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 significant 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

and Restricted Cash

The Company considers only its monetary liquid assets with original maturities of

three

months or less as cash and cash equivalents. Proceeds from equipment loans are classified as restricted cash until drawn upon.

The following table provides a reconciliation of cash and restricted cash reported within the Company's consolidated balance sheets to the total amount presented in the consolidated statement of cash flows:

	September 30, 2018		March 31, 2018
	(in thousands)
Cash	$	1,329	$	1,407
Restricted Cash		65		—
Cash and restricted cash at beginning of period	$	1,394	$	1,407

Cash	$	663	$	1,329
Restricted Cash		—		65
Cash and restricted cash at end of period	$	663	$	1,394

Concentration of Accounts Receivable and Revenues

September 30, 2018,

62%

of the Company’s accounts receivable was comprised of

two

customer balances of

38%

and

24%,

respectively. At

March 31, 2018,

76%

of the Company’s accounts receivable was comprised of

three

customer balances of

45%,

16%

and

15%,

respectively.

Two

customers accounted for

60%

of total net sales for the

three

months ended

September 30, 2018

comprised of

38%

and

22%,

respectively.

Two

customers accounted for

46%

of total net sales for the

three

months ended

September 30, 2017

comprised of

32%

and

14%,

respectively.

Two

customers accounted for

59%

of total net sales for the

six

months ended

September 30, 2018

comprised of

34%

and

25%,

respectively.

Two

customers accounted for

45%

of total net sales for the

six

months ended

September 30, 2017

comprised of

32%

and

13%,

respectively.

Revenue Recognition

The Company records revenue based on the

five

-step model which includes: (

) identifying the contract with the customer; (

) identifying the performance obligations in the contract; (

) determining the transaction price; (

) allocating the transaction price to the performance obligations; and (

) 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 micro algal 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. The impact of this policy election is insignificant as it aligns with our current practice.

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 impact of this policy election is insignificant, as it aligns with our current practice. 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

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 our distribution centers by the customer.

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

-month periods ended

September 30, 2018

and

September 30, 2017,

the Company recognized

and

$26,000,

respectively, of revenue from deposits that were included in contract liabilities as of

March 31, 2018

and

March 31, 2017,

respectively. During the

six

-month periods ended

September 30, 2018

and

September 30, 2017,

the Company recognized

$114,000

and

$71,000,

respectively, of revenue from deposits that were included in contract liabilities as of

March 31, 2018

and

March 31, 2017,

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 product in the

three

and

six

months ended

September 30, 2018

and

September 30, 2017 (

in thousands):

	Three months ended September 30, 2018						Six months ended September 30, 2018
	Astaxanthin		Spirulina		Total		Astaxanthin		Spirulina		Total
Packaged products	$	4,281	$	1,928	$	6,209	$	9,376	$	2,996	$	12,372
Bulk products		334		411		745		597		1,130		1,727
Total	$	4,615	$	2,339	$	6,954	$	9,973	$	4,216	$	14,099

	Three months ended September 30, 2017						Six months ended September 30, 2017
	Astaxanthin		Spirulina		Total		Astaxanthin		Spirulina		Total
Packaged products	$	4,399	$	2,365	$	6,764	$	9,904	$	4,292	$	14,196
Bulk products		209		1,082		1,291		430		2,238		2,668
Total	$	4,608	$	3,447	$	8,055	$	10,334	$	6,530	$	16,864

Reclassification

Certain amounts previously reported in the fiscal

2018

consolidated financial statements have been reclassified to conform with the fiscal

2019

financial presentation. These reclassifications have

impact on net income.

Recently Adopted Accounting Pronouncements

May 2017,

the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")

2017

09,

Compensation-Stock Compensation (Topic

718

) Scope of Modification Accounting

("ASU

No.

2017

09"

)

ASU

No.

2017

will clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic

718,

to a change to the terms and conditions of a share-based payment award. This guidance became effective for fiscal years beginning after

December 15, 2017

and interim periods within those fiscal years. The amendments in this ASU are applied prospectively to awards modified on or after the adoption date. The Company adopted this standard as of

April 1, 2018

with

impact on its consolidated financial statements.

November 2016,

the FASB issued ASU

2016

18,

“

Statement of Cash Flows (Topic

230

): Restricted Cash”

(“ASU

No.

2016

18”

)

This update addresses the fact that diversity exists in the classification and presentation of changes in restricted cash on the statement of cash flows under Topic

230,

Statement of Cash Flows

. ASU

No.

2016

became effective for public companies for the fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. The Company adopted this standard as of

April 1, 2018

by using the retrospective method, which required reclassification of restricted cash in the accompanying consolidated statement of cash flows as of the beginning of the period for the

six

months ended

September 30, 2018.

August 2016,

FASB issued ASU

2016

15,

“

Statement of Cash Flows (Topic

230

)

Classification of Certain Cash Receipts and Cash Payments”

(“ASU

No.

2016

15”

). This ASU clarifies and provides specific guidance on

eight

cash flow classification issues that are

not

currently addressed by current GAAP and thereby reduces the current diversity in practice. ASU

No.

2016

is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after

December 15, 2017.

The Company adopted this standard as of

April 1, 2018

with

impact on its consolidated financial statements and related disclosures.

May 2014,

the FASB issued their converged standard on revenue recognition, Accounting Standards Update

No.

2014

09,

“

Revenue from Contracts with Customers (Topic

606

)”

("ASU

No.

2014

09"

), updated in

December 2016

with the release of ASU

2016

20.

This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods and services in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In

August 2015,

the FASB issued ASU

2015

“

Revenue from Contracts with Customers (Topic

606

Deferral of the Effective Date,

" which deferred the effective date of ASU

No.

2014

to annual reporting periods beginning after

December 15, 2017.

The new revenue standard is required to be applied either retrospectively to each prior reporting period presented or prospectively with the cumulative effect of initially applying the standard recognized at the date of the initial application, supplemented with certain disclosures related to the effect of adoption on previously reported amounts, if any (the modified retrospective method). The Company adopted the standard on

April 1, 2018

for contracts that were

not

completed before the adoption date, using the modified retrospective method. The Company has evaluated the effect of the standard and concluded it is

not

material to the timing or amount of revenues or expenses recognized in the Company’s historical consolidated financial statements. As a result, the Company has concluded that the application of the standard does

not

have a material effect that requires a retrospective adjustment to any previously reported amounts in the Company’s historical consolidated financial statements for reporting disclosure purposes.

Recently Issued Accounting Pronouncements

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

)

. ASU

2018

becomes effective for the Company in the

first

quarter of fiscal

2021

and

may

be adopted either retrospectively or prospectively. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its financial statements.

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 updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019.

Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions.

June 2018,

the FASB issued ASU

2018

07,

“

Compensation - Stock Compensation (Topic

718

)”

(“ASU

No.

2018

07”

): Improvements to Nonemployee Share-Based Payment Accounting. This ASU 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

is effective for fiscal years beginning after

December 15, 2018,

including interim periods within that fiscal year. Early adoption is permitted but

earlier than an entity’s adoption date of Topic

606.

The Company is currently evaluating the impact this new guidance will have on its financial statements and related disclosures.

February 2016,

the FASB issued ASU

2016

02,

“

Leases (Topic

842

)”

(

“

ASU

No.

2016

02”

). The principle objective of ASU

No.

2016

is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet. ASU

No.

2016

continues to retain a distinction between finance and operating leases but requires lessees to recognize a right-of-use asset representing its right to use the underlying asset for the lease term and a corresponding lease liability on the balance sheet for all leases with terms greater than

twelve

months. ASU

No.

2016

is effective for fiscal years and interim periods beginning after

December 15, 2018.

Early adoption of ASU

No.

2016

is permitted. Entities were required to apply the amendments at the beginning of the earliest period presented using a modified retrospective approach. This guidance is applicable to the Company’s fiscal year beginning

April 1, 2019.

July 2018,

the FASB issued ASU

2018

“

Codification Improvements to Topic

842,

Leases

” (“ASU

No.

2018

02”

). This ASU affects narrow aspects of the guidance issued in the amendments in ASU

No.

2016

including those regarding residual value guarantees, rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic

840,

transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic

840,

transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions. In

July 2018,

the FASB issued ASU

No.

2018

11,

Leases (Topic

842

): Targeted Improvements

," which provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative period’s financials will remain the same as those previously presented. Entities that elect this optional transition method must provide the disclosures that were previously required. The Company expects it will elect this optional transition method. The Company has started the assessment process by evaluating the population of leases under the revised definition of what qualifies as a leased asset, and expects to have the assessment completed by

March 2019.

The Company is the lessee under various agreements for facilities and equipment that are currently accounted for as operating and capital leases. The Company expects this guidance will have a material impact on its consolidated balance sheets due to the recognition of lease rights and obligations as assets and liabilities, respectively. The Company does

not

expect this guidance to have a material effect on its consolidated results of operations and cash flows.