Cyanotech on target despite Japanese weather

Related tags Generally accepted accounting principles

Cyanotech, the Hawaiian based nutraceutical firm, which saw a
return to profitability in fiscal 2004, appears to be benefiting
from growing public awareness of the health benefits of its
products, reporting solid results for the second quarter of 2005.

A leading producer of natural products from microalgae, Cyanotech yesterday said sales for the second quarter of fiscal 2005 were $2,998,000, an increase of 11 percent from the $2,707,000 reported in the first quarter and a year-on-year increase of 6 percent compared to the $2,840,000 reported for the same quarter a year ago.

Net income for the second quarter was $121,000, or $0.01 per diluted share, compared to $113,000, or $0.01 per diluted share, for the first quarter of fiscal 2005, and a net loss of $10,000, or $0.00 per diluted share, for the same quarter in 2003.

Profit was also up at $1,054,000 with a gross profit margin of 35 percent. The company noted that this was an improvement over the prior quarter's gross profit of $887,000 with a gross profit margin of 33 percent, and over the second quarter of fiscal 2004 when results showed gross profit at $861,000 and a gross profit margin of 30 percent

"Our increased revenue and year-over-year improved gross profit margin demonstrate our progress in sales, product mix and reduced production costs since the last fiscal year,"​ said Cyanotech's CEO, Gerald Cysewski.

The company also noted that demand for natural astaxanthin during the quarter was impacted by inclement weather in Japan, which affected customers' fish farming operations, as well as by competitive pricing issues from synthetic astaxanthin products in Europe.

"While we anticipate demand for natural astaxanthin over the next two quarters to be consistent with that of current quarter levels, we believe the demand will rebound in the future to levels consistent with prior demand patterns,"​ said Cysewski.

He said that the conversion of certain of the company's spirulina ponds to astaxanthin ponds to increase astaxanthin production is proceeding on target, with expected completion by the end of calendar year 2004.

"Upon completion, the converted ponds will increase our flexibility to adjust production as required to respond to the varying demands of the marketplace,"​ said Cysewski.

Cyanotech remarked in it annual report published this summer that it believes consumers have a growing awareness of the beneficial antioxidant and anti-inflammatory properties of astaxanthin - microalgae cultivated for the production of antioxidants, which cleanse the blood of toxins - thanks to the findings of clinical trials.

However, it also sounded a note of caution, saying it "needs to continue to focus on market acceptance of its natural astaxanthin products as increased competition from other producers of natural and synthetic astaxanthin may result in the decline of margins"​.

The company manufactures its products in Hawaii but markets them worldwide, generating 53 percent, 54 percent and 47 percent of its revenues outside of the United States for each of the years ended March 31, 2004, 2003 and 2002, respectively.

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