Cyanotech Corporation

Aloha from Kona, Hawaii. Thank you all for joining us today. We are pleased to report Cyanotech's first quarter physical 2020 earnings result. I am Jerry Sosowski, Chief Executive Officer for Cyanotech and Nutrex. At this stage, I would like to introduce our Chief Financial Officer, Brian Orloff, who will make a safe harbor statement and review our financial results for the first quarter. We will respond to questions after Brian shares the quarter one results.

Thank you, Jerry. Let me start by saying our discussion today may include forward-looking statements. We do not undertake any obligation to update forward-looking statements either as a result of new information, future events, or otherwise. Our actual results may differ materially from what is described in these forward-looking statements. Some of the factors that may cause results to differ are listed in our publicly filed documents. For additional information, we encourage you to review our 10Q and 10K filings with the Security and Exchange Commission.

Thank you, Brian. Before Brian discusses the details of the quarter, I would like to point out that our first quarter achieved sales of $8.1 million, an improvement of $2 million, or 33%, from Q4 of FY19, and a $926,000 improvement from the prior year's same quarter.

Thanks. Now let's go through the results for the first quarter. As mentioned, total sales revenues improved from the prior quarter last year by 926,000, or 13% to 8.1 million, and 2 million, or 33% improvement from the fourth quarter of 2019. Overall operating income for the quarter was $49,000, a positive $1.26 million swing from last year, which recorded a $1.2 million operating loss. The net sales increase of 13% was primarily driven by a 76% increase in Spirulina sales, as well as a contribution of third-party extraction services. Spirulina sales for the first quarter of last year were significantly affected by production issues and the onset of the re-inoculation process. Since late last year, productivity has returned to normal levels, allowing us to fulfill both bulk and nutric consumer product orders. These increases in spirulina sales were, however, partially offset by 11% decrease in anthoxanthin sales, primarily due to the timing purchase of one of our customers. Gross profit as a percentage of net sales increased almost 20% to $3.68 million, as compared to $1.84 million for the same period last year, largely due to improvements in the production for both spirulina and athaxanthin, resulting in reduced standard cost of goods sold, favorable manufacturing variances, higher sales volumes, higher margin product mix, as well as a sales in the contract extraction service operation. Operating expenses, however, did increase $623,000 for the current quarter as compared to the same period last year due to the increased general administrative expenses related to severance. Both sales and marketing and R&D expenses in total dollars remained relatively flat. $15,000 and $21,000 reduction respectively from the prior year. Other expenses increased of $55,000 is due to the additional interest expenses associated with the full utilization of the line of credit of $2 million and the loan of $1.5 million from the Skywards Family Foundation this past April. Net income was a loss of $133,000 for the quarter versus a loss of $1.28 million for the same quarter last year. Diluted earnings were a negative 2 cents in the current quarter compared to a negative 22 cents per share in the prior year. Now back to Jerry.

Thanks, Brian. We had one question which was submitted. That question is, congrats on the return strong quarter. My question is that the financials failed to move the market. There's a message in that simple statement, but there's also too many good things happening at Cyanotech to walk away just yet. Could you create a plan to get appropriate evaluation for all the good work? My response is, We are focused solely on running a sustainable business respectful of our environment, culture, and employees. How the financial markets value the company is outside of our control, and over the years we have seen them do so in a variety of ways. However, if on your own you wish to promote the good work of the company, we would be most appreciative. I would now like to take this opportunity for concluding comments. We are pleased with the progress of our most recent quarter performance, which reflected positively on our collective organizational efforts during the latter half of the prior fiscal year. Quarter one showed improvements on multiple levels, including sales and margins, production volume, increased productivity, especially from our ponds, and the implementation of our cost-cutting programs. We will continue to embrace our strategic focus on four major points. First, stabilizing our production volumes in both Spirulina and Astaxanthin, allowing us to balance production with sales, demand, and improve our inventory management resources. Second, rationalizing our market channels participation in terms of market spending to contribution ratio performances. Third, leveraging our core competencies via utilization of our extraction facility by providing outside services to third parties by utilizing our 1,000 bar supercritical carbon dioxide extraction process, which serves as an additional source of income throughout the year. Finally, executing on the strategic cost-cutting programs across the company. This physical year is off to a good start, and we have and will continue to work hard to retain the nation's top-selling consumer brands, BioAston, Hawaiian Astaxanthin, and Hawaiian Spirulina Pacifica in their respective market categories. We aim to build on this momentum. We thank you for joining our call today, and we thank you for your continued support. Aloha and Mahalo.