MEDIA RELEASE

Cyanotech Corporation, a world leader in microalgae-based, high-value nutrition and health products, has announced financial results for the second quarter and first six months of fiscal year 2014, ended Sept. 30, 2013.

Second Quarter 2014

For the second quarter of fiscal 2014 compared to the second quarter of fiscal 2013, net sales were $7,299,000 compared to $6,936,000, an increase of 5.2%. Gross profit was $2,993,000, with gross profit margin of 41%, compared to gross profit of $2,812,000 and gross profit margin of 40.5%. Net income was $106,000 or $0.02 per diluted share, compared to net income of $476,000 or $0.08 per diluted share.

Regarding the second quarter of fiscal 2014 results (changes shown versus the second quarter of fiscal 2013), Brent Bailey, president and CEO, said, “Total company net sales growth was only +5% largely due to our inability to meet Astaxanthin demand. In spite of the Astaxanthin supply constraint, our consumer products business (Nutrex) grew +47% in the quarter.”

Net sales growth for these products, by area, was:

* Nutrex Mainland: +60%
* Nutrex Hawaii: +9%
* Nutrex Direct: +29%
* Nutrex International +75%

Retail sales growth of Astaxanthin products in the U.S. natural products channel was +81% with a market share of 53.8% (+18.4 pts.). Spirulina retail dollar growth for the quarter was +28% with a market share of 50.7% (+6.2 pts.).

“Continuing the focus on building our consumer packaged business, the West Coast test of our Hawaii marketing plan continues to produce outstanding results with growth 49% greater than the remainder of the country during the second quarter,” Bailey said.

“In addition, we are developing a 30-minute BioAstin infomercial. Also encouraging was the +59% growth of our Bulk Spirulina business. Spirulina production has recovered after a difficult FY2013 and was up +109% versus second quarter fiscal 2013,” he said.

The company was unable to keep pace with Astaxanthin demand in the second quarter due to:

* Continued strong growth of Astaxanthin in both the bulk and consumer markets.

* Poor yields from a major extraction supplier due to a switch from batch to continuous processing. They have since gone back to batch processing and yields have returned to historical levels. Since Bulk utilizes 85% of Astaxanthin raw material, second quarter net sales was significantly impacted and we expect third quarter to be impacted as well.

* Environmental factors that have affected the quantity, but not the quality, of our output during the second quarter. The company continues to adjust the culture parameters to increase production rates; however, lower production rates could persist until the fourth quarter of fiscal 2014.

“Operating income for the second quarter was below year ago due to the planned cost of the West Coast test market and the infomercial production as well as the costs associated with the people and infrastructure investments that were begun in fiscal 2013 and which are driving the strong top line growth we continue to see in our consumer business,” Bailey said.

At the end of fiscal 2013, the Company released a valuation allowance against deferred tax assets and now recognizes a provision for income taxes.

As a result, the Company’s effective tax rate increased during the quarter ended September 30, 2013 and is higher than the statutory rate due to stock option expenses that are not deductible for tax purposes.

The provision for income tax is primarily non-cash as the Company is utilizing net operating losses (NOL’s) for federal and Hawaii state income tax purposes. Pretax income for the second quarter was $335,000 compared to $486,000 for the second quarter of fiscal 2013

First Six Months 2014

For the first six months of fiscal 2014 compared to the first six months of fiscal 2013, net sales were $14,208,000 compared to $13,442,000, an increase of 5.7%.

Gross profit was $5,845,000, with gross profit margin of 41.1%, compared to gross profit of $5,386,000 and gross profit margin of 40.1%.

Pretax income was $471,000 compared to $989,000, and net income was $136,000 or $0.02 per diluted share, compared to net income of $969,000 or $0.17 per diluted share.

Trailing 12 Months

For the trailing 12 months ended September 30, 2013 compared to the trailing 12 months ended September 30, 2012, net sales were $28,347,000 compared to $26,134,000 an increase of 8.5%.

Gross profit was $11,417,000, with gross profit margin of 40.3%, compared to gross profit of $10,266,000 and gross profit margin of 39.3%.

Pretax income was $1,671,000 compared to $2,438,000 compared to $3,892,000 and net income was $3,376,000 or $0.43 per diluted share, compared to net income of $3,240,000 or $0.58 per diluted share.

— Find out more:
www.cyanotech.com