Cyanotech Reports Financial Results for the Third Quarter and First Nine Months of Fiscal Year 2015

KAILUA KONA, Hawaii--(BUSINESS WIRE)--

Cyanotech Corporation CYAN, a world leader in microalgae-based, high-value nutrition and health products, today announced financial results for the third quarter and first nine months of fiscal year 2015, ended December 31, 2014.

Third Quarter Fiscal Year 2015

For the third quarter of fiscal 2015 compared to the third quarter of fiscal 2014, net sales were $8,842,000 compared to $7,438,000, an increase of 19%. Gross profit was $4,353,000, with gross profit margin of 49%, compared to gross profit of $3,145,000 and gross profit margin of 42%. Net income was $304,000 or $0.05 per diluted share, compared to net income of $36,000 or $0.01 per diluted share.

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

"Net sales reached a record $8,842,000 (+19%) in the 3rd Quarter. This is our second consecutive quarterly record. Our Nutrex packaged consumer products business (+52%) was the primary driver of this growth. Third quarter net sales growth of our Nutrex business, by channel, was:

• Nutrex Mainland: +65%
• Nutrex Hawaii: +35%
• Nutrex Direct (online): +25%
• Nutrex International: +27%

"BioAstin retail market share of Astaxanthin in the US natural products channel was 57% (+5 pts.). Nutrex Spirulina market share was 51% (+3 pts.).

"Our test in 15 San Diego Costco warehouses continues to perform well. Distribution was expanded to an additional 45 Costco warehouses in Arizona, Colorado, New Mexico, Utah and Los Angeles in early February.

"Operating income for the quarter was $783,000, a healthy +143% increase versus prior year. The growth was driven by a 49% (+7 pts.) gross margin resulting from strong growth in the Nutrex business and an increase in extraction yields. This was partially offset by a planned $462,000 increase in sales and marketing expenses to support the San Diego test market and the strong Nutrex growth. In addition, legal costs for the litigation that was resolved in December increased by $136,000. Excluding these legal costs, pretax earnings for the quarter were $1,411,000 compared to $813,000 for the same period last year, and basic earnings per share were $0.14 per share in the current quarter compared to $0.07 for the same period last year." Please review the Company's 10-Q for detailed information.

Looking forward, Cyanotech reported that its new Astaxanthin extraction system was delivered to their production facility in Kailua-Kona, HI last November, has been installed in a new extraction building and is expected to be in full operation in the first quarter of fiscal 2016. "It is expected to significantly reduce costs and production time for our natural Astaxanthin product, demand for which has steadily increased," said Bailey.

Astaxanthin is produced from microalgae cultivated and grown at Cyanotech's facility in Kona, Hawaii. After harvest, the microalgae biomass has historically been shipped to the US mainland or New Zealand where the Astaxanthin has been extracted. This process added several weeks to production time and significant costs.

The new onsite supercritical carbon dioxide extraction system was designed and built in Germany by Uhde High Pressure Technologies a division of ThyssenKrupp. The state-of-the-art extraction system employs supercritical carbon dioxide at 15,000 psi (1,000 bar) for the rapid and efficient extraction of carotenoids, such as Astaxanthin, without the use of organic solvents.

First Nine Months

For the first nine months ended December 31, 2014 compared to the first nine months ended December 31, 2013, net sales were $24,968,000 compared to $21,646,000 an increase of 15%. Gross profit was $11,597,000, with gross profit margin of 46%, compared to gross profit of $8,990,000 and gross profit margin of 42%. Net income was $79,000 or $0.01 per diluted share, compared to net income of $172,000 or $0.03 per diluted share.

Excluding legal costs related to the recently settled litigation, pretax earnings for the first nine months were $3,188,000 compared to $1,768,000 for the same period last year, and basic earnings per share were $0.32 in the first nine months compared to $0.14 for the same period last year. Please review the Company's 10-Q for detailed information.

Trailing 12 Months

For the trailing 12 months ended December 31, 2014 compared to the trailing 12 months ended December 31, 2013, net sales were $32,227,000 compared to $28,543,000 an increase of 13%. Gross profit was $14,171,000, with gross profit margin of 44%, compared to gross profit of $11,697,000 and gross profit margin of 41%. Pretax loss was ($608,000) compared to pretax income of $1,344,000, and net loss was ($288,000) or ($0.05) per diluted share, compared to net income of $2,805,000 or $0.50 per diluted share. Excluding legal costs related to the recently settled litigation, pretax income for the trailing 12 months was $3,252,000 compared to $2,338,000 for the same period last year.

About Cyanotech — Cyanotech Corporation, a world leader in microalgae technology, produces BioAstin® Natural Astaxanthin and Hawaiian Spirulina Pacifica®—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 sells its products direct to consumers at retail locations in the United States and online at www.nutrex-hawaii.com and also distributes to nutritional supplement, nutraceutical and cosmeceutical manufacturers and marketers worldwide and is GMP-certified by the Natural Products Association™. 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 December 31, 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)
		December 31,				March 31,
			2014				2014
ASSETS
Current assets:
Cash and cash equivalents		$	2,541			$	4,312
Accounts receivable, net of allowance for doubtful accounts of $6 at December 31, 2014 and $6 at March 31, 2014			3,804				3,347
Inventories, net			6,540				4,876
Deferred tax assets			216				216
Prepaid expenses and other current assets			406				339
Total current assets			13,507				13,090
Equipment and leasehold improvements, net			13,957				11,826
Restricted cash			561				1,368
Deferred tax assets			3,095				3,124
Other assets			805				902
Total assets		$	31,925			$	30,310
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt		$	209			$	204
Customer deposits			46				30
Accounts payable			3,835				3,184
Accrued expenses			1,043				774
Total current liabilities			5,133				4,192
Long-term debt, excluding current maturities			5,103				5,263
Deferred rent			7				8
Total liabilities			10,243				9,463
Commitments and contingencies
Stockholders' equity:
Common stock of $0.02 par value, shares authorized 50,000,000; 5,552,999 shares issued and outstanding at December 31, 2014 and 5,488,038 shares at March 31, 2014			111				110
Additional paid-in capital			30,646				29,891
Accumulated deficit			(9,075	)			(9,154	)
Total stockholders' equity			21,682				20,847
Total liabilities and stockholders' equity		$	31,925			$	30,310

CYANOTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
		Three Months Ended								Nine Months Ended
		December 31,								December 31,
			2014				2013				2014				2013
NET SALES		$	8,842			$	7,438			$	24,968			$	21,646
COST OF SALES			4,489				4,293				13,371				12,656
Gross profit			4,353				3,145				11,597				8,990
OPERATING EXPENSES:
General and administrative			1,829				1,685				6,746				4,502
Sales and marketing			1,473				1,011				4,169				3,195
Research and development			155				108				376				394
Loss on disposal of equipment and leasehold improvements			113				19				126				45
Total operating expenses			3,570				2,823				11,417				8,136
Income from operations			783				322				180				854
Interest expense, net			(23	)			(29	)			(71	)			(90	)
Income before income tax			760				293				109				764
INCOME TAX EXPENSE			456				257				30				592
NET INCOME		$	304			$	36			$	79			$	172
NET INCOME PER SHARE:
Basic		$	0.05			$	0.01			$	0.01			$	0.03
Diluted		$	0.05			$	0.01			$	0.01			$	0.03
SHARES USED IN CALCULATION OF NET INCOME PER SHARE:
Basic			5,533				5,486				5,505				5,475
Diluted			5,779				5,659				5,704				5,656