Cyanotech(CYAN) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Financial statements reveal a $2.6 million net loss, declining assets, rising liabilities, and significant going concern issues Condensed Consolidated Balance Sheets Total assets decreased to $24.0 million, liabilities rose to $14.5 million, and stockholders' equity declined | Balance Sheet Items (In thousands) | Dec 31, 2024 | Mar 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash | $359 | $707 | | Total current assets | $10,551 | $10,591 | | Total assets | $23,956 | $25,112 | | Liabilities & Equity | | | | Total current liabilities | $9,949 | $8,554 | | Total liabilities | $14,456 | $13,298 | | Accumulated deficit | $(25,477) | $(22,901) | | Total stockholders' equity | $9,500 | $11,814 | Condensed Consolidated Statements of Operations Net sales increased for both periods, with the net loss significantly narrowing | Metric (In thousands) | Q3 2024 | Q3 2023 | 9 Months 2024 | 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $6,172 | $5,582 | $17,915 | $17,101 | | Gross profit | $2,179 | $1,649 | $5,134 | $5,270 | | Loss from operations | $(50) | $(848) | $(2,066) | $(2,689) | | Net loss | $(224) | $(1,020) | $(2,576) | $(3,186) | | Basic and diluted EPS | $(0.03) | $(0.16) | $(0.37) | $(0.50) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased to $9.5 million, primarily due to the $2.6 million net loss - The accumulated deficit increased from $(22.9) million at March 31, 2024, to $(25.5) million at December 31, 2024, reflecting the ongoing net losses[17] Condensed Consolidated Statements of Cash Flows Cash used in operations increased to $1.1 million, with overall cash decreasing by $0.35 million | Cash Flow Activity (In thousands) | Nine Months Ended Dec 31, 2024 | Nine Months Ended Dec 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,136) | $(762) | | Net cash used in investing activities | $(163) | $(323) | | Net cash provided by financing activities | $951 | $772 | | Net decrease in cash | $(348) | $(313) | | Cash at end of period | $359 | $661 | Notes to Condensed Consolidated Financial Statements Notes detail going concern issues, debt covenant violations, related-party financing reliance, and high customer concentration - The company's financial statements have been prepared assuming it will continue as a going concern, but recurring operating losses, negative cash flows, and debt covenant violations raise substantial doubt about this ability[25] - As of March 31, 2024, the company was not in compliance with its debt service coverage ratio and current ratio covenants with its bank[28][61] A waiver was obtained on September 12, 2024, but the bank reserves the right to declare a default in the future[28][61] - The company has a revolving line of credit with a related party (Skywords Family Foundation) that was increased to $4,000,000 in August 2024[27][63][95] As of December 31, 2024, $2,750,000 was outstanding on this facility[27][63][95] - Customer concentration is a significant risk, with two customers accounting for 88% of the accounts receivable balance as of December 31, 2024[40] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses sales growth, gross margin decline, ongoing liquidity challenges, and strategic priorities Results of Operations Net sales increased for both periods, driven by bulk sales, with mixed gross margin performance Net Sales Comparison - Three Months Ended Dec 31 (in thousands) | Category | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Packaged sales | $4,914 | $4,968 | (1.1)% | | Total Bulk sales | $1,057 | $573 | 84.5% | | Contract extraction & R&D | $201 | $41 | 390.2% | | Total sales | $6,172 | $5,582 | 10.6% | Net Sales Comparison - Nine Months Ended Dec 31 (in thousands) | Category | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Packaged sales | $13,810 | $14,642 | (5.7)% | | Total Bulk sales | $3,516 | $2,201 | 59.7% | | Contract extraction & R&D | $589 | $258 | 128.3% | | Total sales | $17,915 | $17,101 | 4.8% | - Gross profit margin for Q3 FY2025 increased by 5.8 percentage points to 35.3% due to higher production volumes[101][103] However, for the nine-month period, the margin decreased by 2.1 percentage points to 28.7% due to lower production volumes in the first half of the fiscal year[107] Liquidity and Going Concern Substantial doubt exists about going concern due to losses, low cash, and reliance on related-party financing - Sustained operating losses and debt covenant non-compliance raise substantial doubt about the company's ability to continue as a going concern[110] | Metric (in millions) | Dec 31, 2024 | Mar 31, 2024 | | :--- | :--- | :--- | | Cash | $0.4 | $0.7 | | Working Capital | $0.6 | $2.0 | - The company relies on a related-party loan facility for liquidity, which allows borrowing up to $4.0 million and expires in April 2026[112] As of Dec 31, 2024, $2.8 million was outstanding[112] Outlook Outlook focuses on production stabilization, consumer products, bulk sales, and cash management amid margin risks - Strategic priorities include: - Stabilizing production volume - Focusing on Nutrex Hawaiian consumer products - Exploring opportunities for bulk sales of Spirulina and Astaxanthin - Generating additional income from third-party extraction services[124] - The company acknowledges significant risks to future performance, including production challenges in its complex biological process, competition, and cost pressures, which could cause gross margins to decline[125][126] - To manage cash effectively, the company plans to balance production with sales demand, minimize inventory costs, and judiciously manage expenses[127] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by the report[135] - No changes occurred during the quarter ended December 31, 2024, that materially affected, or were reasonably likely to materially affect, the company's internal control over financial reporting[136] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no significant outstanding legal matters as of December 31, 2024 - There were no significant legal matters outstanding at December 31, 2024[138] Item 1A. Risk Factors This section incorporates by reference risk factors from the company's Annual Report on Form 10-K - The report incorporates by reference the risk factors detailed in the Form 10-K for the fiscal year ended March 31, 2024[139] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None reported[140] Item 6. Exhibits The report lists several exhibits filed, including CEO/CFO certifications, a press release, and Inline XBRL data - Exhibits filed include: - Certifications of CEO and CFO (Sections 302 & 906) - Press Release dated February 11, 2025 - Inline XBRL financial data[146]