Kona-based Cyanotech Corp. said yesterday its earnings fell sharply in the final quarter of 2010 compared with the same period a year earlier as relatively strong sales of its nutritional microalgae products were largely offset by higher expenses.

Cyanotech earned $10,000 on sales of $3.92 million for the October-to-December period compared with earnings of $605,000 on sales of $3.98 million a year earlier, the company reported in a filing with the Securities and Exchange Commission.

Cyanotech’s main microalgae products are astaxanthin and spirulina, which accounted for 54 percent of sales and 46 percent of sales, respectively, in the third fiscal quarter.

The company said it wrote off $360,000 in costs incurred during the quarter from spirulina pond contamination, heavy rain, cooler temperatures and a planned reduction in production of both spirulina and astaxanthin.

"These factors were the primary driver of our margin decline for the quarter and are not expected to continue," said Brent Bailey, Cyanotech president and CEO.

Cost of product sales, including what Cyanotech pays for materials, labor, manufacturing, overhead and depreciation, rose to $2.69 million in the quarter, up 16 percent from $2.23 million a year earlier. Sales and marketing costs rose 49 percent, while spending on research and development increased 26 percent.

Cyanotech’s shares closed yesterday down 10 cents, or 3.5 percent, at $2.73 on the Nasdaq Stock Market.