**Exhibit 99.1**

 

**RISKFACTORS**

 

You should carefullyconsider the risks described below which we believe are significant but not theonly ones we face.   Any of the followingrisks could have a material adverse effect on our business, financial conditionand operating results.  You should alsorefer to the other information contained in this report, including ourfinancial statements and the related notes.

 

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

 

Our results of operationsare affected by the level of business activity of our clients and customerswhom in turn are affected by the level of economic activity in the industriesand markets that they serve.  A declinein the level of business activity of our clients could have a material adverseeffect on our revenues and profit margin.

 

**OurQuarterly Operating Results May Vary From Quarter to Quarter, Which May Resultin Increased Volatility of Our Share Price**

 

We have experienced, andmay in the future continue to experience, fluctuations in our quarterlyoperating results.  These fluctuationscould reduce the market price of our Common Stock.  Factors that may cause our quarterlyoperating results to vary include, but are not limited to:

 

•                  the business decisions of ourcustomers regarding orders for our products;

•                  increased energy costs;

•                  increased raw material costs;

•                  production difficulties;

•                  the introduction of new products byus or our competitors;

•                  changes in our pricing policies orthose of our competitors;

•                  seasonal trends in our customers’buying patterns;

•                  the impact of weather on ouroperations or on our customers’ purchasing trends;

•                  changes in government regulation,both domestic and foreign;

•                  fluctuation in foreign currency exchangerates;

•                  global economic and politicalconditions and related risks, including acts of terrorism; and

•                  other factors beyond our control.

 

A significant portion ofour expense levels are relatively fixed and the timing of increases in expenselevels is based in large part on our forecasts of future sales.  If net sales are below expectations in anygiven period, the adverse impact on results of operations may be magnified byour inability to adjust expenses quickly enough to compensate for the salesshortfall.

 

**OurGlobal Operations Expose Us to Complex Management, Foreign Currency, Legal, Taxand Economic Risks, Which We May Not Be Able to Adequately Address**

 

We conduct business in anumber of countries around the world. For the three months ended September 30, 2005, approximately 50% of our net sales were to foreigncustomers.  As a result, we are subjectto a number of risks which include, but are not limited to:

 

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

•                  potentially longer payment cycles forforeign sales;

•                  multiple and possibly overlapping andconflicting tax laws;

•                  coordinating geographically separatedlocations;

•                  restrictions (government andotherwise) on the movement of cash;

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

•                  changes in government regulations,both domestic and foreign;

•                  global economic and politicalconditions and related risks, including acts of terrorism; and

•                  fluctuations in foreign currencyexchange rates.

 

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**Competitionin Our Industry is Intense**

 

The nutritional productsmarket is highly competitive.  Itincludes international, national, regional and local producers anddistributors, many of whom have greater resources than Cyanotech and many ofwhom offer a greater variety of products. Increased competition in our industry could result in price reductions,reduced gross profit margin or loss of market share, any of which could have amaterial effect on our business, results of operations and financial condition.

 

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

 

We have in the pastderived, and may continue in the future to derive, a significant portion of ourrevenues from a relatively limited number of major customers.  From quarter to quarter, revenues from one ormore individual customers may exceed 10% of our revenues for the quarter.  During the quarter ended September 30,2005, sales to one customer, a European distributor, were approximately 12% ofnet sales.  If sales to a major customerdecrease significantly, it may materially affect our results ofoperations.  In addition, if we fail tocollect large accounts receivable from such major customers, we could besubject to significant financial exposure.

 

**IfWe Are Unable to Protect Our Intellectual Property Rights or if We InfringeUpon the Intellectual Property Rights of Others Our Business May Be Harmed**

 

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

 

**OurInsurance Liability Coverage is Limited in Certain Circumstances**

 

In the ordinary course ofbusiness, the Company purchases insurance coverages (e.g., property andliability coverages) to protect itself against loss of or damage to itsproperties and claims made by third parties and employees for property damageor personal injuries.  However, theprotection provided by such insurance is limited in significant respects and,in some instances, the Company has no coverage and certain of the Company’sinsurance has substantial “deductibles” or has limits on the maximum amountsthat may be recovered.  For example, if ahurricane or other uninsured catastrophic natural disaster should occur, theCompany may not be able to recover all facility restoration costs and revenueslost from business interruption.  Inaddition, the Company maintains product liability insurance in limited amountsfor all of its products involving human consumption, however, broader productliability coverage is prohibitively expensive. Insurers have also introduced new exclusions or limitations of coveragefor claims related to certain perils including, but not limited to, mold andterrorism.  If a series of lossesoccurred, such as from a series of lawsuits in the ordinary course of businesseach of which were subject to the deductible amount, or if the maximum limit ofthe available insurance were substantially exceeded, the Company could incurlosses in amounts that would have a material adverse effect on its result ofoperations and financial condition.

 

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