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Cyanotech Reports Financial Results for the Second Quarter and First Half of Fiscal Year 2015

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Cyanotech Corporation (Nasdaq Capital Market: CYAN), a world leader in microalgae-based, high-value nutrition and health products, today announced financial results for the second quarter and first six months of fiscal year 2015, ended September 30, 2014.

Second Quarter Fiscal Year 2015

For the second quarter of fiscal 2015 compared to the second quarter of fiscal 2014, net sales were $8,684,000 compared to $7,299,000, an increase of 19%. Gross profit was $4,276,000, with gross profit margin of 49%, compared to gross profit of $2,993,000 and gross profit margin of 41%. Net income was $188,000 or $0.03 per diluted share, compared to net income of $106,000 or $0.02 per diluted share.

Commenting on the second quarter fiscal 2015 results (changes shown vs. second quarter fiscal 2014), Brent Bailey, Cyanotech president and CEO, noted:

“Net sales reached a record $8,684,000 (+19%) in the 2nd Quarter. Our Nutrex packaged consumer products business (+47%) was the primary driver of this growth. The bulk Spirulina business (+32%) also had a strong quarter. Second quarter net sales growth of our Nutrex business, by channel, was:

  • Nutrex Mainland: +54%
  • Nutrex Hawaii: +46%
  • Nutrex Direct (online): +82%
  • Nutrex International: -3%

“The modest decline in the Nutrex International business was related to timing of orders.

“Our BioAstin retail market share of Astaxanthin in the US natural products channel was 58% (+5 pts.). Nutrex Spirulina market share was 52% (+2 pts.). Initial results from our test in 15 San Diego Costco warehouses are exceeding expectations.

“Operating income for the quarter was $536,000, a healthy +49% increase versus prior year. The growth was driven by a 49% (+8 pts.) gross margin resulting from strong growth in the Nutrex business and an increase in extraction yields. This was partially offset by an increase of $761,000 in legal costs, including final preparation of expert reports, rebuttal of plaintiff’s expert reports and preparation of several counter claims related to ongoing litigation. Excluding these legal costs, operating income for the quarter was $1,417,000, 16.3% of net sales, and +$938,000 versus prior year. In addition, sales and marketing expenses increased by $282,000, as planned, to support the San Diego test market and the strong Nutrex revenue growth. Excluding these legal costs, pretax earnings for the quarter were $1.4 million compared to $0.5 million for the same period last year, and basic earnings per share were $0.25 per share in the current quarter compared to $0.08 for the same period last year. Please review the Company’s 10Q for detailed information.

“After three consecutive sub-par quarters, Astaxanthin production in the second quarter was up +16% versus prior year including the second best month in Cyanotech history in September. This improvement was driven by greater strain productivity, increased algae density and several additional process changes. All are expected to significantly increase our Astaxanthin production for the foreseeable future.”

First Six Months

For the first six months ended September 30, 2014 compared to the first six months ended September 30, 2013, net sales were $16,126,000 compared to $14,208,000 an increase of 14%. Gross profit was $7,244,000, with gross profit margin of 45%, compared to gross profit of $5,845,000 and gross profit margin of 40%. Net loss was ($225,000) or ($0.04) per diluted share, compared to net income of $136,000 or $0.02 per diluted share.

Trailing 12 Months

For the trailing 12 months ended September 30, 2014 compared to the trailing 12 months ended September 30, 2013, net sales were $30,823,000 compared to $28,347,000 an increase of 9%. Gross profit was $12,963,000, with gross profit margin of 42%, compared to gross profit of $11,419,000 and gross profit margin of 40%. Net loss was ($557,000) or ($0.07) per diluted share, compared to net income of $3,377,000 or $0.43 per diluted share.

About CyanotechCyanotech Corporation, a world leader in microalgae technology, produces BioAstin(R) Natural Astaxanthin and Hawaiian Spirulina Pacifica(R)-all natural, functional nutrients that leverage our experience and reputation for quality, building nutritional brands which promote health and well-being. Cyanotech’s Spirulina products offer complete nutrition, and augment energy and immune response. They are FDA-reviewed and accepted as Generally Recognized as Safe (GRAS) for use in food products. BioAstin’s superior antioxidant activity and ability to support and maintain a natural anti-inflammatory response enhance skin, muscle and joint health. All Cyanotech products are produced from microalgae grown at our 90-acre facility in Kona, Hawaii using patented and proprietary technology. Cyanotech distributes to nutritional supplement, nutraceutical and cosmeceutical manufacturers and marketers worldwide and is GMP-certified by the Natural Products AssociationTM. Visit www.cyanotech.com for more information.

“Safe Harbor” Statement under the U.S. Private Securities Litigation Reform Act of 1995 Besides statements of present fact and historical fact, this press release may contain forward-looking statements. Forward-looking statements relate to the future and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by forward-looking statements. We caution against relying on forward-looking statements. Important factors that could change actual, future results include: changes in sales levels to our largest customers, weather patterns in Hawaii, production problems, risks associated with new products, foreign exchange fluctuations, and availability of financing, as well as national and global political, economic, business, competitive, market and regulatory conditions. Other factors are more fully detailed in the Company’s annual Form 10-K filings with the Securities and Exchange Commission.

(Financial Tables Follow: The following tables do not contain footnotes or other information contained in the Company’s Form 10-Q for the period ended September 30, 2014, which can be found on the Cyanotech website (www.cyanotech.com) under Investors>Investor Filings upon filing. As such the following Financial Tables are provided only as a guide and other factors are more fully detailed in the Company’s annual Form 10-K filings with the Securities and Exchange Commission.)

CYANOTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except par value and number of shares)

(Unaudited)

September 30,
2014
March 31,
2014
ASSETS
Current assets:
Cash and cash equivalents $ 2,858 $ 4,312
Accounts receivable, net of allowance for doubtful accounts of $6 at September 30, 2014 and $6 at March 31, 2014 4,185 3,347
Inventories, net 5,312 4,876
Deferred tax assets 216 216
Prepaid expenses and other current assets 452 339
Total current assets 13,023 13,090
Equipment and leasehold improvements, net 13,232 11,826
Restricted cash 1,091 1,368
Deferred tax assets 3,550 3,124
Other assets 872 902
Total assets $ 31,768 $ 30,310
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt $ 210 $ 204
Customer deposits 34 30
Accounts payable 4,244 3,184
Accrued expenses 1,032 774
Total current liabilities 5,520 4,192
Long-term debt, excluding current maturities 5,155 5,263
Deferred rent 8 8
Total liabilities 10,683 9,463
Commitments and contingencies
Stockholders’ equity:
Common stock of $0.02 par value, shares authorized 50,000,000; 5,516,999 shares issued and outstanding at September 30, 2014 and 5,488,038 shares at March 31, 2014 110 110
Additional paid-in capital 30,354 29,891
Accumulated deficit (9,379 ) (9,154 )
Total stockholders’ equity 21,085 20,847
Total liabilities and stockholders’ equity $ 31,768 $ 30,310

CYANOTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended
September 30,
Six Months Ended
September 30,
2014 2013 2014 2013
NET SALES $ 8,684 $ 7,299 $ 16,126 $ 14,208
COST OF SALES 4,408 4,306 8,882 8,363
Gross profit 4,276 2,993 7,244 5,845
OPERATING EXPENSES:
General and administrative 2,170 1,261 4,917 2,816
Sales and marketing 1,462 1,180 2,696 2,184
Research and development 105 171 221 286
Loss on disposal of equipment and leasehold improvements 3 21 13 26
Total operating expenses 3,740 2,633 7,847 5,312
Income (loss) from operations 536 360 (603 ) 533
Interest expense, net (23 ) (25 ) (48 ) (62 )
Income (loss) before income tax 513 335 (651 ) 471
INCOME TAX EXPENSE (BENEFIT) 325 229 (426 ) 335
NET INCOME (LOSS) $ 188 $ 106 $ (225 ) $ 136
NET INCOME (LOSS) PER SHARE:
Basic $ 0.03 $ 0.02 $ (0.04 ) $ 0.02
Diluted $ 0.03 $ 0.02 $ (0.04 ) $ 0.02
SHARES USED IN CALCULATION OF NET INCOME (LOSS) PER SHARE:
Basic 5,493 5,475 5,491 5,470
Diluted 5,668 5,699 5,491 5,655

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