TO OUR STOCKHOLDERS. GERALD R. CYSEWSKI, Ph.D. / President, CEO and Chairman of the Board of Directors / Cyanotech Corporation CYANOTECH'S ASTAXANTHIN

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1 C Y A N O T E C H A N N U A L R E P O R T

2 TO OUR STOCKHOLDERS Cyanotech produces BioAstin natural astaxanthin and Spirulina Pacifica all-natural, functional nutrients that enhance human health and nutrition, providing significant antioxidant, anti-inflammatory and immune response benefits. The Company s other compounds, such as NatuRose natural astaxanthin, promote animal nutrition and health, primarily in aquaculture. Cyanotech extracts these compounds from microalgae grown at its 90-acre facility in Hawaii using proprietary processes, and distributes them to nutraceutical, nutritional supplement, cosmeceutical and aquaculture feed makers and marketers worldwide. The difference in this evolved company description is simple in expression, but profound in meaning. It signifies our heightened focus on the business-to-business wholesale market for our compounds, which are used as critical components of products by others, and for private labeling. While we continue to support our branded Nutrex products, we intend to pursue substantive growth in the wholesale market as a premier supplier of these and other essential compounds. CYANOTECH'S ASTAXANTHIN PONDS TURN RED WHEN READY TO HARVEST WITH A NEW CROP EACH WEEK. Why? Our core expertise is cultivating and processing microalgae into high-value, high-quality natural products. In this arena, Cyanotech is a world leader with important, proprietary technology and processes, and a world-class facility of significant capacity that works consistently and well. With this focus, our aim is to maintain flexibility and be able to produce higher volumes of our products as we meet the varied demands of our markets and customers, now numbering over 125 in 30 countries. After returning to profitability in the prior year through cost control and market focus, revenues and net income for fiscal 2005 were essentially level with a significant shift in product mix. During the year we experienced reduced demand for Naturose from our Japanese aquaculture customers due to their Typhoon-related, lower activity levels, as well as increased competition in Europe. At the same time, Spirulina Pacifica demand grew stronger and BioAstin sales continued to grow. This shift in product demand confirmed the need for improved flexibility in cultivation and processing. During fiscal 2005 we addressed this need by successfully completing conversion of certain ponds and upgrades to our processing infrastructure. At fiscal yearend, 15 ponds were in astaxanthin production and 54 ponds in Spirulina production, of which six ponds can be changed over to astaxanthin production on short notice. These improvements represent substantial investment in our production operations and are essential elements in increasing our future profitability. We are now a more agile company with increased ability to adjust our production to meet changing demand for our products. Importantly, this conversion was accomplished with little impact on our ability to produce and ship product during the fiscal year and did not weaken the company s financial position. In fact, Cyanotech ended fiscal 2005 with a stronger working capital and cash/investment balance than at the beginning of the year. Looking ahead, our aim is to grow revenue to match our increased capacity and we have resumed investment in scientific trials of BioAstin, a product that we believe has significant growth potential. Concurrently, we are increasing our marketing activities focused on our primary role as a premier supplier to wholesale customers worldwide. We plan to allocate resources appropriately to support sales of our existing products, to develop new markets for these products, principally BioAstin, and to invest in Cyanotech s future by assessing opportunities to apply our expertise to development of new, high-value products from microalgae. GERALD R. CYSEWSKI, Ph.D. / President, CEO and Chairman of the Board of Directors / Cyanotech Corporation

3 ABOUT CYANOTECH Cyanotech produces BioAstin natural astaxanthin and Spirulina Pacifica all-natural, functional nutrients that enhance human health and nutrition, providing significant antioxidant, anti-inflammatory and immune response benefits. The Company s other compounds, such as NatuRose natural astaxanthin, promote animal nutrition and health, primarily in aquaculture. Cyanotech extracts these compounds from microalgae grown at its 90-acre facility in Hawaii using proprietary processes, and distributes them to nutraceutical, nutritional supplement, cosmeceutical and aquaculture feed makers and marketers worldwide. QUALITY MISSION Founded in 1983, Cyanotech is guided by the principle of providing beneficial, high-quality microalgal products for human and animal nutrition in a sustainable, reliable and environmentally sensitive operation. We were the first microalgae company in the world to have an ISO 9002-registered quality system, and in July 2003 we received certification under the new ISO 9001:2000 standard a full year ahead of schedule. It reinforces our commitment to quality in every aspect of our operation, our products, in our relationships with customers, suppliers, co-workers and our community and in our environment. INNOVATIVE TECHNOLOGY Over the past 20 years, Cyanotech has established itself as a world leader in cultivating and processing high-value natural products derived from microalgae. Our Keahole Point facility on the Kona Coast of Hawaii is the ideal location for applying our innovative microalgal processing technology. It receives a high amount of sunlight needed for algal cultivation year-round, is subject to low rainfall, and provides unique access to the pure, deep ocean water used in our cultivation and processing systems. We continue to refine our technology and we hold five U.S. patents related to processing and product applications.

4 CYANOTECH S TEAM The core of any company is qualified employees. Our team is comprised of more than 60 full-time employees who operate all aspects of Cyanotech s 90-acre Keahole Point facility. This is an experienced group with nearly 40% having five years or more of service with the company. Together, we perform functions which include cultivation, processing, tablet production, packaging, quality control, materials handling, research & development, repair & maintenance, sales, accounting and administration. ANNUAL SALES ANNUAL NET INCOME ENVIRONMENTALLY FRIENDLY Our Company is guided by the principle of keeping our production methods earth-friendly. We employ extensive recycling systems for retaining nutrients used in cultivation, generate a portion of our electrical power from renewable biodiesel, and recover carbon dioxide from our power generator stack gases for use in cultivation. We believe that maintaining commercial viability does not have to be at the expense of long-term ecological responsibility. ANNUAL WORKING CAPITAL

5 OFFICERS & DIRECTORS OFFICERS Gerald R. Cysewski, Ph.D. Chairman of the Board, President and Chief Executive Officer Jeffrey H. Sakamoto Chief Financial Officer, Vice President of Finance and Administration, Secretary and Treasurer Robert J. Capelli Vice President of Sales Glenn D. Jensen Vice President of Operations Seiichi Yoshioka Managing Director, Japan SENIOR MANAGERS Gary R. Fox Director of Quality Dennis E. Ehrenberg Director of Production Diane L. Kahookele Controller BOARD OF DIRECTORS Gerald R. Cysewski, Ph.D. Michael A. Davis 3 Gregg W. Robertson 1 David I. Rosenthal 1 John T. Waldron 2,3 Paul C. Yuen, Ph.D. 2,3 CORPORATE INFORMATION Corporate Headquarters Cyanotech Corporation Queen Kaahumanu Hwy. Suite 102 Keahole Point Kailua-Kona, HI Tel (808) Fax (808) Wholly-Owned Subsidiaries Nutrex Hawaii, Inc. Cyanotech Japan YK Investor Relations Russell Communications Group Tel (310) x101 brussell@cyanotech.com Transfer Agent and Registrar Computershare Investor Services 350 Indiana Street, Suite 800 Golden, CO Tel (303) Independent Accountants KPMG LLP 1001 Bishop Street Pauahi Tower, Suite 2100 Honolulu, Hawaii Member of Audit Committee 2 Member of Compensation and Stock Option Committee 3 Member of the Nominating and Corporate Governance Committee In 1984,Cyanotech Corporation established its cultivation and manufacturing facility at Keahole Point on the Kona coast of the island of Hawaii. This aerial photo showing a portion of our 90-acre facility provides a perspective on our Company s success with large-scale microalgal cultivation. Legal Counsel Goodsill Anderson Quinn & Stifel P. O. Box 3196 Honolulu, HI Form 10-K A copy of Cyanotech s annual report to the Securities and Exchange Commission on Form 10-K is available immediately by downloading from the company's website (www/cyanotech.com) or upon written request to: Secretary, Cyanotech Corp Queen Kaahumanu Hwy. Suite 102 Kailua-Kona, HI Notice of Annual Meeting The 2005 Annual Meeting of Stockholders will be held on Monday, August 22, 2005, at 7:00 P.M. Hawaii Standard Time at the King Kamehameha Kona Beach Hotel, Palani Road, Kailua-Kona, HI Additional Information Copies of Cyanotech s news releases and financial statements are available at our website: Cultivation ponds containing haematococcus pluvialis algae used to produce Cyanotech s NatuRose and BioAstin natural astaxanthin products. 2. Media recycling system used in natural astaxanthin cultivation. 3. Astaxanthin processing building which houses state-of-the-art microalgal drying, processing and packaging equipment. 4. Spirulina processing building which also houses powder blending and tableting operations. 5. One of two reservoirs used for recycled media from our Spirulina Pacifica cultivation. 6. Our Spirulina Pacifica cultivation ponds. Forward-Looking Information Certain statements herein set forth management s intentions, plans, beliefs, expectations or predictions of the future based on current facts and analyses. Actual results may differ materially due to a variety of factors including reduced product demand, price competition, government action and weather conditions. Additional information on factors that may affect the Company and cause actual results to differ from current expectations can be found in Cyanotech s filings with the Securities and Exchange Commission. Market for Common Equity and Related Stockholder Matters Cyanotech s Common Stock is traded on the NASDAQ SmallCap Market under the symbol CYAN. The following table sets forth the high and low selling prices as reported by the NASDAQ Stock Market for the periods presented. Three Months Ended High Low 2005 March 31, 2005 $1.53 $1.20 December 31, 2004 $1.70 $1.10 September 30, 2004 $1.85 $1.00 June 30, 2004 $1.65 $ March 31, 2004 $2.30 $1.05 December 31, 2003 $1.97 $0.36 September 30, 2003 $0.75 $0.41 June 30, 2003 $0.72 $0.40 Cyanotech 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. At the close of business on 6/24/2005, there were 20,896,265 shares of Common Stock outstanding, represented by 1,304 shareholders of record.

6 CYANOTECH CORPORATION Queen Kaahumanu Hwy. Suite 102 Keahole Point Kailua-Kona, HI Tel (808) Fax (808)