Cyanotech(CYAN) - 2025 Q4 - Annual Report

PART I Business Cyanotech cultivates microalgae in Hawaii, producing BioAstin® astaxanthin (65% of FY25 sales) and Hawaiian Spirulina (32% of FY25 sales), along with contract services - The company operates in a single business segment: the cultivation and production of microalgae into health and nutrition products[17] - The company's production facility is located on a 96-acre site in Kona, Hawaii, chosen for its optimal microalgae growing conditions, including consistent warmth, sunshine, and access to deep ocean water[16] - In fiscal year 2025, two major customers accounted for 31% and 10% of total net sales, indicating significant customer concentration[44] Net Sales by Product Line (in thousands) | Product Line | FY 2025 Net Sales | FY 2024 Net Sales | | :--- | :--- | :--- | | BioAstin® (Natural astaxanthin) | $15,738 | $15,104 | | Hawaiian Spirulina Pacifica® | $7,628 | $7,351 | | Contract extraction and R&D services | $849 | $616 | | Total | $24,215 | $23,071 | Natural Astaxanthin Products (BioAstin®) BioAstin® astaxanthin, 65% of FY25 net sales, is a GRAS-certified antioxidant cultivated from microalgae using proprietary systems, sold in various forms, facing global competition - Astaxanthin products accounted for approximately 65% of the company's net sales for the fiscal year ended March 31, 2025[20] - The company utilizes a proprietary PhytoDome Closed Culture System to grow large volumes of contaminant-free Haematococcus culture for astaxanthin production[22] - BioAstin® is sold as a packaged consumer product through Nutrex Hawaii and in liquid lipid form as a raw ingredient to other manufacturers[26] Spirulina Products (Hawaiian Spirulina Pacifica®) Hawaiian Spirulina Pacifica®, 32% of FY25 net sales, is a GRAS-certified superfood produced in open ponds using a proprietary drying process, competing with Indian and Chinese firms - Hawaiian Spirulina Pacifica® represented approximately 32% of net sales in fiscal year 2025[29] - The product is dried using a proprietary low-oxygen Ocean-Chill Drying process to preserve high levels of antioxidant carotenoids and other nutrients[35] - Direct competition in the spirulina market comes from Parry Nutraceuticals (India), Earthrise Nutritionals, LLC, and several farms in China[40] Risk Factors The company faces significant operational, financial (going concern, debt non-compliance), market, and ownership concentration risks due to its single-location agricultural process - The company's single production facility in Hawaii is susceptible to natural disasters like earthquakes, tsunamis, and hurricanes, which could cause significant business interruption[63] - Recurring losses and negative cash flows from operations raise substantial doubt about the company's ability to continue as a going concern[101][100] - The company has defaulted on debt covenants in previous years and was not in compliance with certain ratios as of March 31, 2025, requiring waivers from its lender. A failure to obtain future waivers could lead to default[99] - The company's two largest shareholders collectively own approximately 37.6% of its common stock, giving them the ability to exert significant influence over business policies and affairs[81] Cybersecurity Cyanotech maintains a comprehensive cybersecurity program, overseen by the Board, with no material threats identified to date - The company has a cybersecurity risk management program that includes risk assessments, an incident response plan, and employee training[106][111] - The Board of Directors oversees the cybersecurity program, while executive officers are responsible for daily management of material risks[108] - As of the report date, the company has not identified any cybersecurity risks that have materially affected its business, strategy, or financial condition[107] Properties The company's main 96-acre facility in Hawaii is leased until 2035/2037, secured by a $3.0 million mortgage, with additional rented warehouse space in California - The main facility is on 96 acres in Kailua-Kona, Hawaii, leased from the State of Hawaii with leases expiring in 2035 and 2037[109] - The company's interest in the NELHA leases is mortgaged to secure approximately $3.0 million of debt[109] Legal Proceedings As of March 31, 2025, the company had no significant outstanding legal matters, though it may face litigation in the normal course of business - As of March 31, 2025, the company had no significant outstanding legal matters[110] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Cyanotech's common stock trades on OTCQB, with no cash dividends paid or anticipated due to loan restrictions, and details on equity compensation plans are provided - The company's common stock is traded on the OTCQB Venture Market with the symbol "CYAN"[112] - The company is prohibited from declaring common stock dividends without prior written consent from a lender and does not anticipate paying any[113] Equity Compensation Plans as of March 31, 2025 | Description | Shares | | :--- | :--- | | Shares to be issued upon exercise of options and RSUs | 339,638 | | Weighted average exercise price | $2.09 | | Shares available for future grant | 1,237,031 | Management's Discussion and Analysis of Financial Condition and Results of Operations FY25 net sales increased to $24.2 million due to bulk sales growth, while operating loss improved to $(2.5) million; however, recurring losses and debt non-compliance raise going concern doubts - The company sustained operating losses and negative cash flows, and was not in compliance with two debt covenants as of March 31, 2025, raising substantial doubt about its ability to continue as a going concern[133] - To address cash flow challenges, management is continuing cost-saving initiatives, including aligning production with demand, maintaining reduced headcount, and eliminating certain discretionary expenses[138] Consolidated Performance Summary ($ in thousands) | Metric | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net sales | $24,215 | $23,071 | | Gross profit | $6,876 | $5,945 | | Gross margin | 28.4% | 25.8% | | Operating loss | $(2,508) | $(4,592) | | Net loss | $(3,203) | $(5,267) | Results of Operations FY25 net sales increased by $1.1 million (5.0%) due to bulk sales growth, improving gross profit margin to 28.4% and reducing operating expenses by $1.2 million (10.9%) - The 5.0% increase in net sales for FY2025 was driven by a $1.9 million increase in bulk sales, offset by a $1.0 million decrease in packaged sales[127][129] - Gross profit as a percentage of net sales increased by 2.6 percentage points in FY2025 due to higher production volumes, which resulted in lower production costs[130] Net Sales by Product and Type ($ in thousands) | Category | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Packaged Sales | | | | Astaxanthin | $13,145 | $13,613 | | Spirulina | $5,223 | $5,779 | | Total Packaged | $18,368 | $19,392 | | Bulk Sales | | | | Astaxanthin | $2,593 | $1,491 | | Spirulina | $2,405 | $1,572 | | Total Bulk | $4,998 | $3,063 | | Contract Services | $849 | $616 | Liquidity and Going Concern Recurring losses and negative cash flows raise substantial doubt about the company's going concern, with cash and working capital at $0.3 million and reliance on a $4.0 million related-party line of credit - As of March 31, 2025, the company had cash of $0.3 million and working capital of $0.3 million, down from $0.7 million and $2.0 million respectively, at March 31, 2024[134] - The company was not in compliance with its debt service coverage ratio and current ratio covenants as of March 31, 2025, but received a waiver from the bank on June 4, 2025[136] - The company has a revolving loan facility with a related party for up to $4.0 million, with $3.0 million outstanding as of March 31, 2025. This facility expires in April 2026[135] Cash Flows FY25 cash used in operations was $1.2 million due to a $3.2 million net loss, with financing activities providing $1.0 million, resulting in a $0.5 million overall cash decrease - Cash provided by financing activities in FY2025 was primarily from $1.8 million in draws on the related party line of credit, offset by $0.8 million in debt service and paydowns[148] Summary of Cash Flows (in thousands) | Activity | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Cash from Operating Activities | $(1,193) | $(455) | | Cash from Investing Activities | $(247) | $(381) | | Cash from Financing Activities | $990 | $569 | | Net Decrease in Cash | $(450) | $(267) | Financial Statements and Supplementary Data The financial statements, including the auditor's "Going Concern" warning, detail a FY25 net loss of $3.2 million, an accumulated deficit of $26.1 million, and $8.9 million in stockholders' equity - The auditor's report explicitly includes a "Going Concern" paragraph, citing recurring losses, negative cash flows, and non-compliance with debt covenants as conditions that raise substantial doubt about the company's ability to continue as a going concern[165][172] Key Financial Metrics (in thousands) | Metric | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Total Assets | $23,490 | $25,112 | | Total Liabilities | $14,606 | $13,298 | | Total Stockholders' Equity | $8,884 | $11,814 | | Accumulated Deficit | $(26,104) | $(22,901) | Key Operating Results (in thousands) | Metric | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net Sales | $24,215 | $23,071 | | Gross Profit | $6,876 | $5,945 | | Loss from Operations | $(2,508) | $(4,592) | | Net Loss | $(3,203) | $(5,267) | | Net Loss Per Share | $(0.45) | $(0.81) | Notes to Consolidated Financial Statements Notes detail the company's going concern uncertainty, debt structure including covenant violations and waivers, equity compensation plans, and related-party loan transactions - Note 1 (Liquidity and Going Concern) states that recurring operating losses, negative cash flows, and debt covenant non-compliance raise substantial doubt about the company's ability to continue as a going concern[189] - Note 5 (Line of Credit and Term Debt) discloses that as of March 31, 2025, the company was not in compliance with debt covenants but received a waiver on June 4, 2025. It also details the classification of long-term debt as current due to the probability of future covenant violations[242][243] - Note 15 (Related-Party Transactions) describes a loan facility from Skywords Family Foundation, Inc., an entity controlled by the company's Chairman. As of August 2024, this facility was increased to a $4.0 million revolving line of credit and the maturity was extended to 2026/2027[287][292] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2025, with no material changes reported - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[297] - Management concluded that the company's internal control over financial reporting was effective as of March 31, 2025, based on the COSO framework[298] Other Information The Chairman of the Board completed the purchase of 315,000 common shares under a Rule 10b5-1 trading plan between July and October 2024 - The Chairman of the Board, Michael Davis, completed the purchase of 315,000 shares of common stock under a Rule 10b5-1 trading plan between July and October 2024[302] PART III Directors, Executive Officers of the Registrant and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement, including adopted Codes of Ethics and Conduct - Information regarding directors and executive officers is incorporated by reference from the company's 2025 Proxy Statement[305] Executive Compensation Executive compensation information is incorporated by reference from the company's definitive 2025 Proxy Statement - Information regarding executive compensation is incorporated by reference from the company's 2025 Proxy Statement[307] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the company's definitive 2025 Proxy Statement - Information regarding security ownership is incorporated by reference from the company's 2025 Proxy Statement[308] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive 2025 Proxy Statement - Information regarding certain relationships and related transactions is incorporated by reference from the company's 2025 Proxy Statement[309] Principal Accountant Fees and Services Information concerning principal accountant fees and services is incorporated by reference from the company's definitive 2025 Proxy Statement - Information concerning principal accountant fees and services is incorporated by reference from the company's 2025 Proxy Statement[310] PART IV Exhibits and Financial Statement Schedules This section lists financial statements and schedules filed with the Form 10-K, confirming their inclusion in Item 8 and detailing all accompanying exhibits - This item lists the financial statements included in Item 8 and provides a comprehensive list of all exhibits filed with the Form 10-K[312][314]