earnings fall 85%

The company had problems
delivering products to Hong Kong

By Rob Perez

Cyanotech Corp. today reported an 85 percent plunge in quarterly earnings, largely due to problems the Big Island company's largest customer had in purchasing Cyanotech products.

The problems also contributed to a 28 percent drop in revenue for its fiscal first quarter, which ended June 30.

Cyanotech, which produces nutritional and other products from microalgae, reported net income of $125,000, or 1 cent a share, compared with $845,000, or 5 cents a share, in the year-earlier period. Sales totaled nearly $1.8 million, compared with $2.5 million a year earlier.

Gerald Cysewski, chairman and chief executive of the company, said the decreases were primarily due to a lack of sales to its largest customer, a Hong Kong-based natural products and distribution company.

The Hong Kong company, which Cysewski didn't name, last year accounted for 34 percent of Cyanotech's sales, he said. The distributor sells Cyanotech products mainly in mainland China through a multi-level marketing agreement.

But the Chinese government has not renewed annual business licenses of all multi-level marketing companies operating in China, Cyanotech quoted the customer as saying.

The distributor has told Cyanotech that the licensing issue may be resolved soon and, if so, purchasing of its products would resume, according to Cyanotech. But that isn't guaranteed to happen, the Kailua-Kona manufacturer said.

Analyst Tom Bruderman of Canterbury Cos. in Connecticut said the problem with the Hong Kong customer is short-term but underscores the danger of relying heavily on one client.

Bruderman remains bullish on Cyanotech. "We'll forget this in three months."

The first-quarter earnings were below Wall Street expectations, which ranged from 2 cents to 4 cents a share.

Cyanotech announced its earnings after the close of trading today. Its stock fell 12-1/2 cents to end the day at $4.75 a share.

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