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

First Quarter Fiscal Year 2015

For the first quarter of fiscal 2015 compared to the first quarter of fiscal 2014, net sales were $7,442,000 compared to $6,909,000, an increase of 7.7%. Gross profit was $2,968,000, with gross profit margin of 39.9%, compared to gross profit of $2,852,000 and gross profit margin of 41.3%. Net loss was ($413,000) or ($0.08) per diluted share, compared to net income of $30,000 or $0.01 per diluted share.

Commenting on the first quarter fiscal 2015 results (changes shown vs. first quarter fiscal 2014), Brent Bailey noted:

“Excellent progress continued in the first quarter on strategic priorities that we expect to drive long term growth. Net sales in our Nutrex packaged consumer products grew +48%. First quarter net sales growth of our Nutrex business, by channel, was:

  • Nutrex Mainland: +49%
  • Nutrex Hawaii: +27%
  • Nutrex Direct (online): +57%
  • Nutrex International: +68%

“Our new, larger Nutrex warehouse club sizes included in a costco.com national mailer substantially exceeded expectations in the first quarter. As a result of many years of strong retail sales for BioAstin in Costco’s Hawaii warehouses, a 15-warehouse test with Costco in San Diego will begin in September. Our BioAstin retail market share of Astaxanthin in the US natural products channel was 57% (+5 pts.). Nutrex Spirulina retail market share was 46% (-1 pt.) in the first quarter.

“However, financial performance was disappointing due to:

  • Legal costs related to ongoing litigation
  • Increased Astaxanthin costs due to poor fourth quarter fiscal 2014 production

“The result was an operating loss of ($1.1 million) for the quarter.

“Operating expenses for the quarter include $1.5 million in legal costs related to ongoing litigation, compared to $0.3 million in the same period last year. Litigation expenses in the first quarter were exceptionally high due to extension of discovery and depositions, development of economic and medical expert reports and the oral hearing with the Patent Board on our Inter Partes Review. Excluding these legal costs, pretax earnings for the quarter were $0.3 million compared to $0.4 million for the same period last year, and basic earnings per share were $0.06 per share in the current quarter compared to $0.08 per share for the same period last year. Please review the Company’s 10Q for detailed information.

“Poor fourth quarter fiscal 2014 Astaxanthin production resulted in higher first quarter fiscal 2015 costs and a negative gross margin impact of $466,000 versus prior year. First quarter fiscal 2015 Astaxanthin production was down -17% versus first quarter fiscal 2014. However, it was up +103% versus fourth quarter fiscal 2014 and the gap versus year ago narrowed each month of the quarter. The favorable trend is attributable to seasonal improvement in weather, a +49% increase from the strain productivity program and a +15% increase from the algae density improvement program. We believe these initiatives will continue to increase the level and consistency of production in the future.

Trailing 12 Months

For the trailing 12 months ended June 30, 2014 compared to the trailing 12 months ended June 30, 2013, net sales were $29,438,000 compared to $27,984,000 an increase of 5.2%. Gross profit was $11,680,000, with gross profit margin of 39.7%, compared to gross profit of $11,236,000 and gross profit margin of 40.2%. Net loss was $639,000 or -$0.15 per diluted share, compared to net income of $3,746,000 or $0.67 per diluted share.

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 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 June 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)

 
June 30,
2014		 March 31,
2014
ASSETS
Current assets:
Cash and cash equivalents $ 3,393 $ 4,312
Accounts receivable, net of allowance for doubtful accounts of $6 at June 30, 2014 and $6 at March 31, 2014 3,064 3,347
Inventories, net 4,818 4,876
Deferred tax assets 216 216
Prepaid expenses and other current assets 397 339
Total current assets 11,888 13,090
 
Equipment and leasehold improvements, net 12,417 11,826
Restricted cash 1,115 1,368
Deferred tax assets 3,875 3,124
Other assets 882 902
Total assets $ 30,177 $ 30,310
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt $ 210 $ 204
Customer deposits 63 30
Accounts payable 3,284 3,184
Accrued expenses 779 774
Total current liabilities 4,336 4,192
 
Long-term debt, excluding current maturities 5,206 5,263
Deferred rent 8 8
Total liabilities 9,550 9,463
 
Commitments and contingencies
 
Stockholders’ equity:
Common stock of $0.02 par value, shares authorized 50,000,000; 5,488,038 shares issued and outstanding at June 30, 2014 and 5,488,038 at March 31, 2014 110 110
Additional paid-in capital 30,084 29,891
Accumulated deficit (9,567 ) (9,154 )
Total stockholders’ equity 20,627 20,847
 
Total liabilities and stockholders’ equity $ 30,177 $ 30,310
 

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)

 
Three Months Ended June 30,
2014   2013
 
NET SALES $ 7,442 $ 6,909
COST OF SALES 4,474 4,057
Gross Profit 2,968 2,852
 
OPERATING EXPENSES:
General and administrative 2,747 1,556
Sales and marketing 1,234 1,004
Research and development 116 115
Loss on disposal of equipment and leasehold improvements 10 5
Total operating expenses 4,107 2,680
 
Income (loss) from operations (1,139 ) 172
 
Interest expense, net 25 36
 
Income (loss) before income tax (1,164 ) 136
 
INCOME TAX EXPENSE (BENEFIT) (751 ) 106
 
NET INCOME (LOSS) $ (413 ) $ 30
 
NET INCOME (LOSS) PER SHARE:
Basic $ (0.08 ) $ 0.01
Diluted $ (0.08 ) $ 0.01
 
SHARES USED IN CALCULATION OF NET INCOME (LOSS) PER SHARE:
Basic 5,488 5,464
Diluted 5,488 5,615