Cyanotech(CYAN) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's financial position deteriorated with decreased assets, increased liabilities, wider net losses, and negative operating cash flow Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2024 | Mar 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $10,125 | $10,591 | -$466 | | Total Assets | $23,913 | $25,112 | -$1,199 | | Total Current Liabilities | $9,575 | $8,554 | +$1,021 | | Total Liabilities | $14,221 | $13,298 | +$923 | | Total Stockholders' Equity | $9,692 | $11,814 | -$2,122 | - The company's working capital significantly decreased from $2,037 thousand at March 31, 2024, to $550 thousand at September 30, 2024, indicating increased short-term liquidity pressure[9][22] Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | 6 Months 2024 | 6 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $5,845 | $6,373 | $11,743 | $11,519 | | Gross Profit | $1,479 | $2,088 | $2,956 | $3,620 | | Loss from Operations | $(975) | $(632) | $(2,016) | $(1,841) | | Net Loss | $(1,150) | $(797) | $(2,352) | $(2,166) | | Net Loss Per Share (Basic & Diluted) | $(0.16) | $(0.13) | $(0.34) | $(0.34) | - Net sales decreased by 8.3% in Q2 2024 compared to Q2 2023, while the net loss widened by 44.3%[11] - For the six-month period, net sales slightly increased by 1.9%, but the net loss still grew by 8.6% year-over-year[11] Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity decreased from $11.8 million at March 31, 2024, to $9.7 million at September 30, 2024, primarily driven by a net loss of $2.35 million[14] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(201) | $238 | | Net cash used in investing activities | $(105) | $(286) | | Net cash provided by financing activities | $379 | $310 | | Net increase in cash | $73 | $262 | - Cash from operations turned negative for the six months ended Sep 30, 2024, at ($201,000) compared to a positive $238,000 in the prior year, mainly due to the net loss[15] - The company relied on financing activities, including a $750,000 draw on a related-party line of credit, to fund operations and debt payments[15] Notes to Condensed Consolidated Financial Statements - 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[21] - For the six months ended September 30, 2024, two major customers accounted for 32% and 11% of total net sales, indicating significant customer concentration risk[34] - The company received a waiver for debt covenant violations but reclassified its $3.1 million loan as a current liability due to the probability of future violations[54][55] - The company has increasingly relied on a related-party loan facility from its Chairman, which was increased to $4 million and extended to April 2026[56][93][94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses declining sales and margins, critical liquidity issues, and a cautious outlook amid operational challenges Results of Operations Q2 Net Sales Breakdown (in thousands) | Product Line | Q2 2024 | Q2 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Packaged Sales | $4,206 | $5,291 | $(1,085) | (20.5)% | | Total Bulk Sales | $1,342 | $966 | $376 | 38.9% | | Contract Services | $297 | $116 | $181 | 156.0% | | Total Net Sales | $5,845 | $6,373 | $(528) | (8.3)% | Six Months Net Sales Breakdown (in thousands) | Product Line | 6 Months 2024 | 6 Months 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Packaged Sales | $8,895 | $9,673 | $(778) | (8.0)% | | Total Bulk Sales | $2,459 | $1,629 | $830 | 51.0% | | Contract Services | $389 | $217 | $172 | 79.3% | | Total Net Sales | $11,743 | $11,519 | $224 | 1.9% | - Gross profit margin decreased to 25.3% in Q2 2025 from 32.8% in the prior-year quarter, a 7.5 percentage point drop due to a sales mix shift and higher inventory costs[101] - Operating expenses for Q2 2025 decreased by $0.2 million compared to the prior year, primarily due to lower online selling fees and advertising costs[102] Liquidity and Going Concern - Management explicitly states that conditions raise "substantial doubt about our ability to continue as a going concern"[108] - As of September 30, 2024, the company had only $0.8 million in cash and $0.6 million in working capital, down from $0.7 million and $2.0 million respectively at March 31, 2024[109] - The company is relying on a related-party loan facility of up to $4.0 million to provide liquidity, with $2.0 million outstanding as of September 30, 2024[110] - The company is implementing cost savings initiatives, including slowing inventory production and reducing headcount, to address cash flow challenges[113] Outlook - The company's strategic focus is on stabilizing production, rationalizing market channels, and emphasizing its Nutrex Hawaiian consumer products[123] - Future gross profit margins may decline due to lower production volumes, pressure on input costs, and increased market competition[124] - Management warns that a prolonged sales downturn could impair the ability to generate sufficient cash and attract additional capital investment[126] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[134] - There were no changes in internal control over financial reporting during the quarter that materially affected, or were reasonably likely to materially affect, these controls[135] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no significant outstanding legal matters as of the end of the reporting period - As of September 30, 2024, there were no significant outstanding legal matters involving the company[138] Item 1A. Risk Factors This section directs readers to the risk factors previously disclosed in the company's Annual Report on Form 10-K - The report incorporates by reference the risk factors discussed in the company's Form 10-K for the year ended March 31, 2024[138] Item 5. Other Information The company discloses the initiation and completion of a Rule 10b5-1 trading plan by the Chairman of the Board - The Chairman of the Board entered into a Rule 10b5-1 trading plan to purchase 315,000 shares of common stock, which was completed and terminated on October 1, 2024[139] Item 6. Exhibits This section lists key exhibits filed with the report, including a note amendment and executive certifications - Key exhibits filed include the Third Amendment to the related-party promissory note, Sarbanes-Oxley certifications from the CEO and CFO, and the earnings press release[140]