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, 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 July 31, 1999:

             Title of Class                                 Shares Outstanding
             --------------                                 ------------------
      Common stock - $.005 par value stock                       13,737,619







                                        1

<PAGE>

                              CYANOTECH CORPORATION
                                    FORM 10-Q

                                      INDEX

PART I.   FINANCIAL INFORMATION
-------------------------------

Item 1.  Financial Statements                                               Page
                                                                            ----

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

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

         Consolidated Statements of Cash Flows (unaudited)
                  Three month periods ended
                  June 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 . . . . . . . . . . . . . . . . . . . . . 16

Item 3.           Defaults Upon Senior Securities. . . . . . . . . . . . . . .16

Item 6.           Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 17


SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

                                        2

<PAGE>




PART I. FINANCIAL INFORMATION
     Item 1.   Financial Statements
<TABLE>
<CAPTION>
                              CYANOTECH CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                 (Dollars in thousands except per share amounts)
<S>                                                                                  <C>                     <C>
                                                                                          June 30,                March 31,
                                                                                            1999                     1999
ASSETS                                                                                  (Unaudited)               (Audited)
                                                                                     -----------------        -----------------
Current assets:
     Cash and cash equivalents                                                       $            133         $            323
     Accounts receivable, net                                                                   1,116                    1,012
     Refundable income taxes                                                                      273                      273
     Inventories  (note 2)                                                                      1,924                    2,105
     Prepaid expenses                                                                             110                      105
                                                                                     -----------------        -----------------
              Total current assets                                                              3,556                    3,818

Equipment and leasehold improvements, net (note 3)                                             19,357                   19,623
Other assets                                                                                      159                      180
                                                                                     -----------------        -----------------
              Total assets                                                           $         23,072         $         23,621
                                                                                     =================        =================
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current maturities of long-term debt                                            $            663         $            700
     Short-term revolving line of credit                                                          931                      994
     Current maturities of capital lease obligation                                                44                       67
     Accounts payable                                                                             839                      746
     Other accrued liabilities                                                                    288                      394
                                                                                     -----------------        -----------------
              Total current liabilities                                                         2,765                    2,901
Long-term debt, excluding current maturities                                                        -                       13
                                                                                     -----------------        -----------------
              Total liabilities                                                                 2,765                    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 June 30,  1999
     and March 31,  1999                                                                            1                        1
     Common  Stock of $0.005  par  value, authorized  25,000,000  shares
     at June 30, 1999 and March 31, 1999;  issued and outstanding
     13,732,619 shares at June 30, 1999 and 13,603,572 shares at
     March 31, 1999                                                                                69                       68
     Additional paid-in capital                                                                24,082                   23,956
     Accumulated deficit                                                                       (3,845)                  (3,318)
                                                                                     -----------------        -----------------
              Total stockholders' equity                                                       20,307                   20,707
                                                                                     -----------------        -----------------
                    Total liabilities and stockholders' equity                       $         23,072         $         23,621
                                                                                     =================        =================
</TABLE>
          See accompanying notes to consolidated financial statements.


                                        3

<PAGE>
<TABLE>
<CAPTION>
                              CYANOTECH CORPORATION

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

                                                                                                Three Months Ended
                                                                                                     June 30,
                                                                                     ------------------------------------------
                                                                                             1999                     1998
                                                                                     -----------------        -----------------
<S>                                                                                  <C>                      <C>
NET SALES                                                                            $         1,599          $         1,763
COST OF PRODUCT SALES                                                                          1,332                    1,584
                                                                                     -----------------        -----------------
        Gross Profit                                                                             267                      179

OPERATING EXPENSES
        Research and development                                                                 166                      222
        General and administrative                                                               387                      331
        Sales and marketing                                                                      193                      257
                                                                                     -----------------        -----------------
                    Total operating expenses                                                          746                      810
                                                                                     -----------------        -----------------
        Loss from operations                                                                    (479)                    (631)
                                                                                     -----------------        -----------------
OTHER INCOME (EXPENSE):
        Interest income                                                                            4                        2
        Interest expense                                                                         (55)                     (35)
        Other income (expense), net                                                                3                       (7)
                                                                                     -----------------        -----------------
                   Total other expense                                                           (48)                     (40)
                                                                                     -----------------        -----------------
                   Loss before income taxes                                                     (527)                    (671)
                   Income tax benefit                                                              -                       40
                                                                                     -----------------        -----------------
NET LOSS                                                                                        (527)                    (631)
Other comprehensive income                                                                         -                        -
                                                                                     -----------------        -----------------
COMPREHENSIVE LOSS                                                                   $          (527)         $          (631)
                                                                                     =================        =================
NET (LOSS) PER COMMON SHARE
     Basic                                                                           $         (0.04)         $         (0.05)
     Diluted                                                                         $         (0.04)         $         (0.05)

SHARES USED IN CALCULATION OF:
     Basic                                                                                    13,610                   13,600
     Diluted                                                                                  13,610                   13,600
</TABLE>

          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,
                                                                                     ------------------------------------------
                                                                                           1999                      1998
CASH FLOWS FROM OPERATING ACTIVITIES:                                                -----------------        -----------------
<S>                                                                                  <C>                      <C>
          Net loss                                                                   $          (527)         $          (631)
          Adjustments to reconcile net loss to net cash used in
          operating activities:
                  Depreciation and amortization                                                  328                      343
                  Net (increase) decrease in:
                        Accounts receivable                                                     (104)                      27
                        Inventories                                                              181                      347
                        Prepaid expenses and other assets                                         16                      (47)
                  Net increase (decrease) in:
                        Accounts payable                                                          93                     (330)
                        Other accrued liabilities                                               (106)                     (22)
                                                                                     -----------------        -----------------
Net cash used in operating activities                                                           (119)                    (313)
                                                                                     -----------------        -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
          Investment in equipment and leasehold improvements                                     (62)                     (59)
                                                                                     -----------------        -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
          Net proceeds from issuance of common stock                                              99                        -
          Net proceeds from exercise of warrants and options                                      28                        -
          Repayment of borrowings on short-term revolving line of
          credit                                                                                 (63)                       -
          Principal payments on note payable                                                       -                     (210)
          Principal payments on capital lease obligation                                         (23)                     (33)
          Principal payments on long-term debt                                                   (50)                     (12)
                                                                                     -----------------        -----------------
Net cash used in financing activities                                                             (9)                    (255)
                                                                                     -----------------        -----------------
Net decrease in cash and cash equivalents                                                       (190)                    (627)
Cash and cash equivalents at beginning of period                                                 323                     1,397
                                                                                     -----------------        -----------------
Cash and cash equivalents at end of period                                           $           133          $            770
                                                                                     =================        =================
</TABLE>
          See accompanying notes to consolidated financial statements.

                                        5

<PAGE>



                              CYANOTECH CORPORATION
                                    FORM 10-Q
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 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 month period ended June 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.

         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):
<TABLE>
<CAPTION>


                                               June 30, 1999            March 31, 1999
                                             -----------------        -----------------
<S>                                          <C>                      <C>
               Raw materials                 $              56        $              63
               Work in process                             287                      287
               Finished goods                            1,402                    1,555
               Supplies                                    179                      200
                                             -----------------        -----------------
                                             $           1,942        $           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  the  lease  terms  or
         estimated useful lives for 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

         Equipment and leasehold  improvements consist of the following (dollars
         in thousands):
<TABLE>
<CAPTION>
                                                                             June 30, 1999            March 31, 1999
                                                                           -----------------        -----------------
<S>                                                                        <C>                      <C>
         Equipment                                                         $         8,462          $          8,421
         Leasehold improvements                                                     13,779                    13,779
         Furniture and fixtures                                                         83                        83
         Equipment under capital lease                                                 388                       388
                                                                           -----------------        -----------------
                                                                                    22,712                    22,671

         Less accumulated depreciation and amortization                             (6,435)                   (6,107)
         Construction in-progress                                                    3,080                     3,059
                                                                           -----------------        -----------------
         Equipment and leasehold improvements, net                         $        19,357          $         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
         June 30, 1999 amount to $2,386  ($4.01 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 months ended June 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 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>


BASIC EARNINGS PER SHARE                                                               June 30, 1999          June 30, 1998
                                                                                     -----------------      -----------------
<S>                                                                                  <C>                    <C>
Net loss                                                                             $          (527)       $         (631)
Less: Requirement for Preferred Stock dividends                                                  (60)                  (60)
                                                                                     -----------------      -----------------
Loss available to Common stockholders                                                $          (587)       $         (691)
                                                                                     =================      =================
Weighted average Common Shares outstanding                                                 13,610,241            13,599,572
                                                                                     =================      =================
Net loss per Common Share                                                            $         (0.04)       $        (0.05)
                                                                                     =================      =================

DILUTED EARNINGS PER SHARE

Loss available to Common stockholders                                                $          (587)       $         (691)
Plus: Requirement for Preferred Stock dividends                                                    -                     -
                                                                                     -----------------      -----------------
Net loss available to Common stockholders as adjusted                                $          (587)       $         (691)
                                                                                     =================      =================
Weighted average Common Shares outstanding                                                 13,610,241            13,599,572
Effect of dilutive securities:
     Stock options and warrants                                                                    -                     -
     Convertible preferred stock                                                                   -                     -
                                                                                     -----------------      -----------------
Weighted average Common Shares outstanding as adjusted                                     13,610,241            13,599,572
                                                                                     =================      =================
Net loss per Common Share                                                            $         (0.04)       $        (0.05)
                                                                                     =================      =================
</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 all
         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.


                                        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:
<TABLE>
<CAPTION>

                                                                          Three Months Ended
                                                                               June 30,
                                                                       1999               1998
                                                                   -----------       -----------
<S>                                                                     <C>               <C>
          Net Sales                                                     100.0 %           100.0 %
          Cost of product sales                                          83.3              89.8
                                                                   -----------       -----------
               Gross profit                                              16.7              10.2
                                                                   -----------       -----------
          Operating expenses:
               Research and development                                  10.4              12.6
               General and administrative                                24.2              18.8
               Sales and marketing                                       12.1              14.6
                                                                   -----------       -----------
               Total operating expenses                                  46.7              46.0
                                                                   -----------       -----------
               Loss from operations                                     (30.0)            (35.8)
                                                                   -----------       -----------

          Other income (expense):
               Interest income                                            0.2               0.1
               Interest expense                                          (3.4)             (2.0)
               Other income (expense), net                                0.2              (0.4)
                                                                   -----------       -----------

               Total other expense                                       (3.0)             (2.3)
                                                                   -----------       -----------
               Loss before income taxes                                 (33.0)            (38.1)
               Income tax benefit                                           -               2.3
                                                                   -----------       -----------
          Net Loss                                                      (33.0)            (35.8)
          Other comprehensive income                                        -                 -
                                                                   -----------       -----------
          Comprehensive Loss                                            (33.0) %          (35.8) %
                                                                   ===========       ===========
</TABLE>

                                       10

<PAGE>

FIRST QUARTER OF FISCAL 2000 COMPARED TO FIRST QUARTER OF FISCAL 1999

Net Sales

         Net  sales  for the  three  month  period  ended  June  30,  1999  were
$1,599,000,  a decrease of 9% from $1,763,000  recorded in the comparable period
in  fiscal  1999.  This  decrease  is  primarily  due to  reduced  sales of bulk
Spirulina powder and packaged Spirulina products,  offset by an increase in bulk
Spirulina tablet sales.

         International  sales represented 53% and 50% of net sales for the three
month  periods  ended June 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 increased to $267,000
for the three months ended June 30, 1999, up 49% from $179,000 in the comparable
period of fiscal 1999.  Our gross profit  margin  increased to 17% for the three
month period ended June 30, 1999,  compared to 10% for the comparable  period of
fiscal  1999.  This  increase  in gross  profit  from the prior  year  period is
primarily  attributable to greater sales of higher margin bulk Spirulina tablets
offset in part by reduced  gross  profit on lower sales of other bulk  Spirulina
products.

Operating Expenses

         Operating  expenses were  $746,000  during the three month period ended
June 30, 1999, a decrease of 8% from $810,000 in the comparable period of fiscal
1999.  This decrease was primarily due to reduced  research and  development and
sales  and  marketing  expenses,  partially  offset  by  increased  general  and
administrative costs.

         Research and Development. Research and development expenses amounted to
$166,000  for the three month period ended June 30, 1999, a decrease of 25% from
$222,000 for the comparable  period of fiscal 1999. This decrease from the prior
year was  primarily  due to reduced  personnel  expenditures,  lower  supply and
material costs and lower equipment maintenance expenses,  totaling approximately
$69,000, offset by $17,000 of increased expenditures for outside services.

         Sales and Marketing.  Sales and marketing expenses amounted to $193,000
for the three month period ended June 30, 1999, a decrease of 25% from  $257,000
for the comparable  period of fiscal 1999.  This decrease from the prior year is
primarily due to reduced  advertising  and promotion  expenditures  for packaged
Spirulina  consumer  products and lower personnel  costs totaling  approximately
$84,000, offset by increased expenditures for sales consulting services in Japan
amounting to approximately $21,000.

         General  and  Administrative.   General  and  administrative   expenses
amounted to $387,000 for the three month period ended June 30, 1999, an increase
of 17% from  $331,000 for the  comparable  period of fiscal 1999.  This increase
from the  prior  year is  primarily  attributable  to higher  audit  fees and an
increase in legal fees related to the ongoing patent  litigation with Aquasearch
Inc.  ("Aquasearch")  totaling  approximately  $85,000,  offset  in  part  by  a
reduction in personnel expenditures and other corporate  administrative expenses
amounting to approximately $27,000.

                                       11

<PAGE>

Other Income (Expense)

         Other expense  amounted to $48,000 for the first three months of fiscal
2000,  an  increase  of 20% from  $40,000  for the same  period of fiscal  1999,
primarily from an increase in interest expense on higher outstanding debt.

Income Taxes

         A  provision for  income taxes  was not  recorded for  the three  month
period ended June 30, 1999 due to the Company's taxable loss  position  compared
to  an  interperiod  tax benefit  of $40,000 booked in the same period of fiscal
1999.

Net Income (Loss)

         The Company  recorded a net loss after taxes of $527,000  for the first
quarter of fiscal 2000, compared to the net loss after taxes of $631,000 for the
comparable  period of fiscal  1998.  The  improvement  in results  is  primarily
attributable  to the positive  effect of the downsizing  actions  implemented in
January and April of calendar 1999 on cost of sales and  operating  expenses and
increased margin on increased sales of bulk Spirulina tablets.

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.  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 three  month  period  ended June 30, 1999
decreased by $126,000 to $791,000 from $917,000 at March 31, 1999.  Our cash and
cash  equivalents  balances  decreased  by $190,000 to $133,000 and is primarily
attributable  to cash  flows  used in  operating  and  investing  activities  of
$119,000 and $62,000, respectively.

                                       12

<PAGE>

         Cash used in  operating  activities  during the first  three  months of
fiscal 2000 decreased by $194,000 to $119,000 compared to cash used in operating
activities of $313,000 in the comparable period of fiscal 1999. The primary uses
of cash flows in  operating  activities  during the first three months of fiscal
2000 were the net loss of $527,000  and an increase  in accounts  receivable  of
$104,000,  offset in part by  depreciation  and  amortization  of $328,000 and a
decrease in inventory of $181,000.

         Cash used in investing activities (for capital expenditures) during the
first three  months of fiscal  2000  increased  slightly to $62,000  compared to
$59,000 for the comparable period of fiscal 1999.

         Cash used in  financing  activities  during the first  three  months of
fiscal 2000  decreased  by  $246,000  to $9,000,  compared to $255,000 in fiscal
1999.  The primary uses of cash flows in financing  activities  during the first
quarter  of  fiscal  2000  were  for  repayment  of  borrowings  on a short-term
revolving  line  of  credit of $63,000,  principal payments on long-term debt of
$50,000, and principal payments on a capital lease  of  $23,000,  offset in part
by  proceeds  from  issuance  of  common  stock  and  proceeds from the exercise
of common stock options totaling $127,000.

         In July 1998, we entered into a Loan and Security Agreement (Agreement)
with  a  lender  which  provides  for  up  to $3  million  in  aggregate  credit
facilities,  secured by all the assets of the Company.  The major  components of
the Agreement 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
all borrowings under the agreement is prime plus 2.5%, adjusted monthly (at June
30, 1999, the prime rate was 7.75%) 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.

         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 declared the Company to be in technical  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%. Although it has not declared
its intent to do so, the lender  reserved  its right to assert  other  remedies,
among other things, to cease further lending transactions  and demand  immediate
repayment  of  outstanding  borrowings  under  the  Agreement.  Consequently the
Company has classified the aggregate  outstanding  balance on this  Agreement of
$1,544,000, representing outstanding working capital loans on a revolving  basis
of $931,000 and an equipment term loan of $613,000,  as a current  liability  in
the  consolidated  balance  sheet at June 30, 1999. If the lender ceases further
lending  and  demands  immediate  repayment,  such  action would have a material
adverse  effect  on the  Company's financial position, results of operations and
liquidity.


                                       13

<PAGE>

         At June 30, 1999,  the remaining  availability  under the Agreement was
calculated by the lender to be $329,000.  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.  If this facility were  available,  it would increase the
availability  by an additional  $1,127,000 up to the limit of $3 million for the
entire Agreement.

         As of March  31,  1999,  we had a  commitment  for a pond  construction
project  which was  suspended  in  February  1998.  In June 1999 we  reached  an
agreement  with  the  project   contractor  to  resume  work  on  the  suspended
construction  project on or before June 1, 2000.  The  remaining  balance on the
construction  contract is  approximately  $1.9 million.  In consideration of the
extension of the  contract,  the Company will 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% on 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.  Assertion  by the  contractor  of its
termination  rights  could  have a  material  adverse  effect  on the  Company's
financial  condition,  results of operations or liquidity.  As of June 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 June 30, 1999 with respect to
this  expansion  project  approximated  $2,643,000.  Failure to comply  with its
commitments  on  this  project  would  have a  material  adverse  effect  on the
Company's financial condition, results of operations, or liquidity.

         In June 1999,  we reached an  agreement  with Norsk  Hydro ASA  ("Norsk
Hydro") to produce and market NatuRose (TM) natural astaxanthin  product.  Under
the  agreement,  Norsk  Hydro  will  participate  in  the  optimization  of  the
Cyanotech production technology for astaxanthin.  Upon successful completion  of
the optimization program, the two companies intend to enter into 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.  Norsk  Hydro  will  have  worldwide  exclusive  rights to
distribute  NatuRose  product in the  aquaculture  and animal  pigmentation  and
animal nutrition  markets;  Cyanotech will retain worldwide  exclusive rights to
distribute  BioXanthin (TM) natural astaxanthin  products in the human nutrition
markets. The Company's assessment of the impairment of certain long-lived assets
as of March 31, 1999 and June 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 June 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   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.

                                       14

<PAGE>

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 has
developed an  implementation  plan,  to be completed  before the end of calendar
1999, to resolve the issue.  We believe  that,  with  modifications  to existing
software  and  converting  to new  software,  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 adverse effect 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.

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.

SUBSEQUENT EVENTS

         On July 14, 1999, the Company  announced that it had received  Canadian
approval  for its  NatuRose  product for use in salmon and other fish feeds as a
source  of  the  pigment  astaxanthin.  The  approval was from the Canadian Food
Inspection  Agency  which is similar to the Food & Drug Administration  (FDA) in
the United States.  This approval now allows Canadian fish-farming companies  to
incorporate Cyanotech's natural astaxanthin,  instead of synthetic  astaxanthin,
into their aquaculture products.

         On August 10, 1999, the Company was notified that the FDA review of its
application  to  sell  BioXanthin,  a  natural  astaxanthin  product  for  human
nutrition, had been completed by the FDA without objection.  With the completion
of this review,  BioXanthin  can  now  be offered for sale and use in the United
States  as  a  human  dietary  supplement.  Cyanotech  produces  BioXanthin from
microalgae  and  the  Company  believes it is the only source of astaxanthin for
human  nutrition  that  has been  reviewed  by  the  FDA.  Independent  research
studies have  shown  that astaxanthin  has  up  to  550  times  the  antioxidant
activity  of  vitamin  E and 10 times the antioxidant activity of beta-carotene.
Human and animal  studies have shown that astaxanthin can protect the skin  from
the  damaging  effects  of  ultraviolet  radiation,  reduce  age-related macular
degeneration, protect against chemically induced cancers,  increase high-density
lipoprotein  (HDL)  production,  enhance  the  immune  system and enhance energy
metabolism.

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.

                                       15

<PAGE>

         The Company has begun to see 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 June 30, 1999, inventory levels were reduced
by approximately  $181,000 and,  entering the second quarter of fiscal 2000, the
Company continues to produce Spirulina at 50% of full capacity. We are balancing
Spirulina  production  with  NatuRose  production  and  plan  to  allocate  more
resources towards NatuRose natural astaxanthin  production in future quarters to
meet the anticipated demand of Norsk Hydro and our other customers. Gross profit
margin on sales of NatuRose was negative  during the three months ended June 30,
1999, due to higher  production costs related to operating at lower than optimal
production  levels,  but is  expected to improve as we  optimize  the  PhytoDome
CCS (TM)  processing  systems  and  production  throughput;  however, the higher
costs related to production of NatuRose may persist into the near future.

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

         Cyanotech's  strategy has been,  and continues to be, to produce higher
value natural  products from  microalgae.  In support of this strategy,  we have
broadened  our  product  offerings  with the addition of BioXanthin, our natural
astaxanthin  product  for  use in  the  human  nutrition  market,  and  continue
development  work  on  the  genetically-engineered   mosquitocide  and  Aldolase
Catalytic Antibody 38C2 projects.

         In June 1999, Cyanotech Corporation became the first Hawaii business to
join the Marine Bioproducts Engineering Center (MarBEC) Industry Partner Program
(IPP).  MarBEC was established jointly by the University of Hawaii (UH) at Manoa
and the  University  of  California  (UC) at Berkeley  under a  five-year  $12.4
million  grant from the  National  Science  Foundation.  MarBEC's  purpose is to
identify  and  develop  marine  bioproducts  for the  chemical,  pharmaceutical,
nutraceutical and life science  industries and is supported by industry partners
such as Cyanotech.  By becoming an active participant in the MarBEC program  and
through the Company's representation  on the MarBEC  Industrial Advisory  Board,
Cyanotech will assist the program leadership in defining the future research and
educational  goals of the center.  In return,  the agreement provides  Cyanotech
(and other  IPP  members)  with  benefits  that  include preferential  rights to
intellectual  property  developed in MarBEC's  research program  at UH Manoa and
UC  Berkeley.  Cyanotech believes  that it is the only member of MarBEC that has
developed commercial photobioreactor technology which is  likely  to be required
for  the commercial exploitation of any new microalgal product developed through
MarBEC research.

         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.


                                       16

<PAGE>

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 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.           Defaults Upon Senior Securities.

         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  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 declared
the  Company  to be in  technical  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%.  Although  it  has  not declared its intent to do so, the
lender reserved its right to assert other remedies, among other things, to cease
further  lending  transactions  and  demand  immediate  repayment of outstanding
borrowings  under the  Agreement.  Consequently  the Company has  classified the
aggregate  outstanding  balance on this  Agreement of  $1,544,000,  representing
outstanding  working  capital  loans on a  revolving  basis of  $931,000  and an
equipment  term loan of $613,000  as  a current  liability  in the  consolidated
balance sheet at June 30, 1999. If the lender ceases further lending and demands
immediate  repayment,  such action would have a material  adverse  effect on the
Company's financial position, results of operations and 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, 1999.


                                       17

<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 10, 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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