<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended September 30, 1995
Commission File Number 0-14602
CYANOTECH CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 91-1206026
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
73-4460 Queen Kaahumanu Hwy. #102, Kailua-Kona, HI 96740
(Address of principal executive offices)
(808) 326-1353
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 xx
--
No
---
Number of common shares outstanding as of November 7, 1995:
Title of Class Shares Outstanding
-------------- ------------------
Common stock - $.005 par value stock 9,520,925
Transitional Small Business Disclosure Format: Yes ; No X
----- -----
<PAGE>
CYANOTECH CORPORATION
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
- - -------------------------------
Item 1. Financial Statements
Page
----
Consolidated Balance Sheets
September 30, 1995 and March 31, 1995.................. 3
Consolidated Statements of Income
Three and six month periods ended
September 30, 1995 and 1994............................ 4
Consolidated Statements of Cash Flows
Six month periods ended
September 30, 1995 and 1994........................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 9
PART II. OTHER INFORMATION
- - ---------------------------
Item 4. Submission of Matters to Vote of Security Holders.......... 11
Item 6. Exhibits and Reports on Form 8-K........................... 11
SIGNATURES.......................................................... 12
- - ----------
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CYANOTECH CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
(Unaudited) (Audited)
---------- ---------
<S> <C> <C>
Assets
- - ------
Current assets:
Cash and cash equivalents $ 960 $ 496
Accounts receivable 1,142 648
Inventories (note 2) 339 375
Prepaid expenses 47 5
---------- ---------
Total current assets 2,488 1,524
Equipment and leasehold improvements, net (note 4) 5,979 4,635
Other assets 70 53
---------- ---------
Total assets $ 8,537 $ 6,212
========== =========
Liabilities and Stockholders' Equity
- - ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 138 $ 7
Current maturities of capital lease obligations 121 58
Accounts payable 575 629
Other accrued liabilities (note 5) 206 230
---------- ---------
Total current liabilities 1,040 924
Long-term debt, excluding current maturities 601 -
Obligations under capital leases, excluding
current maturities 388 184
---------- ---------
Total liabilities 2,029 1,108
Stockholders' equity:
Preferred stock (note 6) 2 2
Common Stock - 9,546,600 shares issued on September 30, 1995
and 9,051,325 shares issued on March 31, 1995 47 45
Capital in excess of par value 12,600 12,216
Accumulated deficit (6,111) (7,129)
---------- ---------
6,538 5,134
Less - Treasury stock, 30,000 common shares at cost (30) (30)
---------- ---------
Total stockholders' equity 6,508 5,104
---------- ---------
Total liabilities and stockholders' equity $ 8,537 $ 6,212
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CYANOTECH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30 September 30,
---------------- ----------------
1995 1994 1995 1994
------- ------- ------ -------
<S> <C> <C> <C> <C>
PRODUCT SALES REVENUES $2,056 $1,043 $3,624 $1,973
------- ------- ------- -------
OPERATING COSTS AND EXPENSES:
Cost of product sales 844 449 1,508 888
Research and development 89 30 158 54
General and administrative 313 179 518 334
Sales and marketing 87 69 172 134
Depreciation and amortization 102 78 229 156
------- ------- ------- -------
Total operating costs and expenses 1,435 805 2,585 1,566
------- ------- ------- -------
Income from operations 621 238 1,039 407
------- ------- ------- -------
OTHER INCOME (EXPENSE)
Interest income 4 4 10 8
Interest expense (21) (7) (31) (15)
Other income, net 1 1 - 10
Proportionate share of
loss of joint venture - (24) - (37)
------- ------- ------- -------
Total other expense (16) (26) (21) (34)
------- ------- ------- -------
Income taxes - - - -
------- ------- ------- -------
NET INCOME $605 $212 $1,018 $373
======= ======= ======= =======
NET INCOME PER SHARE $0.04 $0.02 $0.07 $0.03
======= ======= ======= =======
Weighted average number of common
shares outstanding and
common stock equivalents (note 3) 14,534 13,993 14,388 13,952
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
CYANOTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
September 30, September 30,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,018 $373
Adjustments to reconcile net income to net
cash provided by operating activities:
Proportionate share of loss of joint venture - 37
Depreciation and amortization 229 156
Net (increase) decrease in:
Accounts receivable (494) (143)
Inventories 36 (4)
Prepaid expenses and other assets (59) (11)
Net increase (decrease) in:
Accounts payable (54) (157)
Other accrued liabilities (24) 87
--------- ---------
Net cash provided by operating activities 652 338
--------- ---------
Cash flows from investing activities:
Investment in equipment and leasehold improvements (1,270) (629)
Investment in joint venture - (37)
--------- ---------
Net cash used in investing activities (1,270) (666)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock 386 100
Net proceeds from issuance of long-term debt 750 -
Principal payments on capital lease obligations (36) (24)
Principal payments on long-term debt (18) (5)
--------- ---------
Net cash provided by financing activities 1,082 71
--------- ---------
Net increase (decrease) in cash and cash equivalents 464 (257)
Cash and cash equivalents at beginning of period 496 866
--------- ---------
Cash and cash equivalents at end of period $960 $609
========= ========
Supplemental schedule of noncash investing and
financing activities:
Purchase of equipment under
capital lease obligation $303 $162
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CYANOTECH CORPORATION
FORM 10-QSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. These financial statements and notes should
be read in conjunction with the Company's financial statements contained in
the Company's previously filed report on Form 10-KSB for the year ended
March 31, 1995.
The Company consolidates enterprises in which it has a controlling
financial interest. The accompanying consolidated financial statements
include the accounts of Cyanotech Corporation and its wholly-owned
subsidiary, Nutrex, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation. While the financial
information furnished for the three and six month periods ended September
30, 1995 is unaudited, the statements in this report reflect all material
items which, in the opinion of management, are necessary for a fair
presentation of the results of operations for the interim periods covered
and of the financial condition of the Company at the dates of the
consolidated balance sheets. The operating results for the interim period
presented are not necessarily indicative of the results that may be
expected for the year ending March 31, 1996.
2. INVENTORIES
Inventories are stated at the lower of cost (which approximates first-in,
first-out) or market (net realization value) and consist of the following
(dollars in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------- ---------
<S> <C> <C>
Raw materials $ 65 $ 29
Work in process 104 105
Finished goods 68 171
Supplies 102 70
----- -----
$339 $375
===== =====
</TABLE>
6
<PAGE>
CYANOTECH CORPORATION
FORM 10-QSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
3. NET INCOME PER COMMON SHARE INFORMATION
Net income per common share for the three and six month periods ended
September 30, 1995 and 1994 is computed based on net income after preferred
stock dividend requirements and the weighted average number of common
shares outstanding during the period, adjusted to reflect the assumed
exercise of outstanding stock options and warrants and the conversion of
preferred stock to the extent these items had a dilutive effect on the
computation. Primary and fully diluted net income per share herein are the
same.
4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Owned equipment and leasehold improvements are stated at cost. Equipment
under capital lease is stated at the lower of the present value of the
minimum lease payments or fair value at the inception of the lease.
Equipment and furniture and fixtures are depreciated using the straight-
line method over the estimated useful lives of the assets. Leasehold
improvements and equipment under capital lease are amortized using the
straight-line method over the remaining term of the lease. Equipment and
leasehold improvements consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------- ---------
<S> <C> <C>
Equipment $ 2,799 $ 2,622
Leasehold improvements 4,761 3,648
Furniture and fixtures 35 31
Equipment under capital lease 615 299
------- ------
8,210 6,600
Less accumulated depreciation
and amortization (2,768) (2,539)
Construction in-progress 537 574
------- -------
Equipment and leasehold improvements, net $ 5,979 $ 4,635
======= =======
</TABLE>
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities as of September 30, 1995 and March 31, 1995
consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------- ----------
<S> <C> <C>
Accrued payroll and related benefits $ 130 $ 126
Accrued directors' fees 30 35
Deposits - 26
Other accrued expenses 46 43
------- -------
$ 206 $ 230
======= =======
</TABLE>
7
<PAGE>
CYANOTECH CORPORATION
FORM 10-QSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
6. PREFERRED STOCK
Preferred stock as of September 30, 1995 and March 31, 1995 consists of the
following (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------- --------
<S> <C> <C>
Preferred stock, authorized 5,000,000
shares; $.001 par value, issued
and outstanding:
Series A, 12% cumulative;
1,250,000 shares on Sept 30 and March 31,
1995: liquidation value $.40 per share
plus unpaid accumulated dividends $ 1 $ 1
Series B, 12% cumulative; 12,500 shares on
Sept 30 and March 31, 1995; liquidation value
value $.40 per share plus unpaid accumulated
dividends - * - *
Series C, 8% cumulative, convertible;
734,977 shares on Sept 30 and
March 31, 1995; liquidation value $5.00
per share plus unpaid accumulated dividends 1 1
----------- -------
$ 2 $ 2
=========== =======
</TABLE>
* Amounts are less than $.5
7. ACCOUNTING CHANGE
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. Measurement of that
loss would be based on the fair value of the asset.
Generally, SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell.
The provisions of SFAS No. 121 must be adopted by the Company no later than
April 1, 1996. The Company has not determined when it will adopt the
provisions of SFAS No. 121 nor the impact of the adoption of SFAS No. 121
on the Company's consolidated financial statements.
8
<PAGE>
CYANOTECH CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- - ---------------------
Product sales revenues for the three months ended September 30, 1995 (the
second quarter of fiscal 1996) increased 97% from the $1,043,000 reported for
the comparable period of 1994. Product sales revenues for the six months ended
September 30, 1995 increased 84% from the comparable earlier year period. The
increase in sales for the three and six month periods in fiscal 1996 from the
comparable earlier year periods was due to significantly higher production and
sales of bulk Spirulina powder and tablets and increased sales of packaged
consumer products into Asian retail markets. The increased production is a
result of the Spirulina production expansions that were completed in October
1994 and May 1995. In spite of the recently increased production capacity,
product sales were limited by the available production capacity with
approximately eight weeks of production in order backlog at the end of the
second quarter. Management's plans to increase bulk Spirulina production
capacity and product sales revenues are described in the section, Current
-------
Operating Strategy, below.
- - ------------------
Margins on product sales revenues increased to 59% for the three months
ended September 30, 1995 from 57% in the comparable period of fiscal 1995. For
the six month period ended September 30, product margins increased to 58% during
fiscal 1996 from 55% during fiscal 1995. This increase is due primarily to
higher production volume during the recent quarter and the resulting increase in
efficiency.
Expenditures for research and development for the three and six months
ended September 30, 1995 increased substantially from the limited activity of
the prior year primarily as a result of the research work being done on beta
carotene products for the joint venture partnership with Hauser Chemical
Research, Inc. ("Hauser"). Research and development costs are expected to
increase further during fiscal 1996 from fiscal 1995 as the Company continues
work on the joint venture project with Hauser and also on the development of an
astaxanthin product.
General and administrative expenses for the three and six month periods
ended September 30, 1995 increased 75% and 55%, respectively, from the
comparable earlier year periods due to higher insurance, utility, and payroll
related costs.
Sales and marketing expenses for the second quarter and the six months
ended September 30, 1995 increased 26% and 28%, respectively, primarily due to
higher payroll related expenditures.
The Company continues to utilize net operating losses to offset taxable
income thus resulting in no income tax expense for the periods presented.
The Company recorded $393,000 more net income for the second quarter and
$645,000 more net income for the first half of fiscal 1996 than for the
comparable periods of fiscal 1995. The increased net income in both the three
and six month periods was primarily due to higher Spirulina production and sales
and the resulting increase in gross profit margin.
9
<PAGE>
Liquidity and Capital Resources
- - -------------------------------
The Company's cash and cash equivalent balance increased by $464,000 during
the first six months of fiscal 1996. The increase was primarily due to increased
profit levels, increased borrowings, and proceeds from the exercise of stock
warrants and options. Major uses of cash during the first half of fiscal 1996
included $494,000 in additional accounts receivable to support the higher sales
level, and $1,270,000 in additional investment in ponds and equipment to
increase Spirulina production capacity. Largely as a result of the increase in
cash and accounts receivable, working capital increased $848,000 during the
first six months of fiscal 1996. The Company believes that its existing cash
balances, together with cash expected to be provided by operations and lease
financing, will provide adequate funding for its financial requirements, during
the remainder of fiscal 1996. The Company has current fiscal year commitments
for capital expenditures totaling $886,000. As of the date of this report, the
Company has no available bank credit lines.
Current Operating Strategy
- - --------------------------
In order to meet the increasing demand for the Company's Spirulina product,
the Company completed construction of six additional 36,000 square foot culture
ponds at the end of September, 1995, bringing the total number of ponds to 39.
The Company is currently constructing six additional such ponds and installing
the associated processing equipment. This work is expected to be completed by
early December, 1995 and full production attained by mid-December, 1995. When
completed, the output from these six ponds could generate additional annual
revenues of $1,200,000 or more, at current selling prices.
The Company is currently producing and selling its bulk Spirulina product
at full capacity. The Company expects to increase its product sales revenues
during the remainder of fiscal 1996 by 1) continued emphasis on sales of the
higher selling price Nutrex consumer products; 2) selling the output from the
Spirulina production expansion that was completed in September 1995 and the
project that should be completed in December, 1995; and, to a lesser extent, 3)
increasing sales of the Company's phycobiliprotein products by developing new
markets and applications for such products. Beyond fiscal 1996, the Company's
plans for increased revenues and profitability include producing other high-
value products from microalgae including natural beta carotene and astaxanthin,
a red pigment used in salmon feed. Although the Company believes this strategy
should result in continued and increasing revenues and profitability, there is
no assurance that the Company will be able to achieve this.
10
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On August 9, 1995, the following matters were submitted to a vote
of stockholders entitled to vote at the Company's Annual Meeting of
Stockholders:
a) Election of the following directors by the holders of Common Stock,
to serve until the next Annual Meeting or until their successors are
elected: Gerald R. Cysewski, William L. Edwards, Eva R. Reichl, John
T. Ushijima, Paul C. Yuen,
b) Approval of the 1995 Stock Option Plan (the "Plan"), reserving a
total of 400,000 shares of the Company's common stock for issuance
under the Plan.
For: 10,240,510 Against: 143,420 Abstain: 363,574 Broker non-
votes: 0
c) Ratification of the selection of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending March 31,
1995.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are furnished with this report:
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1995.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CYANOTECH CORPORATION (Registrant)
November 9, 1995 By: /s/ Gerald R. Cysewski
- - ------------------ ------------------------------------
(Date) Gerald R. Cysewski
Chairman of the Board,
President and Chief Executive Officer
By: /s/ Ronald P. Scott
----------------------------------------
Ronald P. Scott
Executive Vice President - Finance &
Administration, Secretary and Treasurer
(Principal Financial and
Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 960
<SECURITIES> 0
<RECEIVABLES> 1,142
<ALLOWANCES> 0
<INVENTORY> 339
<CURRENT-ASSETS> 2,488
<PP&E> 8,747
<DEPRECIATION> 2,768
<TOTAL-ASSETS> 8,537
<CURRENT-LIABILITIES> 1,040
<BONDS> 989
<COMMON> 47
0
2
<OTHER-SE> 6,459
<TOTAL-LIABILITY-AND-EQUITY> 8,537
<SALES> 3,624
<TOTAL-REVENUES> 3,624
<CGS> 1,508
<TOTAL-COSTS> 1,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 1,018
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,018
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,018
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
