-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qn4FQaw+thN5iGcmJSKCiXOb9dmxXcVqM7Qb+AqYo2Rm4shblz5LE7AY+edFkhmx u652teegLf9tIxGUz7DuMg== 0001047469-08-007805.txt : 20080626 0001047469-08-007805.hdr.sgml : 20080626 20080626171812 ACCESSION NUMBER: 0001047469-08-007805 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080626 DATE AS OF CHANGE: 20080626 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYANOTECH CORP CENTRAL INDEX KEY: 0000768408 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 911206026 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14602 FILM NUMBER: 08920097 BUSINESS ADDRESS: STREET 1: 73-4460 QUEEN KAAHUMANU HWY STREET 2: SUITE 102 CITY: KAILUA KONA STATE: HI ZIP: 96740 BUSINESS PHONE: 8083261353 MAIL ADDRESS: STREET 1: 73-4460 QUEEN KAAHUMANU HWY STREET 2: SUITE 102 CITY: KAILUA-KONA STATE: HI ZIP: 96740 10-K 1 a2186543z10-k.htm 10-K
QuickLinks -- Click here to rapidly navigate through this document

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

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended March 31, 2008
Commission File Number 0-146-02

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

Nevada		91-1206026
(State or other jurisdiction of incorporation or organization)		(I. R. S. Employer Identification No.)
73-4460 Queen Kaahumanu Highway, Suite 102, Kailua-Kona, Hawaii		96740
(Address of principal executive offices)		(Zip Code)
Registrant's telephone number, including area code: (808) 326-1353
Securities registered pursuant to Section 12(b) of the Act:		Name of each exchange on which registered:
None		NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 par value (Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes ý No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. ý Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller
reporting company)

Smaller reporting company ý

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes ý No

The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant on June 23, 2008 was approximately $7,631,000 based on the closing sale price of the Common Stock on the NASDAQ Capital Market on that date.

Number of shares outstanding of Registrant's Common Stock at June 26, 2008 was 5,242,270.

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

Item
	PART I
	Discussion of Forward-Looking Statements	3
1.	Business	4
1A.	Risk Factors	12
2.	Properties	18
3.	Legal Proceedings	18
4.	Submission of Matters to a Vote of Security Holders	18
	PART II
5.	Market for Registrant's Common Equity and Related Stockholder Matters	19
6.	Selected Financial Data	21
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
7A.	Quantitative and Qualitative Disclosures About Market Risk	33
8.	Financial Statements and Supplementary Data	34
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	56
9A(T).	Controls and Procedures	56
9B.	Other Information	57
	PART III
10.	Directors and Executive Officers of the Registrant	58
11.	Executive Compensation	61
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	66
13.	Certain Relationships and Related Transactions	67
14.	Principal Accountant Fees and Services	68
	PART IV
15.	Financial Statement Schedules and Exhibits	69
16.	Signatures	74

FORWARD-LOOKING STATEMENTS

This Report and other presentations made by Cyanotech Corporation ("CYAN") and its subsidiaries contain "forward-looking statements," which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as "expects," "anticipates," "intends," "plan," "believes," "predicts", "estimates" or similar expressions. In addition, any statement concerning future financial performance, ongoing business strategies or prospects and possible future actions are also forward-looking statements. Forward-looking statements are based upon current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning CYAN and its subsidiaries (collectively, the "Company"), the performance of the industry in which they do business and economic and market factors, among other things. These forward-looking statements are not guarantees of future performance.

Forward-looking statements speak only as of the date of the Report, presentation or filing in which they are made. Except to the extent required by the Federal Securities Laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our forward-looking statements in this Report include, but are not limited to:

•: Statements relating to our business strategy;
•: Statements relating to our business objectives; and
•: Expectations concerning future operations, profitability, liquidity and financial resources.

These forward-looking statements are subject to risk, uncertainties and assumptions about us and our operations that are subject to change based on various important factors, some of which are beyond our control. The following factors, among others, could cause our financial performance to differ significantly from the goals, plans, objectives, intentions and expectations expressed in our forward-looking statements:

•: The effects of competition, including locations of competitors and operating and market competition;
•: Environmental restrictions, soil and water conditions, weather and other hazards;
•: Access to available and reasonable financing on a timely basis;
•: Changes in laws, including increased tax rates, regulations or accounting standards, and decisions of courts, regulators and governmental bodies;
•: Demand for the company's products, the quantities and qualities thereof available for sale and levels of customer satisfaction;
•: Our dependence on the experience and competence of our executive officers and other key employees;
•: The risk associated with the geographic concentration of the company's business;
•: Acts of war, terrorists incidents or natural disasters;
•: Other risks or uncertainties described elsewhere in this Report (e.g. Item 1A. Risk Factors) and in other periodic reports previously and subsequently filed by the Company with the Securities and Exchange Commission.

PART I

Item 1. Business

General

Cyanotech Corporation is a world leader in the production of high value natural products derived from microalgae. Incorporated in 1983, the Company is guided by the principle of providing beneficial, quality microalgal products for human and animal nutrition in a sustainable, reliable and environmentally sensitive operation. We are ISO 9001:2000 compliant, reinforcing our commitment to quality in our products, to quality in our relationships (with our customers, suppliers, co-workers and the communities we live in), and to quality of the environment we work in. The Company's products include:

•: BioAstin® natural astaxanthin is a powerful dietary antioxidant with expanding applications as a human nutraceutical and functional food ingredient, shown to support and maintain the body's natural inflammatory response, to enhance skin, muscle and joint health; and
•: Spirulina Pacifica® is a nutrient-rich dietary supplement used for extra energy, a strengthened immune system and as a source of antioxidant carotenoids.

To better focus the Company's resources, during the fiscal year ended March 31, 2008 the Company announced the following changes to its historic production and sales efforts:

•: On March 26, 2008 the Company announced the discontinuance of its NatuRose® product for the animal feed market in order to focus on production and marketing of natural astaxanthin for the higher value human market. The discontinuance of NatuRose did not have a significant impact on our consolidated financial statements.
•: On March 26, 2008 the Company also announced the discontinuance of production and marketing of phycobiliproteins, a highly specialized product which had provided an immaterial contribution to revenue in recent years.
•: In the Company's September 30, 2007 Form 10-Q, the Company discussed the August 31, 2007 discontinuance of all business activity of its wholly owned Japanese subsidiary "CJYK." As a result of this action, all aquaculture feed business in Japan was absorbed through the Company's domestic operations. "CJYK" sales for fiscal year 2008 and fiscal year 2007 were $45,000 and $482,000, respectively. The dissolution of this subsidiary occurred on November 30, 2007 and did not have a significant impact on our consolidated financial statements.

Microalgae are a diverse group of microscopic plants that have a wide range of physiological and biochemical characteristics and contain, among other things, high levels of natural protein, amino acids, vitamins, pigments and enzymes. Microalgae have the following properties that make commercial production attractive: (1) microalgae grow much faster than land grown plants, often up to 100 times faster; (2) microalgae have uniform cell structure with no bark, stems, branches or leaves, permitting easier extraction of products and higher utilization of the microalgae cells; and (3) the cellular uniformity of microalgae makes it practical to manipulate and control growing conditions in order to optimize a particular cell characteristic. However, efficient and effective cultivation of microalgae requires consistent light, warm temperatures, low rainfall and proper chemical balance in a very nutrient-rich environment. If the chemical composition of a pond changes from its required balance, unusually high levels of contamination due to the growth of unwanted organisms or other biologic problems do occur. These often arise without warning and sometimes there are few or no clear indicators as to appropriate remediation or corrective measures.

Since 1983, we have designed, developed and implemented proprietary production and harvesting technologies, systems and processes, in some cases eliminating or mitigating many of the stability and

contamination problems frequently encountered in the production of microalgae. Our production of these products at the 90-acre facility on the Kona Coast of Hawaii provides advantages. We selected the Keahole Point location in order to take advantage of relatively consistent warm temperatures, sunshine and low levels of rainfall needed for optimal cultivation of microalgae. This location also offers us access to cold deep ocean water, drawn from an offshore depth of 2,000 feet, which we use in our patented Ocean-Chill Drying system to eliminate the oxidative damage caused by standard drying techniques and as a source of trace nutrients for microalgal cultures.

We believe that our technology, systems, processes and favorable growing location generally permit year-round harvest of our microalgal products in a cost-effective manner. However, imbalances in astaxanthin production in fiscal year 2007 and spirulina production in 2008, together with increasing energy costs, suggest a need for continuing caution. We cannot, and do not attempt to, provide any form of assurance with regard to our technology, systems, processes, location, or cost-effectiveness.

Unless otherwise indicated, all references in this report to the "Company," "we," "us," "our," and "Cyanotech" refer to Cyanotech Corporation and its wholly owned subsidiary, Nutrex Hawaii, Inc. ("Nutrex Hawaii" or "Nutrex"), a Hawaii corporation. As previously announced, the Company's wholly owned subsidiary, Cyanotech Japan YK ("Cyanotech Japan" or "CJYK"), a Japan corporation, was dissolved November 30, 2007. All business formerly transacted through CJYK was assigned to Cyanotech Corporation's Hawaii headquarters location. Due to several years of decreasing sales in the Japan aquaculture market, the discontinuance of CJYK and the assignment of remaining business to Cyanotech Corporation, did not have a material effect on financial results for the year ended March 31, 2008.

Cyanotech's Business

The Company operates entirely in one operating segment, the cultivation and production of microalgae into high-value, high-quality natural products. The Company cultivates, on a large-scale basis, two microalgal species from which our two major product lines, spirulina products and natural astaxanthin products, are derived. There is risk in operating entirely in one business segment such as the cultivation and production of microalgae at a single production facility. Single location agricultural and production facilities do not provide the protections and assurances afforded by operations in two or more widely separated locations. Our single location in Hawaii is susceptible to increased energy and transportation costs, and energy and transportation disruptions with either limited alternatives or no alternatives. The Company's most significant operating expenditures are for electricity, related water pumping and nutrient and supply costs. These costs are directly or substantially affected by the price of fuel oil since Hawaii has virtually no hydroelectric power resources and only limited alternative electrical energy resources. Also, a single agricultural facility provides limited biologic diversity protection against invasive, mutant, or harmful organisms.

Cyanotech records revenue and cost of sales information by product category but does not record operating expenses by such product category. The following table sets forth, for the three years ended March 31, 2008, the net sales contributed by each of the Company's product lines (in thousands):

			Net Sales
			2008		2007		2006
Spirulina products:
	Spirulina Pacifica		$	5,980	$	6,090	$	6,517
Natural astaxanthin products:
	NatuRose			443		1,142		1,403
	BioAstin			4,808		2,354		2,967
Other including phycobiliproteins				133		97		244

		Total	$	11,364	$	9,683	$	11,131

Spirulina Products

Since 1985, Cyanotech has been producing a strain of spirulina microalgae marketed as Spirulina Pacifica. Accounting for 53%, 63% and 59% of net sales for the years ended March 31, 2008, 2007, and 2006, respectively, Spirulina Pacifica provides a vegetable-based, highly absorbable source of protein, natural beta-carotene, mixed carotenoids, B vitamins, gamma linolenic acid, essential amino acids and other phytonutrients. Spirulina Pacifica is produced in three forms: powder, flake and tablets. Powder is used as an ingredient in nutritional supplements and health food drinks while flakes are used as a seasoning on various foods. Tablets are consumed as a daily dietary supplement. All three forms are sold as raw material in bulk quantities and as packaged consumer products under the Nutrex Hawaii label.

The Company's all natural Spirulina Pacifica is certified Kosher by Organized Kashrus Laboratories of Brooklyn, New York and is cultivated without the use of herbicides or pesticides.

In March 2003, Cyanotech and Earthrise Nutritionals, Inc. of Petaluma, California submitted a joint notice to the United States Food and Drug Administration ("FDA") reporting their determination, through scientific procedures, that the spirulina cultivated by both companies is GRAS (generally recognized as safe) for addition to a variety of foods. In November 2003, the FDA concluded the notification procedure by written response that it had no questions about the companies' determination that spirulina is GRAS for addition to a variety of foods.

Our Spirulina Pacifica is cultivated in a combination of fresh water and a metered amount of nutrient-rich deep ocean water (containing essential trace elements), drawn from a depth of 2,000 feet below sea level. This water mixture is supplemented with other major required nutrients such as sodium bicarbonate (baking soda) and infused with carbon dioxide. With the exception of deep ocean water, the raw materials and nutrients required in our Spirulina production are available from multiple sources; however, there can be no assurance that the pricing from a new source will be comparable to current pricing. In the case of deep ocean water, although abundantly available at this location, the facility to pump and deliver the water to the Company is owned by the State of Hawaii. The facility is constructed of two separately located pump stations providing redundancy should one station fail. The State of Hawaii sets the price for deep ocean water annually based on its cost to deliver the water. If the pricing for a critical raw material or nutrient significantly increases, this could have a material adverse effect on our business, financial condition and results of operations. The ability of the Company's suppliers to meet performance and quality specifications and delivery schedules is also important to operations.

Continuing the production process, the Spirulina crop in each pond is circulated by paddlewheels to keep an even blend of nutrients in suspension and a uniform exposure of the algae to sunlight. Our ponds are engineered to maintain the right media depth for sunlight to permeate each crop completely, facilitating rapid growth. The design of our cultivation ponds promotes efficient growing conditions, allowing the Spirulina Pacifica algae to reproduce rapidly. Each pond can be harvested, on average, in six days. As sunlight is a major component of cultivation, production can be impacted by seasonality changes during the winter months, with shortened daylight hours and potential inclement weather.

Once ready for harvest, some 70% of the Spirulina algae are pumped from a pond through underground pipes to our processing building where the crop is separated from the culture media by stainless steel screens. The remaining culture serves as an inoculum for the next growth cycle. Harvested Spirulina is washed with fresh water and vacuum filtered before moving to the drying stage. Culture media separated from Spirulina algae during processing are conserved and recycled. Recycled media are refortified with nutrients before being returned to the culture ponds for another cycle of cultivation. Our Integrated Culture Biology Management ("ICBM") technology for microalgae cultivation has proven to be a reliable and stable operating environment, allowing us to grow and harvest Spirulina without significant contamination by unwanted microorganisms and without associated loss of productivity.

Spirulina Pacifica powder is dried via our patented low-oxygen Ocean-Chill Drying process, thereby preserving high levels of antioxidant carotenoids and other nutrients sensitive to heat and oxygen. This process also allows us to recover carbon dioxide from our drying system gas to be reused as a raw material back in our growing ponds. The drying process takes about six seconds and results in a dark green powder. Spirulina powder is difficult to form into tablets. Most tablet manufacturers either add high amounts (from 10% to 30%) of inert substances to "glue" the tablet together or use a heat granulation process that destroys nutrients. In contrast, our Spirulina Pacifica tablets contain a maximum of 2% of such substances and are produced in cold press compression tablet-making machines. Our Spirulina Pacifica flakes are produced by combining freshly harvested Spirulina Pacifica with food-grade lecithin and drying this blend in a proprietary system.

Each production lot of Spirulina Pacifica is sampled and subjected to thorough quality control analyses including testing for moisture, carotenoids, minerals, color and taste, among others. Further, each lot of our Spirulina Pacifica undergoes a prescribed set of microbiological food product tests, including total aerobic bacteria, coliform bacteria and E. coli. The Spirulina Pacifica powder, tablets and flakes are vacuum-sealed in oxygen-barrier foil laminate bags along with a packet of oxygen absorbent. This packaging ensures product freshness and extends the shelf life of bulk Spirulina Pacifica products. The Company's packaged consumer products are bottled and labeled by two contractors in California. These contractors are Kosher certified and subject to regular government inspections. Such packaging services are readily available from multiple sources.

The majority of our bulk Spirulina sales are to health food manufacturers and formulators with their own Spirulina product lines, many of whom identify and promote Cyanotech's Hawaiian Spirulina Pacifica in their products. Such customers purchase bulk powder or bulk tablets and package these products under their brand label for sale to the health and natural food markets. Many of the brands produced by these customers are marketed and sold domestically in direct competition with the packaged consumer products sold through our Nutrex Hawaii subsidiary. Nutrex Hawaii packaged consumer products are sold through an established health food distribution network in the domestic market and shipped through our wholesale distributors. In selected foreign markets, we have exclusive sales distributors for both our bulk and packaged consumer products.

Our Spirulina Pacifica products compete with a variety of vitamins, dietary supplements, other algal products and similar nutritional products available to consumers. The nutritional products market is highly competitive and includes international, national, regional and local producers and distributors, many of whom have greater resources than Cyanotech and many of whom offer a greater variety of products. Our direct competition in the Spirulina market is currently from Dainippon Ink and Chemical Company's Earthrise facility in California and several farms in China. Other competitors include numerous smaller farms in China, India, Thailand, Taiwan, Cuba, South Africa and South America. The market for Spirulina is mature with slow growth expected in future periods. In this mature market, the Company has experienced increased price competition due to more Spirulina suppliers as well as a larger portion of sales coming from bulk product orders whose customers generally treat these products as commodities with price being the major determining factor driving their purchasing decision. As one of the largest producers of Spirulina, our challenge is to increase our market share among customers who seek the high-quality products we produce while concurrently adjusting our product mix to meet our revenue targets.

As of March 31, 2008, the backlog of orders for all Spirulina products totaled approximately $710,000 and the majority of these orders were filled in the first quarter of fiscal 2009. Such backlogs at the end of fiscal 2007 and 2006 were $432,000 and $448,000 respectively.

Natural Astaxanthin Products

The Company commenced commercial production of natural Astaxanthin in 1997. Astaxanthin is a red pigment which the Company initially sold to the aquaculture market, under the name NatuRose, primarily to impart a pink to red color to the flesh of commercially raised fish and shrimp.

As announced March 26, 2008, the Company discontinued NatuRose production and sales in order to focus its resources on production and marketing of natural astaxanthin for the higher value human market. NatuRose sales accounted for 4%, 12% and 13% of net sales for the years ended March 31, 2008, 2007 and 2006, respectively.

In 1999, our natural astaxanthin product for the human nutrition market, BioAstin, was introduced. BioAstin sales accounted for 42%, 24% and 27% of net sales for the years ended March 31, 2008, 2007 and 2006, respectively. BioAstin is produced in three forms: a liquid lipid extract, gelcaps and microencapsulated "beadlets" with all three forms sold in bulk quantities. BioAstin gelcaps are also sold in packaged consumer form under the Nutrex Hawaii label. A growing body of scientific literature is suggesting that the beneficial antioxidant properties of natural astaxanthin may surpass many of the antioxidant properties of vitamin C, vitamin E, beta-carotene and other carotenoids. Independent scientific studies indicate that in certain models, natural astaxanthin has up to 550 times the antioxidant activity of vitamin E and 10 times the antioxidant activity of beta-carotene.

The Company produces natural astaxanthin from Haematococcus pluvialis microalgae grown in fresh water supplemented with nutrients. As these algae are extremely susceptible to contamination by unwanted algae, protozoa and amoebae, the Company developed a proprietary system known as the PhytoDome Closed Culture System or PhytoDome CCS to overcome this problem. Using these large-scale photobioreactors, we have generally been able to grow consistently large volumes of contaminant-free Haematococcus culture. This has not always been the case however, as evidenced by our astaxanthin discussion in Form 10-K for the fiscal year ended March 31, 2007. Raw materials and nutrients for our natural astaxanthin production share the same sourcing constraints and pricing risks as those existing in our Spirulina production. Fresh water is critical to the production of our natural astaxanthin and is supplied by the County of Hawaii. While the Company has not experienced any constraint on fresh water availability to date, availability could be impacted by a significant population growth in the region as well as throughput constraints on the water delivery infrastructure. The Company has met with officials of the County of Hawaii to assess the fresh water situation and evaluate the probability of future risks. The Company recycles fresh water in its production process where possible and continues to explore further recycling opportunities. However, there is no guarantee that these efforts will result in significant changes to our fresh water utilization.

For the final stage of cultivation, the Haematococcus algae is transferred to open ponds where an environmental stress is applied causing the algae to form spores which accumulate high levels of astaxanthin. Once ready for harvest, the media containing these spores is transported through underground pipes to our astaxanthin processing building where the culture media and algal spores are separated. Fresh water recovered from this stage of processing may be recycled for further use in cultivation. The harvested algal spores are dried to a fine powder. During processing, the spores are cracked in a proprietary system to assure high bioavailability of astaxanthin. Each production lot of astaxanthin is sampled and tested for astaxanthin concentration. Finally the bulk powder is vacuum-sealed in oxygen-barrier foil laminate bags along with a packet of oxygen absorbent.

Unlike Spirulina, astaxanthin is produced in a batch-mode and each cultivation pond must be completely drained and thoroughly cleaned between cycles. While the entire astaxanthin production cycle takes a total of four weeks, each stage of the four-step process is staggered and continuously feeds the next stage of cultivation. As a result, we are generally able to produce a new crop of astaxanthin from each of our 500,000 liter culture ponds approximately once per week. Pond cultivation can be negatively impacted seasonally with shortened daylight hours and potential inclement weather in winter months.

Natural astaxanthin for human consumption is processed further utilizing a high-pressure extraction process. The resulting product is a lipid extract insoluble in water used for the production of gelcaps. This product can also be micro-encapsulated into "beadlets" which our customers use in other formulations. All natural astaxanthin products destined for human consumption undergo a prescribed set of microbiological food product tests to ensure safety and quality. The Company uses third party contractors for the extraction services, the production of gelcaps and the production of beadlets. Although these services are available only from a limited number of sources, we believe we have the ability to use other parties if any of the current contractors become unavailable; however, there is no assurance that the pricing from a new contractor will be comparable to current negotiated pricing. In addition, a new contractor would have to pass the Company's qualification process ensuring quality standards can be met or exceeded. Significant pricing increases for any of these services could have a material adverse effect on our business, financial condition and results of operations.

As announced on March 26, 2008, the Company discontinued production and sales of its NatuRose product line. Prior to this, the Company's production and sales of NatuRose decreased as discussed in previous years. NatuRose was sold through a network of agents and distributors primarily as feed to manufacturers and farmers in the aquaculture industry. Japan had been one of our primary markets for the application of NatuRose in aquaculture and was a major factor in our decision to establish Cyanotech Japan as a channel of distribution. Although, as discussed and reported previously, sales in Japan decreased in recent years, Japan remained a primary NatuRose market from which sales were expected to remain an important part of our business. However, as discussed in the Company's September 30, 2007 Form 10-Q: "On August 31, 2007, the Company discontinued all business activity of its wholly owned Japanese subsidiary "CJYK." Subsequently, all aquaculture feed business in Japan was absorbed through the Company's domestic operations. "CJYK" remained a registered Japanese corporation until November 30, 2007, at which time it was dissolved. All "CJYK" assets and liabilities were absorbed into the Company as of September 1, 2007, and no significant "CJYK" assets or liabilities existed except for cash of approximately $50,000. "CJYK" was under no contractual obligations at August 31, 2007. The Company made this decision due to declining sales of approximately 40% in each of the prior two fiscal years in addition to declining gross profit margins of 13% and 4% for fiscal 2007, and the six month period ended September 30, 2007, respectively." "CJYK" sales for fiscal year 2008 and fiscal year 2007 were $45,000 and $482,000, respectively. The dissolution of this subsidiary did not have a significant impact on our consolidated financial statements. As discussed in this report, the Company has now entirely discontinued sales of NatuRose in order to focus on production and marketing of natural astaxanthin for the higher value human market. The discontinuance of NatuRose did not have a significant impact on our consolidated financial statements.

While the positive effects of astaxanthin in aquaculture have been recognized for years, the potential benefits of astaxanthin to human health are still emerging. As natural astaxanthin is one of the most potent and bioactive biological antioxidants found in nature, the number of potential roles of natural astaxanthin for human health is growing. Much research has been published in recent years on the beneficial roles of antioxidants in our health, in the aging process and on specific health conditions. The full efficacy of BioAstin as a human nutraceutical supplement requires further significant clinical study. The Company, to contain costs, did not spend significant amounts on clinical trials over the past two fiscal years. Independent antioxidant research and prior clinical trials show promising human applications. The Company holds three United States patents relating to the usage of BioAstin in the treatment of Carpal Tunnel Syndrome, the treatment of canker/cold sores and for its use as a topical and oral sunscreen.

BioAstin is sold in liquid lipid form as a raw ingredient to dietary supplement manufacturers, health food formulators and cosmetic manufacturers, and BioAstin gelcaps and beadlets are sold in bulk quantities to distributors. BioAstin gelcaps are also sold as a packaged consumer product through Nutrex Hawaii directly to natural product distributors, retailers and consumers. BioAstin competes directly with similar products marketed by other manufacturers including Fuji Chemical of Japan, Algatechnologies of

Israel, and Valensa (formally U.S. Nutraceuticals), and Mera Pharmaceuticals in the United States. In the general category of nutritional supplements, BioAstin also competes with a variety of vitamins, dietary supplements and other antioxidant products available to consumers. The nutritional products market is highly competitive and includes international, national, regional and local producers and distributors, many of whom have greater resources than Cyanotech and many of whom offer a greater variety of products.

During the second, third and fourth quarters of the Company's previous fiscal year ended March 31, 2007, the Company experienced and reported decreased Astaxanthin production volumes due to an imbalance in the many critical factors, some beyond Company control, which are involved in the production of microalgae. The production shortfalls resulting from this imbalance dramatically increased the Company's fiscal year 2007 per unit production costs. Efforts to correct this complex biological imbalance started to become effective late in the fourth quarter of fiscal year 2007, and during the first and second quarters of fiscal year 2008. Several key factors causing the imbalance were identified and corrective efforts, which are time consuming due to the biological nature of the process, resulted in increased production levels. A key factor causing the foregoing imbalance in our culture system was the concentration of certain micronutrients. Such concentrations can be affected by the level of micronutrients from several sources, including water received from the Department of Water supply. During fiscal year 2008 the Company increased its testing of incoming water supplies. We believe that continued close monitoring of astaxanthin production is required and that despite our efforts to correct the fiscal year 2007 imbalance, our desire to stabilize future production levels has not yet been achieved.

As of March 31, 2008, the backlog of orders for all Natural Astaxanthin products was $209,000. The majority of these orders were filled in the first quarter of fiscal 2009. Backlogs at the end of fiscal 2007 and 2006 were $802,000 due to production problems, and $257,000, respectively.

Phycobiliprotein Products

On March 26, 2008 the Company announced that it would discontinue producing phycobiliproteins for sale to the medical and biotechnology research industries. Phycobiliproteins are highly fluorescent pigments derived from microalgae. Their spectral properties make them useful as tags or markers in many kinds of biological assays, such as flow cytometry, fluorescence immunoassays and fluorescence microscopy. Phyciobilliproteins have never represented a significant component of total sales and the discontinuance is not significant to the Company's financial results.

Major Customers

Approximately $1,149,000 or 10% of net sales for the year ended March 31, 2008 were to Spirulina International B.V., a Spirulina marketing and distribution company based in the Netherlands. Sales to this customer amounted to $937,000 or 10% of net sales for the fiscal year 2007 and $1,285,000 or 12% of net sales for the fiscal year 2006. Additionally, astaxanthin customers Valensa and YAD International accounted for $658,000 or 6% of net sales and $613,000 or 5% of net sales, respectively, for the year ended March 31, 2008. We believe that sales to these customers, none of which are related parties, will continue to represent a significant portion of total net sales in future periods and any significant reduction in demand from these customers could have a material adverse effect on our business, financial condition and results of operations.

Research and Development

Cyanotech's expertise for many years has been in the development of efficient, stable and cost-effective production systems for microalgal products. We have learned, however, during the operating period after the fiscal year 2007 astaxanthin production imbalance, and during the fiscal year 2008 spirulina production imbalance, that acceptable and consistent quality production levels from our systems may not

be sustainable across periods of days, weeks, or even months. Accordingly, Cyanotech typically investigates each specific microalgae identified in the scientific literature for potentially marketable products and for solutions to production stability and efficiency challenges, and then strives to develop the technology to grow such microalgae on a commercial scale or to incorporate procedures or technology to improve production stability and efficiency. Successful microalgal product developments and technical solutions are highly uncertain and dependent on numerous factors, many beyond the Company's control. Products and solutions or improvements that appear promising in early phases of development may be found to be ineffective, may be uneconomical because of manufacturing costs or other factors, may be precluded from commercialization due to the proprietary rights of other companies, or may fail to receive necessary regulatory approvals.

The Company had research and development expenditures of $143,000, $203,000 and $187,000 in fiscal years 2008, 2007 and fiscal 2006, respectively. No investment was made in scientific clinical trials during fiscal 2008 and 2007. Fiscal 2006 expenses included those for the initiation of clinical trials aimed at increasing production yields and improving the quality and stability of some products. The Company also continues to explore customer sponsored research and development, although amounts spent for this purpose were not material in each of the years in the three-year period ended March 31, 2008.

Patents, Trademarks and Licenses

Cyanotech has received five United States patents: two on aspects of our production methods and three relating to usage of our BioAstin products. The Company views its proprietary rights as important but believes that a loss of such rights is not likely to have a material adverse effect on the Company's present business as a whole. The Company's operations are not dependent upon any single trademark, although some trademarks are identified with a number of the Company's products and are of importance in the sale and marketing of such products.

Regulations and Environmental Matters

In 2002, the Company was issued under the Endangered Species Act ("ESA") an Incidental Take Permit ("ITP") by the United States Department of Interior Fish and Wildlife Service ("FWS"). The ESA defines "incidental take" as "incidental to, and not the purpose of, the carrying out of an otherwise lawful activity." This permit authorizes incidental take of the endangered Hawaiian stilt (Himantopus mexicanus knudseni) that is anticipated to occur as a result of ongoing operations and maintenance at the Company's Kona facility. As a mandatory component for the issuance of such permit, the Company submitted and maintains a Habitat Conservation Plan ("HCP") to ensure that the effects of the permitted action on listed species are adequately minimized and mitigated.

The HCP called for the creation of a nesting and breeding ground for the Hawaiian stilt to offset any take activity. The Company has complied with these requirements since 2002. The breeding program was so successful that the increase in the Hawaiian stilt population in the area became a potential hazard for the adjacent State airport facility. The Company disassembled the stilt habitat and is mitigating "take" by using standard non-lethal hazing devices to discourage nesting and breeding.

A requirement of the ITP is to provide insurance coverage for funding the project for the term of the ITP. The Company's insurance broker was unable to locate an underwriter who would provide such a bond. As permitted by law, the FWS waived this requirement recognizing that this HCP did not involve a significant capital expenditure. However, under Hawaii state law, no waiver provision is available. A new ITP was issued by the FWS on September 29, 2006 and by the State of Hawaii Division of Forestry and Wildlife (DOFAW) on October 13, 2006, both which expire on March 17, 2016. In October, 2005, the Company submitted a new ten-year HCP to the FWS and the DOFAW.

Employees

As of March 31, 2008, the Company employed 53 people on a full-time basis. Of the total, 23 are involved in harvesting and production and the remainder in sales, administration and support. Management believes that its relations with employees are good. We continue to experience some difficulty in attracting entry-level operations personnel due to increased wage competition for workers stemming from the growth in the State's construction industry. None of our employees are subject to collective bargaining agreements.

Internet Information

Our Internet address is www.cyanotech.com. There we make available, free of charge, copies of Cyanotech documents, news releases and financial statements issued in the last 12 months. Included are copies of the Company's Code of Conduct and Ethics, the Nominating and Corporate Governance Committee Charter, and the Charter and Powers of the Audit Committee. The information found on our Web site, unless otherwise indicated, is not part of this or any other report we file or furnish to the Securities and Exchange Commission. Spirulina Pacifica and BioAstin are sold directly online through the Company's website, www.nutrex-hawaii.com, as well as through resellers in over 40 countries worldwide. Corporate data, product information and charters of our Board committees are also available at www.cyanotech.com.

Item 1A. Risk Factors

You should carefully consider the risks described below which we believe are significant but not the only ones we face. Any of the following risks could have a material adverse effect on our business, financial condition and operating results. You should also refer to the other information contained in this report, including our financial statements and the related notes.

We May Need to Raise Additional Capital in the Future Which May Not Be Available

At March 31, 2008, our working capital was $3,092,000. Cash and cash equivalents at the same date totaled $1,090,000. Our cash requirements will depend on numerous factors, including demand for products; normal requirements to maintain and upgrade facilities and equipment, whether opportunities emerge in either new markets or in research and development activities, or in the event we need to expand or contract our production or distribution infrastructure.

On February 19, 2008 Cyanotech Corporation entered into an additional Senior Debt direct financial obligation term loan (the "Term Loan") with Bridgeview Capital Solutions, LLC ("Bridgeview") under the provisions of a United States Department of Agriculture (USDA) Rural Development (RD) Guarantee program. Term Loan proceeds, remaining after deducting closing costs, statutory fees, and other customary borrowing costs, will be used for working capital purposes. The full amount of the obligation assumed February 19, 2008 was $1,078,000, payable in monthly installments to Bridgeview. The obligation fully amortizes over seven (7) years at an interest rate of Prime Rate plus one percent (1%) per annum, initially an effective rate of seven percent (7%) per annum, adjustable on the first day of each calendar quarter for the term of the obligation. Repayment may be accelerated under specified conditions of default if the Company is not able to remedy such default within the terms and conditions of the Loan. The Term Loan is fully secured by all of the assets of Cyanotech. Also, because the Loan is under a USDA Rural Development Guarantee program, Bridgeview has certain rights of recourse to the Rural Development Guaranty program to recover up to eighty percent (80%) of Bridgeview loss on the Term Loan. The Term Loan contains certain negative covenants such as dividend restrictions and providing customary priority and prior consent rights to Bridgeview with respect to specified actions of Cyanotech. The obligation is similar to and in addition to Cyanotech Corporation's previously reported Senior Debt obligation payable to Bridgeview under the USDA Rural Development Guarantee program originally incurred April 21, 2000.

The amount of such previously reported Senior Debt at March 31, 2008, was $994,000 plus accrued interest of $7,000. As of March 31, 2008, Cyanotech Corporation's combined obligations to Bridgeview Capital Solutions, LLC under the USDA Rural Development Guarantee program total approximately $2,072,000 plus accrued interest of $14,000.

We believe our cash and cash equivalents to be provided from operations will be sufficient to meet our capital and operating requirements for at least the next 12 months, but we may need to raise additional funds and we may not be able to secure funding on acceptable terms, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our then current stockholders may be reduced. If we raise additional funds through the issuance of convertible debt securities, or through additional debt or similar instruments, such securities, debt, or similar instruments could have rights senior to those of our common stockholders and such instruments could contain provisions restricting our operations. If adequate funds are not available to satisfy either short-term or long-term capital requirements, we may be required to limit operations with adverse results.

We have incurred significant losses in the past, and we may continue to incur significant losses in the future. If we continue to incur losses, we will experience negative cash flow which may hamper current operations and prevent us from sustaining or expanding our business.

We have incurred net losses in three of the last five fiscal years. As of March 31, 2008, we had an accumulated deficit of approximately $21.0 million. During fiscal years 2008, 2007 and 2006, we incurred net losses in the amounts of approximately: $1.1 million; $7.4 million, of which $4.5 million was due to a non-cash impairment loss on equipment and leasehold improvements, and $391,000, respectively. These account for approximately 42% of our accumulated deficit since our inception. Historically, we have relied upon cash from operations and financing activities to fund all of the cash requirements of our business. If an extended period of net losses continues, our negative cash flow will likewise, and may hamper current operations and prevent us from sustaining or expanding our business. We cannot assure you that we will attain, sustain or increase profitability on a quarterly or annual basis in the future. If we do not achieve, sustain or increase profitability, our business will be adversely affected and our stock price may decline. The current global cost of oil derived energy impacts Cyanotech in several ways, and it may hinder our efforts to achieve profitability. Oil prices primarily impact Cyanotech through the costs of electricity, transportation, materials and supplies which are tied to the cost of oil either directly or indirectly.

Our stock price is volatile, which could result in substantial losses for investors purchasing shares of our common stock.

The market price of our common stock has fluctuated significantly in the past and may continue to fluctuate significantly in the future. During the first two months of fiscal 2009, the high and low closing bid prices of a share of our common stock were $1.77 and $1.41, respectively. During fiscal 2008, the high and low closing bid prices of a share of our common stock were $1.90 and $0.79, respectively. During fiscal 2007, the high and low closing bid prices of a share of our common stock were $3.40 and $1.61, respectively. During fiscal 2006, the high and low closing bid prices of a share of our common stock were $4.92 and $2.20, respectively. The market price of our common stock may continue to fluctuate in response to one or more of the following factors, many of which are beyond our control:

•: changes in market valuations of similar companies;
•: stock market price and volume fluctuations generally;
•: economic conditions specific to the nutritional products industry;
•: economic conditions tied to global resource markets, such as fuel costs;
•: production problems which we cannot solve technically or economically;

•: announcements by us or our competitors of new or enhanced products or of significant contracts, acquisitions, strategic relationships, joint ventures or capital commitments;
•: the loss of one or more of our top retailers or the cancellation or postponement of orders from any of those retailers;
•: problems in the functioning of new products or innovations;
•: changes in our pricing policies or the pricing policies of our competitors;
•: changes in foreign currency exchange rates affecting our product costs and pricing;
•: regulatory developments or increased enforcement;
•: fluctuations in our quarterly or annual operating results; and
•: additions or departures of key personnel.

The price at which you purchase shares of our common stock may not be indicative of the price that will prevail later in the trading market. You may be unable to sell your shares of common stock at or above your purchase price, which may result in substantial losses to you. As of March 31, 2008, there were approximately 5.2 million shares of our common stock outstanding. Our common stock has a large public float, and as a group, our executive officers, directors, beneficially own 20% of our common stock. We cannot predict the effect, if any, that future sales of shares of our common stock into the public market will have on the market price of our common stock. Even though we have a large public float, sales of substantial amounts of common stock, including shares issued upon the exercise of stock options, or in anticipation of such sales, may materially and adversely affect prevailing market prices for our common stock.

The nutritional products industry is extremely competitive. Many of our significant competitors have greater financial and other resources than we do, and one or more of these competitors could use their greater resources to gain market share at our expense.

The nutritional products market includes international, national, regional and local producers and distributors, many of whom have substantially greater production, financial, research and development, personnel and marketing resources than we do, and many of whom offer a greater variety of products. As a result, each of these companies could compete more aggressively and sustain that competition over a longer period of time than we could. Our lack of resources relative to our significant competitors may cause us to fail to anticipate or respond adequately to development of new products and changing consumer demands and preferences, or may cause us to experience significant delays in obtaining or introducing new or enhanced products. These failures or delays could reduce our competitiveness and cause a decline in our market share and sales. Increased competition in our industry could result in price reductions, reduced gross profit margin or loss of market share, any of which could have a material effect on our business, results of operations and financial condition.

Our Revenues Could Be Adversely Affected By the Loss of a Significant Customer or the Failure to Collect a Large Accounts Receivable

We have in the past derived, and may continue in the future to derive, a significant portion of our revenues from a relatively limited number of major customers. From quarter to quarter, revenues from one or more individual customers may exceed 10% of our revenues for the quarter. During each of the three years ended March 31, 2008, 2007, 2006, sales to one customer, a European distributor of natural products, were approximately 10%, 10% and 12% of net sales, respectively. If sales to this customer or other such major customer decrease significantly, this may materially affect our results of operations. In addition, if we fail to collect one or more accounts receivable from major customers, we could be subject to significant financial exposure.

We depend heavily on the unique abilities and knowledge of our officers and key personnel which include the President and Chief Executive Officer who, during fiscal year 2008 was also the Company's primary scientific resource. We also depend on the unique knowledge of our Chief Financial Officer and Vice President of Finance and Administration, Vice President of Operations and Vice President of Sales and Marketing. Cyanotech is a small company and the loss of any such personnel or the delay in the replacement of one could significantly delay the achievement of our business objectives and could adversely affect our ability to do business or could hinder our ability to provide needed management.

Our success depends, to a significant extent, upon the services of such personnel. For example, the Chief Executive Officer during fiscal 2008, as the Company's primary scientific resource, continues to improve production and cultivation technology and to investigate new microalgal products. Our Chief Financial Officer has a unique understanding of the company's financial systems and needs. Our Vice President Operations has years of experience with the mechanical operation of the production facility and continues to improve our production process. Our Vice President Sales and Marketing has developed valuable personal relationships with domestic and foreign customers.

Our production of algae involves an agricultural process, subject to such risks as weather, disease, and contamination.

The production of our algae products involves complex agricultural systems with inherent risks including weather, disease, and contamination. These risks are unpredictable and also include such elements as the control and balance of necessary nutrients and other factors. The efficient and effective cultivation of microalgae requires consistent light, warm temperatures, low rainfall and proper chemical balance in a very nutrient-rich environment. If the chemical composition of a pond changes from its required balance, unusually high levels of contamination due to the growth of unwanted organisms or other biologic problems do occur. These often arise without warning and sometimes there are few or no clear indicators as to appropriate remediation or corrective measures. We believe that our technology, systems, processes and favorable growing location generally permit year-round harvest of our microalgal products in a cost-effective manner. However, imbalances in astaxanthin production in fiscal year 2007 and spirulina production in 2008, together with increasing energy costs, suggest a need for continuing caution. We cannot, and do not attempt to, provide any form of assurance with regard to our technology, systems, processes, location, or cost-effectiveness.

Our operations are vulnerable because we have limited personnel and redundancy and backup systems in our data management function.

Our internal order, inventory and product data management system is an electronic system through which orders are placed for our products and through which we manage product pricing, shipment, returns and other matters. This system's continued and uninterrupted performance is critical to our day-to-day

business operations. Despite our precautions, unanticipated interruptions in our computer and telecommunications systems have, in the past, caused problems or stoppages in this electronic system. These interruptions, and resulting problems, could occur in the future. We also have limited personnel available to process purchase orders and to manage product pricing and other matters in any manner other than through this electronic system. Any significant interruption or delay in the operation of this electronic system could cause a decline in our sales and profitability.

A Significant or Prolonged Economic Downturn Could Have a Material Adverse Effect on Our Results of Operations

Our results of operations are affected by the business activity of our customers who in turn are affected by the level of economic activity in the industries and markets that they serve. A decline in the level of business activity of our clients could have a material adverse effect on our revenues and profit margin.

The current global cost of oil derived energy impacts Cyanotech in several ways, and it may hinder our efforts to achieve profitability. Oil prices primarily impact Cyanotech through the costs of electricity, transportation, materials and supplies which are tied to the cost of oil either directly or indirectly. The current cost of oil on a global basis may signal a prolonged economic downturn resulting in a material adverse effect on our business.

Our Quarterly Operating Results May Vary From Quarter to Quarter, Which May Result in Increased Volatility of Our Share Price

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

•: business decisions of our customers regarding orders for our products;
•: increased energy costs;
•: increased raw material costs;
•: production problems which we cannot solve technically or economically;
•: weather-related cultivation difficulties;
•: contamination of our cultivation and production facilities;
•: effects of weather on customer demand patterns;
•: the introduction of new products by us or our competitors;
•: changes in our pricing policies or those of our competitors;
•: changes in seasonal and other trends in our customers' buying patterns;
•: changes in government regulation, both domestic and foreign;
•: fluctuation in foreign currency exchange rates, although our exposure is currently not material;
•: global economic and political conditions and related risks, including acts of terrorism; and
•: other factors beyond our control.

A significant portion of our expense levels are relatively fixed, and the timing of increases in expense levels is based in large part on our 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 expenses quickly enough to compensate for the sales shortfall.

Our Global Operations Expose Us to Complex Management, Foreign Currency, Legal, Tax and Economic Risks, Which We May Not Be Able to Address Quickly and Adequately

We conduct business in a number of countries around the world. For the year ended March 31, 2008, approximately 43% of our net sales were from sales to foreign customers. As a result, we are subject to a number of risks which include, but are not limited to:

•: the burden of complying with a wide variety of national and local laws;
•: potentially longer payment cycles for foreign sales;
•: multiple and possibly overlapping and conflicting tax laws;
•: coordinating geographically separated locations;
•: restrictions (government and otherwise) on the movement of cash;
•: the absence in some jurisdictions of effective laws protecting our intellectual property rights;
•: changes in government regulations, both domestic and foreign;
•: global economic and political conditions and related risks, including acts of terrorism; and
•: fluctuations in foreign currency exchange rates, although our exposure is currently not material.

If We Are Unable to Protect Our Intellectual Property Rights or if We Infringe Upon the Intellectual Property Rights of Others Our Business May Be Harmed

Cyanotech has received five United States patents: two on aspects of our production methods and three for use of our BioAstin® products. Although we regard our proprietary technology, trade secrets, trademarks and similar intellectual property as important, we rely on a combination of trade secret, contract, patent, copyright and trademark law to establish and protect our rights in our products and technology. There can be no assurance that we will be able to protect our technology adequately or that competitors will not be able to develop similar technology independently. In addition, the laws of certain foreign countries may not protect the Company's intellectual property rights to the same extent as the laws of the United States. Litigation in the United States or abroad may be necessary to enforce our patent or other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation, even if successful, could result in substantial costs and diversion of resources and could have a material adverse effect on our business, results of operations and financial condition. Additionally, if any such claims are asserted against us, we may seek to obtain a license under the third party's intellectual property rights. There can be no assurance, however, that a license would be available on terms acceptable or favorable to us, if at all.

Insurance Liability Coverage is Limited

In the ordinary course of business, the Company purchases insurance coverage (e.g., property and liability coverage) to protect itself against loss of or damage to its properties and claims made by third parties and employees for property damage or personal injuries. However, the protection provided by such insurance is limited in significant respects and, in some instances, the Company has no coverage and certain of the Company's insurance has substantial "deductibles" or has limits on the maximum amounts that may be recovered. For example, if a hurricane or other uninsured catastrophic natural disaster should occur, the Company may not be able to recover all facility restoration costs and revenues lost from business interruption. In addition, the Company maintains product liability insurance in limited amounts for all of its products involving human consumption; however, broader product liability coverage is prohibitively expensive. Insurers have also introduced new exclusions or limitations of coverage for claims related to certain perils including, but not limited to, mold and terrorism. If a series of losses occurred, such as from a series of lawsuits in the ordinary course of business each of which were subject to the deductible amount,

or if the maximum limit of the available insurance were substantially exceeded, the Company could incur losses in amounts that would have a material adverse effect on its result of operations and financial condition.

There is risk in operating entirely in one business segment such as the cultivation and production of microalgae at a single production facility.

Single location agricultural and production facilities do not provide the protections and assurances afforded by operations in two or more widely separated locations. Our single location in Hawaii is susceptible to increased energy and transportation costs, and energy and transportation disruptions with either limited alternatives or no alternatives. The Company's most significant operating expenditures are for electricity, related water pumping and nutrient and supply costs. These costs are directly or substantially affected by the price of fuel oil since Hawaii has virtually no hydroelectric power resources and only limited alternative electrical energy resources. Also, a single agricultural facility provides limited biologic diversity protection against invasive, mutant, or harmful organisms.

Our Ability to Develop and Market New Products or Modify Existing Products and Production Methods May be Adversely Affected If We Lose the Services of or Cannot Replace Certain Employees Knowledgeable in Advanced Scientific and Other Fields

The Company's products are derived from and depend on proprietary and non-proprietary processes and methods founded on advanced scientific knowledge, skills, and expertise. If the services of employees knowledgeable in these fields are lost and cannot be replaced in a reasonable time frame at reasonable costs, the Company's ability to develop and market new products or modify existing products and production methods would be adversely impacted. At the same time, regulatory compliance surrounding the Company's products and financial matters generally requires minimum levels of knowledge and expertise related to production, quality assurance, and financial control. If the Company loses the services or cannot reasonably replace employees who have the necessary knowledge and expertise the Company's ability to remain in regulatory compliance could be adversely affected.

Item 2. Properties

The Company's principal facility and its corporate headquarters are located at the Natural Energy Laboratory of Hawaii Authority ("NELHA") at Keahole Point in Kailua-Kona, Hawaii. It encompasses approximately 90 fully developed acres containing microalgal cultivation ponds, processing facilities, research and quality control laboratories, and sales and administrative offices. The property is leased from the State of Hawaii under a 30-year commercial lease expiring in 2025. We believe that there is sufficient available land at NELHA to meet anticipated needs if a revised NELHA lease can be negotiated with acceptable terms. Under the terms of the existing NELHA lease, the Company could be required to remove improvements at the end of the lease term. Based upon analysis pursuant to Statement of Financial Accounting Standards No. 143 and FASB Interpretation No. 47, we do not believe the projected cost for such removal to be material to the consolidated financial statements, or likely, given historical experience. However, conditions could change in the future. It is not possible to predict such changes or estimate any impact thereof.

The Company also rents warehouse space near NELHA and also in San Dimas, California.

Item 3. Legal Proceedings

From time to time the Company may become party to lawsuits and claims that arise in the ordinary course of business relating to employment, intellectual property, and other matters. There were no significant legal matters outstanding at March 31, 2008.

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

No matters were submitted to a vote of stockholders during the fourth quarter of fiscal 2008.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company's common stock is listed and traded on the NASDAQ Capital Market under the symbol "CYAN". As of June 23, 2008, the closing price and approximate number of holders of record of our common stock was $1.82 and 5,242,270, respectively. The high and low selling prices as reported by NASDAQ were as follows:

Quarter Ended:		June 30		September 30		December 31		March 31
Fiscal 2008
Common stock price per share:
	High	$	1.90	$	1.44	$	1.40	$	1.68
	Low	$	1.43	$	0.83	$	0.79	$	1.05
Fiscal 2007
Common stock price per share:
	High	$	3.40	$	3.12	$	2.00	$	2.35
	Low	$	2.28	$	1.68	$	1.62	$	1.61

The Company is prohibited from declaring any common stock dividends without the prior written consent of a lender per the conditions of an existing term loan agreement with such lender. The Company has never declared or paid cash dividends on its common stock. We currently intend to retain all of our earnings for use in the business and do not anticipate paying any cash dividends on common stock in the foreseeable future.

STOCKHOLDER RETURN PERFORMANCE GRAPH

The following graph sets forth the Corporation's total cumulative stockholder return as compared to the NASDAQ Composite U.S. Index (COMP) and the NASDAQ Biotech Index (NBI) for the period beginning March 31, 2003 and ending March 31, 2008. Total stockholder return assumes $100.00 invested at the beginning of the period in the Common Stock of the Corporation, the stocks represented in the NASDAQ Composite—U.S. Index and the NASDAQ Biotech, respectively. Total return assumes reinvestment of dividends; the Corporation has paid no dividends on its Common Stock. Historical price performance should not be relied upon as indicative of future performance.

Comparison of 5-Year Cumulative Total Return
Among Cyanotech Corporation,
NASDAQ Composite Index and Peer Group Index

ASSUMES $100 INVESTED ON MAR. 31, 2003
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING MAR. 31, 2008

Item 6. Selected Financial Data

	Years ended March 31,
	2008			2007			2006			2005		2004
	(In thousands, except per share data)
Statement of Operations Data
Net sales	$	11,364		$	9,683		$	11,131		$	11,445	$	11,582
Gross profit		3,071			1,131			3,060			3,892		3,744
Impairment loss on equipment and leasehold improvements		—			4,487			—			—		—
Income (loss) from operations		(905	)		(7,304	)		(253	)		724		634
Net income (loss)		(1,139	)		(7,425	)		(391	)		601		318
Net income (loss) per common share—diluted		(0.22	)		(1.42	)		(0.07	)		0.11		0.07
Balance Sheet Data
Cash and investment securities		1,090			1,444			2,535			3,005		2,531
Working capital		3,092			3,361			5,647			5,347		4,213
Total assets		9,780			9,906			17,595			18,787		18,487
Long-term debt, excluding current maturities		1,505			992			1,387			1,743		2,093
Stockholders' equity		6,379			7,510			14,939			15,325		14,570

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K. For a more comprehensive description of the Company's products and markets for such products, see Part I. Item 1. Business.

Results of Operations for the 2008, 2007 and 2006 Fiscal Years

												Fiscal Year 2008 vs. 2007					Fiscal year 2007 vs. 2006
			Fiscal Year									Favorable / (Unfavorable)
			2008			2007			2006			$			%		$			%
			(In thousands)
Net sales			$	11,364		$	9,683		$	11,131		$	1,681		17.4	%	$	(1,448	)	(13.0	)%
Cost of sales				8,293			8,552			8,071			259		3.0			(481	)	(6.0	)

	Gross profit			3,071			1,131			3,060			1,940		171.5			(1,929	)	(63.0	)

Operating expenses
	Research & development			143			203			187			60		29.6			(16	)	(8.6	)
	Sales and marketing			1,355			1,297			1,312			(58	)	(4.5	)		15		1.1
	General & administrative			2,478			2,448			1,814			(30	)	(1.2	)		(634	)	(35.0	)
	Impairment loss on equipment and leasehold improvements			—			4,487			—			4,487		100.0			(4,487	)	(100.0	)

		Total operating expense		3,976			8,435			3,313			4,459		52.9			(5,122	)	(154.6	)

		Loss from operations		(905	)		(7,304	)		(253	)		6,399		87.6			(7,051	)	(2,787.0	)

Other income (expense)
	Interest income			24			59			46			(35	)	(59.3	)		13		28.3
	Interest expense			(164	)		(186	)		(180	)		22		11.8			(6	)	(3.3	)
	Other income (expense), net			(65	)		(3	)		(10	)		(62	)	(2,066.7	)		7		70.0

	Total other expense			(205	)		(130	)		(144	)		(75	)	(57.7	)		14		9.7

Loss before income taxes				(1,110	)		(7,434	)		(397	)		6,325		85.1			(7,037	)	(1,772.5	)
Income tax expense (benefit)				29			(9	)		(6	)		(38	)	(422.2	)		3		50.0

	Net loss		$	(1,139	)	$	(7,425	)	$	(391	)	$	6,287		84.7	%	$	(7,034	)	(1,799.0	)%

Overview

Cyanotech Corporation's core competency is cultivating and processing microalgae into high-value, high-quality natural products for the human and animal nutrition markets. Our products are sold in bulk quantities to manufacturers, formulators and distributors in the health foods, nutritional supplements and animal nutrition markets and as packaged consumer products to distributors, retailers, and direct consumer sales. The Company manufactures its products in Hawaii, but markets them worldwide, generating 43%, 46% and 52% of its revenues outside of the United States for each of the years ended March 31, 2008, 2007 and 2006, respectively. Competing in a global marketplace, the Company is influenced by the general economic conditions of the countries in which its customers operate, including adherence to its customers' local governmental regulations and requirements. The Company currently has no material foreign exchange exposure as all sales are in U.S. currency.

The Company reported a net loss of $1,139,000 or ($.22) per diluted share for fiscal 2008 compared to $7,425,000, or ($1.42) per diluted share for fiscal year 2007. Cash and cash equivalents at March 31, 2008 were $1,090,000, down $354,000 from a year ago. Working capital declined 8% to $3,092,000 at March 31, 2008 from working capital of $3,361,000 a year ago, primarily due to decreased cash and equivalents, short term investments, accounts receivable and inventory balances.

The following table details selected financial data highlighting three key areas:

		Year Ended March 31,
		2008			2007			2006
		(In thousands)
Net sales:
	Spirulina products	$	5,980		$	6,090		$	6,517
	Natural astaxanthin products		5,251			3,496			4,370
	Other products		133			97			244

		$	11,364		$	9,683		$	11,131

Gross profit as a percentage of sales			27	%		12	%		27	%
Operating expenses as a percentage of sales			35	%		87	%		30	%

Net sales for fiscal 2008 were $11,364,000, or 17.4% higher than the $9,683,000 reported for the prior fiscal year. This increase was due primarily to increased production of both astaxanthin and spirulina compared to 2007. During fiscal 2008, the Company continued to experience reductions of NatuRose astaxanthin sales to the worldwide aquaculture market compared to fiscal 2007. Accordingly, beginning the second quarter of fiscal 2008, the Company handled all former Cyantoech Japan business through Cyanotech Corporation headquarters. Also, as discussed in this report, the Company dissolved its Cyanotech Japan subsidiary in November 2007. Astaxanthin production during fiscal 2008 has primarily been used to produce higher value and higher margin BioAstin products rather than NatuRose.

The Company's emphasis is on growing the market for its human nutrition astaxanthin product, BioAstin and Spirulina products. The Company may invest in focused expenditures in advertising and clinical trials in the human nutrition and cosmetics markets and may work with industry leaders to integrate BioAstin into other distribution channels and products. The Company intends to grow the human focused side of its spirulina business and to emphasize the benefits of its natural astaxanthin products as increased competition from other producers of natural and synthetic astaxanthin may result in the decline of margins generated by its natural astaxanthin products. Management cannot predict whether the outcomes of any of its strategies will be successful.

As depicted in the preceding table, the Company's gross profit margin as a percentage of net sales increased to 27% for the fiscal year ended March 31, 2008, up from 12% for fiscal 2007 and consistent with 27% for fiscal 2006. Management expects the Company's gross profit margin percentage for the first

quarter of fiscal 2009 to remain consistent with fiscal 2008 reported performance levels. There are many factors which have influenced gross profit. These particularly include sales volume and mix and below normal capacity due to both customary and complex production variables related to astaxanthin production in 2007 and spirulina production in the third quarter of 2008. Additional factors impacting current margins include competitive pricing results due to increased competition and increases in raw materials and related freight costs. Spirulina production during fiscal 2008 was particularly impacted by dilution and overflow problems as a result of torrential rains during re-inoculation of ponds recovering from chemical imbalance as announced December 20, 2007. Following the December 2007 restoration effort, this particular imbalance appears to be resolved. Astaxanthin production, which was impaired in fiscal year 2007, appears to have returned to more reliable levels. Spirulina and astaxanthin production should continue at more reliable levels, resulting in reasonable per unit production costs. However, because complex biological processes are involved and these processes are influenced by factors beyond Company control—the weather, for example—we cannot assure the results of any of the Company's corrective or improvement efforts. Because the Company's processes are agricultural, it is important to maintain reasonably strong production volumes in order to support the basic resource levels required to sustain a large scale, open culture, natural agricultural facility.

The Company expects its financial results for the first quarter of fiscal 2009 to remain comparative to fiscal 2008 in both gross margin and general and administrative expenses as a percentage of net sales, as a specific level of improvement can not be determined. The decrease in gross profit margin percentage between fiscal 2007 and 2006 was primarily due to reduced astaxanthin production and a change in sales mix. The Company will continue to contain discretionary spending, and is actively pursuing methods of controlling increased energy and freight costs.

The Company recorded a non-cash impairment write-down of production equipment and leasehold improvements of $4.5 million in fiscal year 2007 as a result of an analysis required under SFAS No. 144. Due to current period losses combined with a history of losses, the Company assessed the recoverability of its long-lived assets in accordance with SFAS No. 144 analysis as of March 31, 2008, however, no additional non-cash impairment write-down of production equipment and leasehold improvements was necessary for 2008. Additional non-cash impairment charges are not expected for 2009 if future planned results are achieved.

To offset increased production costs, the Company continues to strive to increase production efficiencies in volume yield, potency, and quality consistent with the Company's commitment to produce high-value, high-quality products. However, these efforts cannot be guaranteed to achieve the desired results.

Results of Operations

Revenues Net sales for fiscal 2008 totaled $11,364,000, a 17.4% increase from net sales of $9,683,000 in fiscal 2007 and a 2% increase from net sales of $11,131,000 reported in fiscal 2006. The following is a discussion of revenues by major product category.

Spirulina The Company has been producing Spirulina Pacifica, a strain of Spirulina microalga, since 1985. Revenues generated from the Company's Spirulina products are a significant portion of total revenues, amounting to $5,980,000, $6,090,000 and $6,517,000 for the years ended March 31, 2008, 2007 and 2006 respectively. Although the Company believes that Spirulina is a mature product in a highly competitive market, the dollar amount of revenue as a percentage of total revenues for the three years ended March 31, 2008, is 53%, 63% and 59%, respectively. Approximately $1,149,000 or 10% of net sales for the year ended March 31, 2008 were to Spirulina International B. V., a Spirulina marketing and distribution company based in the Netherlands. Sales to this customer during fiscal years 2007 and 2006 amounted to $937,000 or 10% of net sales, and $1,285,000 or 12% of net sales.

The Company has experienced increased competition for its Spirulina products resulting from an increasing number of suppliers of Spirulina as well as from a larger portion of our sales coming from bulk product orders whose customers generally treat these products as commodities with price being the major determining factor driving their purchasing decision. We expect this competitive pricing pressure to continue in future periods and in response have focused on improving the quality of our Spirulina products in support of customers who demand higher quality raw materials for their formulations. Fiscal 2008 Spirulina sales decreased $110,000 or 2% resulting from fewer units sold as a result of third quarter production issues, as compared to the prior fiscal year. In fiscal 2007, sales decreased 7% from 2006 resulting from average units sold and average unit price decreases of 3% and 4%, respectively. At March 31, 2008 our backlog of Spirulina orders totaled approximately $710,000 and such backlog at the end of fiscal 2007 was $432,000. The majority of these orders were filled in the first quarter of the subsequent fiscal year.

Natural Astaxanthin In fiscal 2008, the Company's sales of its natural astaxanthin products were $5,251,000, an increase of 50% from $3,496,000 in fiscal 2007, and an increase of 20% from $4,370,000 in fiscal 2006. The increase in natural astaxanthin sales for the year was the result of a 93% increase in units sold offset by a 7% decrease in average selling price as compared to 2007. Decreased production in 2007 accounted for the 20% sales decline from 2006. Customers, Valensa and YAD International accounted for $658,000 or 6% of net sales and $613,000 or 5% of net sales, respectively, for the year ended March 31, 2008. We believe that sales to these customers will continue to represent a significant portion of total net sales in future periods. During 2008, the Company discontinued production of its animal product, NatuRose, in order to focus on the human astaxanthin products which are experiencing greater demand and have higher gross margins. At March 31, 2008 our backlog of orders for all natural astaxanthin products totaled approximately $209,000, a decrease of $593,000 from $802,000 at the end of fiscal 2007 due primarily to the decreased production levels in 2007 and the timing of customer orders at the end of fiscal 2008. The majority of these orders were shipped in the first quarter of the subsequent fiscal year.

The Company believes that the findings of clinical trials undertaken in prior years by the Company, its customers and other unaffiliated parties, taken individually and on a cumulative basis, have generated growing consumer awareness of the beneficial antioxidant and anti-inflammatory properties of astaxanthin. Validation of natural astaxanthin benefits identified in such scientific studies has helped to spur demand for our natural astaxanthin products in the human nutrition market and could provide the basis for proprietary intellectual property. The Company completed and issued reports on two positive scientific clinical trials on natural astaxanthin during fiscal 2006. One study demonstrated that natural astaxanthin could lower levels of C-Reactive Protein, an indicator of systemic inflammation and the second study showed that grip strength could be increased in those suffering from tennis elbow by consumption of natural astaxanthin. The Company plans to continue expenditures on targeted scientific trials in the future in accordance with its strategy to increase sales of natural astaxanthin products.

Cost of Sales Cost of sales, as a percentage of net sales, was at 73%, 88% and 73% for fiscal years 2008, 2007, and 2006, respectively. Cost of sales includes the cost of nutrients and materials, direct labor and manufacturing overhead costs, depreciation and amortization of production equipment, buildings and leasehold improvements associated with the production of inventory units sold and other production-related period costs. The cost of sales percentage decrease of 12 points between 2008 and 2007 is due primarily to both customary and complex production variables related to astaxanthin and spirulina production. Factors also include increases in the cost of raw materials and freight costs, as well as diminished demand for these products and including unabsorbed related fixed production costs. Astaxanthin production during fiscal 2007 was particularly impacted by an imbalance in the complex biological processes and mechanisms involved in its growth and production. The Company feels that it identified and corrected the factors leading to this particular imbalance. However, because complex biological processes are involved, as discussed elsewhere in this report, the Company cannot predict the magnitude or results of such corrective efforts. Because the Company's processes are agricultural, it is important to increase astaxanthin production volumes in order to support the minimal resource levels required to sustain a large-scale open culture agricultural facility. Labor and chemical costs, coupled with other efforts, were not effective in correcting the imbalance in the factors affecting the Company's biological cultivation process.

In fiscal 2008, $1,298,000 of non-inventoriable costs were deemed to be period costs resulting from an abnormal usage of chemical, labor and utilities expended to manage the spirulina production problems, re-inoculation and subsequent flooding which occurred in December 2007. These expenditures combined to significantly increase cost of sales relative to units produced and correspondingly reduced gross profit for the year ended March 31, 2008. Fiscal year 2007 included $1,668,000 of non-inventoriable costs as a result of abnormal chemical, labor and utility usage related to astaxanthin production coupled with costs associated with the company's animal nutrition market products which were not inventoriable because such costs would have exceeded the market value for the related inventory. On March 23, 2008, the Company announced its decision to abandon the animal nutrition market in favor of human products with higher demand and margins. Comparable non-inventoriable costs recorded in fiscal 2006 totaled $864,000.

For fiscal 2009, with the rising cost of fuel oil, the Company expects to incur higher electrical utility costs dependent upon the regulated public utility's ability to obtain approval for rate increases. If electrical utility costs increase significantly from fiscal 2008, the cost to manufacture the Company's products could increase materially above prior year costs.

Fresh water is critical for our natural astaxanthin production and, while the Company has not experienced any constraint on fresh water availability, future availability could be negatively impacted by significant growth in the local population as well as by throughput constraints on the water delivery infrastructure owned by the County of Hawaii. Given the criticality of fresh water to our operations and the community, the Company recycles fresh water where possible and developed additional water recycling systems during fiscal 2007 in its efforts to utilize fresh water efficiently. Both fresh and sea water require electricity for pumping; and electricity, the Company's single greatest expenditure, depends on the cost of

fuel oil which is, in turn, tied to the global price of crude oil. The general price of fuel in Hawaii has increased in excess of 46% since the end of fiscal 2007 and the Company's cost of electricity has increased 33% per kilowatt hour.

For the production of BioAstin, the Company's natural astaxanthin product for the human nutrition market, three third party contractors are utilized for the processes of extraction, and three third party contractors are utilized for both encapsulation (for gelcaps) and micro-encapsulation (for beadlets). Although these services are available only from a limited number of sources, we believe we have the ability to use other parties if any of the current contractors become unavailable. If pricing for any of these services significantly increases, there could be a material adverse effect on our business, financial condition and results of operations. There have not been any significant changes in the cost of extraction or encapsulation services and none are now anticipated.

To offset increased production costs, the Company seeks ways to increase production efficiencies in volume yield, potency, and quality consistent with the Company's commitment to produce high-value, high-quality products. However, these efforts cannot be guaranteed to achieve the desired results.

The Company adopted SFAS No. 151 effective April 1, 2006. The provisions of SFAS No. 151 "Inventory Costs—an amendment of Accounting Research Bulletin No. 43, Chapter 4" require that abnormal amounts of freight, handling costs and wasted material (spoilage) be recognized as current-period charges and fixed production overhead costs be allocated to inventory based on the normal capacity of production facilities. Normal capacity is defined as "the production expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance."

Unforeseen changes in any of the factors surrounding the estimates imbedded in the determination of inventory values and cost of sales could have a material impact on cost of sales. Such changes in factors and estimates include but are not limited to production levels and capacity, changes in the prices paid for raw materials, supplies, and labor, changes in yield, potency, and quality of biomass, and changes in processing or production methods.

Gross Profit Margin The Company's gross profit margin as a percentage of net sales increased 15 points to 27% for the fiscal year ended March 31, 2008, up from 12% for fiscal 2007 and consistent with 27% for fiscal 2006 as previously described.

Management expects the Company's fiscal 2009 gross profit margin percentage to remain generally consistent with the results reported for fiscal 2008 since astaxanthin cultivation and spirulina production variables are not expected to negatively impact gross margins in fiscal 2009 to the extent experienced in fiscal 2008 and more so in 2007. However, as discussed elsewhere in this Report, the Company cannot predict future production levels. In fiscal 2007, the Company recognized period costs resulting from an abnormal usage of nutrients, labor and utilities engaged to restore production which were not immediately effective in correcting imbalances in the astaxanthin cultivation and spirulina production processes. Producing the highest quality microalgae is a complex biological process which requires the tenuous balancing of numerous factors including microalgal strain variations, temperature, acidity, nutrient and other environmental considerations, some of which are not in the Company's control. As a result, especially for natural astaxanthin cultivation, and also for spirulina production, it is difficult and time consuming to adjust, improve or correct the production process when quality levels fall below specifications. While the Company generally possesses scientific knowledge and resources to correct its production processes, there are too many variables involved for the Company to make reliable projections concerning such efforts. However, we have identified some production variables, and as a result, we constantly strive to correct imbalances in our efforts to achieve increased production yields in both quantity and quality. In addition to the items discussed above, there are many factors which could materially diminish gross profit. These include, but are not limited to sales volume and mix, increases in the cost of raw materials and raw material freight costs, and production volumes below normal capacity in

response to customary production variables—such as weather—and significant changes in demand for the Company's products, and the allocation of production resources toward Astaxanthin and Spirulina biomass production levels and production rates based on the variables just mentioned.

Operating Expenses Operating expenses as a percentage of net sales were 35% for fiscal 2008, 87% for fiscal 2007 and 30% for fiscal 2006. The 52 point decrease from 2007 to 2008 as a percentage of sales and the 57 point increase from 2006 to 2007 as a percentage of net sales was due primarily to two factors both occurring in 2007. The Company recorded a non-cash impairment write-down of production equipment and leasehold improvements of $4.5 million as a result of an analysis required under SFAS No. 144. In addition, the Company incurred general and administrative expenses in conjunction with the restatement and amendment of a prior period annual report on Form 10-K/A, for the fiscal year ended March 31, 2006, filed with the Securities and Exchange Commission on February 14, 2007. In addition to these factors, there were costs incurred during the third quarter of fiscal 2007 meeting listing requirements with NASDAQ Capital Market, including our one-for-four reverse stock split, as discussed in our December 31, 2006, Form 10-Q filing with the Securities and Exchange Commission on March 14, 2007.

During fiscal 2008, General and administrative expenses were comparable to fiscal 2007; Sales and marketing expenses increased by 4.5% from 2007; and Research and development decreased 30% from 2007. In December 2007, the Company announced the lay off of 13 staff, approximately 20 percent of the Company's workforce, representing reductions made throughout production and administration personnel. This workforce reduction was intended to better balance costs with sales in the current sales and production environment. The Company is committed to ongoing cost containment aimed at controlling its level of operating expenses, but may increase some discretionary spending in future periods as dictated by the needs of the business.

Research and development costs decreased to $143,000 in 2008, down 30% from $203,000 in fiscal 2007, and down 24% from $187,000 in fiscal 2006. No new clinical trials were conducted in 2008 and 2007. Research and development efforts focused on resolving and improving culture and production processes. In fiscal 2006 the major expenditures in research and development were for initiation of new scientific clinical trials, costs related to product registration and work aimed at increasing production yields and improving the quality and stability of such products.

Sales and marketing costs were $1,355,000, $1,297,000 and $1,312,000 in fiscal 2008, 2007 and 2006, respectively, increasing 5% from fiscal 2007 and 3% from fiscal 2006. Consistent with efforts to control expenses, 2008 marketing was targeted toward sales of bulk BioAstin and other related consumer products.

General and administrative costs were $2,478,000, $2,448,000 and $1,814,000 in fiscal 2008, 2007 and 2006, respectively. Fiscal 2008 expenses increased only 1% from one year ago. Compared to fiscal 2006, fiscal 2007 expenses increased by $634,000 or 35% due primarily to costs incurred for restatement of prior year's annual report on Form 10-K/A as of March 31, 2006, and the work associated with the threatened NASDAQ Capital Market delisting issues resulting in increases in audit, attorneys, accountants and other financial fees totaling a combined $709,000. Such fees were substantially reduced in 2008; however, they were offset by increased personnel and regulatory compliance reporting expenses.

The Company reviews the recoverability of the carrying value of long-lived assets using the methodology prescribed in Statement of Financial Accounting Standards (SFAS) 144, "Accounting for the Impairment and Disposal of Long-Lived Assets." The Company reviews long-lived assets and intangible assets for potential impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. This analysis under SFAS No. 144 at March 31, 2008 determined that the Company's equipment and leasehold improvements are not impaired in the Cyanotech's Consolidated Balance Sheet at March 31, 2008. However, such analysis under SFAS No. 144 at March 31, 2007 determined that the Company should record a non-cash impairment loss reducing, by $4.5 million, the values of certain production related equipment and leasehold improvement assets at March 31, 2007. Accordingly, the values of the Company's equipment and leasehold improvement assets as

reported on the Consolidated Balance Sheets as of March 31, 2007 were reduced by the impairment loss, and the Company's Consolidated Statements of Operations for the year ended March 31, 2007 includes the corresponding charge of $4.5 million for the impairment of equipment and leasehold improvements. The Company notes that the foregoing reduction of asset carrying values significantly and correspondingly reduced depreciation expense in future periods. See Note 3 to the consolidated financial statements for further discussion of the impairment charge.

The Company expects operating expense spending will remain consistent with or moderately increase from fiscal 2008 due to increased personnel costs and general price increases of expenses. Increases may be necessary in research and development as new opportunities arise. However, the Company will continue to seek additional leverage from customer supported research where and as practicable. Increases in sales and marketing expenses may become necessary as the Company seeks new and increased markets and market share. Whether sales and marketing expenses increase over fiscal year 2008 levels will be based on customer demand and market opportunities that may arise. Also, the cost of regulatory compliance—including international standards (ISO), US food and drug manufacturing practice (GMP), Sarbanes Oxley, and other regulatory compliance areas—continue to increase. Finally, the Company must remain competitive in the labor market, and this may lead to some increases in general and administrative costs.

Other Expense The following details the amounts included in other expense:

		2008		2007			2006
		(In thousands)
Interest expense on Term Loan Agreement(1)		$	148	$	181		$	175
Other interest expense			16		5			5
Other (income) expense, net(2)			41		(56	)		(36	)

	Total other expense	$	205	$	130		$	144

(1): The total principal balance on the Company's Term Loans was $2,072,000, $1,390,000 and $1,751,000 as of March 31, 2008, 2007 and 2006, respectively. The interest rate under the Term Loans is 1% above the prime rate. The prime rate as of March 31, 2008, 2007 and 2006 was 5.25%, 8.25% and 7.25%, respectively. Interest expense includes amortization of debt issue costs.
(2): Other (income) expense, net includes state sales tax expense related to prior years, interest earned on certain cash and cash equivalents balances and gains (losses) arising from exchange rate fluctuations on transactions of the Company's Japan subsidiary. With the announced dissolution of the Company's Japan subsidiary, exchange rate fluctuations are not expected to continue as long as the Company's business is transacted in US dollar amounts.

Income Taxes For fiscal 2008 the Company recorded a tax expense of $29,000 compared with an income tax benefit of $9,000 and $6,000, respectively, for 2007 and 2006. These primarily related to Hawaii State tax credits which were disallowed in fiscal 2008. At March 31, 2008 the Company had Federal and Hawaii state net operating loss carry forwards of approximately $ 17,446,000 and $12,141,000, respectively. These net operating loss benefits have been fully reserved as their utilization is not assured.

Liquidity and Capital Resources

Financial Condition At March 31, 2008, the Company's working capital was $3,092,000, a decrease of $269,000 compared to $3,361,000 at March 31, 2007. Cash and cash equivalents and short-term investments at March 31, 2008 totaled $1,090,000, a decrease of $354,000 from $1,444,000 at March 31, 2007. The decreases in working capital, cash and cash equivalents, and short term investments are due to cash used in operating activities primarily resulting from significant increases in general and administrative costs previously discussed, and decreased balances in accounts receivable and inventory.

The Company has two Term Loan Agreements ("Term Loans") with a lender. These provided up to $4.6 million in combined credit facilities which are secured by substantially all the assets of the Company. The outstanding combined balance under the Term Loans as of March 31, 2008 is approximately $2,072,000. The Term Loans have maturity dates of May 1, 2010 and March 1, 2015, respectively, and are payable in equal monthly principal and interest payments of approximately $58,000. $1,100,000 of the combined Term Loans matures May 1, 2010, with the remaining $993,000 maturing March 1, 2015.

The interest rate under the Term Loans, in 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% (the prime rate was 5.25% at March 31, 2008). At March 31, 2007 the Company received a waiver of relevant restrictive covenants of the Term Loan related to the filings of Forms 10-Q for fiscal year 2007. In addition, the Company received a waiver of covenants related to delayed filing of its March 31, 2007 Form 10-K. The Company is prohibited by the Term Loan from declaring any cash dividends without the lender's prior written consent. A $250,000 restricted cash deposit is held in an interest-bearing restricted cash account per the terms of the Term Loan and is included in Other Assets in the consolidated balance sheets at March 31, 2008 and 2007.

The following table presents the Company's debt and lease obligations at March 31, 2008 (in thousands):

		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years		Total
Term Loans		$	567	$	984	$	336	$	185	$	2,072
Interest Expense on Term Loan			118		165		46		6		335
Operating Leases			186		472		296		1,739		2,693

	Total	$	871	$	1,621	$	678	$	1,930	$	5,100

Cash Flows Our cash and cash equivalents and short-term investments were $1,090,000, $1,444,000 and $2,535,000 at March 31, 2008, 2007 and 2006, respectively.

During fiscal year 2008, the Company used cash in operating activities of $782,000, compared to cash used in fiscal 2007 of $459,000 and cash generated from operations of $179,000, in fiscal 2006. The additional cash used in operations in fiscal year 2008 compared to fiscal year 2007 is primarily due to the fiscal 2008 net loss of $ 1,139,000 compared to a net loss of $7,425,000 in fiscal year 2007 which included non-cash expenses of $5,784,000 coupled with the impact of Accounts Receivables and Inventory decreases in 2007 totaling $1,100,000 and increases in Accounts Receivable and Prepaid expenses and other assets in 2008 amounting to $500,000.

Net Cash of $131,000 was used in investing activities during fiscal 2008. This compared to net cash provided by investing activities in 2007 from the maturity of short-term investments offset by equipment purchases. Such equipment purchases continue to be aimed toward capital projects enhancing or maintaining our ability to respond to market demand. Depreciation and amortization expense was $490,000, $1,250,000 and $1,321,000 for the years ended March 31, 2008, 2007 and 2006, respectively. Depreciation expense for 2008 was significantly less than 2007 as a result of the non-cash impairment write-down of production equipment and leasehold improvements in 2007. For fiscal 2009, management expects to continue to invest in equipment upgrades and leasehold improvements tied to market requirements and production efficiency. Capital expenditures are expected to approximate amounts expended in fiscal 2008.

During fiscal 2008, cash obtained from financing activities amounted to $1,078,000 proceeds from senior debt obtained February 19, 2008 as discussed in this report. Cash used in financing activities was $396,000 representing principal payments on long-term debt and $123,000 of closing costs related to the February 19, 2008 senior debt.

Sufficiency of Liquidity Based upon our current operating plan, analysis of our consolidated financial position and projected future results of operations, we believe that our operating cash flows and expected cash balances will be sufficient to finance current operating requirements, debt service, and planned capital expenditures, for the next 12 months. With total working capital of $3.1 million, and a current ratio of 2.7 to 1 as of March 31, 2008, management expects liquidity in fiscal 2009 to be generated primarily from operating cash flows.

The Company has used estimates of future financial results including projected revenue, expenses, borrowings, and capital expenditures in reaching its conclusions. Such estimates are subject to change based on future results and such change could cause future conclusions to vary significantly from those presented in this Form 10-K.

Variability of Results

The following selected quarterly financial data (unaudited) as of and for the periods presented highlights the significant fluctuations in operating results and financial condition that the Company has experienced in the past three fiscal years:

Ended		4th Quarter March 31,			3rd Quarter December 31,			2nd Quarter September 30,			1st Quarter June 30,
		(In thousands)
Fiscal 2008:
	Net sales	$	3,414		$	2,763		$	2,604		$	2,583
	Cost of sales		2,210			2,410			1,836			1,837
	Operating expenses		893			914			1,082			1,087
	Net income (loss)		181			(594	)		(344	)		(382	)
	Working capital		3,092			2,050			2,672			2,990

Fiscal 2007:
	Net sales	$	2,330		$	2,434		$	2,475		$	2,444
	Cost of sales		2,152			2,356			2,071			1,973
	Operating expenses		5,466			1,241			946			782
	Net income (loss)		(5,319	)		(1,187	)		(572	)		(347	)
	Working capital		3,361			4,055			5,080			5,594

Fiscal 2006:
	Net sales	$	3,252		$	2,333		$	2,517		$	3,029
	Cost of sales		2,438			1,674			1,935			2,024
	Operating expenses		831			835			856			791
	Net income (loss)		(43	)		(210	)		(297	)		159
	Working capital		5,647			5,555			5,587			5,772

The Company's results of operations and financial condition can be affected by numerous factors, many of which are beyond its control and could cause future results of operations to fluctuate materially as it has in the past. Future operating results may fluctuate as a result of changes in sales volumes to our largest customers, weather patterns, increased competition, increased materials, nutrient and energy costs, foreign currency exchange fluctuations, governmental regulations and other factors beyond our control. In addition, the Company maintains product liability insurance only in limited amounts for products involving human consumption because broader product liability coverage is cost prohibitive.

A significant portion of our expense levels are relatively fixed, so 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.

Effect of Recently Issued Accounting Standards and Estimates

In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN No. 48"), "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109". This interpretation prescribes a "more-likely-than-not" recognition threshold and measurement attribute (the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with tax authorities) for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN No. 48 on April 1, 2007 with no material impact to the financial statements, and believes the impact of FIN No. 48 will not materially impact the Company's results of operations for fiscal 2009 or beyond.

Application of Critical Accounting Policies and Estimates

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with those accounting principles requires management to make judgments and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The Company regularly re-evaluates its judgments and estimates which are based upon historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The Company believes that of its significant accounting policies, policies that may involve a higher degree of judgment and complexity are inventory valuations, valuation of equipment and leasehold improvements and long-lived assets, and income taxes.

The Company recognizes revenues when goods are shipped (FOB shipping point) and when significant risks and benefits of ownership are transferred.

The Company is required to state inventories at the lower of cost or market. Cost is defined as the sum of the applicable expenditures and charges directly or indirectly incurred in bringing inventories to their existing condition and location. Cost for inventory purposes may be determined under any one of several assumptions as to the flow of cost factors, such as first-in, first-out; average cost; and last-in, first-out. Our inventories are stated at the lower of cost, which approximates first-in, first-out, or market. Inventory values are subject to many critical estimates, and unforeseen changes in any of the factors surrounding the estimates imbedded in the determination of inventory values and cost of sales could have a material impact on the Company's results. Such changes in factors and estimates include but are not limited to production levels and capacity, changes in the prices paid for raw materials, supplies, and labor, changes in yield, potency, and quality of biomass, changes in processing or production methods, and changes in the carrying value of our inventories resulting from the prices our customers are willing to pay for our products.

Equipment and leasehold improvements are reported at cost less accumulated depreciation and amortization. Self-constructed leasehold improvements include design, construction and supervision costs. These costs are recorded in construction in progress and are transferred to equipment and leasehold improvements when construction is completed and the facilities are placed in service. If the Company experiences impairment to its equipment or leasehold improvement, we would account for the impairment in accordance with SFAS No. 144. Pursuant to SFAS No. 144, long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization shall be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized to the extent that the carrying amount exceeds the asset's fair value.

During the year ended March 31, 2007, the Company recorded an impairment charge of $4,487,000. The Company determined fair value based upon present values of expected future cash flows. This technique requires the use of a variety of estimates including projected financial information, discount rates, as well as estimates of asset values many years in the future. As such, the results from the use of this method can result in significant volatility in the results should any of these estimates or assumptions change.

Income taxes are accounted for under the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be recovered or settled. The Company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. Judgment is required in assessing the need for the valuation allowance. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Should the Company generate sustained taxable income in the future, management may conclude that a portion or all of the existing valuation allowance is no longer required.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We have never 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.

We have a term loan agreement which adjusts quarterly based on the prime rate. As such, we are exposed to the interest rate risk whereby a 1% increase in the prime rate would lead to an increase of approximately $20,000 in interest expense for the year ending March 31, 2009 (based on March 31, 2008 amounts outstanding).

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Cyanotech Corporation:

We have audited the accompanying consolidated balance sheets of Cyanotech Corporation and subsidiaries (the Company) as of March 31, 2008 and 2007, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended March 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cyanotech Corporation and subsidiaries as of March 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2008, in conformity with U.S. generally accepted accounting principles.

Honolulu, Hawaii
June 26, 2008

CYANOTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2008 and 2007

			2008			2007
			(in thousands, except share data)
ASSETS
Current assets:
	Cash and cash equivalents		$	1,090		$	1,444
	Accounts receivable, net of allowance for doubtful accounts of $23 in 2008 and 2007			1,934			1,587
	Inventories			1,601			1,593
	Prepaid expenses and other current assets			263			141

		Total current assets		4,888			4,765
Equipment and leasehold improvements, net				4,269			4,701
Other assets				623			440

		Total assets	$	9,780		$	9,906

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Current maturities of long-term debt		$	567		$	398
	Accounts payable			805			616
	Accrued expenses			320			390
	Customer deposit			104			—

		Total current liabilities		1,796			1,404
Long-term debt, excluding current maturities				1,505			992
Other long-term liabilities				100			—

		Total liabilities		3,401			2,396

Stockholders' equity:
	Common stock of $.02 par value, authorized 7,500,000 shares; issued and outstanding 5,242,270 shares at 2008 and 5,233,520 shares at 2007			105			105
	Additional paid-in capital			27,337			27,333
	Accumulated other comprehensive loss			(4	)		(8	)
	Accumulated deficit			(21,059	)		(19,920	)

		Total stockholders' equity		6,379			7,510

		Total liabilities and stockholders' equity	$	9,780		$	9,906

See accompanying notes to consolidated financial statements

CYANOTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended March 31, 2008, 2007 and 2006

			2008			2007			2006
			(in thousands, except per share data)
Net sales			$	11,364		$	9,683		$	11,131
Cost of sales				8,293			8,552			8,071

	Gross profit			3,071			1,131			3,060

Operating expenses:
	Research and development			143			203			187
	Sales and marketing			1,355			1,297			1,312
	General and administrative			2,478			2,448			1,814
	Impairment loss on equipment and leasehold improvements			—			4,487			—

		Total operating expense		3,976			8,435			3,313

		Loss from operations		(905	)		(7,304	)		(253	)

Other income (expense):
	Interest income			24			59			46
	Interest expense			(164	)		(186	)		(180	)
	Other income (expense), net			(65	)		(3	)		(10	)

		Total other expense, net		(205	)		(130	)		(144	)

		Loss before income taxes		(1,110	)		(7,434	)		(397	)
		Income tax expense (benefit)		29			(9	)		(6	)

		Net loss	$	(1,139	)	$	(7,425	)	$	(391	)

Net loss per share:
	Basic		$	(.22	)	$	(1.42	)	$	(0.07	)

	Diluted		$	(.22	)	$	(1.42	)	$	(0.07	)

Shares used in calculation of net income loss per share:
	Basic			5,242			5,234			5,226

	Diluted			5,242			5,234			5,226

See accompanying notes to consolidated financial statements

CYANOTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)

Years ended March 31, 2008, 2007 and 2006

		Common Stock Shares		Common Stock		Additional Paid-in Capital		Accumulated Deficit			Comprehensive Income (Loss)			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
		(in thousands, except share data)
Balances at March 31, 2005		5,224,066			104		27,298		(12,104	)		—			27			15,325
Issuances of common stock for:
	Exercise of stock options for cash	3,625			1		8		—			—			—			9
	Non-employee directors' services, at fair value	4,375			—		14		—			—			—			14
	Compensation expense for accelerated vesting of stock options	—			—		10		—			—			—			10
Comprehensive loss:
	Net loss	—			—		—		(391	)		(391	)		—			(391	)
	Other comprehensive loss—foreign currency translation adjustments	—			—		—		—			(28	)		(28	)		(28	)
	Comprehensive loss	—			—		—		—			(419	)		—			—

Balances at March 31, 2006		5,232,066			105		27,330		(12,495	)		—			(1	)		14,939
Issuances of common stock for:
	Exercise of stock options for cash	1,575			—		3		—			—			—			3
Reverse stock split fractional shares		(121	)		—		—		—			—			—			—
Comprehensive loss:
	Net loss	—			—		—		(7,425	)		(7,425	)		—			(7,425	)
	Other comprehensive loss—foreign currency translation adjustments	—			—		—		—			(7	)		(7	)		(7	)
	Comprehensive loss	—			—		—		—		$	(7,432	)		—			—

Balances at March 31, 2007		5,233,520		$	105	$	27,333	$	(19,920	)				$	(8	)	$	7,510
Issuances of common stock for Director Stock Grants		8,750			—		4		—			—			—			4
Comprehensive loss:
	Net loss	—			—		—		(1,139	)		(1,139	)					(1,139	)
	Other comprehensive loss—foreign currency translation adjustments	—			—		—		—			4			4			4
	Comprehensive loss	—			—		—		—			(1,135	)		—			—

Balances at March 31, 2008		5,242,270		$	105	$	27,337	$	(21,059	)				$	(4	)	$	6,379

See accompanying notes to consolidated financial statements

CYANOTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended March 31, 2008, 2007 and 2006

			2008			2007			2006
			(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss			$	(1,139	)	$	(7,425	)	$	(391	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
	Impairment loss on equipment and leasehold improvements			—			4,487			—
	Depreciation and amortization			490			1,250			1,321
	Loss on disposal of equipment			73			—			—
	Amortization of debt issue costs and other assets			42			35			37
	Issuance of common stock and stock options in exchange for services			4			—			14
	Compensation expense for accelerated vesting of stock options			—			—			10
	Provision for (reduction of) allowance for doubtful accounts			—			12			(8	)
	Net (increase) decrease in assets:
		Accounts receivable		(347	)		610			(132	)
		Inventories		(8	)		463			(224	)
		Prepaid expenses and other assets		(220	)		8			11
	Net increase (decrease) in liabilities:
		Customer Deposits		204			—			—
		Accounts payable		189			131			(492	)
		Accrued expenses		(70	)		(30	)		33

	Net cash provided by (used in) operating activities			(782	)		(459	)		179

CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity (purchase) of short-term investments				—			700			(300	)
Investment in equipment and leasehold improvements				(131	)		(274	)		(311	)

	Net cash provided by (used in) investing activities			(131	)		426			(11	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock in conjunction with the exercise of stock options and warrants, net of issuance costs				—			3			9
Proceeds from long-term debt				1,078			—			—
Principal payments on long-term debt				(396	)		(361	)		(347	)
Payments for debt issuance costs				(123	)		—			—

	Net cash provided by (used) in financing activities			559			(358	)		(338	)

Net decrease in cash and cash equivalents				(354	)		(391	)		(170	)
Cash and cash equivalents at beginning of year				1,444			1,835			2,005

Cash and cash equivalents at end of year			$	1,090		$	1,444		$	1,835

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
	Interest		$	130		$	157		$	148

	Income taxes		$	2		$	1		$	—

See accompanying notes to consolidated financial statements

CYANOTECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Description of Business and Summary of Accounting Policies

Description of Business

Cyanotech Corporation (the Company) cultivates and produces high-value, high-quality natural products derived from microalgae. The Company currently cultivates, on a large-scale basis, two microalgal species from which its two major product lines are derived. The Company is currently producing microalgal products for nutritional supplement markets, having discontinued production for animal feed/pigments and immunological diagnostics markets. The Company manufactures all of its products in the United States and sells its products worldwide. As the Company's operations are solely related to microalgae-based products, management of the Company considers its operations to be in one industry segment. Correspondingly, the Company records revenue and cost of sales information by product category.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements include the accounts of Cyanotech Corporation and its wholly owned subsidiaries, Nutrex Hawaii, Inc. ("Nutrex Hawaii" or "Nutrex") and Cyanotech Japan YK ("Cyanotech Japan" or "CJYK"). Beginning in the second quarter of the fiscal year ended March 31, 2008, all business formerly conducted through "Cyanotech Japan" or "CJYK was absorbed by Cyanotech Corporation headquarters operations, and "Cyanotech Japan" or "CJYK" was dissolved November 30, 2007. The dissolution of CJYK did not have a material impact on the Company's financial results. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Reclassifications have been made in the comparative 2006 financial statement amounts included in this report. This provides for conformation to 2008 and 2007 presentation. The reclassifications had no effect on net income.

Estimates and Assumptions

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of any contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the period reported. Management reviews these estimates and assumptions periodically and reflects the effect of revisions in the period that they are determined to be necessary. Actual results could differ significantly from those estimates and assumptions.

Foreign Currency Translation and Risk

The Japanese Yen was the functional currency for Cyanotech Japan. As such, Cyanotech Japan's revenues and expenses are translated at average rates of exchange prevailing during the year. Due to the dissolution of Cyanotech Japan in the third quarter of 2008, no Cyanotech Japan assets and liabilities remained as of March 31, 2008 Translation adjustments for Cyanotech Japan during the year ended March 31, 2008 have been charged or credited to accumulated other comprehensive income (loss) in stockholders' equity. Certain transactions for Cyanotech Japan during the year ended March 31, 2008 were exposed to foreign currency risk. The Company actively monitored and managed the balances subject to foreign currency risk. Currently Cyanotech Corporation transacts entirely in US dollars and does not

hedge any foreign currency risk through the use of derivative financial instruments. For the years ended March 31, 2008, 2007 and 2006, the difference between net income (loss) and comprehensive income (loss) is $4,000, $(7,000) and $(28,000), respectively, which is attributable to foreign currency translation adjustment losses.

Financial Instruments

Cash and cash equivalents consist of cash and highly liquid debt instruments such as commercial paper and certificates of deposit with maturities of three months or less from the date of purchase. Short-term investments are certificates of deposits maturing between three and nine months from the purchase date and are stated at cost. Interest earned on short-term investments is deposited monthly into an accessible cash account and is therefore classified as cash and cash equivalents. The Company's practice is to invest cash with financial institutions that have acceptable credit ratings and to limit the amount of credit exposure to any one financial institution.

Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial Instruments," defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. Management applies the following methods and assumptions in estimating the fair value of each class of financial instruments for all periods presented.

Cash and Cash Equivalents, Short-Term Investments, Accounts Receivable and Accounts Payable Due to the short-term nature of these instruments, management believes that the carrying amounts approximate fair value.

Long-Term Debt The carrying amount of long-term debt approximates fair value as interest rates applied to the underlying debt are adjusted quarterly to market interest rates which approximate current interest rates for similar debt instruments of comparable maturities.

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not accrue interest. The allowance for doubtful accounts reflects management's best estimate of probable credit losses inherent in the accounts receivable balance. The Company determines the allowance based on historical experience, specifically identified nonpaying accounts and other currently available evidence. The Company reviews its allowance for doubtful accounts monthly with focus on significant individual past due balances over 90 days. All other balances are reviewed on a pooled basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Market is defined as sales price less cost to dispose and a normal profit margin.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives for equipment and furniture and

fixtures, or the shorter of the land lease term (see Notes 3 and 6) or estimated useful lives for leasehold improvements as follows:

Equipment		3 to 10 years
Furniture and fixtures		7 years
Leasehold improvements		10 to 20 years

Impairment of Long-Lived Assets

The Company accounts for impairment of its equipment or leasehold improvements in accordance with SFAS No. 144. Pursuant to SFAS No. 144, long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization shall be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized to the extent that the carrying amount exceeds the asset's fair value. Assets to be disposed of and related liabilities would be separately presented in the consolidated balance sheet. Assets to be disposed of would be reported at the lower of the carrying value or fair value less costs to sell and would not be depreciated.

In the fourth quarter of the fiscal year ended March 31, 2007, the Company concluded that certain production assets were partially impaired as a result of its assessment under SFAS 144. This impairment resulted in a non-cash charge of approximately $4.5 million. The impairment charge was classified within operating expenses in the consolidated statement of operations for the fiscal year ended March 31, 2007. There was no impairment as of March 31, 2008 and 2006. See Note 3 to the consolidated financial statements for further discussion of this impairment charge.

Revenue Recognition

The Company recognizes revenues as goods are shipped to customers (FOB shipping point). The criteria for recognition of revenue are when persuasive evidence that an arrangement exists and both title and risk of loss have passed to the customer, the price is fixed or determinable and collectability is reasonably assured.

Research and Development and Advertising

Research and development and advertising costs are expensed as incurred.

Income Taxes

As a result of the implementation of FIN 48, the Company did not recognize a liability for unrecognized tax benefits and, accordingly, was not required to record any cumulative effect adjustment to beginning of year retained earnings. As of both the date of adoption and March 31, 2008, there was no significant liability for income tax associated with unrecognized tax benefits.

The Company recognized interest accrued related to unrecognized tax benefits as well as any related penalties in interest income or expense in its condensed consolidated statements of operations, which is

consistent with the recognition of these items in prior reporting periods. As of the date of adoption and during the year ended March 31, 2008, the Company was not required to have an accrual for the payment of interest and penalties related to uncertain tax positions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examination by tax authorities for tax years before 2001.

Share-Based Compensation

Effective April 1, 2006, The Company adopted the provisions of SFAS No. 123(R), "Share-Based Payment," for its share-based compensation plans, using the intrinsic value-based method of accounting for employee based stock options. The Company previously accounted for these plans under the recognition and measurement principles of Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related interpretations and disclosure requirements established by SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure."

Under APB No. 25, no compensation expense was recorded for the Company's stock options issued under the qualified plan. The pro forma effects on net earnings and earnings per share for qualified stock options were instead disclosed in a footnote to the financial statements. Under APB No. 25, compensation expense for non-qualified stock options with stock appreciation rights features were recorded utilizing the market price of the Company's stock at each period-end to determine the vested intrinsic value of the stock appreciation rights.

Under SFAS No. 123(R), share-based compensation cost is measured at fair value. All of the Company's stock options are service based and equity-classified awards. The Company utilizes a closed-form valuation model to determine the fair value of each option award. Expected volatilities are based on the historical volatility of the Company's stock over a period consistent with that of the expected terms of the options. The expected terms of the options are estimated based on factors such as vesting periods, contractual expiration dates, historical trends in Cyanotech's stock price, and historical exercise behavior. The risk-free rates for periods within the contractual life of the options are based on the yields of U.S. Treasury instruments with terms comparable to the estimated option terms.

Per Share Amounts

Basic earnings per common share is calculated by dividing net income (loss) for the period by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing net income for the period by the sum of the weighted-average number of common shares outstanding during the period, plus the number of potentially dilutive common shares ("dilutive securities") that were outstanding during the period. Dilutive securities include options granted pursuant to the Company's stock option plans, potential shares related to the Employee Stock Purchase Plan and Restricted Stock grants to employees and non-employees. Dilutive securities related to the Company's stock option plans are included in the calculation of diluted earnings per common share using the treasury stock method. Potentially dilutive securities are excluded from the computation of earnings per share in periods in which a net loss is reported, as their effect would be antidilutive. A reconciliation of the numerators and denominators of the basic and diluted earnings per common share calculations for the years ended March 31, 2008, 2007 and 2006 is presented in Note 7.

New Accounting Pronouncements

On September 15, 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, Fair Value Measurement ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within

those fiscal years. The Company believes SFAS No.157 will not materially impact its consolidated financial statements for fiscal 2009.

In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN No. 48"), "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109". This interpretation prescribes a "more-likely-than-not" recognition threshold and measurement attribute (the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with tax authorities) for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN No. 48 on April 1, 2007 and had no impact on results of operations for fiscal 2008. The Company believes FIN No. 48 will not materially impact the results of operations for fiscal 2009.

In June 2006, the FASB ratified the consensus on Emerging Issues Task Force Issue No. 06-3 ("EITF No. 06-3"), "How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement". The scope of EITF No. 06-3 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, Universal Service Fund (USF) contributions and some excise taxes. The Task Force affirmed its conclusion that entities should present these taxes in the income statement on either a gross or a net basis based on their accounting policy, which should be disclosed pursuant to APB Opinion No. 22, "Disclosure of Accounting Policies." If such taxes are significant and are presented on a gross basis, the amounts of those taxes should be disclosed. The consensus on EITF No. 06-3 indicates it should be effective for annual and interim reporting periods beginning after December 15, 2006. The Company adopted EITF No. 06-3 on January 1, 2007, and currently does not invoice governmental taxes to customers, thus there was no impact from the adoption of EITF No. 06-3 on the Company's results of operations for the year ended March 31, 2008.

Note 2 Inventories

Inventories consist of the following as of March 31, 2008 and 2007:

	2008		2007
	(in thousands)
Raw materials	$	321	$	246
Work in process		214		281
Finished goods		888		929
Supplies		178		137

	$	1,601	$	1,593

Note 3 Equipment and Leasehold Improvements, Net

Equipment and leasehold improvements consists of the following as of March 31, 2008 and 2007:

	2008			2007
	(in thousands)
Equipment	$	6,335		$	6,257
Leasehold improvements		7,348			7,335
Furniture and fixtures		94			87

		13,777			13,679
Less accumulated depreciation and amortization		(9,600	)		(9,110	)
Construction in-progress		92			132

	$	4,269		$	4,701

The above equipment and leasehold improvement amounts as of March 31, 2007, have been reduced by a $4.5 million charge resulting from Management's analysis under SFAS No. 144 as discussed below.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Upon such an occurrence, recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows to which the assets relate, to the carrying amount. If the asset is determined to be unable to recover its carrying value, then the carrying value of the long-lived assets are compared to the asset's fair value. The Company has determined fair value based upon appraised asset values.

For purposes of SFAS No. 144, the Company's equipment and leasehold improvements are evaluated for recoverability as a single group since they cannot be separated into specific cash flow generating groups.

The Company considered it necessary to record an impairment of production assets under SFAS No. 144 recognizing a loss for the amount by which the carrying amount or net book value of the assets exceeds the estimated fair value upon comparison. The net book value will be depreciated down to its estimated salvage value. The March 31, 2007 impairment charge was allocated to long-lived production assets based upon the relative net book values and is presented as follows:

	Impairment Charge
Equipment	$	(4,490	)
Leasehold improvements		(7,331	)
Furniture and fixtures		—

		(11,821	)
Accumulated depreciation and amortization		7,467
Construction in-progress		(133	)

Impairment loss on equipment and leasehold improvements	$	(4,487	)

Note 4 Accrued Expenses

Components of accrued expenses as of March 31, 2008 and 2007 are as follows:

	2008		2007
	(in thousands)
Wages, commissions and royalties	$	216	$	165
Professional fees		0		53
Other accrued expenses		104		172

	$	320	$	390

Note 5 Long-Term Debt

Long-term debt consists of the following as of March 31, 2008 and 2007 as follows:

		2008			2007
		(in thousands)
Term loans		$	2,072		$	1,390
Less current maturities			(567	)		(398	)

	Long-term debt, excluding current maturities	$	1,505		$	992

Term Loan Agreement

In February 2008, the Company executed a Term Loan Agreement ("Term Loan") with a lender providing for $1.1 million in aggregate credit facilities, secured by the Company's assets. The Term Loan has a maturity date of March 1, 2015 and is payable in 84 equal monthly principal and interest payments. The interest rate under this Term Loan, in the absence of a default under the agreement, is the prime rate, in effect as of the close of business on the first day of each calendar quarter, plus 1%. As of March 31, 2008 and 2007, the prime rate was 5.25% and 8.25%, respectively. The Company is prohibited from declaring any common stock dividends without the lender's prior written consent.

In April 2000, the Company executed a Term Loan Agreement ("Term Loan") with a lender providing for $3.5 million in aggregate credit facilities, secured by the Company's assets. The Term Loan has a maturity date of May 1, 2010 and is payable in 120 equal monthly principal and interest payments. The interest rate under this Term Loan, in the absence of a default under the agreement, is the prime rate, in effect as of the close of business on the first day of each calendar quarter, plus 1%. As of March 31, 2008 and 2007, the prime rate was 5.25% and 8.25%, respectively. The Company received a waiver of relevant covenants of the Term Loan related to the previous filing of Forms 10-Q for fiscal year 2007. The Company is prohibited from declaring any common stock dividends without the lender's prior written consent. A warrant to purchase 5,000 shares of the Company's common stock was issued in conjunction with this Term Loan. The warrant expires in April 2011 and has an exercise price of $10.20 per share. The warrant may only be exercised after the Company has repaid the Term Loan in full.

A $250,000 restricted cash deposit continues to be held in the restricted cash account and is included in Other Assets in the accompanying consolidated Balance Sheets at March 31, 2008 and 2007.

Future principal payments under the Term Loan Agreements as of March 31, 2008 are as follows:

Year ending March 31		(in thousands)
2009		$	567
2010			606
2011			225
2012			153
2013			163
Thereafter through 2015			358

	Total principal payments	$	2,072

Note 6 Leases

The Company leases facilities, equipment and land under operating leases expiring between 2007 and 2025. The land lease provides for contingent rentals in excess of minimum rental commitments based on a percentage of the Company's sales. Contingent rental for the years ended March 31, 2008, 2007 and 2006 was $46,000, $52,000 and $55,000, respectively.

Future minimum lease payments under non-cancelable operating leases at March 31, 2008 are as follows:

Year ending March 31		(in thousands)
2009		$	186
2010			166
2011			156
2012			150
2013			148
Thereafter through 2025			1,887

	Total minimum lease payments	$	2,693

Rent expense under operating leases amounted to $268,000, $283,000 and $316,000 for the years ended March 31, 2008, 2007 and 2006, respectively.

Note 7 Share-Based Compensation

Effective April 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standard No. 123(R) ("SFAS No. 123R"), "Share-Based Payment," for its share-based compensation plans, which is a revision of Statement of Financial Accounting Standard No. 123 "Accounting for Stock- Based Compensation". On March 29, 2005, the SEC staff issued Staff Accounting Bulletin No. 107, "Share-Based Payment" (SAB No. 107), which expressed the SEC staff's views on SFAS No. 123R, but did not modify any of SFAS No. 123R's provisions. The Company measures the cost of employee services received in exchange for an award. If an award vests or becomes exercisable based on the achievement of a condition other than service, performance or market condition, the award is liability-classified. Liability-classified awards are remeasured to fair value at each balance sheet date until the award is settled. Equity-classified awards, including grants of employee stock options, are measured at the grant-date fair value of the award and are not subsequently remeasured. The cost of equity-classified awards is recognized in the income statement over the period during which an employee is required to provide the service in exchange for the award. In the Company's case, all of the Company's stock options are service based awards.

Stock Options

Under the 2005 Stock Option Plan (the "2005 Plan"), 200,000 shares of common stock are reserved for issuance and the plan terminates on August 21, 2015. Under the 2005 Plan, eligible employees and certain independent consultants may be granted options to purchase shares of the Company's Stock. The shares issuable under the 2005 Plan will either be shares of the Company's authorized but previously unissued common stock or shares reacquired by the Company, including shares purchased on the open market. As of March 31, 2008, 147,650 options remained available for grant under the 2005 Plan. Concurrent with the 2005 Plan approval on August 22, 2005, the 1995 Stock Option Plan was terminated except for the outstanding options issued thereunder.

Options under the 2005 Plan are granted, and are vested and exercisable as determined by the Board of Directors or the Stock Option and Compensation Committee of the Board in accordance with the provisions of the 2005 Stock Option Plan. Discussion relative to option granting, vesting, exercising, and other conditions are set forth in a Stock Option Agreement evidencing each grant. No option can have a life in excess of ten (10) years. All shares granted in the form of options under the 2005 Plan will reduce, on a share for share basis, the number of shares available for subsequent grants. Option grants which forfeit under the terms of the 2005 Plan will return to the pool of reserved shares and be available for subsequent grants under the terms of the 2005 Plan.

SFAS No. 123R offered alternatives for implementation, among them the Modified Prospective Method of accounting for compensation costs related to "Share Based Payments" which the Company has determined to apply. In the Company's case, its employee incentive stock options are "plain vanilla" as defined by the SEC in Staff Accounting Bulletin ("SAB") No. 107, normally vesting over a five year period and exercisable under the terms of the Company's Stock Plan up to ten years from the grant date. Because the Company's future employee incentive stock options are expected to be "plain vanilla," they will be reflected only in Equity and Compensation Expense accounts. The Company has determined that a Black-Scholes-Merton model will be most reflective of the fair value of option grants, consistent with the provisions of SFAS No. 123R and SAB No. 107. Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the Company's stock, risk-free rate and the Company's dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company.

Currently outstanding nonvested options include options that were granted to non-employees and the compensation cost for these options was recognized in prior years' operating results. Additionally, on February 22, 2008 the Company awarded 47,350 stock options to eligible employees which are nonvested options at March 31, 2008. The options granted have an exercise price of $1.60 based on the closing price of the Company's common stock as of February 22, 2008. The options vest ratably with 10% of the options fully vested the second year after the date of grant, 30% fully vested the third year, 60% fully vested the fourth year and 100% fully vested the fifth year after the date of grant. The options are "plain vanilla" options meaning that the only requisite to achieve vesting is that the employee option holders continue to be employed by the Company. These are equity options as defined in SFAS 123(R).

The foregoing are the only employee options non-vested as of March 31, 2008 because, in response to SFAS No. 123R, the Compensation and Stock Option Committee of the Company's Board of Directors approved accelerating the vesting of all outstanding unvested employee incentive stock options under the provisions of APB Opinion No. 25, and related interpretations. Options held by non-employees and directors were not included in the vesting acceleration. The decision to accelerate vesting of all outstanding unvested employee incentive stock options was made to avoid recognizing, pursuant to the Company's April 1, 2006 adoption of SFAS No. 123R, the non-cash compensation cost related to unvested employee incentive stock options for the Company's less than 100 employees. This resulted in the Company

recognizing non-cash compensation expense of approximately $10,000 for the year ended March 31, 2006, representing the estimated benefit of accelerated vesting for those unvested incentive options with exercise prices less than the fair market value of the Company's stock on March 23, 2006. It is estimated that the total future compensation expense that would be avoided in future years approximated $78,000, before tax, based on the March 23, 2006 acceleration date. The foregoing amount would have primarily impacted fiscal years ending March 31, 2007 through March 31, 2009.

Due to the Company's tax net operating loss carry forward position, no tax benefits are expected to be received over the remaining life of the 2005 Stock Plan. Accordingly, Stock Plan amounts are the same both before and after tax. At the effective vesting acceleration date of March 23, 2006, there were 5,000 unvested employee incentive stock options outstanding under the company's 1995 and 2005 Stock Plans, and 40,714 unvested employee incentive stock options outstanding under the company's 1994 and 2004 Stock Plans. Of the outstanding incentive stock options, 19,123 had exercise prices which were greater than the $2.72 per share fair market value of the Company's common stock on March 23, 2006. The remaining 26,591 options had exercise prices less than or equal to the $2.72 fair market value of the Company's stock, and ranging from $2.00 to $2.60 per incentive option for the 26,591 options with exercise prices less than or equal to $2.72.

The Independent Director Stock Option and Stock Grant Plan (the "2004 Plan") has 75,000 shares of common stock reserved for issuance. Under the 2004 Plan, upon election to the Board of Directors, a newly elected non-employee director is granted a ten-year option to purchase 1,000 shares of the Company's common stock at a fair market value on the date of grant. All such options are granted at fair market value on the date of grant. Options granted vest and become exercisable six months from the date of grant. In addition, on the date of each Annual Meeting of Stockholders, each non-employee director continuing in office is automatically granted, without payment, 875 shares of common stock, non-transferable for six months following the date of grant. Compensation expense of $4,000 was recorded relating to the shares granted. As of March 31, 2008, 70,250 options remained available for grant under the 2004 Plan. Concurrent with the 2004 Plan approval on August 16, 2004, the 1994 Non-Employee Director Stock Option and Stock Grant Plan was terminated except for the outstanding options issued thereunder.

Previously under the terminated 1994 Plan, upon election to the Board of Directors, non-employee directors were granted a ten-year option to purchase 750 shares of the Company's common stock at fair market value on the date of grant. In addition, on the date of each Annual Meeting of Stockholders, each non-employee director continuing in office was granted, without payment, 500 shares of common stock, non-transferable for six months following the date of grant. There was no expense recognized from the 2004 Plan for the years ended March 31, 2008 and 2007.

There were 47,350 stock options granted during 2008. There were no options granted during 2007. The per share weighted average fair value of stock options granted during 2008 and 2006 was $1.32 and $2.60, respectively, on the date of the grant using a closed form option pricing model with the following weighted average assumptions:

	2008		2006
Expected dividend yield	0	%	0	%
Risk-free interest rate	4.8	%	4.3	%
Expected volatility	104	%	107	%
Expected life in years	7.6		4.5

The expected life of the Company's options is based on evaluations of historical and expected future exercise behavior. The risk free interest rate is based on the U.S. Treasury yield curve at the date of grant with maturity dates approximately equal to the expected term of the options at the date of the grant. The expected volatility is based on the historical volatility, among other factors, of the Company's stock. The valuation model applied in this calculation utilizes highly subjective assumptions that could potentially

change over time. Changes in the subjective input assumptions can materially affect the fair value estimates of an option. Furthermore, the estimated fair value of an option does not necessarily represent the value that will ultimately be realized by the employee holding the option.

As of March 31, 2008, total unrecognized stock-based compensation expense related to unvested stock options was $75,760 which is expected to be expensed over a weighted-average period of 4.9 years.

Activity for stock options during the periods indicated was as follows:

		Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term In Years	Average Intrinsic Value
Balance at March 31, 2005		151,497		$	4.36
	Granted	5,000			2.60
	Exercised	(3,625	)		2.12
	Expired	(25,900	)		6.76
	Forfeited	(9,741	)		3.28

Balance at March 31, 2006		117,231			3.92	2.08	$	459,546
	Granted	—			—
	Exercised	(1,575	)		2.15
	Expired	(19,625	)		3.85
	Forfeited	(11,859	)		4.53

Balance at March 31, 2007		84,172			3.86	1.77		324,904
	Granted	47,350			1.60
	Exercised	—			—
	Expired	(17,700	)		2.36
	Forfeited	(2,375	)		3.11

Balance at March 31, 2008		111,447		$	3.15	4.9	$	351,058

The following table summarizes the weighted average characteristics of outstanding stock options at March 31, 2008 for various exercise price ranges:

	Outstanding Options				Exercisable Options
Range of Exercise Prices	Number of Shares	Remaining Life (Years)	Weighted Average Price		Number of Shares	Weighted Average Price
$1.60-$2.60	79,319	6.3	$	1.80	31,969	$	2.09
$4.20-$6.50	25,878	1.6		4.52	25,699		4.52
$14.75-$14.75	6,250	0.1		14.75	6,250		14.75

Prior Period Proforma Presentation

Prior to April 1, 2006, the Company had previously adopted the provisions of SFAS No. 123 through disclosure only. The table presented below illustrates the effects on net loss and loss per share for the year

ended March 31, 2006 as if the Company had applied the fair value recognition provisions of SFAS No. 123 to share-based awards.

		2006
		(in thousands, except per share amounts)
Net loss, as reported		$	(391	)
Reverse accelerated vesting expense recognized under intrinsic value method			10
Deduct stock-based employee compensation expense determined under fair-value method for all awards(1)			(135	)

Pro forma net loss		$	(516	)

Net loss per common share
—Basic:
	As reported	$	(0.07	)
	Pro forma	$	(0.10	)
—Diluted:
	As reported	$	(0.07	)
	Pro forma	$	(0.10	)

(1): For the year ended March 31, 2006, the amount includes the impact of accelerated vesting of unvested employee stock options on March 23, 2006 amounting to $78,000.

Warrants

The Company had issued warrants which allow the warrant holders rights to acquire an equivalent number of shares of common stock at a stated exercise price. Warrants outstanding during the periods indicated were as follows:

Warrants issued in connection with:

		Term Loan (See Note 5) Grant date: April 2000 Expiration date: April 2011 Exercise price: $10.20	Total
Balance at March 31, 2005		5,000	5,000
	Exercises	—	—
	Expired	—	—

Balance at March 31, 2006		5,000	5,000
	Exercises	—	—
	Expired	—	—

Balance at March 31, 2007		5,000	5,000
	Exercises	—	—
	Expired	—	—

Balance at March 31, 2008		5,000	5,000

Note 8 Earnings Per Share

Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the potentially dilutive effect of outstanding stock options and warrants using the "treasury stock" method and convertible securities using the "if-converted" method.

Reconciliations between the numerator and the denominator of the basic and diluted earnings per share computations for the years ended March 31, 2008, 2007 and 2006 are as follows:

		Net Income (Loss) (Numerator)			Shares (Denominator)	Per Share Amount
		(in thousands, except per share amounts)
Year ended March 31, 2008:
	Basic and diluted loss per share	$	(1,139	)	5,242	$	(0.22	)

Year ended March 31, 2007:
	Basic and diluted loss per share	$	(7,425	)	5,234	$	(1.42	)

Year ended March 31, 2006:
	Basic and diluted loss per share	$	(391	)	5,226	$	(0.07	)

The following securities were excluded from the calculation of diluted earnings per share because their effect was antidilutive due to the net loss recorded by the Company during each year.

		2008		2007		2006
		(in thousands)
Stock options and warrants		116		89		122

Note 9 Profit Sharing Plan

The Company sponsors a profit sharing plan for all employees not covered under a separate management incentive plan. Under the profit sharing plan, a percentage determined by the Board of Directors of pre-tax profits on a quarterly basis may be allocated to non-management employees based on gross wages. At management's discretion, the profit sharing bonus may be distributed all in cash on an after-tax basis or distributed half in cash (on an after-tax basis) and the remainder deposited in an employee's 401(k) account on a pre-tax basis with a five year vesting schedule, based on years of service with the Company. All employees may make voluntary pre-tax contributions to their 401(k) accounts; Company contributions are discretionary. There was no compensation expense for fiscal years 2008 or 2007. For fiscal year 2006, compensation expense relative to this plan was approximately $18,000.

Note 10 Major Customers and Geographic Information

Net sales by product line for the years 2008, 2007 and 2006 are as follows:

			2008		2007		2006
			(in thousands)
Net sales:
	Spirulina products		$	5,980	$	6,090	$	6,517
	Natural astaxanthin products
		NatuRose		443		1,142		1,403
		BioAstin		4,808		2,354		2,967
	Other products			133		97		244

			$	11,364	$	9,683	$	11,131

Approximately $1,149,000, or 10% of our total net sales for the year ended March 31, 2008, was to a single customer. Sales to this customer for fiscal 2007 and 2006 were $937,000 (10% of net sales) and $1,285,000 (12% of net sales), respectively.

The following table presents sales for the years 2008, 2007 and 2006 by geographic region:

		2008				2007				2006
		(dollars in thousands)
Net sales(1):
	United States	$	6,482	57	%	$	5,275	54	%	$	5,343	48	%
	Japan		277	2			772	8			1,328	12
	The Netherlands		1,152	10			937	10			1,300	12
	Other areas		3,453	31			2,699	28			3,160	28

		$	11,364	100	%	$	9,683	100	%	$	11,131	100	%

(1): Net sales are attributed to countries based on location of customer. All long-lived assets are located in the United States as of March 31, 2008 and 2007.

Note 11 Income Taxes

Loss before income taxes consisted of:

		2008			2007			2006
		(in thousands)
United States		$	(1,094	)	$	(7,358	)	$	(311	)
Foreign			(45	)		(76	)		(86	)

	Loss before income taxes	$	(1,110	)	$	(7,434	)	$	(397	)

The following table reconciles the amount of income taxes computed at the federal statutory rate of 34%, for all periods presented, to the amount reflected in the Company's consolidated statements of operations for the years ended March 31, 2008, 2007 and 2006:

		2008			2007			2006
		(in thousands)
Tax provision (benefit) at federal statutory income tax rate		$	(377	)	$	(2,528	)	$	(135	)
State income taxes, net of federal income tax effect			(47	)		(314	)		(17	)
Increase (decrease) in valuation allowance for deferred tax assets			470			2,526			146
Other, net			(17	)		307			—

	Income tax expense (benefit)	$	29		$	(9	)	$	(6	)

The tax effects of temporary differences related to various assets, liabilities and carry forwards that give rise to deferred tax assets and deferred tax liabilities as of March 31, 2008 and 2007 are as follows:

			2008			2007
			(in thousands)
Deferred tax assets:
	Net operating loss carry forwards		$	6,418		$	5,815
	Impairment loss on equipment & leasehold improvements for financial reporting purposes			2,768			2,768
	Tax credit carry forwards			124			124
	Other			138			209

		Gross deferred tax assets		9,448			8,916
Less valuation allowance				(8,325	)		(7,855	)

		Net deferred tax assets		1,123			1,061
Deferred tax liability: Differences in depreciation and amortization on equipment and leasehold improvements				(1,123	)		(1,061	)

		Net deferred tax assets	$	—		$	—

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which net deferred tax assets are deductible, management does not believe it is more likely than not the Company will realize a portion of its gross deferred tax assets, and has thus established a valuation allowance to reflect its estimated realizability. The amount of the deferred tax assets considered realizable, however, could change in the near term if estimates of future taxable income during the carry forward period change.

Income tax expense (benefit) for the years ended March 31, 2008, 2007 and 2006 consisted of:

			2008		2007			2006
			(in thousands)
Current:
	Foreign		$	—	$	—		$	—
	Federal			—		—			—
	State			29		(9	)		(9	)

		Total current		29		(9	)		(9	)

Deferred:
	Foreign			—		3			3
	Federal			—		—			—
	State			—		—			—

		Total deferred		—		3			3

		Income tax expense (benefit)	$	29	$	(6	)	$	(6	)

At March 31, 2008, the Company has net operating loss carry forwards and tax credit carry forwards available to offset future federal income tax as follows (in thousands):

Expires March 31,	Net Operating Losses		Research and Experimentation Tax Credits
2011	$	—	$	23
2012		—		9
2018		1,460		—
2019		3,632		—
2020		2,051		7
2021		1,727		2
2022		3,161		—
2023		1,863		—
2026		159		—
2027		2,665		—
2028		728		—

	$	17,446	$	41

In addition, at March 31, 2008, the Company has alternative minimum tax credit carry forwards of approximately $83,000 available to reduce future federal regular income taxes over an indefinite period.

At March 31, 2008, the Company has state tax net operating loss carry forwards of $12,141,000 which expire in March 31, 2019 through 2026, available to offset future Hawaii and California state taxable income.

Note 12 Selected Quarterly Financial Data (Unaudited)

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Year
	(in thousands, except per share data)
2008
Net sales	$	2,583		$	2,604		$	2,763		$	3,414		$	11,364
Gross profit		746			768			353			1,204			3,071
Net income (loss)		(382	)		(344	)		(594	)		181	(2)		(1,139	)
Net income (loss) per share— Basic and Diluted		(0.07	)		(0.07	)		(0.11	)		0.03			(0.22	)

2007
Net sales	$	2,444		$	2,475		$	2,434		$	2,330		$	9,683
Gross profit		471			404			78			178			1,131
Net loss		(347	)		(572	)		(1,187	)		(5,319)	(1)		(7,425	)
Net loss per share— Basic and Diluted		(0.07	)		(0.11	)		(0.23	)		(1.02	)		(1.42	)

(1): The Company recorded a non-cash impairment charge of $4,487,000 on certain production related equipment and leasehold improvements as required by SFAS No. 144. See Note 3 for additional information.
(2): The fourth quarter of 2008 includes an adjustment for sales and use taxes which decreased net income by $46,000 that relates to prior periods. Management concluded that the adjustment was not material to the current and prior years consolidated financial statements as a whole.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A(T). Controls and Procedures

As required by Regulation S-K Rules 307, 308T and 404, Cyanotech Corporation management has assessed the effectiveness of internal control over financial reporting.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the company is recorded, processed, summarized and reported, within the time periods as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As of the year ended March 31, 2008, management conducted an evaluation (under the supervision and with the participation of the chief executive officer and the chief financial officer), pursuant to Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act, of the effectiveness of the company's disclosure controls and procedures. As part of such evaluation, management considered the matters discussed below relating to internal control over financial reporting. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as of March 31, 2008 due to the material weakness in internal control and over financial reporting described below.

A material weakness in internal control over financial reporting (as defined in Auditing Standard No. 5 of the Public Company Accounting Oversight Board) is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected by the entity's internal control.

The weakness related to controls around the Company's inventory process was identified and disclosed in the Company's prior Form 10-K's as noted below. Accordingly, the Company has taken extensive measures over the past year to correct the identified weakness: (1) The Company engaged the services of qualified independent consultants to advise the Company on improvements to internal controls and procedures. (2) In January 2008, the Company hired a Controller, replacing the former controller and controller of cost accounting. and (3) Consultants independent from those who assisted with improvements and procedures have tested the Company's internal controls over financial reporting concurrent with this Form 10-K. Based on these measures management believes systems and procedures are in place to reasonably ensure accurate financial data. However, these controls and procedures have not been in place for a sufficient amount of time to demonstrate a high level assurance of their effectiveness and to conclude that the material weakness has been remediated.

As discussed in the Company's Form 10-K for the year ended March 31, 2007 and Form 10-K/A for the year ended March 31, 2006, errors were identified in the application of certain accounting practices and procedures related to accounting for certain fixed costs such as portions of depreciation, general insurance and minor compensation costs which should be included in the carrying value of inventory. The Company's Board of Directors approved and adopted a remediation plan for improving our internal controls and procedures. In accordance with this plan, the Company will ensure full compliance with generally acceped accounting principles (GAAP), address key financial reporting risk elements, subject its disclosures to a rigorous review process prior to releasing financial statements, update its inventory accounting systems and procedures to properly accommodate specific inventoriable fixed costs in accordance with GAAP and, apply resources with the critical skills necessary to ensure full compliance with GAAP.

Changes in Internal Control over Financial Reporting.

In order to address the material weakness identified in the previous year, we made changes in our internal controls over financial reporting, during the year ended March 31, 2008. These changes, designed

to improve our internal controls and procedures, relate to proper accounting for inventory costs in accordance with GAAP and with internal control over financial reporting. As discussed above, we believe that we now have in place policies and procedures to ensure, among other things, that all inventoriable fixed cost components such as depreciation, portions of general insurance costs, and portions of direct labor burden costs are capitalized into inventory unit costs, and that our internal controls and procedures relative to financial reporting are adequate. However, management feels that these controls and procedures have not been in place for a sufficient amount of time to demonstrate a high level assurance of their effectiveness.

Limitations on the Effectiveness of Disclosure Controls and Procedures.

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistakes. Controls can also be circumvented by the individual acts of some persons, or by collusion of two or more people. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 9B. Other Information

Not applicable

PART III

Item 10. Directors and Executive Officers of the Registrant

(a) Information pertaining to Directors of the Company

The following table sets forth certain information regarding the members of the Board of Directors, all of whom were elected at the last annual meeting of stockholders.

Name	Principal Occupation	Director Since	Age
Gerald R. Cysewski, Ph.D.	EVP and Chief Scientific Officer, Cyanotech Corporation	1983	59
Michael A. Davis	Private Investor	2003	55
Andrew Jacobson	President and Chief Executive Officer, Cyanotech Corporation	2008	46
Gregg W. Robertson	Chairman of the Board, Cyanotech Corporation; President and Chief Executive Officer of Robertson & Company (Financial services consultancy)	2004	74
David I. Rosenthal	Chief Financial Officer of Hickory Farms.	2000	53
John T. Waldron	CEO, Stratmark Services, Deerfield, IL	1998	56
Paul C. Yuen, Ph.D.	Retired, formerly Dean of the College of Engineering—University of Hawaii at Manoa	1993	80

Gerald R. Cysewski, Ph. D.—Kailua Kona, Hawaii: Dr. Cysewski, Executive Vice President and Chief Scientific Officer, co-founded the Company in 1983 and has served as a director of the Company since that time. From 1990 to May 16, 2008 Dr. Cysewski has served as President and Chief Executive Officer, as well as, Chairman of the Board. Prior to 1990 Dr. Cysewski served in various other capacities for the Company including Vice Chairman and Scientific Director. From 1980 to 1982, Dr. Cysewski was Group Leader of Microalgae Research and Development at Battelle Northwest, a major contract research and development firm. From 1976 to 1980, Dr. Cysewski was an assistant professor in the Department of Chemical and Nuclear Engineering at the University of California, Santa Barbara, where he received a two-year grant from the National Science Foundation to develop a culture system for blue-green algae. Dr. Cysewski received his doctorate in Chemical Engineering from the University of California at Berkeley.

Michael A. Davis—Tiburon, California: Mr. Davis was appointed to the Board of Directors of the Company in March 2003 subsequent to his acquisition of $1,250,000 of subordinated convertible debentures of the Company in September 2002. Mr. Davis is a Principal at Ebb and Flow Ventures, a private equity firm; President of Skywords Family Foundation and a Director of Canobie Films, Inc. Mr. Davis attended Harvard University and resides in San Francisco, California.

Andrew Jacobson—Thousand Oaks, California Mr. Jacobson joined Cyanotech as a Director, as well as, President and Chief Executive Officer in May 2008. Mr. Jacobson has more than 23 years of experience in the natural products industry. He was President of the Personal Care division of the Hain Celestial Group. Hain is a leading natural and organic food and personal care products company with annual sales of approximately $1 billion. Previously at Hain, he was President of Natural Products. Mr. Jacobson joined Hain in 1997 through its acquisition of Westbrae Natural Foods where he was President.

Gregg W. Robertson—Honolulu, Hawaii: Mr. Robertson was appointed to the Board of Directors of the Company in August 2004. Mr. Robertson is the President and Chief Executive Officer of Robertson & Company, a privately-owned investment banking firm which was established in 1986 and is currently based in Honolulu. Prior to establishing this firm, Mr. Robertson was the President and Chief Executive Officer of Dillingham Industries, Inc., a subsidiary of Dillingham Corporation. Previously Mr. Robertson held the positions of Executive Vice President and Chief Financial Officer of Dillingham Corporation. Mr. Robertson holds a B.S. degree in Economics from Fairleigh Dickenson University, Teaneck, N.J.

David I. Rosenthal—Denver, Colorado: Mr. Rosenthal was appointed to the Board of Directors of the Company in November 2000. Mr. Rosenthal is currently the Chief Financial Officer at Hickory Farms, a provider of food and gift products. Hickory Farms is a private company located in Maumee, Ohio. Previously, he was the Chief Financial Officer of Sanz, Inc, a public-traded company located in Englewood, Colorado that is a value-added reseller for data storage solutions. From 2003 to May of 2006 he was the Executive Vice President and Chief Financial Officer for SpectraLink Corporation, a publicly-traded company located in Boulder Colorado that designs, manufactures and markets wireless phones for the workplace. Mr. Rosenthal was Executive Vice President and Chief Financial Officer of StarTek, Inc., a provider of customized outsourcing services from 2000 to 2003. Mr. Rosenthal was acting Chief Financial Officer at Celestial Seasoning, Inc. until its merger with the Hain Food Group in 2000 and the Chief Financial Officer of Hauser, Inc., a manufacturer of natural extracts products, from 1994 to 1999. Mr. Rosenthal holds a B.S. degree in Accounting from the University of California at Berkeley and a M.B.A degree from California State University, Hayward. Mr. Rosenthal is also a Certified Public Accountant.

John T. Waldron—Deerfield, Illinois: Mr. Waldron was appointed to the Board of Directors of the Company in July 1998. Mr. Waldron is CEO of Stratmark Services in Deerfield, Illinois and Adjunct Professor of Marketing at the Lake Forest Graduate School of Management in Lake Forest, Illinois. From 1986 to 1999, Mr. Waldron was Vice President-Sales and Marketing, Senior Vice President-Sales and Marketing, and Executive Vice President for Takeda U.S.A. Inc., a bulk vitamin and fine chemical products manufacturer. Mr. Waldron was also a Director of Takeda U.S.A. from 1993 to 1999, and served as a

member of its Executive Committee and Compensation Committee. Mr. Waldron holds a Master of Management degree from Northwestern University's J. L. Kellogg Graduate School of Management.

Paul C. Yuen, Ph.D.—Honolulu, Hawaii: Dr. Yuen was appointed to the Board of Directors of the Company in August 1993. Prior to his retirement in September 1999, Dr. Yuen served as Dean, College of Engineering for the University of Hawaii at Manoa. From July 1992 to March 1993, Dr. Yuen was Acting President of the University of Hawaii. From 1989 to 1992, Dr. Yuen was Senior Vice President for Academic Affairs, University of Hawaii at Manoa. Dr. Yuen holds M.S. and Ph.D. degrees in Electrical Engineering from the Illinois Institute of Technology.

The Board has determined that all nominees, except Dr. Cysewski and Mr. Jacobson, are independent directors as defined in Nasdaq Stockmarket Rule 4200A.

Director Compensation

At the 2004 Annual Meeting of Stockholders, the stockholders of the Company approved the Independent Director Stock Option and Stock Grant Plan (the "2004 Plan"). Under the 2004 Plan each Independent Director receives on first election, pursuant to the 2004 Plan, a 10-year option to purchase 1,000 shares of the Company's Common Stock, and thereafter a grant of 875 shares of Common Stock each year that the Independent director is elected to the board. Such grants and options are non-transferable and non-exercisable for six months following the date of grant. On the date of the 2006 Annual Meeting of Stockholders, each Independent Director was entitled to receive under the 2004 Plan, an automatic grant of 875 shares of fully paid and non-assessable shares of Common Stock. Because of an administrative oversight, such shares were not issued until fiscal year 2008. In addition, each Independent Director receives an annual fee of $1,000 for participation on the Board and $1,000 per Board meeting attended in person, and is also reimbursed for out-of-pocket costs incurred in connection with attendance at such meetings. Each Independent Director receives $150 for participation in telephonic meetings. An Independent Director who serves as a member of any Board committee receives an annual fee of $500 and an Independent Director who serves as chairperson of a Board committee is entitled to additional compensation as follows: 1) Audit Committee Chairperson—$1,500; 2) Compensation and Stock Option Committee Chairperson—$800; and 3) Nominating and Corporate Governance Committee—$800.

(b) Information pertaining to the Executive Officers of the Company

The executive officers are elected by and serve at the pleasure of the Board.

The executive officers and other key employees of Cyanotech as of March 31, 2008 are as follows:

Name	Age	Position
Gerald R. Cysewski, Ph. D	59	Chairman of the Board, President and Chief Executive Officer, though May 16, 2008 when he resigned these positions and became Executive Vice President and Chief Scientific Officer
William R. Maris	59	Chief Financial Officer, Vice President—Finance and Administration, Secretary and Treasurer
Glenn D. Jensen	49	Vice President—Operations
Robert J. Capelli	48	Vice President—Sales and Marketing

Microalgae Research and Development at Battelle Northwest, a major contract research and development firm. From 1976 to 1980, Dr. Cysewski was an assistant professor in the Department of Chemical and Nuclear Engineering at the University of California, Santa Barbara, where he received a two-year grant from the National Science Foundation to develop a culture system for blue-green algae. Dr. Cysewski received his doctorate in Chemical Engineering from the University of California at Berkeley.

Mr. Maris has served as Chief Financial Officer, Vice President—Finance & Administration, Secretary and Treasurer since January 2006. From February 2003 to December 2005 he was self employed as a Certified Public Accountant. From September 1994 to January 2003 Mr. Maris was CFO, Treasurer and Secretary of Market Transport, Ltd., a logistics and transportation provider based in Portland, Oregon. Prior to this he served as CFO and Vice President, Operations of Wholesome and Hearty Foods ("Garden Burger"), a food products manufacturer in Portland, and CFO and Treasurer of Crown Pacific, Ltd., a forest resources and manufacturing concern in Portland. Earlier in his career, Maris was a division treasurer and financial manager for AMFAC, Inc. of Honolulu, Hawaii. He began his career at Touche Ross and Company becoming senior auditor and audit supervisor. He holds a B.A. Degree from the University of Oregon.

Mr. Jensen has served as Vice President—Operations since May 1993. He had been Production Manager since 1991. Mr. Jensen joined Cyanotech in 1984 as Process Manager. Prior to joining the Company, Mr. Jensen worked as a plant engineer at Cal-Alga, a spirulina production facility, near Fresno, California. Mr. Jensen holds a B.S. degree in Health Science from California State University, Fresno.

Mr. Capelli, has served as Vice President—Sales and Marketing since March 2002. He joined the Company in January 2002 as Director of Sales. Prior to joining Cyanotech, Mr. Capelli was Senior Sales Manager for Forecite-The Source, a division of Tree of Life, Inc. Mr. Capelli holds a B.A. degree from Rutgers University.

(c) Compliance with section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors, executive officers, and beneficial owners of more than 10% of a registered class of the Company's equity securities, (collectively "Insiders") to file reports with the SEC and the National Association of Securities Dealers, Inc. disclosing direct and indirect ownership of Common Stock and other equity securities of the Company and reports of changes in such ownership. Insiders are required by SEC regulation to provide the Company with copies of all Section 16(a) forms filed with the SEC. Based solely on review of copies of Section 16(a) reports received by the Company, and written representations that no other reports were required by the SEC, the Company believes Insiders have complied with all Section 16(a) filing requirements for the fiscal year ended March 31, 2008.

(d) We have adopted the Cyanotech Code of Ethics for Chief Executive Officer and Senior Financial Officers (the "Code of Ethics") included in our Code of Conduct. Our Code of Conduct and Ethics is publicly available on our website at www.cyanotech.com. If we make any substantive amendments to or grant any waivers from such Code relating to our Chief Executive Officer, Chief Financial Officer or Controller, we will disclose the nature of such amendment in a report on Form 8-K and amend the website disclosure.

Item 11. Executive Compensation

The following table sets forth the compensation paid or accrued by the Company to the Chief Executive Officer and all executive officers of the Company who earned more than $100,000 for services rendered in all capacities to the Company (hereinafter referred to as the "named executive officers") for the fiscal years ended March 31, 2008, 2007, and 2006.

SUMMARY COMPENSATION TABLE

	ANNUAL COMPENSATION
Name And Principal Position	Fiscal Year	Salary		Bonus	Option Awards(1)	Total
Gerald R. Cysewski, Chairman of the Board, President and Chief Executive Officer(2)	2008 2007 2006	$ $ $	130,000 130,000 130,048	— — —	— — —	$ $ $	130,000 130,000 130,048
William R. Maris Chief Financial Officer and Vice President of Finance and Administration	2008 2007 2006	$ $ $	128,077 104,616 23,077	20,000 — —	— —	$ $ $	148,077 104,616 23,077
Robert J. Capelli Vice President of Sales	2008 2007 2006	$ $ $	103,814 101,738 107,462	— —	— — —	$ $ $	103,814 101,738 107,462

(1): Expense recognized in the Company's financial statements. There were stock option awards during fiscal 2008, which the Company reports in accordance with SFAS No. 123R, which requires compensation expense to be recorded in the Company's financial statements.
(2): Dr. Cysewski resigned these positions effective May 16, 2008. He remains a Director of Cyanotech and serves as Executive Vice President and Chief Scientific Officer.

OPTION GRANTS IN LAST FISCAL YEAR

The Company granted 47,350 stock options under the 2005 Stock Option Plan for the fiscal year ended March 31, 2008.

FISCAL YEAR-END OPTION VALUES

a. The following table provides information with respect to the named executive officers concerning the number and value of unexercised options held at year end. No SARs have been granted under the Company's 2005 Stock Plan.

	Shares Acquired on Exercise			Number of Shares of Common Stock Underlying Unexercised Options at FY-End (#)			Value of Unexercised In-The-Money Options at FY-End ($)(1)
		Value Realized
Name		Value Realized
Name	(#)	($)		Exercisable(4)		Unexercisable	Exercisable		Unexercisable
Gerald R. Cysewski(2)	0	$	0	4,750	(2)	2,000	$	—	$	—
Robert J. Capelli(2)	0	$	0	5,500	(2)	2,000	$	—	$	—
William R. Maris(3)	0	$	0	5,000	(3)	2,000	$	—	$	—

(1): Refers to the Market value of shares covered by in-the-money options on March 31, 2008 which was $1.57, less the option exercise price. Options are not in-the-money if the market value of the shares covered thereby is less than the option exercise price, which was so at the fiscal year ended March 31, 2008.
(2): Options which remain exercisable granted under 1995 Stock Plan.
(3): Options which are exercisable granted under 2005 Stock Plan. The options were granted under the Company's 2005 Stock Plan on January 2, 2006, and were exercisable in four equal and cumulative annual installments over the optionee's period of service with the Company, beginning one year after the grant date. The option has a term of five years.
(4): As reported in the Company's 10-K filed June 28, 2006, on March 23, 2006, in response to SFAS No. 123(R), the Compensation and Stock Option Committee of the Company's Board of Directors approved accelerating the vesting of all outstanding unvested employee incentive stock options under the provisions of APB Opinion No. 25, and related interpretations. Options held by non-employees and directors were not included in the vesting acceleration since all such options were already fully vested. The decision to accelerate vesting of all outstanding unvested employee incentive stock options was made to avoid recognizing, pursuant to the Company's April 1, 2006 adoption of SFAS No. 123(R), the non-cash compensation cost related to unvested Employee Incentive Stock Options. These options would otherwise have been unvested as of March 31, 2007 and would have been reflected as a non-cash expense in future statements of operations.

Due to the Company's having fewer than 100 employees, it was deemed prudent to accelerate the vesting of all outstanding employee incentive stock options including those shown above. This resulted in the company recognizing non-cash compensation expense of approximately $10,000 for the year ended March 31, 2006, representing the estimated benefit of accelerated vesting for those unvested incentive options with exercise prices less than the fair market value of the Company's stock on March 23, 2006. It is estimated that the total future compensation expense that will be avoided in future years is approximately $78,000, before tax, based on the March 23, 2006 acceleration date. The foregoing amount would have primarily impacted fiscal years ending March 31, 2007 through March 31, 2009.

COMPENSATION DISCUSSION AND ANALYSIS

b. The Compensation and Stock Option Committee reviewed and discussed with senior management the Compensation Discussion and Analysis that follows. Based on that review and discussion, the Committee recommended and the Board of Directors concurred, that the Compensation Discussion and Analysis be included in this Form 10-K.

		CYANOTECH CORPORATION COMPENSATION AND STOCK OPTION COMMITTEE
		John C. Waldron, Chairman
		Paul C. Yuen, Member

Compensation Discussion and Analysis

Who is responsible for determining appropriate executive compensation?

The Compensation Committee has the responsibility for recommending the total compensation program for the Company and its subsidiaries, subject to the approval of the Board. This includes determining the compensation for the Cyanotech Corporation Named Executive Officers ("NEO's") (the individuals named in the Summary Compensation Table herein: (1) Gerald R. Cysewski, PhD, Chairman, President and Chief Executive Officer of the Company; (2) William R. Maris, Chief Financial Officer, Vice President-Finance and Administration, Secretary and Treasurer of the Company; (3) Robert J. Capelli, Vice President-Sales of the Company; and Glenn D. Jensen, Vice President of Operations of the Company.

What are the objectives of the Company's compensation programs?

The goals of the compensation program are to align compensation with business objectives and performance, and to enable the Company to attract, motivate and retain executives of outstanding ability, potential and drive commensurate with the size and development requirements of the Company. Key components include:

•: The Company pays competitively with comparable small companies with which the Company competes for talent. To ensure that pay is competitive, the Company compares its pay practices with these companies and sets its pay parameters based in part on this review.
•: The Company maintains annual incentive opportunities sufficient to provide motivation to achieve specific operating goals and to generate rewards that being total compensation to competitive levels.
•: The Company provides stock options for executive officers to ensure that they are motivated over the long term to respond to the Company's business challenges.

The Compensation Committee endeavors to balance Company needs and values with the employees' needs and believes that it is important that the Committee maintain this relationship.

What are the compensation programs designed to reward?

The Company's compensation programs are designed to recognize and reward Company annual and long-term performance and individual performance that enhance shareholder value. To that end:

•: Company Performance. The Compensation Committee considers each executive's overall contribution to the Company's long-term and short-term results and projections in relation to the Company goal of achieving sustainable profitability from sales of its products.
•: Individual Performance. The Compensation Committee has not established specific individual goals. The Company has a small executive team of talented individuals with clear divisions of

responsibility for achieving the Company's goals. The Compensation Committee evaluates the Chief Executive Officer as a committee or in conjunction with the other independent members of the Board of Directors (as determined by the full Board). That evaluation entails a review of the Chief Executive Officer's performance and progress towards achieving sustainable profitability through improved long-term and short-term results attributable to the Chief Executive Officer. The Compensation Committee or the full Board (excluding the Chief Executive Officer) acting with the Committee or upon its recommendations also considers relative shareholder return over the same period and chief executive compensation for similar-sized companies with similar results within the relevant geographic and industry area. For other NEO's, the Compensation Committee considers a performance assessment and base salary recommendation from the Chief Executive Officer. The performance evaluations of these executives are based on an overall assessment of each executive's contribution to the Company's long-term and short-term results and projections in relation to the Company goal of achieving sustainable profitability from sales of its products. The compensation for the Vice President-Sales includes a direct commission-based component.

What are the elements of executive compensation?

The elements of the Company's executive compensation include:

•: Base salary and bonus, if awarded.
•: Incentive stock option grants.

How is base salary determined?

The base salaries of the executive officers are determined initially on the basis of one or more salary surveys conducted by third parties as well as surveys of biopharmaceutical companies both nationally and more specifically in the Western United States obtained from public information such as filings with the Securities and Exchange Commission. Based on such surveys, the executive officers' salaries are set within the ranges of the surveys targeted at the median; the exact level is determined after the Committee considers the experience and capability of the executive officer, the level of responsibility and the needs of the Company.

What were the base salary increases for 2008?

The Company's Chief Financial Officer was granted a salary increase and a bonus based on merit and competitive compensation.

Are bonuses paid to executive officers?

The Committee believes that, as a general rule, annual compensation in excess of base salaries should be dependent on the employee's performance and the Company's performance, and should be awarded based on recommendations of the Committee, and in the discretion of the Board. Accordingly, at the beginning of a fiscal year, the Committee may adopt an incentive plan for executive officers and other key management personnel under which executive officers and other key management personnel may earn bonuses, provided the individual and/or Company achieves or exceeds the goals established for the year.

The net income goal is established in part on the basis of an annual operating plan developed by management and approved by the Board of Directors. The annual operating plan is designed to maximize profitability, within the constraints of economic and competitive conditions, some of which are outside the control of the Company, and is developed on the basis of: (i) the Company's performance in the prior year; (ii) estimates of sales revenue for the plan year based upon recent market conditions and trends and other factors which, based on historical experience, are expected to affect the level of sales that can be achieved; (iii) historical operating cost and cost savings that management believes can be achieved; and

(iv) competitive conditions faced by the Company. Taking all of these factors into account, as part of the operating plan, bonus awards are determined and fixed at what is believed to be a realistic level so as to make the incentives meaningful to executives and to avoid penalizing executives and other key management personnel for conditions outside of their control.

In certain instances, bonuses may be awarded not only on the basis of the Company's overall profitability, but also on the achievement by an executive of specific objectives within his or her area of responsibility. For example, a bonus may be awarded for an executive's efforts in achieving greater than anticipated cost savings, or establishing new or expanded markets for the Company's products. Typically, the maximum bonus that may be awarded for achievement of specific objectives is determined at the beginning of the year to provide the requisite incentive for such performance.

As a result of such performance-based criteria, executive compensation, and the proportion of each executive's total cash compensation that is represented by incentive or bonus income, may increase in those years in which the Company achieves the anticipated level of growth and profitability or other objectives. On the other hand, in years in which the Company experiences less than anticipated growth, bonuses and total executive compensation should be lower or not awarded. A bonus of $20,000 was paid to the Company's Chief Financial Officer in 2008. No bonuses were paid in 2007.

What is the Company's incentive stock option program?

The 2005 Stock Option Plan ("Plan") rewards select executives and key employees as an incentive for them to join or remain in the service of the Company. The Stock Option and Compensation Committee administers the Plan.

How does the Company award stock option grants?

The Committee generally intends to make stock option grants on an annual basis. Each grant is designed to align the interests of the executive officers with those of the stockholders and provide each individual with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. Each grant generally allows the executive officer to acquire shares of the Company's Common Stock at a fixed price per share (usually the market price on the date of grant) over a specified period of time (up to 10 years), thus providing a return to the executive officer only if he or she remains in the employ of the Company and the market price of the shares appreciate over the option term. The size of the option grant to each executive officer generally is set at a level that is intended to create a meaningful opportunity for stock ownership based upon the individual's current position with the Company, but also taken into account are the size of comparable awards made to individuals in similar positions in the industry as reflected in external surveys, the individual's potential for future responsibility and promotion over the option term, the individual's personal performance in recent periods and the number of options held by the individual at the time of grant. Generally, as an executive officer's level of responsibility increases, a greater portion of his or her total compensation will be dependent upon Company performance and stock price appreciation rather than base salary. The relative weight given to these factors varies with each individual, in the sole discretion of the Committee.

What perquisites and other personal benefits do executive officers have?

None.

Do executive officers have change-in-control agreements?

No, however provisions contained in the 2005 Stock Option Plan concerning acceleration of stock options when a Corporate transaction, as defined in such Plan occurs, unless the option is assumed or replaced by the successor corporation with a comparable option or cash incentive program.

How was the Chief Executive Officer's compensation determined last fiscal year?

The compensation payable to Dr. Cysewski, the Company's Chief Executive Officer in fiscal 2008, was determined by the Committee. Dr. Cysewski's base salary was continued at prior year's level as a result of the Company's financial condition.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following tables set forth information regarding the beneficial ownership of the Company's Common Stock as of June 26, 2008 by (i) each person who is known by the Company to own beneficially more than 5% of the outstanding shares of the Common Stock of the Company and Common Stock equivalents, (ii) each of the Company's executive officers named in the Summary Compensation Table appearing herein, (iii) each director and (iv) all directors and executive officers named in the Summary Compensation Table appearing herein as a group. The following tables set forth what such persons' beneficial security ownership position would be assuming the exercise of all outstanding stock options and warrants, exercisable on June 26, 2008 or within 60 days of such date. All shares shown are subject to the named person's sole voting and investment power except as noted.

Security ownership of Certain Beneficial Owners

Name		Shares Beneficially Owned		Approximate Percent Owned
VitaeLab AS, Helse AS, Telecom AS, Andres Kongsgaard Flaaten, Kenneth F. Bern, as a group(1)		509,060		9.7	%
Michael A. Davis		872,019	(2)(3)	16.6	%

(1): Per Schedule 13D dated June 11, 2008, jointly filed by the reporting persons, because due to certain affiliates and relationships among the reporting persons, such reporting persons may be deemed to beneficially own the same securities acquired by one of the reporting persons. Address is c/o VitaeLab AS, Enebakkveien, 117, 0680 Oslo, Norway.
(2): Includes 80,500 shares over which Mr. Davis holds sole voting and investment power. Also includes 787,019 shares over which Mr. Davis holds shared voting and investment power, including 31,250 shares held by Mr. Davis' spouse, Janet J. Johnstone ("Johnstone"); 175,000 shares held by the Skywords Family Foundation, a charitable foundation of which Mr. Davis and Johnstone are the sole directors; 100,000 shares held by trusts for the benefit of Mr. Davis' and Johnstone's minor children for which Mr. Davis is a co-trustee; and 480,769 shares held by the Michael Arlen Davis Charitable Lead Annuity Trust of which Mr. Davis is a co-trustee.
(3): Includes options for 750 shares of Common Stock held by a trust for the benefit of Mr. Davis, Johnstone & Mr. Davis' descendents, of which Mr. Davis is a trustee.

Security Ownership of Management

Name	Shares Beneficially Owned		Approximate Percent Owned
Andrew Jacobson(1)	—		*
Gerald R. Cysewski(1)	120,402	(2)	2.3	%
Robert J. Capelli(1)	5,500	(3)	*
Michael A. Davis(1)	872,019	(4)(5)	16.6	%
Gregg W. Robertson(1)	6,125	(6)	*
William R. Maris(1)	7,000	(7)	*
David I. Rosenthal(1)	7,000	(8)	*
John T. Waldron(1)	17,238	(9)	*
Paul C. Yuen(1)	13,950		*

All directors and executive officers as a group (8 persons)	1,049,234	(10)	20.0	%

*: Less than 1.0%
(1): Address is c/o Cyanotech Corporation, 73-4460 Queen Kaahumanu Hwy., Suite 102, Kailua Kona, HI 96740.
(2): Includes options for 7,875 shares of Common Stock.
(3): Includes options for 5,500 shares of Common Stock
(4): Includes 80,500 shares over which Mr. Davis holds sole voting and investment power. Also includes 787,019 shares over which Mr. Davis holds shared voting and investment power, including 31,250 shares held by Mr. Davis' spouse, Janet J. Johnstone ("Johnstone"); 175,000 shares held by the Skywords Family Foundation, a charitable foundation of which Mr. Davis and Johnstone are the sole directors; 100,000 shares held by trusts for the benefit of Mr. Davis' and Johnstone's minor children for which Mr. Davis is a co-trustee; and 480,769 shares held by the Michael Arlen Davis Charitable Lead Annuity Trust of which Mr. Davis is a co-trustee.
(5): Includes options for 750 shares of Common Stock held by a trust for the benefit of Mr. Davis, Johnstone & Mr. Davis' descendents, of which Mr. Davis is a trustee.
(6): Includes options for 1,000 shares of Common Stock.
(7): Includes options for 5,000 shares of Common Stock.
(8): Includes options for 750 shares of Common Stock.
(9): Includes options for 750 shares of Common Stock.
(10): Includes options for 21,625 shares of Common Stock.

Item 13. Certain Relationships and Related Transactions

Not applicable.

Item 14. Principal Accountant Fees and Services

Audit Fees

The aggregate fees billed by KPMG LLP, our independent registered public accounting firm, for professional services rendered for the audit of the Company's annual financial statements and timely quarterly reviews for the fiscal year ended March 31, 2008 and 2007 were $341,000 and $361,600, respectively.

Audit Related Fees

There were no audit related fees billed by KPMG LLP for the fiscal years ended March 31, 2008 and 2007.

Tax Fees

The aggregate fees billed by KPMG LLP for tax services rendered to the Company, for the fiscal years ended March 31, 2008 and 2007, were $9,000 and $4,800, respectively.

All Other Fees

There were no other fees billed by KPMG LLP for the fiscal years ended March 31, 2008 and 2007.

The Audit Committee has considered and does not believe the provision of all other services by the Company's registered public accounting firm is incompatible with maintaining KPMG LLP's independence.

PART IV

Item 15. Financial Statement Schedules and Exhibits

(a)

Financial Statements and Schedules

•: The following Financial Statements of Cyanotech Corporation and subsidiaries and the Report of Independent Registered Public Accounting Firm are included in Item 8 of this report:

Consolidated Balance Sheets for the years ended March 31, 2008 and 2007		36
Consolidated Statements of Operations for the years ended March 31, 2008, 2007 and 2006		37
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) for the years ended March 31, 2008, 2007 and 2006		38
Consolidated Statements of Cash Flows for the years ended March 31, 2008, 2007 and 2006		39
Notes to Consolidated Financial Statements		40

•: The following financial statement schedule is included in this report on the pages indicated below:

Schedule II—Valuation and Qualifying Accounts		73
Report of Independent Registered Public Accounting Firm		74

Financial statement schedules not listed above have been omitted since they are either not required, not applicable or the information is included in the consolidated financial statements or notes thereto.

(b): Exhibit Listing

Exhibit Number		Document Description
3.1		Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 31, 1996, File No. 0-14602)
3.2		Certificate of Amendment to Restated Articles of Incorporation effective September 1, 2004 (Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 8-K filed April 2, 2007, File No. 0-14602)
3.3		Certificate of Change to Restated Articles of Incorporation effective November 3, 2006 (Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 8-K filed March 20, 2007, File No. 0-14602)
3.4		Amended Bylaws (Incorporated by reference to Exhibit 3.3 to the Company's Report on Form 8-K filed April 2, 2007, File No. 0-14602)
4.1		Specimen Common Stock (Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10K for the year ended march 31, 2007, File No. 0-14602)
4.2		Term Loan Agreement dated April 21, 2000 between the Company and B&I Lending, LLC (Incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended March 31, 2000, File No. 0-14602)
4.3	*	Term Loan Agreement dated February 20, 2008 between the Company and B&I Lending, LLC.
10.1		1994 Non-Employee Directors Stock Option and Stock Grant Program (Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1994, File No. 0-14602)
10.2		1995 Stock Option Plan for Cyanotech Corporation dated August 9, 1995, as amended (Incorporated by reference to Exhibit 4(c) to the Company's Registration Statement on Form S-8 filed on October 27, 1995, File No. 33-63789)
10.3		Sub-Lease Agreement between the Company and Natural Energy Laboratory of Hawaii Authority dated December 29, 1995 (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 31, 1995, File No. 0-14602)
10.4		2005 Stock Option Plan for Cyanotech Corporation dated August 22, 2005, incorporated by reference to Exhibit A of the Company's definitive Proxy Statement filed July 14, 2005, File No. 0-14602
10.5		2004 Independent Director Stock Option and Restricted Stock Grant Plan for Cyanotech Corporation dated August 16, 2004 (Incorporated by reference as Exhibit D to the Company's definitive Proxy Statement filed July 2, 2004, File No. 0-14602)
10.6		Letter Agreement dated May 16, 2008 (Incorporated by reference as Exhibit 99.2 to the company's Report on Form 8-K filed on May 22, 2008, File No. 0-14602)
14.1		Amended Code of Ethics for Chief Executive Officer and Senior Financial Officers, which is included in the Code of Conduct and Ethics. (Incorporated by reference to Exhibit 99.2 to the Company's Report on Form 8-K filed on December 19, 2005, and by reference and attachment to the Company's Internet address www.cyanotech.com.)
21.1		Subsidiaries of the Company (Incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the year ended March 31, 2003, File No. 0-14602)

23.1	*	Consent of Independent Registered Public Accounting Firm signed June 26, 2008.
31.1	*	Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of June 26, 2008
31.2	*	Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of June 26 2008.
31.3	*	Certifications of Executive Vice President and Chief Scientific Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of June 26 2008
32.1	*	Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed as of June 26, 2008.
32.2	*	Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed as of June 26, 2008.
32.3	*	Certifications of Executive Vice President and Chief Scientific Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed as of June 26, 2008

*: Included herewith. Other exhibits were filed as shown above.

Schedule II

Cyanotech Corporation and Subsidiaries
Valuation and Qualifying Accounts

Years Ended March 31, 2008, 2007 and 2006
(In Thousands)

				Additions
Description		Balance at Beginning of Year		Charged to Costs and Expense			Charged to Other Accounts		Deductions		Balance at End of Year
Allowance for Doubtful Receivables:
	2008	$	23	$	0		$	—	$	0	$	23

	2007	$	25	$	12		$	—	$	14	$	23

	2006	$	46	$	(8	)	$	—	$	13	$	25

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Cyanotech Corporation:

Under date of June 26, 2008, we reported on the consolidated balance sheets of Cyanotech Corporation and subsidiaries (the Company) as of March 31, 2008 and 2007, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended March 31, 2008. These consolidated financial statements and our report thereon are included in the Company's annual report on Form 10-K for the year 2008. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in Item 15(a)(2). The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

Honolulu, Hawaii
June 26, 2008

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 26th day of June, 2008

		CYANOTECH CORPORATION
		By:		/s/ Andrew Jacobson Andrew Jacobson President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures	Title	Date

/s/ Andrew Jacobson Andrew Jacobson	President and Chief Executive Officer (Principal Executive Officer) and Director	June 26, 2008
/s/ William R. Maris William R. Maris	Chief Financial Officer, Vice President—Finance and Administration, Secretary and Treasurer	June 26, 2008
/s/ Gerald R. Cysewski, Ph.D. Gerald R. Cysewski, Ph.D.	Executive Vice President and Chief Scientific Officer and Director	June 26, 2008
/s/ Gregg W. Robertson Gregg W. Robertson	Chairman of the Board	June 26, 2008
/s/ Paul C. Yuen Paul C. Yuen	Director	June 26, 2008
/s/ Michael A. Davis Michael A. Davis	Director	June 26, 2008
/s/ David I. Rosenthal David I. Rosenthal	Director	June 26, 2008
/s/ John T. Waldron John T. Waldron	Director	June 26, 2008

QuickLinks

FORWARD-LOOKING STATEMENTS
PART I

Item 1. Business

Item 1A. Risk Factors

Item 2. Properties

Item 3. Legal Proceedings

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

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Item 6. Selected Financial Data

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A(T). Controls and Procedures

Item 9B. Other Information

PART III

Item 10. Directors and Executive Officers of the Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions

Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Financial Statement Schedules and Exhibits

SIGNATURES
EX-4.3 2 a2186543zex-4_3.htm EXHIBIT 4.3

Exhibit 4.3

TERM LOAN AGREEMENT

THIS TERM LOAN AGREEMENT is made, entered into and effective as of the 20^th day of February, 2008 (the “Effective Date”) by and between CYANOTECH CORPORATION, a Nevada corporation, having its principal offices at 73-4460 Queen Kaahumanu Highway, #102, Kailua-Kona, Hawaii 96740 (the “Borrower”), and BRIDGEVIEW CAPITAL SOLUTIONS, L.L.C., a Delaware limited liability company, having its principal offices at 5881 Glenridge Drive, NE, Suite 130, ATLANTA, GEORGIA 30328 (the “Lender”).

BACKGROUND

A. Borrower has applied to Lender for financing of the type or types more particularly described hereinbelow.

B. Lender is willing to extend financing to Borrower in accordance with the terms hereof upon the execution of this Agreement by Borrower, provided that Borrower is in compliance with all of the terms and provisions of this Agreement and has fulfilled all conditions precedent to Lender’s obligations herein contained.

NOW, THEREFORE, in consideration of the sum of $100.00 and for other good and valuable consideration, the sufficiency and receipt of all of which are acknowledged by Borrower, Lender and Borrower agree as follows:

ARTICLE I

DEFINITIONS, TERMS AND REFERENCES

1.1. Certain Definitions. In addition to such other terms as elsewhere defined herein, as used in this Agreement and in any exhibits, the following terms shall have the following meanings, unless the context requires otherwise:

“Accounts Receivable Collateral” shall mean all rights of Borrower and of Nutrex to payment for goods sold or leased, or to be sold or to be leased, or for services rendered, howsoever evidenced or incurred, including, without limitation, all accounts, instruments, chattel paper and general intangibles, all tax refunds and tax refund claims, all returned or repossessed goods and all books, records, computer tapes, programs, and ledger books arising therefrom or relating thereto, and as further described in the Security Instruments, whether now owned or hereafter acquired or arising.

“Agreement” shall mean this Term Loan Agreement, as amended or supplemented from time to time.

“Bankruptcy Code” shall mean Title 11 of the United States Code, as amended from time to time.

“Borrower” shall mean CYANOTECH CORPORATION, a corporation organized and existing under the laws of the State of Nevada, and its respective successors and permitted assigns.

“Bureau” shall mean the Bureau of Conveyances of the State of Hawaii.

“Business Day” shall mean a day on which Lender is open for the conduct of banking business at its office located at 5881 Glenridge Drive, NE, Suite 130, Atlanta, Georgia 30328.

“Closing Date” shall mean the date of the execution of this Agreement and the date on which the Term Loan is made pursuant hereto.

“Collateral” shall mean the Accounts Receivable Collateral, Inventory Collateral, Equipment Collateral, Fixtures Collateral and Property Collateral, all defined herein, and all collateral described in the Security Instruments, and in which Lender has, or is to have, a security interest pursuant hereto, as security for payment of the Term Note.

“Collateral Locations” shall mean those locations set forth and described on Exhibit “B” attached hereto.

“Debt Service Coverage” shall mean annual earnings before interest, taxes, depreciation and amortization divided by all principal and interest payments owed in one year.

“Default Condition” shall mean the occurrence of any event which, after satisfaction of any requirement for the giving of notice or the lapse of time, or both, would become an Event of Default.

“Equipment Collateral” shall mean all equipment and machinery of Borrower and Nutrex (including titled and untitled motor vehicles), whether now owned or hereafter acquired, together with all furniture, furnishings, improvements, equipment, tools and personal property of every kind of Borrower, together with all accessories, parts, components, attachments, repairs, replacements, modifications, renewals, additions, improvements, upgrades and accessions of, to or upon such items of equipment and/or machinery.

“Event of Default” shall mean any of the events or conditions described in Article XIII, provided that any requirement for the giving of notice or the lapse of time, or both, has been satisfied.

“Executive Office” and “Borrower’s Address” shall mean the offices of Borrower located at 73-4460 Queen Kaahumanu Highway, Suite 102, Kailua-Kona, Hawaii 96740.

“Facility” shall mean all of the real property and improvements now existing or hereafter constructed, on those tracts of land more particularly described in Exhibit “A”, upon which Borrower operates the business and which are used as collateral for this loan wherever such may be located.

“Financial Statements” shall mean the consolidated audited balance sheet and statement of change in financial position of Borrower and the income statements of Borrower prepared by an independent certified public accountant.

“Fiscal Year” shall mean the fiscal year of Borrower which shall be the twelve (12) month period ending March 31 in each year, or such other period as Borrower may designate and Lender may approve in writing. Fiscal quarter shall mean the corresponding fiscal quarters within such Fiscal Year.

“Fixtures Collateral” shall mean all buildings, structures and improvements of every nature whatsoever now or hereafter situated on the Land as described in Exhibit “A” (as such term is hereinafter defined), and all fixtures, machinery, building materials, appliances, and equipment of Borrower of every nature now or hereafter located on or upon, or intended to be used in connection with, the Land as described in Exhibit “A” or the improvements thereon, including, but not by way of limitation, those for the purposes of operating the Facility; supplying or distributing heating, cooling, electricity, gas, water, air and light; and all related machinery and equipment; all plumbing; and all like personal property and fixtures of every kind and character now or at any time hereafter located in or upon the Land as described in Exhibit “A” or the improvements thereon, or which may now or hereafter be used or obtained in connection therewith, including all extensions, additions, improvements, betterments, after-acquired property, renewals, replacements and substitutions, or proceeds from a permitted sale or any of the foregoing, and all the right, title and interest of Borrower in any such fixtures, machinery, equipment, appliances and personal property subject to or covered by any prior security agreement, conditional sales contract, chattel mortgage or similar lien or claim, together with the benefit of any deposits or payments now or hereafter made by Borrower or on behalf of Borrower, or any improvements thereon or any part thereof or are now or hereafter acquired by Borrower; and all equipment and fixtures constituting proceeds acquired with cash proceeds of any of the property described herein, and all other interest of every kind and character in all of the real, personal, and mixed properties described herein that Borrower may now own or at any time hereafter acquire, all of which are hereby declared and shall be deemed to be fixtures and accessions to the Land as described in Exhibit “A”, as between the parties hereto and all persons claiming by, through or under them, as further described in the Security Instruments.

“Funding” shall mean the act of Lender disbursing money to Borrower or for the benefit of Borrower under and pursuant to the terms of this Agreement and the Term Note.

“GAAP” means, as in effect from time to time, generally accepted accounting principles consistently applied.

“Guaranty Fee” shall mean a fee in the amount of $17,254.40 payable to the RD prior to the issuance of the RD Guarantee.

“Guaranty Renewal Fee” shall mean the fee as described in Section 2.5 herein.

“Indebtedness” means any (i) obligations for borrowed money, (ii) obligations whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired, and (iii) the amount of any other obligation (including obligations under financing leases) which would be shown as a liability on a balance sheet prepared in accordance with GAAP.

“Inventory Collateral” shall mean all inventory of Borrower and Nutrex, whether now owned or hereafter acquired, located in the Facility, on the Land, or wherever located, including, without limitation, all goods of Borrower held for sale or lease or furnished or to be furnished under contracts of service, all goods held for display or demonstration, goods on lease or consignment, returned and repossessed goods, all raw materials, work-in-progress, finished goods and supplies used or consumed in Borrower’s business, together with all returns, repossessions, substitutions, replacements, parts, additions, accessions and all documents, documents of title, dock warrants, dock receipts, warehouse receipts, bills of lading or orders, for the delivery of all, or any portion, of the foregoing, and as further described in the Security Instruments

“Land” shall mean all those certain tracts, pieces and parcels of land described on Exhibit “A” attached hereto.

“Lender” shall mean BRIDGEVIEW CAPITAL SOLUTIONS, L.L.C. having its principal office located at 5881 Glenridge Drive, NE, Suite 130, Atlanta, Georgia 30328, and its successors and assigns.

“Lender Commitment Fee” shall mean the amount equal to one and a half percent (1.50%) of the amount of the Loan: $16,176.00.

“Lessor” shall mean the State of Hawaii, through its Board of Land and Natural Resources, under the Master Lease.

“Lessor’s Consent to Mortgage” means that certain Consent to the Mortgage of Sublease K-4, acceptable in form and content to Lender, and executed by Lessor.

“Lessor’s Estoppel Certificate” means that certain Lessor’s Estoppel Certificate, acceptable in form and content to Lender, and executed by Lessor.

“Lessor’s Subordination Agreement” means that certain Subordination Agreement, acceptable in form and content to Lender, and executed by Lessor, Borrower and Lender.

“Liabilities” shall have the meaning given in accordance with GAAP consistently applied.

“Lien” shall mean any voluntary or involuntary mortgage, security deed, deed of trust, lien, pledge, assignment, security interest, title retention agreement, financing lease, levy, execution, encumbrance of any kind, including those contemplated by or permitted in this Agreement and the other Loan Documents.

“Loan Documents” shall mean, collectively, this Agreement, the Term Note, any financing statements, deeds to secure debt, or mortgages covering portions of the Collateral, security agreement, guaranty agreement, and any and all other documents, instruments, certificates and agreements executed and/or delivered by Borrower in connection herewith, or any one, more, or all of the foregoing, as the context shall require.

“Loan Obligations” shall mean all advances, debts, liabilities, obligations, covenants and duties owing, arising, due or payable from Borrower to Lender as it relates to this Term Loan of any kind or nature, present or future, whether or not evidenced by any note or term note or other instrument, whether arising under this Agreement or under any of the other Loan Documents, and whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorneys fees and all other sums chargeable to Borrower under this Agreement or any of the other Loan Documents.

“Master Lease” shall mean that certain unrecorded General Lease No. S-4717 effective as of November 1, 1978, and executed on March 9, 1984, a short form of which, dated April 21, 2000, was recorded in the Bureau as Document No. 2000-056137.

“Mortgage” shall mean that certain Real Property Mortgage; Security Agreement; Assignment of Rents; and Financing Statement of even date herewith from Borrower in favor of or for the benefit of Lender.

“Nutrex” shall mean Nutrex Hawaii, Inc., a Hawaii corporation, formerly known as Nutrex, Inc., which is a wholly-owned subsidiary of Borrower.

“Permitted Encumbrances” shall mean those security interests, liens and encumbrances, if any, set forth and described on Exhibit “C” attached hereto, pertaining to the type of Collateral involved, as shown thereon.

“Person” means any person, firm, corporation, partnership, trust or other entity.

“Property” shall mean the real estate located in Kailua-Kona, Hawaii, more particularly described in Exhibit “A” attached hereto.

“Property Collateral” shall mean the Land and all of the interest of Borrower in all easements, rights-of-way, licenses, operating agreements, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights and powers, submerged lands, oil and gas and other minerals, flowers, shrubs, fresh inventory crops, trees, timber and other emblements now or hereafter located on the Land or under or above the same or any part or parcel thereof, and all estates, rights, titles, interests, privileges, liberties, tenements, hereditament and appurtenances, reversion and reversions, remainder and remainders, whatsoever, in any way belonging, relating or appertaining to the Land or any part thereof, or that hereafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by Borrower, and as further described in the Security Instruments.

“RD” shall mean the Rural Development, an agency of the United States Department of Agriculture, and any successor department, agency or instrumentality authorized to administer the Business and Industrial Guaranteed Loan Program.

“RD Guarantee” shall mean the Loan Note Guarantee backed by the full faith and credit of the United States provided by RD of a specified percentage of the outstanding amount of the Term Loan pursuant to the RD Guaranty Commitment.

“RD Guaranty Commitment” shall mean that certain Conditional Commitment for Guarantee issued by the RD on February 12, 2008, being known as Case No. 61-005-911206026, a copy of which is attached hereto as Exhibit “D”.

“Security Agreement” means, singularly and collectively, those certain Security Agreements of even date herewith, acceptable in form and content to Lender, executed by Borrower or Nutrex and Lender, as applicable.

“Security Instruments” shall include, but not be limited to, the following security documents executed by Borrower to Lender, each being dated of even date herewith, as security for the Term Loan: the Mortgage; Uniform Commercial Code Financing Statements; Security Agreement executed by Borrower; and the Security Agreement executed by Nutrex.

“Soft Costs” shall mean all costs, expenses and fees incurred by Lender and Borrower in preparing and documenting this Agreement and all documents and instruments related thereto, together with the Loan Origination Fee, the Guaranty Fee and all other loan related fees and costs, including but not limited to filing and recording fees, costs of appraisals, EPA environmental surveys, title and lien reports and searches, environmental studies or reports, insurance and attorneys fees.

“Sublease” shall mean that certain Sublease K-4 dated December 29, 1995, as amended by Supplemental Agreement No. 1 to Amend Sublease K-4, dated November 21, 1996, a short form of which, dated April 21, 2000, was recorded in the Bureau as Document No. 2000-056138.

“Sublessor” shall mean the Natural Energy Laboratory of Hawaii Authority, State of Hawaii, the lessee under the Master Lease and the sublessor under the Sublease.

“Sublessor’s Consent, Estoppel Certificate and Subordination Agreement” shall mean that certain Sublessor’s Consent to Mortgage of Sublease K-4; Estoppel Certificate and Subordination Agreement, acceptable in form and content to Lender, and executed by Sublessor and Borrower.

“Term Loan” shall mean the ONE MILLION SEVENTY EIGHT THOUSAND FOUR HUNDRED DOLLARS AND NO/100 DOLLARS ($1,078,400.00) term loan made by Lender to Borrower which is evidenced by the Term Note described immediately hereafter and as pursuant to this Agreement.

“Term Note” shall mean that certain term note of Borrower in favor of Lender dated of even date herewith, as amended or supplemented from time to time, in the principal amount of $1,078,400.00, together with any renewals or extensions thereof, in whole or in part. The Term Note shall be substantially in the form of Exhibit “E” attached hereto. A repayment schedule as to the Term Note is attached hereto as Exhibit “F”.

“UCC” shall mean the Hawaii Uniform Commercial Code, Hawaii Revised Statutes, Chapter 490, as in effect on the date hereof, and as hereinafter amended.

1.2. Use of Defined Terms. All terms defined in this Agreement and the exhibits shall have the same defined meanings when used in any other Loan Document, unless the context shall require otherwise.

1.3. Accounting Terms. All accounting terms not specifically defined herein shall have the meanings generally attributed to such terms under GAAP consistently applied.

1.4. UCC Terms. The terms “accounts”, “instruments”, “general intangibles” and “equipment”, as and when used in the Loan Documents, shall have the same meanings given such terms under the UCC.

1.5. Terminology. All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and the plural shall include the singular. Titles of articles and sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement, and all references in this Agreement to articles, sections, subsections, paragraphs, clauses, subclauses or exhibits shall refer to the corresponding article, section, subsection, paragraph, clause, subclause of, or exhibit attached to, this Agreement, unless specific reference is made to the articles, sections or other subdivisions divisions of, or exhibit to, another document or instrument.

1.6. Exhibits. All exhibits attached hereto are by reference made a part hereof.

ARTICLE II

THE TERM LOAN

2.1. The Term Loan. Borrower has agreed to borrow from Lender, and Lender has agreed to make the Term Loan to Borrower, subject to Borrower’s compliance with and observance of the terms, conditions, covenants and provisions of this Agreement, the Term Note, and the other Loan Documents, and Borrower has made the covenants, representations, and warranties herein and therein as a material inducement to Lender to make the Term Loan.

2.2. Term and Interest Rate. The Term Loan shall be evidenced by the Term Note. The Term Note shall be fully amortized over a seven (7) year term. The rate of interest as set forth in the Term Note cannot be changed more often than quarterly, and must rise and fall with the selected prime rate, all as more particularly set forth in Exhibit “E”. Lender shall make an adjustment of payment installments only by the amount of rise or fall resulting from the interest rate change. The interest rate of the Term Loan evidenced by the Term Note will be the Prime Rate plus one percent (1.00%) per annum, adjustable quarterly on January 1, April 1, July 1, and October 1 each year, for the term of the Term Loan. The Prime Rate will be the New York Prime Rate, as quoted in the Wall Street Journal. Interest shall be calculated on the basis of 360 days per year for the actual number of days elapsed. Interest for the month of the Closing Date shall be prepaid and collected on the Closing Date.

2.3. Security for the Term Loan. The Term Loan will be secured by the Security Instruments.

2.4. Repayment of Loan. Each payment of the Loan Obligations shall be paid directly to Lender in lawful money of the United States of America at Lender’s main office located at 5881 Glenridge Drive, NE, Suite 130, Atlanta, Georgia 30328, or such other place as Lender shall designate in writing to Borrower. Each such payment shall be paid in immediately available funds by 2:00 p.m., Atlanta, Georgia time, on the date such payment is due, except if such date is not a Business Day such payment shall then be due on the first Business Day after such date, but interest shall continue to accrue until the date payment is received. Any payment received after 2:00 p.m., Atlanta, Georgia time, shall be deemed to have been received on the immediately following Business Day for all purposes, including, without limitation, the accrual of interest on principal. Borrower, at the request of Lender, shall allow Lender to automatically debit a designated account of Borrower for the purpose of making monthly loan payments.

2.5. Guaranty Renewal Fee. In addition to each monthly payment, Borrower shall pay contemporaneously therewith a continuing guaranty fee (the “Guaranty Renewal Fee”) equal to one-twelfth of the outstanding principal balance of the Term Loan as of each calendar year end multiplied by one-quarter of one percent (0.25%), multiplied by the percent of the guarantee. Borrower shall pay the Guaranty Renewal Fee for the period from the Closing Date to December 31, 2008 in a lump sum on or prior to the Closing Date, as set forth in Section 4.8 below, and shall commence its monthly payments of the Guaranty Renewal Fee with the first monthly payment due for the calendar year 2009.

ARTICLE III

CONDITIONS PRECEDENT TO CLOSING

Unless waived in writing by Lender, the conditions set forth in Sections 3.1 through 3.23 shall constitute express conditions precedent to any obligation of Lender hereunder.

3.1. Compliance. Borrower shall have performed and complied with all terms and conditions required by this Agreement to be performed or complied with by it prior to or as of the Closing Date.

3.2. Certificate of Good Standing. Lender shall have received certificates of good standing with respect to Borrower and Nutrex from the Secretary of State of the state of their respective incorporations within thirty (30) days of the date hereof.

3.3. Articles of Incorporation/By-Laws. Lender shall have received copies of the articles of incorporation and by-laws of Borrower and Nutrex as in effect on the date hereof, certified as to truth and accuracy by the corporate secretary of Borrower and Nutrex, respectively.

3.4. Sublessor’s Consent, Estoppel Certificate and Subordination Agreement. Borrower shall have obtained and delivered to Lender the duly executed Sublessor’s Consent, Estoppel Certificate and Subordination Agreement to Lender to be recorded in the Bureau on the Closing Date.

3.5. Financial Statements. Lender shall have received Borrower’s most recent financial statements dated no more than ninety (90) days prior to the Closing Date in such form and substance as required by Lender.

3.6. Title Insurance; Financing Statement Search; Lien Search; Court Report. Lender shall have received a commitment from a title insurance company approved by Lender and authorized to do business in the State of Hawaii to issue a title insurance policy with respect to the Property Collateral, and the total amount shall be the amount of $1,078,400, with no exceptions other than Lender’s first mortgage and financing statements and those other exceptions approved by Lender. Such title insurance commitment shall recite that Lender shall have a second priority lien on the Property Collateral. Lender shall also have received such Financing Statement searches, Lien searches, and Court Reports from such a title insurance company in form and content acceptable to Lender.

3.7. Board Resolutions and Incumbency Certificate. Lender shall have received certificates from the President or Secretary (or Assistant Secretary) of Borrower and of Nutrex certifying to Lender that appropriate consents and resolutions have been entered into by their respective Boards of Directors incident hereto and that the officers of the corporations whose signatures appear herein below, on the other Loan Documents, and on any and all other documents, instruments and agreements executed in connection herewith, and the officers executing the same, are duly authorized by Borrower or Nutrex, as the case may be, and by the Boards of Directors of such corporations to execute and deliver this Agreement, the other Loan Documents and such other documents, instruments and agreements, and to bind such corporations accordingly thereby, all in form and substance acceptable to Lender.

3.8. Insurance Certificate. Lender shall have received a certificate in respect of all insurance required hereunder, in form and substance acceptable to Lender. Borrower shall provide Lender with evidence of adequate property, casualty and liability insurance on the business.

3.9. Site Visit. Lender shall have undertaken a site visit, the results of which must be satisfactory to Lender in its sole discretion.

3.10. Loan Documents and RD Guaranty Commitment. Lender shall have received all the other Loan Documents and the RD Guaranty Commitment duly executed in form and substance acceptable to Lender, its counsel and the RD.

3.11. Opinion of Counsel. Lender shall have received an opinion of counsel satisfactory to it from independent legal counsel to Borrower in substantially the form of Exhibit “G” attached hereto.

3.12. Operation and Management of the Facility. The Facility shall be operated and managed by Borrower. The operation and management of the Facility shall not be transferred to any other party; the transfer of such responsibility in violation of the foregoing in this sentence shall constitute an Event of Default, the same as if such event had been described and contained in Article XIII of this Agreement.

3.13. Licenses and Permits. Borrower shall have received and shall provide evidence of same to Lender that Borrower has obtained all licenses, permits, certificates and other governmental permission to own and operate the Facility.

3.14. Appraisals. Lender shall have received appraisals by an appraiser(s) approved by Lender for the Facility and Collateral or portions thereof as requested by Lender in an amount acceptable to Lender.

3.15. Receipt of Evidence of Tax Payments. Lender shall have received a certificate from Borrower, in form and substance acceptable to Lender, that Borrower and Nutrex have paid all federal, state and local income taxes, that all amounts required to be withheld from employees’ wage payments have been withheld and have been paid to the proper governmental agency, and that no judgment or tax lien is in existence with respect to Borrower or Nutrex.

3.16. Guaranty Renewal Fee. Lender shall have received the Guaranty Renewal Fee due for the period from the Closing Date to December 31, 2008, which amount is equal to $1,973.87.

3.17. Loan Commitment Fee. Lender shall have received the Loan Commitment Fee (one-half ($8,088.00) of which was due at the signing of the commitment letter for the Term Loan and the balance ($8,088.00) of which is due prior to or on the Closing Date).

3.18. Sublessor’s Consent, Estoppel Certificate and Subordination Agreement. Borrower shall have obtained the Sublessor’s Consent, Estoppel Certificate and Subordination Agreement for recordation in the Bureau on the Closing Date.

3.19. Zoning, Building, Subdivision Codes and OSHA Requirements. Lender shall have received evidence as requested by Lender with respect to the Facility that the same is not in violation of any zoning, building, subdivision, sanitary or Occupational Safety and Health Administration rules, requirements or laws.

3.20. ADA Compliance. Lender shall have received evidence satisfactory to Lender that the Property is in compliance with the Americans with Disabilities Act of 1990.

3.21. Environmental Matters. With respect to the Property Collateral, Lender shall have received from Borrower, the form FmHA 1940-20 Request for Environmental Information as executed by Borrower on January 17, 2008.

Borrower covenants and agrees that all Property Collateral or interests in real property pledged as collateral security for the Term Loan are free of any substantial amounts of waste or debris, and are free from any material amounts of contamination, including:

(a) (1) “Any Hazardous Waste,” as defined by the Resource Conservation and Recovery Act of 1976 or any “Hazardous Substance” as defined in Hawaii law, both as amended from time to time, and regulations promulgated thereunder;

(2) “Any Hazardous Substance” as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1989, as amended from time to time, and regulations promulgated thereunder;

(3) Any substance, the presence of which on the real property is prohibited by any law similar to those set forth in this section; and

(4) Any material which, under federal, state or local law, statute, ordinance or regulation, or court administrative order or decree, or private agreement, requires special handling in collection, storage, treatment or disposal.

(b) Borrower has not filed any notice under any federal or state law indicating past or present treatment, storage or disposal of a hazardous waste, substance or constituent, or other substance into the environment. None of the operations of Borrower is the subject of federal or state litigation or proceedings, or of any investigation evaluating whether any remedial action involving a material expenditure is needed to respond to any improper treatment, storage, recycling, disposal or release into the environmental of any hazardous or toxic substance, waste or constituent. None of the operations of Borrower is subject to any judicial or administrative proceeding alleging the violation of any federal, state or local environmental, health or safety statute, or regulation. Borrower does not transport any hazardous wastes, substances or constituents.

(c) All notices, permits, licenses or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any and all Property Collateral pledged as collateral security for the Term Loan, including, without limitation, past or present treatment, storage, disposal or release of a hazardous substance or solid waste into the environment, have been, to the knowledge of Borrower, duly obtained or filed.

(d) Borrower will take and continue to take prompt action to remedy all environmental pollution and contamination, hazardous waste disposal and other environmental clean-up problems, if any, whether or not such clean-up problems have resulted from the order or request of a municipal, state, federal, administrative or judicial authority, or otherwise. Borrower will not violate any applicable municipal ordinance, state or federal statute, administrative rule or regulation, or order or judgment of any court with respect to environmental pollution or contamination, hazardous waste disposal or any other environmental matter.

(e) Borrower will indemnify and hold Lender, its officers, directors, employees, representatives, agents and affiliates harmless against, and promptly pay on demand or reimburse each of them with respect to, any and all claims, demands, causes of action, loss, damage, liabilities, costs and expenses of any and every kind or nature whatsoever asserted against or incurred by any of them by reason of or arising out of or in any way related to (i)

the breach of any representation or warranty as set forth regarding Hazardous Materials Laws (as defined in paragraph (a) on page 8 of the Mortgage), or (ii) the failure of Borrower to perform any obligation herein required to be performed pursuant to Hazardous Materials Laws. The provisions of this section shall survive the final payment of the Term Loan and the termination of this Agreement, and shall continue thereafter in full force and effect.

(f) Notwithstanding anything contained in this paragraph to the contrary, any covenants of Borrower concerning any environmental matter addressed herein shall not be applicable to any condition which is first created or introduced after a foreclosure, conveyance or other transfer of title of the Property Collateral pledged as collateral security for the Term Loan.

3.22. Continuing Compliance. At the time of the Term Loan, there shall not exist any event, condition or act that constitutes an Event of Default hereunder or any condition, event or act which with notice, lapse of time or both would constitute such Event of Default. There would not exist any such event, condition, or act immediately after the disbursement, were it to be made.

3.23. Miscellaneous. Lender shall have received such other documents, certificates, instruments and agreements as shall be required hereunder or provided for herein or as Lender or Lender’s counsel may reasonably require in connection herewith.

ARTICLE IV

CONDITIONS SUBSEQUENT TO CLOSING

Unless waived in writing by Lender, the conditions set forth in Sections 4.1 through 4.3 shall constitute express post-closing conditions to any obligation of Lender hereunder which must be satisfied by Borrower no later than 4:30 p.m. (Hawaii Standard Time) on May 31, 2008.

4.1. Receipt of Evidence of Tax Payments. Lender shall have received evidence, such as a tax clearance certificate, in form and substance acceptable to Lender, that Borrower and Nutrex have paid all federal, state and local income taxes and have filed all federal, state and local tax returns and reports, that all amounts required to be withheld from employees’ wage payments have been withheld and have been paid to the proper governmental agency, and that no judgment or tax lien is in existence with respect to Borrower or Nutrex.

4.2. Lessor’s Consent, Estoppel Certificate and Subordination Agreement. Borrower shall have obtained and delivered to Lender and recorded the duly executed Lessor’s Consent to Mortgage, the Lessor’s Estoppel Certificate and the Lessor’s Subordination Agreement.

4.3. Miscellaneous. Lender shall have received such other documents, certificates, instruments and agreements as shall be required hereunder or provided for herein or as Lender or Lender’s counsel may reasonably require in connection herewith.

Notwithstanding anything to the contrary contained herein or in any Loan Documents, failure of Borrower to satisfy all post-closing conditions herein by 4:30 p.m. (Hawaii Standard Time) on May 31, 2008 shall constitute an Event of Default, as provided in Article XIII below.

ARTICLE V

FINANCING

5.1. Term Loan. Lender agrees to make a term loan to Borrower in the principal amount of ONE MILLION SEVEN SEVENTY EIGHT THOUSAND FOUR HUNDRED DOLLARS AND NO/100 DOLLARS ($1,078,400.00), which shall be repayable with interest in accordance with the terms of the Term Note.

5.2. Use of Proceeds. Borrower agrees that the proceeds of the Term Loan shall be used as follows:

(a) $1,000,000.00 shall be used for working capital purposes.

(b) $78,400.00 shall be used to pay for Soft Costs.

ARTICLE VI

SECURITY INTEREST – COLLATERAL

6.1. Collateral. To secure the prompt payment and performance to Lender of the Loan Obligations, Borrower hereby grants to Lender a continuing security interest in and lien upon all of the following property and interests in property of Borrower, whether now owned or existing or hereafter created, acquired or arising and wheresoever located, namely the:

(a) Property Collateral;

(b) Equipment Collateral;

(d) Inventory Collateral;

(e) Accounts Receivable Collateral; and

(f) All products and/or proceeds of any and all of the foregoing, including, without limitation, insurance proceeds.

Lender shall record UCC-1 financing statements covering such Collateral in the applicable recording offices executed by Borrower as requested by Lender.

6.2. Security Instruments. With respect to the Property Collateral and Fixtures Collateral located within the State of Hawaii:

6.2.1 Pre-Closing. Borrower shall deliver to Lender on or before the Closing Date, the duly executed Sublessor’s Consent, Estoppel Certificate and Subordination Agreement to be recorded in the Bureau.

6.2.2 Post-Closing. Borrower shall deliver to Lender subsequent to closing, the Lessor’s Consent to Mortgage, the Lessor’s Estoppel Certificate and the Lessor’s Subordination Agreement to be recorded in the Bureau in accordance with Section 4.2 above. With respect to the Accounts Receivable Collateral, Inventory Collateral and Equipment Collateral, Borrower and Nutrex shall each deliver to Lender at or prior to the Closing Date, Security Agreements duly executed by Borrower and Nutrex respectively. Lender shall record UCC-1 financing statements covering such Collateral in the applicable recording offices.

ARTICLE VII

REPRESENTATIONS, WARRANTIES, AND COVENANTS

APPLICABLE TO PROPERTY COLLATERAL

With respect to the Property Collateral, Borrower hereby represents, warrants and covenants to Lender as set forth in Sections 7.1 through 7.4, inclusive.

7.1. Sale of Property Collateral. Borrower will not sell, lease, exchange, or otherwise dispose of any of the Property Collateral without the prior written consent of Lender.

7.2. Insurance. Borrower agrees that it will obtain and maintain insurance on the Property Collateral with such company and in such amounts and against such risks as Lender may reasonably request (except that business interruption insurance will be limited to ninety (90) days), including, but not limited to, fire, hazard and general liability coverage, with loss payable to Lender as its interests may appear. Such insurance shall not be canceled by Borrower, unless with the prior written consent of Lender. Such insurance policy or policies shall contain the “New York Standard Mortgagee Clause”, stating in effect, that the interest of Lender shall not be invalidated by (i) any act or neglect of Borrower (including arson or a related act); (ii) by foreclosure or other proceedings relating to the Property Collateral; (iii) by any change in the title or ownership of the property; or (iv) the occupation of the premises for purposes more hazardous than permitted by the policy. In addition, if the Property Collateral is located within a special flood hazard area, Borrower will obtain and maintain federal flood insurance (including mud slide and soil erosion protection) if eligible, in amounts of coverage equal to the lesser of (i) the outstanding balance of the Term Loan; (ii) the insurable value of the property; or (iii) the maximum limit of coverage available. A surveyor’s affidavit evidencing an examination of an official flood map must be delivered to Lender on or prior to the Closing Date, if required by Lender.

In addition, and as referenced in Section 4.12, Lender shall receive a title insurance policy on the Property Collateral naming Lender as insured as soon as the same shall issue after recordation of all Security Instruments related to the transactions contemplated herein in form and substance satisfactory to Lender. Borrower shall pay all premiums and fees related to such title insurance.

7.3. Good Title; No Existing Encumbrances. Borrower owns the Property Collateral free and clear of any and all prior security interests, liens or encumbrances thereon other than any Permitted Encumbrances, and no financing statements or other evidence of the grant of a security interest respecting the Property Collateral exist on the public records as of the date hereof other than any evidencing the Permitted Encumbrances.

7.4. Right to Grant Security Interest; No Further Encumbrances. Borrower has the right to grant a security interest in the Property Collateral to Lender. Borrower will pay all taxes and other charges against the Property Collateral. Borrower will not use the Property Collateral illegally or allow the Property Collateral to be encumbered, except for the security interest in favor of Lender granted herein and except for any Permitted Encumbrances.

ARTICLE VIII

REPRESENTATIONS, WARRANTIES, AND COVENANTS

APPLICABLE TO EQUIPMENT COLLATERAL AND FIXTURES COLLATERAL

With respect to the Equipment Collateral and Fixtures Collateral, Borrower hereby represents, warrants and covenants to Lender as set forth in Sections 8.1 through 8.5, inclusive.

8.1. Sale of Equipment Collateral and Fixtures Collateral. Except as permitted herein and elsewhere in this Agreement, Borrower will not sell, lease, exchange, or otherwise dispose of any of the Equipment Collateral and Fixtures Collateral without the prior written consent of Lender; provided, however, that with notice to but without the necessity of consent of Lender, from time to time hereafter, in the ordinary course of business, Borrower may sell, exchange or otherwise dispose of portions of its Equipment Collateral and Fixtures Collateral which are obsolete, worn out or unsuitable for continued use, if the Equipment Collateral and Fixtures Collateral is replaced promptly with equipment constituting Equipment Collateral and Fixtures Collateral having a market value equal to or greater than the Equipment Collateral and Fixtures Collateral so disposed of and in which Lender shall obtain and have a first priority security interest pursuant hereto.

8.2. Insurance. Borrower agrees that it will obtain and maintain insurance on the Equipment Collateral and Fixtures Collateral with such companies and in such amounts and against such risks as Lender may reasonably request, with loss payable to Lender as its interests may appear. Such insurance shall not be canceled by Borrower, unless with the prior written consent of Lender.

8.3. Good Title; No Existing Encumbrances. Borrower owns the Equipment Collateral and Fixtures Collateral free and clear of any prior security interest, lien or encumbrance, and no financing statements or other evidences of the grant of a security interest respecting the Equipment Collateral and Fixtures Collateral exist on the public records as of the date hereof other than any evidencing the Permitted Encumbrances, and other than financing statements that will be paid off and canceled of record, with proceeds of this Term Loan.

8.4. Right to Grant Security Interest; No Further Encumbrances. Borrower has the right to grant a security interest in the Equipment Collateral and Fixtures Collateral to Lender. Borrower will pay all taxes and other charges against the Equipment Collateral and Fixtures Collateral, and will not use the Equipment Collateral and Fixtures Collateral illegally or allow the same to be encumbered, except for the security interest in favor of Lender granted herein and except for any Permitted Encumbrances. Nothing herein, however, shall prevent Borrower from leasing any Equipment required in the operation of the Facilities.

8.5. Location. As of the date hereof, the Equipment Collateral and Fixtures Collateral are located only at the Collateral Locations, and Borrower hereby covenants with Lender not to move any portion of the Equipment Collateral and Fixtures Collateral without at least thirty (30) days prior written notice to Lender; provided, however, that nothing contained herein shall be deemed to prohibit Borrower, without notice to or the consent of Lender, from transferring temporarily (for periods not to exceed thirty (30) days in any event) any Equipment Collateral and Fixtures Collateral from a Collateral Location to another location at any time or from time to time hereafter for the limited repairing, refurbishing or overhauling such equipment in the ordinary course of business.

ARTICLE IX

REPRESENTATIONS, WARRANTIES, AND COVENANTS

APPLICABLE TO

ACCOUNTS RECEIVABLE COLLATERAL AND INVENTORY COLLATERAL

With respect to the Accounts Receivable Collateral and Inventory Collateral, Borrower hereby represents, warrants and covenants to Lender as set forth in Section 9.1 through 9.4, inclusive.

9.1. Sale of Accounts Receivable Collateral and Inventory Collateral. Except as permitted elsewhere in this Agreement, Borrower will not sell, lease, exchange, or otherwise dispose of any of the Accounts Receivable Collateral and Inventory Collateral without the prior written consent of Lender, provided, however, that Inventory Collateral may be sold in the ordinary course of Borrower’s business.

9.2. Good Title; No Existing Encumbrances. Borrower owns the Accounts Receivable Collateral and Inventory Collateral free and clear of any prior security interest, lien or encumbrance, and no financing statements or other evidence of the grant of a security interest respecting the Accounts Receivable Collateral and Inventory Collateral exist on the public records as of the date hereof other than any evidencing the Permitted Encumbrances.

9.3. Right to Grant Security Interest; No Further Encumbrances. Borrower has the right to grant a security interest in the Accounts Receivable Collateral and Inventory Collateral to Lender. Borrower will pay all taxes and other charges against the Accounts Receivable Collateral and Inventory Collateral, and will not use the Accounts Receivable Collateral and Inventory Collateral illegally or allow the same to be encumbered, except for the security interest in favor of Lender granted herein and except for any Permitted Encumbrances.

9.4. Location. As of the date hereof, the Accounts Receivable Collateral and Inventory Collateral are located only at the Collateral Locations, or within the boundaries of Kailua-Kona, Hawaii, and Borrower hereby covenants with Lender, except for in the ordinary course of business, not to move any portion of the Accounts Receivable Collateral and Inventory Collateral without at least thirty (30) days prior written notice to Lender. Borrower will execute and cause any other parties to execute any and all security agreements, financing statements, or other agreements requested by Lender related to any such Collateral and Collateral Locations as reasonably requested by Lender.

ARTICLE X

GENERAL REPRESENTATIONS AND WARRANTIES

In order to induce Lender to enter into this Agreement, Borrower hereby represents and warrants to Lender as set forth in Sections 10.1 through 10.18, inclusive.

10.1. Principal Business Activity. Borrower is engaged in the business of owning and operating a microalgae growing and processing facility.

10.2. Corporate Existence and Qualification. Borrower is organized, validly existing and in good standing under the laws of the State of Nevada and authorized to transact business in Hawaii. Borrower’s principal place of business, chief executive office and office where it keeps principally all of its books and records are located at the Executive Office.

10.3. Corporate Power and Authority; Validity and Binding Effect. Borrower has the power to make, deliver and perform under the Loan Documents, and Borrower has the right to borrow hereunder, and all of the foregoing parties have taken all necessary and appropriate corporate action to authorize the execution, delivery and performance of the Loan Documents. This Agreement constitutes, and the remainder of Loan Documents, when executed and delivered for value received, will constitute, the valid obligations of Borrower, legally binding upon them and enforceable against Borrower in accordance with their respective terms. The undersigned officers of Borrower are duly authorized and empowered to execute, attest and deliver this Agreement and the remainder of the Loan Documents for and on behalf of Borrower and to bind Borrower accordingly thereby.

10.4. Financial Statements. The balance sheets and income statements of Borrower were submitted to Lender in connection herewith, copies of which are attached hereto as Exhibit “H”, are true and complete and accurately and fairly represent the financial condition of Borrower, the results of operations and the transactions in the equity accounts as of the date and for the periods referred to therein, and have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved. There are no material Liabilities, direct or indirect, fixed or

contingent, as of the date of such Financial Statements that are not reflected therein or in the note thereto. There has been no material adverse change in the financial condition, operations, or prospects of Borrower since the date of the latest balance sheet contained in such Financial Statements. If, by the time of the Closing Date, Borrower’s Financial Statements are more than ninety (90) days old, Lender may require current Financial Statements which shall be submitted to the RD.

10.5. Pending Matters. No action, suit, investigation or proceeding is pending or threatened against Borrower at law or in equity (whether or not reportedly on behalf of Borrower) before or by any court or federal, state or municipal or other governmental department, commission, board, bureau, agency or instrumentality which may result in any adverse change in business, operations, properties or assets or in the conditions, finances or otherwise in Borrower, nor is Borrower in violation of any agreement, the violation of which might reasonably be expected to have a materially adverse effect on its business or assets, nor is Borrower in violation of any order, judgment, or decree of any court, or any statute or governmental regulation to which such Borrower is subject.

10.6. Disclosure. All information furnished or to be furnished by Borrower to Lender in connection with the Term Loan or any of the Loan Documents, is, or will be at the time the same is furnished, accurate and correct in all material respects and complete insofar as completeness may be necessary to provide Lender a true and accurate knowledge of the subject matter. Borrower has no knowledge of any liability of any nature, whether accrued, absolute, contingent or otherwise, which singularly or in the aggregate could have a materially adverse effect upon the economic condition of Borrower or the Facility.

10.7. ERISA. Borrower is in compliance with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

10.8. Proceedings Pending. There are no proceedings pending or, to the best of Borrower’s knowledge, threatened, to acquire any part of the Property Collateral by any power of condemnation or eminent domain, or to enjoin or similarly prevent or restrict the use of the Property or the operation of the Facility in any manner.

10.9. Compliance with Applicable Laws. The Facility and the property on which it is situated comply with all applicable laws, ordinances, rules and regulations, including, without limitation, the Americans with Disabilities Act and regulations thereunder, and all laws, ordinances, rules and regulations relating to zoning, building codes, setback requirements and environmental matters.

10.10. No Material Litigation. Except as set forth on Exhibit “I” attached hereto, there are no proceedings pending or, so far as Borrower knows, threatened, before any court or administrative agency that might materially or adversely affect the financial condition or operations of Borrower.

10.11. No Default. Except as set forth in Exhibit “J” attached hereto, Borrower is not in default in the payment of any of its material obligations, and there exists no event, condition or act which constitutes an Event of Default as defined herein, and no condition, event, or act which with notice or lapse of time would constitute such event of default.

10.12. Taxes. Borrower has filed or caused to be filed all tax returns required to be filed by it and has paid all taxes shown to be due and payable on said returns or on any assessments made and shall furnish Lender with copies of its annual tax returns within ten (10) days after they have been filed.

10.13. Adverse Contracts. Except as set forth on Exhibit “K” attached hereto, Borrower is not a party to any contract or agreement, or subject to any charge, corporate restriction, judgment, decree or order which materially and adversely affects its business, property, assets, operations or condition, financial or otherwise.

10.14. Insolvency. After giving effect to the execution and delivery of the Loan Documents and the making of any disbursements under the Term Note, Borrower will not be “Insolvent” within the meaning of such term as defined in Section 101(26) of the Bankruptcy Code, or be unable to pay its debts generally as such debts become due.

10.15. Title. Borrower has good and marketable title to all the Collateral, subject to no material lien of any kind except as otherwise disclosed in writing to Lender, and except for the Permitted Encumbrances.

10.16. No Violations. The execution, delivery and performance by Borrower of this Agreement and the other Loan Documents has been duly authorized by all necessary corporate actions, if necessary, and does not and will not require any additional consent or approval of the shareholders and directors of Borrower and will not violate any provision of any law, rule, regulation (including, without limitation, if applicable, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to Borrower or the charter or by-laws of Borrower, or result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower is a party or by which it or its properties may be bound or affected; and Borrower is not in default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument, except as may be disclosed in Exhibit “L”.

10.17. RD Guaranty Commitment Representations. Without limiting any of the representations, warranties, or certifications otherwise made by Borrower herein, Borrower hereby makes the warranties, representations, and certifications required of Borrower under the RD Guaranty Commitment attached hereto as Exhibit “D”, which is incorporated herein by reference in its entirety.

10.18. Continuing Representations. These representations shall be considered to have been made again at and as of the date of each advance made under the Term Note and shall be true and correct as of that date.

10.19. Trade Names. Borrower has not changed its name or been known by any other name within the last five (5) years.

ARTICLE XI

GENERAL AFFIRMATIVE COVENANTS

Borrower covenants and agrees with Lender that from and after the date hereof, and so long as the Term Loan remains outstanding, that it will comply with the covenants set forth in Sections 11.1 through 11.36, inclusive.

11.1. Payment of Loan/Performance of Loan Obligations. Duly and punctually pay or cause to be paid the principal and interest of the Term Note in accordance with its terms and duly and punctually pay and perform or cause to be paid or performed all Loan Obligations hereunder and under the other Loan Documents.

11.2. Maintenance of Existence. Borrower shall maintain in the state of its incorporation, and, in each jurisdiction in which the character of the property owned by them or in which the transaction of their business makes qualification necessary, good standing.

11.3. Use of Proceeds. Borrower will use the net proceeds of the Term Loan only for the purposes set forth in Section 5.2 in the conduct of the business in which it is presently engaged, or in which it presently proposes to engage.

11.4. Accrual and Payment of Taxes. Borrower, during each Fiscal Year, shall accrue all current tax liabilities of all kinds, all required withholding of income taxes of employees, all required old age and unemployment contributions, and all required payments to employee benefit plans, and pay the same when they become due.

11.5. Payment of Taxes and Obligations. Borrower will pay and discharge promptly all taxes, assessments and other governmental charges and claims levied or imposed upon it or its property, or any part thereof, provided, however, that it shall have the right in good faith to contest any such taxes, assessments, charges or claims, and, pending the outcome of such contest, to delay or refuse payment thereof provided that adequate funded reserves are established by it to pay and discharge any such taxes, assessments, charges and claims. Borrower shall, on an annual basis not later than sixty (60) days after the end of each tax year, provide reasonable evidence to Lender that all income and withholding taxes have been paid.

11.6. Records Respecting Collateral. Adequate records of Borrower with respect to the Collateral will be kept at the Executive Office (subject to being changed pursuant to Section 11.10) and will not be removed from such address without the prior written consent of Lender.

11.7. Right to Inspect. Lender (or any person or persons designated by it) shall, in its sole discretion, have the right to call at any place of business of Borrower at any reasonable time, and, without hindrance or delay, inspect, audit, appraise, check and make extracts from any books, records, journals, orders, receipts and any correspondence and other data relating to the Collateral and to Borrower’s business or to any other transactions between the parties hereto.

11.8. Financial and Other Information. Borrower shall provide or cause to be provided to Lender, the following Financial Statements and information on a continuing basis and as Lender may require from time to time:

(a) Quarterly Financial Statements of Borrower. Within forty-five (45) days after the end of each calendar quarter Borrower will provide Lender with an internally prepared compilation report which, as a minimum, includes a consolidated balance sheet and profit and loss statement of the business of Borrower together with a statement providing an aging of accounts receivable and accounts payable, showing the status at the end of the quarter, and signed by an appropriate officer of Borrower. The officer will comment relative to the required loan covenants being met and/or not met and any corrective action necessary or planned. Borrower shall provide to Lender the aforementioned quarterly reports for a minimum period of thirty-six (36) months after the Closing Date and during the remaining life of the Loan with the only exception being that Borrower has been current with the guaranteed loan payments for twenty-four (24) consecutive months, is maintaining a greater than 1.25 to 1.0 Debt Service Coverage, and is in compliance with all other applicable RD regulations. Borrower shall promptly from time to time as required by Lender, submit such other information concerning the business, conditions and affairs of Borrower, as Lender may reasonably request. Lender will provide Borrower’s quarterly financial statements to RD; however, no formal analysis or report will be prepared by Lender and provided to RD unless deemed necessary by Lender due to adverse change in Borrower’s financial condition.

(b) Annual Financial Statements. Commencing at the end of the first full Fiscal Year after the date hereof, Borrower shall furnish Lender, within ninety (90) days of the end of Borrower’s Fiscal Year, annual audited Financial Statements of Borrower’s affairs prepared by an independent certified public accountant satisfactory to Lender and certified in a manner satisfactory to Lender as accurately reflecting the condition and affairs of the business of Borrower, which report shall contain among other matters, a balance sheet as of the end of Borrower’s Fiscal Year, a profit and loss statement showing the result of operations of Borrower for the Fiscal Year, a reconciliation of surplus, and any applicable accountant’s notes, all as prepared in accordance with GAAP and applied on a basis consistently maintained throughout the period involved. Furthermore, the independent certified public accountant will notify Lender if Borrower is not in compliance with any financial covenant contained in this Agreement, and the RD Guaranty Commitment. Borrower shall also submit to Lender such other information concerning the conditions and affairs of the business as Lender may reasonably request.

11.9. Maintenance of Insurance. In addition to and cumulative with any other requirements herein imposed on Borrower with respect to insurance, Borrower shall maintain insurance with responsible insurance companies on such of its properties and employees, in such amounts and against such risks as is customarily maintained by similar businesses operating in the same vicinity, but in any event to include loss, damage, flood, windstorm, fire, theft, extended

coverage, crop insurance, workers compensation and products liability and business interruption insurance (not to exceed ninety 90 days) in amounts satisfactory to Lender, which such insurance shall not be canceled by Borrower unless with the prior written consent of Lender. Borrower shall file with Lender, upon its request, a detailed list of such insurance then in effect stating the names of the insurance companies, the amounts and rates of insurance, the date of expiration thereof, the properties and risks covered thereby and the insured with respect thereto, and, within thirty (30) days after notice in writing from Lender, obtain such additional insurance as Lender may reasonably request.

11.10. Change of Principal Place of Business. Borrower hereby understands and agrees that if, at any time hereafter, Borrower elects to move its principal place of business, or if Borrower elects to change its respective name, identity or structure, Borrower will obtain Lender’s approval in writing at least thirty (30) days prior thereto.

11.11. Waivers. With respect to the Collateral Location, Borrower will obtain such waivers of lien, estoppel certificates or subordination agreements as Lender may reasonably require to insure the priority of its security interest in that portion of the Collateral situated at such locations.

11.12. Compliance with Laws. Borrower shall comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, including, without limitation, all applicable environmental laws and Hazardous Materials Laws and shall pay all taxes, assessments, charges, claims for labor, supplies, rent and other obligations which, if unpaid, might give rise to a Lien against the Collateral, except Liens to the extent permitted in Section 12.1 of this Agreement. Borrower certifies that the Facility, if applicable, is accessible to the public in compliance with the Americans with Disabilities Act. The noncompliance with the aforesaid shall be construed to constitute a material adverse effect upon the business or credit of Borrower.

11.13. Junior Financing. Borrower shall not without the prior written consent of Lender incur any additional indebtedness relating to the Facility, if applicable, or create or permit to be created or to remain, any mortgage, pledge, lien, lease, encumbrance or charge on, or conditional sale or other title retention agreement whether prior to or subordinate to the liens of the Mortgage and Security Agreements, with respect to the Facility, or any part thereof, or income therefrom other than the Mortgage and Security Agreements provided for herein.

11.14. Books and Records. Borrower shall permit, and cause to permit, persons designated by Lender to inspect any and all of the properties and books and records of Borrower and those books and records of Borrower pertaining to the Facility, and to permit Lender to make copies of and to discuss the affairs of Borrower and the Facility with officers of such parties as designated by Lender, all at such times as Lender shall request.

11.15. Payment of Indebtedness. Borrower shall duly and punctually pay or cause to be paid all Indebtedness now owing or hereafter incurred by Borrower in accordance with the terms of such Indebtedness, except such Indebtedness owing to those other than Lender which is being contested in good faith and with respect to which any execution against collateral of Borrower have been effectively stayed and for which reserves adequate for payment have been established.

11.16. Records of Accounts. Borrower shall maintain all records, including records pertaining to accounts receivable of Borrower at the chief executive offices of Borrower as set forth in this Agreement.

11.17. Notice of Loss. Borrower shall immediately notify Lender of any event causing a loss or depreciation in value of Borrower’s assets in excess of $50,000.00 and the amount of such loss or depreciation, except Borrower shall not be required to notify Lender of depreciation in building and equipment resulting from ordinary use thereof.

11.18. Conduct of Business. Borrower shall cause the operation of the Facility to be conducted at all times in a prudent manner in compliance with applicable laws and regulations relating thereto and cause all licenses, permits, certificates, and any other agreements necessary for the use and operation of the Facility to remain in effect.

11.19. Condition of Properties. Borrower shall keep all buildings, improvements, machinery and equipment located on or used or useful in connection with the respective Facility in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needed and proper repairs, renewals, replacements, additions and improvements thereto to keep the same in good operating condition.

11.20. Inventory, Fixtures and Equipment. Borrower shall maintain, or cause to be maintained, sufficient inventory, fixtures and equipment of types and quantities at the Facility necessary to enable Borrower adequately to perform operations at such Facility.

11.21. Certificate. Upon Lender’s written request, furnish Lender with a certificate stating that Borrower has complied with and is in compliance with all terms, covenants and conditions of the Loan Documents and there exists no Default or Event of Default or, if such is not the case, that one or more specified events have occurred, and that the representations and warranties contained herein are true with the same effect as though made on the date of such certificate.

11.22. Litigation; Default Conditions and Events of Default. Upon its receipt of notice or knowledge thereof, Borrower will report to Lender: (i) any lawsuit or administrative proceeding in which Borrower is a defendant wherein the amount of damages claimed exceeds $50,000.00; or (ii) the existence and nature of any Default Condition or Event of Default hereunder.

11.23. Costs. Borrower shall pay or reimburse Lender for all costs and fees incurred by Lender in preparing and documenting this Agreement and the Term Loan, and all amendments and modifications thereof.

11.24. Execution of Other Documents. Borrower will, upon demand by Lender, promptly execute all such additional agreements, contracts, indentures, documents and instruments in connection with this Agreement as Lender, in its sole discretion, may reasonably consider necessary.

11.25. Litigation and Attorneys Fees. Borrower will pay promptly to Lender without demand, reasonable attorneys fees and all costs and other expenses paid or incurred by Lender in collecting or compromising the Term Loan or in enforcing or exercising its rights or remedies created by, connected with or provided in this Agreement or any other agreement or instrument required by Lender in connection with the Term Loan, whether or not suit is filed.

11.26. Further Assurances. Borrower shall duly execute and/or deliver (or cause to be duly executed and/or delivered) to Lender any instrument, invoice, document, document of title, warehouse receipt, bill of lading, order, financial statement, assignment, waiver, consent or other writing which may be reasonably necessary to Lender to carry out the terms of this Agreement and any of the other Loan Documents and to perfect its security interest in and facilitate the collection of the Collateral, the proceeds thereof, and any other property at any time constituting security to Lender. Borrower shall perform or cause to be performed such acts as Lender may request to establish and maintain for Lender a valid and perfected security interest in and security title to the Collateral, free and clear of any liens, encumbrances or security interests other than in favor of Lender.

11.27. Debt to be Borrower’s Debt. All debt to be repaid from loan proceeds is debt of Borrower and not debt of any other entity.

11.28. Current Ratio. Commencing with the Closing Date and for each and every fiscal year-end thereafter, Borrower shall maintain a current ratio (current assets divided by current liabilities) of not less than 1.3 to 1.0.

11.29. Minimum Tangible Balance Sheet Equity. Borrower shall maintain a tangible balance sheet equity of at least ten percent (10%) at the time of execution of this Agreement, and all the times during the term of the Term Loan.

11.31. Minimum Debt-to-Tangible Net Worth Ratio. Borrower shall maximum debt-to-tangible net worth ratio of no more than 1.3 to 1.0 for each fiscal year-end.

11.32. RD Guaranty Commitment. Borrower agrees that it shall comply with each and every provision of that certain RD Guaranty Commitment as issued by the RD, and Borrower agrees to provide all information and certifications and any other matters to Lender that Lender deems necessary for issuance of Lender’s certifications required in the RD Guaranty Commitment, attached hereto as Exhibit “D”.

11.33. Employee Reports. Borrower shall submit a report annually to Lender and RD as of December 31, indicating the total number permanent, part-time and seasonal employees.

11.34. Repayment Schedule. A schedule detailing payment and amortization of the loan is attached as Exhibit “F”.

11.35. Arms Length Transactions. All of Borrower’s transactions will be at arms length and competitive with any of the officers, employees, directors, or their spouses and family members that may buy, sell, or trade to it. The same will apply to any entity that they may be a stockholder, director, or own any interest in, as well as a spouse or family member.

11.36. Stockholder Debt. Any and all debts to stockholders, officers or affiliates now or hereafter made will be subordinated to the Term Loan or converted to stock.

ARTICLE XII

NEGATIVE COVENANTS

Borrower covenants and agrees with Lender that from and after the date hereof and so long as any amount remains unpaid on the Term Loan, it will not, without the prior written consent of Lender, do any of the things or acts set forth in Sections 12.1 through 12.16, inclusive.

12.1. No Encumbrances. Borrower will not create, incur, assume, or suffer to exist any deed to secure debt, mortgage, deed of trust, pledge, assignment, lien, charge, encumbrance on, or security interest or security title of any kind on the Land and/or Collateral described in Section 6.1 of this Agreement or on any of their personal property except for: (i) liens for taxes not yet due or being contested as permitted by this Agreement; (ii) liens at any time existing in favor of Lender; (iii) any Permitted Encumbrances; (iv) inchoate Liens arising by operation of law for the purchase of labor, services, materials, equipment or supplies, provided payment shall not be delinquent and, if such Lien is a lien upon the Collateral, which Lien is fully subordinate to the applicable Deed, Mortgage and/or Security Agreement covering such Collateral, is disclosed to Lender and is being contested by Borrower in good faith and Borrower is diligently pursuing such contest to completion, and adequate reserves, as determined by Lender, are being maintained therefore; and (v) liens incurred in the ordinary course of business in connection with workmen’s compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for money borrowed or for credit received in respect of property acquired) entered into the ordinary course of business as presently conducted or to secure obligations for surety or appeal bonds.

12.2. Dividends/Bonuses. Borrower will not, without Lender’s prior written consent, make any bonuses to any officers of Borrower or declare or pay any dividends on its own common stock, or authorize or make any other distribution with respect to any of its stock now or hereafter outstanding. Notwithstanding the foregoing, Borrower shall be permitted to pay dividends or bonuses provided that Borrower has been current on the Term Loan for twelve (12) consecutive months, an after-tax profit was made in the preceding Fiscal Year, all of Borrower’s debts are paid to a current status, the business of Borrower is maintaining a greater than 1.25 to 1.0 cash flow to Debt Service Coverage, Borrower is still in compliance with all other loan conditions and regulations of the RD, and prior written consent of Lender is obtained. After Lender has determined that all of the above parameters have been met and a deduction has been made for any accounts payable, such cash dividends or bonuses to officers of Borrower, will not exceed fifty percent (50%) of net earnings of Borrower.

12.3. Merger, Sale, Assignments, Etc. Borrower will not liquidate or dissolve or otherwise terminate its legal status or enter into any consolidation, merger, partnership, reorganization or other combination, or convey, or sell, assign, lease or otherwise dispose of all or the greater part of its assets or businesses (now owned or hereafter acquired) (whether in one transaction or in a series of transactions), or permit Borrower to sell, assign, lease or otherwise dispose of, all or the greater part of the assets or business of another, or made any substantial change in the basic type of business conducted by it as of the date hereof, without the prior written consent of Lender, which may be granted or refused by Lender in Lender’s sole discretion.

12.4. Disposition of Assets. Borrower will not sell, lease, transfer or otherwise dispose of Collateral, unless any such disposition shall be in the ordinary course of business for a full and fair consideration, which in no event shall include a transfer for full or partial satisfaction of a preexisting debt.

12.5. Change in Business. Borrower will not make any material change in the nature of its business as it is being conducted as of the date hereof, without the prior consent of Lender, which will not be unreasonably withheld.

12.6. Changes in Accounting. Borrower will not change its methods of accounting, unless such change is permitted by GAAP, and provided such change does not have the effect of curing or preventing what would otherwise be an Event of Default or default had such change not taken place.

12.7. ERISA Funding and Termination. Borrower will not permit (a) the funding requirements of ERISA with respect to any employee plan to be less than the minimum required by ERISA at any time, or (b) any employee plan to be subject to involuntary termination proceedings at any time.

12.8. Transactions with Affiliates. Borrower will not enter into any transaction with any Person affiliated with such Borrower other than in the ordinary course of its business and on fair and reasonable terms no less favorable to such Borrower than those they would obtain in a comparable arms-length transaction with a Person not an affiliate.

12.9. Change of Use. Borrower will not alter or change the use of the Facility or enter into any lease or management agreement for the Facility other than the leases and management agreements in place as of the date of this Agreement, unless Borrower first notifies Lender and provides Lender a copy of the proposed lease or management agreement, obtains Lender’s written consent and obtains and provides Lender with a subordination agreement in form satisfactory to Lender from such lessee or manager subordinating to all rights of Lender.

12.10. Place of Business. Borrower will not change its chief executive offices or open any new place of business without first giving Lender at least thirty (30) days prior written notice thereof and promptly providing Lender such information as Lender may request in connection therewith.

12.11. No Advances. Borrower shall not, during the life of the Term Loan, make any advances or loans to any officer, owner, stockholder, director and/or affiliate of Borrower, during this Term Loan, without Lender’s prior written consent.

12.12. No Increase in Borrower’s Compensation. Borrower will not increase the salaries and compensations of officers and owners of Borrower unless Borrower has been current with the Term Loan payments for twelve (12) consecutive months, an after-tax profit was made in the preceding Fiscal Year, all of Borrower’s debts are paid to a current status, the business is maintaining a minimum 1.25 to 1.0 cash flow to Debt Service Coverage after the Closing Date, and Borrower is in compliance with all loan conditions.

12.13. No Sale or Disposition of Business Collateral. Borrower will not sell or otherwise dispose of collateral described in Section 6.1 of this Agreement, other than as permitted herein and by RD regulations.

12.14. Change of Ownership. Borrower will not materially change the ownership of Borrower such that the change would result in a change of control of Borrower, without obtaining Lender and RD’s consent and without complying with all applicable RD regulations.

12.15. Purchase of Capital Improvements. Borrower shall not expend in excess of $500,000.00 for capital improvements during any Fiscal Year, without the prior written consent of Lender. This prohibition does not apply upon Borrower purchasing machinery and equipment being replaced due to depreciation or obsolescence.

12.16. Liabilities of Third Parties. Borrower will refrain from assuming any liabilities or obligations of any third parties, including but not limited to, the officers or directors of Borrower. Borrower will refrain from co-signing or endorsing liabilities or obligations or indebtedness of other persons or entities during the life of this Term Loan. Also, its principals will refrain from co-signing or endorsing any liability or obligation which will substantially weaken their financial condition. In addition, Borrower will not obligate itself without approval of Lender for liabilities of other persons or entities in excess of $100,000.00 outside of the normal course of business.

ARTICLE XIII

EVENTS OF DEFAULT

The occurrence of any events or conditions described in Sections 13.1 through 13.9 shall constitute an Event of Default hereunder, provided that the requirements for the giving of notice and the lapse of time provided for in Section 13.10 have been satisfied.

13.1. Term Note. Borrower shall fail to make any payments of principal of or interest on the Term Note when due and not cure same within ten (10) days of the occurrence of the default.

13.2. Misrepresentations. Any certificate, statement, representation, warranty or audit heretofore or hereafter furnished by or on behalf of Borrower, pursuant to or in connection with this Agreement or otherwise (including, without limitation, representations and warranties contained herein or in any Loan Documents) or as an inducement to Lender to extend any credit to or to enter into this or any other agreement with Borrower, in connection with this Term Loan, proves to have been false in any material respect at the time when the facts therein set forth were stated or certified,

or proves to have omitted any substantial contingent or unliquidated liability or claim against Borrower, or on the date of execution of this Agreement there shall have been any material adverse change in any of the facts previously disclosed by any such certificate, statement, representation, warranty or audit, which change shall not have been disclosed to Lender in writing at or prior to the time of such execution.

13.3. Covenants. Borrower shall fail to perform, keep or observe any other term, provision, condition, covenant, undertaking, warranty or representation contained in this Agreement or in the other Loan Documents, which is required to be performed, kept or observed and such failure is not cured to Lender’s satisfaction within thirty (30) days after Lender gives Borrower written notice identifying such failure; or any Event of Default as defined in any other Loan Document occurs.

13.4. Other Debts. Borrower shall default on any other agreement, document or instrument to which Borrower is a party, which default shall cause a material adverse effect on the businesses of Borrower, the value of the Collateral, or Lender’s interest therein. Nutrex or any other wholly owned subsidiary of Borrower shall default in any agreement, document, instrument, loan, or obligation owed to Borrower.

13.5. Voluntary Bankruptcy. Borrower shall file a voluntary petition in bankruptcy or a voluntary petition or answer seeking liquidation, reorganization, arrangement, re-adjustment of its debts, or for any other relief under the Bankruptcy Code, or under any other act or law pertaining to insolvency or debtor relief, whether state, Federal, or foreign, now or hereafter existing; Borrower shall enter into any agreement indicating its consent to, approval of, or acquiescence in, any such petition or proceeding; Borrower shall apply for or permit the appointment by consent or acquiescence of a receiver, custodian or trustee of Borrower for all or a substantial part of its property; Borrower shall make an assignment for the benefit of creditors; or Borrower shall be unable or shall fail to pay its debts generally as such debts become due, or Borrower shall admit, in writing, its inability or failure to pay debts generally as such debts become due.

13.6. Involuntary Bankruptcy. There shall have been filed against Borrower an involuntary petition in bankruptcy or seeking liquidation, reorganization, arrangement, readjustment of debts or any other relief under the Bankruptcy Code, or under any other act or law pertaining to insolvency or debtor relief, whether State, Federal or foreign, now or hereafter existing, and such petition is not dismissed within sixty (60) days after the entry of filing thereof; Borrower shall suffer or permit the involuntary appointment of a receiver, custodian or trustee of Borrower for all or a substantial part of its property and such appointment is not dismissed within sixty (60) days after such appointment was first made; or Borrower shall suffer or permit the issuance of a warrant of attachment, execution or similar process against all or any substantial part of the property of Borrower and the same is not dismissed within sixty (60) days of the application thereof.

13.7. RD Guarantee. The RD Guarantee shall be voided, repudiated, or breached.

13.8. Post-Closing Conditions. Borrower fails to satisfy the post-closing conditions by 4:30 p.m. (Hawaii Standard Time) on May 31, 2008 in accordance with Article IV above.

13.9. Cross Default. An event of default shall occur under any agreement evidencing or securing indebtedness owed by Borrower in favor of Lender, including but not limited to that certain term loan in the original principal amount of $3,500,000.00 (the “$3,500,000.00 Loan”) made by Lender in favor of Borrower pursuant to that certain Term Loan Agreement dated April 21, 2000. Any Event of Default under this Agreement shall also constitute an Event of Default under the terms and conditions of the $3,500,000.00 Loan.

13.10. Right of Cure. Any provision of this Agreement to the contrary notwithstanding, Lender shall not exercise any of its remedies for any Event of Default hereunder (including, without limitation, the right to acceleration of the balance of the indebtedness evidenced by the Term Note) until the thirtieth (30th) day after written notice from Lender to Borrower of said Event of Default or, in the Event of Default under Section 13.1 hereinabove, the tenth (10th) day after written notice. Written notice shall specify the nature of all such Events of Default and will be provided according to Section 15.8 hereinbelow. If Borrower has not cured all such Events of Default after receipt of such notice, and the expiration of all cure periods, Lender shall be empowered to exercise all of its remedies under this Agreement. Lender is only required to provide Borrower three (3) written default notices in any given calendar year.

Notwithstanding anything in the foregoing Article, all requirements of notice shall be deemed eliminated if Lender is prevented from giving such notice by bankruptcy or other applicable law. The cure period, if any, shall then run from the occurrence of the Event of Default rather than from the date of notice.

ARTICLE XIV

REMEDIES

Upon the occurrence or existence of any Event of Default, or at any time thereafter, without prejudice to the rights of Lender to enforce its claims against Borrower for damages for failure by Borrower to fulfill any of its obligations hereunder, subject only to prior receipt by Lender of payment in full of the Term Loan in a form acceptable to Lender, Lender shall have all of the rights and remedies described in Sections 14.1 through 14.4, inclusive, and it may exercise any one, more, or all of such remedies, in its sole discretion, without thereby waiving any of the others.

14.1. Acceleration of the Term Loan. Lender, at its option, subject to Section 13.9, may declare the Term Loan to be immediately due and payable, whereupon the same shall become immediately due and payable without presentment, demand, protest, notice of nonpayment or any other notice required by law relative thereto, all of which are hereby expressly waived by Borrower.

14.2. Remedies of a Secured Party. As it relates to the personal property collateral defined herein, Lender shall thereupon have the rights and remedies of a secured party under the UCC in effect on the date thereof (regardless of whether the same has been enacted in the jurisdiction where the rights or remedies are asserted), including, without limitation, the right to take possession of any of the Collateral, subject to the UCC, or the proceeds thereof, to sell or otherwise dispose of the same, and to apply the proceeds therefrom to the Term Loan in such order and manner as Lender, in its sole discretion, may elect. Lender shall give Borrower written notice

of the time and place of any public sale of the Collateral or the time after which any other intended disposition thereof is to be made. The requirement of sending reasonable notice shall be met if such notice is given to Borrower pursuant to Section 15.8 at least ten (10) days before such disposition. Expenses of retaking, holding, insuring, preserving, protecting, preparing for sale or selling or the like with respect to the Collateral shall include, in any event, reasonable attorneys fees and other legally recoverable collection expenses, all of which shall constitute obligations of Borrower.

14.3. Repossession of the Collateral. As it relates to the personal property collateral defined herein, Lender may take the Collateral or any portion thereof into its possession, by such means (without breach of the peace) and through agents or otherwise as it may elect (and, in connection therewith, demand that Borrower assemble the Collateral at a place or places and in such manner as Lender shall prescribe), and sell, lease or otherwise dispose of the Collateral or any portion thereof in its then condition or following any commercially reasonable preparation or processing, which disposition may be by public or private proceedings, by one or more contracts, as a unit or in parcels, at any time and place and on any terms, so long as the same are commercially reasonable.

14.4. Other and Additional Remedies. In addition to the rights and remedies of a secured party under the laws of the State of Hawaii and the rights and remedies granted in this Agreement, Lender shall have all of the rights and remedies set forth in the Mortgages, the Security Agreements, and in all of the other Loan Documents, which rights and remedies may be exercised successively or concurrently.

ARTICLE XV

MISCELLANEOUS

15.1. Waiver. No remedy conferred upon, or reserved to, Lender in this Agreement or any of the other Loan Documents is intended to be exclusive of any other remedy or remedies, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity. Exercise or omission to exercise any right of Lender shall not affect any subsequent right of Lender to exercise the same. No course of dealing between Borrower and Lender or any delay on Lender’s part in exercising any rights shall operate as a waiver of any of Lender’s rights. No waiver of any Event of Default under this Agreement or any of the other Loan Documents shall extend to or shall affect any subsequent or other then existing Event of Default or shall impair any rights, remedies or powers of Lender. Except for any defense which would constitute a compulsory counterclaim, Borrower hereby agrees that any and all causes of action and claims which it may ever have against Lender shall not be raised by Borrower as a defense or counterclaim in any suit or proceeding brought by Lender against it for collection of the Loan Obligations or enforcement of this Agreement, but shall instead be brought, if at all, by a separate suit or proceeding.

15.2. Costs and Expenses. Borrower will bear all taxes, fees and reasonable expenses (including reasonable fees and expenses of counsel for Lender) in connection with the preparation of this Agreement and the other Loan Documents, and in connection with any modifications thereto

and the recording of any of the Loan Documents. If, at any time, a Default occurs or Lender becomes a party to any suit or proceeding in order to protect its interests or priority in any collateral for any of the Loan Obligations or its rights under this Agreement or any of the Loan Documents, or if Lender is made a party to any suit or proceeding by virtue of the Term Loan, this Agreement or any collateral for any Loan Obligations and as a result of any of the foregoing, Lender employs counsel to advise or provide other representation with respect to this Agreement, or to collect the balance of the Loan Obligations, or to take any action in or with respect to any suit or proceeding relating to this Agreement, any of the other Loan Documents, any collateral for any of the Loan Obligations, or to protect, collect, or liquidate any of the security for the Loan Obligations, or attempt to enforce any security interest or lien granted to Lender by any of the Loan Documents, then in any such events, all of the reasonable attorney’s fees arising from such services, including fees on appeal and in any bankruptcy proceedings, and any reasonable expenses, costs and charges relating thereto shall constitute additional obligations of Borrower to Lender payable on demand of Lender. Without limiting the foregoing, Borrower shall pay or reimburse Lender for all recording and filing fees, revenue or documentary stamps or taxes, intangibles taxes, and other expenses and charges payable in connection with this Agreement, any of the Loan Documents, the Loan Obligations, or the filing of any financing statements or other instruments required to effectuate the purposes of this Agreement.

15.3. Performance of Lender. At its option, upon Borrower’s failure to do so, Lender may make any payment or do any act on Borrower’s behalf that Borrower or others are required to do to remain in compliance with this Agreement or any of the other Loan Documents, and Borrower agrees to reimburse Lender, on demand, for any payment made or expense reasonably incurred by Lender pursuant to the foregoing authorization, including, without limitation, reasonable attorneys’ fees.

15.4. Headings. The headings of the Sections of this Agreement are for convenience of reference only, are not to be considered a part hereof, and shall not limit or otherwise affect any of the terms hereof.

15.5. Survival of Covenants. All covenants, agreements, representations and warranties made herein and in certificates or reports delivered pursuant hereto shall be deemed to have been material and relied on by Lender, notwithstanding any investigation made by or on behalf of Lender, and shall survive the execution and delivery to Lender of the Term Note and this Agreement.

15.6. No Assignment by Borrower. No assignment hereof shall be made by Borrower without the prior written consent of Lender.

15.7. Severability. If any provision of any of the Loan Documents or the application thereof to any party thereto shall be invalid or unenforceable to any extent, the remainder of such Loan Documents and the application of such provisions to any other party thereto shall not be affected thereby and shall be enforced to the greatest extent permitted by law.

15.8. Notices. Any and all notices, elections, demands, requests and responses thereto permitted or required to be given under this Agreement shall be in writing, signed by or on behalf of the party giving the same, and shall be deemed to have been properly given and shall be effective upon being personally delivered, or upon being deposited in the United States mail, postage prepaid, certified with return receipt requested, or upon being deposited with an overnight commercial delivery service requiring proof of delivery, to the other party or parties at the address of such other party or parties set forth below or at such other address within the continental United States as such other party or parties may designate by notice specifically designated as a notice of change of address and given in accordance herewith; provided, however, that the period in which a response to any such notice, election, demand or request must be given shall commence on the date of receipt thereof; and provided further that no notice of change of address shall be effective until the date of receipt thereof. Personal delivery to a party or to any officer, partner, agent or employee of such party at said address shall constitute receipt. Rejection or other refusal to accept or inability to deliver because of changed address of which no notice, election, demand, request or response, if given to Lender, shall be addressed as follows:

	BRIDGEVIEW CAPITAL SOLUTIONS, L.L.C.
	5881 Glenridge Drive, NE, Suite 130
	Atlanta, Georgia 30328
	Attn: John J. Seimetz

with a copy to:	YAMAMOTO & SETTLE
	A Limited Liability Law Company
	700 Bishop Street, Suite 200
	Honolulu, Hawaii 96813
	Attn:	Dean T. Yamamoto, Esq.
		Marie L. Misawa, Esq.
	Telephone: (808) 526-4730
	Telecopier: (808) 526-4735

and, if given to Borrower, shall be addressed as follows:

	CYANOTECH CORPORATION
	73-4460 Queen Kaahumanu Highway, Suite 102
	Kailua-Kona, Hawaii 96740
	Attn: William R. Maris

with a copy to:	GOODSILL ANDERSON QUINN & STIFEL LLP
	1099 Alakea Street, Suite 1800
	Honolulu, Hawaii 976813
	Attn:	E. Laurence Gay, Esq.
		Harold Gregory Nasky, Esq.
	Telephone: (808) 547-5600
	Telecopier: (808) 547-5880

15.9. Benefits. All of the terms and provisions of this Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. No Person other than Borrower or Lender shall be entitled to rely upon this Agreement or be entitled to the benefits of this Agreement.

15.10. Participation. Borrower acknowledges that Lender may, at its option, sell participation interests in the Term Loan to other participating banks. Borrower agrees with each present and future participant in the Term Loan that if an Event of Default should occur, each present and future participant shall have all of the rights and remedies of Lender with respect to any deposit due from any participant agreement with Lender, and the execution by Borrower of this Agreement, regardless of the order of execution by Borrower of this Agreement, regardless of the order of execution, shall evidence an agreement between Borrower and said participant in accordance with the terms of this Section. Lender will maintain a minimum of five percent (5%) of the unguaranteed portion of the total loan amount of the Term Loan. The remaining unguaranteed portion can only be sold through participation with other lenders and no part of the guaranteed or unguaranteed loan can be sold to the applicant or anyone having an interest in the applicant.

15.11. Supersedes Prior Agreements; Counterparts. This Agreement and the instruments referred to herein supersede and incorporate all representations, promises, and statements, oral or written, made by Lender in connection with the Term Loan. This Agreement may not be varied, altered, or amended except by a written instrument executed by an authorized officer of Lender and the RD. This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be an original, but such counterparts shall together constitute one and the same instrument.

15.12. Time of the Essence. Time is of the essence in this Agreement and the other Loan Documents.

15.13. Interpretation. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision.

15.14. Lender Not a Joint Venturer. Neither this Agreement nor any agreements, instruments, documents or transactions contemplated hereby (including the Loan Documents) shall in any respect be interpreted, deemed or construed as making Lender a partner or joint venturer with Borrower or as creating any similar relationship or entity, and Borrower agrees that it will not make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving Lender.

15.15. Jurisdiction. Borrower agrees that any legal action or proceeding with respect to this Agreement may be brought in the courts of the State of Georgia in Fulton County or in the courts of the State of Hawaii, all as Lender may elect. By execution of this Agreement, Borrower submits to each such jurisdiction, hereby expressly waiving whatever rights may correspond to it by reason of its present or future domicile. Nothing herein shall affect the right of Lender to commence legal proceedings or otherwise proceed against Borrower in any other jurisdiction or to serve process in any manner permitted or required by law.

15.16 Acceptance. This Agreement, together with the other Loan Documents, shall not become effective unless and until delivered to Lender at its office located at 5881 Glenridge Drive, NE, Suite 130, Atlanta, Georgia 30328 and accepted in writing by Lender thereafter at such office as evidenced by its execution hereof (notice of which delivery and acceptance are hereby waived by Borrower).

15.17. Payment on Non-Business Days. Whenever any payment to be made hereunder or under the Term Note shall be stated to be due on a Saturday, Sunday or a public holiday, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest hereunder or under the Term Note.

15.17. Waiver of Rights. Borrower hereby waives all rights which it has or may have regarding, without limitation, the right to notice and to a judicial hearing prior to seizure of any Collateral by Lender. In addition, Borrower waives any right which it has or may have under the UCC to have Lender file UCC termination statements with respect to the Collateral, or any part thereof, and Borrower further agrees that Lender shall not be required to file such UCC termination statements unless and until the Term Note has been paid in full; provided, however, that after such event, Lender will file UCC termination statements promptly upon request by Borrower.

15.18. Cure of Defaults by Lender. If, hereafter, Borrower defaults in the performance of any duty or obligation to Lender hereunder, Lender may, at its option, but without obligation, cure such default and any costs, fees and expenses incurred by Lender in connection therewith including, without limitation, for the purchase of insurance, the payment of taxes and the removal or settlement of liens and claims, shall be deemed to be advances against the Term Note, whether or not this creates an over-advance thereunder, and shall be payable in accordance with its terms.

15.19. Attorney-in-Fact. Borrower hereby designates, appoints and empowers Lender irrevocably as its attorney-in-fact, at Borrower’s sole cost and expense, to do in the name of Borrower any and all actions which Lender may deem necessary or advisable to carry out the terms hereof upon the failure, refusal or inability of Borrower to do so and Borrower hereby agrees to indemnify and hold Lender harmless from any costs, damages, expenses or liabilities arising against or incurred by Lender in connection therewith. Without limitation, Borrower specifically authorizes all federal, state and municipal authorities to furnish reports of examinations, records and other information relating to the affairs of Borrower to Lender upon Lender’s request.

15.20. Prepayment Premium. The principal balance of this Term Loan may be prepaid in whole or in part at any time provided that in each instance (a) Borrower shall give at least thirty (30) days prior written notice of such prepayment to Lender; (b) Borrower shall pay to Lender, contemporaneously with such prepayment, only if such prepayment equals or exceeds five percent (5%) of the monthly payment amount of the Term Note at the time of the prepayment (Borrower acknowledges that Borrower can make only one (1) prepayment in any one (1) calendar year), a prepayment premium in an amount equal to five percent (5%) of the outstanding principal balance on the Term Loan, if prepaid during the first (1^st) year of the Term Loan; Borrower shall pay to Lender, contemporaneously with such prepayment, a prepayment premium in an amount equal to four percent (4%) of the outstanding principal balance on the Term Loan, if prepaid during the second (2^nd) year of the Term Loan; Borrower shall pay to Lender, contemporaneously with such prepayment, a prepayment premium in an amount equal to three percent (3%) of the outstanding principal balance on the Term Loan, if prepaid during the third (3^rd) year of the Term Loan;

Borrower shall pay to Lender, contemporaneously with such prepayment, a prepayment premium in an amount equal to two percent (2%) of the outstanding principal balance on the Term Loan, if prepaid during the fourth (4^th) year of the Note; Borrower shall pay to Lender, contemporaneously with such prepayment a prepayment premium in an amount equal to one percent (1%) of the outstanding principal balance on the Term Loan, if prepaid during the fifth (5^th) year of the Term Loan; and (c) no prepayment penalty is due for the balance of the term of the Term Loan; provided, however, there shall be no prepayment penalty during the first five (5) years of the Term Loan in the event a prepayment equal to or in excess of five percent (5%) of the monthly payment is made from insurance proceeds paid in connection with a casualty loss.

Borrower acknowledges that the prepayment premium described herein is consideration to Lender for the privilege of prepaying the indebtedness evidenced by the Term Note prior to maturity, and Borrower recognizes that Lender would incur substantial additional costs and expenses in the event of a prepayment of the indebtedness evidenced by the Term Note and that the prepayment premium is reasonable and compensates Lender for such costs and expenses (including without limitation, the loss of Lender’s investment opportunity during the period from the date of prepayment until the Maturity Date). Borrower agrees that Lender shall not, as a condition to receiving the prepayment premium, be obligated to actually reinvest the amount prepaid in any manner whatsoever.

Should Borrower elect to refinance the Term Loan, Lender shall have the first right of refusal to match any refinancing proposals. In the event that Lender elects to do so, Lender shall waive the applicable prepayment premium.

15.21. Conflicts. If there is any conflict between this Agreement and the RD Conditional Commitment for Guarantee, the RD Conditional Commitment for Guarantee shall control.

15.22. Force Majeure. Borrower agrees that Lender will not be responsible for any loss or damage due to delays or failures to perform that result from circumstances beyond Lender’s control, such as telecommunication or electrical outages and malfunctions, postal strikes or delays, computer systems failures, or natural disasters.

15.23. Assumption. It is the express intent of Borrower and Lender that this shall be a fully-assumable Loan. Accordingly, Lender covenants and agrees that this Term Loan shall be fully assumable by a third party, upon Borrower’s receipt of Lender’s prior written consent, which consent shall not be unreasonably withheld; provided, that such third party’s net worth and credit shall be equal to or greater than the net worth and credit of Borrower at the time Borrower made application to Lender for the Term Loan herein, and that Lender shall be in receipt of any proposed third party’s application on Lender’s form and the financial statements of such third party along with the payment of an assumption fee equal to one percent (1%) of the outstanding principal balance of the Loan at the time of the assumption. The foregoing is subject to the Term Loan being current, and no Event of Default remaining uncured and that the third party execute a formal assumption agreement, in form and substance satisfactory to Lender. Said assumption by any such third party shall not relieve Borrower from any liability or obligation under the Term Loan.

[remainder of page intentionally left blank]

IN WITNESS WHEREOF, Borrower and Lender each have set their hands and seals, as of the day and year first above written.

BORROWER:	CYANOTECH CORPORATION, a Nevada
	corporation


	BY:
		GERALD R. CYSEWSKI
		Its President


	BY:
		WILLIAM R. MARIS
		Its Secretary


LENDER:	BRIDGEVIEW CAPITAL SOLUTIONS, L.L.C.,
	a Delaware limited liability company


	BY:	/s/ John J. Seimetz
		JOHN J. SEIMETZ
		Its President

TABLE OF EXHIBITS

EXHIBIT	DESCRIPTION OF EXHIBIT	SECTION

A	Facility/Land	1.1

B	Collateral Locations	1.1

C	Permitted Encumbrances	1.1

D	RD Conditional Commitment	1.1

E	Term Note	1.1

F	Repayment Schedule	1.1

G	Borrower’s Opinion of Counsel	4.5

H	Financial Statements	10.4

I	Material Litigation	10.10

J	Default in Material Obligations	10.11

K	Adverse Contracts	10.13

L	No Violations	10.16

EXHIBIT “A”

FACILITY/LAND PROPERTY DESCRIPTION

UNRECORDED SUBLEASE NO. K-4

Sublessor: Natural Energy Laboratory of Hawaii, a body corporate and a public instrumentality of the State of Hawaii organized pursuant to Hawaii Revised Statutes, Chapter 227D

Sublessee: CYANOTECH CORPORATION, a Nevada corporation

Dated: December 29, 1995

Term: Thirty (30) years, commencing on January 1, 1996

The foregoing unrecorded Sublease No. K-4 was amended by the following:

UNRECORDED SUPPLEMENTAL AGREEMENT NO. 1 TO AMEND SUBLEASE K-4

Dated: November 21, 1996

The foregoing unrecorded Sublease No. K-4 and unrecorded Supplemental Agreement were set forth by the following:

SHORT FORM SUBLEASE NO. K-4

Effective As Of: December 29, 1995

Recorded: Document No. 2000-056138

THE REAL PROPERTY IN THE FOREGOING SUBLEASE AS AMENDED, BEING DESCRIBED AS FOLLOWS:

That certain parcel of land situate on the westerly side of Keahole Airport and the easterly side of the Roadway to the Natural Energy Laboratory at KALAOA 1st to 4th and OOMA 1st, North Kona, Island and County of Hawaii, State of Hawaii, being Parcel H-1 a portion of Parcel “A” (C.S.F. NO. 19968) all of Lease Parcel “G” and Parcel H-2 a portion of Lot 9 a portion of H.S.S. Plat 315-A (C.S.F. No. 19934), and being more particularly described as follows:

Beginning at the southwest corner of this leased parcel of land being along the easterly side of the main roadway to the Natural Energy Laboratory, the coordinates of said point of beginning referred to Government Survey Triangulation Station “AKAHIPUU” being 9,099.64 feet south and 29,930.02 feet west and running by azimuths measured clockwise from true South:

1. 213° 29’ 15.0” 825.97 feet along leased Parcel “A” to a point;

2. 123° 29’ 15.0” 249.34 feet along the remainder of Parcel “A” to a point;

Thence, along the remainder of the Natural Energy Laboratory Site, H.S.S. Plat 315-A (C.S.F. No. 19934) for the following four (4) courses;

3. 184° 50’ 25.0” 974.90 feet to a point;

Thence, along a curve to the right having a radius of 440.00 feet, the chord azimuth and distance being:

4. 205° 30’ 12.5” 310.53 feet to a point;

5. 226° 10’ 00.0” 527.04 feet to a point;

6. 274° 50’ 25.0” 749.21 feet to a point;

7. 4° 50’ 25.0” 3,501.37 feet along the westerly side of Keahole Airport (C.S.F. No. 19137) to a point;

Thence, along the remainder of Lot 9, along a curve to the right having a radius of 435.00 feet, the chord azimuth and distance being:

8. 30° 13’ 39.5” 373.00 feet to a point;

9. 55° 36’ 54.0” 72.78 feet along the remainder of Lot 9 to a point;

10. 145° 36’ 54.0” 1726.08 feet along the easterly side of the main roadway to the Natural Energy Laboratory to a point;

11. 123° 29’ 15.0” 86.79 feet along the easterly side of the main roadway to the Natural Energy Laboratory to the point of beginning and containing an area of 90.067 acres, more or less.

Saving and excepting therefrom the portion thereof lying seaward of the debris line.

TOGETHER WITH Easement “1-A” for roadway purposes.

TOGETHER ALSO WITH Easement “6” for utility purposes, said Easement “6” being more particularly described in that certain Short Form Sublease No. K-4 effective as of December 29, 1995, recorded in the Bureau of Conveyances, State of Hawaii, as Document No. 2000-056138.

EXHIBIT “B”

COLLATERAL LOCATIONS

1. 73-4460 Queen Kaahumanu Highway, Suite 102, Kailua-Kona, Hawaii 96740.

2. Kaloko Industrial – 73-5581 Lawehana Street, Units B-3 and B-6, Kailua-Kona, Hawaii 96740.

3. San Dimas – 555 West Allen Avenue, Unit No. 11, San Dimas, California 91733.

EXHIBIT “C”

PERMITTED ENCUMBRANCES

1. Title to all mineral and metallic mines reserved to the State of Hawaii.

2. The property borders on the ocean and is subject to the provisions of Hawaii Revised Statute 205A. Sections 41 to 49 relative to shoreline setbacks and prohibitions on use, and to the regulations of the Land Use Commission and the County Planning Department.

3. EASEMENT “2-A” (Revised 2) for roadway purposes, as set forth in that certain Short Form Sublease No. K-4

Effective As Of:		December 29, 1995
Recorded:		Document No. 2000-056138

4. EASEMENT “3” for electrical purposes, as set forth and being more particularly described in, that certain Short Form Sublease No. K-4

Effective As Of:		December 29, 1995
Recorded:		Document No. 2000-056138

5. EASEMENT “5” for electrical purposes, as set forth and being more particularly described in, that certain Short Form Sublease No. K-4

Effective As Of:		December 29, 1995
Recorded:		Document No. 2000-056138

6. UNRECORDED GENERAL LEASE NO. S-4717

Lessor: State of Hawaii, by its Board of Land and Natural Resources

Lessee: NATURAL ENERGY LABORATORY OF HAWAII, a body corporate and public instrumentality of the State of Hawaii organized pursuant to Hawaii Revised Statutes, Chapter 227 (now Chapter 227D)

Effective As Of: November 1, 1978

Term: Sixty-five (65) years, commencing on November 1, 1978

The foregoing unrecorded General Lease No. S-4717 was set forth by the following:

SHORT FORM GENERAL LEASE NO. S-4717

Effective As Of: November 1, 1978

Recorded: Document No. 2000-056137

7. The failure to comply with any of the terms, provisions, conditions and reservation of that certain Sublease No. K-4, more particularly described in Exhibit A herein.

8. REAL PROPERTY MORTGAGE; SECURITY AGREEMENT; ASSIGNMENT OF RENTS; AND FINANCING STATEMENT

Mortgagor:		Cyanotech Corporation, a Nevada corporation
Mortgagee:		B & I LENDING, LLC, a Delaware limited liability company
Dated:		April 21, 2000
Recorded:		Document No. 2000-056139
Principal Amount:		$3,500,000.00

CONSENT

Consent By:		STATE OF HAWAII, by the Chairperson of the Board of Land and Natural Resources
Dated:		April 21, 2000
Recorded:		Document No. 2000-056140

LESSOR’S ESTOPPEL CERTIFICATE

Dated:		April 21, 2000
Recorded:		Document No. 2000-056141

CONSENT

Consent By:		THE NATURAL ENERGY LABORATORY OF HAWAII AUTHORITY, State of Hawaii
Dated:		April 21, 2000
Recorded:		Document No. 2000-056142

11. UCC FINANCING STATEMENT

Recorded:		April 26, 2000
		Document No. 2000-056 143
Debtor:		Cyanotech Corporation, a Nevada corporation
Secured Party:		B & I LENDING, LLC, a Delaware limited liability company

CONTINUATION OF UCC FINANCING STATEMENT

Recorded:		March 21, 2005
		Document No. 2005-055329

12. UCC FINANCING STATEMENT

Recorded: April 26, 2000 Document No. 2000-056 144

Debtor: Nutrex, Inc., a Hawaii corporation

Secured Party: B & I LENDING, LLC, a Delaware limited liability company

CONTINUATION OF UCC FINANCING STATEMENT

Recorded: March 21, 2005

Document No. 2005-055330

EXHIBIT D

Form 4279-3		UNITED STATES DEPARTMENT OF AGRICULTURE		FORM APPROVED
(Rev. 07-05)		RURAL DEVELOPMENT		OMB NO. 0570-0017

CONDITIONAL COMMITMENT

(Business and Industry and Section 9006 Program)

TO: Lender	Case No.
BRIDGEVIEW CAPITAL SOLUTIONS (BCS), LLC		61-005-911206026
Lender’s Address	State
5881 GLENRIDGE DRIVE, SUITE 130		HAWAII
ATLANTA GA 30328
Borrower	Principal Amount of Loan
CYANOTECH CORPORATION			$1,078,400.00

From an examination of information supplied by the Lender and other relevant information, it appears that the transaction can properly be completed.

Therefore, the United States of America acting through the United States Department of Agriculture (USDA) hereby agrees that, in accordance with applicable provisions of the regulations, it will execute Form 4279-5, “Loan Note Guarantee,” subject to the conditions and requirements specified in the regulations and herein.

The Loan Note Guarantee fee payable by the lender to USDA will be the amount as specified in the regulations on the date of this Conditional Commitment for Guarantee. The interest rate for the loan is Variable, Prime + 1.0% (1/). If a variable rate is used, it must be tied to a base rate agreed to by the Lender and USDA which cannot change more often than quarterly and must be published periodically in a financial publication specifically agreed to by the Lender and Borrower.

A Loan Note Guarantee will not be issued until the Lender certifies that there has been no adverse change in the Borrower’s financial condition, nor any other adverse change in the borrower’s condition, for any reason, during the period of time from USDA’s issuance of this Conditional Commitment for Guarantee to issuance of the Loan Note Guarantee regardless of the cause or causes of the change and whether the cause or causes of the change were within the Lender’s or Borrower’s control. The Lender’s certification must address all adverse changes and be supported by financial statements of the Borrower and its guarantors executed not more than 60 days before the time of certification. As used in this paragraph only, the term “Borrower” includes any parent, affiliate, or subsidiary of the Borrower.

In the event of the Government’s failure to issue a guarantee in a situation where it is found to be in breach, the other party’s remedy is limited to a suit for the guaranteed portion of principal and interest which ultimately remains unpaid.

This agreement becomes null and void unless the conditions are accepted by the Lender and Borrower within 60 days from the date of issuance by USDA.

Except as set out below, the purposes for which the loan funds will be used and the amounts to be used for such purposes are set out in the Application for Loan Guarantee. Once this instrument is executed and returned to USDA no major change of conditions or approved loan purpose as listed on the forms will be considered. Additional Conditions and Requirements including Source and Use of Funds: (2/)

If the conditions set forth in this commitment are not met within 90 days from the date of this commitment, USDA reserves the right to discontinue the processing of the application and terminate its commitment. If USDA decides to terminate this commitment USDA will provide the Lender a written notice at least 14 days prior to termination. (3/)

		UNITED STATES OF AMERICA

		By:	/s/ Lorraine P. Shin
			LORRAINE P. SHIN
			State Director, Acting on Behalf of
Date:	02-12-2008		Rural Business-Cooperative Service
			(Title)

According to the Paperwork Reduction Act of 1995, no persons are required to respond to a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0575-0170. The time required to complete this information is estimated to average 15 minutes per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.

Position 2

ACCEPTANCE OF CONDITIONS

To: USDA (4/)

The conditions of this Conditional Commitment for Guarantee including attachments are acceptable and the undersigned intends to proceed with the loan transaction and request issuance of a Loan Note Guarantee within days.

			BRIDGEVIEW CAPITAL SOLUTIONS (BCS), LLC
			(Name of Lender)

Date:			By:
			(Signature for Lender)

Date:
			(Signature for Borrower)

(1/) Insert fixed interest rate or, if authorized by regulations, variable interest rate followed by a “V” and the appropriate loan subsidy rate, if applicable.

(2/) Insert any additional conditions or requirements in this space or on an attachment referred to in this space; otherwise, insert “NONE”.

(3/) USDA will determine and insert the date by which conditions should be met.

(4/) Return completed and signed copy of this form to USDA issuing office.

Form RD 1940-3	UNITED STATES DEPARTMENT OF AGRICULTURE
(Rev 01-05)	RURAL DEVELOPMENT
	FARM SERVICE AGENCY

	REQUEST FOR OBLIGATION OF FUNDS
	GUARANTEED LOANS

		INSTRUCTIONS:
		Complete items 1 through 25 and applicable items 26 through 35. See FMI.

1. CASE NUMBER

ST CO BORROWER ID

61-005-911206026

2. LOAN NUMBER

02

3. FISCAL YEAR

2008

4. SOURCE OF FUNDS

1 (See FMI)

5. BORROWER NAME

CYANOTECH CORPORATION

6. NUMBER NAME FIELDS

(1, 2, or 3 from Item 5)

7. STATE NAME

HAWAII

8. COUNTY NAME

HAWAII

9. RACE CODE

1 - WHITE 4 - HISPANIC

2 - BLACK 5 - A/PI

3 - ASIAN

10. EMPLOYEE RELATIONSHIP CODE

(See FMI)

11. SEX CODE

1 - MALE

2 - FEMALE

3 - FAMILY UNIT

4 - ORGANIZATION
MALE OWNED

5 - ORGANIZATION
FEMALE OWNED

6 - PUBLIC BODY

7 - NONPROFIT-
SECULAR

8 - NONPROFIT-FAITH BASED

12. MARITAL STATUS

1 - MARRIED

2 - SEPARATED

3 - UNMARRIED
(INCLUDES WIDOWED OR DIVORCED)

13. VETERAN CODE

1 - YES

0 2 - NO

14. TYPE OF PAYMENT

1 - MONTHLY 3 - SEMI-ANNUALLY

1 2 - ANNUALLY 4 - QUARTERLY

15. COMMUNITY SIZE

1 - 10,000 OR LESS (FOR SFH

ONLY

2 - OVER 10,000

16. TYPE OF ASSISTANCE

076 (See FMI)

17. PURPOSE CODE

18. GUARANTEE PERCENT OF LOAN

80%

19. TERM OF INTEREST

ASSISTANCE

20. SUBMISSION CODE

1 - INITIAL

2 2 - SUBSEQUENT

21. AMOUNT OF LOAN

$1,078,400.00

22. APPROVAL DATE

MO DA YR

02-04-2008

23. NOTE INTEREST RATE

8.2500%

24. BORROWER EFFECTIVE INTEREST RATE

8.2500%

25. REPAYMENT PERIOD

26. INCOME CATEGORY

1 - VERY LOW

2 - LOW

3 - MODERATE

27. ADJUSTED FAMILY INCOME

28. TYPE OF UNIT

1 - FARM TRACT

2 - NON-FARM TRACT

29. DWELLING TYPE USE OF
FUNDS CODE

(See FMI)

30. INTEREST ASSISTANCE CODE

1 - ELIGIBLE FOR INTEREST ASSIST PROGRAM

2 - INELIGIBLE FOR INTEREST ASSIST PROGRAM

31. PERCENT OF INTEREST ASSISTANCE

32. HIGH COST AREA

Y = YES

N = NO

33. BORROWER HISTORY CODE

04 (See FMI)

34. AMOUNT AGENCY DIRECT DEBT REFINANCE

35. OBLIGATION DATE (Finance Office use only)

MO DA YR

02-12-2008

36. BEGINNING FARMER/RANCHER

(See FMI)

ORIGINAL - Borrower’s Case Folder

COPY 1 - Applicant

COPY 2 - Lender

COPY 3 - State Office

Position 2

CERTIFICATION APPROVAL

APPROVAL CONDITIONS:

(1) (Farm Loan Programs Only) This loan guarantee is approved subject to the availability of funds. If this loan guarantee is not issued for any reason within 90 calendar days from the date of approval on this document, the approval official may request updated information concerning the lender and the loan applicant. The approval official will have 14 working days to review any updated information and decide whether to submit this document for obligation of funds.

(2) This loan guarantee is approved subject to the conditions on the Conditional Commitment.

37. COMMENTS AND REQUIREMENTS OF CERTIFYING OFFICIAL

Approval of this loan contingent upon the applicant being in compliance with all provision of Rural Development procedures applicable to this loan. If the financial circumstance of the applicant change before this loan is closed or if false information was given to Rural Development on which the loan approval was based, this assistance may be withdrawn.

Approval of financial assistance is subject to the terms and conditions of the Conditional Commitment and attached additional conditions dated February 12, 2008.

Sent via facsimile to LPAS in the National Office on February 4, 2008. The loan was approved on February 4, 2008. The obligation date is February 12, 2008.

38. I HEREBY CERTIFY that all determinations and certifications required by the respective United States Department of Agriculture (USDA) Agency regulations prerequisite to providing assistance of the type indicated above have been made and that evidence thereof is in the docket, and that all requirements of pertinent regulations have been complied with. I hereby approve the above-described assistance in the amount set forth above, subject to the availability of funds, and subject to conditions prescribed by Agency regulations applicable to this type of assistance.

I further certify that USDA has complied with the applicable provisions of Title XI, Public Law 95-630, seeking financial information regarding the applicant.

	/s/ Lorraine P. Shin
	LORRAINE P. SHIN
	(Signature of Approval Official)

	State Director, Acting on Behalf of
	Rural Business-Cooperative Service

Date Approved

02-04-2008

Title:

39. TO THE APPLICANT/LENDER: As of this date 2/12/08, this is notice that your application for the above loan guarantee/Interest Assistance from USDA has been approved, as indicated above, subject to the availability of funds and other conditions required by the respective USDA Agency. If you have any questions contact the Approval Official.

ATTACHMENT TO CONDITIONAL COMMITMENT FOR GUARANTEE

CYANOTECH CORPORATION

ADDITIONAL CONDITIONS AND REQUIREMENTS

No provision stated herein shall be amended or waived without the prior written consent of the lender and USDA Rural Development. Any loans or advances made to the Borrower by the lender after issuance of the Loan Note Guarantee will not be covered by the guarantee, except authorized protective advances. Regulations contained in RD Instructions 4279-A and 4279-B, 4287-B, and Form 4279-4, “Lender’s Agreement,” will apply.

1. GUARANTEED LOAN FUNDS

The guaranteed loan is not to exceed $1,078,400 and is to be guaranteed at the rate of eighty percent (80%) of the principal and interest of any loss that might occur.

The lender is required to hold in its own portfolio or retain a minimum of five percent (5%) of the total guaranteed loan amount. The amount required to be retained must be of the unguaranteed portion of the loan and cannot be participated to another. The lender may sell the remaining amount of the unguaranteed portion of the loan only through participation. No part of the guaranteed or unguaranteed loan can be sold to the applicant or anyone having an interest in the applicant.

2. REPAYMENT TERMS

The guaranteed loan is for a term of seven (7) years on $1,078,400 to be paid monthly, with interest rate not to exceed one point over the prime rate. The interest rate cannot be changed more often than quarterly, and must rise and fall with the selected base rate. The lender must incorporate within the variable rate Promissory Note at loan closing, the provision for adjustment of payment installments coincident with an interest rate adjustment. No increases in interest rates will be permitted except the normal fluctuations in approved variable interest rates unless a temporary interest-rate reduction occurred. The loan is to be fully amortized with monthly installments and no balloon payments. No Loan Note Guarantee will be issued on any loan that prohibits the borrower from prepaying the loan. Reasonable prepayment penalties are permissible.

The Promissory Note may not contain any default interest rate exceeding the note rate. Any Promissory Note provision calling for interest on interest, including default provision, will void the guarantee.

The Promissory Note may contain a late payment charge; but in the case of default, such late charges will not be covered under the Loan Note Guarantee.

3. USE OF LOAN FUNDS

A. All guaranteed loan funds are to be utilized in connection with the borrower’s facilities located at Kailua-Kona, Hawaii more particularly described as:

Hawaii Ocean Science and Technology Park at Keahole Point
73-4460 Queen Kaahumanu Hwy., Ste. 102

B. The lender will furnish Rural Development a certified disbursement statement at loan closing showing the disbursement of all loan funds. The disbursement will be for:

Working Capital	$	1,000,000
Loan Fees	78,400
TOTAL	$	1,078,400

C. The lender is prohibited from disbursing any of the loan funds under this guarantee to the owner(s), partners, stockholders or beneficiaries of the applicant or members of their families when such persons will retain any portion of their equity in the business.

4. SECURITY

A. The loan will be secured by the following collateral:

Collateral		Lien Position

Leasehold improvements on real estate located at Kailua-Kona, North Kona District, Island, County And State of Hawaii Further described as TMK (3) 7-3-43:42		2nd

Business assets including machinery and equipment, inventory, furniture and fixtures, accounts receivable		2nd

B. All future purchases made by the borrower at these facilities will also secure the guaranteed loan. Therefore, the mortgage(s) must contain an after-acquired clause.

C. The entire loan will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portions of the loan. The unguaranteed portion of the loan will neither be paid first nor given any preference or priority over the guaranteed portion.

D. The lender must assure that the owners have good and marketable title to all of the above required security in connection with this loan and that they enjoy peaceful and undisturbed possession of security.

E. The lender will ensure that security instruments are recorded in the appropriate County and/or State where any piece of collateral is located and that liens are perfected on each and every piece of collateral.

F. The lender is prohibited from requiring compensating balances or other collateral as a means of eliminating the lender’s exposure for the unguaranteed portion of the loan.

G. The real property is defined in appraisals prepared by Lesher Chee Stadlbauer, Inc., dated October 12, 2007.

H. The lender is to obtain confirmation that the sublessee’s interest under the sublease which is taken as collateral for the loan is assignable in the event of foreclosure. The term of the borrower’s leasehold interest must exceed the term of the guaranteed loan.

5. INSURANCE

A. During the life of the loan, the lender will require the borrower to maintain fire and hazard insurance with a standard mortgage clause naming the lender as loss payee in an amount that is at least the greater of the depreciated replacement value of the property being insured or the amount of the loan. A fidelity bond is to be provided for the positions of officials who have access to the funds of the borrower equal to the maximum funds on hand at any time.

B. Worker’s compensation insurance as required in accordance with State Law.

6. EQUITY

A minimum of ten percent (10%) tangible balance sheet equity will be required at loan closing. Tangible balance sheet equity will be determined in accordance with Generally Accepted Accounting Principles and will not include subordinated debt or appraisal surplus. Prior to issuance of the Loan Note Guarantee, the lender will provide Rural Development with a pro forma balance sheet, reflecting new debt. The lender must certify that the equity requirement was determined using balance sheets prepared in accordance with GAAP and met upon giving effect to the entirety of the loan in the calculation, whether or not the loan itself is fully advanced, as of the date the guaranteed loan is closed. This certification will include, among other things, a breakdown of the sources which constitute this equity.

7. EQUAL CREDIT OPPORTUNITY

Rural Development’s Equal Opportunity and Non-Discrimination requirements must be met.

8. FLOOD PLAIN DETERMINATION AND ENVIRONMENTAL REQUIREMENTS

The Lender must certify that the project is not located within a special flood hazard area. The enclosed FEMA Form 81-93, “Standard Flood Hazard Determination,” is to be submitted to evidence compliance with this condition item. If the project is in a flood hazard area, maximum flood insurance will be obtained and evidence thereof must be provided.

The lender must determine prior to loan closing that the borrower is currently meeting safety and environmental regulations.

9. 11. OTHER CERTIFICATIONS

The lender will certify to Rural Development that all regulatory approvals (federal, state and local) relative to the operation of the facility have been obtained and are in proper order.

10. LENDER’S LOAN AGREEMENT WITH BORROWER

In addition to such requirements as the lender may wish to include, the Loan Agreement between the lender and the borrower must include Rural Development’s requirements as set forth in this Conditional Commitment for Guarantee, which relates to the requirements of the borrower, plus the following:

A. Borrower will furnish the lender:

1. At the close of its fiscal year, an audited financial report of their affairs prepared by an independent certified public accountant prepared in accordance with Generally Accepted Accounting Principles, which report shall contain among other matters, a balance sheet as of the end of the fiscal year, a profit and loss statement showing the result of operations for the fiscal year, a reconciliation of surplus, and the auditor’s notes.

The lender must submit annual financial statements to the Agency within 120 days of the end of the borrower’s fiscal year. The lender must analyze the financial statements and provide the Agency with a written summary of its analysis and conclusions, including trends, strengths, weaknesses, extraordinary transactions, and other indications of the financial condition to the borrower. Spreadsheets of the new financial statements must be included. Any adverse action should be reported to Rural Development immediately.

2. Promptly from time to time on request, such other information concerning the business, conditions and affairs of the corporation as the lender shall reasonably request.

B. By signing this Loan Agreement, the borrower certifies that there are no actions, suits, or proceedings pending or to the knowledge of the principals or officers of the borrower threatened against the borrower at law or in equity (whether or not reportedly on behalf of the borrower) before or by a federal, state or municipal or other governmental department, commission, board, bureau, agency, or instrumentality which may result in any adverse change in business, operations, properties, or assets, or in the conditions, finances, or otherwise of the borrower.

C. Borrower will conduct and carry on its business in substantially the same field of activity as has been originally planned and as documented in the loan application.

D. The borrower will permit the lender’s representatives at any reasonable time and from time to time, to visit and inspect any of the properties, to examine its books and records, and to make extraction’s therefrom.

E. The borrower shall not expend in excess of $500,000 for capital improvements during any fiscal year without prior approval of the lender and Rural Development. This restriction is not intended to apply in cases where machinery and/or equipment are being replaced due to depreciation and/or obsolescence.

F. Loans from stockholders, owners, officers, or affiliates will be subordinated to the guaranteed loan or converted to stock. The borrower shall, during the life of the guaranteed loan, refrain from declaring cash dividends or bonuses to officers or owners, unless after tax profit was made in the preceding fiscal year, all of the borrower’s debts are paid to current status, and prior written approval of the lender is obtained. Borrower will not make loans to the officers and owners without concurrence from lender.

G. Salaries and compensations of officers and owners will not be increased unless an after tax profit was made in the preceding fiscal year, all of the borrower’s debts are paid to current status, and prior written approval of the lender is obtained.

H. A specific section detailing payment and amortization of the loan will be a part of the loan agreement.

I. The borrower will refrain from co-signing or endorsing liabilities or obligations or indebtedness of other persons or entities during the life of this loan. Also, its principals will refrain from co-signing or endorsing any liability or obligation which will substantially weaken their financial condition. Under no circumstances will they obligate themselves without approval of the lender for contingent liabilities in excess of $100,000 outside the normal course of business.

J. Borrower’s debt-to-tangible net worth, based upon year-end financial statements and as defined by Generally Accepted Accounting Principles (GAAP), shall not exceed 1.30 to 1, and the borrower’s current ratio, similarly defined, shall maintain a minimum of 1.30 to 1 Tangible balance sheet equity will be determined in accordance with GAAP and therefore, will not include subordinated debt, appraisal surplus, or other intangibles.

K. The borrower shall not directly or indirectly purchase or acquire any stock or other securities, or make any other investment in any corporation, association, partnership, organization, or individual, except as may be approved by the lender.

L. During the life of the guaranteed loan, the project will not derive more than 10 percent of its annual gross revenue from gambling activity in accordance with RD Instruction 4279-B, section 4279.114(h).

11. CHANGE OF OWNERSHIP

Any change in ownership of the borrower, subsequent to the date of this Conditional Commitment, must be concurred in by the lender.

12. CURRENT FINANCIAL STATEMENTS

If, by the time of loan closing, the borrower’s financial statements are more than 90 days old, the lender must obtain current statements. The statements will be provided to Rural Development along with the lender analysis.

13. LENDER’S CERTIFICATION

“Bridgeview Capital Solutions, LLC certifies that by accepting this Conditional Commitment for a guarantee of a $1,078,400 loan, the lender understands that the intent is that no adverse change may occur during the period of time from Rural Development’s issuance of the Conditional Commitment to issuance of the Loan Note Guarantee relating to Cyanotech Corporation regardless of the cause or causes of the change and whether the change or cause(s) of the change were within the lender’s or borrower’s control.” Prior to each disbursement, lender shall be in receipt of satisfactory evidence that there has been no unremedied adverse change in the financial or any other condition of the borrower since the date of the application or since any preceding disbursements which would warrant withholding or not making further disbursements.

14. DEBT COLLECTION IMPROVEMENT ACT

By accepting this Form 4279-3, Conditional Commitment, Cyanotech Corporation certifies that it is not delinquent on any Federal debt.

15. REPORTING REQUIREMENTS

A.		Prior to issuance of Loan Note Guarantee, the lender must determine that the applicant has filed all required tax reports and returns and is current on all tax liabilities. The lender will furnish Rural Development a statement to this effect.

B.		The borrower will submit a report to the lender and Rural Development annually as of December 31 indicating the total number of employees as of that date. The report will be broken down to show permanent employees, part-time employees, and seasonal employees.

C.		The lender will submit to Rural Development Form RD 1980-41, Guaranteed Loan Status Report, semi-annually, no later than January 31 and July 31.

16. GUARANTEE FEES

A. Initial Guarantee Fee – The initial fee of 2% is paid at the time the Loan Note guarantee is issued. The fee will be the rate multiplied by the principal loan amount, multiplied by the percent of guarantee.

B. Annual Renewal Fee - The annual renewal fee is paid once a year and is required to maintain the enforceability of the guarantee as to the lender.

The rate of the annual renewal fee is one-quarter of 1 percent, multiplied by the outstanding principal loan balance as of December 31 of each year, multiplied by the percent of guarantee. This rate will remain in effect for the life of the loan.

Annual renewal fees are due on January 31. Payments not received by April 1 are considered delinquent and, at the Agency’s discretion, may result in cancellation of the guarantee to the lender. For loans where the Loan Note Guarantee is issued between October 1 and December 31, the first annual renewal fee payment will be due January 31 of the second year following the date the Loan Note Guarantee was issued.

17. LOAN CLOSING REQUIREMENTS

The following are to be supplied to Rural Development no later than the date of the Loan Note Guarantee:

A. A guarantee fee of $17,254.40 made payable to USDA Rural Development.

B. Form RD 1980-19, Guaranteed Loan Closing Report.

C. This guarantee will be governed by the executed Form RD 4279-4 (Rev. 11-06), Lender’s Agreement.

D. Copy of promissory note, term loan agreement, recorded loan security documents, personal guarantee(s), executed lease, and lender’s statement of closing.

E. The business must have a tangible balance sheet equity position of no less than ten percent (10%) at the time the Loan Note Guarantee is issued. Lender must certify that the equity requirement was determined using current balance sheets (not more than 90 days old) prepared in accordance with Generally Accepted Accounting Principles. The balance sheet must reflect the post-loan closing status of the business.

F. FEMA Form 81-93, “Standard Flood Hazard Determination.”

G. Other documents as deemed necessary by Rural Development.

18. LENDER’S AGREEMENT

Bridgeview Capital Solutions, LLC must execute Form RD 4279-4 (Rev. 11-06), “Lender’s Agreement prior to issuance of the Loan Note Guarantee. This form sets forth the lender’s loan responsibilities when obtaining the Loan Note Guarantee.

Agency personnel and any person(s) accompanying Agency personnel shall be authorized to enter upon the premises and into any building thereon, whether permanent or temporary, jointly or separately, with personnel of the lender to carry out the functions involving their interests. Scheduled and unscheduled inspections may be conducted by these personnel to determine the effectiveness of the loan program.

The lender will always retain the responsibility for loan servicing and for notifying the Agency of any violations of the terms of the Loan Agreement or Conditional Commitment. Agency regulations require the lender to provide a loan classification, with justification, for each loan. Whenever there is a change in the loan that would impact the original classification, a revised classification will be completed and sent to the Agency. The lender will arrange with the borrower and the Agency for a visit during the first year and, at a minimum, every three years thereafter. Lender visits will be conducted by the Agency at least annually.

19. TIME FRAMES

Failure to take action on this Commitment within sixty (60) days from the date of signature shown on Page 1 shall void this Commitment in its entirety. Requested changes or requests for closing and the issuing of the Loan Note Guarantee shall be presented to Rural Development in writing at least thirty (30) days prior to the date of action desired by the lender and borrower.

END OF EXHIBIT D

EXHIBIT E

TERM NOTE

$1,078,400.00		DATE: February 20, 2008
USDA Loan Identification Number: 61-005-91120626
Lender’s Identifying Number: 10000243

FOR VALUE RECEIVED, the undersigned CYANOTECH CORPORATION, a Nevada corporation (hereinafter referred to as “Maker”), promises to pay to the order of BRIDGEVIEW CAPITAL SOLUTIONS, L.L.C., a Delaware limited liability company (hereinafter referred to as “Payee”; Payee, and subsequent holder(s) hereof, being hereinafter referred to collectively as “Lender”), at the office of Payee at 5881 Glenridge Drive NE, Suite 130, Atlanta, Georgia 30328, or at such other place as Lender may designate to Maker in writing from time to time, the principal sum of ONE MILLION SEVENTY-EIGHT THOUSAND FOUR HUNDRED AND 00/100 DOLLARS ($1,078,400.00), or so much thereof as may be hereinafter disbursed hereunder, together with interest thereon, or on so much thereof as is from time to time outstanding and unpaid, from the date of each advance of principal, at the rates hereinafter set forth, in lawful money of the United States of America, which shall at the time of payment be legal tender in payment of all debts and dues, public and private, such principal and interest to be paid in the following manner, to wit:

The initial interest rate on this Note shall be Seven Percent (7.00%). Thereafter, the interest rate (the “Interest Rate”) shall mean the floating and fluctuating rate per annum equal to the rate of interest published as the prime interest rate in the Wall Street Journal (the “Prime Rate”) plus one percentage point (1.00%). The Prime Rate in effect as of the close of business on the first of each quarter (January 1, April 1, July 1, and October 1) shall be the applicable Prime Rate for that quarter in determining the applicable Interest Rate. If the Prime Rate is discontinued as a standard or becomes unascertainable, Lender shall designate in writing to Maker a comparable reference rate.

Interest shall be calculated on the basis of 360 days per year for the actual number of days elapsed.

Commencing on the first (1^st) day of April, 2008, and continuing on the first (1^st) day of each month thereafter, payments of principal and interest shall be due and payable monthly, on the basis of an eighty-four (84) month amortization period through and including the first (1^st) day of March, 2015 (each a “Payment”, and collectively the “Payments”). Any change in the Interest Rate, as provided for above, shall result in an adjustment to the amount of the Payment. The adjusted Payment amount shall be calculated utilizing the Interest Rate and outstanding principal balance at the time of calculation as well as the remaining number of months in the amortization period. In any event, the entire outstanding principal balance hereof, together with all accrued but unpaid interest thereon, shall be due and payable in full on or before the first (1st) day of March, 2015.

All payments hereunder shall be first applied to interest, then charges, and the balance to principal.

The indebtedness evidenced by this Note and the obligations created hereby are secured by, among other matters, that certain Real Property Mortgage; Security Agreement; Assignment of Rents; and Financing Statement covering that certain leasehold real property located in North Kona, County of Hawaii, State of Hawaii, as more particularly described therein, the other Security Instruments, as such term is defined in that certain Term Loan Agreement (the “Loan Agreement”) between Maker and Lender of even date herewith (together with all other documents evidencing or securing or in any way relating to the indebtedness evidenced hereby or any guaranty given in connection with this Note, herein referred to collectively as the “Loan Documents”) entered into this day between Maker and Lender; some of which Loan Documents are to be filed for record on or about the date hereof in the appropriate public records.

It is hereby expressly agreed that should any default be made in the payment of principal or interest as stipulated above, or should any default be made in the performance of any of the covenants or conditions contained in the Loan Documents, or any of them, then, and in such event, the principal indebtedness evidenced hereby, and any other sums advanced hereunder or under the Loan Documents, or any of them, together with all unpaid interest accrued thereon, shall, at the option of Lender without notice to Maker, at once become due and payable and may be collected forthwith, regardless of the stipulated date of maturity. Failure to exercise the above options shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default. All such interest shall be paid at the time of and as a condition precedent to the curing of any such default should Lender, at its sole option, allow such default to be cured. Time is of the essence of this Note. In the event this Note, or any part hereof, is collected by or through an attorney-at-law, Maker agrees to pay all costs of collection including, but not limited to, reasonable attorneys’ fees.

In the event that Maker shall fail to pay within ten (10) days after the date on which the same shall be due any payment of principal or interest which shall be due and payable pursuant to this Note, Maker shall pay a late charge of five percent (5%) of the Payment which Maker shall have failed to pay on the date same was due. Such late charge shall help to defray the added expense that shall be incurred by Lender in handling any such delinquent Payment.

If an Event of Default shall occur hereunder as defined in the Loan Documents, then at the option of Lender, the entire principal sum then remaining unpaid and accrued interest thereon shall immediately become due and payable without notice or demand, or in the case of certain Events of Default set forth in the Loan Documents, the entire principal sum and interest accrued thereon shall become automatically due and payable. Failure to exercise the above options shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default.

All parties liable for the payment of this Note agree to pay Lender reasonable attorneys’ fees and costs, whether or not an action be brought, for the services of counsel employed after maturity or default to collect this Note or any principal or interest due hereunder, or to protect the security, if any, or enforce the performance of any other agreement contained in this Note or in any instrument of security executed in connection with this loan, including costs and attorneys’ fees on any appeal, or in any proceedings under the United States Bankruptcy Code or in any post judgment proceedings. All parties liable for the payment of this Note agree to pay Lender hereof reasonable attorneys’ fees for the services of counsel employed to collect this Note, whether or not suit be

brought, and to indemnify and hold Lender harmless against liability for the payment of state intangible, documentary and recording taxes, and other taxes (including interest and penalties, if any) which may be determined to be payable with respect to this Term Note and related transaction.

In no event shall the amount of interest due or payable hereunder exceed the maximum rate of interest allowed by applicable law, and in the event any such payment is inadvertently paid by Maker or inadvertently received by Lender, then such excess sum shall be credited as a payment of principal, unless Maker shall notify Lender, in writing, that Maker elects to have such excess sum returned to it forthwith. It is the express intent hereof that Maker not pay and Lender not receive, directly or indirectly, in any manner whatsoever, interest in excess of that which may be lawfully paid by Maker under applicable law.

The principal balance of this Note may be prepaid in whole or in part at any time provided that in each instance (a) Maker shall give at least thirty (30) days’ prior written notice of such prepayment to Lender and (b) Maker shall pay to Lender, contemporaneously with such prepayment, only if such prepayment equals or exceeds five percent (5%) of the monthly payment amount of the Note at the time of prepayment (Maker acknowledges that Maker can make only one (1) prepayment in any one (1) calendar year), a prepayment premium in an amount equal to five percent (5%) of the outstanding principal balance amount of the Note at the time of prepayment, if prepaid during the first (1^st) year of the Note; Maker shall pay to Lender, contemporaneously with such prepayment, a prepayment premium in an amount equal to four percent (4%) of the outstanding principal balance amount of the Note at the time of prepayment, if prepaid during the second (2^nd) year of the Note; Maker shall pay to Lender, contemporaneously with such prepayment, a prepayment premium in an amount equal to three percent (3%) of the outstanding principal balance amount of the Note at the time of prepayment, if prepaid during the third (3^rd) year of the Note; Maker shall pay to Lender, contemporaneously with such prepayment, a prepayment premium in an amount equal to two percent (2%) of the outstanding principal balance amount of the Note at the time of prepayment, if prepaid during the fourth (4^th) year of the Note; Maker shall pay to Lender, contemporaneously with such prepayment, a prepayment premium in an amount equal to one percent (1%) of the outstanding principal balance amount of the Note at the time of prepayment, if prepaid during the fifth (5^th) year of the Note; and (c) no prepayment penalty is due for the balance of the term of the Note; provided, however, there shall be no prepayment penalty during the first five (5) years of the Term Note in the event a prepayment equal to or in excess of five percent (5%) of the monthly payment is made from insurance proceeds paid in connection with a casualty loss.

Maker acknowledges that the prepayment premium described herein is consideration to Lender for the privilege of prepaying the indebtedness evidenced by the Note prior to maturity, and Maker recognizes that Lender would incur substantial additional costs and expenses in the event of a prepayment of the indebtedness evidenced by the Note and that the prepayment premium is reasonable and compensates Lender for such costs and expenses (including without limitation, the loss of Lender’s investment opportunity during the period from the date of prepayment until the Maturity Date). Maker agrees that Lender shall not, as a condition to receiving the prepayment premium, be obligated to actually reinvest the amount prepaid in any manner whatsoever.

Should Maker elect to refinance this loan, Lender shall have the first right of refusal to match any refinancing proposals. In the event that Lender elects to do so, Lender shall waive the applicable prepayment premium.

Presentment for payment, demand, protest and notice of demand, protest and non-payment and all other notices are hereby waived by Maker except as provided herein or in the Loan Documents. No failure to accelerate the debt evidenced hereby by reason of default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Lender hereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted hereunder or by the laws of the State of Hawaii; and Maker hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify, change or affect the original liability of Maker under this Note, either in whole or in part, unless Lender agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.

Maker hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefits of any statute of limitations and any moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension, redemption, appraisement, exemption and homestead now provided, or which may hereafter be provided by the Constitution and laws of the United States of America and of any state thereof, both as to itself and in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note. Maker hereby transfers, conveys and assigns to Lender a sufficient amount of property or money set apart as exempt to pay the indebtedness evidenced hereby, or any renewal thereof, and does hereby appoint Lender the attorney-in-fact for Maker to claim any and all homestead exemptions allowed by law.

If from any circumstances whatsoever, fulfillment of any provision of this Note or of any other instrument evidencing or securing the indebtedness evidenced hereby, at the time performance of such provision shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other applicable law, with regard to obligations of like character and amount, then, the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Note or under any other instrument evidencing or securing the indebtedness evidenced hereby, that is in excess of the current limit of such validity, but such obligation shall be fulfilled to the limit of such validity.

Any and all notices, elections, demands, requests and responses thereto permitted or required to be given under this Note shall be in writing, signed by or on behalf of the party giving the same, and shall be deemed to have been properly given and shall be effective upon being personally delivered, or upon being deposited in the United States mail, postage prepaid, certified with return receipt requested (the delivery date being the date of the confirmed return receipt requested), or upon being deposited with an overnight commercial delivery service requiring proof of delivery, or by telecopier to the other party or parties at the address as the case may be of such

other party or parties set forth below or at such other address within the United States as such other party or parties may designate by notice specifically designated as a notice of change of address and given in accordance herewith; provided, however, that the period in which a response to any such notice, election, demand or request must be given shall commence on the date of receipt thereof; and provided further that no notice of change of address shall be effective until the date of receipt thereof. Personal delivery to a party or to any officer, partner, agent or employee of such party at said address shall constitute receipt. Rejection or other refusal to accept or inability to deliver because of changed address of which no notice has been received shall also constitute receipt. All notices, requests, demands or documents that are required or permitted to be given or served hereunder shall be addressed as follows:

If to Lender:	BRIDGEVIEW CAPITAL SOLUTIONS, L.L.C.
	5881 Glenridge Drive NE, Suite 130
	Atlanta, Georgia 30328
	Attn: John Seimetz
	Telephone: (404) 267-1177
	Telecopier: (404) 267-1040

with a copy to:	YAMAMOTO & SETTLE
	A Limited Liability Law Company
	700 Bishop Street, Suite 200
	Honolulu, Hawaii 96813
	Attn: Dean T. Yamamoto, Esq.
		Marie L. Misawa, Esq.
	Telephone: (808) 526-4730
	Telecopier: (808) 526-4735

If to Maker:	CYANOTECH CORPORATION
	73-4460 Queen Kaahumanu Highway, # 102
	Kailua-Kona, Hawaii 96740
	Attn: William R. Maris
	Telephone: (808) 326-1353
	Telecopier: (808) 334-9484

with a copy to:	GOODSILL ANDERSON QUINN & STIFEL
	Alii Place, Suite 1800
	1099 Alakea Street
	Honolulu, Hawaii 96813
	Attn: Laurence E. Gay, Esq.
		Harold Gregory Nasky, Esq.
	Telephone: (808) 547-5641
	Telecopier: (808) 547-5880

Either party may change its address to another single address by notice given as herein provided, except any change of address notice must be actually received in order to be effective.

This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Hawaii.

As used herein, the terms “Maker” and “Lender” shall be deemed to include their respective heirs, successors, legal representatives and assigns, whether by voluntary action of the parties or by operation of law. In the event that more than one person, firm or entity is a Maker hereunder, then all references to “Maker” shall be deemed to refer equally to each of said persons, firms, or entities, all of whom shall be jointly and severally liable for all of the obligations of Maker hereunder.

Maker and Lender entered into the Loan Agreement. Capitalized terms not otherwise defined herein have the meanings provided in the Loan Agreement.

Maker acknowledges and agrees that Lender may assign this Note or any portion thereof to a third party, who will become a holder of the Note.

Maker acknowledges that nonpayment of any monthly payment when due and nonpayment at maturity (whether or not resulting from acceleration due to an event of default under the Loan Documents) will result in damages to Lender by reason of the additional expenses incurred in servicing the indebtedness evidenced by this Note and by reason of the loss to Lender of the use of the money due and frustration to Lender in meeting its other commitments. Maker also acknowledges and agrees that the occurrence of any other event of default under the Loan Documents will result in damages to Lender by reason of the detriment caused thereby. Maker further acknowledges that it is and will be extremely difficult and impracticable to ascertain the extent of such damages caused by nonpayment of any sums when due or resulting from any other event of default under the Loan Documents. Maker by its execution and delivery hereof and Lender hereof by the acceptance of this Note agree that a reasonable estimate of such damages must be based in part upon the duration of the default and that the late charge specified above with respect to delinquent payments and the rate of interest prescribed above with respect to the amount due and payable after maturity or acceleration would not unreasonably compensate Lender for such damages.

[remainder of page intentionally left blank]

IN WITNESS WHEREOF, Maker intending to be legally bound, has caused this Note to be executed by its duly authorized officers, as of the date first above written.

MAKER:	CYANOTECH CORPORATION, a Nevada
	corporation


	BY:	/s/ Gerald R. Cysewski
		GERALD R. CYSEWSKI
		Its President


	BY:	/s/ William R. Maris
		WILLIAM R. MARIS
		Its Secretary

END OF EXHIBIT E

EXHIBIT F

Cyanotech 2

Compound Period	:	Exact Days

Nominal Annual Rate	:		7.000%
Effective Annual Rate	:	Undefined
Periodic Rate	:		0.0194%
Daily Rate	:		0.01944%

CASH FLOW DATA

Event	Start Date	Amount	Number Period	End Date
1 Loan	03/01/2008	1,078,400.00	1
2 Payment	04/01/2008	16,331.71	84 Monthly	03/01/2015

AMORTIZATION SCHEDULE - Normal Amortization, 360 Day Year

Date	Payment	Interest	Principal	Balance
Loan 03/01/2008				1,078,400.00
1 04/01/2008	16,331.71	6,500.36	9,831.35	1,068,568.65
2 05/01/2008	16,331.71	6,233.32	10,098.39	1,058,470.26
3 06/01/2008	16,331.71	6,380.22	9,951.49	1,048,518.77
4 07/01/2008	16,331.71	6,116.36	10,215.35	1,038,303.42
5 08/01/2008	16,331.71	6,258.66	10,073.05	1,028,230.37
6 09/01/2008	16,331.71	6,197.94	10,133.77	1,018,096.60
7 10/01/2008	16,331.71	5,938.90	10,392.81	1,007,703.79
8 11/01/2008	16,331.71	6,074.21	10,257.50	997,446.29
9 12/01/2008	16,331.71	5,818.44	10,513.27	986,933.02
2008 Totals	146,985.39	55,518.41	91,466.98

10 01/01/2009	16,331.71	5,949.01	10,382.70	976,550.32
11 02/01/2009	16,331.71	5,886.43	10,445.28	966,105.04
12 03/01/2009	16,331.71	5,259.91	11,071.80	955,033.24
13 04/01/2009	16,331.71	5,756.73	10,574.98	944,458.26
14 05/01/2009	16,331.71	5,509.34	10,822.37	933,635.89
15 06/01/2009	16,331.71	5,627.75	10,703.96	922,931.93
16 07/01/2009	16,331.71	5,383.77	10,947.94	911,983.99
17 08/01/2009	16,331.71	5,497.24	10,834.47	901,149.52
18 09/01/2009	16,331.71	5,431.93	10,899.78	890,249.74
19 10/01/2009	16,331.71	5,193.12	11,138.59	879,111.15
20 11/01/2009	16,331.71	5,299.09	11,032.62	868,078.53
21 12/01/2009	16,331.71	5,063.79	11,267.92	856,810.61
2009 Totals	195,980.52	65,858.11	130,122.41

22 01/01/2010	16,331.71	5,164.66	11,167.05	845,643.56
23 02/01/2010	16,331.71	5,097.35	11,234.36	834,409.20
24 03/01/2010	16,331.71	4,542.89	11,788.82	822,620.38
25 04/01/2010	16,331.71	4,958.57	11,373.14	811,247.24
26 05/01/2010	16,331.71	4,732.28	11,599.43	799,647.81
27 06/01/2010	16,331.71	4,820.10	11,511.61	788,136.20
28 07/01/2010	16,331.71	4,597.46	11,734.25	776,401.95
29 08/01/2010	16,331.71	4,679.98	11,651.73	764,750.22

Date	Payment	Interest	Principal	Balance
30 09/01/2010	16,331.71	4,609.74	11,721.97	753,028.25
31 10/01/2010	16,331.71	4,392.66	11,939.05	741,089.20
32 11/01/2010	16,331.71	4,467.12	11,864.59	729,224.61
33 12/01/2010	16,331.71	4,253.81	12,077.90	717,146.71
2010 Totals	195,980.52	56,316.62	139,663.90

34 01/01/2011	16,331.71	4,322.80	12,008.91	705,137.80
35 02/01/2011	16,331.71	4,250.41	12,081.30	693,056.50
36 03/01/2011	16,331.71	3,773.31	12,558.40	680,498.10
37 04/01/2011	16,331.71	4,101.89	12,229.82	668,268.28
38 05/01/2011	16,331.71	3,898.23	12,433.48	655,834.80
39 06/01/2011	16,331.71	3,953.23	12,378.48	643,456.32
40 07/01/2011	16,331.71	3,753.50	12,578.21	630,878.11
41 08/01/2011	16,331.71	3,802.79	12,628.92	618,349.19
42 09/01/2011	16,331.71	3,727.27	12,604.44	605,744.75
43 10/01/2011	16,331.71	3,533.51	12,798.20	592,946.55
44 11/01/2011	16,331.71	3,574.15	12,757.56	580,188.99
45 12/01/2011	16,331.71	3,384.44	12,947.27	567,241.72
2011 Totals	195,980.52	46,075.53	149,904.99

46 01/01/2012	16,331.71	3,419.21	12,912.50	554,329.22
47 02/01/2012	16,331.71	3,341.37	12,990.34	541,338.88
48 03/01/2012	16,331.71	3,052.55	13,279.16	528,059.72
49 04/01/2012	16,331.71	3,183.03	13,148.68	514,911.04
50 05/01/2012	16,331.71	3,003.65	13,328.06	501,582.98
51 06/01/2012	16,331.71	3,023.43	13,308.28	488,274.70
52 07/01/2012	16,331.71	2,848.27	13,483.44	474,791.26
53 08/01/2012	16,331.71	2,861.94	13,469.77	461,321.49
54 09/01/2012	16,331.71	2,780.74	13,550.97	447,770.52
55 10/01/2012	16,331.71	2,611.99	13,719.72	434,050.80
56 11/01/2012	16,331.71	2,616.36	13,715.35	420,335.45
57 12/01/2012	16,331.71	2,451.96	13,879.75	406,455.70
2012 Totals	195,980.52	35,194.50	160,786.02

58 01/01/2013	16,331.71	2,450.02	13,881.69	392,574.01
59 02/01/2013	16,331.71	2,366.35	13,965.36	378,608.65
60 03/01/2013	16,331.71	2,061.31	14,270.40	364,338.25
61 04/01/2013	16,331.71	2,196.15	14,135.56	350,202.69
62 05/01/2013	16,331.71	2,042.85	14,288.86	335,913.83
63 06/01/2013	16,331.71	2,024.81	14,306.90	321,606.93
64 07/01/2013	16,331.71	1,876.04	14,455.67	307,151.26
65 08/01/2013	16,331.71	1,851.44	14,480.27	292,670.99
66 09/01/2013	16,331.71	1,764.16	14,567.55	278,103.44
67 10/01/2013	16,331.71	1,622.27	14,709.44	263,394.00
68 11/01/2013	16,331.71	1,587.68	14,744.03	248,649.97
69 12/01/2013	16,331.71	1,450.46	14,881.25	233,768.72
2013 Totals	195,980.52	23,293.54	172,686.98

70 01/01/2014	16,331.71	1,409.11	14,922.60	218,846.12
71 02/01/2014	16,331.71	1,319.16	15,012.55	203,833.57

Date	Payment	Interest	Principal	Balance
72 03/01/2014	16,331.71	1,109.76	15,221.95	188,611.62
73 04/01/2014	16,331.71	1,136.91	15,194.80	173,416.82
74 05/01/2014	16,331.71	1,011.60	15,320.11	158,096.71
75 06/01/2014	16,331.71	952.97	15,378.74	142,717.97
76 07/01/2014	16,331.71	832.52	15,499.19	127,218.78
77 08/01/2014	16,331.71	766.85	15,564.86	111,653.92
78 09/01/2014	16,331.71	673.03	15,658.68	95,995.24
79 10/01/2014	16,331.71	559.97	15,771.74	80,223.50
80 11/01/2014	16,331.71	483.57	15,848.14	64,375.36
81 12/01/2014	16,331.71	375.52	15,956.19	48,419.17
2014 Totals	195,980.52	10,630.97	185,349.55

82 01/01/2015	16,331.71	291.86	16,039.85	32,379.32
83 02/01/2015	16,331.71	195.18	16,136.53	16,242.79
84 03/01/2015	16,331.71	88.92	16,242.79	0.00
2015 Totals	48,995.13	575.96	48,419.17

Grand Totals	1,371,863.64	293,463.64	1,078,400.00

Last interest amount increased by 0.49 due to rounding.

END OF EXHIBIT F

EXHIBIT G

GOODSILL ANDERSON QUINN & STIFEL

A LIMITED LIABILITY LAW PARTNERSHIP LLP

ALII PLACE, SUITE 1800 · 1099 ALAKEA STREET

HONOLULU, HAWAII 96813

MAIL ADDRESS: P.O. Box 3196

HONOLULU, HAWAII 96801

TELEPHONE (808) 547-5600 · FAX (808) 547-5880

info@goodsill.com · www.goodsill.com

CONRAD M. WEISER

DAVID J. REBER

JOHN R. LACY

THOMAS W. WILLIAMS, JR.

WILLIAM S. MILLER

JACQUELINE LS. EARLE

LANI L. EWART

RANDALL K. STEVERSON

PATRICIA Y. LEE

GARY M. SLOVIN

LISA WOODS MUNGER

ERNEST J. T. LOO

BRUCE L. LAMON

PETER T. KASHIWA

RUSSELL S. KATO

LANT A. JOHNSON

VINCENT A. PIEKARSKI

LEIGHTON J.H.S. YUEN

CORLIS J. CHANG

BARBARA A. PETRUS

PATRICIA M. NAPIER

MIKI OKUMURA

AUDREY E.J. NG

ALAN S. FUJIMOTO

WALTER C. DAVISON

RAYMOND K. OKADA

OAIL O. AYABE

DALE E. ZANE

LINDALEE K. FARM

CAROL A. EBLEN

KELLIE M. N. SEKIYA

JUDY Y. LEE

LENNES N. OMURO

PETER Y. KIKUTA

THOMAS BENEDICT

EDMUND K. SAFFERY

LISA A. BAIL

CAROLYN K. GUGELYK

DONNA H. KALAMA

JOACHIM P. COX

SCOTT G. MORITA

ROBERT K. FRICKE

REGAN M. IWAO

H. GREGORY NASKY

CHRISTOPHER O. PABLO

ANNE T. HORIUCHI

LORI M. HIRAOKA

DAWN T. SUGIHARA

PAMELA ANN FONG

LIANN Y. EBESUGAWA

MIHOKO E. ITO

ALICIA G. HUFFMAN

JENNIFER M. YOUNG

KIMBERLY J. KOIDE

JONATHAN E. SHARLOW

RONALD H. W. LUM, JR.

SIEU K. CHE

ROSEMARIE S. J. SAM

SETH K. WEAVER

DAMON L. SCHMIDT

WILLIAM K. TANAKA

NICOLAS T. KELSEY

CLAIRE E. GOLDBERG

REBECCA L. DAYHUFF

COUNSEL:

E. LAURENCE GAY

KAHBO DYE. CHIEW

NATALIE S. HIU

ROBERT J. HACKMAN

OF COUNSEL:

MARTIN ANDERSON

GENRO KASHIWA

RONALD H. W. LUM

DAVID J. DEZZANI

MARSHALL M. GOODSILL

(1916-2004)

WILLIAM F. QUINN

(1919-2006)

RICHARD E. STIFEL

(1920-1993)

February 20, 2008

BRIDGEVIEW CAPITAL SOLUTIONS, L.L.C.

Attn: John J. Seimetz, President and CEO

5881 Glenridge Drive, Suite 130

Atlanta, Georgia 30328

Re: $1,078,400.00 Loan from BRIDGEVIEW CAPITAL
SOLUTIONS, L.L.C. to CYANOTECH CORPORATION

Ladies and Gentlemen:

At the request of CYANOTECH CORPORATION, a Nevada corporation (the “Borrower”), we have acted as counsel for the Borrower in connection with the proposed loan from BRIDGEVIEW CAPITAL SOLUTIONS, L.L.C., a Delaware limited liability company (the “Lender”) to the Borrower. You (the “Lender”) will provide the Borrower with a term loan in the principal amount of $1,078,400.00 in accordance with that certain Term Loan Agreement dated February 20, 2008 (the “Loan Agreement”) executed by the Borrower and the Lender. All capitalized terms have the meanings given to them in the Loan Agreement, unless otherwise defined herein.

We have examined and relied on originals or copies, certified or otherwise identified to our satisfaction as being true copies, of all such records of the Borrower, all such agreements and certificates of officers of the Borrower and others, and such other documents, certificates and corporate or other records, as we have deemed necessary as a basis for the opinions expressed in this letter, including, without limitation, the following:

A. The Loan Agreement;

B. Term Note in the principal amount of $1,078,400.00; which is dated February 20, 2008, and made by the Borrower payable to the Lender (collectively, the “Term Note”);

C. Real Property Mortgage; Security Agreement; Assignment of Rents; and Financing Statement, dated February 14, 2008, entered into by the Borrower in favor of the Lender (the “Mortgage”);

D. Security Agreement, dated February 20, 2008, entered into by the Borrower in favor of the Lender (the “Cyanotech Security Agreement”);

E. Three (3) Uniform Commercial Code—Financing Statements on Form UCC-1, naming the Borrower and/or Nutrex (as defined below) as debtor and the Lender as secured party (collectively, the “Financing Statements”);

F. Certificate of Secretary of the Borrower, dated February 12, 2008, together with the Exhibits thereto (the “Officer’s Certificate”);

G. Certificate of Good Standing for the Borrower, issued by the Secretary of State of the State of Nevada (the “Nevada Good Standing Certificate);

H. Certificate of Good Standing for the Borrower, issued by the Department of Commerce and Consumer Affairs of the State of Hawaii (the “Hawaii Good Standing Certificate”);

I. Articles of Incorporation and Bylaws of the Borrower;

J. Tax Clearance Certificate for the Borrower issued by the Department of Taxation of the State of Hawaii (the “Borrower Tax Clearance Certificate”);

K. Resolutions of the Board of Directors of the Borrower authorizing the Loan Agreement, the Term Note, the Mortgage, the Security Agreement, the Financing Statements and the documents and agreements relating thereto or delivered in connection therewith (collectively, the “Loan Documents”), and the transactions contemplated thereby; and

L. United States Department of Agriculture; Rural Business Cooperative Service (RBS) Conditional Commitment dated February 12, 2008, Case No. 61-005-911206026, issued to the Lender regarding a “Loan Note Guarantee” in the amount of 1,078,400.00.

M. Security Agreement, dated February 20, 2008, entered into by Nutrex Hawaii, Inc., a Hawaii corporation (“Nutrex”) wholly owned by the Borrower, in favor of the Lender (the “Nutrex Security Agreement”);

N. Certificate of Secretary of Nutrex, dated February 12, 2008, together with the exhibits attached thereto (the “Nutrex Officer’s Certificate”);

O. Certificate of Good Standing for Nutrex issued by the Department of Commerce and Consumer Affairs of the State of Hawaii (the “Nutrex Good Standing Certificate”);

P. Articles of Incorporation and Bylaws of Nutrex;

Q. Tax Clearance Certificates for Nutrex issued by the Department of Taxation of the State of Hawaii (the “Nutrex Tax Clearance Certificates”); and

R. Resolutions of the Board of Directors of Nutrex authorizing the Nutrex Security Agreement, the Financing Statements (as they pertain to Nutrex) and any other documents relating thereto or delivered therewith (the “Nutrex Documents”), and the transactions contemplated thereby.

This opinion letter is governed by and shall be interpreted in accordance with the Legal Opinion Accord (the “Accord”) of the ABA Section of Business Law (1991) as modified by the Report on Adaptation of the Legal Opinion Accord of the ABA Section of Real Property, Probate and Trust Law and the American College of Real Estate Lawyers (1993) (“Report”) as to opinions pertaining to Real Estate Secured Transactions or to security interests in Real Property and by the customs and practices in the State of Hawaii as described in the Hawaii 2000 Report, 22 U. Haw. L. Rev. 347. As a consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on coverage and other limitations in addition to those described in this letter, but all as more particularly described in the Accord, the Report and the Hawaii 2000 Report and this opinion letter should be read in conjunction therewith. Any and all qualifications, exceptions and limitations set forth herein are in addition to and not in lieu of or in limitation of any qualifications, exceptions and limitations described in the Accord. Without limiting the foregoing, the term “knowledge” as used herein means “Actual Knowledge” as defined in the Accord.

In our examination, we have assumed (without independent investigation or verification) the genuineness of all signatures other than the signatures of officers of the Borrower, the authenticity and accuracy of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as certified or photostatic copies and the accuracy and completeness of all corporate records of the Borrower made available to us. We are not aware and have no reason to believe that the corporate records of the Borrower, as presented to us, were not accurate and complete.

We have also assumed (without independent investigation or verification), except as to the Borrower and Nutrex, that each entity that is a party to the Loan Documents has been duly organized or formed and is validly existing and in good standing as a corporation or other organization under the laws of its jurisdiction of organization and is qualified to do business and is in good standing as a foreign corporation or other organization in each jurisdiction where by law it is required to be so qualified; that the Loan Documents have been duly authorized, executed and delivered by each other party and constitutes such party’s valid and binding obligation, enforceable against such party in accordance with its terms; that each other party has the requisite corporate or other organizational power and authority to perform such party’s obligations under the Loan Documents; that each other party to the Loan Documents has performed and will perform such party’s obligations under such agreements; that there exist no other agreements, understandings or negotiations among the parties to the Loan Documents that

would modify, qualify or alter the terms of the Loan Documents or the respective rights or obligations of the parties thereunder; and that any consents, approvals, filings or registrations required by the laws of any state, or in connection with the businesses or assets of any of the parties to Loan Documents, have been duly made or obtained.

Based upon the foregoing, and having regard for legal considerations which we deem relevant, and subject to the additional qualifications, exceptions, assumptions and limitations expressed herein and in the Accord, we are of the opinion that:

1. Organization, Standing and Authority of the Borrower. The Borrower: (i) is a corporation, duly organized, validly existing and in good standing under the laws of the State of Nevada; (ii) qualified to do business and is in good standing under the laws of the State of Hawaii; (iii) has all requisite corporate power and authority to carry on the business it is presently engaged in, and (iv) has all requisite corporate power and authority to execute and deliver the Loan Documents and to observe and perform all of the provisions and conditions thereof. The execution and delivery of the Loan Documents have been duly authorized by all necessary corporate action on the part of Borrower under the laws of the State of Nevada, have been duly executed and delivered by Borrower, do not and will not conflict with, result in a breach of, or constitute a default under the articles of incorporation or bylaws of the Borrower and no other action of the Borrower or its stockholders is requisite to the execution and delivery of the Loan Documents.

2. Organization, Standing and Authority of the Nutrex. Nutrex is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Hawaii; (ii) has all requisite corporate power and authority to carry on the business it is presently engaged in, and (iii) has all requisite corporate power and authority to execute and deliver the Nutrex Documents and to observe and perform all of the provisions and conditions thereof. The execution and delivery of the Nutrex Documents have been duly authorized by all necessary corporate action on the part of Nutrex under the laws of the State of Hawaii, have been duly executed and delivered by Nutrex, do not and will not conflict with, result in a breach of, or constitute a default under the articles of incorporation or bylaws of the Nutrex and no other action of the Nutrex or its stockholders is requisite to the execution and delivery of the Nutrex Documents.

3. Compliance with Other Instruments, None Burdensome. To our knowledge, the Borrower is not in violation of or in default with respect to any material term or provisions of any mortgage, indenture, contract, agreement or instrument applicable to the Borrower or by which it may be bound; and the execution, delivery, performance of and compliance with each and all of the Loan Documents will not result in any such violation or be in conflict with or constitute a default under any such term or provision or result in the creation of any mortgage, lien or charge on any of the properties or assets of the Borrower not contemplated by the Loan Agreement and there is no term or provision of any mortgage, indenture, contract, agreement or instrument applicable to the Borrower by which they may be bound which, to the current actual knowledge of the undersigned, adversely affects or in the future (so far as the Borrower can now foresee) would adversely affect the business or prospects or condition (financial or other) of the Borrower or of any of its properties or assets.

4. Compliance with Law. The consummation of the transactions related to and contemplated by the Loan Documents, will not conflict with or result in a material breach of any Federal, Nevada or Hawaii law, statute, ordinance, regulation, order, writ, injunction, decree or judgment of any Federal, Nevada or Hawaii court or governmental instrumentality.

5. Tax Returns and Payments. All tax returns and reports of the Borrower required by Federal or Hawaii law to be filed have been duly filed, other than Federal and State of Hawaii returns for the fiscal year 2007 for which net operating losses are available as disclosed to Lender, and all taxes, assessments, contributions, fees and other governmental charges (other than those presently payable without penalty or interest and those which have been disclosed to the Lender but which are currently being contested in good faith) upon the Borrower or upon their respective properties or assets or income which are due and payable, have been paid.

6. Governmental Authorization. To our knowledge, no consent, approval or authorization of or registration, declaration or filing with any Federal, Nevada or Hawaii governmental or public body or authority is required in connection with the valid execution and delivery of each of the Loan Documents, other than the Lessor’s Consent to Mortgage of Sublease K-4, Lessor’s Estoppel Certificate, Lessor’s Subordination Agreement and Sublessor’s Consent to Mortgage of Sublease K-4; Estoppel Certificate and Subordination Agreement.

7. Binding Obligations. The Loan Documents, when executed and delivered, will be enforceable in accordance with their terms and shall constitute the valid and legally binding obligations of the Borrower. The Nutrex Documents, when executed and delivered, will be enforceable in accordance with their terms and shall constitute the valid and legally binding obligations of Nutrex.

8. Litigation. To our knowledge, there is no action, suit, proceeding or investigation pending at law or in equity or before any Federal, Nevada or Hawaii state, municipal or other governmental department, commission, board, bureau, agency or instrumentality or, threatened against or affecting the Borrower, the Land or the Collateral, as defined in the Loan Agreement, which might materially affect the Borrower’s ability to perform its obligations under the Loan Documents.

9. Representations. To our knowledge, all representations contained in the Loan Agreement by the Borrower are true, correct and complete in all material respects.

In rendering the foregoing opinions and statement, we have relied as to factual matters to the extent we deemed such reliance appropriate, on certificates and other communications from public officials and officers of the Borrower and Nutrex, and upon the representations of the Borrower set forth in the Loan Documents. We have also assumed the truth and accuracy of those matters contained in the Officer’s Certificate and in the Nutrex Officer’s Certificate.

This opinion letter relates solely to, and the opinions expressed herein are limited to, the laws of the States of Hawaii and Nevada and Federal law of the United States; as noted, our consideration of the laws of Nevada pertain only to our opinions numbered 1, 4 and 6, above. We are not licensed in any jurisdiction other than Hawaii, but one of our partners, H. Gregory Nasky, is also licensed in the State of Nevada and he has reviewed and approved under Nevada law the Loan Documents which are governed by Nevada law. To the extent that the meaning, interpretation or effect of an agreement or other document that is the subject of or basis for any opinion herein is governed by or relates to the laws of a State other than the State of Hawaii or Nevada, we have assumed that the applicable laws of such other State are identical in all material respects to the laws of the State of Hawaii.

Our opinions rendered in Paragraph 1 as to the due qualification and good standing of the Borrower are based solely on the Nevada Good Standing Certificate and the Hawaii Good Standing Certificate. Our opinions rendered in Paragraphs 4 and 6 are based upon our review of those laws, rules and regulations which, in our experience, are normally applicable to transactions of the type contemplated by the Loan Documents and those laws, rules and regulations applicable to corporations conducting businesses similar to those of the Borrower. Our opinions rendered in Paragraph 5 are based solely on the Tax Clearance Certificates and the affidavits of the Borrower and Nutrex referred to in Section 3.15 of the Loan Agreement.

Our opinions set forth in this letter as to the validity, binding effect and enforceability of the Loan Documents are specifically qualified to the extent that the validity, binding effect or enforceability of any obligations of the Borrower under such documents, or the availability or enforceability of any of the remedies provided in such documents, may be subject to or limited by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and other statutory or decisional laws, now or hereafter in effect, affecting the rights of creditors generally, (ii) the exercise of judicial or administrative discretion in accordance with general equitable principles (regardless of whether enforcement is sought in a proceeding at law or in equity), (iii) the application by courts of competent jurisdiction of laws containing provisions determined to have a paramount public interest, and (iv) the availability of particular remedies, of exculpatory provisions and of waivers contained in Loan Documents, which particular remedies, exculpatory provisions and waivers of rights may be limited by or subject to equitable principles, applicable laws, rules, regulations, court decisions and constitutional requirements and the discretion of the court before which any proceeding for relief may be brought.

The opinions in this letter are rendered to the Lender in connection with the transactions contemplated by the Loan Documents. This opinion is not to be quoted in whole or in part or otherwise referred to and no one other than the Lender is entitled to rely on this opinion in any manner. The opinions expressed in this letter are based on the law in effect on the date of this letter and are subject to any changes in such law including judicial and administrative

interpretations which may occur or be reported subsequent to the date of this letter. We assume no obligation to advise you of facts, circumstances, events or developments which hereafter may be brought to our attention and which may alter, affect or modify the opinions expressed herein.

	Sincerely,

	GOODSILL ANDERSON QUINN & STIFEL
	A LIMITED LIABILITY LAW PARTNERSHIP LLP

	/s/ Goodsill Anderson Quinn & Stifel

END OF EXHIBIT G

EXHIBIT “H”

FINANCIAL STATEMENTS

[TO BE INSERTED]

EXHIBIT “I”

MATERIAL LITIGATION

NONE

EXHIBIT “J”

DEFAULT IN MATERIAL OBLIGATIONS

NONE

EXHIBIT “K”

ADVERSE CONTRACTS

NONE

EXHIBIT “L”

NO VIOLATIONS

NONE

EX-23.1 3 a2186543zex-23_1.htm EXHIBIT 23.1
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Cyanotech Corporation:

We consent to the incorporation by reference in the Registration Statement Nos. 33-63789, 333-42484, 333-141911, and 333-141912 on Form S-8 and 333-42486, 333-97755, and 333-101401 on Form S-3 of Cyanotech Corporation of our reports dated June 26, 2008, with respect to the consolidated balance sheets of Cyanotech Corporation and subsidiaries as of March 31, 2008 and 2007, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended March 31, 2008, and the related financial statement schedule, which reports appear in the March 31, 2008 annual report on Form 10-K of Cyanotech Corporation.

Honolulu, Hawaii
June 26, 2008

QuickLinks

Exhibit 23.1

EX-31.1 4 a2186543zex-31_1.htm EXHIBIT 31.1
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.1

Certification Pursuant
To 18 U. S. C. Section 1350,
As Adopted Pursuant To
Section 302 of the Sarbanes-Oxley Act of 2002

I, Andrew Jacobson, President and Chief Executive Officer and Director certify that:

1.

I have reviewed this annual report on Form 10-K of Cyanotech Corporation;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the registrant and we have:

a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c): Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a): All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: June 26, 2008

/s/ Andrew Jacobson

Andrew Jacobson
President and Chief Executive Officer
and Director

QuickLinks

Exhibit 31.1

EX-31.2 5 a2186543zex-31_2.htm EXHIBIT 31.2
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.2

Certification Pursuant
To 18 U. S. C. Section 1350,
As Adopted Pursuant To
Section 302 of the Sarbanes-Oxley Act of 2002

I, William R. Maris, Chief Financial Officer certify that:

1.

I have reviewed this annual report on Form 10-K of Cyanotech Corporation;

2.

3.

4.

a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c): Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

a): All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: June 26, 2008

/s/ William R. Maris

William R. Maris
Chief Financial Officer

QuickLinks

Exhibit 31.2

EX-31.3 6 a2186543zex-31_3.htm EXHIBIT 31.3
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.3

Certification Pursuant
To 18 U. S. C. Section 1350,
As Adopted Pursuant To
Section 302 of the Sarbanes-Oxley Act of 2002

I, Gerald R. Cysewski, Executive Vice President and Chief Scientific Officer certify that:

1.

I have reviewed this annual report on Form 10-K of Cyanotech Corporation;

2.

3.

4.

a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c): Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

a): All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: June 26, 2008

/s/ Gerald R. Cysewski

Gerald R. Cysewski
Executive Vice President
and Chief Scientific Officer

QuickLinks

Exhibit 31.3

EX-32.1 7 a2186543zex-32_1.htm EXHIBIT 32.1
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 32.1

Certification Pursuant
To 18 U.S.C. 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Cyanotech Corporation (the "Company") on Form 10-K for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Andrew Jacobson, Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1): The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act (15 U.S.C. 78m or 78o (d)); and
2): The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

Date: June 26, 2008

/s/ Andrew Jacobson

Andrew Jacobson,
President and Chief Executive Officer
and Director

QuickLinks

Exhibit 32.1

EX-32.2 8 a2186543zex-32_2.htm EXHIBIT 32.2
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 32.2

Certification Pursuant
To 18 U.S.C. 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Cyanotech Corporation (the "Company") on Form 10-K for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William R. Maris, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1): The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act (15 U.S.C. 78m or 78o (d)); and
2): The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

Date: June 26, 2008

/s/ William R. Maris

William R. Maris
Chief Financial Officer

QuickLinks

Exhibit 32.2

EX-32.3 9 a2186543zex-32_3.htm EXHIBIT 32.3
QuickLinks -- Click here to rapidly navigate through this document

Exhibit 32.3

Certification Pursuant
To 18 U.S.C. 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Cyanotech Corporation (the "Company") on Form 10-K for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gerald R. Cysewski, Executive Vice President and Chief Scientific Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1): The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act (15 U.S.C. 78m or 78o (d)); and
2): The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

Date: June 26, 2008

/s/ Gerald R. Cysewski

Gerald R. Cysewski
Executive Vice President
and Chief Scientific Officer

QuickLinks

Exhibit 32.3

GRAPHIC 10 g140319.jpg G140319.JPG begin 644 g140319.jpg M_]C_X``02D9)1@`!`0$!KP&O``#__@`Y1$E32S$Q-CI;,#A:0T(Q+C`X6D-" M-S8X,#$N3U544%5473$W,38X7S%?4$521E],24Y%+D504__;`$,`!P4&!@8% M!P8&!@@(!PD+$@P+"@H+%Q`1#1(;%QP<&A<:&1TA*B0='R@@&1HE,B4H+"TO M,"\=(S0X-"XW*BXO+O_```L(`9$"J@$!$0#_Q``=``$``@(#`0$````````` M````!@<$!0$"`PD(_\0`6!````4#``4&!PH)"P,#!`,```$"`P0%!A$2%B$Q M5@<34925TA05(D%AD]$R4U155W%U@;+B%R,T-39VD;/3)C-"0U)BNNK0KLBTRHLTYJ/+=>)J(E:E2FV$ M(6HI"C(S0:3T#\G!&6DG:9Y(8&O=8@TYBJU6F151JE3G)U/:C*7SB%)))I:= M,]AFI+B3TBQ@R46#V&)+;]6JZZO.H=>:AE-88:E-O0M,FW&UFI.,*R9*2I!E MOVD9'LW#0IO>I,-L5N;"C:OS'9+4?),EDRO86-'*=I[<;2 MW*]7'JK&I]>B0VCG0#GQE137AM)&@EM+TMZBYQ'E%@CV["QMV#MY6@TDUN73 M14)+89G/:V?_`)#PU]L?C&@]H-=X-?;'XQH/:#7>#7VQ^,:#V@UW@U]L?C&@ M]H-=X-?;'XQH/:#7>#7VQ^,:#V@UW@U]L?C&@]H-=X-?;'XQH/:#7>#7VQ^, M:#V@UW@U]L?C&@]H-=X-?;'XQH/:#7>#7VQ^,:#V@UW@U]L?C&@]H-=X-?;' MXQH/:#7>#7VQ^,:#V@UW@U]L?C&@]H-=X-?;'XQH/:#7>#7VQ^,:#V@UW@U] ML?C&@]H-=X-?;'XQH/:#7>#7VQ^,:#V@UW@U]L?C&@]H-=X-?;'XQH/:#7># M7VQ^,:#V@UW@U]L?C&@]H-=X-?;'XQH/:#7>#7VQ^,:#V@UW@U]L?C&@]H-= MX-?;'XQH/:#7>#7VQ^,:#V@UW@U]L?C&@]H-=X-?;'XQH/:#7>#7VQ^,:#V@ MUW@U]L?C&@]H-=X-?;'XQH/:#7>#7VQ^,:#V@UW@U]L?C&@]H-=X-?;'XQH/ M:#7>#7VQ^,:#V@UW@U]L?C&@]H-=X-?;'XQH/:#7>#7VQ^,:#V@UW@U]L?C& M@]H-=X-?;'XQH/:#7>#7VQ^,:#V@UW@U]L?C&@]H-=X-?;'XQH/:#7>#7VQ^ M,:#V@UW@U]L?C&@]H-=X-?;'XQH/:#7>#7VQ^,:#V@UW@U]L?C&@]H-=X-?; M'XQH/:#7>#7VQ^,:#V@UW@U]L?C&@]H-=X-?;'XQH/:#7>#7VQ^,:#V@UW@U M]L?C&@]H-=X9-/N^U*E+;A4^Y:1+E.'A#+$UM:U;,["(\F-Z```````````` M`")/6Q495385.KA2*3&FJFLQE1_QQ*,C(D&Z:CR@M)6"T2/&"S@AK6^3TWH* M:95*PN5`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````````````````!`.4C\_6# M].I_+]AP6$6X@````````````````$ M`Y2/S]8/TZG]RX)^6X@`````````````````````````````````````!7O* MM^56)^L\7[#@L(MQ`````````````````(!RD?GZP?IU/[EP3\MQ```````` M`(ZU>-N/78Y:3=2:56&VN=4P7^Z<[M(BVZ._&T2(```````````````````` M````````5[RK?E5B?K/%^PX+"+<0````````````````"`0_']H\E]PUN_9/ MBVI2$TR#.#-!F>U9GZ<;SST_H1-N\I40\QN4&)-26Y$^CH+]J MFU$?^P<_RNQ#_&P;2J2"]Y??CK5_\B,B`KLON,?_`''DTDJ06]R!4V7\_,D] M$_\`_$!;9?:<<95H.I0LC-M6,X41;CP9'@^D>P`````````````````````*]Y5O MRJQ/UGB_8<%A%N(`````````````$,DW)7(=8B)E4R(W3ID_P)AE3RO"UEDR M-XDXT33L-1EO).TS\PCM#Y3'YM-FU60=-6VS#7*;@,D\F0LM/11A2RT5%DR( MU)R1&9"8V]6*J]59U$KL2*S/CLM24+B.*6TZTX:DEC2(C)25(41].P_/@M&B M^9K),U>;3F$6]+<1M+8>3W8VZ7E%G0G*[89HEL*)-<2:L M.$>"YES?M$\*IT[!?]?%],Z=\/B^N3[0\9T[X?%],Z=\/B^N3[0\9T[X?%]U:M_ MG49G]8W?C.G?#XOKD^T/&=.^'Q?7)]H>,Z;\/B^N3[0\94WX?%]3R?DY=%MYU1[U&RT2OVEM&C7R;,Z=\/B^N3[0\9T[X?%],Z=\/B^N3[0\9T[X?% M],Z=\/B^ MN3[0\9T[X?%],Z=\/B^N3[0\9T[X?%],Z=\/B^N3[0\9T[X?%],Z=\/B^N3[0\9T[X?%]J.*J$]1[S>=\K'^DM%/U"9@` M`````*SO6.[9ER(Y0J\2(]?CMIR:VLX1((O[2//TI^L61'>:DL-2&'$ MN,NI):%H/)*299(R/H,AZ````````````````````"O>5;\JL3]9XOV'!81; MB`````````````````0#E(_/U@_3J?W+@GY;B```````!6U^_P`I;RMZR&_+ MB-J\;54BW&D'_B<\WH%D@```````\Y#+4EAV.^VEQEU)H6A99)23+!D9 M=!D*VLJ0]9ERKY/:BXHZ<\2I%`D.*R:VLY7',_.I'F_N_4+-```````````` M````````%>\JWY58GZSQ?L."PBW$`````````````````@'*1^?K!^G4_N7! M/RW$```````\Y#S4:.[(?<)MEI)K6M6Y*2+)G^P5]R3L.U-NL7U,0:9%P2=. M.E6]N(WY+*?1DB-7IR0L4````````1?E`MC6BA&Q'?\`!:K%<*33I:?=,/IV MI//0>X_0?H'7D^N<[GHAN2V/!:O#<.+48BO=,OIV*V=![R]!^@2H```````` M```````````%>\JWY58GZSQ?L."PBW$`````````````````@'*1^?K!^G4_ MN7!/RW$```````KWE;E/S*?3K+@.&F=<<@HJE)WMQD^4^OYB3L_U"=PHK$&' M'A16R;CL-I:;06Y*4E@B_80]P````````%:7O&=L^X6^4.F-*5#628]?CMIR M;C&Y+Y%_:;\_2GZQ8T9]F5':DQW4NL.H);;B#R2DF62,CZ#(>H`````````` M````````"O>5;\JL3]9XOV'!81;B`````````````````0#E(_/U@_3J?W+@ MGY;B```````5M9O\I[_K]WK\J#3\T>F9W'HGE]POG5@B/H(62`````````#S M?9:D,N,/MI<:<2:%H4624DRP9&71@5K9CSME7.Y8%0<4=+DDN10)#BL^1G*X MQGTHSDO1]1"S@``````````````````%>\JWY58GZSQ?L."PBW$````````` M````"(2;JJ$2"U.,LI-/EI]U'D)VI5GH\Q^@QY\GUSKN6BJ. M:QX+68+AQ:E%/8;3Z=^S^RK>1]!^@2L``````````````````5[RK?E5B?K/ M%^PX+"+<0`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`]4.=0;-X'*?ZH-0;- MX'*?ZH-0;-X'*?ZH0%JTK: MKW*F[!BT2&BC6[&(Y*4-^2_+=+R4GTZ""SZ#,3[4&S>'('J@U!LWARG^J#4& MS>'*?ZH-0;-X'*?ZH-0;-X M'*?ZH-0;-X'*?ZH-0;-X'* M?ZH-0;-X'*?ZH0'E`LNA6Q.AWE!H$9ZE1_P`36(*6 M\DI@S_GTI_MH/?TI^83B)9-C3(K,N+0::ZP\@G&W$-Y2M)EDC(^@R'MJ#9O# ME/\`5!J#9O#E/]4&H-F\.4_U0:@V;PY3_5!J#9O#E/\`5!J#9O#E/]4&H-F\ M.4_U0:@V;PY3_5!J#9O#E/\`5!J#9O#E/]4&H-F\.4_U0:@V;PY3_5!J#9O# ME/\`5!J#9O#E/]4&H-F\.4_U0:@V;PY3_5!J#9O#E/\`5!J#9O#E/]4&H-F\ M.4_U0:@V;PY3_5!J#9O#E/\`5!J#9O#E/]4&H-F\.4_U0:@V;PY3_5!J#9O# ME/\`5!J#9O#E/]4&H-F\.4_U0AM_6S0*+4K'E4JDQ8CZ[DBMJ6TC!FDTN'C] MI$+:+<0`8K/D@I5,E6>IZ33HCSIU&;E;C*5&?_4+\YD)UXBHGQ/`ZLCV!XBH MGQ/`ZLCV!XBHGQ/`ZLCV!XBHGQ/`ZLCV!XBHGQ/`ZLCV!XBHGQ/`ZLCV!XBH MGQ/`ZLCV!XBHGQ/`ZLCV!XBHGQ/`ZLCV!XBHGQ/`ZLCV!XBHGQ/`ZLCV!XBH MGQ/`ZLCV!XBHGQ/`ZLCV!XBHGQ/`ZLCV!XBHGQ/`ZLCV#CQ%1"V^*(&_X,CV M#\`7"1(K]42DB2DI;I$1;"(M,Q]$@``$`Y2/S]8/TZG]RX)^6X@`````:FZ: MU&MVWJC6Y9_B8;"G3+^T9;DEZ3/!?6-%R5T632+39?J19J]4<54)ZCWF\[Y6 M/]):*?J$S```````````!T>:;>:6R\A+C:TFE2%%DE$98,C+H%9V96EQI:2 M4A:#R2B/:1D9;R'<:.K7-2J5*7$D*D./-M$\^4>.M[F&SSA;FB1Z);#W[3P> MS88V[$AB0RV^P\AQEQ)*0M"B-*B,LD9'YR,C( M1C@Y#!);6;S>BZ9$V>D6%F>['2/)F?#>7*;:DMJ5%<)I\B5_-J-)*(C^I1'] M8R#6DE$DU%I'N+.\8M+J4*JPF9L!\G6'D$M"L&1FD]QX/:7UC,```Q\[KD_2 M&K?YQ[[9CZ(@``(!RD?GZP?IU/[EP3\MQ``````K:_?Y2WC;UD-^7$;456JI M%NYEL\--G_B<\WH%D@````````````(S?ML-W505PT/>#5!A92($LO=1Y"=J M%%Z/,?H,QX\GESN7)1EIJ#/@U;I[AQ:E%/8;3R=YD7]E6\C]@E@#QC28\MDG MXK[;S2C,B6VHE),R,R/:709&7U#V'!F1;]@P9=9I,(C.95(4=WA;S$;YLY4>!P5=Y3I7 M\S8=-A9W'+K*5X^=NX9/)%?/*'4:`5/B4*FU/Q2VVR:'Y*XLA:,'HJRHC2K=HYV;MHL#7^N M02_[YR<7''Z502;FI+TY0HC_`-AZ,3\QY1ET M>V*G!E0BJ-#55'2;@E%E/2D9IR6SRX@UEA62/)EH$9+R23V$-A8MIRJ!,I+Z MH+,8TTA<>:IM24LI]&2(U>G)"PP`````````````5M?L61:M<9Y M1:4TI;+:"CUR.C>]%\SI%YUM[_\`#Z"$AK-^VC1H3$N=78A(D-I<80VKG''D MJ+R32A.5'G/0*CY6^56O-6\E%'H\^AMRW")B;-=2Q)<(CR9H8VJ))ELTSP6W MI%::J/* MS=29!'Y<>H5!4$B/HP:$ECZQ,HO)?R?U)I+ZRE5=!_UCM5>>2KISA>#R-K$Y M,N3^+@FK2I:L8_G6>=W?XLC>0[:MV#CP*A4R-HXQS,1M&,;MQ#:H;0VDDH0E M*2V$22P.V`P70``&"'F^PS(;-M]I#K9[TK22B/ZC$7J?)U8U3TCF6K2U*5O6 MW')I1_ZD8,:@^2JB1B_['6KCHN-R8-4CL46@@DFG;M,S5Z-HKO::E$R_2WR0TN-'G26E(4U'?>).BC.2-9$:T94 M18+2+TXP6N4-N023B6U67M-#[R"23)&IEE9(<4DM+&"4>.G&O>Y2(3%"BUZ31JC&I\AH MY"5OFTA7,EC"B(U^49YR2"RK!9QM+/5V^_!9\\JE&^V8^B(``"`Q">A)>C?@2>)3J?"4I<.#&CJ46%&TTE!F7IP0XJ-+IM3:YFI4^+, M:_L2&4N%^Q1&(?+Y*;(=>.3#I2Z7*/<]3)#D92?F)!X_V'AJ3==.QXAY1ZJ2 M$_U-68;FDKT:1DE1?M''AW*Q2R/PBB6_7FR/9X%*7$=,O23A&G/UCG\)7@)F MFX[/N2DZ)94\_86,< M[*I:9"#C/2HT'G([KD!I2>8=6P22:,R,C46"0@C(C(CT"SG;G7/6.HJE!1!J M4R'`CTZ3%4XRXGG5&ZZA9D>DDRQ@E;=Y'C`SXUCTJ(^P41Z4S3V7VY*:>E:> M9YY""2E>[2V8(\:6#41'C(Q:AR>4F9$C0RF3F&6::5,/FS;-2V"W>4I!FE72 M:<9\_F&1)L6DS'ICLR1+?\*6XXM)K2DDJ6TAM1IT4D9;&TJ+;L5NV;!DPK3B M,3FZE)G3)M01)3(.0^I!*4:6EM)29)222227%G@B+:9F8VM%I<:C4UFG1#6; M#.EHZ9Y/:HU'M^``8^=UR?I#5O\`./?;,?1$``!`.4C\_6#].I_ORH,#-'IF=QD@\ON%\Z\$1]!"R````````````1"X. M42U:'(\!@Y#ZCZ-%.X_\`$9#3G4.4NY?)IE+B6I`7NDU+$B69 M=*64^2D_0HQD0>3"AJDHJ%S2IMS5!)Y)VJ.:;:#\^@R7D)+T8,;"Y[QHEJ\Q M2F&%S*LZ6(E(@-Z3J^CR2V(3_>/!8SO&BCV?7;O>;J'*'(2B$1Z;-O0W#YA' M0;RRVNJ]'N?_``)%>=H0[@MGQ1%)N"_%-+M.?:3H^"/(]PI)%N(MQD7F,QUY M/+F>N&D.LU)DHU>IKAQ:G&W:#Q?TB_NJ+RB/=OZ!+```#`U%7MJWZT6*M1*? M-],B.A9E\QF62$4:1? MR)S22\F/6*>ES/SN-FE7^P@/*M??*E:%.IZI;%&A.//*3X5!7SR'<)SHZ#J< MIZ9++?H06UE]1DYM''X2E(VOV!>S2?[7BLE[?F2LS#\)T?@J]NQ5^T=BY4: M1@M*@72A7G2JC/9(^@]@?A4MY!_]33[@C$>XWJ.^6E\V$F.?PKVGT5CLF1W! MT_#!8'QO)[-D_P`,B/MY^;*-HA5[?^H"E4B?'9MN+'K< M9;6DX]SJV=!>D9:.#1MV8//I%G\G5S.7A9]/N%V(F(N5SF64KTR3HN*3OP6? MNIVVT199/M13DJ?<94AHR)24X2HR+3]T633DBW;Q'*1 MRC1Y]/G59R`VU3(D=3ZUMSFG7<$>$)-HO*2:O,1X\PD%OU]RI3)E-GTMZF5* M*AMU4=UQ#FDTO2)*TJ29D>U*B,O,9=&#/5M7W$.2ER33Y$>CO+?:C5):T&V\ MMDEFLM$CTDD9-N&DSWZ)[LEG,MVZCJTY,&72)5->?BE-B$^M"N?8R1&KR3/1 M41J3E)[M(MI[<:?E(_/U@_3J?W+@GQ'L(DF(R2%+Q[M>]:OK49G]8W>0R& M0R&1@(JU.76'**F6V=2;CIDJC_TB;-1I)7[2_P#'2,_(9#(9#(9#(9^?]@9^ M?]@BBN4"T&EU9,BNQ(_BN1X/(-YPD^7HYPGSJ\Y;/.DR\PTAW]6*Z?-6-:[9+S"MJJ91R.+&_P`*E>[67SF0 ME]OVW0;#4.DQ8+9EA7,MX4O\`Q*WJ^LS&=4)\*F0G9U0E,Q8K*=)QYY9( M2DO29BNUW'=%\K./9;*Z30C/1G/GI29\E7.2)"NE:SV_46"$ER&167*,D[0K$;E(@X)MHD1*S'TB3X3&-1 M$E9$>]Q!F6/.9;/,-YR>\H%"ON"\_2EK;D,*-+T5[!.(+/DJP6\C+SE\PF.0 MR&0R&0R&0R-=5J+1ZTVVW5Z5#GH:4:D)E,)=)!XQDM(CP>!S2:/2*,RMBD4R M)!:<5IK1&82VE2L8R9)(LG@AG[.C_8-@Y_:.-GI#9Z0V>D/VC@TI/>G/SD(+ M?7)A;5[U&-4*PN3(B\YGYANLAD,BO>5;\JL3]9XOV'!81;B`#$`Y%_P!"C^D9O_(6 M)^&2Z0`,@``````!CYW7)^D-6_SCWVS'[UD4J2Y=3-70XTEE%.>BX/)J):W& MU$>-QEA!^<05VQ*O4VT,OP:-1%1*:_";=IN33)<6I"DJ-&B6BVE3>EHF:CRH M]NS)R:E0;D55Y=?J$.GLRWVXT1,5N2I:&V4+4IQ>GH%E1FXK"<8\DLGM/&E3 M9M:DQH]MS5Q6Z'">E.M2VW#4\\3J'4MI-&B1)T">5D\GG1+I/&XMND5_QK$G MUY,-KQ=3C@,IC.J9_ M:\S^TY7\0-1;<]YG]IROX@:BVY[S/[3E?Q`U%MSWF?VI*_B"!-6 MK1;@Y3WH##\S^TY7\0-1 M;<]YG]IROX@:BVY[S/[3E?Q`U%MSWF?VG*_B!J+;GO,_M25_$$/N\K/H,E%( M@T^JUBXGTYCTN)5))N'_`'EGSF&T>DQ2J+$Y4G+J.N/V[5F$.NESJ8E0)+A, MY++:7%.&KW.PLF>XA?".2BF*0E6M-X)R6<*JZLE_L.WX)J9Q5=_:ZO8'X)J9 MQ5=_:ZO8/5KDKI+9&2KBNIW)[UUATL?LP/3\%]'^/+G[9>]H?@OH_P`>7/VR M][1Q^"V@JV/U6XWV_.VY6'S2?[#'/X*+3Z:QVM([XU5R\EE+:H4U5OLU)ZK& MV:8R7JR^E!+/82C,U[BWX\^,"K;(Y%KKI]U0IMQTF!/IIN8DI.:>F1'_`$TF M6#TB/;OV[1?VHUN'C+,_9_[I*_B!J+;GO,_M25_$$+NE5H4J=XCH].JE13HE4DY;_O.KYS#:?GV^@,;#4LU+5_ M>,\;3W[Q,BL2VTD24L3B21$1$53DD1%YB_G!SJ+;GO,_M.5_$#46W/>9_:\S^TY7\01^]>2>@7%07Z>PY,BRO=L/+F//)0LMV4K69&6W!^?H%0V MQR=U'DY?:N2\*:N72W"6Q+.GRW$N0$Z18>5S9D:T'C:1'L+:99V"]H%I6E4( M;,V"J5(C/();;K56DJ2M)[C(R M9_:\S^TY7\0-1;<]YG]IROX@:BVY[S/[3E?Q`U%MSWF?VG*_B!J M+;GO,_M.5_$#46W/>9_:\S^TY7\0-1;<]YG]IROX@:BVY[S/[3E M?Q`U%MSWF?VG*_B!J+;GO,_M.5_$#46W/>9_:\S^TY7\0-1;<]Y MG]IROX@:BVY[S/[3E?Q`U%MSWF?VG*_B!J+;GO,_M.5_$#46W/>9_:\S^TY7\00V_K;I-'J5CR8#8MN\6T6X@`Q7 M_(QDK)5@LGXQG;/_`.PL<'#.:7E-LK.,J0[H*(D-K M5E&,FG3,E92><^:4WES9U&VH-8D'XE><=*2MQ7-MO/I;(VD.&6"T5'IGH[C4 M22Z"$;H]8?.KIM^WGF:>R=6YN1S#Q3&D)\%4\I#)J2DD9-&#+!D1J5CH'GKM M6F:4U4/&L60]*IKDY^.322\7+0^TG0/&W&'%I/3VZ2#/9M(LR?=TZ;Y3\YG@OK&DY+*))H]ILNU(LU>IN*J%0498,WG3TC(_F+"?J$R`! MYR'V8S+C\AU#3+:34MQQ1)2DBWF9GL(A6LBZ*_>\ARG6%_TE(2HVY-Q/MY3L MV&F,@_=J_O'L+]AB5VC:%&M2*XBGM+=EOGI2ITA7./R5>=2UGM/YMPKF'R_V MU*K,>DIHU40X])3'):N;T2,UZ.3\K<+G0XA:=)"B472D\CL&2Z0````&NKE: MI5!ISM2K$]F'$;]TXZK!9Z"\YGZ"VF(!X?=_*#Y-'*1;%KK+;/=3B=+3_P#: M1_5)/^T>W<9=`FEK6O1+6@^!T:$EDE'I.NJ\IUY7]I:SVJ/Y_JP-X```#JXA M#B%-N))2%$9*2HLD9=`JV93:ER93'JO0([LRSG%&Y.I#1:3D$SWO,%_9\ZD> M;:9>BQZ15(%9IL>ITR4W)AR$$MMUL\DHO_T?F,MY&,T`````````````%>\J MWY58GZSQ?L."PBW$`&(!R+_H4?TC-_Y"Q/QX.Q(KJS6[&96L]ZE((S'LE*4) M)*4DE)%@B(L$1#D<$E)*-1)(E'O/&TQX^"1?"_#/!F?"M'0Y[0+3T>C2WX]` MX8A0X^GS$5AK37SB]!LDZ2O[1X+:?I'I(89DLK8D-(=:66%(<22DJ+TD>\=6 M8T=A"$,L--H;+"$H01$DMVS&X=$P823D*3$8(Y/\^9-E^-\WE;/*^L8$BW:3 M(E0GW(;6A$;<;;8)">:PO0SE.,?T$XZ!MC0A1$1I(R(R,B,MQEN'4V&31H&R MV:=$TX-)8P>\OF,8YTNFG$3#.GQ3BI,C)GF4Z!8W>3C`R>::][3O)6XMY;C_ M`-AW/J$6XVFSPTV?H4OS>@62`".W==U&M6*V[475N27ST8T*.GG'Y*O M[*$%M/Y]PB;%L5^^'T5"_,PJ.E1+CV['<\D\;25)67NS_NEL+]I"6UZX[:LZ MFM*J4R-!82DD,1T$6FLBV$EMM.T^C!$(J4^_KT-/BN,JTJ$O?+F()<]Y/]QK M!T/DO@-GFGW3=M/(O32XD&6_P1;,GY\8 M4603RHTQLO\`K[;NNGXWG)I#F"^M.1CS^66Q8T"4\W4UJEM-*6W$>C.L*=41 M&9((U(P1F98STB'47EZF7+4F:);]G+G))LC(C,S5Y);"(C,]N=@G M=#L%3U1:N"]IY5ZMH/290I.(D/T--'LS_>5MV$>PQ/P`````!6%9H-5L:IR; MFLN(J72Y"^=JM"0>"/I>CEYE]*=ROV"=VY7J7^V8^B(``"`A*"R/#Q_>MYD;=ITX[?I"CQXWJC67G$ M]++'_@U;!O;9L&AT*8=5=Y^J5Q9?C*G4%\Z\?^$SV(+T)(M@EX````!@N@,# M7URE1JU1YU)EZ1,3&%L+4C&DE*B,C,LD>W:*]L_D5M>T[BAU^G3JJ[*BZ>@A M]ULT'I)-)Y(D$>Y1^<6D```````"N+BMFJ6[5GKNL9I)NN'IU.BEY+=0+SK1 MYDO;]OG_`&YE=I7-2[JI**G2W5&G)H=9<+1=8<+W2%I_HJ(;P``````````` M`5[RK?E5B?K/%^PX+"+<0`8@'(O^A1_2,W_D+$_``````````,?.ZY/TAJW^ M<>^V8^B(``"`[H+E1N*8Y9]BEM-+KI-3*@D]Q+/^J0?]DLJ/ MTY'M2*Q5:E`:HW)=;C-+H3:=%%8J#)MLX\ZFFO=.&>_25L,]XD5O\GE+@SD5 MFMR7[@KQ;?#Z@>ES9_\`VV_X_\`82(```````````%>\JWY58GZSQ?L."PBW$`&(!R+_H4?TC-_ MY"Q/P`````````#'SNN3](:M_G'OMF/HB```@'*1^?K!^G4_N7!/RW$```K: MS/Y3W[<%XK\J#!S1Z89[C)!Y><+YU[",O,0S;UY1(%!?SS">I(DD1$1$1; M"P.0``````````````````$&O.T)4F\8USL2([T9RG5N$KFYU-?\`YQA727]I!^91;#$K```````````5 M[RK?E5B?K/%^PX+"+<0`8K_D8/%DJ/&<5&=_R%C@^4V.1F6I5Z[/_95^T5AR MA\N4F-<5'CT.!48;4%_G*E&G,\RX[LQS1IR9D6B9GM\YIZ!9$3E7ITV,U+AV ME>$B,ZG2;>:I"EH6GI(R/!D);;%P(N&(])12:M3B:B9EHEG:18'FQ?J=;:K3I!Q3ID=M],=3:LOJ>CI2IXE%G=Y1D MG9_5J]`]8U:N6-`HU?J+D!R#47HZ'H33)I7%2^9);-+FD>F:5+3I926BHMAY(TF1X&O8O>E.32:=CR MV(3BWVV*BZA)1WULDHW$I,E&HL$A9D:B(CT%8,\#)MZZXE:EE$*!.@O.1DRX MZ9;:4^$,&>.<3HJ/SF625A1:19+:-%RD?GZP?IU/[EP3XMQ#D`R0J?E5Y6*' M;D.I4*#+6Y<*FU,H2AL]&,M22PI:CP6PE9+&=P@U/N*YJO0HEC=JMNPB$RLGD5I%);;D7++56YFESJF5EB,3GG4:- M[BM_E+S\Q"W&FVF6T--(2AM!:*4I+!)+H(O,.X````````````````````"& MWK9Q5E^/7:-*\6W/!2?@DU);%E[TZ7])L]V/-G9T'S95XE6G7Z)68OBRZ(2? M^K@*/8HO?6C_`*39[\EG&=OF,YB``````````*]Y5ORJQ/UGB_8<%A%N(`,0 M#D7_`$*/Z1F_\A8GXA\WDUL6=,?FS+:A/27W%..NK)1J6HSR9F>>D2&BTBFT M.GMTVDQ$18;9F:&6\Z*P3,,D?G`S(MY@`&/G=%1ID:/".C4MV&Q*-Y*TRWL(2A9)(LI1HMY/.#RK& M#QD26E,W`[6YEQ3*(F*Z\U%@HAG+0I26TN+4XZ:DD9'CG#PG.3)/F,]FAU3K MLR!%M63';9IL!Z6ZFI$ZE7/I<0\AHDMEM)1<_P"5G!>1L,]+9N[9IU>>K,&? M6J>U!*FTQ4!)(>2YX0XI2#6XG1]RC#2<$>#\H\D6-L7OZV8\:MV4A-4K3A/U MHD&;M2>6:"YI9Y29J\D]F\MHFI6;%P7_`'NX^V'^\.=38OQW#4V+\= MW'VP_P!X-38OQW'YFO+DCOZI755)M.MZ6Y#?DK4RN5/:<<4G.Q2E&O M.3W[=NW`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````````%>\JWY58GZSQ?L."PBW$`&(!R+_H4?TC-_P"0 ML3\``<&E)XR1'C:7H`TI,R,R+);C'(PZ?3HE.0\B*V:2>?6-XY-)&6#(L`24D9F1$1GO](Y'&B6_T MCD#'SNN3](:M_G'OMF/HB```@'*1^?K!^G4_N7!/RW$````````````````` M```````````*?Y?^3^JWA28]1H\EYR53DJ,J?GR'DGO-)>^;/K+9L/?JN2WD MIN6C6V3DF[JK19LI1/*APS0IMK9LTR41D:NG&.C;@30[/O=!_P#3\J-021[^ M=ID9P_JV%@<%;O*8UA2>46$_YM%VAH(OGRE>BO9]0XSRQ-[,62_GSYE-X_\`.1SXRY56L*5?EKK<%R'3*%1ZE1)1&E]]54C$ATR(] MB4IR9&D\;3SMW%C:+AY,[O*]K4CULX+L-TU&VZA:3T%+3O-LS]TGT^;:7F$N M`!7O*M^56)^L\7[#@L(MQ`!BJJ#;O*?;D-VFTB;::X7A+S[9RFI"G/QCAKP9 MI,B\_0-GS?+%\+LGU$KO!S?+%\+LGU$KO!S?+%\+LGU$KO!S?+%\+LGU$KO! MS?+%\+LGU$KO!S?+%\+LGU$KO!S?+%\+LGU$KO!S?+%\+LGU$KO!S?+%\+LG MU$KO!S?+%\+LGU$KO!S?+%\+LGU$KO!S?+%\+LGU$KO!S?+%\+LGU$KO!S?+ M%\+LGU$KO!S?+%\+LGU$KO!S?+%\*LGU$KO"G)O_`*=[JF3)$QZN43NVC]2@``(!RD?GZP?IU/[EP3\MQ`````````````````````` M````````````8#!=`C%ZV1;UZ1HS%+]AP6$6X@`` M``````````````$`Y2/S]8/TZG]RX)^6X@`````````````````````````` M```````````!7O*M^56)^L\7[#@L(MQ`````````````````(!RD?GZP?IU/ M[EP3\MQ``````````````````````````````````````"O>5;\JL3]9XOV' M!81;B``````````````$5I][4R;&?G^"5*/3&67'SGOQC2PI"#VFE63,\^;9 MM&QH%PPJVJ2TPU+C28VCSL:8PIEU*5$9H5HG_1/!X/T&6\C(8D>\J*_4U0"7 M(;+2=0W*=84B.\IK/.I0X>Q1IT59_P`*L9P8];?NJEUV0N/$3+:=)I,AM,J. MIDWF3/!.HTO=)S]99+)%DA'N4@_^_6#].I_B9_BR)HL& M>,Z6[88C5_6WX/6[*1X_KCO/UHD:3LS2-O\`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``` M``````````````@'*1^?K!^G4_N7!/RW$``````````````````````````` M```````````*]Y5ORJQ/UGB_8<%A%N(````````````````!`.4C\_6#].I_ M+]AP6$6X@````````````````$`Y2/ MS]8/TZG]RX)^6X@`````````````````````````````````````!7O*M^56 M)^L\7[#@L(MQ`````````````````(!RD?GZP?IU/[EP3\MQ```````````` M``````````````````````````"O>5;\JL3]9XOV'!81;B`````````````` M`=&G6W4Z33B5IR992>2R0$ZT;BFB<2;B2(U)(]I$>[)`VZVX:B;6E6B>BK1/ M.#Z#](@?*1^?K!^G4_N7!/B,L%M'.2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0 MR72&2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0R72& M2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0R M72&2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z0R72&2Z17O*M^56)^L\7 M[#@L(MQ``````````````",\HQR4V/6SB\[IE&5I/3HZ0T5KOV[`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``````ZFV@W"<-"=,BP2L;2+HR.P`````. MJ6T)6I:4)):L:2B+:>-V1V`````!U0VAO2T$)3I&:CP6,GTCL`````&62P8Z MMH0V@D-H2E"=A)26"(=@````'5Q"'$&AQ"5H/>E19(QV`````!U6VA>CIH2K M1/23DLX/I'8`````````````````````$.N:XVGGCMZ@U>,5;5(::>;;6A3S M+1J+G5(2KR36E!Z6-N"VF1[C\K=JU:IM6:MZX&7WD27I!4Z>ZXV;CR&_*(G$ M((L'HY,E>ZH50MZ:[:URPT38;[!N.MJ2X3:#>2 ME2E)/W2,&>3+8>#P8V%C7]31FD]%>-N# MZ!+````!X3ID6!$>FS9#4>,RDUN.NJ)*4)+SF9BN9-RU.I77$>M]::G`<:-$ M`F'U-Q4ND1\^Y)%O,SZ" MVBO6+GJL^\)#-&D>,EJ0I^'%\*0S"XTGC8>#(RR6PQL@```!I+DN.ET%@DS:E!BRGTJ M\&1+>YM*U$7](\'HIR9$:L8+(T=N)GT>Y3AU>JKGO5B(4HG35AHGFU86AI/] M%&@MO!;S))F9F>3$W`````1.[[HCP6)E)I=0B'<0X1'O+SEC M:+*``````````````````````&LE3H\F1-HD2H(8JR8Q.DG&5-I5E*7"(_=% MI$?[,&*Y5$J#M&J$0Z`_48DN0[)9\"=0B33*CI&:R,U*3A).Y4APC,R(\&1E M@SF]N6W#IQMU-^*WX[>8(I3Z5J46FK"G-`C/"$J7DS))$1[!(@```!&ZS/:J M='J14E\I2X3JF9D9'NEDG^<9/SDHT&>B?3HF6P0I='J4VG4:E'14U`XJFFX- M9:-OP=^`9I):'T&9'Y364J025)4K146#]S:S;;;2$H;0E"4D24I26"(BW$0[ M@```&>"R(/=S\>X;9BSZ;4T*I3SB34^A)+2VHEI-MXR/WMU"=))X\DUYP9;, M!JEU2LW$PNI6Z]35.,+9K3S,DBCS$I++1MJ0HEFHE$1DHR2I*=))GN$[I5-@ MTF"W`IT9$>,WG10G.\SR9F9[3,S,S,SVF9[1F````Q:G/B4N`_4)[Q,Q6$Z; MKJB/"$^NI=L1ZY6ZA(JEK.0*8XVEQ4:6I&?##,R<<:YM1Z*5)T249&1+,B/&\6+' M89BQVHT9I#3#220VVVDDI0DBP1$1;B(AZ````PZA4H-.5%3-DML>%/E'9-9X M);AD9DG.[)X/'2>S>(34F:M'NR3-8C(J3R&#;=AKT4*EP5JTOQ9GY/.-K-1: M)X)25)R9&9&,^S*)BGZ,^EO1HD2H*D4B-*42G8;6@22+*3/!94YA.3PDR+S8 M*9@```#"?J4%JHQZ4[*0W-E-K<9:4>#<2C&EH])EI%LW^<5RB'.0Y6X=0HRJ M[`F/$FI1V-!,AM\D)2A]!*-)&A:$MJV*(T+(\;/1'%:9'*X'DHJ4*31KU0 MSX3&JG@_-\\AM1MDI*34H]`R-.FRK'N]VY16!2H2HZ5R9"6TSI26U2^94KFE M.I0234DCW;B+IP19W#8````""W16[@=GS8=N?BCIT5R0XM4)4@WWRT=%@B(R MT2,E$>=YD>SW*ABTF"Q.FO5.W8JZ%<,.02*G$E)RF22SYPR=T5*)>=(U(<(S M-)[-V4B=T^%'I\?P:*C09):UI3G))TE&HR+H+)G@O,,D````S%=U&NW'.EO2 MZ/&<>I;+T=A,),11N3D.;'5VZ/3WT-3[9:3!H\ MLEQ:I1Y#6BDE((VU&22,]!TC3HJWDLMIY,B4)Q%81&C,QVS4:&D)0DUJ-1F1 M%@LF>\_2/4```&//ELP(;TR09DRR@UN&E)J-*2WG@MNPMHK>?5*\^CPJNT9V MHT&2J2\DG[D\D7DG@I@````-7<=5.CTF1,;CJD/DDTLLI_K' M3(]!!GYM)6$YZ3(0%]YV2\W#OVFJJU*=\'-F<4`V&8KSY*0:%)4O2P64D2R( MS2:\&9'M$QH=$EQ#934YISS@.+*#*69D\;*DD1H=/F-Z=2DFE+.DTIQ*$Z:$K<-*=JM!*]/1+:9)/S$9E$D1VZM4_$ M]W09150WG8]*KK;'@YKYO#A&WY1FVX6%'G1)*R1YRV";T6G2F$MRZJ\T_5>9 M\'>D,)-"'D)69H4:-Q*P>?0:E8V#;@`````````````````````A=RW)'E/Z MN4.L--U=D1B,C6TZDB(B\CRDJR>U""5@SVS*C6W!I4YZ>E^;*EN(YHGID ME3RFV\Z6@DU;DYV])X+)G@AO````!`JC76;IJ,.D6Y75E'2;JYRX#B42-!*3 MT#;-98-LU[#6C.W1+)$9C7T-5>DU=%(KD=QFIKIC2*@]$EEI.M*TR0]I)).@ MZE:5$9%DC)9FDS)."G-"HD.BLO(CJ?>>D." M-QUH:)4HUGIID)<+2(B1H&23(LI4HRR>!E4)$FN.UN$ZB53&T35<\<";_,2D MZ)J)#A$6DA:5H7@T[%:9&6<"94>F0Z/3F:?`;-##6<:2C4I1F9FI2E'M4HS, MS,SVF9F,T```&OK58IU$AE,JPQ!6WKH MJD@KBHTQ-1BN3G&VHGA;:(+T(FSP9F25*TS7L,\9)1&1D21DVY2V+JM:#X2[ M4X],YLRCMM2S;)^,LB/FG"2?E:.#1GSD62/"C$^::;9:0RRA+;:$DE*$E@DD M6PB(N@=P```::N7+0Z"XRW5JDS%6\1J02\[$E@C4K!'HI(S+*CP19WBOIFL\ M*C.UBM<_4:;(ISKM68F1I5%T2/:E&D:2,R)7DF9Z0E\*WRJBH-3KC MLUR2P:%'&.0HHSCC9GH/X\9+)"5@```")7A=46GL3*33JE$;N%; M.(K3I["<5[A)J/R"4K;HI49:1X\PC523<5%E-Q7UR9T-RH,)I*: MRAY"/!F"41*0\DS)1_B\H,DDHG"QG![IU0Z!1Z"TZU2*>S$2ZHE+T"VJP6"R M9[<$6PBW%YAM````!K+BI+5V\TTM#;D>J3>''GL:)FV24YYS2YS166D1:&%$2CSMG=+IL&DP MFX-.BMQHS>32VV6"R9Y,_29F>3,]IF,P````:*Z:3+J#,.92W6FJM3G_``B( MI[/-J5HFA2%XVZ*DJ4G);2R1[<8$8I]LE7*U4)-;MGP"FOH;<S*=FVP66FV&D,LMH;:;224(06$I(MA$1%N(=P```!%KB MIE19JS%Q49AN7(2P<67"<62/"6-+2+04>PEI49F6?),C,CQL,M7:]GP'65O5 MB@(9:8F+B9IQSA*4E.5$DC(BW;)Z`````A5"VN MX$-&E -----END PRIVACY-ENHANCED MESSAGE-----