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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended March 31, 2000 Commission file 0-146-02
CYANOTECH CORPORATION
(Exact name of Registrant as specified in its charter)
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Nevada 91-1206026
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or
organization)
73-4460 Queen Kaahumanu Hwy., Suite 102, Kailua-Kona, HI 96740
(Address of principal executive offices)
(808) 326-1353
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of class
Common Stock, Par value $.005 per share
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
At June 26, 2000, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $19,267,000.
At June 26, 2000, the number of shares outstanding of registrant's
Common Stock was 15,087,297.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended March 31, 2000 are incorporated by reference into Part II and Part IV of
this Report. Portions of the Registrant's Definitive Proxy Statement for its
2000 Annual Meeting of Stockholders, to be filed with the Securities and
Exchange Commission on or prior to July 29, 2000 and to be used in connection
with the Annual Meeting of Stockholders expected to be held August 24, 2000, are
incorporated by reference in Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
Except for historical information contained in this document, the
matters discussed in this report contain forward looking statements that involve
risks and uncertainties. These future risks and uncertainties could cause actual
results to differ materially.
GENERAL
Cyanotech Corporation is a leader in the development and
commercialization of high value products derived from microalgae. Microalgae are
a diverse group of over 30,000 species of microscopic plants which have a wide
range of physiological and biochemical characteristics and naturally contain
high levels of proteins, amino acids, vitamins, pigments and enzymes. Since
1983, we have designed, developed and implemented proprietary production and
harvesting technologies, systems and processes which eliminate many of the
stability and contamination problems frequently encountered in the production of
microalgae. We believe that our technology, systems, processes and favorable
growing location permit year-round harvesting of our microalgal products in a
cost effective manner. We currently produce natural products from microalgae for
the nutritional supplement, aquaculture feed, animal nutrition, and
immunological diagnostics markets.
Since 1985, Cyanotech has been producing microalgae-based "Spirulina"
products for the vitamin and supplement market. Spirulina Pacifica(R), which is
our principal source of revenue, is a unique strain of Spirulina developed by us
which provides a vegetable-based, highly absorbable source of natural
beta-carotene, mixed carotenoids, B vitamins, gamma linolenic acid ("GLA"),
protein, essential amino acids and other phytonutrients. We currently market our
Spirulina products in the United States and over thirty other countries through
a combination of retail, wholesale, and private label channels.
In early 1997, we introduced NatuRose(R) to the worldwide aquaculture
industry. NatuRose is the brand name of our natural astaxanthin (pronounced
"as-ta-zan-thin") product for the animal nutrition market which we produce from
the microalge, Haematococcus. Astaxanthin is a red pigment used in aquaculture
to impart a pink to red color to pen-raised fish and shrimp. The worldwide
astaxanthin market for animal pigmentation is estimated at more than $150
million in annual sales. NatuRose competes in this marketplace with astaxanthin
synthesized from petrochemicals.
In March of 1999, we announced the development of BioAstin(TM), our
natural astaxanthin product for the human nutrition market. A growing body of
scientific literature is demonstrating that the antioxidant properties of
natural astaxanthin surpass many of the antioxidant benefits of vitamin C,
vitamin E, beta-carotene and other carotenoids. In August 1999, we were notified
by the United States Food and Drug Administration ("FDA"), that our application
to sell BioAstin had been reviewed without objection, allowing us to offer our
new product for sale and use as a human nutritional supplement in the United
States. The worldwide astaxanthin market for human nutrition is estimated at
more than $1.5 billion in annual sales.
Cyanotech Corporation is incorporated in Nevada. Our principal
executive offices are located at 73-4460 Queen Kaahumanu Highway, Suite 102,
Kailua-Kona, Hawaii 96740, and our telephone number is (808) 326-1353. Unless
otherwise indicated, all references in this report to the "Company,"
"we,""us,""our," and "Cyanotech" refer to Cyanotech Corporation, a Nevada
corporation, and its wholly owned subsidiaries, Nutrex, Inc., a Hawaii
corporation, and Cyanotech International FSC, Inc., a Barbados corporation.
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INDUSTRY BACKGROUND
Microalgae are a diverse group of microscopic plants that have a wide
range of physiological and biochemical characteristics and contain, high levels
of natural proteins, 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 a uniform cell structure with no bark, stems,
branches or leaves, permitting easier extraction of products and higher
utilization of the microalgae cells; (3) the cellular uniformity of microalgae
makes it practical to manipulate and control growing conditions in order to
optimize a particular cell characteristic; (4) microalgae contain a wide array
of vitamins and other important nutrients; (5) microalgae contain natural
pigments; and (6) microalgae are a potential source of medical products.
Current commercial applications for these microscopic plants include
nutritional products, diagnostic products, aquaculture feed and pigments,
natural food colorings and research grade chemicals. We believe that microalgae
could potentially be used for other commercial applications, including
genetically engineered products for the biopesticide and pharmaceutical
industries. The most significant microalgae products produced today are algae
utilized as food supplements.
While many unique compounds have been identified in microalgae, the
efficient and cost effective commercial production of microalgae is elusive.
Many microalgae culture systems over the last 20 years have failed. Because
microalgae produced for food supplements are typically cultivated and harvested
outdoors, production is significantly affected by climate, weather conditions
and the chemical composition of the culture media. Without consistent sunlight,
warm temperature, low rainfall and proper chemical balance, microalgae will not
grow quickly, resulting in longer harvesting cycles, decreased pond utilization
and increased cost. Furthermore, microalgal growth requires a very nutrient rich
environment. The high nutrient levels in the ponds promote the growth of
unwanted organisms, or "weeds," when the chemical composition of the ponds
changes from its required balance. Once contamination occurs, a pond must be
emptied, cleaned and refilled, a process that further decreases pond utilization
and increases production costs.
Cyanotech's Technology
Since 1983, our scientists have designed, developed and implemented
proprietary production and harvesting technologies, systems and processes which
reduce many of the stability and contamination problems frequently encountered
in the production of microalgae. We believe we were the first Spirulina
producer to have its products and processes certified organic and we were
the first microalgae producer to have its quality system registered under the
ISO 9002-94 standards. This proprietary production system is known as
Integrated Culture Biology Management (or "ICBM"). Through the application of
this technology, our Spirulina culture ponds can be productive year-round
without any significant loss in productivity due to contamination. We
believe that such an accomplishment remains unique to Cyanotech.
In addition to the advantages of our ICBM technology, we have developed
a patented system for the recovery of carbon dioxide from our drying system
exhaust gas, called Ocean-Chill Drying. Since microalgae are essentially
microscopic "plants," they require sunlight, water, carbon dioxide and nutrients
for optimal growth. By recovering carbon dioxide from the drying system that
would otherwise be released into the atmosphere, we can divert the recovered
carbon dioxide back to the algae cultures. This process provides us with another
significant cost advantage over other microalgae producers who must purchase
carbon dioxide. Moreover, Ocean-Chill Drying dries microalgal products in a low
oxygen environment, which protects oxygen sensitive nutrients. In addition, we
have developed an automated Spirulina processing system, which enables a single
operator to harvest and dry the Spirulina powder.
Our efforts in commercial production of our natural astaxanthin
products have resulted in an improved, large-scale photobioreactor system
referred to as the PhytoDome Closed Culture System, or PhytoDome CCS(TM). To
date, this improved technology has resulted in reduced production costs,
increased control of product purity and has a positive effect on production
yield compared to other photobioreactor systems previously employed.
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Another major advantage for us is the location of our production
facility at the Hawaii Ocean Science and Technology ("HOST") Park at Keahole
Point, Hawaii. We believe that the combination of consistent warm temperature,
abundant sunlight, and low rainfall at this facility makes this a highly
favorable location for the economical, large-scale cultivation of microalgae. In
contrast to our facility, microalgae producers in other regions of the world
lacking these favorable characteristics stop producing for up to four months a
year because of less favorable climate or weather conditions. At the HOST Park,
we have access to cold, clean, deep sea water that is pumped from a depth of
2,000 feet. This sea water is used both as a source of nutrients for microalgae
culture and as a cooling agent in the Ocean-Chill Drying process. Additionally,
our facility has access to a complete industrial infrastructure and is located
30 miles from a deep water port and adjacent to an international airport.
Applying our experience in cultivating and harvesting Spirulina, we
began commercial production of our first natural astaxanthin product, NatuRose,
during the fourth quarter of fiscal 1997. By the end of fiscal 1999, our
experience with NatuRose processing resulted in the development of its companion
product, BioAstin.
Our primary business objective is to be the leading developer and
producer of high-value microalgal products in our existing and future markets.
We believe that the combination of our ICBM technology, our PhytoDome CCS
technology, our Ocean-Chill Drying process, our automated processing system and
a favorable growing location with year-round production capabilities, can be
successfully applied to the commercial cultivation of many species of
microalgae.
PRODUCTS
Spirulina
Our principal product, accounting for 87% and 91% of net sales for the
years ended March 31, 2000 and 1999, respectively, is a nutritional microalgae
marketed as Spirulina Pacifica. Developed by us and sold worldwide to the health
and natural foods market, Spirulina Pacifica is a unique strain of microalgae
that is a highly absorbable source of natural beta carotene, mixed carotenoids,
B vitamins, GLA, protein, essential amino acids and other phytonutrients.
Cyanotech produces Spirulina Pacifica in three forms: powder, flake and
tablets. Powder is used as an ingredient in nutritional supplements and health
food drinks while flakes are used as a seasoning on various foods. Tablets are
consumed as a daily dietary supplement. We also produce and market a blended
product under the Hawaiian Energizer name. Hawaiian Energizer tablets contain
Spirulina Pacifica, Bee Pollen and Siberian Ginseng.
We anticipate that sales of our Spirulina Pacifica products will
continue to constitute a substantial portion of net sales during fiscal 2001.
Any material decrease in the overall level of sales of, or the prices for, our
Spirulina Pacifica products, whether as a result of competition, change in
consumer demand, increased worldwide supply of Spirulina or other factors beyond
our control, would have a material adverse effect on our business, financial
condition and results of operations.
Natural Astaxanthin
The year ended March 31, 2000 was the third full year of commercial
production of NatuRose, our natural astaxanthin product for the animal nutrition
market, and the first year of commercial production for our natural astaxanthin
product for the human nutrition market, BioAstin. Astaxanthin is a red pigment
used primarily in the aquaculture industry to impart pink color to the flesh of
pen-raised fish and shrimp. The animal nutrition market for astaxanthin is
currently dominated by a single producer, Hoffmann-LaRoche, who produces
synthetic astaxanthin from petrochemicals. Hoffmann-LaRoche currently sells
synthetic astaxanthin to the aquaculture industry at approximately $2,500 per
pure kilogram. As a result of continued growth in the world aquaculture
industry, the world market for astaxanthin pigment is currently estimated to
exceed $150 million per year. We believe that sales of NatuRose may increase in
future periods.
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In March 1999, we announced development of BioAstin, a companion
natural astaxanthin product targeted at the human nutrition market. A growing
body of scientific literature is demonstrating that the antioxidant properties
of natural astaxanthin surpass many of the antioxidant benefits of vitamin C,
vitamin E, beta-carotene and other carotenoids. Independent scientific studies
have shown that natural astaxanthin has up to 550 times the antioxidant activity
of vitamin E and 10 times the antioxidant activity of beta-carotene. In August
1999, we were notified by the FDA, that our application to sell BioAstin had
been reviewed without objection, allowing us to offer our new product for sale
and use in the United States as a human dietary supplement. Upon receiving this
notice, the Company began shipping BioAstin powder to various manufacturers of
nutritional supplements while concurrently developing our own consumer product.
In January 2000, sales of packaged BioAstin gelcaps were initiated by our
wholly-owned subsidiary, Nutrex, Inc. We believe that sales of BioAstin, in
bulk, packaged consumer form, and as a component of a formulated product may
increase and may ultimately constitute a significant portion of total sales in
future periods.
Phycobiliproteins
Cyanotech also produces phycobiliproteins which are sold to the medical
and biotechnology research industry. Phycobiliproteins are highly fluorescent
pigments purified from microalgae. Their spectral properties make them useful as
tags or markers in many kinds of biological assays, such as flow cytometry,
fluorescence immunoassays and fluorescence microscopy. We do not anticipate that
phycobiliproteins will represent a significant component of total sales in
future periods.
We maintain product liability insurance in limited amounts for products
involving human consumption. In the opinion of management, broader product
liability insurance coverage is prohibitively expensive at this time.
RESEARCH & DEVELOPMENT EXPENSES
Cyanotech's expertise is in the development of efficient, stable and
cost-effective production systems for microalgal products. Our researchers
investigate specific microalgae identified in scientific literature for
potentially marketable products and then strive to develop the technology to
grow such microalgae on a commercial scale.
Because of fiscal restraints, the Company reduced research and
development expenses during fiscal 2000 to $514,000, a decrease of 43% and 24%
from expenditures of $895,000 and $677,000 in the years 1999 and 1998,
respectively. The Company continues to investigate new products and prioritizes
its research and development activities to focus on projects that we believe
will have the greatest market acceptance and achieve the highest return on the
Company's investment. Successful microalgal product development is highly
uncertain and is dependent on numerous factors, many of which are beyond the
Company's control. Products that appear promising in early phases of development
may be found to be ineffective, may be uneconomical because of manufacturing
costs or other factors, may be precluded from commercialization due to the
proprietary rights of other companies, or may fail to receive necessary
regulatory approvals.
MANUFACTURING
Cyanotech cultivates and processes its microalgae products at a 90-acre
production facility on the Kona Coast of the Island of Hawaii. We have a total
of 67 large oval culture ponds and 15 smaller auxiliary culture ponds, all of
which are currently in production. Each of the large ponds has an average
surface area of 23,700 square feet (2,200 square meters) and contain
approximately 132,000 gallons (500,000 liters) of culture media. In addition we
have in production six large-scale photobioreactors, each with a capacity of
approximately 12,000 gallons (45,000 liters). Also located at this facility are
two processing plants, our Spirulina tableting plant, our research and quality
control laboratories and three administration buildings.
Spirulina Pacifica
Cyanotech began culturing Spirulina Pacifica in 1985 at its present
facility at the HOST Park. Since 1994, we have produced two grades of Spirulina
Pacifica; an all-natural grade cultivated by using non-organic agricultural
fertilizers and an organic grade that is cultivated using only organic
fertilizers. Our organic Spirulina Pacifica is grown and processed in accordance
with the California Organic Food act of 1990 and is certified annually by
Quality Assurance International, a leading third-party agency. Both grades of
Spirulina Pacifica are cultivated without the use of herbicides or pesticides.
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Spirulina Pacifica is cultivated in a combination of fresbh water and a
measured amount of nutrient-rich (with ninety-six trace elements) deep ocean
water, drawn from a depth of 2,000 feet below sea level. This water is
supplemented with the other major nutrients required such as food-grade sodium
bicarbonate (baking soda) and infused with carbon dioxide. The Spirulina crop in
each pond is circulated by paddlewheels to keep an even blend of nutrients in
suspension and a uniform exposure of the algae to sunlight, the other major
component of cultivation. Our ponds are engineered to maintain the right media
depth for sunlight to permeate each crop completely, facilitating rapid growth.
Our system promotes efficient growing conditions, allowing the Spirulina
Pacifica algae to reproduce rapidly. Each pond can be harvested, on average, in
six days.
Once ready for harvest, 70% of the Spirulina Pacifica culture is pumped
from a pond through underground pipes to our Spirulina processing building where
the crop is separated from the culture medium by stainless steel screens. The
remaining 30% serves as an innoculum for the next growth cycle. Harvested
Spirulina is washed with fresh water three times and vacuum filtered before
moving to the drying stage. Culture media removed in processing is recycled.
This recycled media is treated, tested for nutrient content and, if necessary,
fortified with nutrients before being returned to the culture ponds for another
cycle of cultivation. Our ICBM technology for microalgae cultivation has proven
to be a reliable and stable operating environment, allowing us to grow and
harvest Spirulina without significant contamination by unwanted algae and
associated loss of productivity. We believe that such an accomplishment remains
unique to Cyanotech.
Spirulina Pacifica for use in powder and tablets is dried by our
patented Ocean-Chill Drying low-oxygen process which preserves high levels of
antioxidant carotenoids. This is a significant quality edge over competing
products. The drying process takes about six seconds and results in a dark green
powder similar to flour. We also employ an alternate proprietary drying method
to produce Spirulina Pacifica in the flake form. Bulk Spirulina Pacifica powder,
tablets and flakes are heat-sealed in foil laminate bags along with a packet of
oxygen absorbent. This packaging ensures product freshness and extends the shelf
life of bulk Spirulina Pacifica products to three years. Another significant
benefit of the Ocean-Chill Drying system is our ability to recover the carbon
dioxide produced in the drying process. The recovered carbon dioxide is the
major required nutrient for algae culture growth.
Each lot of Spirulina Pacifica is sampled and subjected to thorough
quality assurance which includes testing for bulk density, moisture, particulate
matter, color and taste, among others. In addition, each lot of Spirulina
Pacifica undergoes a prescribed set of microbiological food product tests,
including total aerobic bacteria, coliform bacteria and E. coli. Spirulina
Pacifica powder is certified free of pesticides and herbicides, and certified
Kosher. The Company's Spirulina production process has also been certified under
the ISO 9002-94 international quality standard since 1996.
Spirulina powder is difficult to form into tablets. Most tablet
manufacturers either add high amounts (from 10% to 30%) of inert substances to
"glue" the tablet together or use a heat granulation process that destroys
nutrients. In contrast, our Spirulina Pacifica tablets contain a maximum of 2%
of such substances and are produced in cold press compression tablet-making
machines. Our Spirulina Pacifica flakes are produced by combining freshly
harvested Spirulina Pacifica with food-grade lecithin and drying this blend in a
proprietary system. The Company's packaged consumer products are bottled and
labeled by one of two subcontractors in California, both of which are certified
cGMP manufacturers subject to regular government inspections.
Natural Astaxanthin
The Haematococcus microalgae which produce astaxanthin, grows in fresh
water supplemented with nutrients. As such, it is extremely susceptible to
contamination by unwanted algae, protozoa, and amoeba. Cyanotech has developed a
proprietary system to overcome this problem known as our PhytoDome Closed
Culture System. Using this large-scale photobioreactor, we are able to grow
large volumes of contaminant-free cultures of Haematococcus.
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For the final stage of culture, the Haematococcus algae is transferred
to open ponds. There, an environmental stress is applied causing spores to form
which accumulate high levels of astaxanthin. The media containing these spores
are transported through underground pipes to our astaxanthin processing building
where the culture media and algal spores are separated. Fresh water recovered
from this stage of processing is tested and treated using a proprietary water
treatment system. It is then recycled for use in the next production cycle. The
algal spores are dried to a fine powder using the low-oxygen Ocean-Chill Drying
system. During processing, the spores are cracked in a proprietary system to
assure high bioavailability of astaxanthin. Finally the bulk powder is heat-
sealed in foil laminate bags along with a packet of oxygen absorbent.
Unlike Spirulina, astaxanthin is produced in a batch-mode and each
cultivation pond must be thoroughly cleaned between cycles. While the entire
astaxanthin production cycle takes a total of four weeks, each stage of the
four-step process is staggered and continuously feeds the next stage of
cultivation. As a result, we are able to produce a new crop of astaxanthin from
each of our fifteen 500,000 liter culture ponds approximately once a week.
Each lot of astaxanthin products for human consumption undergoes a
prescribed set of microbiological food product tests, including total aerobic
bacteria, coliform bacteria and E. coli.
DISTRIBUTION AND INTERNATIONAL SALES
The majority of our bulk Spirulina sales are to companies with their
own Spirulina product lines. Many of these companies identify and promote
Cyanotech's Hawaiian Spirulina in their products. In the United States, we sell
directly to health food manufacturers and health food formulators. Our packaged
consumer products sell under the Nutrex label in the domestic market through an
established health food distribution network. Orders for packaged consumer
products are taken at the retail level by one of 45 regional broker
representatives and shipped through one of 24 wholesale distributors. In
selected foreign markets, we have exclusive sales distributors for both our bulk
Spirulina and packaged consumer products.
Our NatuRose product is presently being sold through a network of
agents and distributors directly to aquaculture farmers, aquaculture feed
manufacturers, poultry feed formulators, vitamin suppliers and other end users
in 18 countries for use in aquaculture feed, poultry feed and pet feed
industries. As our product is a natural astaxanthin derived from microalgae,
many of these formulators identify NatuRose and Cyanotech as the source of this
component in their feed.
For the year ended March 31, 2000, BioAstin was sold to nutritional
supplement manufacturers and health food formulators as well as through our
wholly-owned subsidiary, Nutrex, Inc. Packaged consumer product revenues were
derived primarily from sales made directly to retailers and consumers using our
toll-free order line (1-888-922-2107) and our internet e-commerce website,
www.nutrex-hawaii.com. While interest from broker representatives and wholesale
distributors is increasing and may grow to become a significant portion of
sales, we believe that direct sales will continue to constitute a large portion
of total sales of the packaged BioAstin consumer product in fiscal 2001.
In the years ended March 31, 2000, 1999 and 1998, international sales
accounted for approximately 46%, 40% and 44%, respectively, of our net sales. We
expect that international sales will continue to represent a significant portion
of our net sales in future periods. Our business, financial condition and
results of operations may be materially adversely affected by any difficulties
associated with managing accounts receivable from international customers,
tariff regulations, imposition of governmental controls, political and economic
instability or other trade restrictions. Although our international sales are
currently denominated in United States dollars, fluctuations in currency
exchange rates could cause our products to become relatively more expensive to
customers in the affected country, leading to a reduction in sales in that
country.
CUSTOMERS
Spirulina
We market and sell our Spirulina products to a variety of customers,
which range in size from $500 million in annual sales to small retail stores.
Several of our major customers are businesses that were established exclusively
to market and sell Spirulina products.
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Approximately 23% of our net sales for the year ended March 31, 2000
was to a single customer, Spirulina International B. V., a Spirulina marketing
and distribution company based in the Netherlands. Sales to this customer were
11% for the year ended March 31, 1999 and less than 10% of net sales for the
year ended March 31, 1998. We believe that sales to this customer will continue
to represent a significant portion of total net sales in future periods. Any
changes in demand from this customer could have a material adverse effect on our
business, financial condition and results of operations.
We market and sell our Spirulina products to a variety of other
customers, including:
Health Food Manufacturers. Health food manufacturers often use
Cyanotech's Spirulina products as a key ingredient in their Spirulina-based
products, or as an ingredient in their health food formulations. These customers
purchase bulk powder or bulk tablets and package the products under their brand
label for sale to the health and natural food markets. Many of the products
produced by these customers are often marketed and sold domestically in direct
competition with our Nutrex line of retail consumer products.
Private Label Customers. We currently provide private label retail
consumer products to six international customers. Products for these customers
are manufactured only upon receipt of an order and no finished product
inventories are maintained.
Retail Distributors. Retail distributors act as product wholesalers
to independent and chain retailers. The majority of domestic Nutrex sales in
the year ended March 31, 2000 were to 26 distributors.
Natural Products Distributors. In the year ended March 31, 2000, we
sold bulk Spirulina products to twelve domestic and six foreign customers
engaged in the business of distributing natural raw materials to health and
natural food manufacturers. These distributors provide their customers with
standardized quality control, warehousing and distribution services, and charge
a mark-up on the products for providing these services. These distributors may
differentiate the products they sell, but they generally treat the products as
commodities, with price being the major determining factor in their purchasing
decision.
Natural Astaxanthin
Our NatuRose product is presently being sold through a network of
agents and distributors directly to aquaculture farmers, vitamin suppliers,
aquaculture feed manufacturers and other end users in 18 countries for use in
aquaculture feed, poultry feed and pet feed. As our product is a natural
astaxanthin derived from microalgae, many of these formulators identify NatuRose
and Cyanotech as the source of this component in their feed.
During the year ended March 31, 2000, BioAstin was sold to nutritional
supplement manufacturers and health food formulators as well as through our
wholly-owned subsidiary, Nutrex, Inc. Packaged BioAstin consumer product
revenues were derived primarily from sales made directly to retailers and
consumers using our toll-free order line (1-888-922-2107) and our internet
e-commerce website, www.nutrex-hawaii.com.
COMPETITION
Spirulina
Our Spirulina Pacifica products compete with a variety of vitamins,
dietary supplements, other algal products and similar nutritional products
available to consumers. The nutritional products market is highly competitive.
It includes international, national, regional and local producers and
distributors, many of whom have greater resources than Cyanotech, and many of
whom offer a greater variety of products. Our direct competition in the
Spirulina market is currently from Dainippon Ink and Chemical Company's
Earthrise facility in California and several farms in China. To a lesser extent,
we compete with numerous smaller farms in China, India, Thailand, Taiwan, Cuba
and South Africa. Packaged consumer products marketed under our Nutrex brand
also compete with products marketed by health food manufacturing customers of
Cyanotech who purchase bulk Spirulina from us and package it for retail sales. A
decision by another company to focus on Cyanotech's existing or target markets
or a substantial increase in the overall supply of Spirulina could have a
material adverse effect on our business, financial condition and results of
operations. There can be no assurance that we will not experience competitive
pressure, particularly with respect to pricing, that could adversely affect us.
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Natural Astaxanthin
Our natural astaxanthin product for the animal nutrition market,
NatuRose, competes directly with the synthetic astaxanthin products produced and
marketed for the commercial feed and aquaculture industry worldwide by
Hoffmann-LaRoche and BASF. In addition, several other companies have announced
plans to produce commercial quantities of natural astaxanthin from microalgae
and Phaffia yeast. We believe that these companies are presently producing only
small quantities for test purposes. Although we are unaware of any animal
nutrition studies indicating that natural astaxanthin has any benefits not
otherwise provided by synthetic astaxanthin, we believe there is commercial
demand for a natural astaxanthin product and that our NatuRose product can
compete on the basis of product performance and price.
BioAstin, our natural astaxanthin product for the human nutrition
market, was the first natural astaxanthin product for human consumption to be
reviewed without exception by the FDA. Presently, BioAstin competes directly
with "Asta-Factor", a natural astaxanthin product produced and marketed by
Aquasearch, Inc. ("Aquasearch"), as well as a variety of vitamins, dietary
supplements and other antioxidant products available to consumers. In the
European market, BioAstin competes directly with "AstaZan", a microalgae-based
natural astaxanthin product produced by AstaCarotene of Sweden. The nutritional
products market is highly competitive. It includes international, national,
regional and local producers and distributors, many of whom have greater
resources than Cyanotech, and many of whom offer a greater variety of products.
Phycobiliproteins
Three major competitors manufacture phycobiliprotein products for sale,
including Quantify, Inc., Martek Biosciences Corporation and Prozyme, Inc.
Cyanotech competes with these companies on the basis of price and quality. New
synthetic fluorescent compounds have been developed which are superior to
phycobiliproteins in some applications. The advantage of the synthetic compounds
is their lower molecular weight and, in some cases, their lower cost. While our
phycobiliprotein products may not be able to compete effectively against
synthetic compounds in some applications, Cyanotech's phycobiliproteins have
gained a reputation for high quality at a competitive price.
GOVERNMENT REGULATION
Cyanotech's products, potential products and its manufacturing and
research activities are subject to varying degrees of regulation by a number of
government authorities in the United States and in other countries, including
the Food and Drug Administration (the "FDA") pursuant to the Federal Food, Drug
and Cosmetic Act. The FDA regulates, to varying degrees and in different ways,
dietary supplements, other food products, diagnostic medical devices and
pharmaceutical products, including their manufacture, testing, exportation,
labeling, and, in some cases, advertising.
Cyanotech is also subject to other federal, state and foreign laws,
regulations and policies with respect to labeling of its products, importation
of organisms, environmental protection, and occupational safety laws, among
others. Federal, state and foreign laws, regulations and policies are always
subject to change and depend heavily on administrative policies and
interpretations. We work with foreign distributors to ensure our compliance with
foreign laws, regulations and policies. There can be no assurance that any
changes with respect to federal, state and foreign laws, regulations and
policies, and, particularly with respect to the FDA or other such regulatory
bodies, with possible retroactive effect, will not have a material adverse
effect on our business, financial condition and results of operations. There can
be no assurance that any of our potential products will satisfy applicable
regulatory requirements.
The Federal Dietary Supplement Health and Education Act ("DSHEA")
regulates the use and marketing of dietary supplements, including vitamin
products. The DSHEA covers only dietary supplements and contains a number of
provisions that differentiate dietary supplements from other foods. The DSHEA
also sets forth standards for adulteration of dietary supplements or ingredients
thereof and establishes current food Good Manufacturing Practices ("cGMP")
requirements for dietary supplements. It also provides detailed requirements for
the labeling of dietary supplements, including nutrition and ingredient
labeling. We currently believe that Spirulina Pacifica and BioAstin, marketed as
dietary supplements, are exempt from FDA regulation of food additives.
9
<PAGE>
Our Spirulina manufacturing processes and our contract bottlers are
required to adhere to cGMP as prescribed by the FDA. We believe that we are
currently in compliance with all applicable cGMP and other food regulations.
Compliance with relevant cGMP requirements can be onerous and time consuming,
and there can be no assurance that Cyanotech can continue to meet relevant FDA
manufacturing requirements for existing products or meet such requirements for
any future products. Ongoing compliance with food cGMP and other applicable
regulatory requirements are monitored through periodic inspections by state and
federal agencies, including the FDA, the Hawaii Department of Health and
comparable agencies in other countries. Our processing facility is also
inspected annually for organic certification by Quality Assurance International
and for Kosher certification by Organized Kashrus Laboratories. The use of
Spirulina as a food additive for seasoning on salads or pasta or for other food
uses has not been cleared by the FDA. However, the FDA has listed Spirulina in
the category of Generally Recognized As Safe ("GRAS") dietary supplements. We
currently market the product for these food uses on the basis of our belief that
its use in these food applications is generally recognized as safe and therefore
is not subject to FDA pre-market clearances as a food additive.
Our natural astaxanthin product for the animal nutrition market,
NatuRose, has received clearance for use as a feed and food color additive in
Japan and Canada and has received organic registration for use in feed in New
Zealand, but needs clearance for use as a feed color additive in the United
States. We are actively pursuing clearance for use in the U.S. markets and are
presently in process with a Color Additive Petition to the FDA. The FDA codified
regulation has been written and approved with publication scheduled for the June
2000 Federal Register. Formal approval becomes effective 31 days after
publication, provided there are no objections presented to the FDA. The process
of obtaining clearances for a new color additive is expensive and time
consuming. Extensive information is required on the toxicity of the additive,
including carcinogenicity studies and other animal testing. No assurances can be
given that any of our proposed products intended for use as feed additives will
be approved on a timely basis for use in countries other than those mentioned
above, if at all.
As in vitro diagnostic medical device components, phycobiliprotein
products do not currently require pre-market clearances by the FDA. However, as
a component of a medical device, they can be subject to other various medical
device requirements, including cGMP requirements.
PATENTS, LICENSES AND TRADEMARKS
Although we regard our proprietary technology, trade secrets,
trademarks and similar intellectual property as critical to our success, we rely
on a combination of trade secret, contract, patent, copyright and trademark law
to establish and protect our rights in our products and technology. There can be
no assurance that we will be able to protect our technology adequately or that
competitors will not be able to develop similar technology independently. In
addition, the laws of certain foreign countries may not protect the Company's
intellectual property rights to the same extent as the laws of the United
States. Cyanotech has two United States patents issued to it. Litigation in the
United States or abroad may be necessary to enforce our patent or other
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement. Such litigation, even if successful, could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business, results of operations and financial condition.
Additionally, if any such claims are asserted against us, we may seek to obtain
a license under the third party's intellectual property rights. There can be no
assurance, however, that a license would be available on terms acceptable or
favorable to us, if at all.
For a description of ongoing patent litigation with one of our
competitors in astaxanthin production, see Item 3, Legal Proceedings.
ASSOCIATES
Cyanotech employed 59 associates as of March 31, 2000, of which 58 are
full-time. Approximately 43 associates are involved in the harvesting and
production process, 4 are involved in research and product development, and the
remainder are involved in sales, administration and support. Management believes
that its relations with its associates are good. We have not experienced
difficulty in attracting personnel and none of our associates are represented by
a labor union.
10
<PAGE>
INDUSTRY SEGMENTS AND EXPORT SALES
The Company has no assets outside of the United States. The Company's
business consists of one industry segment and is grouped into six geographic
areas: United States, Canada/South America, the Netherlands, Europe, excluding
the Netherlands, China, and Asia/Pacific, excluding China. The following table
(dollars in thousands) summarizes the product sales revenues from unaffiliated
customers in each of the six geographic regions:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 3,992 54% $ 4,075 60% $ 4,297 56%
Canada/South America 371 5% 426 6% 404 5%
The Netherlands 1,715 23% 717 11% 496 7%
Europe, excluding the Netherlands 613 8% 498 7% 788 10%
China 73 1% 50 1% 358 5%
Asia/Pacific, excluding China 634 9% 972 15% 1,284 17%
----------- ---------- ----------- ---------- ----------- ----------
Total Product Sales Revenues $ 7,398 100% $ 6,738 100% $ 7,627 100%
=========== ========== =========== ========== =========== ==========
</TABLE>
The Company believes that its profit margin on export sales is not
significantly different from that realized on sales in the United States. All
foreign product sales transactions are consummated in U.S. dollars.
For the years ended March 31, 2000 and 1999, the Company incurred net
losses of $4,485,000 and $2,557,000, respectively. For the year ended March 31,
2000, the loss of $4,485,000 includes an asset impairment charge of $2,796,000
related to the Company's strategic decision to discontinue its joint venture
negotiations with Norsk Hydro ASA. For specific details, see Note 3, "Equipment
and Leasehold Improvements, Net" in the section entitled "Notes to Consolidated
Financial Statements" appearing on pages 15 through 26 in the Company's 2000
Annual Report to Stockholders. If the effect of this asset impairment charge is
omitted for comparison purposes, the Company incurred a net loss of $1,689,000
for fiscal year 2000, an improvement in results of 34% over the net loss of
$2,557,000 recorded for fiscal 1999. This improvement in results is primarily
attributable to increased sales of bulk Spirulina powder and tablets, decreased
cost of product sales and decreased research and development expenses, offset by
higher interest expense.
During the third and fourth quarters of the fiscal year ended March 31,
2000, demand for the Company's products increased over what had been experienced
during the prior six quarters. To meet this increased demand, the Company
increased production levels and by December 1999, the Company was operating at
full capacity. The increased demand contrasts to the fiscal years ended March
31, 1999 and 1998, when the Company experienced declining sales which can be
attributed to increased competition for sales of Spirulina products in all of
its major markets.
The most significant decline in sales revenue occurred in fiscal 1998
and resulted from the loss of what was then our largest customer, a Hong Kong-
based network marketing company. The major effect of the decrease in sales
was a significant decrease in liquidity. Due to the significant decrease in
sales and the decline in working capital, the Company took action to reduce
expenditures and obtain additional sources of external financing while
concurrently continuing to diversify its product offerings and explore
opportunities for expanding the markets for its products. This plan is still in
effect and management believes that the Company is beginning to benefit from
this effort in the form of increased sales and reduced production costs. Sales
for fiscal 2000 increased by approximately 10% over fiscal 1999 and the
Company's overall gross profit increased by 54%. Management continues to
concentrate its efforts on business development in order to further increase
revenues and return the Company to profitability.
The Company's improvement in results is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
comply with the terms of its current term loan agreement, to attain
profitability, or a combination thereof. There can be no assurance that these
efforts will be successful or that the Company will return to generating profit
on either a quarterly or annual basis.
11
<PAGE>
ITEM 2. PROPERTIES
Cyanotech Corporation is located in Kailua-Kona, Hawaii, at the HOST
Park and also rents 2,500 square feet of warehouse space in a light industrial
area located approximately four miles from the HOST Park. The HOST Park
facility consists of approximately 183 leased acres. Approximately 90 acres
have been fully developed and contain production ponds, a processing facility, a
laboratory, and administrative offices. All products are produced at this
facility. The property is leased from the State of Hawaii under a 30-year
commercial lease expiring in 2025.
During 1997, we reached a preliminary agreement with the State of Hawaii
to lease an additional 93 acres at the HOST Park, which increased the total
acreage under lease to 183 acres. The State of Hawaii has agreed to allow the
Company to lease this additional 93 acres on a year-to-year basis, until such
time that the Company determines the need for a longer lease term. The
construction work performed on this expansion acreage was the subject of the
asset impairment charge of $2,796,000 recorded during fiscal 2000. Management
has decided to continue to lease this parcel in anticipation of future
expansion. Our current lease agreement is effective through December 31, 2000.
Subject to available funds, we ultimately plan to use this new property to
construct a larger astaxanthin production facility and additional culture ponds
that would use the PhytoDome CCS technology. We believe that there is sufficient
available land at the HOST Park to meet our currently planned future needs.
ITEM 3. LEGAL PROCEEDINGS
On July 13, 1998, the Company filed a complaint (Case No. CV98-00600) in
United States District Court for the District of Hawaii ("Court") against
Aquasearch, Inc. ("Aquasearch"), seeking declaratory judgment of patent
noninfringement, patent invalidity, and non-misappropriation of trade secrets
relating to closed culture production of astaxanthin. The complaint was filed in
response to assertions by Aquasearch, a competitor in the astaxanthin market,
regarding its alleged intellectual property rights. Aquasearch has answered the
complaint and filed counter claims alleging patent infringement, trade secret
misappropriation, unfair competition and breach of contract. The Court later
granted Cyanotech's motion to amend its complaint against Aquasearch to add
claims of misappropriation of trade secrets regarding open pond technology,
unfair competition and breach of contract.
On December 30, 1999, the Court denied Cyanotech's motion for summary judgment
of non-infringement and patent invalidity as to Aquasearch's U.S. Patent No.
5,541,056 and granted Aquasearch's related motion that Cyanotech infringes its
patent. The Court also granted Aquasearch's partial summary judgment motion
finding that Cyanotech misappropriated Aquasearch trade secrets and committed a
breach of contract. In response, Cyanotech filed a motion for reconsideration on
January 14, 2000, with the Court. On March 3, 2000, United States District Court
Judge Alan C. Kay denied Cyanotech's motion for reconsideration. Although the
outcome of this litigation cannot be assured, management does not expect that
damages, if any, against Cyanotech will have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders during the
fourth quarter of fiscal 2000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to
the Section labeled "Market for Common Equity and Related Stockholder Matters"
appearing on page 28 in the Company's 2000 Annual Report to Stockholders,
attached as exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to
the Section labeled "Selected Financial Data" appearing on page 2 in the
Company's 2000 Annual Report to Stockholders, attached as exhibit 13.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to
the Section labeled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing on pages 4 through 10 in the Company's 2000
Annual Report to Stockholders, attached as exhibit 13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have not entered into any transactions using derivative financial
instruments or derivative commodity instruments and believe that our exposure to
market risk associated with other financial instruments is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of the Company and subsidiaries as of
March 31, 2000 and 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended March 31, 2000, together with the accompanying notes and the
related Independent Auditors' Report, all contained on pages 11 through 27 in
the Company's 2000 Annual Report to Stockholders attached as exhibit 13, are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT
(a) IDENTIFICATION OF DIRECTORS
The information required by this Item is incorporated by reference from the
Sections captioned "Proposal One: Election of Directors," "Certain
Transactions," "Security Ownership of Certain Beneficial Owners and Management"
and "Compliance with Section 16(a) of the Exchange Act" contained in Cyanotech's
definitive 2000 Proxy Statement.
(b) IDENTIFICATION OF EXECUTIVE OFFICERS
The executive officers of Cyanotech and their ages and positions as of March 31,
2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gerald R. Cysewski, Ph.D. .....................51 Chairman of the Board, President
and Chief Executive Officer
Glenn D. Jensen ...............................41 Vice President - Operations
Kelly J. Moorhead..............................44 Vice President - Sales and Marketing
Ronald P. Scott ...............................45 Executive Vice President - Finance and
Administration, Secretary, Treasurer
</TABLE>
Dr. Cysewski co-founded Cyanotech in 1983 and has served as a director since
that time. Since March 1990, Dr. Cysewski has served as President and Chief
Executive Officer of Cyanotech and in October 1990 was also appointed to the
position of Chairman of the Board. From 1988 to November 1990, he served as Vice
Chairman and from 1983 to June, 1996, he served as Scientific Director of the
Company. From 1980 to 1982, Dr. Cysewski was group leader of microalgae research
and development at Battelle Northwest, a major contract research and development
firm. From 1976 to 1980, Dr. Cysewski was an assistant professor in the
Department of Chemical and Nuclear Engineering at the University of California,
Santa Barbara, where he received a two-year grant from the National Science
Foundation to develop a culture system for blue-green algae. Dr. Cysewski
received his doctorate in Chemical Engineering from the University of California
at Berkeley.
13
<PAGE>
Mr. Jensen has served as Vice President - Operations since May 1993. He joined
Cyanotech in 1984 as Process Manager and was promoted to Production Manager in
1991, in which position he served until his promotion to Vice President -
Operations. Prior to joining Cyanotech, Mr. Jensen worked for three years as a
plant engineer at a Spirulina production facility, Cal-Alga, near Fresno,
California. Mr. Jensen holds a B.S. degree in Health Science from California
State University, Fresno.
Mr. Moorhead has served as Vice President - Sales and Marketing since September
1999. From June, 1998 to September 1999, he served as Vice President of New
Product Development. From October 1997 to June 1998, he served as Vice President
- Sales and Marketing of the Company and President of Nutrex, Inc. From August
1996 to October 1997 he served as Vice President - International Sales. From
December 1991 to August 1996 he served as Vice President - Sales and Marketing
and President of Nutrex, Inc. From August 1987 to December 1991, he served as
Vice President - Production of the Company. Mr. Moorhead joined Cyanotech as
Production Biologist in December 1984. Prior to joining Cyanotech, Mr. Moorhead
worked at the Oceanic Institute in Honolulu, Hawaii where he conducted research
on production of Spirulina from agricultural waste. Mr. Moorhead holds a B.S.
degree in Aquatic Biology from the University of California, Santa Barbara.
Mr. Scott was appointed to the Board of Directors of the Company in November
1995, has served as Executive Vice President - Finance and Administration since
August 1995, and has served as Secretary and Treasurer since 1990. From 1990
until August 1995, Mr. Scott served as Vice President - Finance and
Administration. Prior to 1990, he was Assistant Controller for PRIAM
Corporation, a manufacturer of Winchester disk drives and served in various
accounting management positions with Measurex Corporation, a manufacturer of
industrial process control systems. Mr. Scott holds a B.S. degree in Finance and
Management from California State University, San Jose, and an M.B.A. degree from
the University of Santa Clara.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
section captioned "Executive Compensation and Other Information," "Director
Remuneration" and "Stockholder Return Performance Graph" contained in
Cyanotech's definitive 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in Cyanotech's definitive 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1). The following Consolidated Financial Statements of Cyanotech
Corporation and its subsidiaries are incorporated herein by reference pursuant
to Item 8:
<TABLE>
<CAPTION>
<S> <C>
Page in 2000
Annual Report
To Stockholders
Independent Auditors' Report.....................................................................27
Consolidated Balance Sheets as of March 31, 2000 and 1999........................................11
Consolidated Statements of Operations for each of the years
in the three-year period ended March 31, 2000...............................................12
Consolidated Statements of Stockholders' Equity for
each of the years in the three-year period ended March 31, 2000.............................13
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended March 31, 2000...............................................14
Notes to Consolidated Financial Statements......................................................15-26
(a) (2). The following financial statement schedule is included in this report on the pages indicated below:
Schedule II Valuation and Qualifying Accounts....................................................18
Independent Auditors' Report on Schedule.........................................................19
Schedules not listed above are omitted because of the absence of the conditions under which they are required
or because the required information is included in the consolidated financial statements or notes thereto,
which financial statements are incorporated by reference.
</TABLE>
15
<PAGE>
(a) (3). Index to exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT DESCRIPTION
<S> <C>
3.1 Restated Articles of Incorporation. (Incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended December 31,
1996, file no. 0-14602.)
3.2 Bylaws of the Registrant, as amended. (Incorporated by reference to Exhibit 3.1 to
the Company's Quarterly Report on Form 10-QSB for the quarter ended
December 31, 1995, file no. 0-14602.)
4.1 Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form SB-2 filed on February 28, 1996,
file no. 333-00951.)
4.2 Terms of the Series C Preferred Stock as Revised 1991. (Incorporated by reference
to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, file no. 0-14602.)
4.3 Amendment to certification of designation of Series C Preferred Stock filed
February 4, 2000.
10.1 1985 Incentive Stock Option Plan dated March 18, 1985, as amended. (Incorporated
by reference to Exhibit 4(d) to the Company's Registration Statement on Form S-8
filed on December 3, 1992, file no. 33-55310.)
10.2 Stockholders Agreement dated as of May 17, 1993. (Incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1994, file no. 0-14602.)
10.3 1994 Non-Employee Directors Stock Option and Stock Grant Plan. (Incorporated
by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1994, file no. 0-14602.)
10.4 1995 Stock Option Plan for Cyanotech Corporation dated August 9, 1995, as
amended. (Incorporated by reference to Exhibit 4(c) to the Company's Registration
Statement on Form S-8 filed on October 27, 1995, file no. 33-63789.)
10.5 Sub-Lease Agreement between the Company and Natural Energy Laboratory of
Hawaii Authority dated December 29, 1995. (Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the quarter
ended December 31, 1995, file no. 0-14602.)
10.6 Preferred Stock Conversion and Registration Rights Agreement by and between the
Company and Firemen's Insurance Company of Newark, New Jersey, dated as of
February 20, 1996. (Incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form SB-2 as filed on February 28, 1996, file no. 333-
00951.)
10.7 Registration Rights Agreement by and between the Company and American
Cyanamid Company dated as of February 20, 1996. (Incorporated by reference to
Exhibit 10.17 to the Company's Registration Statement on Form SB-2 as filed on
February 28, 1996, file no 333-00951.)
10.8 License Agreement between The Scripps Research Institute and the Company dated
April 14, 1998. (Incorporated by reference to Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998, file no. 0-
14602.)
10.9 Workout/suspension Agreement between the Company and Kiewit Pacific Co.
Dated March 30, 1998. (Incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998,
file no. 0-14602.)
10.10 Security Agreement between the Company and Kiewit Pacific Co. dated January 1,
1998. (Incorporated by reference to Exhibit 10.16 to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1998, file no. 0-14602.)
16
<PAGE>
10.11 Term Loan Agreement dated April 21, 2000 between the Company and B&I Lending, LLC.
Confidential portions of this exhibit have been omitted and filed separately with the
Commission.
10.12 Workout/suspension Agreement between the Company and Kiewit Pacific Co. dated
April 28, 2000.
11.1 Statement re: Computation of Earnings per Share.
13 2000 Annual Report to Stockholders (portions only).
21.1 Subsidiaries of the Company.
23.1 Accountants' Consent.
27 Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K
The Registrant did not file any reports on Form 8-K during the fourth quarter of
the 2000 fiscal year.
No Annual Report to Stockholders or proxy material has been sent to Stockholders
as of this date. Such report and proxy material will be furnished to
Stockholders after the filing of this Form and copies of such materials will be
furnished to the Commission when they are sent to Stockholders.
17
<PAGE>
<TABLE>
<CAPTION>
Schedule II
Cyanotech Corporation and Subsidiaries
Valuation and Qualifying Accounts (in thousands)
Years Ended March 31, 2000, 1999 and 1998
<S> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Year Expenses Accounts Deductions Year
Allowance for Doubtful Receivables
2000 $ 12 7 -- 9 $ 10
1999 $ 10 5 -- 3 $ 12
1998 $ -- 10 -- -- $ 10
</TABLE>
18
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Cyanotech Corporation:
Under date of May 5, 2000, we reported on the consolidated balance sheets of
Cyanotech Corporation and subsidiaries as of March 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended March 31, 2000, as
contained in the 2000 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year ended March 31, 2000. In connection with
our audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule as listed in Item 14(a)(2). The
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Honolulu, Hawaii
May 5, 2000
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 23rd day of
June, 2000.
CYANOTECH CORPORATION
By: /s/ Gerald R. Cysewski, Ph. D.
--------------------------------
Gerald R. Cysewski, Ph.D.
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Gerald R. Cysewski Chairman of the Board, President and June 23, 2000
----------------------------- Chief Executive Officer (Principal --------------------
Gerald R. Cysewski, Ph.D. Executive Officer and Director)
/s/ Ronald P. Scott Executive Vice President - Finance and June 23, 2000
----------------------------- Administration, Secretary and Treasurer --------------------
Ronald P. Scott (Principal Financial and Accounting
Officer and Director)
/s/ Eric H. Reichl Director June 23, 2000
----------------------------- --------------------
Eric H. Reichl
/s/ John T. Waldron Director June 23, 2000
----------------------------- --------------------
John T. Waldron
/s/ Paul C. Yuen Director June 23, 2000
----------------------------- --------------------
Paul C. Yuen
</TABLE>
20
