Table of Contents



 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For Quarterly Period Ended June 30, 2020

Or

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From               to               

 

Commission File Number 0-14602

 

CYANOTECH CORPORATION

(Exact name of registrant as specified in its charter)

NEVADA

91-1206026

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification Number)

 

73-4460 Queen Kaahumanu Hwy. #102, Kailua-Kona, HI 96740

(Address of principal executive offices)

 (808) 326-1353

(Registrant’s telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.02 par value per share

CYAN

NASDAQ

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): 

Large accelerated filer ☐

  

Accelerated filer ☐

Non-accelerated filer ☐

  

Smaller reporting company ☒

 

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

 

As of August 7, 2020, the number of shares outstanding of the registrant’s common stock was 6,030,688.

 

1

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Report and other presentations made by Cyanotech Corporation (“CYAN”) and its subsidiary contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as “expects,” “anticipates,” “intends,” “plan,” “believes,” “predicts”, “estimates” or similar expressions. In addition, any statement concerning future financial performance, ongoing business strategies or prospects and possible future actions are also forward-looking statements. Forward-looking statements are based upon current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning CYAN and its subsidiary (collectively, the “Company”), the performance of the industry in which CYAN does business, and economic and market factors, among other things. These forward-looking statements are not guarantees of future performance. You should not place undue reliance on forward-looking statements.

 

Forward-looking statements speak only as of the date of the Report, presentation or filing in which they are made. Except to the extent required by the Federal Securities Laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our forward-looking statements in this Report include, but are not limited to:

 

 

Statements relating to our business strategy;

 

 

Statements relating to our business objectives; and

 

 

Expectations concerning future operations, profitability, liquidity and financial resources.

 

These forward-looking statements are subject to risk, uncertainties and assumptions about us and our operations that are subject to change based on various important factors, some of which are beyond our control, including those factors described in Item 2 of Part I of this quarterly report and in Item 1A of Part I of the Company’s Annual Report on Form 10-K filed on June 23, 2020. Additionally, the following factors, among others, could cause our financial performance to differ significantly from the goals, plans, objectives, intentions and expectations expressed in our forward-looking statements:

 

 

The added risks associated with or attributed to the current local, national and world economic conditions, including but not limited to, the volatility of crude oil prices, inflation and currency fluctuations;

 

 

Access to available and reasonable financing on a timely basis;

 

 

The Company’s inability to generate enough revenues to meet its obligations or repay maturing indebtedness;

 

 

Failure of capital projects to operate as expected or meet expected results;

 

It is not possible to predict or identify all potential risks and uncertainties and the above referenced factors and list do not comprise a complete list of all potential risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in any forward-looking statement contained in this report. All forward-looking statements speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in or incorporated by reference into this report. Except as is required by law, the Company expressly disclaims any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this report. Throughout this report, Cyanotech Corporation, together with its subsidiary, are referred to as “the Company.”

 

2

 

 

 

CYANOTECH CORPORATION

FORM 10-Q

INDEX

 

PART I.  FINANCIAL INFORMATION

  

  

  

Item 1.

Financial Statements

4

  

Condensed Consolidated Balance Sheets as of June 30, 2020 and March 31, 2020 (unaudited)

4

  

Condensed Consolidated Statements of Operations for the three months ended June 30, 2020 and 2019 (unaudited)

5

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended June 30, 2020 and 2019 (unaudited)

6

  

Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2020 and 2019 (unaudited)

7

  

Notes to Condensed Consolidated Financial Statements (unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 4.

Controls and Procedures

23

  

  

  

PART II.  OTHER INFORMATION

  

  

  

Item 1.

Legal Proceedings

24

Item 1A

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults upon Senior Securities

24

Item 5.

Other Information

24

Item 6.

Exhibits

25

 

 

 

SIGNATURES

26

 

 

3

 

 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

 

   

June 30,
20
20

   

March 31,
20
20

 

ASSETS

               

Current assets:

               

Cash

  $ 3,325     $ 2,417  

Accounts receivable, net of allowance for doubtful accounts of $13 at June 30, 2020 and March 31, 2020

    2,013       2,154  

Inventories, net

    10,094       9,653  

Prepaid expenses and other current assets

    468       504  

Total current assets

    15,900       14,728  
                 

Equipment and leasehold improvements, net

    12,706       13,042  

Operating lease right-of-use assets, net

    3,757       3,834  

Other assets

    163       183  

Total assets

  $ 32,526     $ 31,787  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               

Current liabilities:

               

Accounts payable

  $ 1,633     $ 2,137  

Accrued expenses

    1,047       849  

Customer deposits

    123       327  

Operating lease obligations, current portion

    327       319  

Short-term contract obligation

    19       38  

Line of credit

    2,000       2,000  

Current maturities of long-term debt

    2,196       689  

Total current liabilities

    7,345       6,359  
                 

Long-term debt, less current maturities

    5,719       6,009  

Long-term operating lease obligations

    3,434       3,519  

Other long-term liabilities

    39       54  

Total liabilities

    16,537       15,941  
                 

Commitments and contingencies

               
                 

Stockholders’ equity:

               

Preferred stock of $0.01 par value, authorized 10,000,000 shares; no shares issued and outstanding

           

Common stock of $0.02 par value, authorized 50,000,000 shares; issued and outstanding 6,028,312 shares at June 30, 2020 and 6,011,885 shares at March 31, 2020

    120       120  

Additional paid-in capital

    32,999       32,994  

Accumulated deficit

    (17,130

)

    (17,268

)

Total stockholders’ equity

    15,989       15,846  

Total liabilities and stockholders’ equity

  $ 32,526     $ 31,787  

 

See accompanying notes to condensed consolidated financial statements

 

4

 

 

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

   

Three Months Ended
June 30,

 
   

2020

   

2019

 
                 

Net sales

  $ 7,352     $ 8,071  

Cost of sales

    4,377       4,396  

Gross profit

    2,975       3,675  
                 

Operating expenses:

               

General and administrative

    1,328       2,031  

Sales and marketing

    1,244       1,408  

Research and development

    135       187  

Total operating expenses

    2,707       3,626  
                 

Income from operations

    268       49  
                 

Interest expense, net

    (131

)

    (185

)

                 

Income (loss) before income taxes

    137       (136

)

                 

Income tax benefit

    (1

)

    (3 )
                 

Net income (loss)

  $ 138     $ (133

)

                 

Net income (loss) per share:

               

Basic

  $ 0.02     $ (0.02

)

Diluted

  $ 0.02     $ (0.02

)

                 

Shares used in calculation of net income (loss) per share:

               

Basic

    6,029       5,919  

Diluted

    6,036       5,919  

 

See accompanying notes to condensed consolidated financial statements

 

5

 

 

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 (Unaudited)

 

Three months ended June 30, 2020 and 2019

 

   

Common
Stock
Shares

   

Common
Stock

Amount

   

Additional
Paid-in
Capital

   

Accumulated
Deficit

   

Total
Stockholders’
Equity

 
   

(in thousands, except per share data)

 

Balances at March 31, 2020

    6,011,885     $ 120     $ 32,994     $ (17,268

)

  $ 15,846  

Settlement agreement with former executive

    11,400                          

Shares withheld from former executive for tax payments

    (3,635

)

                       

Issuance of vested shares of restricted stock

    13,832             (5

)

          (5 )

Shares withheld for tax payments

    (5,170

)

                       

Share-based compensation expense

                10             10  

Net income

                      138       138  

Balances at June 30, 2020

    6,028,312     $ 120     $ 32,999     $ (17,130

)

  $ 15,989  
                                         

Balances at March 31, 2019

    5,879,710     $ 117     $ 32,447     $ (17,655

)

  $ 14,909  

Issuance of common stock for exercise of stock options

                4             4  

Settlement agreement with former executive

                320             320  

Issuance of vested shares of restricted stock

    15,019       1       (18

)

          (17

)

Shares withheld for tax payments

    (5,147

)

                       

Share-based compensation expense

                21             21  

Net loss

                      (133

)

    (133

)

Balances at June 30, 2019

    5,889,582     $ 118     $ 32,774     $ (17,788

)

  $ 15,104  

 

See accompanying notes to condensed consolidated financial statements

 

6

 

 

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

   

Three Months Ended
June 30,

 
   

2020

   

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net income (loss)

  $ 138     $ (133

)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

               

Depreciation and amortization

    467       491  

Amortization of debt issue costs and other assets

    31       17  

Amortization of operating leases right-of-use assets

    77       71  

Share-based compensation expense

    10       341  

Net (increase) decrease in assets:

               

Accounts receivable

    141       188  

Inventories

    (441

)

    (296

)

Prepaid expenses and other assets

    33       40  

Net increase (decrease) in liabilities:

               

Accounts payable

    (504

)

    (1,180

)

Accrued expenses

    198       120  

Customer deposits

    (204

)

    (461

)

Operating lease obligations

    (77

)

    (71

)

Deferred rent and other liabilities

    (15

)

     

Net cash used in operating activities

    (146

)

    (873

)

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Investment in equipment and leasehold improvements

    (131

)

    (48

)

Net cash used in investing activities

    (131

)

    (48

)

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Payments on short-term contract obligation

    (19

)

    (184

)

Proceeds from long-term debt – related party

          1,500  

Proceeds from long-term debt – PPP loan

    1,381        

Principal payments on long-term debt

    (163

)

    (148

)

Payments on capitalized leases

    (9

)

    (19

)

Taxes paid related to net share settlement of restricted stock units

    (5

)

    (17

)

Proceeds from exercise of stock options

          4  

Net cash provided by financing activities

    1,185       1,136  

Net increase in cash

    908       215  

Cash and restricted cash at beginning of period

    2,417       840  

Cash and restricted cash at end of period

  $ 3,325     $ 1,055  
                 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

               

Cash paid during the period for:

               

Interest

  $ 117     $ 166  

Income taxes

  $     $  

 

See accompanying notes to condensed consolidated financial statements 

 

7

 

CYANOTECH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 

 

1.

ORGANIZATION AND BASIS OF PRESENTATION

 

Cyanotech Corporation (the “Company”), located in Kailua-Kona, Hawaii, was incorporated in the state of Nevada on March 3, 1983 and is listed on the NASDAQ Capital Market under the symbol “CYAN”. The Company is engaged in the production of natural products derived from microalgae for the nutritional supplements market.

 

The Company is an agricultural company that produces high value natural products derived from microalgae grown in complex and intricate open-pond agricultural systems on the Kona coast of Hawaii.  The Company's products include Hawaiian Spirulina Pacifica, a superfood with numerous benefits, including boosting the immune system and overall cellular health; and Hawaiian BioAstin, a powerful antioxidant shown to support and maintain the body's natural inflammatory response.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (“SEC”). These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows for the periods presented in accordance with GAAP.

 

Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year. The Condensed Consolidated Balance Sheet as of March 31, 2020 was derived from the audited consolidated financial statements. These condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended March 31, 2020, contained in the Company’s annual report on Form 10-K as filed with the SEC on June 23, 2020. 

 

Liquidity and Capital Resources

 

As of June 30, 2020, the Company had cash of $3,325,000 and working capital of $8,555,000 compared to $2,417,000 and $8,369,000, respectively, at March 31, 2020. The Company has a Revolving Credit Agreement (“Credit Agreement”) with First Foundation Bank (“Bank”) that allows the Company to borrow up to $2,000,000 on a revolving basis. At June 30, 2020 and March 31, 2020, the Company had outstanding borrowings of $2,000,000 on the line of credit.  The line of credit is subject to renewal on August 30, 2020 and the Company intends to renew or replace it with another line of credit on or before the expiration date.

 

As of June 30, 2020, the Company had $5,094,000 in long-term debt (“Term Loans”) payable to the Bank that require the payment of principal and interest monthly through August 2032. Pursuant to the Term Loans and the Credit Agreement, the Company is subject to annual financial covenants, customary affirmative and negative covenants and certain subjective acceleration clauses. As of March 31, 2019, the Company’s debt service coverage ratio of -0.66:1 fell short of the Bank's annual requirement of 1.25:1. Additionally, on March 31, 2019, the Company’s current ratio of 1.49:1 fell short of the Bank’s annual requirement of 1.50:1.  On June 17, 2019, the Bank provided the Company with a letter waiving the covenant violations as of March 31, 2019, but noting that the Bank reserved its rights to declare a default in the future if any covenants remain out of compliance at applicable measurement dates. As of March 31, 2020, the Company was in compliance with all required annual financial covenants under the Term Loans and the Credit Agreement.

 

In response to the coronavirus (“COVID-19”) pandemic and the uncertainty surrounding the pandemic, in May 2020, the Company obtained a Paycheck Protection Program (“PPP”) loan in the amount of $1,381,000, under the Coronavirus Aid, Relief, and Economics Security Act (“CARES Act”). The proceeds were used in the first quarter of fiscal 2021 for certain payroll costs in accordance with the PPP (see Note 6). In April 2019, the Company obtained an unsecured subordinated loan in the amount of $1,500,000 from a related party (see Notes 6 and 13). The proceeds were used to pay down accounts payable and for general operating capital purposes.

 

Funds generated by operating activities and available cash are expected to continue to be the Company’s most significant sources of liquidity for working capital requirements, debt service and funding of maintenance levels of capital expenditures. In fiscal year 2020, the Company began a strategic cost savings initiative that included the elimination of positions through attrition and the elimination of open positions to create a leaner organization, and the Company is continuing the cost savings initiative in fiscal year 2021.

 

8

 

Based upon the Company’s operating plan and related cash flow and financial projections, cash flows expected to be generated by operating activities and available financing are expected to be sufficient to fund its operations through at least June 30, 2021, and its debt service coverage ratio and current ratio covenants are expected to be in compliance with the annual Term Loans and Credit Agreement covenant requirements as of March 31, 2021, the next measurement date. However, no assurances can be provided that the Company will achieve its operating plan and cash flow projections for the next fiscal years or its projected consolidated financial position as of March 31, 2021. Such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results.

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES

 

Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of Cyanotech Corporation and its wholly owned subsidiary, Nutrex Hawaii, Inc. (“Nutrex Hawaii” or “Nutrex”, collectively the “Company”). All intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of any contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the periods reported.  Management reviews these estimates and assumptions periodically and reflects the effect of revisions in the period that they are determined to be necessary.  Actual results could differ from those estimates and assumptions.

  

Cash

 

Cash primarily consists of cash on hand and cash in bank deposits.

 

Concentration Risk

 

A significant portion of revenue and accounts receivable are derived from a few major customers. For the three months ended June 30, 2020 and 2019, two customers accounted for 13% and 9%, and 32% and 18%, respectively, of the Company’s net sales. Three and two customers accounted for 68% and 80%, respectively, of the Company’s accounts receivable balance at June 30, 2020 and March 31, 2020, respectively.

 

Revenue Recognition

 

The Company records revenue based on the five-step model which includes: (1) identifying the contract with the customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations; and (5) recognizing revenue when the performance obligations are satisfied. Substantially all of the Company’s revenue is generated by fulfilling orders for the purchase of our microalgal nutritional supplements to retailers, wholesalers, or direct to consumers via online channels, with each order considered to be a distinct performance obligation. These orders may be formal purchase orders, verbal phone orders, e-mail orders or orders received online. Shipping and handling activities for which the Company is responsible under the terms and conditions of the order are not accounted for as performance obligations but as fulfillment costs. These activities are required to fulfill the Company’s promise to transfer the goods and are expensed when revenue is recognized. 

 

Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling a performance obligation. The Company has elected to exclude sales, use and similar taxes from the measurement of the transaction price.  The amount of consideration expected to be received and revenue recognized includes estimates of variable consideration, which includes costs for trade promotion programs, coupons, returns and early payment discounts.  Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. The Company reviews and updates these estimates at the end of each reporting period and the impact of any adjustments are recognized in the period the adjustments are identified. In assessing whether collection of consideration from a customer is probable, the Company considers the customer's ability and intent to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, typically 30 days from the invoice date, which occurs on the date of transfer of control of the products to the customer. Revenue is recognized at the point in time that control of the ordered products is transferred to the customer. Generally, this occurs when the product is delivered, or in some cases, picked up from one of the Company’s distribution centers by the customer. Revenue from extraction services is recognized when control is transferred upon completion of the extraction process.

 

Customer contract liabilities consist of customer deposits received in advance of fulfilling an order and are shown separately on the consolidated balance sheets. During the three months ended June 30, 2020 and 2019, the Company recognized $251,000 and $511,000, respectively, of revenue from deposits that were included in contract liabilities as of March 31, 2020 and 2019, respectively. The Company’s contracts have a duration of one year or less and therefore, the Company has elected the practical expedient of not disclosing revenues allocated to partially unsatisfied performance obligations.

 

9

 

Disaggregation of Revenue

 

The following table represents revenue disaggregated by major product line and extraction services for the:

 

($ in thousands)

 

Three Months

Ended

June 30, 2020

   

Three Months

Ended

June 30, 2019

 

Packaged sales

               

Astaxanthin packaged

  $ 3,242     $ 4,610  

Spirulina packaged

    1,842       1,914  

Total packaged sales

    5,084       6,524  
                 

Bulk sales

               

Astaxanthin bulk

    419       174  

Spirulina bulk

    1,530       1,233  

Total bulk sales

    1,949       1,407  
                 

Contract extraction revenue

    319       140  

Total net sales

  $ 7,352     $ 8,071  

 

Recently Adopted Accounting Pronouncements

 

Effective April 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842): Accounting for Leases and issued subsequent amendments to the initial guidance and implementation guidance including ASU No. 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 (collectively including ASU No. 2016-02, “ASC 842”). ASC 842 requires that lessees recognize right-of-use assets and lease liabilities that are measured at the present value of the future lease payments at lease commencement date. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will largely remain unchanged and shall continue to depend on its classification as a finance or operating lease. The Company elected the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. Under the new guidance, the majority of the Company’s leases continue to be classified as operating. Based on the Company’s lease portfolio, the impact of adopting ASC 842 increased both total assets and total liabilities, however, it did not have a significant impact on the Company’s consolidated statements of operations or cash flows. Finance leases continue to be classified with long-term debt on the Consolidated Balance Sheets and are described in Note 6. See Note 8 for operating leases.

 

In June 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718)” (“ASU No. 2018-07”): Improvements to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees, and as a result, the accounting for share-based payments to non-employees will be substantially aligned. ASU No. 2018-07 is effective for the Company in the first quarter of fiscal year 2020.  The Company adopted ASU No. 2018-07 as of April 1, 2019 with no impact on its consolidated financial statements and related disclosures.

 

In November 2018, the FASB issued ASU 2018-18 – Collaborative Arrangements (“ASU 2018-18”), which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. This ASU requires retrospective adoption to the date the Company adopted ASC 606, April 1, 2018, by recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the earliest annual period presented. The Company adopted ASU 2018-18 as of April 1, 2020 with no impact on its financial statements. 

 

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU No. 2018-15”), which aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with the existing capitalization requirements for implementation costs incurred to develop or obtain internal-use software (Subtopic 350-40). The Company adopted AUD No. 2018-15 as of April 1, 2020 with no impact on its financial statements. 

 

10

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement - Disclosure Framework (Topic 820)” (“ASU No. 2018-13”). The updated guidance improves the disclosure requirements on fair value measurements. The Company adopted this standard as of April 1, 2020, with no impact to its disclosures. 

 

Recently Issued Accounting Pronouncements

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”(“ASU 2019-12”), which as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes, removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its financial statements.

 

 

3.

INVENTORIES

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. Inventories consist of the following as of:

 

   

June 30,

2020

   

March 31,

2020

 
   

(in thousands)

 

Raw materials

  $ 481     $ 397  

Work in process

    4,959       4,172  

Finished goods

    4,455       4,945  

Supplies

    199       139  

Inventories, net

  $ 10,094     $ 9,653  

 

The Company recognizes abnormal production costs, including fixed cost variances from normal production capacity, as an expense in the period incurred. The Company has not expensed abnormal production costs for the three months ended June 30, 2020 or 2019. Non-inventoriable fixed costs of $28,000 and $14,000 were expensed to cost of sales for the three months ended June 30, 2020 and 2019, respectively.

 

 

4.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

 

Equipment and leasehold improvements consist of the following as of:

 

   

June 30,

2020

   

March 31,

2020

 
   

(in thousands)

 

Equipment

  $ 18,860     $ 18,841  

Leasehold improvements

    14,754       14,736  

Furniture and fixtures

    369       369  
      33,983       33,946  

Less accumulated depreciation and amortization

    (21,646

)

    (21,179

)

Construction-in-progress

    369       275  

Equipment and leasehold improvements, net

  $ 12,706     $ 13,042  

 

Management has determined no asset impairment existed as of June 30, 2020 and March 31, 2020, respectively. Depreciation and amortization expense were approximately $467,000 and $491,000 for the three months ended June 30, 2020 and 2019, respectively.

 

 

5.

SHORT-TERM CONTRACT OBLIGATION

 

On November 30, 2018 the Company completed the purchase of a six-acre production and research facility from Cellana LLC (“Cellana”) under a purchase agreement that was signed August 31, 2018. In accordance with the terms of the third amendment to the asset purchase agreement, the Company acquired the asset for $495,000 with a cash down payment of $100,000 leaving a short-term obligation of $395,000 on the asset purchase.

 

11

 

The short-term obligation was comprised of two separate loans in the principal amount of $180,000 and $215,000. The first loan of $180,000 bore an interest rate of 6.25% and was payable in four monthly installments of principal and interest. The loan commenced on December 1, 2018 and matured on July 15, 2019. There are no principal amounts outstanding at June 30, 2019 or March 31, 2020.

 

The second loan had a principal amount of $215,000 and was a non-interest bearing loan that was payable in twelve monthly installments. The loan commenced on December 1, 2018 and matured on October 15, 2019. This contract contained a hold back of $38,000 pending resolution of certain closing items by the seller, which have been resolved. The principal amounts outstanding at June 30, 2020 and March 31, 2020 were $19,000 and $38,000, respectively.

 

 

6.

LINE OF CREDIT AND LONG-TERM DEBT

 

Total debt consists of the following as of:

 

   

June 30,

2020

   

March 31,

2020

 
   

(in thousands)

 

Line of credit

  $ 2,000     $ 2,000  

Long-term debt

    5,195       5,367  

Debt - related party

    1,500       1,500  

Long-term debt – PPP loan

    1,381        

Less current maturities

    (4,196

)

    (2,689

)

Long-term debt, excluding current maturities

    5,880       6,178  

Less unamortized debt issuance costs

    (161

)

    (169

)

Total long-term debt, net of current maturities and unamortized debt issuance costs

  $ 5,719     $ 6,009  

  

Line of Credit and Term Loans

 

On August 30, 2016, the Credit Agreement, which the Company entered into with the Bank on June 3, 2016, became effective after the Company and the Bank received the necessary approvals from the State of Hawaii to secure the lien on the Company’s leasehold property in Kona, Hawaii. The Credit Agreement allows the Company to borrow up to $2,000,000 on a revolving basis. Borrowings under the Credit Agreement bear interest at the Wall Street Journal prime rate (3.25% and 4.75% at June 30, 2020 and March 31, 2020, respectively) plus 2%, floating.

 

At both June 30, 2020 and March 31, 2020, the outstanding balance under the Credit Agreement was $2,000,000. The line of credit, which is subject to annual renewal, was renewed on August 30, 2019 and will be subject to renewal upon expiration on August 30, 2020. Pursuant to the August 30, 2019 renewal, the current ratio covenant was 1.50:1 and is applicable to both the line of credit and term loans with the Bank.

 

The Credit Agreement grants the Bank the following security interests in the Company’s property: (a) a lien on the Company’s leasehold interest in its Kona facility; (b) an assignment of the Company’s interest in leases and rents on its Kona facility; and (c) a security interest in all fixtures, furnishings and equipment related to or used by the Company at the Kona facility. Each security interest is further subject to the terms of the Credit Agreement.

 

In 2015, the Company executed a loan agreement with a lender providing for $2,500,000 in aggregate credit facilities (the “2015 Loan”) secured by substantially all the Company’s assets, pursuant to a Term Loan Agreement dated July 30, 2015 (the “2015 Loan Agreement”). The 2015 Loan is evidenced by a promissory note in the amount of $2,500,000, the repayment of which is partially guaranteed under the provisions of the United States Department of Agriculture (“USDA”) Rural Development Guarantee program. The proceeds of the 2015 Loan were used to pay off a $500,000 short term note payable that matured on September 18, 2015, and to acquire new processing equipment and leasehold improvements at the Company’s Kona, Hawaii facility.

 

 The provisions of the 2015 Loan require the payment of principal and interest until its maturity on September 1, 2022, the obligation fully amortizes over seven (7) years. Interest on the 2015 Loan accrues on the outstanding principal balance at an annual variable rate equal to the published Wall Street Journal prime rate (3.25% and 4.75% at June 30, 2020 and March 31, 2020, respectively) plus 2.0% and is adjustable on the first day of each calendar quarter and fixed for that quarter. At no time shall the annual interest rate be less than 6.0%. The 2015 Loan has a prepayment penalty of 5.0% for any prepayment made prior to the first anniversary of the date of the 2015 Loan Agreement, which penalty is reduced by 1.0% each year thereafter until the fifth anniversary of such date, after which there is no prepayment penalty. The balance under the 2015 Loan was $931,000 and $1,027,000 at June 30, 2020 and March 31, 2020, respectively, and was included in long-term debt in the debt table above.

 

In 2012, the Company executed a loan agreement with a lender providing for $5,500,000 in aggregate credit facilities (the “2012 Loan”) secured by substantially all the Company’s assets, including a mortgage on the Company's interest in its lease at the National Energy Laboratory of Hawaii Authority, pursuant to a Term Loan Agreement dated August 14, 2012 (the “2012 Loan Agreement”). The 2012 Loan is evidenced by promissory notes in the amounts of $2,250,000 and $3,250,000, the repayment of which is partially guaranteed under the provisions of a USDA Rural Development Guarantee. The proceeds of the 2012 Loan were used to acquire processing equipment and leasehold improvements at its Kona, Hawaii facility.

 

12

 

The provisions of the 2012 Loan required the payment of interest only for the first 12 months of the term; thereafter, and until its maturity on August 14, 2032, the obligation fully amortizes over nineteen (19) years. Interest on the 2012 Loan accrues on the outstanding principal balance at an annual variable rate equal to the published Wall Street Journal prime rate (3.25% and 4.75% at June 30, 2020 and March 31, 2020, respectively) plus 1.0% and is adjustable on the first day of each calendar quarter and fixed for that quarter. At no time shall the annual interest rate be less than 5.5%. The balance under the 2012 Loan was $4,163,000 and $4,222,000 at June 30, 2020 and March 31, 2020, respectively, and was included in long-term debt in the debt table above.

  

The 2015 Loan includes a one-time origination and guaranty fee totaling $113,900 and an annual renewal fee payable in the amount of 0.5% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year, beginning December 31, 2015. The USDA has guaranteed 80% of all amounts owing under the 2015 Loan. The 2012 Loan included a one-time origination and guaranty fees totaling $214,500 and an annual renewal fee payable in the amount of 0.25% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year, beginning December 31, 2012. The USDA has guaranteed 80% of all amounts owing under the 2012 Loan. The balance in unamortized debt issuance costs was $161,000 and $169,000 at June 30, 2020 and March 31, 2020, respectively.

 

Loan Covenants

 

The Company’s Credit Agreement, 2015 Loan and 2012 Loan are subject to annual debt service and other financial covenants, including covenants which require the Company to meet key financial ratios and customary affirmative and negative covenants.  As of March 31, 2020, the Company was in compliance with all required annual financial covenants. The next remeasurement date will be March 31, 2021.

 

Long-term Debt – PPP

 

In May 2020, the Company obtained a PPP loan in the amount of $1,381,000, which bears interest at a rate of 1% per annum, payable monthly commencing on November 5, 2020, following an initial deferral period as specified under the PPP, and matures on May 5, 2022.  The Company has used the proceeds of the PPP loan for certain payroll costs in accordance with the PPP. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent the proceeds are used for qualifying expenses as determined by the guidance of the U.S. Small Business Administration under the PPP. There can be no assurance, however, that the PPP loan will be forgiven in whole or in part. The balance under this loan was $1,381,000 at June 30, 2020.

 

Debt – Related Party

 

In April 2019, the Company obtained an unsecured subordinated loan in the amount of $1,500,000, which bears interest at the Wall Street Journal prime rate, plus 1%, or 4.25% and 5.5% at June 30, 2020 and March 30, 2020, respectively, and is payable quarterly.  The principal amount and any accrued and unpaid interest are due in April 2021 (see Note 13).  The balance under this loan was $1,500,000 at June 30, 2020 and March 31, 2020 and was included in current maturities of long-term debt and long-term debt, respectively, in the debt table above.

 

Equipment Finance Agreement

 

In October 2017, the Company entered into an Equipment Finance Agreement (the “Equipment Agreement”) with a lender, which provides up to $175,000 of financing for equipment. The interest rate on this loan is 4.75%. The provisions of the Equipment Agreement require the payment of principal and interest until its maturity on October 31, 2022. The balance under this loan was $86,000 and $94,000 at June 30, 2020 and March 31, 2020, respectively, and was included in long-term debt in the debt table above.

 

 Finance Lease Obligations

 

In February 2016, the Company executed a finance lease agreement with Bank of the West providing for $51,000 in equipment, secured by the equipment financed. The finance lease matures in March 2021 and is payable in 60 equal monthly payments. The interest rate under this finance lease is 4.18%. The balance under this lease was $8,000 and $11,000 at June 30, 2020 and March 31, 2020, respectively, and was included in long-term debt in the debt table above.

 

In July 2015, the Company executed a finance lease agreement with Huntington Technology Finance providing for $174,000 in equipment, secured by the equipment financed. The finance lease matures in July 2020 and is payable in 60 equal monthly payments. The interest rate under this lease is 6.57%. The balance under this lease was $7,000 and $13,000 at June 30, 2020 and March 31, 2020, respectively, and was included in long-term debt in the debt table above.

 

13

 

Future principal payments under the loans and finance lease obligations at June 30, 2020 are as follows:

 

Payments Due

 

(in thousands)

 

Remainder of 2021

  $ 520  

2022

    2,213  

2023

    1,858  

2024

    289  

2025

    306  

Thereafter

    2,890  

Total principal payments

  $ 8,076  

 

 

7.

OPERATING LEASES

 

The Company leases it facilities, equipment and land under non-cancelable operating leases expiring through 2037. One of its facility leases contains price escalations and a renewal option for five years. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and liabilities were recognized at April 1, 2019 based on the present value of lease payments over the lease term, using the Bank’s incremental borrowing rate based on the information available at recognition, and the Company has elected to exclude non-lease components. At June 30, 2020, the weighted average remaining lease terms is 13.8 years, the weighted average discount rate is 7.5% and for both the three months ended June 30, 2020 and 2019, the operating lease costs are $147,000.

 

Supplemental balance sheet information related to operating leases consist of the following as of:

 

Balance Sheet Account

  Balance Sheet Classification  

 

June 30, 2020

   

 

March 31, 2020

 
       

(in thousands)  

 

Right-of-use assets

 

Operating lease right-of-use assets

  $ 4,128     $ 4,128  
Accumulated lease amortization   Operating lease right-of-use assets     (371)       (294)  
                     
Total right-of-use assets $ 3,757     $ 3,834  
                     

Current lease liabilities

 

Operating lease obligations

    327       319  

Non-current lease liabilities

 

Long-term operating lease obligations

    3,434       3,519  
                     

Total lease liabilities

  $ 3,761     $ 3,838  

 

Maturities of lease liabilities at June 30, 2020 are as follows:

 

Payments

 

(in thousands)

 

Remainder of 2021

  $ 595  

2022

    591  

2023

    482  

2024

    371  

2025

    365  

Thereafter

    3,606  

Total undiscounted lease payments

    6,010  

Less: present value discount

    (2,249

)

Total lease liability balance

  $ 3,761  

 

14

 

 

8.

ACCRUED EXPENSES

 

Accrued expenses consist of the following as of:

 

   

June 30,

2020

   

March 31,

2020

 
   

(in thousands)

 

Wages, commissions, bonus and profit sharing

  $ 443     $ 295  

Vacation

    357       301  

Rent, interest and legal

    115       76  

Other accrued expenses

    132       177  

Total accrued expenses

  $ 1,047     $ 849  

 

 

9.

COMMITMENTS AND CONTINGENCIES

 

From time to time, the Company may be involved in litigation and investigations relating to claims and matters arising out of its operations in the normal course of business.

 

On October 2, 2019, a shareholder of the Company, Meridian OHC Partners, LP (“Meridian”), filed a complaint in the United States District Court, District of Hawaii, against the Board of Directors seeking to proceed derivatively on behalf of the Company. The Company is named as a nominal defendant. The complaint alleges, among other things, that the directors have breached their fiduciary duties, in overseeing the Company. Meridian seeks declaratory and injunctive relief and an award of damages to the Company. The case is Meridian v. Davis et al. (Cyanotech), No. 19-cv-0536 (D. Hawaii). The Company and the defendants filed motions to dismiss, and the court granted these motions and dismissed the complaint with prejudice on July 15, 2020.

 

 

 

10.

SHARE-BASED COMPENSATION

 

The Company has share-based compensation plans, which are more fully described in Note 10, Share-Based Compensation, to the Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2020 as filed with the SEC on June 23, 2020.

 

As of June 30, 2020, the Company had two equity-based compensation plans: the 2016 Equity Incentive Plan (the “2016 Plan”) and the 2014 Independent Director Stock Option and Restricted Stock Grant Plan (the “2014 Directors Plan”). The Company has also issued stock options, which remain outstanding as of June 30, 2020, under two equity-based compensation plans which have expired according to their terms: the 2005 Stock Option Plan (the “2005 Plan”) and the 2004 Independent Director Stock Option and Stock Grant Plan (the “2004 Directors Plan”). These plans allowed the Company to award stock options and shares of restricted common stock to eligible employees, certain outside consultants and independent directors. No additional awards will be issued under the 2005 Plan or the 2004 Directors Plan. 

 

The following table presents shares authorized, available for future grant and outstanding under each of the Company’s plans:

 

 

 

As of June 30, 2020

 

 

 

Authorized

 

 

Available

 

 

Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016 Plan

 

 

1,300,000

 

 

 

1,174,115

 

 

 

71,568

 

2014 Directors Plan

 

 

350,000

 

 

 

109,518

 

 

 

12,000

 

2005 Plan

 

 

 

 

 

 

 

 

238,300

 

2004 Directors Plan

 

 

 

 

 

 

 

 

12,000

 

Total

 

 

1,650,000

 

 

 

1,283,633

 

 

 

333,868

 

 

15

 

Stock Options

 

All stock option grants made under the equity-based compensation plans were issued at exercise prices no less than the Company’s closing stock price on the date of grant. Options under the 2016 Plan, 2005 Plan and 2014 Directors Plan were determined by the Board of Directors or the Compensation Committee of the Board of Directors in accordance with the provisions of the respective plans.  The terms of each option grant include vesting, exercise, and other conditions set forth in a Stock Option Agreement evidencing each grant. No option can have a life in excess of ten (10) years. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The model requires various assumptions, including a risk-free interest rate, the expected term of the options, the expected stock price volatility over the expected term of the options, and the expected dividend yield. Compensation expense for employee stock options is recognized ratably over the vesting term. Compensation expense recognized for options issued under all Plans was $5,000 and $113,000 for the three months ended June 30, 2020 and 2019, respectively. For the three months ended June 30, 2019, compensation expense included $109,000 related to a settlement agreement with a former executive.

 

A summary of option activity under the Company’s stock plans for the three months ended June 30, 2020 is presented below: 

 

Option Activity

 

Shares

   

Weighted
Average
Exercise

Price

   

Weighted

Average
Remaining
Contractual
Term (in

years)

   

Aggregate
Intrinsic
Value

 

Outstanding at March 31, 2020

    318,300     $ 4.08       3.0     $  

Granted

        $                  

Exercised

        $                  

Forfeited

    (1,000

)

  $ 3.63                  

Outstanding at June 30, 2020

    317,300     $ 4.08       2.8     $ 1,100  

Exercisable at June 30, 2020

    279,800     $ 4.23       2.0     $ 1,100  

 

The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price optionees would have received if all options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price of $2.33 and $2.06 at June 30, 2020 and March 31, 2020, respectively.

 

A summary of the Company’s non-vested options for the three months ended June 30, 2020 is presented below:

 

Nonvested Options

 

Shares

   

Weighted
Average
Grant-Date
Fair Value

 

Nonvested at March 31, 2020

    37,500     $ 1.52  

Vested

           

Nonvested at June 30, 2020

    37,500     $ 1.52  

 

As of June 30, 2020, total unrecognized stock-based compensation expense related to all unvested stock options was $48,000, which is expected to be expensed over a weighted average period of 2.5 years.

 

Restricted Stock Units (“RSUs”) 

 

RSUs are service-based awards granted to eligible employees under the 2016 Plan. Compensation expense recognized for RSUs issued under the 2016 Plan was $5,000 and $23,000 for the three months ended June 30, 2020 and 2019, respectively. For the three months ended June 30, 2019, compensation expense included $6,000 related to a settlement agreement with a former executive.

 

The following table summarizes information related to awarded RSUs for the three months ended June 30, 2020:

 

Nonvested Restricted Stock Units

 

Shares

   

Weighted
Average
Grant Price

 

Nonvested restricted stock units at March 31, 2020

    12,766     $ 3.98  

Granted

    9,400       2.07  

Vested

    (5,498

)

    3.93  

Forfeited

    (100

)

    2.07  

Nonvested restricted stock units at June 30, 2020

    16,568     $ 2.92  

 

16

 

As of June 30, 2020, total unrecognized stock-based compensation expense related to unvested restricted stock units was $32,000, which is expected to be expensed over a weighted average period of 2.8 years.

 

On July 30, 2020, 19,247 RSUs were awarded to employees and officers of the Company. This award is valued at $2.19 per share, the closing market price of Cyanotech common stock on the grant date, and vests over a period of three years.

 

Common Stock 

 

At June 30, 2019, the Company recorded $205,000 in compensation expense related to a settlement agreement with a former executive.

 

 

11.

INCOME TAXES

 

On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 34% to 21% effective January 1, 2018. The 21% Federal Tax Rate applies to fiscal years ending March 31, 2019 and each year thereafter.

 

The Company utilizes its estimated annual effective tax rate to determine its provision or benefit for income taxes for interim periods. The income tax provision or benefit is computed by multiplying the estimated annual effective tax rate by the year to date pre-tax book income (loss). The Company recorded an income tax benefit of $1,000 and $3,000 for the three months ended June 30, 2020 and 2019, respectively. The Company’s effective tax rate was 0.4% and 2.3% for the three months ended June 30, 2020 and 2019, respectively. The effective tax rates for the three months ended June 30, 2020 and 2019 differ from the statutory rate of 21% as a result of state taxes (net of federal benefit) and the net change in valuation allowance against the net deferred tax asset the Company believes is not more likely than not to be realized.  The Company continues to carry a full valuation allowance on its net deferred tax assets.

 

The Company is subject to taxation in the United States and seven state jurisdictions. The preparation of tax returns requires management to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company. Management, in consultation with its tax advisors, files its tax returns based on interpretations that are believed to be reasonable under the circumstances. The income tax returns, however, are subject to routine reviews by the various taxing authorities.  As part of these reviews, a taxing authority may disagree with respect to the tax positions taken by management (“uncertain tax positions”) and therefore may require the Company to pay additional taxes. Management evaluates the requirement for additional tax accruals, including interest and penalties, which the Company could incur as a result of the ultimate resolution of its uncertain tax positions. Management reviews and updates the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities, completion of tax audits, expiration of statute of limitations, or upon occurrence of other events.

 

At June 30, 2020 and 2019, there was no liability for income tax associated with unrecognized tax benefits. The Company recognizes accrued interest related to unrecognized tax benefits as well as any related penalties in interest income or expense in its consolidated condensed statements of operations, which is consistent with the recognition of these items in prior reporting periods.

  

With few exceptions, the Company is no longer subject to U.S. federal, state, local, and non-U.S. income tax examination by tax authorities for tax years before 2016.

 

In response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Act. Corporate taxpayers may carryback net operating losses originating during 2018 through 2020 for up to five years, which was not previously allowed under the Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize net operating loss carryforwards to offset taxable income in 2018, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the Tax Act.

 

In addition, the CARES Act increases the limitation applied to the deductibility of business interest from 30% of adjusted taxable income to 50% of adjusted taxable income for the 2019 and 2020 tax years, raises the corporate charitable deduction limit to 25% of taxable income, and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to the Company’s income tax provision for the three months ended June 30, 2020.

 

17

 

 

12.

EARNINGS PER SHARE

 

Basic earnings (loss) per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the potentially dilutive effect of outstanding stock options using the treasury stock method.

 

Reconciliations between the numerator and the denominator of the basic and diluted income (loss) per share computations for the three months ended June 30, 2020 and 2019 are as follows:

 

   

Three Months Ended June 30, 2020

 
   

Net Income

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
   

(in thousands)

         

Basic income per share

  $ 138       6,029     $ 0.02  

Effective dilutive securities – restricted stock units

          7        

Diluted income per share

  $ 138       6,036     $ 0.02  

 

   

Three Months Ended June 30, 2019

 
   

Net Loss

   

Shares

   

Per Share

 
   

(Numerator)

   

(Denominator)

   

Amount

 
   

(in thousands)

         
                         

Basic and diluted loss per share

  $ (133

)

    5,919     $ (0.02

)

  

Basic and diluted per share amounts are the same in periods of a net loss, because common share equivalents are anti-dilutive when a net loss is recorded. Diluted earnings per share does not include the impact of common stock options totaling 50,000 for the three months ended June 30, 2019, as the effect of their inclusion would be anti-dilutive. Restricted stock units become dilutive within the period granted and remain dilutive until the units vest and are issued as common stock. Diluted earnings per share does not include the impact of restricted stock units totaling 14,646 for the three months ended June 30, 2019, as the effect of their inclusion would be anti-dilutive.

 

 

13.

RELATED PARTY TRANSACTIONS 

 

During the three months ended June 30, 2019, the Company obtained an unsecured subordinated loan from Skywords Family Foundation, Inc. (“Skywords”) in the principal amount of $1,500,000 pursuant to a Promissory Note (“the Skywords Note”) executed by the Company in favor of Skywords. Skywords is controlled by the Company’s Chairman of the Board of Directors and largest stockholder. The Skywords Note bears interest at a rate of 1% plus the prime rate (as published by the Wall Street Journal), which will be recalculated and payable on a quarterly basis. The principal amount and any accrued and unpaid interest will be due and payable on April 12, 2021, unless accelerated in an event of default. The Company may prepay the Skywords Note at any time without penalty. The proceeds of the Skywords Note were used to pay down accounts payable and for general operating capital purposes. At both June 30, 2020 and March 31, 2020, the Skywords Note principal balance was $1,500,000. The loan balance at June 30, 2020 was included in current maturities of long-term debt and at March 31, 2020 was included in long-term debt on the Condensed Consolidated Balance Sheets.

 

18

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview:

 

We are a world leader in the production of high value natural products derived from microalgae. Incorporated in 1983, we are guided by the principle of providing beneficial, quality microalgal products for health and human nutrition in a sustainable, reliable and environmentally sensitive operation. We are Good Manufacturing Practices (“GMP”) certified by the Merieux NutriSciences, reinforcing our commitment to quality in our products, quality in our relationships (with our customers, suppliers, employees and the communities we live in), and quality of the environment in which we work. Our products include:

 

 

BioAstin® Hawaiian Astaxanthin® - a powerful dietary antioxidant shown to support and maintain the body’s natural inflammatory response, to enhance skin, and to support eye and joint health. It has expanding applications as a human nutraceutical and functional food ingredient; and

 

 

Hawaiian Spirulina Pacifica® - a nutrient-rich dietary supplement used for extra energy, a strengthened immune system, cardiovascular benefits and as a source of antioxidant carotenoids

 

Microalgae are a diverse group of microscopic plants that have a wide range of physiological and biochemical characteristics and contain, among other things, high levels of natural protein, amino acids, vitamins, pigments and enzymes. Microalgae have the following properties that make commercial production attractive: (1) microalgae grow much faster than land grown plants, often up to 100 times faster; (2) microalgae have uniform cell structures with no bark, stems, branches or leaves, permitting easier extraction of products and higher utilization of the microalgae cells; and (3) the cellular uniformity of microalgae makes it practical to control the growing environment in order to optimize a particular cell characteristic. Efficient and effective cultivation of microalgae requires consistent light, warm temperatures, low rainfall and proper chemical balance in a very nutrient-rich environment, free of environmental contaminants and unwanted organisms. This is a challenge that has motivated us to design, develop and implement proprietary production and harvesting technologies, systems and processes in order to commercially produce human nutritional products derived from microalgae.

 

Our production of these products at the 96-acre facility on the Kona Coast of the island of Hawaii provides several benefits. We selected the Keahole Point location in order to take advantage of relatively consistent warm temperatures, sunshine and low levels of rainfall needed for optimal cultivation of microalgae. This location also offers us access to cold deep ocean water, drawn from an offshore depth of 2,000 feet, which we use in our Ocean-Chill Drying system to eliminate the oxidative damage caused by standard drying techniques and as a source of trace nutrients for microalgal cultures. The area is also designated a Biosecure Zone, with tight control of organisms allowed into the area and free of genetically modified organisms (“GMO”). We believe that our technology, systems, processes and favorable growing location generally permit year-round harvest of our microalgal products in a cost-effective manner.

 

Results of Operations

 

The following tables present selected consolidated financial data for each of the periods indicated ($ in thousands):

 

   

Three Months Ended

 
   

June 30,

 
   

2020

   

2019

 

Net sales

  $ 7,352     $ 8,071  

Net sales decrease

    (8.9

)%

       

Gross profit

  $ 2,975     $ 3,675  

Gross profit as % of net sales

    40.5

%

    45.5

%

Operating expenses

  $ 2,707     $ 3,626  

Operating expenses as % of net sales

    36.8

%

    44.9

%

Operating income

  $ 268     $ 49  

Operating income as % of net sales

    3.6

%

    0.6

%

Income tax benefit

  $ (1

)

  $ (3 )

Net income (loss)

  $ 138     $ (133

)

 

19

 

Comparison of the Three Months Ended June 30, 2020 and 2019

 

Net Sales (in thousands)

 

   

Three Months Ended

                 
   

June 30,

   

$

   

%

 
   

2020

   

2019

   

Change

   

Change

 

Packaged sales

                               

Astaxanthin

  $ 3,242     $ 4,610     $ (1,368

)

    (29.7

)%

Spirulina

    1,842       1,914       (72

)

    (3.8

)%

Total Packaged sales

  $ 5,084     $ 6,524     $ (1,440

)

    (22.1

)%

                                 

Bulk sales

                               

Astaxanthin

  $ 419     $ 174     $ 245       140.8

%

Spirulina

    1,530       1,233       297       24.1

%

Total Bulk sales

  $ 1,949     $ 1,407     $ 542       38.5

%

                                 

Contract extraction revenue

  $ 319     $ 140     $ 179       127.9

%

                                 

Total sales

                               

Astaxanthin

  $ 3,661     $ 4,784     $ (1,123

)

    (23.5

)%

Spirulina

    3,372       3,147       225       7.1

%

Contract extraction revenue

    319       140       179       127.9

%

Total sales

  $ 7,352     $ 8,071     $ (719

)

    (8.9

)%

 

Net Sales The net sales decrease of 8.9% for the current quarter compared to the same period last year was primarily driven by a 29.7% and 3.8% decrease in astaxanthin and spirulina packaged sales, respectively, offset by an increase in bulk sales for both astaxanthin and spirulina and contract extraction sales. The decrease in packaged sales was primarily due to the restrictions surrounding the COVID-19 pandemic for one of our major customers in the current quarter.

 

Gross Profit Gross profit as a percent of net sales decreased by 5.0 percentage points compared to the same period last year, which was primarily the result of sales product mix.

 

Operating Expenses Operating expenses decreased by $0.9 million for the current quarter compared to the same period last year, primarily due to lower promotional and marketing spending of $0.2 million and legal and audit expenses of $0.2 million. Decreased general and administrative expenses were also lower in the current year quarter as the prior year quarter included expenses related to the severance of a former executive.

 

 Income Taxes We recorded an income tax benefit of $1,000 for the first quarter of this fiscal year with an effective tax rate of 0.4% compared to an income tax benefit of $3,000 for the same period last year with an effective tax rate of 2.3%.  We continue to carry a full valuation allowance on our net deferred tax assets.

 

Liquidity and Capital Resources

 

As of June 30, 2020, we had cash of $3.3 million and working capital of $8.6 million compared to $2.4 million and $8.4 million, respectively, at March 31, 2020.  The Company has a Credit Agreement with the Bank that allows us to borrow up to $2.0 million on a revolving basis. At June 30, 2020 and March 31, 2020, we had outstanding borrowings of $2.0 million on the line of credit. The line of credit is subject to renewal on August 30, 2020 and we intend to renew or replace it with another line of credit on or before the expiration date.

 

As of June 30, 2020, we had $5.1 million in Term Loans payable to the Bank that require the payment of principal and interest monthly through August 2032. Pursuant to the Term Loans and the Credit Agreement, we are subject to annual financial covenants, customary affirmative and negative covenants and certain subjective acceleration clauses. As of March 31, 2019, our debt service coverage ratio of -0.66:1 fell short of the Bank's annual requirement of 1.25:1. Additionally, on March 31, 2019, our current ratio of 1.49:1 fell short of the Bank’s annual requirement of 1.50:1.  On June 17, 2019, the Bank provided us with a letter waiving the covenant violations as of March 31, 2019, but noting that the Bank reserved its rights to declare a default in the future if any covenants remain out of compliance at applicable measurement dates. As of March 31, 2020, the Company was in compliance with all required annual financial covenants under the Term Loans and the Credit Agreement.

 

20

 

In response to the COVID-19 pandemic and the uncertainty surrounding the pandemic, in May 2020, we obtained a PPP loan in the amount of $1.4 million under the CARES Act. The proceeds were used in the first quarter of fiscal 2021 for certain payroll costs in accordance with the PPP. In April 2019, we obtained an unsecured subordinated loan in the amount of $1.5 million from a related party (see Notes 6 and 13 in the notes to condensed consolidated financial statements).  The proceeds were used to pay down accounts payable and for general operating capital purposes.

 

Funds generated by operating activities and available cash are expected to continue to be our most significant sources of liquidity for working capital requirements, debt service and funding of maintenance levels of capital expenditures. In fiscal year 2020, we began a strategic cost savings initiative that included the elimination of positions through attrition and the elimination of open positions to create a leaner organization, and we are continuing the cost savings initiative in fiscal year 2021. 

 

Based upon our operating plan and related cash flow and financial projections, cash flows expected to be generated by operating activities and available financing are expected to be sufficient to fund our operations through at least June 30, 2021, and our debt service coverage ratio and current ratio covenants are expected to be in compliance with the annual Term Loans and Credit Agreement covenant requirements as of March 31, 2021, the next measurement date. However, no assurances can be provided that we will achieve our operating plan and cash flow projections for the next fiscal years or our projected consolidated financial position as of March 31, 2021. Such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results.

 

Cash Flows The following table summarizes our cash flows for the periods indicated ($ in thousands):

 

   

Three months ended

June 30

 
   

2020

   

2019

 

Total cash provided by (used in):

               

Operating activities

  $ (146

)

  $ (873

)

Investing activities

    (131

)

    (48

)

Financing activities

    1,185       1,136  
                 

Increase in cash

  $ 908     $ 215  

 

Cash used in operating activities for the three months ended June 30, 2020 was the result of lower sales, an increase in inventory costs and decreases in accounts payable.

 

Cash used in investing activities for the three months ended June 30, 2020 includes costs for acquiring equipment at our Kona facility.

 

Cash provided by financing activities for the three months ended June 30, 2020 consists primarily of a $1.4 million increase for the new PPP loan obtained during the first quarter, offset by payments of short-term contract obligation and long-term debt.

 

Sources and Uses of Capital

 

At June 30, 2020, our working capital was $8.6 million, an increase of $0.2 million compared to March 31, 2020. The increase is due primarily to an increase in cash related to the PPP loan, a decrease in accounts payable, offset by the reclassification of the related party loan from long-term debt to short-term debt.

  

Our results of operations and financial condition can be affected by numerous factors, many of which are beyond our control and could cause future results of operations to fluctuate materially as it has in the past. Future operating results may fluctuate as a result of changes in sales volumes to our largest customers, weather patterns, increased competition, increased materials, nutrient and energy costs, government regulations and other factors beyond our control.

  

A significant portion of our expense levels are relatively fixed, so the timing of increases in expenses is based in large part on forecasts of future sales. If net sales are below expectations in any given period, the adverse impact on results of operations may be magnified by our inability to adjust spending quickly enough to compensate for the sales shortfall. We may also choose to reduce prices or increase spending in response to market conditions, which may have a material adverse effect on financial condition and results of operations.

  

Based upon our current operating plan, analysis of our consolidated financial position and projected future results of operations, we believe that our operating cash flows, cash balances and working capital will be sufficient to finance current operating requirements, debt service requirements, and routine planned capital expenditures, for the next twelve (12) months.

 

21

 

Outlook 

 

This outlook section contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially.

 

Our strategic direction has been to position as a world leader in the production and marketing of high-value natural products from microalgae. We are vertically aligned, producing raw materials in the form of microalgae processed at our 96-acre facility in Hawaii, and integrating those raw materials into finished products. In fiscal 2021, our primary focus is stabilizing our production volume, rationalizing market channel participation, executing on our strategic cost cutting programs, and leveraging our centers of core competence. We will continue to place emphasis on our Nutrex Hawaiian consumer products while exploring further opportunities for bulk sales orders for Spirulina and Astaxanthin, both domestically and internationally. Extraction services to third party customers utilizing our 1,000 bar super critical CO2 extractor process are expected to generate additional income throughout the year. We will leverage our experience and reputation for quality, nutritional products which promote health and well-being. The foundation of our nutritional products is naturally cultivated Hawaiian Spirulina Pacifica® in powder and tablet form; and BioAstin® Hawaiian Astaxanthin® antioxidant in extract and softgel form. Information about our Company and our products can be viewed at www.cyanotech.com and www.nutrex-hawaii.com. Consumer products can also be purchased online at www.nutrex-hawaii.com.

 

Gross profit margin percentages going forward can be impacted by lower production volumes along with pressure on input costs as well as greater competition in the market place. This could cause margins to decline in future periods. We will continue to focus on higher margin consumer products that promote health and well-being and strive for continuous improvements in processes and production methods to stabilize costs and production levels for the future. However, significant sales variability between periods may occur based on historical results.

 

Producing the highest quality microalgae is a complex biological process which requires balancing numerous factors including microalgal strain variation, temperature, acidity, nutrient and other environmental considerations, some of which are not within our control. An imbalance or unexpected event can occur resulting in production levels below normal capacity. The allocation of fixed production overheads (such as depreciation, rent and general insurance) to inventories is determined based on normal production capacity. When our production volumes are below normal capacity limits, certain fixed production overhead costs cannot be inventoried and are recorded immediately in cost of sales. In addition, when production costs exceed historical averages, we evaluate whether such costs are one-time-period charges or an ongoing component of inventory cost.

  

To manage our cash resources effectively, we will balance production with sales demand, minimizing the cost associated with inventory levels when appropriate and manage our expenses judiciously. We could experience unplanned cash outflows and may need to utilize other cash resources to meet working capital needs. A prolonged downturn in sales could impair our ability to generate sufficient cash for operations and hamper our ability to attract additional capital investment which could become necessary to maintain optimal production levels and efficiencies.

 

Our future results of operations and the other forward-looking statements contained in this Outlook, in particular the statements regarding revenues, gross margin and capital spending, involve a number of risks and uncertainties. In addition to the factors discussed above, any of the following could cause actual results to differ materially: business conditions and growth in the natural products industry and in the general economy; changes in customer order patterns; changes in demand for natural products in general; changes in weather conditions; changes in health and growing conditions of our astaxanthin and spirulina products; competitive factors, such as increased production capacity from competing spirulina and astaxanthin producers and the resulting impact, if any, on world market prices for these products; government actions and increased regulations both domestic and foreign; shortage of manufacturing capacity; and other factors beyond our control. Risk factors are discussed in detail in Part II, Item 1A of this quarterly report and in Part I, Item 1A of our Form 10-K report for the year ended March 31, 2020.

  

We believe that our technology, systems, processes and favorable growing location generally permit year-round harvest of our microalgal products in a cost-effective manner. However, previously experienced imbalances in the highly complex biological production systems, together with volatile energy costs and rapidly changing world markets, suggest a need for continuing caution with respect to variables beyond our reasonable control. Therefore, we cannot, and do not attempt to, provide any definitive assurance with regard to our technology, systems, processes, location, or cost-effectiveness.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2020, we had no off-balance sheet arrangements or obligations.

 

Impact of Inflation

 

Inflationary factors such as increases in the costs of materials and labor directly affect our operations. Most of our leases provide for cost-of-living adjustments and require us to pay for insurance and maintenance expenses, all of which are subject to inflation. Additionally, our future lease cost for new facilities may include potentially escalating costs of real estate and construction. There is no assurance that we will be able to pass on increased costs to our customers.

 

22

 

Depreciation expense is based on the historical cost of fixed assets and is therefore potentially less than it would be if it were based on current replacement cost. While property and equipment acquired in prior years will ultimately have to be replaced at higher prices, it is expected that replacement will be a gradual process over many years.

 

Critical Accounting Policies and Estimates

 

Our critical accounting policies and estimates are disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed with the SEC on June 23, 2020. In the three months ended June 30, 2020, there were no changes to the application of critical accounting policies previously disclosed in our most recent Annual Report on Form 10-K.

 

Item 4.

Controls and Procedures

 

Disclosure Controls and Procedures 

 

Under the supervision and with the participation of our management, including our chief executive officer (“CEO”) and chief financial officer (“CFO”), we have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15(d)-15(e) of the Exchange Act as of the end of the period covered by this Report. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.  

 

Management’s Report on Internal Control over Financial Reporting 

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management evaluated the effectiveness of our internal control over financial reporting as of June 30, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control - Integrated Framework” (2013 Framework). Based on our assessment, using those criteria, management concluded that our internal control over financial reporting was effective as of June 30, 2020. 

 

Changes to Internal Control Over Financial Reporting 

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2020 that has materially affected, or was reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on the Effectiveness of Controls 

 

Our management, including our CEO and CFO, do not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all errors and all fraud. A control system no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

 

The inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, or by collusion of two or more people. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 

 

This Form 10-Q should be read in conjunction with Item 9A “Controls and Procedures” of the Company’s Form 10-K for the fiscal year ended March 31, 2020, filed June 23, 2020.

 

23

 

PART II.     OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

From time to time the Company may be involved in litigation and investigations relating to claims and matters arising out of its operations in the normal course of business.

 

On October 2, 2019, a shareholder of the Company, Meridian OHC Partners, LP (“Meridian”), filed a complaint in the United States District Court, District of Hawaii, against the Board of Directors seeking to proceed derivatively on behalf of the Company. The Company is named as a nominal defendant. The complaint alleges, among other things, that the directors have breached their fiduciary duties, in overseeing the Company. Meridian seeks declaratory and injunctive relief and an award of damages to the Company. The case is Meridian v. Davis et al. (Cyanotech), No. 19-cv-0536 (D. Hawaii). The Company and the defendants filed motions to dismiss, and the court granted those motions and dismissed the complaint with prejudice on July 15, 2020.

 

Item 1A.

Risk Factors

 

For a discussion of the risk factors relating to our business, please refer to Part I, Item 1A of our Form 10-K for the year ended March 31, 2020, which is incorporated by reference herein.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.

Defaults upon Senior Securities

 

None.

 

Item 5.

Other Information

 

None.

 

24

 

Item 6.

Exhibits

 

 

10.1

Promissory Note, dated April 30, 2020, by and between First Hawaiian Bank and Cyanotech Corporation (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 11, 2020).

     
 

31.1*

Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2020.

 

 

 

 

31.2*

Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2020.

 

 

 

 

32*

Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2020.

 

  

  

 

99.1*

Press Release dated August 11, 2020.

 

 

 

 

101

The following financial statements from Cyanotech Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

     
   

*Included herewith. Other exhibits were filed as shown above.

 

25

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  

  

CYANOTECH CORPORATION

  

  

(Registrant)

  

  

  

  

  

  

August 11, 2020

  

By:

/s/ Gerald R. Cysewski, PH.D.

(Date)

  

  

Gerald R. Cysewski, PH.D.

  

  

  

Chief Executive Officer; Vice Chairman of the Board

  

  

  

  

  

  

  

  

August 11, 2020

  

By:

/s/ Brian B. Orlopp

(Date)

  

  

Brian B. Orlopp

  

  

  

Chief Financial Officer, Vice President — Finance & Administration

  

  

  

(Principal Financial and Accounting Officer)

 

26

 

EXHIBIT INDEX

 

Exhibit Number

  

Description

10.1

 

Promissory Note, dated April 30, 2020, by and between First Hawaiian Bank and Cyanotech Corporation (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 11, 2020).

     

31.1*

  

Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2020.

  

  

  

31.2*

  

Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2020.

  

  

  

32*

  

Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2020.

  

  

  

99.1*

  

Press Release dated August 11, 2020.

  

  

  

101

  

The following financial statements from Cyanotech Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements

     
   

*Included herewith. Other exhibits were filed as shown above.

 

27
ex_197146.htm

 

Exhibit 31.1

 

Certification Pursuant

To 18 U. S. C. Section 1350,

As Adopted Pursuant To

Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Gerald R. Cysewski, Chief Executive Officer certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Cyanotech Corporation;

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant’s other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

 

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

 

 

b)

Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

 

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

 

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

 

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Date: August 11, 2020

/s/ Gerald R. Cysewski

  

Gerald R. Cysewski

 

Chief Executive Officer; Vice Chairman of the Board

 

 
ex_197147.htm

 

Exhibit 31.2

 

Certification Pursuant

To 18 U. S. C. Section 1350,

As Adopted Pursuant To

Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Brian B. Orlopp, Chief Financial Officer certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Cyanotech Corporation;

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant’s other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

 

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

 

 

b)

Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

 

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

 

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Date: August 11, 2020

/s/ Brian B. Orlopp

  

Brian B. Orlopp

 

Chief Financial Officer; Vice President—Finance & Administration 

 

(Principal Financial Officer)

 

 
ex_197148.htm

 

Exhibit 32

 

Certification of CEO and CFO

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

 

In connection with the Quarterly Report of Cyanotech Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2020 (the “Report”) as filed with the Securities and Exchange Commission on the date hereof, each of the undersigned certifies that:

 

1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act (15 U.S.C. 78m or 78o (d)); and

 

2)

The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

 

 

 

Date: August 11, 2020

/s/ Gerald R. Cysewski

  

Gerald R. Cysewski 

 

Chief Executive Officer; Vice Chairman of the Board

  

  

  

  

Date: August 11, 2020

/s/ Brian B. Orlopp

  

Brian B. Orlopp

 

Chief Financial Officer; Vice President—Finance & Administration

 

(Principal Financial Officer)

 

 

 

 
ex_197149.htm

 

Exhibit 99.1

 

  

News Release 

Contact: Bruce Russell

(310) 346-6131

brussell@cyanotech.com

 

Cyanotech Reports Financial Results for the First Quarter of Fiscal 2021

 

 

 

KAILUA KONA, Hawaii (August 11, 2020) — Cyanotech Corporation (Nasdaq Capital Market: CYAN), a world leader in microalgae-based, high-value nutrition and health products, announced financial results for the first quarter of fiscal year 2021, ended June 30, 2020.

 

First Quarter Fiscal 2021

Cyanotech reported net sales of $7,352,000 for the first quarter of fiscal 2021 compared to $8,071,000 for the first quarter of fiscal 2020. Gross profit was $2,975,000, with gross profit margin of 40.5%, compared to gross margin of $3,675,000 and gross profit margin of 45.5%. Net income was $138,000 for the first quarter compared to a net loss of ($133,000) last year.  Earnings per diluted share for the first quarter was $0.02, compared with a loss per diluted share of ($0.02) in the first quarter of last year.

 

Commenting on the first quarter fiscal 2021 results (changes shown vs. the first quarter of fiscal 2020), Cyanotech’s Chief Executive Officer, Gerald R. Cysewski, Ph.D., said:

 

“Given the challenges brought forth by the worldwide COVID-19 pandemic, both internally to the company and externally to our community, partners, vendors and customers, we are pleased that the company is able to report stable and profitable financial performance for the quarter.”

 

Providing further detail about the fiscal results, Cyanotech’s Chief Financial Officer, Brian B. Orlopp, added:

 

“Gross profit margins decrease in the current year, primarily due to sales product mix, such that packaged sales decreased $1,440,000, or 22.1%, while bulk sales increased $542,000, or 38.5%. Operating income for the first quarter was $268,000 compared to $49,000 last year.”

 

“In May, we obtained a loan of $1.4 million pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act in order to preserve financial flexibility in light of the current uncertainty in the global markets resulting from the COVID-19 pandemic.”

 

Trailing Twelve Months

For the trailing twelve months ended June 30, 2020, compared to the trailing twelve months ended June 30, 2019, net sales were $31,179,000 compared to $31,128,000. Gross profit was $12,000,000, with gross profit margin of 38.5%, compared to $12,305,000 and 39.5%. Net income was $659,000 or $0.11 per diluted share, compared to net loss of ($2,454,000) or ($0.42) per diluted share.

 

  

73-4460 Queen Kaahumanu Highway, #102  ~  Kailua-Kona, Hawaii 96740

(808) 326-1353  fax (808) 329-3597  ~ www.cyanotech.com


 

 

 

 

Please review the Company’s Form 10-Q for the period ended June 30, 2020 for more detailed information.

 

---------------

 

— Cyanotech will host a Skype broadcast at 8:00 PM EST on Wednesday, August 12, 2020 to respond to questions about its operating results and other topics of interest. Interested parties are asked to submit questions to questions@cyanotech.com before 12 p.m. (noon) EST on Wednesday, August 12, 2020. The Company will respond only to relevant questions relating to the Company’s first quarter fiscal 2021 financial performance and will not be accepting any questions or comments during the broadcast.

 

To join the broadcast, please browse http://cyanotech.com/meet approximately five minutes prior to the start time.

 

---------------

 

About Cyanotech — Cyanotech Corporation, a world leader in microalgae technology for more than 30 years, produces BioAstin® Hawaiian Astaxanthin® and Hawaiian Spirulina Pacifica®. These all-natural, dietary ingredients and supplements leverage our experience and reputation for quality, building nutritional brands which promote health and well-being. The Company’s mission is to fulfill the promise of whole health through Hawaiian microalgae. Cyanotech’s BioAstin® offers superior antioxidant activity which supports skin, eye and joint health, as well as recovery from exercise*. Cyanotech's Spirulina products offer nutrition that supports cardiovascular health and immunity.* All Cyanotech products are produced from microalgae grown at our 96-acre facility in Kona, Hawaii using patented and proprietary technology and are Generally Recognized as Safe (GRAS) for use in food products. Cyanotech sells its products direct to consumers at retail locations in the United States and online at www.nutrex-hawaii.com and also distributes to dietary supplement, nutraceutical and cosmeceutical manufacturers and marketers. The Company is regulated by the Food and Drug Administration (“FDA”). Visit www.cyanotech.com for more information.

 

*These statements have not been evaluated by the FDA. This product is not intended to diagnose, treat, cure or prevent any disease.

 

“Safe Harbor” Statement under the U.S. Private Securities Litigation Reform Act of 1995 Besides statements of present fact and historical fact, this press release may contain forward-looking statements. Forward-looking statements relate to the future and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by forward-looking statements. We caution against relying on forward-looking statements. Important factors that could change actual, future results include: changes in sales levels to our largest customers, weather patterns in Hawaii, production problems, risks associated with new products, foreign exchange fluctuations, and availability of financing, as well as national and global political, economic, business, competitive, market and regulatory conditions. Other factors are more fully detailed in the Company’s annual Form 10-K filings with the Securities and Exchange Commission.

 

Financial Tables Follow: The following tables do not contain footnotes or other information contained in the Company’s Form 10-Q for the first quarter fiscal 2021 ended June 30, 2020, which can be found on the Cyanotech website (www.cyanotech.com) under Investors>Investor Filings upon filing. As such, the following Financial Tables are provided only as a guide and other factors are more fully detailed in the Company’s annual Form 10-K filings with the Securities and Exchange Commission.

 

73-4460 Queen Kaahumanu Highway, #102  ~  Kailua-Kona, Hawaii 96740

(808) 326-1353  fax (808) 329-3597  ~ www.cyanotech.com


 

 

 

 

CYANOTECH CORPORATION 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands, except per share amounts)

(Unaudited)

 

   

June 30,
2020

   

March 31,
2020

 

ASSETS

               

Current assets:

               

Cash

  $ 3,325     $ 2,417  

Accounts receivable, net of allowance for doubtful accounts of $13 at June 30, 2020 at March 31, 2020

    2,013       2,154  

Inventories, net

    10,094       9,653  

Prepaid expenses and other current assets

    468       504  

Total current assets

    15,900       14,728  
                 

Equipment and leasehold improvements, net

    12,706       13,042  

Operating lease right-of-use assets, net

    3,757       3,834  

Other assets

    163       183  

Total assets

  $ 32,526     $ 31,787  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               

Current liabilities:

               

Accounts payable

  $ 1,633     $ 2,137  

Accrued expenses

    1,047       849  

Customer deposits

    123       327  

Operating lease obligations, current portion

    327       319  

Short-term contract obligation

    19       38  

Line of credit

    2,000       2,000  

Current maturities of long-term debt

    2,196       689  

Total current liabilities

    7,345       6,359  
                 

Long-term debt, less current maturities

    5,719       6,009  

Long-term operating lease obligations

    3,434       3,519  

Other long-term liabilities

    39       54  

Total liabilities

    16,537       15,941  
                 

Commitments and contingencies

               
                 

Stockholders’ equity:

               

Preferred stock of $0.01 par value, authorized 10,000,000 shares; no shares issued and outstanding

           

Common stock of $0.02 par value, authorized 50,000,000 shares; issued and outstanding 6,028,312 shares at June 30, 2020 and 6,011,885 shares at March 31, 2020

    120       120  

Additional paid-in capital

    32,999       32,994  

Accumulated deficit

    (17,130

)

    (17,268

)

Total stockholders’ equity

    15,989       15,846  

Total liabilities and stockholders’ equity

  $ 32,526     $ 31,787  

 

 

73-4460 Queen Kaahumanu Highway, #102  ~  Kailua-Kona, Hawaii 96740

(808) 326-1353  fax (808) 329-3597  ~ www.cyanotech.com


 

 

 

 

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(In thousands, except per share amounts)

(Unaudited)

 

   

Three Months Ended
June 30,

 
   

2020

   

2019

 
                 

Net sales

  $ 7,352     $ 8,071  

Cost of sales

    4,377       4,396  

Gross profit

    2,975       3,675  
                 

Operating expenses:

               

General and administrative

    1,328       2,031  

Sales and marketing

    1,244       1,408  

Research and development

    135       187  

Total operating expenses

    2,707       3,626  
                 

Income from operations

    268       49  
                 

Interest expense, net

    (131

)

    (185

)

                 

Income (loss) before income taxes

    137       (136

)

                 

Income tax benefit

    (1

)

    (3 )
                 

Net income (loss)

  $ 138     $ (133

)

                 

Net income (loss) per share:

               

Basic

  $ 0.02     $ (0.02

)

Diluted

  $ 0.02     $ (0.02

)

                 

Shares used in calculation of net income (loss) per share:

               

Basic

    6,029       5,919  

Diluted

    6,036       5,919  

 

 

73-4460 Queen Kaahumanu Highway, #102  ~  Kailua-Kona, Hawaii 96740

(808) 326-1353  fax (808) 329-3597  ~ www.cyanotech.com

v3.20.2
Document And Entity Information - shares
3 Months Ended
Jun. 30, 2020
Aug. 07, 2020
Document Information [Line Items]    
Entity Registrant Name Cyanotech Corp  
Entity Central Index Key 0000768408  
Trading Symbol cyan  
Current Fiscal Year End Date --03-31  
Entity Filer Category Non-accelerated Filer  
Entity Current Reporting Status Yes  
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Interactive Data Current Yes  
Entity Common Stock, Shares Outstanding (in shares)   6,030,688
Entity Shell Company false  
Document Type 10-Q  
Document Period End Date Jun. 30, 2020  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Title of 12(b) Security Common Stock, $0.02 par value per share  
v3.20.2
Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
Jun. 30, 2020
Mar. 31, 2020
Current assets:    
Cash $ 3,325,000 $ 2,417,000
Accounts receivable, net of allowance for doubtful accounts of $13 at June 30, 2020 and March 31, 2020 2,013,000 2,154,000
Inventories, net 10,094,000 9,653,000
Prepaid expenses and other current assets 468,000 504,000
Total current assets 15,900,000 14,728,000
Equipment and leasehold improvements, net 12,706,000 13,042,000
Operating lease right-of-use assets, net 3,757,000 3,834,000
Other assets 163,000 183,000
Total assets 32,526,000 31,787,000
Current liabilities:    
Accounts payable 1,633,000 2,137,000
Accrued expenses 1,047,000 849,000
Customer deposits 123,000 327,000
Operating lease obligations, current portion 327,000 319,000
Short-term contract obligation 19,000 38,000
Line of credit 2,000,000 2,000,000
Current maturities of long-term debt 2,196,000 689,000
Total current liabilities 7,345,000 6,359,000
Long-term debt, less current maturities 5,719,000 6,009,000
Long-term operating lease obligations 3,434,000 3,519,000
Other long-term liabilities 39,000 54,000
Total liabilities 16,537,000 15,941,000
Commitments and contingencies
Stockholders’ equity:    
Preferred stock of $0.01 par value, authorized 10,000,000 shares; no shares issued and outstanding
Common stock of $0.02 par value, authorized 50,000,000 shares; issued and outstanding 6,028,312 shares at June 30, 2020 and 6,011,885 shares at March 31, 2020 120,000 120,000
Additional paid-in capital 32,999,000 32,994,000
Accumulated deficit (17,130,000) (17,268,000)
Total stockholders’ equity 15,989,000 15,846,000
Total liabilities and stockholders’ equity $ 32,526,000 $ 31,787,000
v3.20.2
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)
$ in Thousands
Jun. 30, 2020
Mar. 31, 2020
Accounts receivable, allowance for doubtful accounts $ 13 $ 13
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred, authorized shares (in shares) 10,000,000 10,000,000
Preferred, issued shares (in shares) 0 0
Preferred outstanding, shares (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.02 $ 0.02
Common stock, shares authorized (in shares) 50,000,000 50,000,000
Common stock, shares issued (in shares) 6,028,312 6,011,885
Common stock, shares outstanding (in shares) 6,028,312 6,011,885
v3.20.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
shares in Thousands
3 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Net sales $ 7,352,000 $ 8,071,000
Cost of sales 4,377,000 4,396,000
Gross profit 2,975,000 3,675,000
Operating expenses:    
General and administrative 1,328,000 2,031,000
Sales and marketing 1,244,000 1,408,000
Research and development 135,000 187,000
Total operating expenses 2,707,000 3,626,000
Income from operations 268,000 49,000
Interest expense, net (131,000) (185,000)
Income (loss) before income taxes 137,000 (136,000)
Income tax benefit (1,000) (3,000)
Net income (loss) $ 138,000 $ (133,000)
Net income (loss) per share:    
Basic (in dollars per share) $ 0.02 $ (0.02)
Diluted (in dollars per share) $ 0.02 $ (0.02)
Shares used in calculation of net income (loss) per share:    
Basic (in shares) 6,029 5,919
Diluted (in shares) 6,036 5,919
v3.20.2
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)
$ in Thousands
Former Executive [Member]
Common Stock [Member]
Former Executive [Member]
Additional Paid-in Capital [Member]
Former Executive [Member]
Retained Earnings [Member]
Former Executive [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Total
Balance (in shares) at Mar. 31, 2019         5,879,710      
Balance at Mar. 31, 2019         $ 117 $ 32,447 $ (17,655) $ 14,909
Settlement agreement with former executive         320 320
Shares withheld from former executive for tax payments (in shares)         (5,147)      
Shares withheld from former executive for tax payments        
Issuance of vested shares of restricted stock (in shares)         15,019      
Issuance of vested shares of restricted stock         $ 1 (18) (17)
Share-based compensation expense         21 21
Net income (loss)         (133) (133)
Issuance of common stock for exercise of stock options         4 4
Balance (in shares) at Jun. 30, 2019         5,889,582      
Balance at Jun. 30, 2019         $ 118 32,774 (17,788) 15,104
Balance (in shares) at Mar. 31, 2020         6,011,885      
Balance at Mar. 31, 2020         $ 120 32,994 (17,268) 15,846
Settlement agreement with former executive (in shares)         11,400      
Settlement agreement with former executive        
Shares withheld from former executive for tax payments (in shares) (3,635)       (5,170)      
Shares withheld from former executive for tax payments
Issuance of vested shares of restricted stock (in shares)         13,832      
Issuance of vested shares of restricted stock         (5) (5)
Share-based compensation expense         10 10
Net income (loss)         138 138
Balance (in shares) at Jun. 30, 2020         6,028,312      
Balance at Jun. 30, 2020         $ 120 $ 32,999 $ (17,130) $ 15,989
v3.20.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Jun. 30, 2020
Jun. 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income (loss) $ 138,000 $ (133,000)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:    
Depreciation and amortization 467,000 491,000
Amortization of debt issue costs and other assets 31,000 17,000
Amortization of operating leases right-of-use assets 77,000 71,000
Share-based compensation expense 10,000 341,000
Net (increase) decrease in assets:    
Accounts receivable 141,000 188,000
Inventories (441,000) (296,000)
Prepaid expenses and other assets 33,000 40,000
Net increase (decrease) in liabilities:    
Accounts payable (504,000) (1,180,000)
Accrued expenses 198,000 120,000
Customer deposits (204,000) (461,000)
Operating lease obligations (77,000) (71,000)
Deferred rent and other liabilities (15,000)
Net cash used in operating activities (146,000) (873,000)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Investment in equipment and leasehold improvements (131,000) (48,000)
Net cash used in investing activities (131,000) (48,000)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Payments on short-term contract obligation (19,000) (184,000)
Proceeds from long-term debt – related party 1,500,000
Proceeds from long-term debt – PPP loan 1,381,000
Principal payments on long-term debt (163,000) (148,000)
Payments on capitalized leases (9,000) (19,000)
Taxes paid related to net share settlement of restricted stock units (5,000) (17,000)
Proceeds from exercise of stock options 4,000
Net cash provided by financing activities 1,185,000 1,136,000
Net increase in cash 908,000 215,000
Cash and restricted cash at beginning of period 2,417,000 840,000
Cash and restricted cash at end of period 3,325,000 1,055,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Interest 117,000 166,000
Income taxes
v3.20.2
Note 1 - Organization and Basis of Presentation
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Business Description and Basis of Presentation [Text Block]
1.
ORGANIZATION AND BASIS OF PRESENTATION
 
Cyanotech Corporation (the “Company”), located in Kailua-Kona, Hawaii, was incorporated in the state of Nevada on
March 3, 1983
and is listed on the NASDAQ Capital Market under the symbol “CYAN”. The Company is engaged in the production of natural products derived from microalgae for the nutritional supplements market.
 
The Company is an agricultural company that produces high value natural products derived from microalgae grown in complex and intricate open-pond agricultural systems on the Kona coast of Hawaii.  The Company's products include Hawaiian Spirulina Pacifica, a superfood with numerous benefits, including boosting the immune system and overall cellular health; and Hawaiian BioAstin, a powerful antioxidant shown to support and maintain the body's natural inflammatory response.
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the instructions to Form 
10
-Q and Regulation S-
X
of the Securities and Exchange Commission (“SEC”). These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders' Equity and Condensed Consolidated Statements of Cash Flows for the periods presented in accordance with GAAP.
 
Accordingly, they do
not
include all of the information and notes required by GAAP for complete financial statements. The results of operations for the interim periods are
not
necessarily indicative of the results to be expected for the full fiscal year. The Condensed Consolidated Balance Sheet as of
March 
31,
2020
was derived from the audited consolidated financial statements. These condensed consolidated financial statements and notes should be read in conjunction with the Company's audited consolidated financial statements for the year ended
March 
31,
2020,
contained in the Company's annual report on Form 
10
-K as filed with the SEC on
June 23, 2020. 
 
Liquidity and Capital Resources
 
As of
June 30, 2020,
the Company had cash of
$3,325,000
and working capital of
$8,555,000
compared to
$2,417,000
and
$8,369,000,
respectively, at
March 31, 2020.
The Company has a Revolving Credit Agreement (“Credit Agreement”) with First Foundation Bank (“Bank”) that allows the Company to borrow up to
$2,000,000
on a revolving basis. At
June 30, 2020
and
March 31, 2020,
the Company had outstanding borrowings of
$2,000,000
 on the line of credit.  The line of credit is subject to renewal on
August 30, 2020
and the Company intends to renew or replace it with another line of credit on or before the expiration date.
 
As of
June 30, 2020,
the Company had
$5,094,000
in long-term debt (“Term Loans”) payable to the Bank that require the payment of principal and interest monthly through
August 2032.
Pursuant to the Term Loans and the Credit Agreement, the Company is subject to annual financial covenants, customary affirmative and negative covenants and certain subjective acceleration clauses. As of
March 31, 2019,
the Company's debt service coverage ratio of -
0.66:1
fell short of the Bank's annual requirement of
1.25:1.
Additionally, on
March 31, 2019,
the Company's current ratio of
1.49:1
fell short of the Bank's annual requirement of
1.50:1.
  On
June 17, 2019,
the Bank provided the Company with a letter waiving the covenant violations as of
March 31, 2019,
but noting that the Bank reserved its rights to declare a default in the future if any covenants remain out of compliance at applicable measurement dates. As of
March 31, 2020,
the Company was in compliance with all required annual financial covenants under the Term Loans and the Credit Agreement.
 
In response to the coronavirus (“COVID-
19”
) pandemic and the uncertainty surrounding the pandemic, in
May 2020,
the Company obtained a Paycheck Protection Program (“PPP”) loan in the amount of
$1,381,000,
under the Coronavirus Aid, Relief, and Economics Security Act (“CARES Act”). The proceeds were used in the
first
quarter of fiscal
2021
for certain payroll costs in accordance with the PPP (see Note
6
). In
April 2019,
the Company obtained an unsecured subordinated loan in the amount of
$1,500,000
from a related party (see Notes
6
and
13
). The proceeds were used to pay down accounts payable and for general operating capital purposes.
 
Funds generated by operating activities and available cash are expected to continue to be the Company's most significant sources of liquidity for working capital requirements, debt service and funding of maintenance levels of capital expenditures. In fiscal year
2020,
the Company began a strategic cost savings initiative that included the elimination of positions through attrition and the elimination of open positions to create a leaner organization, and the Company is continuing the cost savings initiative in fiscal year
2021.
 
Based upon the Company's operating plan and related cash flow and financial projections, cash flows expected to be generated by operating activities and available financing are expected to be sufficient to fund its operations through at least
June 30, 2021,
and its debt service coverage ratio and current ratio covenants are expected to be in compliance with the annual Term Loans and Credit Agreement covenant requirements as of
March 31, 2021,
the next measurement date. However,
no
assurances can be provided that the Company will achieve its operating plan and cash flow projections for the next fiscal years or its projected consolidated financial position as of
March 31, 2021.
Such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results.
v3.20.2
Note 2 - Significant Accounting Policies
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Significant Accounting Policies [Text Block]
2.
SIGNIFICANT ACCOUNTING POLICIES
 
Consolidation
 
The accompanying condensed consolidated financial statements include the accounts of Cyanotech Corporation and its wholly owned subsidiary, Nutrex Hawaii, Inc. (“Nutrex Hawaii” or “Nutrex”, collectively the “Company”). All intercompany balances and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of any contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the periods reported.  Management reviews these estimates and assumptions periodically and reflects the effect of revisions in the period that they are determined to be necessary.  Actual results could differ from those estimates and assumptions.
  
Cash
 
Cash primarily consists of cash on hand and cash in bank deposits.
 
Concentration Risk
 
A significant portion of revenue and accounts receivable are derived from a few major customers. For the
three
months ended
June 30, 2020
and
2019,
two
customers accounted for
13%
and
9%,
and
32%
and
18%,
respectively, of the Company's net sales. Three and
two
customers accounted for
68%
and
80%,
respectively, of the Company's accounts receivable balance at
June 30, 2020
and
March 31, 2020,
respectively.
 
Revenue Recognition
 
The Company records revenue based on the
five
-step model which includes: (
1
) identifying the contract with the customer; (
2
) identifying the performance obligations in the contract; (
3
) determining the transaction price; (
4
) allocating the transaction price to the performance obligations; and (
5
) recognizing revenue when the performance obligations are satisfied. Substantially all of the Company's revenue is generated by fulfilling orders for the purchase of our microalgal nutritional supplements to retailers, wholesalers, or direct to consumers via online channels, with each order considered to be a distinct performance obligation. These orders
may
be formal purchase orders, verbal phone orders, e-mail orders or orders received online. Shipping and handling activities for which the Company is responsible under the terms and conditions of the order are
not
accounted for as performance obligations but as fulfillment costs. These activities are required to fulfill the Company's promise to transfer the goods and are expensed when revenue is recognized. 
 
Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling a performance obligation. The Company has elected to exclude sales, use and similar taxes from the measurement of the transaction price.  The amount of consideration expected to be received and revenue recognized includes estimates of variable consideration, which includes costs for trade promotion programs, coupons, returns and early payment discounts.  Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. The Company reviews and updates these estimates at the end of each reporting period and the impact of any adjustments are recognized in the period the adjustments are identified. In assessing whether collection of consideration from a customer is probable, the Company considers the customer's ability and intent to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, typically
30
 days from the invoice date, which occurs on the date of transfer of control of the products to the customer. Revenue is recognized at the point in time that control of the ordered products is transferred to the customer. Generally, this occurs when the product is delivered, or in some cases, picked up from
one
of the Company's distribution centers by the customer. Revenue from extraction services is recognized when control is transferred upon completion of the extraction process.
 
Customer contract liabilities consist of customer deposits received in advance of fulfilling an order and are shown separately on the consolidated balance sheets. During the
three
months ended
June 30, 2020 
and
2019
the Company recognized
$251,000
and
$511,000,
respectively, of revenue from deposits that were included in contract liabilities as of
March 31, 2020
and
2019,
respectively. The Company's contracts have a duration of
one
year or less and therefore, the Company has elected the practical expedient of
not
disclosing revenues allocated to partially unsatisfied performance obligations.
 
Disaggregation of Revenue
 
The following table represents revenue disaggregated by major product line and extraction services for the:
 
($ in thousands)
 
Three Months
Ended
June 30, 2020
   
Three Months
Ended
June 30, 2019
 
Packaged sales
               
Astaxanthin packaged
  $
3,242
    $
4,610
 
Spirulina packaged
   
1,842
     
1,914
 
Total packaged sales
   
5,084
     
6,524
 
                 
Bulk sales
               
Astaxanthin bulk
   
419
     
174
 
Spirulina bulk
   
1,530
     
1,233
 
Total bulk sales
   
1,949
     
1,407
 
                 
Contract extraction revenue
   
319
     
140
 
Total net sales
  $
7,352
    $
8,071
 
 
Recently Adopted Accounting Pronouncements
 
Effective
April 1, 2019,
the Company adopted Accounting Standards Update (“ASU”)
2016
-
02,
Leases (Topic
842
): Accounting for Leases
and issued subsequent amendments to the initial guidance and implementation guidance including ASU
No.
2018
-
01,
2018
-
10,
2018
-
11,
2018
-
20
and
2019
-
01
(collectively including ASU
No.
2016
-
02,
“ASC
842”
). ASC
842
requires that lessees recognize right-of-use assets and lease liabilities that are measured at the present value of the future lease payments at lease commencement date. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will largely remain unchanged and shall continue to depend on its classification as a finance or operating lease. The Company elected the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and did
not
restate prior periods. Under the new guidance, the majority of the Company's leases continue to be classified as operating. Based on the Company's lease portfolio, the impact of adopting ASC
842
increased both total assets and total liabilities, however, it did
not
have a significant impact on the Company's consolidated statements of operations or cash flows. Finance leases continue to be classified with long-term debt on the Consolidated Balance Sheets and are described in Note
6.
See Note
8
for operating leases.
 
In
June 2018,
the Financial Accounting Standards Board ("FASB") issued ASU
2018
-
07,
Compensation - Stock Compensation (Topic
718
)”
(“ASU
No.
2018
-
07”
): Improvements to Nonemployee Share-Based Payment Accounting. ASU
No.
2018
-
07
expands the scope of Topic
718
to include share-based payment transactions for acquiring goods and services from non-employees, and as a result, the accounting for share-based payments to non-employees will be substantially aligned. ASU
No.
2018
-
07
is effective for the Company in the
first
quarter of fiscal year
2020.
  The Company adopted ASU
No.
2018
-
07
as of
April 1, 2019
with
no
impact on its consolidated financial statements and related disclosures.
 
In
November 2018,
the FASB issued ASU 
2018
-
18
 – 
Collaborative Arrangements
(“ASU
2018
-
18”
), which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is
not
a customer. This ASU requires retrospective adoption to the date the Company adopted ASC
606,
April 1, 2018,
by recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the earliest annual period presented. The Company adopted ASU
2018
-
18
as of
April 1, 2020
with
no
impact on its financial statements. 
 
In
August 2018,
the FASB issued ASU
2018
-
15,
 “
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”
(“ASU
No.
2018
-
15”
), which aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with the existing capitalization requirements for implementation costs incurred to develop or obtain internal-use software 
(Subtopic
350
-
40
)
. The Company adopted AUD
No.
2018
-
15
as of
April 1, 2020
with
no
impact on its financial statements. 
 
In
August 2018,
the FASB issued ASU 
2018
-
13,
 “
Fair Value Measurement - Disclosure Framework (Topic
820
)”
(“ASU
No.
2018
-
13”
).
 
The updated guidance
 
improves the disclosure requirements on fair value measurements. The Company adopted this standard as of
April 1, 2020,
with
no
impact to its disclosures. 
 
Recently Issued Accounting Pronouncements
 
In
December 2019,
the FASB issued ASU
2019
-
12,
Simplifying the Accounting for Income Taxes”
(“ASU
2019
-
12”
), which as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes, removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU
2019
-
12
also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after
December 15, 2020,
with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its financial statements.
v3.20.2
Note 3 - Inventories
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Inventory Disclosure [Text Block]
3.
INVENTORIES
 
Inventories are stated at the lower of cost or net realizable value. Cost is determined by the
first
-in,
first
-out method. Inventories consist of the following as of:
 
   
June
3
0
,
20
20
   
March 31,
20
20
 
   
(in thousands)
 
Raw materials
  $
481
    $
397
 
Work in process
   
4,959
     
4,172
 
Finished goods
   
4,455
     
4,945
 
Supplies
   
199
     
139
 
Inventories, net
  $
10,094
    $
9,653
 
 
The Company recognizes abnormal production costs, including fixed cost variances from normal production capacity, as an expense in the period incurred. The Company has
not
expensed abnormal production costs for the
three
months ended
June 30, 2020
or
2019.
Non-inventoriable fixed costs of
$28,000
and
$14,000
were expensed to cost of sales for the
three
months ended
June 30, 2020
and
2019,
respectively.
v3.20.2
Note 4 - Equipment and Leasehold Improvements
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Property, Plant and Equipment Disclosure [Text Block]
4.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
 
Equipment and leasehold improvements consist of the following as of:
 
   
June
3
0
,
20
20
   
March 31,
20
20
 
   
(in thousands)
 
Equipment
  $
18,860
    $
18,841
 
Leasehold improvements
   
14,754
     
14,736
 
Furniture and fixtures
   
369
     
369
 
     
33,983
     
33,946
 
Less accumulated depreciation and amortization
   
(21,646
)
   
(21,179
)
Construction-in-progress
   
369
     
275
 
Equipment and leasehold improvements, net
  $
12,706
    $
13,042
 
 
Management has determined
no
asset impairment existed as of
June 30, 2020
and
March 31, 2020,
respectively. Depreciation and amortization expense were approximately
$467,000
and
$491,000
for the
three
months ended
June 30, 2020
and
2019,
respectively.
v3.20.2
Note 5 - Short-term Contract Obligation
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Short-term Debt [Text Block]
5.
SHORT-TERM CONTRACT OBLIGATION
 
On
November 30, 2018
the Company completed the purchase of a
six
-acre production and research facility from Cellana LLC (“Cellana”) under a purchase agreement that was signed
August 31, 2018.
In accordance with the terms of the
third
amendment to the asset purchase agreement, the Company acquired the asset for
$495,000
with a cash down payment of
$100,000
leaving a short-term obligation of
$395,000
on the asset purchase.
 
The short-term obligation was comprised of
two
separate loans in the principal amount of
$180,000
and
$215,000.
The
first
loan of
$180,000
bore an interest rate of
6.25%
and was payable in
four
monthly installments of principal and interest. The loan commenced on
December 1, 2018
and matured on
July 15, 2019.
There are
no
principal amounts outstanding at
June 30, 2019
or
March 31, 2020.
 
The
second
loan had a principal amount of
$215,000
and was a non-interest bearing loan that was payable in
twelve
monthly installments. The loan commenced on
December 1, 2018
and matured on
October 15, 2019.
This contract contained a hold back of
$38,000
pending resolution of certain closing items by the seller, which have been resolved. The principal amounts outstanding at
June 30, 2020
and
March 31, 2020
were
$19,000
and
$38,000,
respectively.
v3.20.2
Note 6 - Line of Credit and Long-term Debt
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Debt Disclosure [Text Block]
6.
LINE OF CREDIT AND LONG-TERM DEBT
 
Total debt consists of the following as of:
 
   
June
3
0
,
20
20
   
March 31,
20
20
 
   
(in thousands)
 
Line of credit
  $
2,000
    $
2,000
 
Long-term debt
   
5,195
     
5,367
 
Debt - related party
   
1,500
     
1,500
 
Long-term debt – PPP loan
   
1,381
     
 
Less current maturities
   
(4,196
)
   
(2,689
)
Long-term debt, excluding current maturities
   
5,880
     
6,178
 
Less unamortized debt issuance costs
   
(161
)
   
(169
)
Total long-term debt, net of current maturities and unamortized debt issuance costs
  $
5,719
    $
6,009
 
  
Line of Credit and Term Loans
 
On
August 30, 2016,
the Credit Agreement, which the Company entered into with the Bank on
June 3, 2016,
became effective after the Company and the Bank received the necessary approvals from the State of Hawaii to secure the lien on the Company's leasehold property in Kona, Hawaii. The Credit Agreement allows the Company to borrow up to
$2,000,000
on a revolving basis. Borrowings under the Credit Agreement bear interest at the Wall Street Journal prime rate (
3.25%
and
4.75%
at
June 30, 2020
and
March 31, 2020,
respectively) plus
2%,
floating.
 
At both
June 30, 2020
and
March 31, 2020,
the outstanding balance under the Credit Agreement was
$2,000,000
.
The line of credit, which is subject to annual renewal, was renewed on
August 30, 2019
and will be subject to renewal upon expiration on
August 30, 2020.
Pursuant to the
August 30, 2019
renewal, the current ratio covenant was
1.50:1
and is applicable to both the line of credit and term loans with the Bank.
 
The Credit Agreement grants the Bank the following security interests in the Company's property: (a) a lien on the Company's leasehold interest in its Kona facility; (b) an assignment of the Company's interest in leases and rents on its Kona facility; and (c) a security interest in all fixtures, furnishings and equipment related to or used by the Company at the Kona facility. Each security interest is further subject to the terms of the Credit Agreement.
 
In
2015,
the Company executed a loan agreement with a lender providing for
$2,500,000
in aggregate credit facilities (the
“2015
Loan”) secured by substantially all the Company's assets, pursuant to a Term Loan Agreement dated
July 30, 2015 (
the
“2015
Loan Agreement”). The
2015
Loan is evidenced by a promissory note in the amount of
$2,500,000,
the repayment of which is partially guaranteed under the provisions of the United States Department of Agriculture (“USDA”) Rural Development Guarantee program. The proceeds of the
2015
Loan were used to pay off a
$500,000
short term note payable that matured on
September 18, 2015,
and to acquire new processing equipment and leasehold improvements at the Company's Kona, Hawaii facility.
 
 The provisions of the
2015
Loan require the payment of principal and interest until its maturity on
September 
1,
2022,
the obligation fully amortizes over
seven
(
7
) years. Interest on the
2015
Loan accrues on the outstanding principal balance at an annual variable rate equal to the published Wall Street Journal prime rate (
3.25%
and
4.75%
at
June 30, 2020
and
March 
31,
2020,
respectively) plus
2.0%
and is adjustable on the
first
day of each calendar quarter and fixed for that quarter. At
no
time shall the annual interest rate be less than
6.0%.
The
2015
Loan has a prepayment penalty of
5.0%
for any prepayment made prior to the
first
anniversary of the date of the
2015
Loan Agreement, which penalty is reduced by
1.0%
each year thereafter until the
fifth
anniversary of such date, after which there is
no
prepayment penalty. The balance under the
2015
Loan was
$931,000
and
$1,027,000
at
June 30, 2020
and
March 
31,
2020,
respectively, and was included in long-term debt in the debt table above.
 
In
2012,
the Company executed a loan agreement with a lender providing for
$5,500,000
in aggregate credit facilities (the
“2012
Loan”) secured by substantially all the Company's assets, including a mortgage on the Company's interest in its lease at the National Energy Laboratory of Hawaii Authority, pursuant to a Term Loan Agreement dated
August 
14,
2012
(the
“2012
Loan Agreement”). The
2012
Loan is evidenced by promissory notes in the amounts of
$2,250,000
and
$3,250,000,
the repayment of which is partially guaranteed under the provisions of a USDA Rural Development Guarantee. The proceeds of the
2012
Loan were used to acquire processing equipment and leasehold improvements at its Kona, Hawaii facility.
 
The provisions of the
2012
Loan required the payment of interest only for the
first
12
months of the term; thereafter, and until its maturity on
August 
14,
2032,
the obligation fully amortizes over
nineteen
(
19
) years. Interest on the
2012
Loan accrues on the outstanding principal balance at an annual variable rate equal to the published Wall Street Journal prime rate (
3.25%
and
4.75%
at
June 30, 2020
and
March 
31,
2020,
respectively) plus
1.0%
and is adjustable on the
first
day of each calendar quarter and fixed for that quarter. At
no
time shall the annual interest rate be less than
5.5%.
The balance under the
2012
Loan was
$4,163,000
and
$4,222,000
at
June 30, 2020
and
March 
31,
2020,
respectively, and was included in long-term debt in the debt table above.
  
The
2015
Loan includes a
one
-time origination and guaranty fee totaling
$113,900
and an annual renewal fee payable in the amount of
0.5%
of the USDA guaranteed portion of the outstanding principal balance as of
December 
31
of each year, beginning
December 
31,
2015.
The USDA has guaranteed
80%
of all amounts owing under the
2015
Loan. The
2012
Loan included a
one
-time origination and guaranty fees totaling
$214,500
and an annual renewal fee payable in the amount of
0.25%
of the USDA guaranteed portion of the outstanding principal balance as of
December 
31
of each year, beginning
December 
31,
2012.
The USDA has guaranteed
80%
of all amounts owing under the
2012
Loan. The balance in unamortized debt issuance costs was
$161,000
and
$169,000
at
June 30, 2020
and
March 31, 2020,
respectively.
 
Loan Covenants
 
The Company's Credit Agreement,
2015
Loan and
2012
Loan are subject to annual debt service and other financial covenants, including covenants which require the Company to meet key financial ratios and customary affirmative and negative covenants.  As of
March 31, 2020,
the Company was in compliance with all required annual financial covenants. The next remeasurement date will be
March 31, 2021.
 
Long-term Debt – PPP
 
In
May 2020,
the Company obtained a PPP loan in the amount of
$1,381,000,
which bears interest at a rate of
1%
per annum, payable monthly commencing on
November 5, 2020,
following an initial deferral period as specified under the PPP, and matures on
May 5, 2022. 
The Company has used the proceeds of the PPP loan for certain payroll costs in accordance with the PPP. Under the terms of the PPP, up to the entire amount of principal and accrued interest
may
be forgiven to the extent the proceeds are used for qualifying expenses as determined by the guidance of the U.S. Small Business Administration under the PPP. There can be
no
assurance, however, that the PPP loan will be forgiven in whole or in part. The balance under this loan was
$1,381,000
at
June 30, 2020.
 
Debt – Related Party
 
In
April 2019,
the Company obtained an unsecured subordinated loan in the amount of
$1,500,000,
which bears interest at the Wall Street Journal prime rate, plus
1%,
or
4.25%
and
5.5%
at
June 30, 2020
and
March 30, 2020,
respectively, and is payable quarterly.  The principal amount and any accrued and unpaid interest are due in
April 2021 (
see Note
13
).  The balance under this loan was
$1,500,000
at
June 30, 2020
and
March 31, 2020
and was included in current maturities of long-term debt and long-term debt, respectively, in the debt table above.
 
Equipment Finance Agreement
 
In
October 2017,
the Company entered into an Equipment Finance Agreement (the “Equipment Agreement”) with a lender, which provides up to
$175,000
of financing for equipment. The interest rate on this loan is
4.75%.
The provisions of the Equipment Agreement require the payment of principal and interest until its maturity on
October 
31,
2022.
The balance under this loan was
$86,000
and
$94,000
at
June 30, 2020
and
March 31, 2020,
respectively, and was included in long-term debt in the debt table above.
 
 Finance Lease Obligations
 
In
February 
2016,
the Company executed a finance lease agreement with Bank of the West providing for
$51,000
in equipment, secured by the equipment financed. The finance lease matures in
March 
2021
and is payable in
60
equal monthly payments. The interest rate under this finance lease is
4.18%.
The balance under this lease was
$8,000
and
$11,000
at
June 30, 2020
and
March 
31,
2020,
respectively, and was included in long-term debt in the debt table above.
 
In
July 
2015,
the Company executed a finance lease agreement with Huntington Technology Finance providing for
$174,000
in equipment, secured by the equipment financed. The finance lease matures in
July 
2020
and is payable in
60
equal monthly payments. The interest rate under this lease is
6.57%.
The balance under this lease was
$7,000
and
$13,000
at
June 30, 2020
and
March 
31,
2020,
respectively, and was included in long-term debt in the debt table above.
 
Future principal payments under the loans and finance lease obligations at
June 
30,
2020
are as follows:
 
Payments Due
 
(in thousands)
 
Remainder of 2021
  $
520
 
2022
   
2,213
 
2023
   
1,858
 
2024
   
289
 
2025
   
306
 
Thereafter
   
2,890
 
Total principal payments
  $
8,076
 
v3.20.2
Note 7 - Operating Leases
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Leases of Lessee Disclosure [Text Block]
7.
OPERATING LEASES
 
The Company leases it facilities, equipment and land under non-cancelable operating leases expiring through
2037.
One of its facility leases contains price escalations and a renewal option for
five
years. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and liabilities were recognized at
April 1, 2019
based on the present value of lease payments over the lease term, using the Bank's incremental borrowing rate based on the information available at recognition, and the Company has elected to exclude non-lease components. At
June 30, 2020,
the weighted average remaining lease terms is
13.8
years, the weighted average discount rate is
7.5%
and for both the
three
months ended
June 30, 2020
and
2019,
the operating lease costs are
$147,000
.
 
Supplemental balance sheet information related to operating leases consist of the following as of:
 
Balance Sheet Account
 
Balance Sheet Classification
 
 
June 30, 2020
   
 
March 31,
2020
 
       
(in thousands)
 
 
 
Right-of-use assets
 
Operating lease right-of-use assets
  $
4,128
    $
4,128
 
Accumulated lease amortization  
Operating lease right-of-use assets
   
(371)
     
(294)
 
                     
Total right-of-use assets
$
3,757
    $
3,834
 
                     
Current lease liabilities
 
Operating lease obligations
   
327
     
319
 
Non-current lease liabilities
 
Long-term operating lease obligations
   
3,434
     
3,519
 
                     
Total lease liabilities
  $
3,761
    $
3,838
 
 
Maturities of lease liabilities at
June 30, 2020
are as follows:
 
Payments
 
(in thousands)
 
Remainder of 2021
  $
595
 
2022
   
591
 
2023
   
482
 
2024
   
371
 
2025
   
365
 
Thereafter
   
3,606
 
Total undiscounted lease payments
   
6,010
 
Less: present value discount
   
(2,249
)
Total lease liability balance
  $
3,761
 
 
v3.20.2
Note 8 - Accrued Expenses
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Accounts Payable and Accrued Liabilities Disclosure [Text Block]
8.
ACCRUED EXPENSES
 
Accrued expenses consist of the following as of:
 
   
June
3
0
,
20
20
   
March 31,
20
20
 
   
(in thousands)
 
Wages, commissions, bonus and profit sharing
  $
443
    $
295
 
Vacation
   
357
     
301
 
Rent, interest and legal
   
115
     
76
 
Other accrued expenses
   
132
     
177
 
Total accrued expenses
  $
1,047
    $
849
 
v3.20.2
Note 9 - Commitments and Contingencies
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]
9.
COMMITMENTS AND CONTINGENCIES
 
From time to time, the Company
may
be involved in litigation and investigations relating to claims and matters arising out of its operations in the normal course of business.
 
On
October 2, 2019,
a shareholder of the Company, Meridian OHC Partners, LP (“Meridian”), filed a complaint in the United States District Court, District of Hawaii, against the Board of Directors seeking to proceed derivatively on behalf of the Company. The Company is named as a nominal defendant. The complaint alleges, among other things, that the directors have breached their fiduciary duties, in overseeing the Company. Meridian seeks declaratory and injunctive relief and an award of damages to the Company. The case is
Meridian v. Davis et al. (Cyanotech)
,
No.
19
-cv-
0536
(D. Hawaii). The Company and the defendants filed motions to dismiss, and the court granted these motions and dismissed the complaint with prejudice on
July 15, 2020.
v3.20.2
Note 10 - Share-based Compensation
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]
10.
SHARE-BASED COMPENSATION
 
The Company has share-based compensation plans, which are more fully described in Note
10,
Share-Based Compensation, to the Consolidated Financial Statements included in the Company's annual report on Form
10
-K for the fiscal year ended
March 31, 2020
as filed with the SEC on
June 23, 2020.
 
As of
June 
30,
2020,
the Company had
two
equity-based compensation plans: the
2016
Equity Incentive Plan (the
“2016
Plan”) and the
2014
Independent Director Stock Option and Restricted Stock Grant Plan (the
“2014
Directors Plan”). The Company has also issued stock options, which remain outstanding as of
June 30, 2020,
under
two
equity-based compensation plans which have expired according to their terms: the
2005
Stock Option Plan (the
“2005
Plan”) and the
2004
Independent Director Stock Option and Stock Grant Plan (the
“2004
Directors Plan”). These plans allowed the Company to award stock options and shares of restricted common stock to eligible employees, certain outside consultants and independent directors.
No
additional awards will be issued under the
2005
Plan or the
2004
Directors Plan. 
 
The following table presents shares authorized, available for future grant and outstanding under each of the Company's plans:
 
 
 
As of
June
3
0
, 20
20
 
 
 
Authorized
 
 
Available
 
 
Outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016 Plan
 
 
1,300,000
 
 
 
1,174,115
 
 
 
71,568
 
2014 Directors Plan
 
 
350,000
 
 
 
109,518
 
 
 
12,000
 
2005 Plan
 
 
 
 
 
 
 
 
238,300
 
2004 Directors Plan
 
 
 
 
 
 
 
 
12,000
 
Total
 
 
1,650,000
 
 
 
1,283,633
 
 
 
333,868
 
 
Stock Options
 
All stock option grants made under the equity-based compensation plans were issued at exercise prices
no
less than the Company's closing stock price on the date of grant. Options under the
2016
Plan,
2005
Plan and
2014
Directors Plan were determined by the Board of Directors or the Compensation Committee of the Board of Directors in accordance with the provisions of the respective plans.  The terms of each option grant include vesting, exercise, and other conditions set forth in a Stock Option Agreement evidencing each grant.
No
option can have a life in excess of
ten
(
10
) years. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The model requires various assumptions, including a risk-free interest rate, the expected term of the options, the expected stock price volatility over the expected term of the options, and the expected dividend yield. Compensation expense for employee stock options is recognized ratably over the vesting term. Compensation expense recognized for options issued under all Plans was
$5,000
and
$113,000
for the
three
months ended
June 30, 2020
and
2019,
respectively. For the
three
months ended
June 30, 2019,
compensation expense included
$109,000
related to a settlement agreement with a former executive.
 
A summary of option activity under the Company's stock plans for the
three
months ended
June 30, 2020
is presented below: 
 
Option Activity
 
Shares
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (in
years)
   
Aggregate
Intrinsic
Value
 
Outstanding at March 31, 2020
   
318,300
    $
4.08
     
3.0
    $
 
Granted
   
    $
     
 
     
 
 
Exercised
   
    $
     
 
     
 
 
Forfeited
   
(1,000
)
  $
3.63
     
 
     
 
 
Outstanding at June 30, 2020
   
317,300
    $
4.08
     
2.8
    $
1,100
 
Exercisable at June 30, 2020
   
279,800
    $
4.23
     
2.0
    $
1,100
 
 
The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price optionees would have received if all options had been exercised on the last business day of the period indicated, based on the Company's closing stock price of
$2.33
and
$2.06
at
June 30, 2020
and
March 31, 2020,
respectively.
 
A summary of the Company's non-vested options for the
three
months ended
June 30, 2020
is presented below:
 
Nonvested Options
 
Shares
   
Weighted
Average
Grant-Date
Fair Value
 
Nonvested at March 31, 2020
   
37,500
    $
1.52
 
Vested
   
     
 
Nonvested at June 30, 2020
   
37,500
    $
1.52
 
 
As of
June 30, 2020,
total unrecognized stock-based compensation expense related to all unvested stock options was
$48,000,
which is expected to be expensed over a weighted average period of
2.5
years.
 
Restricted Stock Units (“RSUs”)
 
 
RSUs are service-based awards granted to eligible employees under the
2016
Plan. Compensation expense recognized for RSUs issued under the
2016
Plan was
$5,000
and
$23,000
for the
three
months ended
June 30, 2020
and
2019,
respectively. For the
three
months ended
June 30, 2019,
compensation expense included
$6,000
related to a settlement agreement with a former executive.
 
The following table summarizes information related to awarded RSUs for the
three
months ended
June 30, 2020:
 
Nonvested Restricted Stock Units
 
Shares
   
Weighted
Average
Grant Price
 
Nonvested restricted stock units at March 31, 2020
   
12,766
    $
3.98
 
Granted
   
9,400
     
2.07
 
Vested
   
(5,498
)
   
3.93
 
Forfeited
   
(100
)
   
2.07
 
Nonvested restricted stock units at June 30, 2020
   
16,568
    $
2.92
 
 
As of
June 30, 2020,
total unrecognized stock-based compensation expense related to unvested restricted stock units was
$32,000,
which is expected to be expensed over a weighted average period of
2.8
years.
 
On
July 30, 2020,
19,247
RSUs were awarded to employees and officers of the Company. This award is valued at
$2.19
per share, the closing market price of Cyanotech common stock on the grant date, and vests over a period of
three
years.
 
Common Stock
 
 
At
June 30, 2019,
the Company recorded
$205,000
in compensation expense related to a settlement agreement with a former executive.
v3.20.2
Note 11 - Income Taxes
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
11.
INCOME TAXES
 
On
December 22, 2017
H.R.
1,
originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from
34%
to
21%
effective
January 1, 2018.
The
21%
Federal Tax Rate applies to fiscal years ending
March 31, 2019
and each year thereafter.
 
The Company utilizes its estimated annual effective tax rate to determine its provision or benefit for income taxes for interim periods. The income tax provision or benefit is computed by multiplying the estimated annual effective tax rate by the year to date pre-tax book income (loss). The Company recorded an income tax benefit of
$1,000
and
$3,000
for the
three
months ended
June 30, 2020
and
2019,
respectively. The Company's effective tax rate was
0.4%
and
2.3%
for the
three
months ended
June 30, 2020
and
2019,
respectively. The effective tax rates for the
three
months ended
June 30, 2020
and
2019
differ from the statutory rate of
21%
as a result of state taxes (net of federal benefit) and the net change in valuation allowance against the net deferred tax asset the Company believes is
not
more likely than
not
to be realized.  The Company continues to carry a full valuation allowance on its net deferred tax assets.
 
The Company is subject to taxation in the United States and
seven
state jurisdictions. The preparation of tax returns requires management to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company. Management, in consultation with its tax advisors, files its tax returns based on interpretations that are believed to be reasonable under the circumstances. The income tax returns, however, are subject to routine reviews by the various taxing authorities.  As part of these reviews, a taxing authority
may
disagree with respect to the tax positions taken by management (“uncertain tax positions”) and therefore
may
require the Company to pay additional taxes. Management evaluates the requirement for additional tax accruals, including interest and penalties, which the Company could incur as a result of the ultimate resolution of its uncertain tax positions. Management reviews and updates the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities, completion of tax audits, expiration of statute of limitations, or upon occurrence of other events.
 
At
June 30, 2020
and
2019,
there was
no
liability for income tax associated with unrecognized tax benefits. The Company recognizes accrued interest related to unrecognized tax benefits as well as any related penalties in interest income or expense in its consolidated condensed statements of operations, which is consistent with the recognition of these items in prior reporting periods.
  
With few exceptions, the Company is
no
longer subject to U.S. federal, state, local, and non-U.S. income tax examination by tax authorities for tax years before
2016.
 
In response to the COVID-
19
pandemic, the CARES Act was signed into law in
March 2020.
The CARES Act lifts certain deduction limitations originally imposed by the Tax Act. Corporate taxpayers
may
carryback net operating losses originating during
2018
through
2020
for up to
five
years, which was
not
previously allowed under the Tax Act. The CARES Act also eliminates the
80%
of taxable income limitations by allowing corporate entities to fully utilize net operating loss carryforwards to offset taxable income in
2018,
2019
and
2020.
The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in
2020
for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the Tax Act.
 
In addition, the CARES Act increases the limitation applied to the deductibility of business interest from
30%
of adjusted taxable income to
50%
of adjusted taxable income for the
2019
and
2020
tax years, raises the corporate charitable deduction limit to
25%
of taxable income, and makes qualified improvement property generally eligible for
15
-year cost-recovery and
100%
bonus depreciation. The enactment of the CARES Act did
not
result in any material adjustments to the Company's income tax provision for the
three
months ended
June 30, 2020.
 
v3.20.2
Note 12 - Earnings Per Share
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Earnings Per Share [Text Block]
12.
EARNINGS PER SHARE
 
Basic earnings (loss) per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the potentially dilutive effect of outstanding stock options using the treasury stock method.
 
Reconciliations between the numerator and the denominator of the basic and diluted income (loss) per share computations for the
three
months ended
June 30, 2020
and
2019
are as follows:
 
   
Three Months Ended
June
3
0
, 20
20
 
   
Net Income
   
Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
   
(in thousands)
   
 
 
 
Basic income per share
  $
138
     
6,029
    $
0.02
 
Effective dilutive securities – restricted stock units
   
     
7
     
 
Diluted income per share
  $
138
     
6,036
    $
0.02
 
 
   
Three Months Ended
June
3
0
, 201
9
 
   
Net
Loss
   
Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
   
(in thousands)
   
 
 
 
                         
Basic and diluted loss per share
  $
(133
)
   
5,919
    $
(0.02
)
  
Basic and diluted per share amounts are the same in periods of a net loss, because common share equivalents are anti-dilutive when a net loss is recorded. Diluted earnings per share does
not
include the impact of common stock options totaling
50,000
for the
three
months ended
June 30, 2019,
as the effect of their inclusion would be anti-dilutive. Restricted stock units become dilutive within the period granted and remain dilutive until the units vest and are issued as common stock. Diluted earnings per share does
not
include the impact of restricted stock units totaling
14,646
for the
three
months ended
June 30, 2019,
as the effect of their inclusion would be anti-dilutive.
v3.20.2
Note 13 - Related Party Transactions
3 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Related Party Transactions Disclosure [Text Block]
13.
RELATED PARTY TRANSACTIONS 
 
During the
three
months ended
June 30, 2019,
the Company obtained an unsecured subordinated loan from Skywords Family Foundation, Inc. (“Skywords”) in the principal amount of
$1,500,000
pursuant to a Promissory Note (“the Skywords Note”) executed by the Company in favor of Skywords. Skywords is controlled by the Company's Chairman of the Board of Directors and largest stockholder. The Skywords Note bears interest at a rate of
1%
plus the prime rate (as published by the Wall Street Journal), which will be recalculated and payable on a quarterly basis. The principal amount and any accrued and unpaid interest will be due and payable on
April 12, 2021,
unless accelerated in an event of default. The Company
may
prepay the Skywords Note at any time without penalty. The proceeds of the Skywords Note were used to pay down accounts payable and for general operating capital purposes. At both
June 30, 2020
and
March 31, 2020,
the Skywords Note principal balance was
$1,500,000
.
The loan balance at
June 30, 2020
was included in current maturities of long-term debt and at
March 31, 2020
was included in long-term debt on the Condensed Consolidated Balance Sheets.
 
v3.20.2
Significant Accounting Policies (Policies)
3 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Consolidation, Policy [Policy Text Block]
Consolidation
 
The accompanying condensed consolidated financial statements include the accounts of Cyanotech Corporation and its wholly owned subsidiary, Nutrex Hawaii, Inc. (“Nutrex Hawaii” or “Nutrex”, collectively the “Company”). All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates, Policy [Policy Text Block]
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of any contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the periods reported.  Management reviews these estimates and assumptions periodically and reflects the effect of revisions in the period that they are determined to be necessary.  Actual results could differ from those estimates and assumptions.
Cash and Cash Equivalents, Policy [Policy Text Block]
Cash
 
Cash primarily consists of cash on hand and cash in bank deposits.
Concentration Risk, Credit Risk, Policy [Policy Text Block]
Concentration Risk
 
A significant portion of revenue and accounts receivable are derived from a few major customers. For the
three
months ended
June 30, 2020
and
2019,
two
customers accounted for
13%
and
9%,
and
32%
and
18%,
respectively, of the Company's net sales. Three and
two
customers accounted for
68%
and
80%,
respectively, of the Company's accounts receivable balance at
June 30, 2020
and
March 31, 2020,
respectively.
Revenue from Contract with Customer [Policy Text Block]
Revenue Recognition
 
The Company records revenue based on the
five
-step model which includes: (
1
) identifying the contract with the customer; (
2
) identifying the performance obligations in the contract; (
3
) determining the transaction price; (
4
) allocating the transaction price to the performance obligations; and (
5
) recognizing revenue when the performance obligations are satisfied. Substantially all of the Company's revenue is generated by fulfilling orders for the purchase of our microalgal nutritional supplements to retailers, wholesalers, or direct to consumers via online channels, with each order considered to be a distinct performance obligation. These orders
may
be formal purchase orders, verbal phone orders, e-mail orders or orders received online. Shipping and handling activities for which the Company is responsible under the terms and conditions of the order are
not
accounted for as performance obligations but as fulfillment costs. These activities are required to fulfill the Company's promise to transfer the goods and are expensed when revenue is recognized. 
 
Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling a performance obligation. The Company has elected to exclude sales, use and similar taxes from the measurement of the transaction price.  The amount of consideration expected to be received and revenue recognized includes estimates of variable consideration, which includes costs for trade promotion programs, coupons, returns and early payment discounts.  Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. The Company reviews and updates these estimates at the end of each reporting period and the impact of any adjustments are recognized in the period the adjustments are identified. In assessing whether collection of consideration from a customer is probable, the Company considers the customer's ability and intent to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, typically
30
 days from the invoice date, which occurs on the date of transfer of control of the products to the customer. Revenue is recognized at the point in time that control of the ordered products is transferred to the customer. Generally, this occurs when the product is delivered, or in some cases, picked up from
one
of the Company's distribution centers by the customer. Revenue from extraction services is recognized when control is transferred upon completion of the extraction process.
 
Customer contract liabilities consist of customer deposits received in advance of fulfilling an order and are shown separately on the consolidated balance sheets. During the
three
months ended
June 30, 2020 
and
2019
the Company recognized
$251,000
and
$511,000,
respectively, of revenue from deposits that were included in contract liabilities as of
March 31, 2020
and
2019,
respectively. The Company's contracts have a duration of
one
year or less and therefore, the Company has elected the practical expedient of
not
disclosing revenues allocated to partially unsatisfied performance obligations.
 
Disaggregation of Revenue
 
The following table represents revenue disaggregated by major product line and extraction services for the:
 
($ in thousands)
 
Three Months
Ended
June 30, 2020
   
Three Months
Ended
June 30, 2019
 
Packaged sales
               
Astaxanthin packaged
  $
3,242
    $
4,610
 
Spirulina packaged
   
1,842
     
1,914
 
Total packaged sales
   
5,084
     
6,524
 
                 
Bulk sales
               
Astaxanthin bulk
   
419
     
174
 
Spirulina bulk
   
1,530
     
1,233
 
Total bulk sales
   
1,949
     
1,407
 
                 
Contract extraction revenue
   
319
     
140
 
Total net sales
  $
7,352
    $
8,071
 
New Accounting Pronouncements, Policy [Policy Text Block]
Recently Adopted Accounting Pronouncements
 
Effective
April 1, 2019,
the Company adopted Accounting Standards Update (“ASU”)
2016
-
02,
Leases (Topic
842
): Accounting for Leases
and issued subsequent amendments to the initial guidance and implementation guidance including ASU
No.
2018
-
01,
2018
-
10,
2018
-
11,
2018
-
20
and
2019
-
01
(collectively including ASU
No.
2016
-
02,
“ASC
842”
). ASC
842
requires that lessees recognize right-of-use assets and lease liabilities that are measured at the present value of the future lease payments at lease commencement date. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will largely remain unchanged and shall continue to depend on its classification as a finance or operating lease. The Company elected the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and did
not
restate prior periods. Under the new guidance, the majority of the Company's leases continue to be classified as operating. Based on the Company's lease portfolio, the impact of adopting ASC
842
increased both total assets and total liabilities, however, it did
not
have a significant impact on the Company's consolidated statements of operations or cash flows. Finance leases continue to be classified with long-term debt on the Consolidated Balance Sheets and are described in Note
6.
See Note
8
for operating leases.
 
In
June 2018,
the Financial Accounting Standards Board ("FASB") issued ASU
2018
-
07,
Compensation - Stock Compensation (Topic
718
)”
(“ASU
No.
2018
-
07”
): Improvements to Nonemployee Share-Based Payment Accounting. ASU
No.
2018
-
07
expands the scope of Topic
718
to include share-based payment transactions for acquiring goods and services from non-employees, and as a result, the accounting for share-based payments to non-employees will be substantially aligned. ASU
No.
2018
-
07
is effective for the Company in the
first
quarter of fiscal year
2020.
  The Company adopted ASU
No.
2018
-
07
as of
April 1, 2019
with
no
impact on its consolidated financial statements and related disclosures.
 
In
November 2018,
the FASB issued ASU 
2018
-
18
 – 
Collaborative Arrangements
(“ASU
2018
-
18”
), which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is
not
a customer. This ASU requires retrospective adoption to the date the Company adopted ASC
606,
April 1, 2018,
by recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the earliest annual period presented. The Company adopted ASU
2018
-
18
as of
April 1, 2020
with
no
impact on its financial statements. 
 
In
August 2018,
the FASB issued ASU
2018
-
15,
 “
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”
(“ASU
No.
2018
-
15”
), which aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with the existing capitalization requirements for implementation costs incurred to develop or obtain internal-use software 
(Subtopic
350
-
40
)
. The Company adopted AUD
No.
2018
-
15
as of
April 1, 2020
with
no
impact on its financial statements. 
 
In
August 2018,
the FASB issued ASU 
2018
-
13,
 “
Fair Value Measurement - Disclosure Framework (Topic
820
)”
(“ASU
No.
2018
-
13”
).
 
The updated guidance
 
improves the disclosure requirements on fair value measurements. The Company adopted this standard as of
April 1, 2020,
with
no
impact to its disclosures. 
 
Recently Issued Accounting Pronouncements
 
In
December 2019,
the FASB issued ASU
2019
-
12,
Simplifying the Accounting for Income Taxes”
(“ASU
2019
-
12”
), which as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes, removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU
2019
-
12
also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after
December 15, 2020,
with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its financial statements.
v3.20.2
Note 2 - Significant Accounting Policies (Tables)
3 Months Ended
Jun. 30, 2020
Notes Tables  
Disaggregation of Revenue [Table Text Block]
($ in thousands)
 
Three Months
Ended
June 30, 2020
   
Three Months
Ended
June 30, 2019
 
Packaged sales
               
Astaxanthin packaged
  $
3,242
    $
4,610
 
Spirulina packaged
   
1,842
     
1,914
 
Total packaged sales
   
5,084
     
6,524
 
                 
Bulk sales
               
Astaxanthin bulk
   
419
     
174
 
Spirulina bulk
   
1,530
     
1,233
 
Total bulk sales
   
1,949
     
1,407
 
                 
Contract extraction revenue
   
319
     
140
 
Total net sales
  $
7,352
    $
8,071
 
v3.20.2
Note 3 - Inventories (Tables)
3 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Inventory, Current [Table Text Block]
   
June
3
0
,
20
20
   
March 31,
20
20
 
   
(in thousands)
 
Raw materials
  $
481
    $
397
 
Work in process
   
4,959
     
4,172
 
Finished goods
   
4,455
     
4,945
 
Supplies
   
199
     
139
 
Inventories, net
  $
10,094
    $
9,653
 
v3.20.2
Note 4 - Equipment and Leasehold Improvements (Tables)
3 Months Ended
Jun. 30, 2020
Notes Tables  
Property, Plant and Equipment [Table Text Block]
   
June
3
0
,
20
20
   
March 31,
20
20
 
   
(in thousands)
 
Equipment
  $
18,860
    $
18,841
 
Leasehold improvements
   
14,754
     
14,736
 
Furniture and fixtures
   
369
     
369
 
     
33,983
     
33,946
 
Less accumulated depreciation and amortization
   
(21,646
)
   
(21,179
)
Construction-in-progress
   
369
     
275
 
Equipment and leasehold improvements, net
  $
12,706
    $
13,042
 
v3.20.2
Note 6 - Line of Credit and Long-term Debt (Tables)
3 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Long-term Debt Instruments [Table Text Block]
   
June
3
0
,
20
20
   
March 31,
20
20
 
   
(in thousands)
 
Line of credit
  $
2,000
    $
2,000
 
Long-term debt
   
5,195
     
5,367
 
Debt - related party
   
1,500
     
1,500
 
Long-term debt – PPP loan
   
1,381
     
 
Less current maturities
   
(4,196
)
   
(2,689
)
Long-term debt, excluding current maturities
   
5,880
     
6,178
 
Less unamortized debt issuance costs
   
(161
)
   
(169
)
Total long-term debt, net of current maturities and unamortized debt issuance costs
  $
5,719
    $
6,009
 
Schedule of Maturities of Long-term Debt [Table Text Block]
Payments Due
 
(in thousands)
 
Remainder of 2021
  $
520
 
2022
   
2,213
 
2023
   
1,858
 
2024
   
289
 
2025
   
306
 
Thereafter
   
2,890
 
Total principal payments
  $
8,076
 
v3.20.2
Note 7 - Operating Leases (Tables)
3 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Supplement Balance Sheet Information for Operating Lease [Table Text Block]
Balance Sheet Account
 
Balance Sheet Classification
 
 
June 30, 2020
   
 
March 31,
2020
 
       
(in thousands)
 
 
 
Right-of-use assets
 
Operating lease right-of-use assets
  $
4,128
    $
4,128
 
Accumulated lease amortization  
Operating lease right-of-use assets
   
(371)
     
(294)
 
                     
Total right-of-use assets
$
3,757
    $
3,834
 
                     
Current lease liabilities
 
Operating lease obligations
   
327
     
319
 
Non-current lease liabilities
 
Long-term operating lease obligations
   
3,434
     
3,519
 
                     
Total lease liabilities
  $
3,761
    $
3,838
 
Lessee, Operating Lease, Liability, Maturity [Table Text Block]
Payments
 
(in thousands)
 
Remainder of 2021
  $
595
 
2022
   
591
 
2023
   
482
 
2024
   
371
 
2025
   
365
 
Thereafter
   
3,606
 
Total undiscounted lease payments
   
6,010
 
Less: present value discount
   
(2,249
)
Total lease liability balance
  $
3,761
 
v3.20.2
Note 8 - Accrued Expenses (Tables)
3 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Accrued Liabilities [Table Text Block]
   
June
3
0
,
20
20
   
March 31,
20
20
 
   
(in thousands)
 
Wages, commissions, bonus and profit sharing
  $
443
    $
295
 
Vacation
   
357
     
301
 
Rent, interest and legal
   
115
     
76
 
Other accrued expenses
   
132
     
177
 
Total accrued expenses
  $
1,047
    $
849
 
v3.20.2
Note 10 - Share-based Compensation (Tables)
3 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Share-based Compensation Shares Authorized Available and Outstanding by Plan [Table Text Block]
 
 
As of
June
3
0
, 20
20
 
 
 
Authorized
 
 
Available
 
 
Outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016 Plan
 
 
1,300,000
 
 
 
1,174,115
 
 
 
71,568
 
2014 Directors Plan
 
 
350,000
 
 
 
109,518
 
 
 
12,000
 
2005 Plan
 
 
 
 
 
 
 
 
238,300
 
2004 Directors Plan
 
 
 
 
 
 
 
 
12,000
 
Total
 
 
1,650,000
 
 
 
1,283,633
 
 
 
333,868
 
Share-based Payment Arrangement, Option, Activity [Table Text Block]
Option Activity
 
Shares
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (in
years)
   
Aggregate
Intrinsic
Value
 
Outstanding at March 31, 2020
   
318,300
    $
4.08
     
3.0
    $
 
Granted
   
    $
     
 
     
 
 
Exercised
   
    $
     
 
     
 
 
Forfeited
   
(1,000
)
  $
3.63
     
 
     
 
 
Outstanding at June 30, 2020
   
317,300
    $
4.08
     
2.8
    $
1,100
 
Exercisable at June 30, 2020
   
279,800
    $
4.23
     
2.0
    $
1,100
 
Schedule of Nonvested Share Activity [Table Text Block]
Nonvested Options
 
Shares
   
Weighted
Average
Grant-Date
Fair Value
 
Nonvested at March 31, 2020
   
37,500
    $
1.52
 
Vested
   
     
 
Nonvested at June 30, 2020
   
37,500
    $
1.52
 
Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]
Nonvested Restricted Stock Units
 
Shares
   
Weighted
Average
Grant Price
 
Nonvested restricted stock units at March 31, 2020
   
12,766
    $
3.98
 
Granted
   
9,400
     
2.07
 
Vested
   
(5,498
)
   
3.93
 
Forfeited
   
(100
)
   
2.07
 
Nonvested restricted stock units at June 30, 2020
   
16,568
    $
2.92
 
v3.20.2
Note 12 - Earnings Per Share (Tables)
3 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
   
Three Months Ended
June
3
0
, 20
20
 
   
Net Income
   
Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
   
(in thousands)
   
 
 
 
Basic income per share
  $
138
     
6,029
    $
0.02
 
Effective dilutive securities – restricted stock units
   
     
7
     
 
Diluted income per share
  $
138
     
6,036
    $
0.02
 
   
Three Months Ended
June
3
0
, 201
9
 
   
Net
Loss
   
Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
   
(in thousands)
   
 
 
 
                         
Basic and diluted loss per share
  $
(133
)
   
5,919
    $
(0.02
)
v3.20.2
Note 1 - Organization and Basis of Presentation (Details Textual)
1 Months Ended 3 Months Ended
May 31, 2020
USD ($)
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Mar. 31, 2020
USD ($)
Aug. 30, 2019
Apr. 30, 2019
USD ($)
Mar. 31, 2019
Aug. 30, 2016
USD ($)
Cash and Cash Equivalents, at Carrying Value, Ending Balance   $ 3,325,000   $ 2,417,000        
Working Capital (Deficit)   8,555,000   8,369,000        
Line of Credit Facility, Maximum Borrowing Capacity   2,000,000            
Line of Credit, Current   2,000,000   2,000,000        
Proceeds from Issuance of Unsecured Debt   1,381,000          
SBA CARES Act Paycheck Protection Program [Member]                
Proceeds from Issuance of Unsecured Debt $ 1,381,000              
Unsecured Subordinated Loan From Skywords [Member]                
Debt Instrument, Face Amount           $ 1,500,000    
First Foundation Bank [Member]                
Long-term Debt and Capital Lease Obligations, Current and Noncurrent   5,094,000            
Debt Service Coverage Ratio             (0.66)  
Debt Covenant, Minimum Debt Service Coverage Ratio             1.25  
First Foundation Bank [Member] | Revolving Credit Facility [Member]                
Line of Credit Facility, Maximum Borrowing Capacity               $ 2,000,000
Line of Credit, Current   $ 2,000,000   $ 2,000,000        
Current Ratio             1.49  
Debt Covenant, Minimum Current Ratio         1.5   1.5  
v3.20.2
Note 2 - Significant Accounting Policies (Details Textual)
3 Months Ended 12 Months Ended
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Mar. 31, 2020
Contract with Customer, Liability, Revenue Recognized $ 251,000 $ 511,000  
Customer Concentration Risk [Member] | Revenue Benchmark [Member]      
Number of Major Customers 2 2  
Customer Concentration Risk [Member] | Revenue Benchmark [Member] | Customer Number 1 [Member]      
Concentration Risk, Percentage 13.00% 32.00%  
Customer Concentration Risk [Member] | Revenue Benchmark [Member] | Customer Number 2 [Member]      
Concentration Risk, Percentage 9.00% 18.00%  
Customer Concentration Risk [Member] | Accounts Receivable [Member]      
Number of Major Customers     2
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Two Customers [Member]      
Concentration Risk, Percentage 68.00% 80.00%  
v3.20.2
Note 2 - Significant Accounting Policies - Revenue By Product (Details) - USD ($)
$ in Thousands
3 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Net sales $ 7,352 $ 8,071
Packaged Astaxanthin [Member]    
Net sales 3,242 4,610
Packaged Spirulina [Member]    
Net sales 1,842 1,914
Packaged Products [Member]    
Net sales 5,084 6,524
Bulk Astaxanthin [Member]    
Net sales 419 174
Bulk Spirulina [Member]    
Net sales 1,530 1,233
Bulk Products [Member]    
Net sales 1,949 1,407
Contract Extraction [Member]    
Net sales $ 319 $ 140
v3.20.2
Note 3 - Inventories (Details Textual) - USD ($)
3 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Inventory Abnormal Production Costs $ 0 $ 0
Non Inventoriable Fixed Costs $ 28,000 $ 14,000
v3.20.2
Note 3 - Inventories - Components of Inventory (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Mar. 31, 2020
Raw materials $ 481 $ 397
Work in process 4,959 4,172
Finished goods 4,455 4,945
Supplies 199 139
Inventories, net $ 10,094 $ 9,653
v3.20.2
Note 4 - Equipment and Leasehold Improvements (Details Textual) - USD ($)
3 Months Ended 12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Mar. 31, 2020
Asset Impairment Charges, Total $ 0   $ 0
Depreciation, Depletion and Amortization, Total $ 467,000 $ 491,000  
v3.20.2
Note 4 - Equipment and Leasehold Improvements - Components of Equipment and Leasehold Improvements (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Mar. 31, 2020
Equipment and leasehold improvements, gross $ 33,983 $ 33,946
Less accumulated depreciation and amortization (21,646) (21,179)
Construction-in-progress 369 275
Equipment and leasehold improvements, net 12,706 13,042
Equipment [Member]    
Equipment and leasehold improvements, gross 18,860 18,841
Leasehold Improvements [Member]    
Equipment and leasehold improvements, gross 14,754 14,736
Furniture and Fixtures [Member]    
Equipment and leasehold improvements, gross $ 369 $ 369
v3.20.2
Note 5 - Short-term Contract Obligation (Details Textual)
Nov. 30, 2018
USD ($)
a
Jun. 30, 2020
USD ($)
Mar. 31, 2020
USD ($)
Short-term Non-bank Loans and Notes Payable   $ 19,000 $ 38,000
Short-term Obligation for Cellana Asset Purchase [Member]      
Debt Instrument, Face Amount $ 180,000    
Debt Instrument, Interest Rate, Stated Percentage 6.25%    
Debt Instrument, Periodic Payment, Number of Monthly Payments 4    
Short-term Non-bank Loans and Notes Payable   0 0
Short-term Obligation for Cellana Asset Purchase 2 [Member]      
Debt Instrument, Face Amount $ 215,000    
Debt Instrument, Periodic Payment, Number of Monthly Payments 12    
Short-term Non-bank Loans and Notes Payable   19,000 $ 38,000
Debt Instrument, Hold-back, Amount   $ 38,000  
Cellana Asset Purchase [Member]      
Noncash or Part Noncash Acquisition, Value of Assets Acquired, Total $ 495,000    
Payments to Acquire Buildings 100,000    
Issuance of Short Term Obligations $ 395,000    
Research Facility Owned by Cellana [Member]      
Area of Real Estate Property (Acre) | a 6    
v3.20.2
Note 6 - Line of Credit and Long-term Debt (Details Textual)
1 Months Ended 3 Months Ended
Apr. 30, 2019
USD ($)
Aug. 30, 2016
USD ($)
Sep. 18, 2015
USD ($)
Jul. 30, 2015
USD ($)
Aug. 14, 2012
USD ($)
May 31, 2020
USD ($)
Feb. 29, 2016
USD ($)
Jul. 31, 2015
USD ($)
Jun. 30, 2020
USD ($)
Jun. 30, 2019
USD ($)
Mar. 31, 2020
USD ($)
Aug. 30, 2019
Mar. 31, 2019
Oct. 06, 2017
USD ($)
Line of Credit Facility, Maximum Borrowing Capacity                 $ 2,000,000          
Line of Credit, Current                 2,000,000   $ 2,000,000      
Repayments of Notes Payable     $ 500,000                      
Debt Issuance Costs, Net, Total                 161,000   169,000      
Proceeds from Issuance of Unsecured Debt                 1,381,000        
Long-term Debt, Total                 8,076,000          
Finance Lease Agreement with Bank of the West [Member]                            
Debt Instrument, Interest Rate, Stated Percentage             4.18%              
Finance Lease, Right-of-Use Asset, before Accumulated Amortization             $ 51,000              
Finance Lease Liability, Number of Periodic Payments             60              
Finance Lease, Liability, Total                 8,000   11,000      
Finance Lease Agreement with Huntington Technology Finance [Member]                            
Debt Instrument, Interest Rate, Stated Percentage               6.57%            
Finance Lease, Right-of-Use Asset, before Accumulated Amortization               $ 174,000            
Finance Lease Liability, Number of Periodic Payments               60            
Finance Lease, Liability, Total                 7,000   13,000      
Unsecured Subordinated Loan [Member]                            
Long-term Debt, Gross                 1,500,000   1,500,000      
The 2015 Loan Agreement [Member]                            
Proceeds from Issuance of Debt       $ 2,500,000                    
Debt Instrument, Term (Year)       7 years                    
Debt Instrument, Prepayment Penalty Percentage       5.00%                    
Debt Instrument, Prepayment Penalty Percentage Reduction During Each Year       1.00%                    
Long-term Debt and Capital Lease Obligations, Current and Noncurrent                 931,000   $ 1,027,000      
Debt Instrument One Time Origination and Guaranty Fees                 $ 113,900          
Debt Instrument Annual Renewal Fee Payable Percentage                 0.50%          
Debt Instrument Guaranteed Portion                 80.00%          
The 2015 Loan Agreement [Member] | Minimum [Member]                            
Debt Instrument, Interest Rate, Stated Percentage       6.00%                    
Term Loan Agreement, Maturing on August 14, 2032 [Member]                            
Debt Instrument Reference Rate                 3.25%   4.75%      
Debt Instrument, Basis Spread on Variable Rate                 1.00%          
Proceeds from Issuance of Debt         $ 5,500,000                  
Long-term Debt and Capital Lease Obligations, Current and Noncurrent                 $ 4,163,000   $ 4,222,000      
Debt Instrument Interest Payment Period (Month)         1 year                  
Debt Instrument Amortization Period (Year)         19 years                  
Debt Instrument One Time Origination and Guaranty Fees                 $ 214,500          
Debt Instrument Annual Renewal Fee Payable Percentage                 0.25%          
Debt Instrument Guaranteed Portion                 80.00%          
Term Loan Agreement, Maturing on August 14, 2032 [Member] | Minimum [Member]                            
Debt Instrument, Interest Rate During Period                 5.50%          
Term Loan Agreement, Promissory Note One [Member]                            
Proceeds from Issuance of Debt         $ 2,250,000                  
Term Loan Agreement, Promissory Note Two [Member]                            
Proceeds from Issuance of Debt         $ 3,250,000                  
SBA CARES Act Paycheck Protection Program [Member]                            
Proceeds from Issuance of Unsecured Debt           $ 1,381,000                
Long-term Debt, Total                 $ 1,381,000          
Long-term Debt, Gross                 1,381,000        
Skywords Note [Member] | Unsecured Subordinated Loan [Member]                            
Debt Instrument, Face Amount $ 1,500,000               $ 1,500,000 $ 1,500,000 $ 1,500,000      
Debt Instrument, Interest Rate, Effective Percentage                 4.25%   5.50%      
Long-term Debt, Gross                 $ 1,500,000   $ 1,500,000      
Equipment Finance Agreement [Member]                            
Debt Instrument, Interest Rate, Stated Percentage                           4.75%
Long-term Debt, Total                 $ 86,000   $ 94,000      
Debt Agreement, Maximum Borrowing Capacity                           $ 175,000
Prime Rate [Member] | The 2015 Loan Agreement [Member]                            
Debt Instrument Reference Rate                 3.25%   4.75%      
Debt Instrument, Basis Spread on Variable Rate       2.00%                    
Prime Rate [Member] | Skywords Note [Member] | Unsecured Subordinated Loan [Member]                            
Debt Instrument, Basis Spread on Variable Rate 1.00%               1.00%          
First Foundation Bank [Member]                            
Long-term Debt and Capital Lease Obligations, Current and Noncurrent                 $ 5,094,000          
First Foundation Bank [Member] | Revolving Credit Facility [Member]                            
Line of Credit Facility, Maximum Borrowing Capacity   $ 2,000,000                        
Line of Credit, Current                 $ 2,000,000   $ 2,000,000      
Debt Covenant, Minimum Current Ratio                       1.5 1.5  
First Foundation Bank [Member] | Revolving Credit Facility [Member] | Prime Rate [Member]                            
Debt Instrument Reference Rate                 3.25%   4.75%      
Debt Instrument, Basis Spread on Variable Rate   2.00%                        
v3.20.2
Note 6 - Line of Credit and Long-term Debt - Summary of Line of Credit and Long-term Debt (Details) - USD ($)
Jun. 30, 2020
Mar. 31, 2020
Less current maturities $ (4,196,000) $ (2,689,000)
Long-term debt, excluding current maturities 5,880,000 6,178,000
Less unamortized debt issuance costs (161,000) (169,000)
Total long-term debt, net of current maturities and unamortized debt issuance costs 5,719,000 6,009,000
SBA CARES Act Paycheck Protection Program [Member]    
Long-term debt 1,381,000
Line of Credit [Member]    
Long-term debt 2,000,000 2,000,000
Long-term Debt, Excluding Related Party Debt [Member]    
Long-term debt 5,195,000 5,367,000
Unsecured Subordinated Loan [Member]    
Long-term debt $ 1,500,000 $ 1,500,000
v3.20.2
Note 6 - Line of Credit and Long-term Debt - Future Payments (Details)
$ in Thousands
Jun. 30, 2020
USD ($)
Remainder of 2021 $ 520
2022 2,213
2023 1,858
2024 289
2025 306
Thereafter 2,890
Total principal payments $ 8,076
v3.20.2
Note 7 - Operating Leases (Details Textual) - USD ($)
3 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Operating Lease, Weighted Average Remaining Lease Term (Year) 13 years 292 days  
Operating Lease, Weighted Average Discount Rate, Percent 7.50%  
Operating Lease, Expense $ 147,000 $ 147,000
v3.20.2
Note 7 - Operating Leases - Supplemental Balance Sheet Information (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Mar. 31, 2020
Right-of-use assets $ 4,128 $ 4,128
Accumulated lease amortization (371) (294)
Total right-of-use assets 3,757 3,834
Current lease liabilities 327 319
Non-current lease liabilities 3,434 3,519
Total lease liabilities $ 3,761 $ 3,838
v3.20.2
Note 7 - Operating Leases - Operating Leases Maturities (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Mar. 31, 2020
Remainder of 2021 $ 595  
2022 591  
2023 482  
2024 371  
2025 365  
Thereafter 3,606  
Total undiscounted lease payments 6,010  
Less: present value discount (2,249)  
Total lease liability balance $ 3,761 $ 3,838
v3.20.2
Note 8 - Accrued Expenses - Components of Accrued Expenses (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Mar. 31, 2020
Wages, commissions, bonus and profit sharing $ 443 $ 295
Vacation 357 301
Rent, interest and legal 115 76
Other accrued expenses 132 177
Total accrued expenses $ 1,047 $ 849
v3.20.2
Note 10 - Share-based Compensation (Details Textual)
3 Months Ended 6 Months Ended
Jul. 30, 2020
$ / shares
shares
Jun. 30, 2020
USD ($)
$ / shares
shares
Jun. 30, 2019
USD ($)
Jun. 30, 2020
USD ($)
$ / shares
shares
Mar. 31, 2020
$ / shares
Number of Shareholder Approved Share-based Compensation Plans   2   2  
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares) | shares   1,283,633   1,283,633  
Share Price (in dollars per share) | $ / shares   $ 2.33   $ 2.33 $ 2.06
Former Executive [Member]          
Share-based Payment Arrangement, Expense     $ 205,000    
Share-based Payment Arrangement, Option [Member]          
Share-based Payment Arrangement, Expense   $ 5,000 113,000    
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total   $ 48,000   $ 48,000  
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)       2 years 182 days  
Share-based Payment Arrangement, Option [Member] | Former Executive [Member]          
Share-based Payment Arrangement, Expense     109,000    
Share-based Payment Arrangement, Option [Member] | Maximum [Member]          
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)   10 years      
Restricted Stock Units (RSUs) [Member]          
Share-based Payment Arrangement, Expense   $ 5,000 23,000    
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | shares   9,400      
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share) | $ / shares   $ 2.07      
Restricted Stock Units (RSUs) [Member] | Former Executive [Member]          
Share-based Payment Arrangement, Expense     $ 6,000    
Restricted Stock Units (RSUs) [Member] | Employees [Member]          
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total   $ 32,000   $ 32,000  
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)   2 years 292 days      
Restricted Stock Units (RSUs) [Member] | Employees [Member] | Subsequent Event [Member]          
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | shares 19,247        
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share) | $ / shares $ 2.19        
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year) 3 years        
The 2005 Plan [Member]          
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares) | shares   0   0  
The 2004 Directors Plan [Member]          
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares) | shares   0   0  
v3.20.2
Note 10 - Share-based Compensation - Shares Authorized, Available for Future Grant and Outstanding Under Each Plan (Details)
Jun. 30, 2020
shares
Authorized (in shares) 1,650,000
Available (in shares) 1,283,633
Outstanding (in shares) 333,868
The 2016 Plan [Member]  
Authorized (in shares) 1,300,000
Available (in shares) 1,174,115
Outstanding (in shares) 71,568
2014 Directors Plan [Member]  
Authorized (in shares) 350,000
Available (in shares) 109,518
Outstanding (in shares) 12,000
The 2005 Plan [Member]  
Authorized (in shares)
Available (in shares) 0
Outstanding (in shares) 238,300
The 2004 Directors Plan [Member]  
Authorized (in shares)
Available (in shares) 0
Outstanding (in shares) 12,000
v3.20.2
Note 10 - Share-based Compensation - Summary of Option Activity Under Stock Plans (Details) - USD ($)
3 Months Ended 12 Months Ended
Jun. 30, 2020
Mar. 31, 2020
Outstanding (in shares) 318,300  
Outstanding, weighted average exercise price (in dollars per share) $ 4.08  
Outstanding, weighted average remaining contractual term (Year) 2 years 292 days 3 years
Outstanding, aggregate intrinsic value $ 1,100
Granted (in shares)  
Granted, weighted average exercise price (in dollars per share)  
Exercised (in shares)  
Exercised, weighted average exercise price (in dollars per share)  
Forfeited (in shares) (1,000)  
Forfeited, weighted average exercise price (in dollars per share) $ 3.63  
Outstanding (in shares) 317,300 318,300
Outstanding, weighted average exercise price (in dollars per share) $ 4.08 $ 4.08
Exercisable (in shares) 279,800  
Exercisable, weighted average exercise price (in dollars per share) $ 4.23  
Exercisable, weighted average remaining contractual term (Year) 2 years  
Exercisable, aggregate intrinsic value $ 1,100  
v3.20.2
Note 10 - Share-based Compensation - Summary of Non-vested Options (Details)
3 Months Ended
Jun. 30, 2020
$ / shares
shares
Nonvested (in shares) | shares 37,500
Nonvested (in dollars per share) | $ / shares $ 1.52
Vested (in shares) | shares
Vested (in dollars per share) | $ / shares
Nonvested (in shares) | shares 37,500
Nonvested (in dollars per share) | $ / shares $ 1.52
v3.20.2
Note 10 - Share-based Compensation - Restricted Stock Units (Details)
3 Months Ended
Jun. 30, 2020
$ / shares
shares
Nonvested restricted stock units (in shares) 333,868
Restricted Stock Units (RSUs) [Member]  
Nonvested restricted stock units (in shares) 12,766
Nonvested restricted stock units, weighted average grant price (in dollars per share) | $ / shares $ 3.98
Granted (in shares) 9,400
Granted, weighted average grant price (in dollars per share) | $ / shares $ 2.07
Vested (in shares) (5,498)
Vested, weighted average grant price (in dollars per share) | $ / shares $ (3.93)
Forfeited (in shares) (100)
Forfeited, weighted average grant price (in dollars per share) | $ / shares $ 2.07
Nonvested restricted stock units (in shares) 16,568
Nonvested restricted stock units, weighted average grant price (in dollars per share) | $ / shares $ 2.92
v3.20.2
Note 11 - Income Taxes (Details Textual) - USD ($)
3 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Income Tax Expense (Benefit), Total $ (1,000) $ (3,000)
Effective Income Tax Rate Reconciliation, Percent, Total 0.40% 2.30%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent 21.00% 21.00%
Unrecognized Tax Benefits, Ending Balance $ 0 $ 0
v3.20.2
Note 12 - Earnings Per Share (Details Textual)
3 Months Ended
Jun. 30, 2019
shares
Share-based Payment Arrangement, Option [Member]  
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) 50,000
Restricted Stock Units (RSUs) [Member]  
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) 14,646
v3.20.2
Note 12 - Earnings Per Share - Summary of Reconciliations Between the Numerator and the Denominator of the Basic and Diluted Earnings Per Share Computations (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Net income (loss) $ 138 $ (133)
Shares outstanding - basic (in shares) 6,029 5,919
Earnings per share - basic (in dollars per share) $ 0.02 $ (0.02)
Effective dilutive securities – restricted stock units (in shares) 7  
Net income - diluted $ 138  
Shares outstanding - diluted (in shares) 6,036 5,919
Earnings per share - diluted (in dollars per share) $ 0.02 $ (0.02)
Net income (loss) $ 138 $ (133)
Shares outstanding - basic and diluted (in shares)   5,919
Basic and diluted loss per share (in dollars per share)   $ (0.02)
v3.20.2
Note 13 - Related Party Transactions (Details Textual) - Skywords Note [Member] - Unsecured Subordinated Loan [Member] - USD ($)
3 Months Ended
Apr. 30, 2019
Jun. 30, 2020
Mar. 31, 2020
Jun. 30, 2019
Debt Instrument, Face Amount $ 1,500,000 $ 1,500,000 $ 1,500,000 $ 1,500,000
Prime Rate [Member]        
Debt Instrument, Basis Spread on Variable Rate 1.00% 1.00%