Cyanotech Reports Fourth Quarter and Fiscal 2003 Financial Results; Net Sales Up 18% for Fourth Quarter and 9% for Fiscal 2003

KAILUA-KONA, Hawaii--May 21, 2003--Cyanotech Corporation (Nasdaq:CYAN), a world leader in producing high-value natural products from microalgae, today announced financial results for the fourth quarter and fiscal year ended March 31, 2003.

Financial Results

Fourth Quarter, Fiscal 2003

For the fourth quarter of fiscal 2003, net sales amounted to $2,427,000, an increase of $372,000, or 18%, compared to $2,055,000 for the comparable period of fiscal 2002. The increase in net sales was due to higher sales of bulk products: Spirulina Pacifica(R), NatuRose(R) and BioAstin(R). The Company reported a net loss for the quarter ended March 31, 2003 of $270,000, or ($0.01) per diluted share, compared to the net loss of $730,000, or ($0.04) per diluted share for the comparable period of the prior fiscal year. The net loss for the quarter ended March 31, 2003 includes non-cash expenses of approximately $180,000 representing $100,000 of write-off related to the discontinued infomercial advertising campaign and $80,000 of write-down related to a warehouse capital expenditure project.

In the fourth quarter of fiscal 2003, gross profit amounted to $831,000 compared to $340,000 reported for the comparable period of fiscal 2002. For the quarter ended March 31, 2003, gross profit margin was 34% compared to 17% reported for the comparable period of fiscal 2002. This improvement resulted primarily from increased efficiencies due to more optimal production levels.

Foreign sales accounted for 52% of total sales in the fourth quarter of fiscal 2003 compared to 55% reported for the comparable period of fiscal 2002. During the last quarter of fiscal 2003, sales to Spirulina International BV, the Company's largest customer, increased from the prior year comparable period, accounting for 19% of net sales.

Fiscal Year 2003

Net sales for fiscal 2003 amounted to $8,951,000, an increase of $716,000 or 9% compared to $8,235,000 reported for fiscal 2002. The increase in net sales was due to higher sales of bulk products: Spirulina Pacifica, NatuRose and BioAstin. The Company's net loss for fiscal 2003 amounted to $1,775,000, or ($0.10) per diluted share, compared to a net loss of $2,589,000, or ($0.15) per diluted share, for the prior fiscal year, a decrease of $814,000 in net loss.

For fiscal 2003, gross profit amounted to $2,895,000 compared to $1,562,000 reported for fiscal 2002. For fiscal 2003, gross profit margin was 32% compared to 19% reported for fiscal 2002. This improvement was due primarily to increased efficiencies resulting from more optimal production levels during fiscal 2003 and to the effect of a finished goods inventory adjustment of $454,000 during the prior fiscal year.

The net loss for fiscal 2003 includes depreciation expense of $1,315,000, net interest expense of $385,000 and an income tax benefit of $9,000. This resulted in a loss before interest, taxes and depreciation (EBITDA) of $84,000 for fiscal 2003 compared to an EBITDA loss of $853,000 for fiscal 2002. EBITDA for fiscal 2002 included a net loss of $2,589,000, depreciation expense of $1,312,000, net interest expense of $433,000 and an income tax benefit of $9,000. The EBITDA net loss of $84,000 for fiscal 2003 is an improvement of $769,000 from fiscal 2002.

Progress in Fiscal 2003

"As previously mentioned, expenses aggregating $180,000 ($100,000 for write-off of the discontinued infomercial advertising campaign and $80,000 of adjustment to capital projects) were incurred in the fourth quarter of fiscal 2003. Excluding these non-cash charges, fourth quarter earnings would have resulted in a net loss of $90,000. The effective net loss of $90,000 for the fourth quarter indicates significant progress towards our goal of returning Cyanotech to profitability," said Gerald R. Cysewski, Ph.D., Chairman, President and CEO. "Additionally, we are continuing our cost containment program while improving production efficiency."

Dr. Cysewski noted that the increase in demand for Cyanotech's bulk products throughout the year reflects the Company's strategy to add major end-product manufacturers as customers.

Sales of NatuRose through the Company's subsidiary, Cyanotech Japan YK, increased steadily during fiscal 2003. In the Japanese market this product is sold as an ingredient for aquaculture feed which is used for producers of Seabream ("Tai") and Yellowtail.

Cyanotech has concluded that the spirulina market is essentially mature with slow growth projected. The challenge is to increase market share among customers who seek the high-quality product that Cyanotech produces. Growth is anticipated in European markets served by Cyanotech's largest customer, Spirulina International BV, and other major product distributors there.

The Company believes its BioAstin natural astaxanthin has the largest growth potential of its three major product offerings. The Company is selling increasing volumes of this product to large cosmetic manufacturers, pharmaceutical companies offering branded nutraceuticals, direct marketing companies and natural food sector supplement makers who integrate natural astaxanthin into their nutraceutical and cosmetic formulations. These customers include Twinlab and the Rexall Sundown, GNC and Unicity Network divisions of Royal Numico. Further clinical trials are anticipated in conjunction with certain customers during fiscal 2004 to continue to assess the benefits of BioAstin for such indications as Carpal Tunnel Syndrome (CTS) and as a systemic sunscreen. Early tests show promise for BioAstin in these areas.

Cyanotech Corporation, a world leader in microalgae technology, produces high-value natural products from microalgae, and is the world's largest commercial producer of natural astaxanthin (pronounced "asta-zan-thin") from microalgae. Products include BioAstin(R) natural astaxanthin, a powerful antioxidant with expanding applications as a human nutraceutical; NatuRose(R) natural astaxanthin for the aquaculture and animal feed industries; Spirulina Pacifica(R), a nutrient-rich dietary supplement; and phycobiliproteins, which are fluorescent pigments used in the immunological diagnostics market. Spirulina and BioAstin are sold directly online through both www.nutrex-hawaii.com as well as through resellers worldwide in over 30 countries. Corporate and product information is available at www.cyanotech.com

SAFE HARBOR -- 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, 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 quarterly Form 10-Q and annual Form 10-K filings with the Securities and Exchange Commission.

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