[USA] 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 2015, ended March 31, 2015.
“In the fourth quarter, our Nutrex packaged consumer products net sales growth, by channel, was”
Fiscal Year 2015
For fiscal 2015 compared to fiscal 2014, net sales were $33,809,000 compared to $28,178,000, an increase of 20%. Gross profit was $14,466,000, with gross profit margin of 43%, compared to gross profit of $11,189,000 and gross profit margin of 40%. Operating income for the year was $322,000 compared to an operating loss of $210,000 for fiscal 2014. The Company recognized a net loss for the year of $24,000 or $0.00 per diluted share, compared to a net loss of $420,000 or ($0.08) per diluted share.
Commenting on the fiscal 2015 results (changes shown vs. fiscal 2014), Brent Bailey, Cyanotech President and CEO, noted:
“Significant progress was made on many fronts in fiscal 2015. Although financial performance was better than fiscal 2014, it was negatively impacted by legal costs in the first three quarters from now-resolved litigation as well as continued Astaxanthin production challenges. We still have much work to do to realize our potential.
“Focusing first on progress:
- Net sales in our Nutrex packaged consumer products grew +44% versus prior year. Fiscal 2015 net sales growth of our Nutrex business, by channel, was:
- Nutrex Mainland: +56%
- Nutrex Hawaii: +37%
- Nutrex Direct (online): +34%
- Nutrex International: NC
- Net sales per capita in Hawaii, which we consider an indicator of our potential on the mainland, reached $2.60 in fiscal 2015 up from $1.92 in fiscal 2014.
- For fiscal 2015, retail market share of Astaxanthin under our BioAstin brand in the US natural products channel was 57% (+4 pts.). Nutrex Spirulina market share was 49% (+1 pt.) in fiscal 2015.
- In February 2015, our Costco test was expanded from 15 warehouses in San Diego to the remainder of the San Diego Region, which includes an additional 37 warehouses in Arizona, Colorado, Nevada, Utah and New Mexico, plus an additional 8 warehouses in Los Angeles. Including Hawaii, BioAstin Astaxanthin is now available in approximately 15% of Costco’s domestic warehouses. Results to date continue to exceed expectations.
- All issues related to litigation with Valensa were resolved in December 2014.
- Our new extraction equipment arrived in Kona ten months behind schedule but is now online. With this addition to our production process, we believe we are the only vertically integrated supplier of natural Astaxanthin in the world, owning the entire process from growth of the algae on our farm in Kona, Hawaii 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 shorten lead times in processing. The extraction equipment is part of a new building that also includes separate biomass handling and oil blending rooms, a drive-in freezer storage area and a warehouse complex.
- Supplemented existing experience and expertise with additions in key areas:
- Gerry Watts joined Cyanotech in August 2014 as Chief Operations Officer and brings more than 30 years’ food and agribusiness experience including senior operations positions with Calavo Growers, Maui Land & Pineapple and SunOpta Foods. In a relatively short time, his leadership has energized the Operations team and he has developed an Astaxanthin capacity expansion plan that when implemented is expected to increase the quantity and quality of our product as well as the consistency and predictability of our production output.
- Dr. Charles O’Kelly, a Ph.D. and expert in algal mass culture with 35 years’ experience, joined Cyanotech in April 2015 to expand our in-house research capabilities. Dr. O’Kelly, together with our founder and Chief Science Officer, Dr. Gerry Cysewski, will be focusing primarily on algae strain management and improvement to increase quantity and reduce variability in our production output.
“Two factors prevented us from realizing the full financial benefits of the continuing shift of our revenue from bulk sales to Nutrex retail in fiscal 2015:
- Legal costs of $2,828,000 in fiscal 2015 that pertained to the legal proceedings which had been ongoing since 2012, but which were completely settled in the third quarter. Excluding these legal costs, pretax earnings for the year were $3,057,000 compared to $1,437,000 in fiscal 2014 and net income was $1,617,000 compared to $567,000 in fiscal 2014.
- Astaxanthin production in fiscal 2015 versus fiscal 2014 was down 4% for the full year and 10% in the second half largely due to inconsistent weather caused by an increase in activity of the Kilauea volcano to a 50-year high as well as an El Nino weather pattern. Although we cannot change the weather, we recently started the first $2.5 million phase of a capacity expansion project that will not only increase the number of ponds and supporting infrastructure, but will also add processes designed to protect the algae from environmental factors during the growth cycle.”
Fourth Quarter 2015
For the fourth quarter of fiscal 2015 compared to the fourth quarter of fiscal 2014, net sales were $8,549,000 compared to $7,019,000, an increase of 22%. Gross profit was $2,674,000, with gross profit margin of 31%, compared to gross profit of $2,466,000 and gross profit margin of 35%. Operating loss for the quarter was ($53,000) compared to an Operating loss of ($797,000) for the same quarter last year. Net loss was ($171,000) or ($0.03) per diluted share, compared to a net loss of ($520,000) or ($0.09) per diluted share.
Regarding the fourth quarter fiscal 2015 results (changes shown versus fourth quarter fiscal 2014), Brent Bailey stated:
“In the fourth quarter, our Nutrex packaged consumer products net sales growth, by channel, was:
- Nutrex Mainland: +35%
- Nutrex Hawaii: +26%
- Nutrex Direct (online): -10%
- Nutrex International: -54%
“The decline in our Nutrex Direct business reflects our strategic decision to focus on building partnerships with key customers who are better suited to capitalize on the online opportunity due to their scale and breadth of product offerings. The Nutrex International decline is primarily due to order timing, not a trend change. BioAstin natural products channel market share of Astaxanthin was 57% (NC). Nutrex Spirulina market share was 49% (+1 pt.).
“The incremental profit generated by the strong +22% revenue growth in the fourth quarter was partially offset by:
- A disappointing 18% reduction in Astaxanthin production, due to the irregular Kona weather conditions described previously. Successful completion of the work we have started on capacity expansion and internal research capability mentioned above should result in improved quantity, quality, consistency and predictability of production in the future by reducing the effects of weather.
- Planned costs associated with the key personnel and infrastructure investments that are driving the excellent topline growth we continue to see in our consumer business.”
DELAYED FILING OF FORM 10-K — In the course of finalizing our financial statements for fiscal 2015, we discovered that our revenue recognition process resulted in an error in the reporting period of certain sales previously recognized and, as a result, had to delay the filing of our Annual Report on Form 10-K in order to correct the error. The applicable adjustment to net income for the fiscal years ended March 31, 2013 and 2014 was approximately ($45,000) and ($225,000), respectively. After evaluation of our revenue recognition process, we identified a material weakness in our internal control over financial reporting. We believe this material weakness did not have a material effect on our previously reported financial results. Refer to Item 9A in our Form 10-K.
Pursuant to the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality, the Company concluded that the errors were not material to any of its prior period financial statements. However, in accordance with SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements, the prior period financial statements were revised. Prior period amounts stated in this Form 10-K have been revised to facilitate comparability between current and prior year periods.
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