Increased costs for production and marketing dragged down the profitability of Hawaii island microalgae producer Cyanotech Corp. in the final three months of 2012 even as the company achieved record sales for the period.

Cyanotech reported net income of $607,000, or 11 cents a share for its third fiscal quarter, down 45 percent from $1.1 million, or 20 cents a share for the same period a year earlier.

Cyanotech increased its sales of spirulina and astaxanthin to a record $7.24 million in the quarter, up 7.5 percent from $6.71 million a year earlier. However, the gains were partially offset by planned sales and marketing expenses, promotional events, the creation of a Scientific Advisory Board, and increased hiring, the company reported. Cyanotech officials also cited higher costs of spirulina production, which are expected to continue in the fourth fiscal quarter.

“Demand in the third quarter was strong with net sales at an all-time record of $7.24 million. The growth is in the strategic areas we have identified as priorities and is driven by our increased sales and marketing spending,” said Brent Bailey, company president and chief executive officer.

Cyanotech has been pursuing a strategy to sell more of its algae products at the retail level to consumers as nutritional supplements rather than to the bulk wholesale market.

The firm announced expansion plans in September that include a $5.5 million upgrade to production and storage facilities in Kailua-Kona.

Cyanotech shares closed down 6 cents at $4.90 on the Nasdaq Capital Market after the earnings announcement.