Cyanotech Reports Financial Results for the Fourth Quarter and Fiscal Year 2014

KAILUA KONA, Hawaii (June 27, 2014) - Cyanotech Corporation (Nasdaq Capital Market: CYAN), a world leader in microalgae-based, high-value nutrition and health products, today announced financial results for the fourth quarter and fiscal year 2014, ended March 31, 2014.

Fiscal Year 2014
For fiscal 2014 compared to fiscal 2013, net sales were $28,905,000 compared to $27,581,000, an increase of 5%. Gross profit was $11,564,000, with gross profit margin of 40%, compared to gross profit of $10,958,000 and gross profit margin of 40%. The Company recognized a net loss for the year of ($195,000) or ($0.03) per diluted share, compared to net income of $4,209,000 or $0.74 per diluted share. Net loss for the year includes a non-cash provision for income taxes of $242,000 compared to a non-cash income tax benefit of $2,021,000 recognized in fiscal 2013 on the elimination of the valuation allowance on deferred tax assets. Operating income for the year was $165,000 compared to $2,299,000 for fiscal 2013.

Commenting on the fiscal 2014 results (changes shown vs. fiscal 2013), Brent Bailey, Cyanotech President and CEO, noted:

"Fiscal 2014 was both a challenging and rewarding year for Cyanotech. Although financial performance was disappointing, excellent progress was made on strategic priorities focused on long-term growth.

"The financial performance was driven by two factors:

  • Astaxanthin production below expectations and historical levels
  • Legal costs related to ongoing litigation

"Lower Astaxanthin production resulted primarily from unusually high levels of wind, rain and overcast skies in the third and fourth quarters. For Fiscal 2014, Astaxanthin production was 16.5% below Fiscal 2013. The Astaxanthin production shortfall resulted in a $4.1 million sales shortfall in our bulk business vs. prior year, and would have resulted in a $3.6 million gross profit shortfall. However, due to the strong performance in Nutrex, the gross profit shortfall vs. prior year for Astaxanthin products was only $0.7 million. We have implemented three major initiatives to improve Astaxanthin production. The first is a strain productivity improvement program. In limited full-scale production, productivity has increased +63% and +11% in the two versions tested. The second is focused on increasing the density of algae, which in initial full-scale production is generating 6% more output. The third is a process change which has the potential to reduce the space necessary to produce astaxanthin, protect algae from the elements for a greater portion of the farming process and increase the frequency and volume of output in the early stages of production. We believe these initiatives will increase the level and consistency of production in the near future.

"Litigation continued throughout Fiscal 2014 with legal expenses increasing by $1.1 million versus Fiscal 2013 and being particularly heavy in the 4th quarter due to discovery and depositions which are continuing into Fiscal 2015. Please review the Company's SEC Form10-K through the Company's website referenced at the bottom of this release for detailed information.

"In spite of the Astaxanthin production and litigation challenges, we made excellent progress on major strategic priorities in Fiscal 2014. Net sales and contribution margin in our Nutrex packaged consumer products grew +45% and +44%, respectively, versus the prior year. The growth in profitability was particularly impressive considering the margin impact of the Astaxanthin production issues and the significant investment made in our mainland test market and direct response television test. Fiscal 2014 net sales growth of our Nutrex business, by channel, was:

  • Nutrex Mainland: +51%
  • Nutrex Hawaii: +35%
  • Nutrex Direct (online): +45%
  • Nutrex International: +78%

Net sales per capita in Hawaii, which we consider an indicator of our potential on the mainland, reached $2.02 in Fiscal 2014 up from $1.47 in Fiscal 2013. Retail dollar growth of our BioAstin products in the US natural products channel was +50% with a market share of Astaxanthin of 53% (+13 pts.). Nutrex Spirulina retail dollar growth was +26% with a market share of 49% (+3 pts.) in Fiscal 2014.

"Our new extraction equipment is expected to arrive in Kona this summer and to be in operation by the end of Fiscal 2015. With this addition, we believe we will be the only truly vertically integrated supplier of natural Astaxanthin in the world, owning the entire process from growth of the algae on our farm in Kona, HI all the way to the consumer with our market-leading BioAstin brand. The addition of our own extraction facility is expected to significantly reduce cost and result in shorter lead times for customers.

"The extraction equipment will be part of a new building that is currently under construction and will also include warehouse space, an Astaxanthin oil blending room and a new freezer. This is part of a Kona master plan which also includes the new Sales and Administration building that was completed early in Fiscal 2014."

Fourth Quarter 2014
For the fourth quarter of fiscal 2014 compared to the fourth quarter of fiscal 2013, net sales were $7,259,000 compared to $6,897,000, an increase of 5%. Gross profit was $2,574,000, with gross profit margin of 35%, compared to gross profit of $2,707,000 and gross profit margin of 39%. Net income was ($367,000) or ($0.06) per diluted share, compared to net income of $2,633,000 or $0.47 per diluted share. Net income in the fourth quarter includes a non-cash benefit for income taxes of $350,000 compared to a non-cash income tax benefit of $2,053,000 recognized in fiscal 2013 on the elimination of the valuation allowance on deferred tax assets. Operating income for the quarter was ($689,000) compared to $597,000 for the same quarter last year.

Regarding the 4th quarter fiscal 2014 results (changes shown versus fiscal 2013), Brent Bailey, President and CEO, stated:

"In the 4th Quarter, our Nutrex packaged consumer products net sales growth, by channel, was:

  • Nutrex Mainland: +53%
  • Nutrex Hawaii: +52%
  • Nutrex Direct (online): +43%
  • Nutrex International: +111%

Retail dollar growth in the natural products channel of our Astaxanthin products was +26% and our market share was 57% (+6 pts.). Our Spirulina retail dollar growth for the quarter was +12% and our market share was 50% (NC)."

"The incremental profit generated by the strong +16% revenue growth in the 4th quarter was more than offset by:

  • Weak Astaxanthin production primarily due to the environmental factors mentioned previously
  • The planned costs associated with the people and infrastructure investments that are driving the excellent topline growth we continue to see in our consumer business
  • An increase in legal fees driven by the discovery and deposition phase of the ongoing litigation

The result is an operating loss of $689,000 in the 4th quarter."

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-K for the period ended March 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.)


Contact:
Bruce Russell: brussell@cyanotech.com
(310) 346-6131



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