     (2.3)               (3.4)     (2.1)
               Other income (expense), net                                -       0.1                 0.1      (0.2)
                                                                      ------    ------              ------    ------

               Total other income (expense)                            (3.3)     (2.1)               (3.2)     (2.2)
                                                                      ------    ------              ------    ------
               Loss before income taxes                               (40.7)    (31.2)              (36.7)    (34.9)
               Income taxes                                               -       2.2                   -       2.3
                                                                      ------    ------              ------    ------
          Net loss                                                    (40.7)    (29.0)              (36.7)    (32.6)
          Other comprehensive income                                      -         -                   -         -
                                                                      ------    ------              ------    ------
          Comprehensive loss                                          (40.7) %  (29.0) %            (36.7) %  (32.6) %
                                                                      ======    ======              ======    ======
</TABLE>
                                       11

<PAGE>

SECOND QUARTER OF FISCAL 2000 COMPARED TO SECOND QUARTER OF FISCAL 1999

Net Sales

         Net sales for the three  month  period  ended  September  30, 1999 were
$1,496,000,  a decrease of 2% from $1,525,000 in the comparable period of fiscal
1999.  This  decrease  in net sales is  primarily  due to reduced  sales of bulk
Spirulina  products  and  was  partially  offset by higher sales of NatuRose(TM)
natural astaxanthin.

         International  sales represented 45% and 37% of total net sales for the
three  month  periods  ended  September  30, 1999 and 1998,  respectively.  This
increase was primarily due to increased  sales of bulk Spirulina  tablets to our
largest customer, a European distributor of natural products.

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 decreased to $126,000
for the three month period ended  September 30, 1999,  down 69% from $401,000 in
thecomparable  period of fiscal 1999.  Our gross profit margin  decreased to  8%
for the three month period ended  September 30, 1999,  compared  to  26% for the
comparable  period of fiscal 1999. This decrease in gross profit margin from the
prior year period is primarily  attributable to reduced gross profit on sales of
bulk  Spirulina  products other than tablets  as a result of lower average sales
prices per unit and higher Spirulina production costs  resulting  from operating
at lower  than  optimum  production  levels,  offset in part by greater sales of
higher margin bulk Spirulina tablets and slightly  higher  margins  on  packaged
consumer products.

Operating Expenses

         Operating  expenses were  $685,000  during the three month period ended
September 30, 1999, a decrease of 19% from $845,000 in the comparable  period of
fiscal 1999.  This decrease was primarily due to lower costs for all  categories
of operating expenses.

         Research and Development. Research and development expenses amounted to
$156,000 for the three month period ended September 30, 1999,  a decrease of 36%
from  $245,000 for the comparable period of fiscal 1999.  This decrease from the
prior  year  was  primarily  due  to  lower  expenditures  related to completing
the improved production technology for natural astaxanthin during fiscal 1999.

         General  and  Administrative.   General  and  administrative   expenses
amounted to $337,000 for the three months ended  September  30, 1999, a decrease
of 6% from $358,000 for the comparable period of fiscal 1999. This decrease from
the  prior  year is primarily due to reduced  personnel  costs  resulting from a
downsizing instituted during the fourth quarter of fiscal 1999.

         Sales and Marketing.  Sales and marketing expenses amounted to $192,000
for the three month  period  ended  September  30,  1999, a decrease of 21% from
$242,000 for the comparable  period of fiscal 1999. This decrease from the prior
year is primarily due to reduced  personnel,  advertising and consulting service
costs dictated by lower revenues.

                                       12
<PAGE>

Other Income (Expense)

         There was no material change  in  other income or expense for the three
month  period ended September 30, 1999, as compared to the comparable  period of
fiscal 1999.

Income Taxes

         A  provision  for income  taxes was not  recorded  for the three  month
period ended  September  30, 1999 due to the  Company's  taxable  loss  position
compared to an  interperiod  tax benefit of $34,000 recorded for  the comparable
period of fiscal 1999.

Net Loss

         The  Company recorded a net loss of $609,000 for the three months ended
September 30, 1999,  38%  more  than the net loss of $442,000 for the comparable
period of fiscal 1999.  This increase  in  net loss is primarily attributable to
lower sales of Spirulina powder and tablets, increased cost of product sales and
the  effect  of  the  interperiod  tax benefit of $34,000 recorded for the three
months ended September 30, 1998.


SIX MONTHS ENDED  SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED  SEPTEMBER 30,
1998

Net Sales

         Net sales for the six month period ended  September 30, 1999  decreased
6% to $3,095,000 from $3,288,000 in the comparable  period of fiscal 1999.  This
decrease is primarily due to lower sales of packaged consumer products and lower
sales of phycobiliproteins.

         International  sales represented 48% and 40% of total net sales for the
six month periods ended September 30, 1999 and 1998, respectively.

Gross Profit

         Gross profit  decreased  32% to $393,000 for the six month period ended
September 30, 1999,  from $580,000 in the comparable  period of fiscal 1999. Our
gross profit  margin  decreased to 13% for the six month period ended  September
30,  1999,  compared  to 18% for the  comparable  period  of fiscal  1999.  This
decrease  in gross  profit  margin  from the  prior  year  period  is  primarily
attributable  to  lower  average  sales prices of bulk Spirulina  products other
than tablets  and  increased  Spirulina  production  costs due to  operating  at
lower than  optimum production levels.

Operating Expenses

         Operating  expenses were  $1,431,000  during the six month period ended
September 30, 1999, a decrease of 14% from  $1,655,000 in the comparable  period
of fiscal 1999.  This  decrease  was  primarily  due to  decreased  research and
development and sales and marketing expenses.

                                       13
<PAGE>

         Research and Development. Research and development expenses amounted to
$322,000 for the six month period  ended  September  30, 1999, a decrease of 31%
from $467,000 for the comparable  period of fiscal 1999.  This decrease from the
prior year was primarily due to reduced personnel expenditures and lower outside
service  expenses  related  to completing the development of improved production
technology for natural astaxanthin during fiscal 1999.

         Sales and Marketing.  Sales and marketing expenses amounted to $385,000
for the six month  period  ended  September  30,  1999,  a decrease  of 23% from
$499,000 for the comparable  period of fiscal 1999. This decrease from the prior
year is  primarily due to reduced personnel and travel expenses,  offset in part
by increased advertising and consulting service costs.

Other Income (Expense)

         There was no material  change  in other income or expense  for  the six
month period  ended September 30, 1999, as compared to the comparable  period of
fiscal 1999.

Income Taxes

         A provision  for income taxes was not recorded for the six month period
ended September 30, 1999 due to the Company's  taxable loss position compared to
an  interperiod  tax  benefit  of  $74,000 recorded for the comparable period of
fiscal 1999.

Net Income (Loss)

         The Company recorded a net loss of $1,136,000  for the six months ended
September 30, 1999, compared to $1,073,000  for the  comparable period of fiscal
1999.  This increase in net loss is primarily attributable  to the effect of the
interperiod tax benefit of $74,000 recorded for the six months  ended  September
30, 1998.  The net loss before taxes for the six months ended September 30, 1999
decreased slightly from net loss before taxes recorded for the comparable period
of fiscal 1999.

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 financial condition and results of operations.

                                       14
<PAGE>

         The Company's  continuation  as a going  concern is dependent  upon its
ability to generate  sufficient  cash flow to meet its  obligations  on a timely
basis, to comply with the terms of its financing agreement, to obtain additional
financing or  refinancing  as may be  required,  to attain  profitability,  or a
combination  thereof.  There can be no  assurance  that  these  efforts  will be
successful  or that the  Company  will return to  generating  profit on either a
quarterly or annual basis.


Liquidity and Capital Resources

         Our working  capital for the six month period ended  September 30, 1999
decreased by $469,000 to $448,000 from $917,000 at March 31, 1999.  Our cash and
cash equivalents decreased by $102,000 to $221,000 and is primarily attributable
to cash flows of $138,000  used for reduction of long-term  debt,  $173,000 used
for  investment in property and  equipment and $52,000 used to reduce  revolving
debt, offset in part by cash provided by operating activities of $214,000.

         Despite the net loss of $1,136,000,  taking  into  account depreciation
and amortization totaling $656,000,  a  decrease  in  inventories  of  $361,000,
collection  of  accounts  receivable  amounting  to  $165,000 and a Hawaii State
income  tax  refund  of  $116,000,  cash flows from operating activities for the
first  six  months  of fiscal 2000 amounted to $214,000 compared to cash used in
operating activities of $528,000 in the comparable period of  fiscal 1999.

         Cash used in investing  activities for capital  expenditures during the
first six months of fiscal 2000 decreased to $173,000  compared to $289,000  for
the comparable period of fiscal 1999.

         Cash used in financing activities during the first six months of fiscal
2000  amounted  to  $143,000,  compared to $235,000 for the comparable period of
fiscal 1999.  The  primary uses of cash flows in financing activities during the
first six months of fiscal 2000 were for principal payments on long-term debt of
$138,000,  principal  payments  on  a  capital lease of $67,000 and repayment of
borrowings on a short-term revolving line of credit of  $52,000,  offset in part
by net  proceeds  from issuance  of common  stock  and  proceeds  from  issuance
of common stock and the exercise of common stock options totaling $114,000.

         In July 1998,  the Company  entered into a Loan and Security  Agreement
(Agreement)  with a  lender  which  provides  for  up to $3  million  in  credit
facilities,  secured by all the assets of the Company.  The major  components of
the credit facility include working capital loans on a revolving basis,  subject
to the availability of eligible accounts  receivable and inventory (as defined),
a sub-limit term loan of up to $750,000  (amortized in equal payments of $12,500
over sixty months) secured by eligible machinery and equipment,  and a sub-limit
term loan of up to $2 million  (amortized  over sixty  months and subject to the
Company achieving and maintaining specific levels of financial  performance) for
the  acquisition  of new machinery and  equipment.  The Agreement has a maturity
date of July 31, 2001 with an optional  provision for  automatic and  continuous
renewal for successive,  additional terms of one year each. The interest rate on
the  credit  facility  in  the absence of a default under the agreement is prime
plus 2.5% (at September  30, 1999,  the prime rate  was 8.25%) until the Company
achieves certain financial performance  levels, at which time the interest  rate
will decrease to prime plus 1.25%.  Interest is calculated  on a base  amount of
$1 million or the outstanding  loan  balance, whichever is greater.  The fee for
renewing the Agreement beyond the maturity date of July 31, 2001 is set at 5% of
the  aggregate  outstanding  balance  at  the  end  of  the  initial term of the
agreement.

                                       15
<PAGE>

         The Agreement  contains  certain  restrictive  covenants which include,
among other  things,  the  maintenance  of minimum  consolidated  net worth,  as
defined, and a subjective  acceleration clause contingent upon the occurrence of
an event with a material adverse effect on the Company,  as defined. On July 13,
1999,   the lender gave notice to the Company of a default  under the  Agreement
because  of  the  uncertainty  of  the Company's  ability to continue as a going
concern.  In  view  of  this  default,  the lender exercised its right under the
Agreement  effective  July  13,  1999,  to  increase  the  interest  rate on all
borrowings  from prime plus 2.5% to prime plus 5.5%.  Consequently,  the Company
has  classified  the  aggregate   outstanding   balance  on  this  Agreement  of
$1,517,000,  representing outstanding working capital loans on a revolving basis
of $942,000 and an equipment  term loan of $575,000,  as a current  liability in
the consolidated balance sheet at September 30, 1999.

         At  September  30,  1999,  the  remaining  available  credit  under the
Agreement was calculated by the lender to be $115,000.  This amount excludes the
facility  for  the acquisition of new machinery and equipment which requires the
Company to maintain a Debt Service  Coverage  ratio of at least 1.25 : 1 for the
two  prior  full  consecutive  quarters.  This component, although not currently
available, may increase the availability by an additional $1,368,000,  up to the
limit of $3 million for the entire Agreement.

         On October 8, 1999,  the lender  informed  the Company of its intent to
terminate  the  agreement  with  Cyanotech  effective  December  31,  1999,  and
accelerate the repayment of all outstanding borrowings due to the Company  being
in default on certain financial covenants. This default resulted from the "going
concern"  opinion  issued  by  the Company's independent auditors for the fiscal
1999   period   and  the  fact  that  stockholders'  equity  has  dropped  below
$20,000,000.  The Company is currently seeking alternate sources of financing to
replace this Agreement and has reason to believe it will be successful. However,
there  can  be  no  assurance  that  the  Company will be successful, or that if
successful, that it will be able to obtain replacement financing under favorable
terms.  Failure  to  obtain  alternative financing would have a material adverse
effect on the Company's financial position, results of operations and liquidity.

         The  Company  has  a  commitment  for  an  expansion  project which was
suspended in February 1998.  On June 15, 1999, we reached an agreement with  the
project   contractor  to  resume  work  on  the  suspended construction  project
on or before June 1, 2000.  In consideration of  this extension of the contract,
the  Company has agreed to pay an  additional  $20,000  at  the  startup of work
and  a  surcharge  of  1.5%  on work not completed by September 30, 1999, and  a
surcharge  of  4% o n all work not completed by September 30, 2000. If work does
not resume on or before June 1, 2000,  then  the  contract  will  be  considered
to have been  terminated by Cyanotech.  The Company intends to proceed with  the
project per this agreement, pending availability of financing.  Assertion by the
contractor of its termination rights would have a material adverse effect on the
Company's financial  condition, results of operations and liquidity.

         On September 17, 1999, we reached a further agreement with this project
contractor on terms for  indefinite suspension  or termination of our  contract.
This agreement becomes effective only if the suspension agreement dated June 15,
1999,  expires  without  a  further  agreement  to continue the suspension.  The
contractor has calculated  the  remaining  balance  for work completed under the
contract to be $338,000.  If the contract expires without a further agreement to
continue the suspension,  we  reached  a  settlement  with the contractor to pay
$170,000 for such completed work.  In the event  we choose  to  proceed with the
project  at  a  future date, the contractor reserves the right  to negotiate for
escalation  and remobilization cost increases.  If  we  cannot come to agreement
with  the  contractor  for  completion  of the project,  we  may proceed with an
alternate contractor after  paying the remaining $168,000 plus interest.

                                       16
<PAGE>

         As of September 30, 1999, the credit facilities available to Cyanotech,
as described above, unless  supplemented by funds from other sources,  would not
be  sufficient to finance this  construction  work.  Total costs  incurred as of
September 30, 1999 with respect  to  this pond expansion  project   approximated
$2,693,000.  Failure to comply with its commitments on this project would have a
material  adverse  effect  on the  Company's  financial  condition,  results  of
operations and liquidity.

       In  June 1999,  we reached a  preliminary agreement  with Norsk Hydro ASA
("Norsk Hydro") to produce and market NatuRose natural astaxanthin product in  a
joint  venture  that will be owned 51% by Norsk Hydro and 49% by Cyanotech.  The
intention of the joint venture is to build and  operate  a  NatuRose  production
facility  in Kailua-Kona,  Hawaii.   The Company is continuing to negotiate with
Norsk Hydro to finalize a definitive agreement.  The Company's assessment of the
non-impairment  of  certain  long-lived  assets as  of  September  30,  1999, is
predicated  on  the  consummation and  commercial success of this joint venture.
Failure to consummate the joint  venture  arrangement  or failure  by  the joint
venture to achieve expected commercial  outcomes  may  result  in the impairment
of such long-lived assets.

         The unaudited  consolidated  financial statements at September 30, 1999
have been  prepared  on a going  concern  basis,  which  assumes  continuity  of
operations  and  realization  of assets and  liquidation  of  liabilities in the
ordinary  course of business.  The Company's  continuation as a going concern is
dependent  upon  its  ability  to  generate  sufficient  cash  flow to meet  its
obligations  on a  timely  basis,  to  comply  with the  terms of its  financing
agreement,  to  obtain  additional  financing  as may  be  required,  to  attain
profitability,  or a combination  thereof. The Company is actively seeking other
possible sources of external financing,  but unless it is successful,  there may
be liquidity  shortfalls in future  periods.  There can be no assurance that the
Company  will be  successful  in  obtaining  additional  financing  or will have
sufficient cash resources to support its continued operations.


YEAR 2000 COMPLIANCE

         We have  completed a  comprehensive  review of our computer  systems to
identify  the  systems  that could be affected by the "Year 2000" issue and have
developed  an implementation  plan, to be completed by the end of calendar 1999,
to  resolve the issue. We believe that, with  modifications to existing software
and converting  to new software and hardware, the Year 2000 issue  will not pose
significant  operational  problems  for  our computer systems as so modified and
converted.  The costs of such  modifications and conversions are not expected to
exceed $10,000. However, if such modifications and conversions are not completed
in  a  timely  manner,  the  Year 2000 problem may have a material impact on our
operations.

         The  primary  risks to the Company of Year 2000  problems  are those of
business  continuity related to reliance on third parties. We are continuing the
review and  evaluation of our reliance on other third  parties  (e.g.  utilities
providers, distribution channels, major  suppliers and vendors) to determine and
minimize  the  extent  to  which our operations  may be dependent  on such third
parties  to  remedy  the  Year  2000  issues  in  their  systems.  In  addition,
contingency backup plans will be reviewed for each mission critical system, with
the emphasis on operational and production continuity.  The  Company's business,
operating  results   and  financial  condition  could  be  materially  adversely
affected, at least for a time, by the failure of its  systems  or those of other
parties  to  operate properly beyond 1999.

                                       17

<PAGE>


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   positive  results  from  the
downsizing and asset  management  program put in place during the fourth quarter
of fiscal  1999.  During  the three  month  period  ended  September  30,  1999,
inventory levels decreased by approximately  $180,000 and the Company  continues
to produce  Spirulina at 50% of full  capacity.  We are balancing our production
resources  between  our  primary products and plan to allocate more resources to
natural astaxanthin production in future quarters to meet the anticipated demand
of customers for NatuRose, our  natural astaxanthin product for the  aquaculture
and  animal  pigmentation  markets  and BioAstin(TM),  our  natural  astaxanthin
product for the human nutrition market. During the three months ended  September
30, 1999,  our gross profit margin on sales of NatuRose  improved  significantly
due primarily to production efficiencies resulting from the optimization program
begun  in  the  first  quarter  of  this  fiscal  year  on  natural  astaxanthin
production.  We  expect  these  improvements to continue into future periods but
there  can  be  no  assurance  that  the  gross  profit  margin  of  our natural
astaxanthin products will not be adversely affected by higher  production  costs
related to operating at lower than optimal production levels.  We are continuing
our  optimization  program  targeted at our PhytoDome CCS(TM) processing systems
and production throughput; however, we may experience increased costs related to
production of our natural astaxanthin products in future periods.

         In August  1999,  we  announced  that,  as a result of our research and
development and  optimization  efforts,  we had developed an improved method for
producing  certified  organic  Spirulina  Pacifica.   Independent  analysis  has
indicated  that  product  resulting  from  use  of  this new method is higher in
protein,  zinc,  iron  and  Gamma  Linolenic  Acid  ("GLA")  than our previously
produced  certified  organic  Spirulina.  Cyanotech  Corporation  was  the first
company to receive  organic certification  for Spirulina products, but until now
sales of certified organic Spirulina Pacifica had been limited due to production
capacity.  This new system promises to  lower certified organic production costs
and increase the yield from our certified organic Spirulina Pacifica production.
The increased yield is allowing Cyanotech to open sales of its certified organic
Spirulina  Pacifica  to  third party formulators for the first time.  Currently,
certified  organic  Spirulina  Pacifica  is sold only through our Nutrex product
line and certain private label export sales.

         Also in  August  1999,  we  announced  that  our  application  to  sell
BioAstin,  our natural  astaxanthin  product for the human nutrition market, had
been   reviewed   without   objection  by  the  United   States  Food  and  Drug
Administration  (FDA). With the completion of the FDA review of our new BioAstin
product,  Cyanotech  can now offer the  product  for sale and use in the  United
States as a human dietary supplement for its antioxidant properties.

         Research  and  development costs are expected to remain constant during
the rest of this fiscal year as we continue to optimize the PhytoDome CCS closed
culture  technology  for  production  of  our natural  astaxanthin  products and
continue  the  research  and  development activities directed at the genetically
engineered mosquitocide project and the Aldolase Catalytic Antibody 38C2.


                                       18
<PAGE>

         Cyanotech's  strategy has been,  and continues to be, to produce higher
value natural products from microalgae.  To continue the  implementation of this
strategy, we have broadened our product offerings with the addition of BioAstin,
our natural  astaxanthin  product for the human nutrition  market.

         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,  among the other  factors 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.

         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.

                                       19
<PAGE>



PART II.       OTHER INFORMATION

Item 1.        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 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 has 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.  Motions for partial summary judgement
               filed  by  both  parties  are  pending  before the Court.  In the
               opinion  of  management,  the ultimate disposition of this matter
               will  not  have  a  material  adverse  effect  on  the  Company's
               consolidated   financial   position,  results  of  operations  or
               liquidity.

Item 3.        In July  1998,  the  Company  entered  into a Loan  and  Security
               Agreement (Agreement) with a lender  which is described in detail
               in the  discussion on Liquidity  and Capital  Resources in Item 2
               of  this  report.   The  Agreement  contains  certain  restritive
               covenants,  which include, among other things, the maintenance of
               minimum consolidated net worth,  as  defined, and an acceleration
               clause  to  take  effect  on  the  occurrence  of an event with a
               material adverse effect  on the  Company, as defined. On July 13,
               1999, the lender declared the Company to be in default under  the
               Agreement because of the uncertainty of the Company's  ability to
               continue as a going concern.  In view of this default, the lender
               exercised its right under the Agreement effective  July 13, 1999,
               to increase the interest rate on  all borrowings  from prime plus
               2.5% to prime plus 5.5%. On October 8, 1999, the lender  informed
               the  Company  of  its  intent  to  terminate  the  agreement with
               Cyanotech,  effective  December 31, 1999 due to the Company being
               in  on  certain  financial covenants.  This default resulted from
               the  "going concern" opinion issued by  the Company's independent
               auditors   for   the   fiscal  1999  period  and  the  fact  that
               stockholders' equity has dropped below $20,000,000. Consequently,
               the Company  has classified the aggregate outstanding balance  on
               this  Agreement  of  $1,517,000, representing outstanding working
               capital loans  on  a revolving basis of $942,000 and an equipment
               term loan of $575,000, as a current liability in the consolidated
               balance sheet at  September  30, 1999.  The  Company is currently
               seeking alternate sources of financing to replace  this Agreement
               and  has reason  to believe that it will be successful.  However,
               there can be no assurance that the  Company  will  be successful,
               or that if successful, that it will be able to obtain replacement
               financing under favorable terms.  Failure  to obtain  alternative
               financing would have a material adverse  effect  on the Company's
               financial position, results of operations and liquidity.

                                       20

<PAGE>

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

               On  August 26, 1999,  the  following  matters were submitted to a
               vote of stockholders  entitled to vote at the Company's Annual
               Meeting of Stockholders:

               a) The  following  directors were elected to serve until the next
                  Annual  Meeting  or until their successors are elected: Gerald
                  R. Cysewski, Eric H. Reichl, Ronald P. Scott,  John T. Waldron
                  and Paul C. Yuen,  all directors receiving at least 13,727,188
                  votes and no more than 451,265 votes against or abstaining.

               b) Ratification  of  the selection of KPMG LLP as  the  Company's
                  independent  auditors  for  the  fiscal  year ending March 31,
                  2000.

                  For: 14,045,768     Against: 73,215     Abstaining: 59,270


Item 6.        Exhibits and Reports on Form 8-K

               a) The following exhibits are furnished with this report:

                  Exhibit 10.1 - Kiewit suspension agreement dated June 15, 1999
                                 (Incorporated  by reference to Exhibit 10.14 to
                                  the Company's Annual Report on  Form  10-K for
                                  the fiscal year ended March 31, 1999, file no.
                                  0-14602.)
                  Exhibit 10.2 - Kiewit  suspension  and  termination  agreement
                                 dated September 17, 1999

                  Exhibit 27.1 - Financial Data Schedule

               b) Reports on Form 8-K

                  No  reports  on Form 8-K were filed  during the quarter  ended
                  September 30, 1999.

                                       21
<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)



  November 4, 1999                 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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