Cyanotech Reports Financial Results for the Third Quarter and First Nine Months of Fiscal 2009

KAILUA KONA, Hawaii-(Business Wire)-February 12, 2009 - Cyanotech Corporation (Nasdaq Capital Market: CYAN), a world leader in producing high-value nutrition and health products from microalgae, today announced financial results for the third quarter and first nine months of fiscal 2009, ended December 31, 2008.

Revenues for the third quarter of fiscal 2009 increased 28.6% to $3,553,000, compared to revenues of $2,763,000 for the third quarter of fiscal 2008. Gross profit for the third quarter was $1,566,000, with gross profit margin of 44.1%, compared to a gross profit of $353,000 and gross profit margin of 12.8% reported for the same quarter of the prior year. Net income for the third quarter was $514,000, or $0.10 per diluted share, compared to net loss of $594,000, or ($0.11) per diluted share for the third quarter of fiscal 2008.

The third quarter results were achieved by exceptional execution by all departments.

Cash and cash equivalents decreased to $276,000 as of December 31, 2008 compared to the March 31, 2008 balance of $1,090,000. Working capital, however, increased to $3,772,000 at December 31, 2008 compared to $3,092,000 at March 31, 2008.

“Our focus on quality, cost containment, increased productivity, and sales growth drove our positive results. The combination of management focus and operational execution delivered a 343.6% improvement in gross profit margin and $514,000 of net income for the third quarter. These efforts and results bring our year-to-date net income to $948,000, a $2.268-million positive swing in profit over the prior-year nine-month period,” said Andrew H. Jacobson, President and Chief Executive Officer.

Revenues for the first nine months of fiscal 2009 increased 32.4% to $10,528,000, compared to revenues of $7,950,000 for the first nine months of fiscal 2008. Gross profit for the first nine months was $4,248,000, with gross profit margin of 40.3%, compared to a gross profit of $1,867,000 and gross profit margin of 23.5% reported for the first nine months of fiscal 2008. Net income for the first nine months was $948,000, or $0.18 per diluted share, compared to net loss of $1,320,000, or ($0.25) per diluted share for the first nine months of fiscal 2008.

“As exciting as the third quarter and year-to-date results are, the results of our new spirulina cultivation strategy implemented earlier in the fiscal year are even more promising. We saw increases in our nutritional content: zeaxanthin up 200%, iron up 200%, total carotenoids up 15%, and vitamin B-12 up 62%. Hawaiian Spirulina Pacifica® is recognized as a global nutritional leader,” Mr. Jacobson went on to say. “Following the leader just got harder.”

“We are still in a period of lower temperatures and reduced sunlight, so we could experience seasonally reduced productivity in the fourth quarter. However, we remain focused on continued execution of our plan,” Mr. Jacobson concluded.

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, FDA reviewed and accepted as Generally Recognized as Safe (GRAS) for use as a food ingredient, augments energy and immune response. BioAstin's benefits derive from its superior antioxidant activity and from its ability to support and maintain natural inflammatory response, enhancing skin, muscle and joint health. Cyanotech produces these products from microalgae grown at its 90-acre facility in Hawaii using patented and proprietary technology and distributes them to nutritional supplement, nutraceutical and cosmeceutical makers and marketers in more than 40 countries worldwide. Cyanotech was the first microalgae company in the world to obtain quality management standards ISO 9001:2000 certification and is GMP-certified by the Natural Products Association^TM.

Visit www.cyanotech.com for more information.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

Except for statements of historical fact, the statements in this press release are forward-looking. Such statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These factors include, but are not limited to, general economic conditions, forecasts of sales in future periods, changes in sales levels to our largest customers, weather patterns, production problems caused by contamination, risks associated with the acceptance of new products, competition, foreign exchange fluctuations, government regulation, and other factors more fully detailed in the Company’s recent Form 10-Q and 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 periods ended December 31, 2008. As such the following Financial Tables are provided only as a guide and other factors are more fully detailed in the Company’s recent Form 10-Q and annual form 10-K filings with the Securities and Exchange Commission.)

CYANOTECH CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands except par value and share amounts) (unaudited)

	December 31, 2008			March 31, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	276		$	1,090
Accounts receivable, net of allowance for doubtful accounts of $15 at December 31, 2008 and $23 at March 31, 2008	2,346			1,934
Inventories	3,100			1,601
Prepaid expenses and other assets	229			263
Total current assets	5,951			4,888

Equipment and leasehold improvements, net	4,276			4,269
Other assets	487			623
Total assets	$	10,714		$	9,780

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,213		$	805
Accrued expenses	361			320
Customer deposits	—			104
Current maturities of long-term debt	605			567
Total current liabilities	2,179			1,796

Long-term debt, less current maturities	1,045			1,505
Other liabilities	—			100
Total liabilities	3,224			3,401

Commitments and contingencies

Stockholders’ equity:
Common stock of $0.02 par value, shares authorized 7,500,000; 5,245,770 and 5,242,270 shares issued and outstanding at December 31, 2008 and March 31, 2008, respectively	105			105
Additional paid-in capital	27,500			27,337
Accumulated deficit	(20,115		)	(21,063		)
Total stockholders’ equity	7,490			6,379

Total liabilities and stockholders’ equity	$	10,714		$	9,780

CYANOTECH CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except per share amounts) (Unaudited)

	Three Months Ended December 31,						Nine Months Ended December 31,
	2008			2007			2008			2007

NET SALES	$	3,553		$	2,763		$	10,528		$	7,950
COST OF PRODUCT SALES	1,987			2,410			6,280			6,083
Gross profit	1,566			353			4,248			1,867

OPERATING EXPENSES:
Research and development	65			22			155			105
Sales and marketing	298			391			820			1,096
General and administrative	647			501			2,220			1,882
Total operating expenses	1,010			914			3,195			3,083

Income (loss) from operations	556			(561		)	1,053			(1,216		)

OTHER INCOME (EXPENSE):
Interest income	2			3			7			20
Interest expense	(41		)	(36		)	(130		)	(115		)
Other income, net	—			—			10			1

Total other expense, net	(39		)	(33		)	(113		)	(94		)

Income (loss) before income tax (benefit) expense	517			(594		)	940			(1,310		)

INCOME TAX (BENEFIT) EXPENSE	3			—			(8		)	10

NET INCOME (LOSS)	$	514		$	(594	)	$	948		$	(1,320	)

NET INCOME (LOSS) PER SHARE:
Basic	$	0.10		$	(0.11	)	$	0.18		$	(0.25	)
Diluted	$	0.10		$	(0.11	)	$	0.18		$	(0.25	)

SHARES USED IN CALCULATION OF NET INCOME (LOSS) PER SHARE:
Basic	5,246			5,242			5,246			5,242
Diluted	5,246			5,242			5,246			5,242

COMPREHENSIVE INCOME (LOSS):
Net income (loss)	$	514		$	(594	)	$	948		$	(1,320	)
Other comprehensive loss	—			—			—			(4		)
	$	514		$	(594	)	$	948		$	(1,324	)