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, 2000

                         Commission File Number 0-14602


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


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



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

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



         Check whether the registrant (1) filed all reports required to be filed
by  Section  13 or 15(d) of the  Exchange  Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days. Yes xx No


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

          Title of Class                                   Shares Outstanding
          --------------                                   ------------------
     Common stock - $.005 par value stock                       16,343,872



<PAGE>
                             CYANOTECH CORPORATION
                                    FORM 10-Q

                                      INDEX

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

Item 1.  Financial Statements                                               Page
                                                                            ----

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

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

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

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

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


PART II.  OTHER INFORMATION
---------------------------

Item 1.  Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 17

Item 4.  Submission of Matters to a Vote of Security Holders . . . . . . . . .17

Item 6.  Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . .18



SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
----------


                                       2
<PAGE>


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

                              CYANOTECH CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                  (Dollars in thousands, except share amounts)
                                                                        September 30,            March 31,
                                                                             2000                  2000
                                                                         (Unaudited)             (Audited)
ASSETS                                                                  -------------           ------------

Current assets:
<S>                                                                     <C>                     <C>
        Cash and cash equivalents                                       $      1,901            $       405
        Accounts receivable, net                                               1,878                  1,613
        Refundable income taxes                                                  178                    154
        Inventories (note 2)                                                   2,003                  1,609
        Prepaid expenses                                                          58                     50
                                                                        -------------           ------------
                Total current assets                                           6,018                  3,831

Equipment and leasehold improvements, net (note 3)                            15,253                 15,746
Other assets                                                                   1,162                    112
                                                                        -------------           ------------
                Total assets                                            $     22,433            $    19,689
                                                                        =============           ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
        Current maturities of long-term debt                            $        215            $       186
        Accounts payable                                                         733                  1,130
        Accrued Expenses                                                         293                    421
                                                                        -------------           ------------
                Total current liabilities                                      1,241                  1,737

Long-term debt, excluding current maturities:
        Term loan                                                              3,219                  1,307
        Convertible debentures                                                 1,250                     --
                                                                        -------------           ------------
                Total liabilities                                              5,710                  3,044
                                                                        -------------           ------------

Stockholders' equity:
        Cumulative preferred stock, Series C, of $.001 par value
        (aggregate involuntary liquidation preference $1,105 ($5 per
        share), plus unpaid cumulative dividends).  Authorized
        5,000,000 shares; issued and utstanding 221,031 shares at
        September 30, 2000 and 471,031 shares at March 31, 2000.                  --                      1

        Common Stock of $0.05 par value, authorized 25,000,000
        shares; issued and outstanding 15,843,872 shares at September
        30, 2000 and 14,582,297 shares at March 31, 2000                          79                     73
        Additional paid-in capital                                            24,509                 24,374
        Accumulated deficit                                                   (7,865)                (7,803)
                                                                        -------------           ------------
                Total stockholders' equity                                    16,723                 16,645
                                                                        -------------           ------------

                        Total liabilities and stockholders' equity      $     22,433            $    19,689
                                                                        =============           ============
</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                       Six Months Ended
                                                                 September 30,                          September 30,

                                                             2000            1999                   2000             1999
                                                        -------------   -------------           -------------   -------------
<S>                                                     <C>             <C>                     <C>             <C>
NET SALES                                               $      2,360    $      1,496            $      4,526    $      3,095
COST OF PRODUCT SALES                                          1,566           1,370                   3,028           2,702
                                                        -------------   -------------           -------------   -------------
                Gross Profit                                     794             126                   1,498             393
                                                        -------------   -------------           -------------   -------------

OPERATING EXPENSES:
        Research and development                                  66             156                     140             322
        General and administrative                               379             337                     704             724
        Sales and marketing                                      270             192                     529             385
                                                        -------------   -------------           -------------   -------------
                Total operating expenses                         715             685                   1,373           1,431
                                                        -------------   -------------           -------------   -------------
        Income (loss) from operations                             79            (559)                    125          (1,038)
                                                        -------------   -------------           -------------   -------------

OTHER INCOME (EXPENSE):
        Interest income                                           36               1                      60               5
        Interest expense                                        (167)            (51)                   (265)           (106)
        Other income, net                                         12              --                      18               3
                                                        -------------   -------------           -------------   -------------
                Total other expense                             (119)            (50)                   (187)            (98)
                                                        -------------   -------------           -------------   -------------

                Loss before income taxes                         (40)           (609)                    (62)         (1,136)
                Income taxes                                      --              --                      --              --
                                                        -------------   -------------           -------------   -------------
NET LOSS                                                $        (40)   $       (609)           $        (62)   $     (1,136)
                                                        =============   =============           =============   =============

NET LOSS PER COMMON SHARE
  Basic and Diluted                                     $      (0.00)   $      (0.05)           $      (0.01)   $      (0.09)

SHARES USED IN CALCULATION OF:
  Basic and Diluted                                           15,644          13,744                  15,300          13,678
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
<TABLE>
<CAPTION>
                              CYANOTECH CORPORATION

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

                                                                                              Six Months Ended
                                                                                                September 30,
                                                                                        2000                   1999
                                                                               --------------------    -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>                     <C>
        Net loss                                                                $              (62)     $          (1,136)
        Adjustments to reconcile  net loss to net cash provided by
        (used in) operating activities:
                Depreciation and amortization                                                  663                    656
                Amortization of debt issue costs                                                71                     19
                Issuance of stock in exchange for services                                      10                     31
                Net (increase) decrease in:
                        Accounts receivable                                                   (265)                   165
                        Refundable income taxes                                                (24)                   116
                        Inventories                                                           (394)                   361
                        Prepaid expenses and other assets                                      (15)                    32
                Net increase (decrease) in:
                        Accounts payable                                                      (397)                   (11)
                        Deferred revenue                                                        --                     30
                        Accrued expenses                                                      (128)                   (49)
                                                                               --------------------    -------------------
Net cash provided by (used in) operating activities                                           (541)                   214
                                                                               --------------------    -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Investment in equipment and leasehold improvements                                    (170)                  (173)
                                                                               --------------------    -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from issuance of term loan debt                                             3,500                     --
        Proceeds from issuance of convertible debentures                                     1,250                     --
        Net proceeds from exercise of warrants and options                                       9                     16
        Net proceeds from issuance of common stock                                              --                     98
        Principal payments on long-term debt                                                (1,559)                  (138)
        Debt issue costs                                                                      (493)                    --
        Restricted cash deposit                                                               (500)                    --
        Borrowings (repayment) on short-term revolving line of
            credit, net                                                                         --                    (52)
        Principal payments on capital lease obligations                                         --                    (67)
                                                                               --------------------    -------------------
Net cash provided by (used in) financing activities                                          2,207                   (143)
                                                                               --------------------    -------------------
Net increase (decrease) in cash and cash equivalents                                         1,496                   (102)
Cash and cash equivalents at beginning of period                                               405                    323
                                                                               --------------------    -------------------
Cash and cash equivalents at end of period                                     $             1,901     $              221
                                                                               ====================    ===================
Supplemental disclosure of non-cash financing activity - issuance
        of warrants in connection with issuance of long-term debt              $               121     $               --
                                                                               ====================    ===================
</TABLE>
          See accompanying notes to consolidated financial statements.

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

1.      BASIS OF PRESENTATION

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

        The  Company  consolidates  enterprises  in  which it has a  controlling
        financial interest.  The accompanying  consolidated financial statements
        include  the  accounts of  Cyanotech  Corporation  and its  wholly-owned
        subsidiary,  Nutrex,  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, 2000  is unaudited,  the statements in this report reflect
        all  material items which,  in the opinion of management,  are necessary
        for  a fair  presentation  of the results of operations  for the interim
        periods  covered  and of the  financial  condition of the Company at the
        dates  of the consolidated balance sheets. The operating results for the
        interim  period presented are not necessarily  indicative of the results
        that  may be expected for the year ending March 31, 2001.

        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):

                                  September 30, 2000        March 31, 2000
                                ---------------------    -------------------
        Raw materials           $                 129    $                72
        Work in process                           270                    278
        Finished goods                          1,378                  1,060
        Supplies                                  226                    199
                                ---------------------    -------------------
                                $               2,003    $             1,609
                                =====================    ===================

                                       6

<PAGE>
3.      EQUIPMENT AND LEASEHOLD IMPROVEMENTS

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

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


        Equipment  and  leasehold improvements consist of the following (dollars
        in thousands):
<TABLE>
<CAPTION>
                                                                September 30, 2000                 March 31, 2000
                                                               --------------------             --------------------
<S>                                                            <C>                              <C>
        Equipment                                              $             9,037              $             8,961
        Leasehold improvements                                              13,719                           13,642
        Furniture and fixtures                                                  83                               83
                                                               --------------------             --------------------
                                                                            22,839                           22,686
        Less accumulated depreciation and amortization                      (8,046)                          (7,383)
        Construction in-progress                                               460                              443
                                                               --------------------             --------------------
        Equipment and leasehold improvements, net              $            15,253              $            15,746
                                                               ====================             ====================
</TABLE>


4.      SERIES C PREFERRED STOCK

        Series  C preferred  stock is convertible  into common stock at the rate
        of  one share of preferred stock for five shares of common stock through
        February  23, 2002, after which date the conversion feature is no longer
        applicable.   Series C preferred  stock has voting  rights  equal to the
        number of  shares of common stock into which it is convertible and has a
        preference  in liquidation  over all other series of preferred  stock of
        $5  per share  plus any  accumulated  but unpaid  dividends.  Holders of
        Series  C preferred stock are entitled to 8% cumulative annual dividends
        at  the rate of $.40 per share;  cumulative  dividends  in arrears as of
        September 30, 2000 amount to $997 ($4.51 per share).  Upon conversion of
        Series  C preferred stock,  cumulative dividends in arrears on converted
        shares  are  no  longer  payable.  The  consent  of  Series C  preferred
        stockholders  is  required to modify their present rights or sell all or
        substantially all of the Company's assets.

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

                                       7
<PAGE>
5.      EARNINGS (LOSS) PER SHARE

        For  the  three  and six  months  ended  September  30,  2000 and  1999,
        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.  For  the  three and six months  ended
        September 30, 2000,  convertible debentures were outstanding,  but  were
        not  included  in the  computation  of diluted net loss per common share
        because   the   inclusion   of  these  instruments  would  have  had  an
        antidilutive  effect on  the net loss per common share.  As of September
        30, 2000,  warrants  and  options  to  acquire  1,054,130  shares of the
        Company's  common  stock,  preferred  stock  convertible  into 1,105,155
        shares  of the Company's common  stock and debentures  convertible  into
        833,333  shares of the Company's  common stock were  outstanding.  As of
        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.

        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
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE                       September 30,                      September 30,
                                                              2000             1999              2000             1999
                                                         --------------   --------------    --------------   --------------
<S>                                                      <C>              <C>               <C>              <C>
Net loss                                                 $        (40)    $       (609)     $         (62)   $     (1,136)
Less: Requirement for Preferred Stock dividends                   (27)             (59)               (66)           (119)
                                                         --------------   --------------    ---------------  --------------
Loss to Common stockholders                              $        (67)    $       (668)     $        (128)   $     (1,255)
                                                         ==============   ==============    ===============  ==============
Weighted average Common Shares outstanding                  15,643,880       13,743,993         15,300,396      13,677,826
                                                         ==============   ==============    ===============  ==============
Net Loss per Common Share                                $      (0.00)    $      (0.05)     $       (0.01)   $      (0.09)
                                                         ==============   ==============    ===============  ==============
</TABLE>

6.      RECENT ACCOUNTING PRONOUNCEMENTS

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

                                       8
<PAGE>

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


7.      CONTINGENCIES

        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  later granted  Cyanotech's  motion to amend its complaint against
        Aquasearch  to add claims of misappropriation of trade secrets regarding
        open pond technology, unfair competition and breach of contract.

        On  December 30, 1999, the Court denied  Cyanotech's  motion for summary
        judgment  of  non-infringement  and patent invalidity as to Aquasearch's
        U.S.  Patent  No.  5,541,056 and granted  Aquasearch's  partial  summary
        judgment  motion finding that Cyanotech  infringes its patent. The Court
        also  granted  Aquasearch's partial summary judgment motion finding that
        Cyanotech  misappropriated  Aquasearch  trade  secrets  and  committed a
        breach  of  contract.   In  response,   Cyanotech  filed  a  motion  for
        reconsideration  on  January 14, 2000, with the Court. On March 3, 2000,
        United  States  District  Court  Judge  Alan C. Kay  denied  Cyanotech's
        motion for reconsideration.

        On  August  29,  2000,  Cyanotech  filed a motion  for  partial  summary
        judgment  for  the  invalidity  of  the Aquasearch patent No. 5,541,056,
        based on prior art.  This motion is scheduled to be heard on December 4,
        2000.  Although  the resolution of this matter is uncertain,  management
        does  not expect that damages,  if any,  against  Cyanotech  will have a
        material  adverse  effect  on   the  Company's   consolidated  financial
        position, results of operations or liquidity.

                                       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 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,
                                                            2000          1999                 2000           1999
                                                        -----------    -----------         -----------    -----------
<S>                                                     <C>            <C>                 <C>            <C>
        Net Sales                                           100.0 %        100.0 %             100.0 %         100.0 %
        Cost of product sales                                66.4           91.6                66.9            87.3
                                                        -----------    -----------         -----------     -----------
                Gross profit                                 33.6            8.4                33.1            12.7
                                                        -----------    -----------         -----------     -----------

        Operating expenses:
                Research and development                      2.8           10.4                 3.1            10.4
                General and administrative                   16.1           22.5                15.5            23.4
                Sales and marketing                          11.4           12.9                11.7            12.4
                                                        -----------    -----------         -----------     -----------
                Total operating expenses                     30.3           45.8                30.3            46.2
                                                        -----------    -----------         -----------     -----------

                Income (loss) from operations                 3.3          (37.4)                2.8           (33.5)
                                                        -----------    -----------         -----------     -----------

        Other income (expense):
                Interest income                               1.5            0.1                 1.3             0.2
                Interest expense                             (7.0)          (3.4)               (5.8)           (3.4)
                Other income, net                             0.5             --                 0.4             0.1
                                                        -----------    -----------         -----------     -----------

                Total other expense                          (5.0)          (3.3)               (4.1)           (3.1)
                                                        -----------    -----------         -----------     -----------

                Loss before income taxes                     (1.7)         (40.7)               (1.3)          (36.7)

        Income taxes                                           --             --                  --              --
                                                        -----------    -----------         -----------     -----------
        Net Loss                                             (1.7)%        (40.7)%              (1.3)%         (36.7)%
                                                        ===========    ===========         ===========     ===========
</TABLE>
                                       10
<PAGE>

SECOND QUARTER OF FISCAL 2001 COMPARED TO SECOND QUARTER OF FISCAL 2000

Net Sales

         Net sales for the three  month  period  ended  September  30, 2000 were
$2,360,000,  an  increase of 58% from  $1,496,000  in the  comparable  period of
fiscal 2000.  This increase is primarily  due to higher sales of bulk  Spirulina
Pacifica(R)  tablets  and greater  sales of both  NatuRose(R)  and  BioAstin(TM)
natural  astaxanthin  products,  offset in part by lower sales of bulk Spirulina
Pacifica powder.

         International  sales represented 63% and 45% of total net sales for the
three  month  periods  ended  September  30, 2000 and 1999,  respectively.  This
increase was primarily due to increased bulk sales of Spirulina Pacifica tablets
to our largest customer,  a European  distributor of natural products.  Sales to
this  customer,  Spirulina  International,  B.  V.   (Spirulina  International),
accounted  for 41% and 15% of total net sales for the three month periods  ended
September 30, 2000 and 1999, respectively.

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 $794,000
for the three month period ended  September  30, 2000,  an increase of 530% from
$126,000  in the  comparable  period of fiscal  2000.  Our gross  profit  margin
increased to 34% for the three month period ended  September 30, 2000,  compared
to 8% for the  comparable  period of fiscal 2000.  This increase in gross profit
margin from the prior year period is primarily  attributable  to higher sales of
bulk  Spirulina  Pacifica  tablets and greater  sales of NatuRose  and  BioAstin
natural astaxanthin products and decreased Spirulina and astaxanthin  production
costs resulting from operating at full production capacity.

Operating Expenses

         Operating  expenses were  $715,000  during the three month period ended
September 30, 2000, an increase of 4% from $685,000 in the comparable  period of
fiscal 2000. This increase was primarily due to increased expenditures for Sales
and Marketing and General and Administrative expenses.

         Research  and  Development.  Research and development expenses amounted
to $66,000  for the three month period ended  September  30, 2000, a decrease of
58% from $156,000 for the comparable  period of fiscal 2000.  This decrease from
the  prior  year  was  due  to reduced personnel expenditures,  lower supply and
material costs and reduced outside service and  consulting  expenses,  resulting
from suspension of research work on the mosquitocide project  and  the  Aldolase
Catalytic Antibody 38C2 project during the third quarter of fiscal 2000.

         General  and  Administrative.   General  and  administrative   expenses
amounted to $379,000 for the three months ended  September 30, 2000, an increase
of 12% from  $337,000 for the  comparable  period of fiscal 2000.  This increase
from the prior year is primarily due to higher legal and  stockholder  relations
expenses.

         Sales and Marketing.  Sales and marketing expenses amounted to $270,000
for the three month period  ended  September  30, 2000,  an increase of 41% from
$192,000 for the comparable  period of fiscal 2000. This increase from the prior
year is primarily due to higher trade show, travel and consulting service costs.

                                       11
<PAGE>

Other Income (Expense)

         Other  expense  amounted to $119,000  for the three month  period ended
September  30,  2000,  an increase  of 138% from  $50,000 for the same period of
fiscal 2000,  primarily from an increase in interest  expense on higher balances
of outstanding debt and higher  amortization of capitalized debt issuance costs,
offset in part by higher interest income.

Income Taxes

         No provision  for income taxes was recorded for the three month periods
ended September 30, 2000 and 1999, due to the Company's taxable loss position.

Net Loss

         The Company  recorded a net loss of $40,000 for the three  months ended
September  30,  2000,  compared to the net loss of $609,000  for the  comparable
period of fiscal 2000. The  improvement in results is primarily  attributable to
improved margins on increased sales of bulk Spirulina  Pacifica tablets and both
natural astaxanthin products.


SIX  MONTHS  ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1999

Net Sales

         Net  sales for the six  month  period  ended  September  30,  2000 were
$4,526,000,  an  increase of 46% from  $3,095,000  in the  comparable  period of
fiscal 2000. This increase is primarily due to increased sales in all categories
of products.

         International  sales represented 55% and 48% of total net sales for the
six month periods ended September 30, 2000 and 1999, respectively.

Gross Profit

         Gross  profit  increased  281% to  $1,498,000  for the six month period
ended September 30, 2000, from $393,000 in the comparable period of fiscal 2000.
Our  gross  profit  margin  increased  to 33%  for the six  month  period  ended
September 30, 2000,  compared to 13% for the  comparable  period of fiscal 2000.
This  increase in gross  profit  margin from the prior year period is  primarily
attributable to greater sales of higher margin bulk Spirulina  Pacifica  tablets
and  decreased  production  costs  resulting  from  operating  at  more  optimal
production levels.

Operating Expenses

         Operating  expenses were  $1,373,000  during the six month period ended
September 30, 2000, a decrease of 4% from $1,431,000 in the comparable period of
fiscal  2000.  This  decrease  was  primarily  due  to  decreased  research  and
development expenses, offset in part by increased sales and marketing expenses.

                                       12
<PAGE>

         Research  and  Development.  Research and development expenses amounted
to $140,000 for the six month period ended September 30, 2000, a decrease of 57%
from $322,000 for the comparable  period of fiscal 2000.  This decrease from the
prior year was primarily due to reduced personnel expenditures, lower supply and
material costs and reduced outside service expenses resulting from suspension of
research work on the mosquitocide  project and the Aldolase  Catalytic  Antibody
38C2 project during the third quarter of fiscal 2000.

         Sales and Marketing.  Sales and marketing expenses amounted to $529,000
for the six month  period  ended  September  30,  2000,  an increase of 37% from
$385,000 for the comparable  period of fiscal 2000. This increase from the prior
year is due to increased sales  consulting  services,  advertising and promotion
expenses and sales commissions.

Other Income (Expense)

         Other  expense  amounted to  $187,000  for the six month  period  ended
September  30,  2000,  an  increase  of 91% from  $98,000 for the same period of
fiscal 2000,  primarily from an increase in interest  expense on higher balances
of outstanding  debt and higher  amortization  of capitalized  debt issue costs,
offset in part by higher interest income.

Income Taxes

         No provision  for income  taxes was recorded for the six month  periods
ended September 30, 2000 and 1999 due to the Company's taxable loss position.

Net Loss

         The  Company  recorded a net loss of $62,000  for the six months  ended
September  30, 2000,  compared to a net loss of  $1,136,000  for the  comparable
period of fiscal 2000. This improvement in results is primarily  attributable to
improved  margins on increased  sales of bulk  Spirulina  Pacifica  products and
natural  astaxanthin  products  and,  to  a  lesser  degree,  packaged  consumer
products.


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,  foreign exchange  fluctuations,  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.

                                       13
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Our working  capital for the six month period ended  September 30, 2000
increased  by  $2,683,000  to  $4,777,000  from  $2,094,000  at March 31,  2000,
primarily as a result of the  convertible  debenture and term loan  transactions
that were completed during the quarter ended June 30, 2000. Compared to our cash
and cash  equivalents of $405,000 at March 31, 2000,  cash and cash  equivalents
increased by  $1,496,000  to  $1,901,000  at September 30, 2000 and is primarily
attributable to cash flows provided by financing activities of $2,207,000.

         Cash used in operating activities during the first six months of fiscal
2001 amounted to $541,000  compared to cash provided by operating  activities of
$214,000  for the  comparable  period of fiscal  2000.  The primary uses of cash
flows in  operating  activities  during the first six months of fiscal 2001 were
payments on outstanding  current  liabilities  and an increase of finished goods
inventories in anticipation of increased sales.

         Cash used in investing activities (for capital expenditures) during the
first six months of fiscal 2001 decreased slightly to $170,000 from $173,000 for
the comparable period of fiscal 2000.

         Cash  provided by financing  activities  during the first six months of
fiscal  2001  amounted  to  $2,207,000,  compared  to  cash  used  in  financing
activities  of $143,000 for the  comparable  period of fiscal 2000.  The primary
sources of cash  flows in  financing  activities  during the first six months of
fiscal  2001 were  proceeds  from  completion  of a new term loan  agreement  of
$3,500,000 and proceeds from issuance of  convertible  debentures of $1,250,000,
offset in part by repayment of long-term debt of $1,559,000, debt issuance costs
of $493,000  paid in  connection  with  obtaining  the term loan and issuing the
convertible  debentures  and the  deposit  of  $500,000  in an  interest-bearing
restricted cash account as required by the term loan agreement.

Term Loan Agreement

         On April 21, 2000,  the Company  executed a Term Loan  Agreement  (Term
Loan) with a lender which provided for up to $3.5 million in credit  facilities,
secured  by  substantially  all the assets of the  Company.  The Term Loan has a
maturity date of May 1, 2010 and is payable in 120 equal  monthly  principal and
interest  payments  of  approximately  $48,000,  commencing  June 1,  2000.  The
interest  rate  under  this Term Loan,  in the  absence  of a default  under the
agreement,  is the prime rate, as defined, in effect as of the close of business
on the first day of each calendar quarter, plus 1% (at April 21, 2000, the prime
rate was 9.5%,  at September  30, 2000,  the prime rate was 10.5%).  Interest is
calculated  on the unpaid  balance of principal  based on a normal  amortization
schedule  commencing  May 1,  2000.  $500,000  of the loan  proceeds  have  been
deposited in an  interest-bearing  restricted cash account,  by the terms of the
loan.

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

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

                                       14
<PAGE>

Convertible Debentures

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

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


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We have not entered into any transactions  using  derivative  financial
instruments or derivative commodity instruments and believe that our exposure to
market risk associated with other financial instruments is not material.


OUTLOOK

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

         Cyanotech's  strategy has been and  continues to be, to produce  higher
value natural products from microalgae.

         During the six months ended  September 30, 2000, the Company  continued
its aquaculture  industry sales efforts for NatuRose  natural  astaxanthin  into
Chile and Japan.  We believe that our efforts in both of these  markets may lead
to increased  sales of NatuRose in future  periods.  In August 2000, the Company
received approval from the United States Food and Drug Administration  (FDA) for
the use of  NatuRose  natural  astaxanthin  as a color  additive  in the feed of
salmon and trout to  enhance  the color of their  flesh.  This  approval  allows
Cyanotech  to sell  NatuRose  to US salmon  and trout  producers  and to foreign
producers  whose  products are destined for the US market.  Combined with recent
significant improvements in astaxanthin productivity,  we intend to increase our
efforts to supply NatuRose to the worldwide aquaculture feed market.

                                       15
<PAGE>

         Our  natural  astaxanthin  product  for  the  human  nutrition  market,
BioAstin,   was  introduced  in  January  2000.  The  total  market  that  human
astaxanthin  products  potentially  could  address is  estimated  to exceed $1.5
billion  annually.  Increased  sales of BioAstin  during the first six months of
this fiscal  year  contributed  to the  improvement  in results  compared to the
results of the first six months of the prior fiscal year.  The Company has filed
patent applications for the use of natural astaxanthin in the treatment of fever
blisters (cold sores) and canker sores, carpal tunnel syndrome, ultraviolet (UV)
radiation (sunburn) sensitivity,  and relief of muscle soreness. Our strategy is
to combine the results of clinical trials with patent  protection and to develop
strategic alliances with companies that target the specific areas of our product
application.   The  Company  has  one  clinical  trial  underway  assessing  the
effectiveness   of  BioAstin  in  relieving   carpal   tunnel   syndrome.   That
double-blind,  randomized  clinical  trial is  expected  to produce  preliminary
results  by the  end of the  calendar  year.  We  anticipate  launching  two new
clinical trials by the end of the calendar year to assess the  effectiveness  of
BioAstin for relief of delayed onset muscle soreness, which results from intense
physical  activity,  and as a systemic sunscreen for protection from ultraviolet
light.  We will be monitoring  the results of these  studies  closely to uncover
potential uses of BioAstin for other applications.

         For the third quarter ending  December 31, 2000,  orders from Spirulina
International are expected to decrease significantly from the levels experienced
during  the  first  two  quarters  of  fiscal  2001, but orders are  expected to
increase   during   the  fourth  quarter  ending  March  31,  2001.    Spirulina
International  has  indicated  that they  expect to purchase  Spirulina Pacifica
products  from  the Company at the same level,  or greater, in calendar 2001, as
they did in calendar 2000, and that they expect their purchases to  continue  to
fluctuate  from  quarter  to  quarter  in   response to their seasonal  business
conditions  and  other factors.  Increased  shipments  to  other  customers  are
expected   to  partially   offset  the  decrease   in  shipments   to  Spirulina
International  during  the third quarter of fiscal 2001, but total net sales for
the quarter ending  December 31, 2000 will probably be less than total net sales
reported in the second quarter ended September 30, 2000.

         Due to our  forecast of lower  shipments  in the third  quarter and the
increased  level of finished goods  inventories,  the Company took action at the
end of  October  2000 to reduce  production.  As a result of  production  system
improvements  implemented  during  the first six months of fiscal  2001,  recent
organizational changes, and lower production level requirements, the Company was
able to  eliminate  six  full-time  production  positions.  This  adjustment  of
production resources is a continuation of the Company's ongoing asset management
program  and does not affect the  Company's  ability to supply and  service  its
customers in the foreseeable future.

         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;  foreign  exchange  fluctuations;
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 later  granted  Cyanotech's  motion to amend its
complaint against Aquasearch to add claims of  misappropriation of trade secrets
regarding open pond technology, unfair competition and breach of contract.

         On December 30, 1999, the Court denied  Cyanotech's  motion for summary
judgment of  non-infringement  and patent  invalidity  as to  Aquasearch's  U.S.
Patent No.  5,541,056 and granted  Aquasearch's  partial summary judgment motion
finding that Cyanotech infringes its patent. The Court also granted Aquasearch's
partial  summary   judgment   motion  finding  that  Cyanotech   misappropriated
Aquasearch  trade  secrets and  committed  a breach of  contract.  In  response,
Cyanotech  filed a motion for  reconsideration  on January  14,  2000,  with the
Court.  On March 3, 2000,  United States District Court Judge Alan C. Kay denied
Cyanotech's motion for reconsideration.

         On August  29,  2000,  Cyanotech  filed a motion  for  partial  summary
judgment for the invalidity of the  Aquasearch  patent No.  5,541,056,  based on
prior art.  This motion is scheduled  to be heard on December 4, 2000.  Although
the  resolution  of this matter is  uncertain,  management  does not expect that
damages,  if any,  against  Cyanotech will have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.


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

         On August 24, 2000,  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 11,111,839 votes and there were no
            more than 287,604 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, 2001.

         For: 11,283,929     Against: 19,932     Abstaining: 95,582

                                       17
<PAGE>
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
                September 30, 2000.

                                       18
<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 8, 2000                 By: /s/Gerald R. Cysewski
--------------------------              ------------------------------------
         (Date)                            Gerald R. Cysewski
                                           Chairman of the Board,
                                           President and Chief Executive Officer



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

                                       19