The company produces BioAstin astaxanthin and spirulina pacifica nutritional ingredients for human consumption marketed for their antioxidant and anti-inflammatory propoerties. It also produces NatuRose astaxanthin for sea bream in aquaculture feed.
This year Cyanotech has been banking on BioAstin to be a big seller due to increasing global awareness of astaxanthin. In February it launched a public relations campaign across consumer print and broadcast media to push the functional ingredient directly towards consumers. "The bulk of our promotional budget continues to be dedicated to this effort," said CEO Gerald Cysewski.
But while astaxanthin carried the company's sales levels for the third quarter, the product balance shifted in Q4 towards spirulina; Cysewski attributed higher revenue in the fourth quarter to increased order levels for spirulina products and, to "a lesser extent", for NatuRose and BioAstin.
The 2006 fiscal year has been a rollercoaster ride for Cyanotech, with predictions for product sales changing tune from quarter to quarter.
Cyanotech incurred an operating loss of $107m for the fiscal year, compared with an operating profit of $562m for 2005. The final quarter of 2006 was not to blame for gutted profits though - the last three months of the fiscal year saw $0.2m in profits, up from a $0.09m loss for the same period in 2005.
Sales at Cyanotech were $11.1m, down slightly from $11.4m for the prior fiscal year.
The company announced that while production costs for astaxanthin have risen, demand has not kept pace. "This condition will persist until order levels and production increase on a sustained basis," said the company.
The company was realistically cautious when announcing favorable first quarter results in August 2005 (when year-to-date net income was up 12 percent).
"Our results may vary from quarter to quarter, but our goal is to achieve annual revenue growth and increase profitability," Cysewski said at the time.
One problem the company has faced is dropping sales for NatuRose following the adverse impact of weather conditions on the Japanese aquaculture market over the past 18 months. Cyanotech's previous optimism on the subject is now notably absent. "We now feel that this condition is likely to persist," said Cysewski.
Cyanotech is facing up to this challenge by expanding NatuRose - which after going down for two consecutive quarters is starting to sell more, although still at low levels - to other aquaculture markets, as well as stepping up promotion for BioAstin.
In the third quarter, the company saw more demand from both existing and new customers for BioAstin. This diminished the impact of loss of sales from shrunken order levels for both spirulina and NatuRose.
And while Cyanotech owes its fourth quarter profits to spirulina sales, Cysewski said purchasing patterns for this product are "variable". This may indicate why the company is looking at BioAstin as a long term winning product.
"BioAstin sales continued to expand in the fourth quarter of fiscal 2006 with a reduction of orders from one large customer more than offset by sales to new customers, as a result of our marketing program in this area," said Cysewski.
Cyanotech cites higher overhead as arising from greater energy costs, which reflect "the Company's position as an island producer importing from and exporting to worldwide markets and over 40 countries".