Cyanotech(CYAN) - 2026 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarter ended June 30, 2025, showing a slight sales decrease, improved gross profit, reduced net loss, and a 'going concern' warning Condensed Consolidated Balance Sheets As of June 30, 2025, total assets decreased slightly to $23.0 million, total liabilities increased to $15.0 million, and stockholders' equity decreased to $8.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Total Current Assets | $10,523 | $10,545 | | Total Assets | $22,995 | $23,490 | | Total Current Liabilities | $10,778 | $10,243 | | Total Liabilities | $14,995 | $14,606 | | Total Stockholders' Equity | $8,000 | $8,884 | Condensed Consolidated Statements of Operations For the three months ended June 30, 2025, the company reported a net loss of $926,000, an improvement from the prior year, driven by a higher gross profit margin Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2026 (ended June 30, 2025) | Q1 2025 (ended June 30, 2024) | | :--- | :--- | :--- | | Net Sales | $5,820 | $5,898 | | Gross Profit | $1,773 | $1,476 | | Gross Margin | 30.5% | 25.0% | | Loss from Operations | $(753) | $(1,041) | | Net Loss | $(926) | $(1,202) | | Basic and Diluted EPS | $(0.13) | $(0.17) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased to $8.00 million by June 30, 2025, primarily due to the net loss incurred during the period - Stockholders' equity fell to $8.0 million at June 30, 2025, from $10.66 million a year prior, mainly due to recurring net losses[17] Condensed Consolidated Statements of Cash Flows For the three months ended June 30, 2025, operating activities used cash, while financing activities provided funds, resulting in an overall cash increase Cash Flow Summary (in thousands) | Activity | Q1 2026 (ended June 30, 2025) | Q1 2025 (ended June 30, 2024) | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(328) | $243 | | Net Cash Used in Investing Activities | $(22) | $(47) | | Net Cash Provided by (Used in) Financing Activities | $476 | $(183) | | Net Increase in Cash | $126 | $13 | | Cash at End of Period | $383 | $720 | Notes to Condensed Consolidated Financial Statements The notes detail critical accounting policies, a 'going concern' warning, significant customer concentration, and reliance on related-party debt - The financial statements were prepared assuming the company will continue as a going concern, but sustained operating losses, negative cash flows, and debt covenant violations raise substantial doubt about this ability[25] - For the quarter ended June 30, 2025, three customers accounted for 20%, 12%, and 12% of total net sales, indicating significant customer concentration risk[40] - The company violated debt covenants as of March 31, 2025, and received a waiver from the bank. However, due to the probability of future violations, the $2.9 million 2012 Loan is classified as a current liability[28][64][65] - The company has a revolving line of credit of up to $4.0 million with a related party, Skywords Family Foundation, Inc. As of June 30, 2025, $3.75 million was outstanding on this facility[27][66][67] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a slight decrease in net sales, improved gross margin, critical liquidity concerns, and strategic initiatives to address the 'going concern' issue Results of Operations Net sales for Q1 FY2026 decreased by 1.3% due to a decline in packaged sales offset by a surge in bulk sales, while gross profit margin improved significantly Net Sales by Category (in thousands) | Category | Q1 2026 | Q1 2025 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Packaged Sales | $4,118 | $4,689 | $(571) | (12.2)% | | Total Bulk Sales | $1,662 | $1,117 | $545 | 48.8% | | Total Sales | $5,820 | $5,898 | $(78) | (1.3)% | - The gross profit margin increased by 5.5 percentage points, from 25.0% to 30.5%, primarily due to higher production volumes which resulted in lower production costs for the quarter[105] Liquidity and Going Concern The company faces precarious liquidity with a working capital deficit and reliance on related-party debt, raising substantial doubt about its ability to continue as a going concern - As of June 30, 2025, the company had cash of $0.4 million and a negative working capital deficit of $0.3 million[108] - Management highlights that sustained operating losses, negative cash flows, and debt covenant non-compliance raise substantial doubt about the ability to continue as a going concern[107] - The company continues to implement cost-saving initiatives, including aligning production with demand, reducing headcount, and hiring a Head of Sales to strengthen its eCommerce and retail strategy[112] Cash Flows Operating activities used cash, investing activities were minimal, and financing activities provided funds, primarily from a related-party line of credit - Cash used in operations was $328,000, driven by a net loss of $0.9 million and an increase in inventory, partially offset by non-cash items and a decrease in accounts receivable[114] - Cash from financing activities was $476,000, primarily from a $750,000 draw on the related-party line of credit[115][19] Outlook The company's strategic focus is on stabilizing production, rationalizing channels, and leveraging core competencies, while managing cash and potential gross margin declines - Strategic direction is to stabilize production, focus on high-margin Nutrex Hawaiian consumer products, and pursue bulk sales and third-party extraction services[120] - Management warns that future gross profit margins could be negatively impacted by lower production volumes, input cost pressures, and increased competition[121] - To manage cash resources, the company will balance production with sales demand, minimize inventory costs, and judiciously manage expenses[123] Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[131] - No changes occurred during the quarter that materially affected, or were reasonably likely to materially affect, the company's internal control over financial reporting[132] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no significant outstanding legal matters as of June 30, 2025 - There were no significant legal matters outstanding at June 30, 2025[134] Item 1A. Risk Factors The report refers investors to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K - For a discussion of risk factors, the report incorporates by reference Part I, Item 1A of the Form 10-K for the year ended March 31, 2025[135] Other Items (2, 3, 5) The company reported no unregistered sales of equity securities, no defaults upon senior securities, and no other information requiring disclosure - The company reported 'None' for Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults upon Senior Securities), and Item 5 (Other Information)[136][137][138] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to equity plans, debt agreements, and officer certifications - Exhibits filed include amendments to incentive and debt plans, CEO/CFO certifications (Sections 302 and 906), a press release, and XBRL data files[141]