Cyanotech(CYAN) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for the quarter ended June 30, 2024, reveal a net loss of $1.2 million, an improvement from a $1.4 million loss in the prior-year period, with total assets decreasing to $24.4 million and total liabilities increasing, raising substantial doubt about the Company's ability to continue as a going concern due to recurring operating losses, negative cash flows, and non-compliance with debt covenants Condensed Consolidated Balance Sheets | Balance Sheet Items (In thousands) | June 30, 2024 | March 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $10,369 | $10,591 | | Total Assets | $24,432 | $25,112 | | Total Current Liabilities | $10,162 | $8,554 | | Total Liabilities | $13,772 | $13,298 | | Total Stockholders' Equity | $10,660 | $11,814 | - Working capital significantly decreased from $2,037,000 as of March 31, 2024, to $207,000 as of June 30, 2024[21] Condensed Consolidated Statements of Operations | Operating Results (In thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net Sales | $5,898 | $5,146 | | Gross Profit | $1,476 | $1,532 | | Loss from Operations | $(1,041) | $(1,209) | | Net Loss | $(1,202) | $(1,369) | | Net Loss Per Share (Basic & Diluted) | $(0.17) | $(0.22) | Condensed Consolidated Statements of Cash Flows | Cash Flow Summary (In thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $243 | $(596) | | Net cash used in investing activities | $(47) | $(150) | | Net cash (used in) provided by financing activities | $(183) | $420 | | Net increase (decrease) in cash | $13 | $(326) | Notes to Condensed Consolidated Financial Statements - The Company's financial statements have been prepared on a going concern basis, but recurring operating losses, negative cash flows, and debt covenant violations raise substantial doubt about its ability to continue as a going concern[20] - The Company has significant customer concentration risk: for the three months ended June 30, 2024, two customers accounted for 31% and 13% of total net sales, and as of June 30, 2024, two customers accounted for 89% of the accounts receivable balance[29] - As of March 31, 2024, the Company was not in compliance with its debt service coverage ratio and current ratio covenants with its bank, and is seeking a waiver with no assurance it will be granted[23][46] - The Company has a loan facility with a related party, Skywords Family Foundation, Inc., controlled by the Company's Chairman, with an outstanding balance of $1.0 million on the term note and $1.25 million on the revolving line of credit as of June 30, 2024[47][48][71] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales increased 14.6% from astaxanthin demand, but gross margin fell to 25.0% due to higher costs, as management addresses liquidity and going concern risks Results of Operations | Net Sales by Product (In thousands) | Q1 FY2025 | Q1 FY2024 | % Change | | :--- | :--- | :--- | :--- | | Astaxanthin Sales | $4,035 | $3,108 | 29.8% | | Spirulina Sales | $1,771 | $1,937 | (8.6)% | | Total Net Sales | $5,898 | $5,146 | 14.6% | - The increase in net sales was driven by a 159.2% surge in bulk astaxanthin sales and a 16.1% increase in packaged astaxanthin sales, reflecting higher demand and timing of customer orders[80] - Gross profit as a percentage of net sales decreased by 4.8 percentage points to 25.0%, primarily due to higher costs associated with lower production volumes[81] - Operating expenses decreased by $0.2 million, mainly due to lower online selling fees and reduced research and development costs from a lower headcount[81] Liquidity and Going Concern - The Company's ability to continue as a going concern is in substantial doubt due to sustained operating losses, negative cash flows, and non-compliance with debt covenants as of March 31, 2024[82] - As of June 30, 2024, the company had cash of $0.7 million and working capital of $207 thousand, a significant decrease from $2.0 million in working capital at March 31, 2024[83] - To address cash flow challenges, management is continuing cost-saving initiatives, including aligning production with demand, maintaining reduced headcount, and eliminating discretionary expenses[87] Cash Flows - Cash from operating activities was a positive $243,000 for the quarter, an improvement from a use of $596,000 in the prior year, driven by lower inventories and higher accounts payable[89][92] - Cash used in financing activities was $183,000, consisting of debt service payments and a $120,000 paydown on the 2023 term loan[89] Outlook - The company's strategic direction is to stabilize production, rationalize market channels, and focus on its Nutrex Hawaiian consumer products while also exploring bulk sales and third-party extraction services[96] - Future gross profit margins may be negatively impacted by lower production volumes, pressure on input costs, and increased market competition[97] Item 4. Controls and Procedures CEO and CFO concluded disclosure controls were effective as of June 30, 2024, with no material changes to internal control over financial reporting - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[107] - No changes occurred during the quarter ended June 30, 2024, that materially affected, or were reasonably likely to materially affect, the company's internal control over financial reporting[108] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no significant outstanding legal matters as of June 30, 2024 - There were no significant legal matters outstanding at June 30, 2024[110] Other Items (1A, 2, 3, 5) No new risk factors, unregistered equity sales, senior security defaults, or other material information were reported during the period - For a discussion of risk factors, the company refers to its Form 10-K for the year ended March 31, 2024[111] - The company reported "None" for Unregistered Sales of Equity Securities, Defaults upon Senior Securities, and Other Information[111][112] Item 6. Exhibits The report includes standard exhibits such as CEO/CFO certifications (SOX 302 and 906), a press release, and Inline XBRL financial statements - Exhibits filed with the report include CEO/CFO certifications (302 and 906), a press release dated August 7, 2024, and Inline XBRL data files[114]