10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

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

For Quarterly Period Ended June 30, 2021

Or

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

For the Transition Period From               to               

Commission File Number 0-14602

CYANOTECH CORPORATION

(Exact name of registrant as specified in its charter)

Nevada	91-1206026
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

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

(Address of principal executive offices)

(808) 326-1353

(Registrant’s telephone number)

Not Applicable

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.02 par value per share	CYAN	NASDAQ

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

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

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

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

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

As of August 6, 2021, the number of shares outstanding of the registrant’s common stock was 6,124,198.

1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

● Statements relating to our business strategy;

● Statements relating to our business objectives; and

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

These forward-looking statements are subject to risk, uncertainties and assumptions about us and our operations that are subject to change based on various important factors, some of which are beyond our control, including those factors described in Item 2 of Part I of this quarterly report and in Item 1A of Part I of the Company’s Annual Report on Form 10-K filed on June 22, 2021. Additionally, the following factors, among others, could cause our financial performance to differ significantly from the goals, plans, objectives, intentions and expectations expressed in our forward-looking statements:

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

● Access to available and reasonable financing on a timely basis;

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

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

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

2

CYANOTECH CORPORATION

FORM 10-Q

INDEX

PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of June 30, 2021 and March 31, 2021 (unaudited)	4
	Condensed Consolidated Statements of Operations for the three months ended June 30, 2021 and 2020 (unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended June 30, 2021 and 2020 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2021 and 2020 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 4.	Controls and Procedures	23
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults upon Senior Securities	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
SIGNATURES		26

3

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	June 30, 2021			March 31, 2021
ASSETS
Current assets:
Cash	$	1,061		$	3,767
Accounts receivable, net of allowance for doubtful accounts of $75 as of June 30, 2021 and $32 as of March 31, 2021		5,036			2,436
Inventories, net		9,234			8,415
Prepaid expenses and other current assets		374			488
Total current assets		15,705			15,106
Equipment and leasehold improvements, net		11,905			12,136
Operating lease right-of-use assets, net		3,435			3,517
Other assets		122			120
Total assets	$	31,167		$	30,879
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,471		$	2,287
Accrued expenses		1,133			844
Customer deposits		156			124
Operating lease obligations, current portion		348			343
Line of credit		1,000			1,000
Current maturities of long-term debt		720			1,210
Total current liabilities		5,828			5,808
Long-term debt, less current maturities		4,647			4,823
Long-term operating lease obligations		3,085			3,175
Other long-term liabilities		28			32
Total liabilities		13,588			13,838
Commitments and contingencies
Stockholders’ equity:
Preferred stock of $0.01 par value, authorized 10,000,000 shares; no shares issued and outstanding		—			—
Common stock of $0.02 par value, authorized 50,000,000 shares; issued and outstanding 6,117,719 shares at June 30, 2021 and 6,116,073 shares at March 31, 2021		122			122
Additional paid-in capital		33,285			33,267
Accumulated deficit		(15,828	)		(16,348	)
Total stockholders’ equity		17,579			17,041
Total liabilities and stockholders’ equity	$	31,167		$	30,879

See accompanying notes to condensed consolidated financial statements

4

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,
	2021			2020
Net sales	$	8,964		$	7,352
Cost of sales		5,292			4,377
Gross profit		3,672			2,975
Operating expenses:
General and administrative		1,347			1,328
Sales and marketing		1,550			1,244
Research and development		156			135
Total operating expenses		3,053			2,707
Income from operations		619			268
Interest expense, net		(95	)		(131	)
Income before income taxes		524			137
Income tax expense (benefit)		4			(1	)
Net income	$	520		$	138
Net income per share:
Basic	$	0.09		$	0.02
Diluted	$	0.08		$	0.02
Shares used in calculation of net income per share:
Basic		6,117			6,029
Diluted		6,293			6,036

See accompanying notes to condensed consolidated financial statements

5

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

Three months ended June 30, 2021 and 2020

	Common Stock Shares			Common Stock Amount		Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity
	(in thousands, except per share data)
Balances at March 31, 2021		6,116,073		$	122	$	33,267		$	(16,348	)	$	17,041
Issuance of vested shares of restricted stock		2,541			—		(3	)		—			(3	)
Shares withheld for tax payments		(895	)		—		—			—			—
Share-based compensation expense		—			—		21			—			21
Net income		—			—		—			520			520
Balances at June 30, 2021		6,117,719		$	122	$	33,285		$	(15,828	)	$	17,579
Balances at March 31, 2020		6,011,885		$	120	$	32,994		$	(17,268	)	$	15,846
Issuance of common stock in connection with severance of former executive		11,400			—		—			—			—
Shares withheld from former executive for tax payments		(3,635	)		—		—			—			—
Issuance of vested shares of restricted stock		13,832			—		(5	)		—			(5	)
Shares withheld for tax payments		(5,170	)		—		—			—			—
Share-based compensation expense		—			—		10			—			10
Net income		—			—		—			138			138
Balances at June 30, 2020		6,028,312		$	120	$	32,999		$	(17,130	)	$	15,989

See accompanying notes to condensed consolidated financial statements

6

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Three Months Ended June 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	520		$	138
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		400			467
Amortization of debt issue costs and other assets		17			31
Amortization of operating leases right-of-use assets		82			77
Share-based compensation expense		21			10
Provision for doubtful accounts		43			—
Net (increase) decrease in assets:
Accounts receivable		(2,643	)		141
Inventories		(819	)		(441	)
Prepaid expenses and other assets		103			33
Net increase (decrease) in liabilities:
Accounts payable		186			(504	)
Accrued expenses		289			198
Customer deposits		32			(204	)
Operating lease obligations		(85	)		(77	)
Deferred rent and other liabilities		(4	)		(15	)
Net cash used in operating activities		(1,858	)		(146	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements		(171	)		(131	)
Net cash used in investing activities		(171	)		(131	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term contract obligation		—			(19	)
Net payments on debt – related party		(500	)		—
Proceeds from long-term debt – PPP loan		—			1,381
Principal payments on long-term debt		(174	)		(163	)
Payments on finance leases		—			(9	)
Taxes paid related to net share settlement of restricted stock units		(3	)		(5	)
Net cash (used in) provided by financing activities		(677	)		1,185
Net (decrease) increase in cash		(2,706	)		908
Cash at beginning of period		3,767			2,417
Cash at end of period	$	1,061		$	3,325
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	91		$	117
Income taxes	$	—		$	—

See accompanying notes to condensed consolidated financial statements 

7

CYANOTECH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

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

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

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

Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year. The Condensed Consolidated Balance Sheet as of March 31, 2021 was derived from the audited consolidated financial statements. These condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended March 31, 2021, contained in the Company’s annual report on Form 10-K as filed with the SEC on June 22, 2021. 

Liquidity and Capital Resources

As of June 30, 2021, the Company had cash of $1,061,000 and working capital of $9,877,000 compared to $3,767,000 and $9,298,000, respectively, as of March 31, 2021. The Company has a Revolving Credit Agreement (“Credit Agreement”) with First Foundation Bank (“Bank”) that allows the Company to borrow up to $2,000,000 on a revolving basis. At June 30, 2021 and March 31, 2021, the Company had outstanding borrowings of $1,000,000 on the line of credit.  The line of credit is subject to renewal on August 30, 2021 and the Company intends to renew or replace it with another line of credit on or before the expiration date.

As of June 30, 2021, the Company had $4,448,000 in long-term debt (“Term Loans”) payable to the Bank that require the payment of principal and interest monthly through August 2032. Pursuant to the Term Loans and the Credit Agreement, the Company is subject to annual financial covenants, customary affirmative and negative covenants and certain subjective acceleration clauses. As of March 31, 2021, the Company was in compliance with all required annual financial covenants under the Term Loans and the Credit Agreement.

In response to the coronavirus (“COVID-19”) pandemic and the uncertainty surrounding the pandemic, in May 2020, the Company obtained a Paycheck Protection Program (“PPP”) loan in the amount of $1,381,000, under the Coronavirus Aid, Relief, and Economics Security Act (“CARES Act”). The proceeds were used for certain payroll costs in accordance with the PPP and the PPP Flexibility Act of 2020 (“PPP Flexibility Act”). In December 2020, the Company received notice of forgiveness of the PPP loan in whole, including all accrued interest to date. (see Note 6). In April 2019, the Company obtained a loan in the amount of $1,500,000 from a related party. The proceeds were used to pay down accounts payable and for general operating capital purposes. On April 12, 2021, the Company amended this loan (see Notes 6 and 13).

Funds generated by operating activities and available cash are expected to continue to be the Company’s most significant sources of liquidity for working capital requirements, debt service and funding of maintenance levels of capital expenditures.

Based upon the Company’s operating plan and related cash flow and financial projections, cash flows expected to be generated by operating activities and available financing are expected to be sufficient to fund its operations through at least June 30, 2022, and the Company’s debt service coverage ratio and current ratio covenants are expected to be in compliance with the annual Term Loans and Credit Agreement covenant requirements as of March 31, 2022, the next measurement date. However, no assurances can be provided that the Company will achieve its operating plan and cash flow projections for the next fiscal years or its projected consolidated financial position as of March 31, 2022. Such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results.

8

2. SIGNIFICANT ACCOUNTING POLICIES

Consolidation

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

Use of Estimates

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

Cash

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

Concentration Risk

A significant portion of revenue and accounts receivable are derived from a few major customers. For the three months ended June 30, 2021, two customers individually accounted for 26% and 14% of the Company’s total net sales and for the three months ended June 30, 2020, two customers individually accounted for 20% and 19% of the Company’s total net sales. Two customers accounted for 67% of the Company’s accounts receivable balance as of June 30, 2021, and three customers accounted for 57% of the Company’s accounts receivable balance as of March 31, 2021.

Revenue Recognition

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

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

Customer contract liabilities consist of customer deposits received in advance of fulfilling an order and are shown separately on the consolidated balance sheets. During the three months ended June 30, 2021 and 2020, the Company recognized $49,000 and $251,000, respectively, of revenue from deposits that were included in contract liabilities as of March 31, 2021 and 2020, respectively. The Company’s contracts have a duration of one year or less and therefore, the Company has elected the practical expedient of not disclosing revenues allocated to partially unsatisfied performance obligations.

9

 

Disaggregation of Revenue

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

($ in thousands)	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Packaged sales
Astaxanthin packaged	$	4,040	$	3,242
Spirulina packaged		2,742		1,842
Total packaged sales		6,782		5,084
Bulk sales
Astaxanthin bulk		405		419
Spirulina bulk		1,583		1,530
Total bulk sales		1,988		1,949
Contract extraction revenue		194		319
Total net sales	$	8,964	$	7,352

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes, removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 as of April 1, 2021 with no impact on its consolidated financial statements and related disclosures.

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

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

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

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3. INVENTORIES

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

	June 30, 2021		March 31, 2021
	(in thousands)
Raw materials	$	926	$	547
Work in process		4,328		3,206
Finished goods		3,755		4,423
Supplies		225		239
Inventories, net	$	9,234	$	8,415

The Company recognizes abnormal production costs, including fixed cost variances from normal production capacity, fixed production overhead costs, idle facilities, freight handling costs and spoilage, as an expense in the period incurred, without adjusting overhead absorption rates. Normal production capacity is defined as the production expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The Company had no abnormal productions costs for the three months ended June 30, 2021 or June 30, 2020.

In fiscal 2021, cultivation of astaxanthin was completed in the first six months of the fiscal year during the most productive months of the year due to the best growing conditions, compared to year-round production in the prior fiscal years. The same approach is being followed in fiscal year 2022. The Company calculates total production costs for the year based on normal capacity of production expected to be achieved in a year under normal circumstances. These costs are then allocated into inventory based on the period of production, not including abnormal production costs. Allocating fixed and overhead costs requires management’s judgement to determine when production is outside of the normal range of expected variation in production.

Other non-inventoriable fixed costs of $4,000 and $28,000 were expensed to cost of sales for the three months ended June 30, 2021 and 2020, respectively.

4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consist of the following as of:

	June 30, 2021			March 31, 2021
	(in thousands)
Equipment	$	19,347		$	19,056
Leasehold improvements		14,705			14,703
Furniture and fixtures		373			372
		34,425			34,131
Less accumulated depreciation and amortization		(23,140	)		(22,740	)
Construction-in-progress		620			745
Equipment and leasehold improvements, net	$	11,905		$	12,136

Management has determined no asset impairment existed as of June 30, 2021 and June 30, 2020, respectively. Depreciation and amortization expense were approximately $400,000 and $467,000 for the three months ended June 30, 2021 and 2020, respectively.

5. SHORT-TERM CONTRACT OBLIGATION

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

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The short-term obligation was comprised of two separate loans in the principal amount of $180,000 and $215,000. The first loan of $180,000 bore an interest rate of 6.25% and was payable in four monthly installments of principal and interest. The loan commenced on December 1, 2018 and matured on July 15, 2019. There were no principal amounts outstanding at June 30, 2021 or March 31, 2021.

The second loan had a principal amount of $215,000 and was a non-interest bearing loan that was payable in twelve monthly installments. The loan commenced on December 1, 2018 and matured on October 15, 2019. This contract contained a hold back of $38,000 pending resolution of certain closing items by the seller, which have been resolved. The principal amounts outstanding at June 30, 2021 and June 30, 2020 were $0 and $19,000, respectively.

6. LINE OF CREDIT AND LONG-TERM DEBT

Total debt consists of the following as of:

	June 30, 2021			March 31, 2021
	(in thousands)
Line of credit	$	1,000		$	1,000
Long-term debt		4,499			4,673
Debt - related party		1,000			1,500
Less current maturities		(1,720	)		(2,210	)
Long-term debt, excluding current maturities		4,779			4,963
Less unamortized debt issuance costs		(132	)		(140	)
Total long-term debt, net of current maturities and unamortized debt issuance costs	$	4,647		$	4,823

Line of Credit and Term Loans

On August 30, 2016, the Credit Agreement, which the Company entered into with the Bank on June 3, 2016, became effective after the Company and the Bank received the necessary approvals from the State of Hawaii to secure the lien on the Company’s leasehold property in Kona, Hawaii. The Credit Agreement allows the Company to borrow up to $2,000,000 on a revolving basis. Borrowings under the Credit Agreement bear interest at the Wall Street Journal prime rate (3.25% at both June 30, 2021 and March 31, 2021) plus 2%, floating, provided that at no time shall the annual interest rate be less than 5.25%.

At June 30, 2021 and March 31, 2021, the outstanding balance under the Credit Agreement was $1,000,000, and was included in current liabilities on the Condensed Consolidated Balance Sheets. The line of credit, which is subject to annual renewal, was renewed on August 30, 2020 and will be subject to renewal upon expiration on August 30, 2021.

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

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

The provisions of the 2015 Loan require the payment of principal and interest until its maturity on September 1, 2022, the obligation fully amortizes over seven (7) years. Interest on the 2015 Loan accrues on the outstanding principal balance at an annual variable rate equal to the published Wall Street Journal prime rate (3.25% at both June 30, 2021 and March 31, 2021, respectively) plus 2.0% and is adjustable on the first day of each calendar quarter and fixed for that quarter, provided that at no time shall the annual interest rate be less than 6.0%. The 2015 Loan has a prepayment penalty of 5.0% for any prepayment made prior to the first anniversary of the date of the 2015 Loan Agreement, which penalty is reduced by 1.0% each year thereafter until the fifth anniversary of such date, after which there is no prepayment penalty. The balance under the 2015 Loan was $533,000 and $635,000 at June 30, 2021 and March 31, 2021, respectively, and was included in long-term debt in the debt table above.

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

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The provisions of the 2012 Loan required the payment of interest only for the first 12 months of the term; thereafter, and until its maturity on August 14, 2032, the obligation fully amortizes over nineteen (19) years. Interest on the 2012 Loan accrues on the outstanding principal balance at an annual variable rate equal to the published Wall Street Journal prime rate (3.25% at June 30, 2021 and March 31, 2021) plus 1.0% and is adjustable on the first day of each calendar quarter and fixed for that quarter, provided that at no time shall the annual interest rate be less than 5.5%. The balance under the 2012 Loan was $3,915,000 and $3,978,000 at June 30, 2021 and March 31, 2021, respectively, and was included in long-term debt in the debt table above.

The 2015 Loan includes a one-time origination and guaranty fee totaling $113,900 and an annual renewal fee payable in the amount of 0.5% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year, beginning December 31, 2015. The USDA has guaranteed 80% of all amounts owing under the 2015 Loan. The 2012 Loan included a one-time origination and guaranty fees totaling $214,500 and an annual renewal fee payable in the amount of 0.25% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year, beginning December 31, 2012. The USDA has guaranteed 80% of all amounts owing under the 2012 Loan. The balance in unamortized debt issuance costs was $132,000 and $140,000 at June 30, 2021 and March 31, 2021, respectively.

Loan Covenants

The Company’s Credit Agreement, 2015 Loan and 2012 Loan are subject to annual debt service and other financial covenants, including covenants which require the Company to meet key financial ratios and customary affirmative and negative covenants.  As of March 31, 2021, the Company was in compliance with all required annual financial covenants. The next remeasurement date will be March 31, 2022.

Long-term Debt – PPP

In May 2020, the Company obtained a PPP loan in the amount of $1,381,000 with an original maturity date of May 2022. In December 2020, the Company received notice of forgiveness of the PPP loan in whole, including all accrued unpaid interest. In fiscal 2021, the Company recorded the forgiveness of $1,381,000 of principal and $8,000 of accrued interest for a total of $1,389,000. The Company has used the proceeds of the PPP loan for certain payroll costs in accordance with the PPP.

Debt – Related Party

In April 2019, the Company obtained a loan in the amount of $1,500,000 and the interest was payable quarterly.  The loan was originally due in April 2021. In April 2021, the Company amended the loan, which extended the expiration to April 2024, converted $500,000 into revolving loans, adjusted the interest rate to reflect a floor of 5%, and granted a security interest in substantially all of the Company’s personal property assets, subject to limited exceptions. Concurrently, with the amendment and conversion of the original loan, the Company repaid in cash the principal amount of $500,000 plus accrued interest to date of $1,900 (see Note 13).  At June 30, 2021, the balance under this loan was $1,000,000 and was included in long-term debt, and at March 31, 2021, the balance under this loan was $1,500,000 and $500,000 was included in current maturities of long-term debt and $1,000,000 was included in long-term debt, in the debt table above. Interest is payable quarterly.

Equipment Finance Agreement

In October 2017, the Company entered into an Equipment Finance Agreement (the “Equipment Agreement”) with a lender, which provides up to $175,000 of financing for equipment. The interest rate on this loan is 4.75%. The provisions of the Equipment Agreement require the payment of principal and interest until its maturity on October 31, 2022. The balance under this loan was $51,000 and $60,000 at June 30, 2021 and March 31, 2021, respectively, and was included in long-term debt in the debt table above.

Future principal payments under the loans and finance lease obligations at June 30, 2021 are as follows:

Payments Due	(in thousands)
Remainder of 2022	$	539
2023		477
2024		1,289
2025		306
2026		322
Thereafter		2,566
Total principal payments	$	5,499

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7. OPERATING LEASES

The Company leases facilities, equipment and land under non-cancelable operating leases expiring through 2037. One of its facility leases contains price escalations and a renewal option for five years. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and liabilities were recognized at April 1, 2019 based on the present value of lease payments over the lease term, using the Bank’s incremental borrowing rate based on the information available at recognition, and the Company has elected to exclude non-lease components. At June 30, 2021, the weighted average remaining lease terms is 13.4 years, the weighted average discount rate is 7.5% and for both the three months ended June 30, 2021 and 2020, the operating lease costs are $147,000.

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

Operating leases	Balance Sheet Classification	June 30, 2021			March 31, 2021
		(in thousands)
Right-of-use assets	Operating lease right-of-use assets	$	4,128		$	4,128
Accumulated lease amortization	Operating lease right-of-use assets		(693	)		(611	)
Total right-of-use assets		$	3,435		$	3,517
Current lease liabilities	Operating lease obligations	$	348		$	343
Non-current lease liabilities	Long-term operating lease obligations		3,085			3,175
Total lease liabilities		$	3,433		$	3,518

Maturities of lease liabilities at June 30, 2021 are as follows:

Payments	(in thousands)
Remainder of 2022	$	444
2023		482
2024		371
2025		365
2026		336
Thereafter		3,416
Total undiscounted lease payments		5,414
Less: present value discount		(1,981	)
Total lease liability balance	$	3,433

8. ACCRUED EXPENSES

Accrued expenses consist of the following as of:

	June 30, 2021		March 31, 2021
	(in thousands)
Wages, commissions, bonus and profit sharing	$	453	$	211
Vacation		409		408
Rent, interest and legal		115		86
Other accrued expenses		156		139
Total accrued expenses	$	1,133	$	844

9. COMMITMENTS AND CONTINGENCIES

From time to time, the Company may be involved in litigation and investigations relating to claims and matters arising out of its operations in the normal course of business. There were no significant legal matters outstanding at June 30, 2021.

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10. SHARE-BASED COMPENSATION

The Company has share-based compensation plans, which are more fully described in Note 10, Share-Based Compensation, to the Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2021 as filed with the SEC on June 22, 2021.

As of June 30, 2021, the Company had two equity-based compensation plans: the 2016 Equity Incentive Plan (the “2016 Plan”) and the 2014 Independent Director Stock Option and Restricted Stock Grant Plan (the “2014 Directors Plan”). The Company has also issued stock options, which remain outstanding as of June 30, 2021, under two equity-based compensation plans which have expired according to their terms: the 2005 Stock Option Plan (the “2005 Plan”) and the 2004 Independent Director Stock Option and Stock Grant Plan (the “2004 Directors Plan”). These plans allowed the Company to award stock options and shares of restricted common stock to eligible employees, certain outside consultants and independent directors. No additional awards will be issued under the 2005 Plan or the 2004 Directors Plan. 

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

	As of June 30, 2021
	Authorized		Available		Outstanding
2016 Plan		1,300,000		1,028,302		211,203
2014 Directors Plan		350,000		43,133		12,000
2005 Plan		—		—		197,500
2004 Directors Plan		—		—		12,000
Total		1,650,000		1,071,435		432,703

Stock Options

All stock option grants made under the equity-based compensation plans were issued at exercise prices no less than the Company’s closing stock price on the date of grant. Options under the 2016 Plan, 2005 Plan and 2014 Directors Plan were determined by the Board of Directors or the Compensation Committee of the Board of Directors in accordance with the provisions of the respective plans.  The terms of each option grant include vesting, exercise, and other conditions set forth in a Stock Option Agreement evidencing each grant. No option can have a life in excess of ten (10) years. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The model requires various assumptions, including a risk-free interest rate, the expected term of the options, the expected stock price volatility over the expected term of the options, and the expected dividend yield. Compensation expense for employee stock options is recognized ratably over the vesting term. Compensation expense recognized for options issued under all Plans was $13,000 and $5,000 for the three months ended June 30, 2021 and 2020, respectively.

A summary of option activity under the Company’s stock plans for the three months ended June 30, 2021 is presented below: 

Option Activity	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at March 31, 2021		374,300		$	3.64		3.0	$	129,700
Granted		50,000		$	2.96
Forfeited		(1,000	)	$	3.63
Expired		(16,800	)	$	3.58
Outstanding at June 30, 2021		406,500		$	3.56		4.0	$	98,600
Exercisable at June 30, 2021		231,500		$	4.35		1.0	$	7,850

The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price optionees would have received if all options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price of $3.04 and $3.30 at June 30, 2021 and March 31, 2021, respectively.

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A summary of the Company’s non-vested options for the three months ended June 30, 2021 is presented below:

Nonvested Options	Shares		Weighted Average Grant-Date Fair Value
Nonvested at March 31, 2021		125,000	$	1.19
Granted		50,000		1.60
Nonvested at June 30, 2021		175,000	$	1.31

The weighted average grant-date fair value of stock options granted during the three months ended June 30, 2021 was $79,000. As of June 30, 2021, total unrecognized stock-based compensation expense related to all unvested stock options was $189,000, which is expected to be expensed over a weighted average period of 2.9 years.

Restricted Stock Units (“RSUs”) 

RSUs are service-based awards granted to eligible employees under the 2016 Plan. Compensation expense recognized for RSUs issued under the 2016 Plan was $8,000 and $5,000 for the three months ended June 30, 2021 and 2020, respectively.

The following table summarizes information related to awarded RSUs for the three months ended June 30, 2021:

Nonvested Restricted Stock Units	Shares			Weighted Average Grant Price
Nonvested restricted stock units at March 31, 2021		28,188		$	2.38
Granted		1,072			3.36
Vested		(2,541	)		2.07
Forfeited		(516	)		2.30
Nonvested restricted stock units at June 30, 2021		26,203		$	2.46

As of June 30, 2021, total unrecognized stock-based compensation expense related to unvested restricted stock units was $36,000, which is expected to be expensed over a weighted average period of 2.0 years.

11. INCOME TAXES

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

The Company utilizes its estimated annual effective tax rate to determine its provision or benefit for income taxes for interim periods. The income tax provision or benefit is computed by multiplying the estimated annual effective tax rate by the year-to-date pre-tax book income (loss). The Company recorded an income tax expense of $4,000 and income tax benefit of $1,000 for the three months ended June 30, 2021 and 2020, respectively. The Company’s effective tax rate was 0.8% and 0.4% for the three months ended June 30, 2021 and 2020, respectively. The effective tax rates for all periods differ from the statutory rate of 21% as a result of state taxes (net of federal benefit) and the net change in valuation allowance against the net deferred tax asset the Company believes is not more likely than not to be realized.  The Company continues to carry a full valuation allowance on its net deferred tax assets.

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

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As of June 30, 2021 and 2020, there was no liability for income tax associated with unrecognized tax benefits. The Company recognizes accrued interest related to unrecognized tax benefits as well as any related penalties in interest income or expense in its Consolidated Condensed Statements of Operations, which is consistent with the recognition of these items in prior reporting periods.

With few exceptions, the Company is no longer subject to U.S. federal, state, local, and non-U.S. income tax examination by tax authorities for tax years before 2017.

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

In addition, the CARES Act increases the limitation applied to the deductibility of business interest from 30% of adjusted taxable income to 50% of adjusted taxable income for the 2019 and 2020 tax years, raises the corporate charitable deduction limit to 25% of taxable income, and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to the Company’s income tax provision for the three months ended June 30, 2021 or 2020.

On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was enacted. The CAA includes the COVID related Tax Relief Act of 2020 (“COVID TRA”). Section 276 of the COVID TRA includes provisions that overturn IRS Notice 2020-32 and Rev. Rul. 2020-27, allowing full deductibility of expenses incurred to receive full forgiveness of its PPP loan. The Company received full forgiveness of its PPP loan during the third quarter of fiscal 2021. For income tax purposes, the forgiveness has been excluded from income and the applicable expenses incurred during the prior fiscal year have been deducted.

12. EARNINGS PER SHARE

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

Reconciliations between the numerator and the denominator of the basic and diluted income per share computations for the three months ended June 30, 2021 and 2020 are as follows:

	Three Months Ended June 30, 2021
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	520		6,117	$	0.09
Effective dilutive securities – common stock options and restricted stock units		—		176		—
Diluted income per share	$	520		6,293	$	0.08

	Three Months Ended June 30, 2020
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	138		6,029	$	0.02
Effective dilutive securities – restricted stock units		—		7		—
Diluted income per share	$	138		6,036	$	0.02

Restricted stock units become dilutive within the period granted and remain dilutive until the units vest and are issued as common stock.

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13. RELATED PARTY TRANSACTIONS 

In April 2019, the Company obtained an unsecured subordinated loan from Skywords Family Foundation, Inc. (“Skywords”) in the principal amount of $1,500,000 pursuant to a Promissory Note (“the Skywords Note”) executed by the Company in favor of Skywords. Skywords is controlled by the Company’s Chairman of the Board of Directors and largest stockholder. The Skywords Note bore interest at a rate of 1% plus the prime rate (as published by the Wall Street Journal), which was recalculated and payable on a quarterly basis. The principal amount and any accrued and unpaid interest was due and payable on April 12, 2021. The proceeds of the Skywords Note were used to pay down accounts payable and for general operating capital purposes.

On April 12, 2021, the Company entered into an Amended and Restated Promissory Note (the “Skywords Amended Note”) with Skywords. The Company and Skywords agreed to amend, restate, replace and otherwise modify without novation, the Skywords Note in order to covert $500,000 of the outstanding principal amount into revolving loans that may be prepaid and reborrowed from time to time in principal amounts not to exceed $500,000, extend the maturity date by three years, adjust the interest rate to reflect a floor of 5% and secure Skywords’ interest by granting a security interest in substantially all of the Company’s personal property assets, subject to limited exceptions (the “Collateral”). On April 12, 2021, concurrently with the conversion, the Company repaid in cash to Skywords, the principal amount of $500,000 plus accrued interest to date of $1,900. The Skywords Amended Note bears interest at a rate of 1% plus the prime rate (as published by the Wall Street Journal), which will be recalculated and payable on a quarterly basis, provided that at no time shall the annual interest rate be less than 5%. The principal amount and any accrued and unpaid interest will be due and payable on April 12, 2024, unless accelerated in an event of default. The Company may prepay the Skywords Amended Note at any time without penalty.

On April 12, 2021, in connection with the grant of a security interest in the Collateral, the Company also entered into an Intercreditor and Subordination Agreement with the Bank and Skywords. The Company is indebted to the Bank pursuant to two Term Loans and a Credit Agreement, each of which granted the Bank a security interest in substantially all of the Company’s personal property assets. The Bank’s security interest in the Company’s personal property assets ranks senior to Skywords’ security interest in the Collateral, and the Intercreditor and Subordination Agreement generally governs the relationship between the Bank and Skywords as secured lenders to the Company and includes customary terms.

At June 30, 2021 and March 31, 2021, the Skywords Note principal balance was $1,000,000 and $1,500,000, respectively. The loan balance at June 30, 2021 was included in long-term debt and at March 31, 2021, $500,000 was included in current maturities of long-term debt and $1,000,000 was included in long-term debt on the Condensed Consolidated Balance Sheets.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview:

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

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

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

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

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

Results of Operations

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

	Three Months Ended
	June 30,
	2021			2020
Net sales	$	8,964		$	7,352
Net sales increase		21.9	%
Gross profit	$	3,672		$	2,975
Gross profit as % of net sales		41.0	%		40.5	%
Operating expenses	$	3,053		$	2,707
Operating expenses as % of net sales		34.1	%		36.8	%
Operating income	$	619		$	268
Operating income as % of net sales		6.9	%		3.7	%
Income tax expense (benefit)	$	4		$	(1	)
Net income	$	520		$	138

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Comparison of the Three Months Ended June 30, 2021 and 2020

Net Sales (in thousands)

	Three Months Ended
	June 30,							%
	2021		2020		Change			Change
Packaged sales
Astaxanthin	$	4,040	$	3,242	$	798			24.6	%
Spirulina		2,742		1,842		900			48.9	%
Total Packaged sales	$	6,782	$	5,084	$	1,698			33.4	%
Bulk sales
Astaxanthin	$	405	$	419	$	(14	)		(3.3	)%
Spirulina		1,583		1,530		53			3.5	%
Total Bulk sales	$	1,988	$	1,949	$	39			2.0	%
Contract extraction revenue	$	194	$	319	$	(125	)		(39.2	)%
Total sales
Astaxanthin	$	4,445	$	3,661	$	784			21.4	%
Spirulina		4,325		3,372		953			28.3	%
Contract extraction revenue		194		319		(125	)		(39.2	)%
Total sales	$	8,964	$	7,352	$	1,612			21.9	%

Net Sales The net sales increase of 21.9% for the current quarter compared to the same period last year was primarily driven by an increase in astaxanthin and spirulina packaged sales, offset by a slight decrease in astaxanthin bulk sales and contract extraction sales. The increase in astaxanthin and spirulina packaged sales in the current quarter was primarily due to the Company’s transition from selling direct to a large customer to utilizing an integrated third-party logistics and marketing provider with a data science driven platform, offset by decreased sales in one of our major customers driven by supply constraints as delays in receiving inventories from suppliers.

Gross Profit Gross profit as a percent of net sales increased by 0.5 percentage points compared to the same period last year, which was the result of sales product mix and lower costs of both spirulina and astaxanthin.

Operating Expenses Operating expenses increased by $0.3 million, or 12.8%, for the current quarter compared to the prior year same quarter, primarily due to higher third-party selling fees not incurred in the prior year, which are a result of the change in the Company’s sales approach to one of our major customers.

Income Taxes We recorded an income tax expense of $4,000 for the first quarter of this fiscal year compared to an income tax benefit of $1,000 for the same period last year. We continue to carry a full valuation allowance on our net deferred tax assets.

Liquidity and Capital Resources

As of June 30, 2021, we had cash of $1.1 million and working capital of $9.9 million compared to $3.8 million and $9.3 million, respectively, at March 31, 2021.  We have a Credit Agreement with the Bank that allows us to borrow up to $2.0 million on a revolving basis. At June 30, 2021 and March 31, 2021, we had outstanding borrowings of $1.0 million on the line of credit. The line of credit is subject to renewal on August 30, 2021 and we intend to renew or replace it with another line of credit on or before the expiration date.

As of June 30, 2021, we had $4.4 million in Term Loans payable to the Bank that require the payment of principal and interest monthly through August 2032. Pursuant to the Term Loans and the Credit Agreement, we are subject to annual financial covenants, customary affirmative and negative covenants and certain subjective acceleration clauses. As of March 31, 2021, we were in compliance with all required annual financial covenants under the Term Loans and the Credit Agreement.

In response to the COVID-19 pandemic and the uncertainty surrounding the pandemic, in May 2020, we obtained a PPP loan in the amount of $1.4 million under the CARES Act. The proceeds were used for certain payroll costs in accordance with the PPP and the PPP Flexibility Act. In December 2020, we received notice of forgiveness of the PPP loan in whole, including all accrued interest to date (see Note 6 in the notes to condensed consolidated financial statements). In April 2019, we obtained a loan in the amount of $1.5 million from a related party. The proceeds were used to pay down accounts payable and for general operating capital purposes. On April 12, 2021, we amended this loan (see Notes 6 and 13 in the notes to condensed consolidated financial statements).

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Funds generated by operating activities and available cash are expected to continue to be our most significant sources of liquidity for working capital requirements, debt service and funding of maintenance levels of capital expenditures. 

Based upon our operating plan and related cash flow and financial projections, cash flows expected to be generated by operating activities and available financing are expected to be sufficient to fund our operations through at least June 30, 2022, and our debt service coverage ratio and current ratio covenants are expected to be in compliance with the annual Term Loans and Credit Agreement covenant requirements as of March 31, 2022, the next measurement date. However, no assurances can be provided that we will achieve our operating plan and cash flow projections for the next fiscal years or our projected consolidated financial position as of March 31, 2022. Such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results.

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

	Three Months Ended June 30,
	2021			2020
Total cash provided by (used in):
Operating activities	$	(1,858	)	$	(146	)
Investing activities		(171	)		(131	)
Financing activities		(677	)		1,185
(Decrease) increase in cash	$	(2,706	)	$	908

Cash used in operating activities for the three months ended June 30, 2021 was the result of an increase of $2.6 million in accounts receivable balances and $0.8 million increase in inventories, offset by $0.5 million net income and non-cash charges of $0.6 million.

Cash used in investing activities for the three months ended June 30, 2021 primarily includes costs for acquiring equipment and leasehold improvements at our Kona facility.

Cash used in financing activities for the three months ended June 30, 2021 consists primarily of principal payments of our related party loan of $0.5 million and debt service payments of $0.2 million.

Sources and Uses of Capital

As of June 30, 2021, our working capital was $9.9 million, an increase of $0.6 million compared to March 31, 2021. There was an increase in accounts receivable balances primarily due to timing of shipments related to a new customer and shipping delays in our supply chain in sourcing certain materials and bottlenecks at our third-party partners. There was an increase in inventories in the first quarter of the fiscal 2022, as we commenced cultivation of astaxanthin. Cultivation improvements that we have made allow us to produce all of the required demand for astaxanthin during the most favorable growing season. These increases were offset by the $0.5 million payment of the related party loan, which was in current maturities of long-term debt as of March 31, 2021.

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

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

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

21

Outlook 

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

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

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

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

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

Our future results of operations and the other forward-looking statements contained in this Outlook, in particular the statements regarding revenues, gross margin and capital spending, involve a number of risks and uncertainties. In addition to the factors discussed above, any of the following could cause actual results to differ materially: business conditions and growth in the natural products industry and in the general economy; changes in customer order patterns; changes in demand for natural products in general; changes in weather conditions; changes in health and growing conditions of our astaxanthin and spirulina products; competitive factors, such as increased production capacity from competing spirulina and astaxanthin producers and the resulting impact, if any, on world market prices for these products; government actions and increased regulations both domestic and foreign; shortage of manufacturing capacity; and other factors beyond our control. Risk factors are discussed in detail in Part II, Item 1A of this quarterly report and in Part I, Item 1A of our Form 10-K report for the year ended March 31, 2021.

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

Off-Balance Sheet Arrangements

As of June 30, 2021, we had no off-balance sheet arrangements or obligations.

Impact of Inflation

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

22

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

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 filed with the SEC on June 22, 2021. In the three months ended June 30, 2021, there were no changes to the application of critical accounting policies previously disclosed in our most recent Annual Report on Form 10-K.

Item 4. Controls and Procedures

Disclosure Controls and Procedures 

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

Management’s Report on Internal Control over Financial Reporting 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management evaluated the effectiveness of our internal control over financial reporting as of June 30, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control - Integrated Framework” (2013 Framework). Based on our assessment, using those criteria, management concluded that our internal control over financial reporting was effective as of June 30, 2021. 

Changes to Internal Control Over Financial Reporting 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2021 that has materially affected, or was reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls 

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

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

This Form 10-Q should be read in conjunction with Item 9A “Controls and Procedures” of the Company’s Form 10-K for the fiscal year ended March 31, 2021, filed June 22, 2021.

23

PART II.     OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company may be involved in litigation and investigations relating to claims and matters arising out of its operations in the normal course of business. There were no significant legal matters outstanding at June 30, 2021.

Item 1A. Risk Factors

For a discussion of the risk factors relating to our business, please refer to Part I, Item 1A of our Form 10-K for the year ended March 31, 2021, which is incorporated by reference herein.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 5. Other Information

None.

24

Item 6. Exhibits

10.1	Amended and Restated Promissory Note, dated April 12, 2021, by and between Skywords Family Foundation, Inc. and Cyanotech Corporation (Incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 16, 2021)
10.2	Intercreditor and Subordination Agreement, dated April 12, 2021, by and between First Foundation Bank, Skywords Family Foundation, Inc. and Cyanotech Corporation (Incorporated by reference as Exhibit 10.2 to the Company’s Current Report on Form 8-K file April 16, 2021)
31.1*	Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2021.
31.2*	Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2021.
32*	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2021.
99.1*	Press Release dated August 11, 2021.
101	The following financial statements from Cyanotech Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.
104	Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101)
	*Included herewith. Other exhibits were filed as shown above.

25

SIGNATURES

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

	CYANOTECH CORPORATION
	(Registrant)
August 11, 2021	By:	/s/ Gerald R. Cysewski, PH.D.
(Date)		Gerald R. Cysewski, PH.D.
		Chief Executive Officer; Vice Chairman of the Board
August 11, 2021	By:	/s/ Felicia Ladin
(Date)		Felicia Ladin
		Chief Financial Officer, Vice President — Finance & Administration, and Treasurer
		(Principal Financial Officer)

26

EXHIBIT INDEX

Exhibit Number	Description
10.1	Amended and Restated Promissory Note, dated April 12, 2021, by and between Skywords Family Foundation, Inc. and Cyanotech Corporation (Incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 16, 2021)
10.2	Intercreditor and Subordination Agreement, dated April 12, 2021, by and between First Foundation Bank, Skywords Family Foundation, Inc. and Cyanotech Corporation (Incorporated by reference as Exhibit 10.2 to the Company’s Current Report on Form 8-K file April 16, 2021)
31.1*	Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2021.
31.2*	Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2021.
32*	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed as of August 11, 2021.
99.1*	Press Release dated August 11, 2021.
101	The following financial statements from Cyanotech Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements
104	Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101)
	*Included herewith. Other exhibits were filed as shown above.

27

EX-31.1

Exhibit 31.1

Certification Pursuant

To 18 U. S. C. Section 1350,

As Adopted Pursuant To

Section 302 of the Sarbanes-Oxley Act of 2002

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

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

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

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

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

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

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

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

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

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

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

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

Date: August 11, 2021	/s/ Gerald R. Cysewski
	Gerald R. Cysewski
	Chief Executive Officer; Vice Chairman of the Board

EX-31.2

Exhibit 31.2

Certification Pursuant

To 18 U. S. C. Section 1350,

As Adopted Pursuant To

Section 302 of the Sarbanes-Oxley Act of 2002

I, Felicia Ladin, Chief Financial Officer certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Cyanotech Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

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

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

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

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

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

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

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

Date: August 11, 2021	/s/ Felicia Ladin
	Felicia Ladin
	Chief Financial Officer; Vice President—Finance & Administration, and Treasurer
	(Principal Financial Officer)

EX-32

Exhibit 32

Certification of CEO and CFO

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Cyanotech Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2021 (the “Report”) as filed with the Securities and Exchange Commission on the date hereof, each of the undersigned certifies that:

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

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

Date: August 11, 2021	/s/ Gerald R. Cysewski
	Gerald R. Cysewski
	Chief Executive Officer; Vice Chairman of the Board
Date: August 11, 2021	/s/ Felicia Ladin
	Felicia Ladin
	Chief Financial Officer; Vice President—Finance & Administration, and Treasurer
	(Principal Financial Officer)

EX-99.1

Exhibit 99.1

News Release  Contact: Bruce Russell (310) 346-6131 brussell@cyanotech.com

Cyanotech Reports Financial Results for the First Quarter of Fiscal 2022

KAILUA KONA, Hawaii (August 11, 2021) — Cyanotech Corporation (Nasdaq Capital Market: CYAN), a world leader in microalgae-based, high-value nutrition and health dietary supplement products, announced financial results for the first quarter of fiscal year 2022, ended June 30, 2021.

First Quarter Fiscal 2022

Cyanotech reported net sales of $8,964,000 for the first quarter of fiscal 2022 compared to $7,352,000 for the first quarter of fiscal 2021, an increase of 22%.  Gross profit was $3,672,000, with gross profit margin of 41.0%, compared to gross profit of $2,975,000, with gross profit margin of 40.5%.  Operating income for the first quarter of fiscal 2022 was $619,000 compared to $268,000 in the same period of the prior year. 

Net income for the current fiscal quarter was $520,000, or $0.08 per diluted share, compared to net income of $138,000, or $0.02 per diluted share, for the same period of the prior year.

Commenting on the first quarter fiscal 2022 results, Cyanotech’s Chief Executive Officer, Gerald R. Cysewski, Ph.D., said: “We had a good start to the year with strong sales and an improvement in gross profit margin.  Climatic conditions were generally stable during the first quarter on Hawaii Island, and we saw cultivation and production metrics above trend.”  

Trailing Twelve Months

For the trailing twelve months ended June 30, 2021, compared to the trailing twelve months ended June 30, 2020, net sales were $33,957,000 compared to $31,179,000.  Gross profit was $11,813,000, with gross profit margin of 34.8%, compared to $11,999,000 and 38.5%.  Net income was $1,302,000, or $0.21 per diluted share, which included $1,389,000 for the forgiveness of the loan under the Paycheck Protection Program, compared to net income of $659,000, or $0.11 per diluted share.

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

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

1

Please review the Company’s Form 10-Q for the period ended June 30, 2021 for more detailed information.

— Cyanotech will host a virtual broadcast at 8:00 PM EDT on Thursday, August 12, 2021 to respond to questions about its operating results and other topics of interest. Interested parties are asked to submit questions to questions@cyanotech.com before 12 p.m. (noon) EDT on Thursday, August 12, 2021. The Company will respond only to relevant questions relating to the Company’s first quarter fiscal 2022 financial performance and will not be accepting any questions or comments during the broadcast.

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

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

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

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

Financial Tables Follow: The following tables do not contain footnotes or other information contained in the Company’s Form 10-Q for the first quarter fiscal 2022 ended June 30, 2021, which can be found on the Cyanotech website (www.cyanotech.com) under Investors>Investor Filings upon filing. As such, the following Financial Tables are provided only as a guide and other factors are more fully detailed in the Company’s annual Form 10-K filings with the Securities and Exchange Commission.

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

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

2

CYANOTECH CORPORATION 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	June 30, 2021			March 31, 2021
ASSETS
Current assets:
Cash	$	1,061		$	3,767
Accounts receivable, net of allowance for doubtful accounts of $75 as of June 30, 2021 and $32 as of March 31, 2021		5,036			2,436
Inventories, net		9,234			8,415
Prepaid expenses and other current assets		374			488
Total current assets		15,705			15,106
Equipment and leasehold improvements, net		11,905			12,136
Operating lease right-of-use assets, net		3,435			3,517
Other assets		122			120
Total assets	$	31,167		$	30,879
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,471		$	2,287
Accrued expenses		1,133			844
Customer deposits		156			124
Operating lease obligations, current portion		348			343
Line of credit		1,000			1,000
Current maturities of long-term debt		720			1,210
Total current liabilities		5,828			5,808
Long-term debt, less current maturities		4,647			4,823
Long-term operating lease obligations		3,085			3,175
Other long-term liabilities		28			32
Total liabilities		13,588			13,838
Commitments and contingencies
Stockholders’ equity:
Preferred stock of $0.01 par value, authorized 10,000,000 shares; no shares issued and outstanding		—			—
Common stock of $0.02 par value, authorized 50,000,000 shares; issued and outstanding 6,117,719 shares at June 30, 2021 and 6,116,073 shares at March 31, 2021		122			122
Additional paid-in capital		33,285			33,267
Accumulated deficit		(15,828	)		(16,348	)
Total stockholders’ equity		17,579			17,041
Total liabilities and stockholders’ equity	$	31,167		$	30,879

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

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

3

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,
	2021			2020
Net sales	$	8,964		$	7,352
Cost of sales		5,292			4,377
Gross profit		3,672			2,975
Operating expenses:
General and administrative		1,347			1,328
Sales and marketing		1,550			1,244
Research and development		156			135
Total operating expenses		3,053			2,707
Income from operations		619			268
Interest expense, net		(95	)		(131	)
Income before income taxes		524			137
Income tax expense (benefit)		4			(1	)
Net income	$	520		$	138
Net income per share:
Basic	$	0.09		$	0.02
Diluted	$	0.08		$	0.02
Shares used in calculation of net income per share:
Basic		6,117			6,029
Diluted		6,293			6,036

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

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

4

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Document And Entity Information - shares	3 Months Ended
	Jun. 30, 2021	Aug. 06, 2021
Document Information [Line Items]
Entity Central Index Key	0000768408
Entity Registrant Name	Cyanotech Corp
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2022
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2021
Document Transition Report	false
Entity File Number	0-14602
Entity Incorporation, State or Country Code	NV
Entity Tax Identification Number	91-1206026
Entity Address, Address Line One	73-4460 Queen Kaahumanu Hwy. #102
Entity Address, City or Town	Kailua-Kona
Entity Address, State or Province	HI
Entity Address, Postal Zip Code	96740
City Area Code	808
Local Phone Number	326-1353
Title of 12(b) Security	Common Stock, $0.02 par value per share
Trading Symbol	CYAN
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		6,124,198

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Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Jun. 30, 2021	Mar. 31, 2021
Current assets:
Cash	$ 1,061,000	$ 3,767,000
Accounts receivable, net of allowance for doubtful accounts of $75 as of June 30, 2021 and $32 as of March 31, 2021	5,036,000	2,436,000
Inventories, net	9,234,000	8,415,000
Prepaid expenses and other current assets	374,000	488,000
Total current assets	15,705,000	15,106,000
Equipment and leasehold improvements, net	11,905,000	12,136,000
Operating lease right-of-use assets, net	3,435,000	3,517,000
Other assets	122,000	120,000
Total assets	31,167,000	30,879,000
Current liabilities:
Accounts payable	2,471,000	2,287,000
Accrued expenses	1,133,000	844,000
Customer deposits	156,000	124,000
Operating lease obligations, current portion	348,000	343,000
Line of credit	1,000,000	1,000,000
Current maturities of long-term debt	720,000	1,210,000
Total current liabilities	5,828,000	5,808,000
Long-term debt, less current maturities	4,647,000	4,823,000
Long-term operating lease obligations	3,085,000	3,175,000
Other long-term liabilities	28,000	32,000
Total liabilities	13,588,000	13,838,000
Commitments and contingencies
Stockholders’ equity:
Preferred stock of $0.01 par value, authorized 10,000,000 shares; no shares issued and outstanding	0	0
Common stock of $0.02 par value, authorized 50,000,000 shares; issued and outstanding 6,117,719 shares at June 30, 2021 and 6,116,073 shares at March 31, 2021	122,000	122,000
Additional paid-in capital	33,285,000	33,267,000
Accumulated deficit	(15,828,000)	(16,348,000)
Total stockholders’ equity	17,579,000	17,041,000
Total liabilities and stockholders’ equity	$ 31,167,000	$ 30,879,000

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Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Jun. 30, 2021	Mar. 31, 2021
Accounts receivable, allowance for doubtful accounts	$ 75	$ 32
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred, authorized shares (in shares)	10,000,000	10,000,000
Preferred, issued shares (in shares)	0	0
Preferred outstanding, shares (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.02	$ 0.02
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, shares issued (in shares)	6,117,719	6,116,073
Common stock, shares outstanding (in shares)	6,117,719	6,116,073

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Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands	3 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Net sales	$ 8,964,000	$ 7,352,000
Cost of sales	5,292,000	4,377,000
Gross profit	3,672,000	2,975,000
Operating expenses:
General and administrative	1,347,000	1,328,000
Sales and marketing	1,550,000	1,244,000
Research and development	156,000	135,000
Total operating expenses	3,053,000	2,707,000
Income from operations	619,000	268,000
Interest expense, net	(95,000)	(131,000)
Income before income taxes	524,000	137,000
Income tax expense (benefit)	4,000	(1,000)
Net income	$ 520,000	$ 138,000
Net income per share:
Basic (in dollars per share)	$ 0.09	$ 0.02
Diluted (in dollars per share)	$ 0.08	$ 0.02
Shares used in calculation of net income per share:
Basic (in shares)	6,117	6,029
Diluted (in shares)	6,293	6,036

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Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Former Executive [Member] Common Stock [Member]	Former Executive [Member] Additional Paid-in Capital [Member]	Former Executive [Member] Retained Earnings [Member]	Former Executive [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Mar. 31, 2020					6,011,885
Balance at Mar. 31, 2020					$ 120	$ 32,994	$ (17,268)	$ 15,846
Issuance of vested shares of restricted stock (in shares)					13,832
Issuance of vested shares of restricted stock					$ 0	(5)	0	(5)
Shares withheld for tax payments (in shares)	(3,635)				(5,170)
Shares withheld for tax payments	$ 0	$ 0	$ 0	$ 0	$ 0	0	0	0
Share-based compensation expense					0	10	0	10
Net income (loss)					$ 0	0	138	138
Issuance of common stock in connection with severance of former executive (in shares)					11,400
Issuance of common stock in connection with severance of former executive					$ 0	0	0	0
Shares withheld for tax payments	$ (0)	$ (0)	$ (0)	$ (0)	$ 0	0	0	0
Balance (in shares) at Jun. 30, 2020					6,028,312
Balance at Jun. 30, 2020					$ 120	32,999	(17,130)	15,989
Balance (in shares) at Mar. 31, 2021					6,116,073
Balance at Mar. 31, 2021					$ 122	33,267	(16,348)	17,041
Issuance of vested shares of restricted stock (in shares)					2,541
Issuance of vested shares of restricted stock					$ 0	(3)	0	(3)
Shares withheld for tax payments (in shares)					(895)
Shares withheld for tax payments					$ 0	0	0	0
Share-based compensation expense					0	21	0	21
Net income (loss)					0	0	520	520
Shares withheld for tax payments					$ (0)	(0)	(0)	(0)
Balance (in shares) at Jun. 30, 2021					6,117,719
Balance at Jun. 30, 2021					$ 122	$ 33,285	$ (15,828)	$ 17,579

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 520,000	$ 138,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	400,000	467,000
Amortization of debt issue costs and other assets	17,000	31,000
Amortization of operating leases right-of-use assets	82,000	77,000
Share-based compensation expense	21,000	10,000
Provision for doubtful accounts	43,000	0
Net (increase) decrease in assets:
Accounts receivable	(2,643,000)	141,000
Inventories	(819,000)	(441,000)
Prepaid expenses and other assets	103,000	33,000
Net increase (decrease) in liabilities:
Accounts payable	186,000	(504,000)
Accrued expenses	289,000	198,000
Customer deposits	32,000	(204,000)
Operating lease obligations	(85,000)	(77,000)
Deferred rent and other liabilities	(4,000)	(15,000)
Net cash used in operating activities	(1,858,000)	(146,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements	(171,000)	(131,000)
Net cash used in investing activities	(171,000)	(131,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term contract obligation	0	(19,000)
Net payments on debt – related party	(500,000)	0
Proceeds from long-term debt – PPP loan	0	1,381,000
Principal payments on long-term debt	(174,000)	(163,000)
Payments on finance leases	0	(9,000)
Taxes paid related to net share settlement of restricted stock units	(3,000)	(5,000)
Net cash (used in) provided by financing activities	(677,000)	1,185,000
Net (decrease) increase in cash	(2,706,000)	908,000
Cash at beginning of period	3,767,000	2,417,000
Cash at end of period	1,061,000	3,325,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest	91,000	117,000
Income taxes	$ 0	$ 0

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Note 1 - Organization and Basis of Presentation

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

1. ORGANIZATION AND BASIS OF PRESENTATION

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

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

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

Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year. The Condensed Consolidated Balance Sheet as of March 31, 2021 was derived from the audited consolidated financial statements. These condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended March 31, 2021, contained in the Company’s annual report on Form 10-K as filed with the SEC on June 22, 2021. 

Liquidity and Capital Resources

As of June 30, 2021, the Company had cash of $1,061,000 and working capital of $9,877,000 compared to $3,767,000 and $9,298,000, respectively, as of March 31, 2021. The Company has a Revolving Credit Agreement (“Credit Agreement”) with First Foundation Bank (“Bank”) that allows the Company to borrow up to $2,000,000 on a revolving basis. At June 30, 2021 and March 31, 2021, the Company had outstanding borrowings of $1,000,000 on the line of credit.  The line of credit is subject to renewal on August 30, 2021 and the Company intends to renew or replace it with another line of credit on or before the expiration date.

As of June 30, 2021, the Company had $4,448,000 in long-term debt (“Term Loans”) payable to the Bank that require the payment of principal and interest monthly through August 2032. Pursuant to the Term Loans and the Credit Agreement, the Company is subject to annual financial covenants, customary affirmative and negative covenants and certain subjective acceleration clauses. As of March 31, 2021, the Company was in compliance with all required annual financial covenants under the Term Loans and the Credit Agreement.

In response to the coronavirus (“COVID-19”) pandemic and the uncertainty surrounding the pandemic, in May 2020, the Company obtained a Paycheck Protection Program (“PPP”) loan in the amount of $1,381,000, under the Coronavirus Aid, Relief, and Economics Security Act (“CARES Act”). The proceeds were used for certain payroll costs in accordance with the PPP and the PPP Flexibility Act of 2020 (“PPP Flexibility Act”). In December 2020, the Company received notice of forgiveness of the PPP loan in whole, including all accrued interest to date. (see Note 6). In April 2019, the Company obtained a loan in the amount of $1,500,000 from a related party. The proceeds were used to pay down accounts payable and for general operating capital purposes. On April 12, 2021, the Company amended this loan (see Notes 6 and 13).

Funds generated by operating activities and available cash are expected to continue to be the Company’s most significant sources of liquidity for working capital requirements, debt service and funding of maintenance levels of capital expenditures.

Based upon the Company’s operating plan and related cash flow and financial projections, cash flows expected to be generated by operating activities and available financing are expected to be sufficient to fund its operations through at least June 30, 2022, and the Company’s debt service coverage ratio and current ratio covenants are expected to be in compliance with the annual Term Loans and Credit Agreement covenant requirements as of March 31, 2022, the next measurement date. However, no assurances can be provided that the Company will achieve its operating plan and cash flow projections for the next fiscal years or its projected consolidated financial position as of March 31, 2022. Such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results.

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Note 2 - Significant Accounting Policies

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Significant Accounting Policies [Text Block]

2. SIGNIFICANT ACCOUNTING POLICIES

Consolidation

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

Use of Estimates

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

Cash

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

Concentration Risk

A significant portion of revenue and accounts receivable are derived from a few major customers. For the three months ended June 30, 2021, two customers individually accounted for 26% and 14% of the Company’s total net sales and for the three months ended June 30, 2020, two customers individually accounted for 20% and 19% of the Company’s total net sales. Two customers accounted for 67% of the Company’s accounts receivable balance as of June 30, 2021, and three customers accounted for 57% of the Company’s accounts receivable balance as of March 31, 2021.

Revenue Recognition

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

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

Customer contract liabilities consist of customer deposits received in advance of fulfilling an order and are shown separately on the consolidated balance sheets. During the three months ended June 30, 2021 and 2020, the Company recognized $49,000 and $251,000, respectively, of revenue from deposits that were included in contract liabilities as of March 31, 2021 and 2020, respectively. The Company’s contracts have a duration of one year or less and therefore, the Company has elected the practical expedient of not disclosing revenues allocated to partially unsatisfied performance obligations.

Disaggregation of Revenue

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

($ in thousands)	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Packaged sales
Astaxanthin packaged	$	4,040	$	3,242
Spirulina packaged		2,742		1,842
Total packaged sales		6,782		5,084
Bulk sales
Astaxanthin bulk		405		419
Spirulina bulk		1,583		1,530
Total bulk sales		1,988		1,949
Contract extraction revenue		194		319
Total net sales	$	8,964	$	7,352

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes, removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 as of April 1, 2021 with no impact on its consolidated financial statements and related disclosures.

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

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

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

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Note 3 - Inventories

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Inventory Disclosure [Text Block]

3. INVENTORIES

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

	June 30, 2021		March 31, 2021
	(in thousands)
Raw materials	$	926	$	547
Work in process		4,328		3,206
Finished goods		3,755		4,423
Supplies		225		239
Inventories, net	$	9,234	$	8,415

The Company recognizes abnormal production costs, including fixed cost variances from normal production capacity, fixed production overhead costs, idle facilities, freight handling costs and spoilage, as an expense in the period incurred, without adjusting overhead absorption rates. Normal production capacity is defined as the production expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The Company had no abnormal productions costs for the three months ended June 30, 2021 or June 30, 2020.

In fiscal 2021, cultivation of astaxanthin was completed in the first six months of the fiscal year during the most productive months of the year due to the best growing conditions, compared to year-round production in the prior fiscal years. The same approach is being followed in fiscal year 2022. The Company calculates total production costs for the year based on normal capacity of production expected to be achieved in a year under normal circumstances. These costs are then allocated into inventory based on the period of production, not including abnormal production costs. Allocating fixed and overhead costs requires management’s judgement to determine when production is outside of the normal range of expected variation in production.

Other non-inventoriable fixed costs of $4,000 and $28,000 were expensed to cost of sales for the three months ended June 30, 2021 and 2020, respectively.

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Note 4 - Equipment and Leasehold Improvements

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consist of the following as of:

	June 30, 2021			March 31, 2021
	(in thousands)
Equipment	$	19,347		$	19,056
Leasehold improvements		14,705			14,703
Furniture and fixtures		373			372
		34,425			34,131
Less accumulated depreciation and amortization		(23,140	)		(22,740	)
Construction-in-progress		620			745
Equipment and leasehold improvements, net	$	11,905		$	12,136

Management has determined no asset impairment existed as of June 30, 2021 and June 30, 2020, respectively. Depreciation and amortization expense were approximately $400,000 and $467,000 for the three months ended June 30, 2021 and 2020, respectively.

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Note 5 - Short-term Contract Obligation

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Short-term Debt [Text Block]

5. SHORT-TERM CONTRACT OBLIGATION

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

The short-term obligation was comprised of two separate loans in the principal amount of $180,000 and $215,000. The first loan of $180,000 bore an interest rate of 6.25% and was payable in four monthly installments of principal and interest. The loan commenced on December 1, 2018 and matured on July 15, 2019. There were no principal amounts outstanding at June 30, 2021 or March 31, 2021.

The second loan had a principal amount of $215,000 and was a non-interest bearing loan that was payable in twelve monthly installments. The loan commenced on December 1, 2018 and matured on October 15, 2019. This contract contained a hold back of $38,000 pending resolution of certain closing items by the seller, which have been resolved. The principal amounts outstanding at June 30, 2021 and June 30, 2020 were $0 and $19,000, respectively.

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Note 6 - Line of Credit and Long-term Debt

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Debt Disclosure [Text Block]

6. LINE OF CREDIT AND LONG-TERM DEBT

Total debt consists of the following as of:

	June 30, 2021			March 31, 2021
	(in thousands)
Line of credit	$	1,000		$	1,000
Long-term debt		4,499			4,673
Debt - related party		1,000			1,500
Less current maturities		(1,720	)		(2,210	)
Long-term debt, excluding current maturities		4,779			4,963
Less unamortized debt issuance costs		(132	)		(140	)
Total long-term debt, net of current maturities and unamortized debt issuance costs	$	4,647		$	4,823

Line of Credit and Term Loans

On August 30, 2016, the Credit Agreement, which the Company entered into with the Bank on June 3, 2016, became effective after the Company and the Bank received the necessary approvals from the State of Hawaii to secure the lien on the Company’s leasehold property in Kona, Hawaii. The Credit Agreement allows the Company to borrow up to $2,000,000 on a revolving basis. Borrowings under the Credit Agreement bear interest at the Wall Street Journal prime rate (3.25% at both June 30, 2021 and March 31, 2021) plus 2%, floating, provided that at no time shall the annual interest rate be less than 5.25%.

At June 30, 2021 and March 31, 2021, the outstanding balance under the Credit Agreement was $1,000,000, and was included in current liabilities on the Condensed Consolidated Balance Sheets. The line of credit, which is subject to annual renewal, was renewed on August 30, 2020 and will be subject to renewal upon expiration on August 30, 2021.

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

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

The provisions of the 2015 Loan require the payment of principal and interest until its maturity on September 1, 2022, the obligation fully amortizes over seven (7) years. Interest on the 2015 Loan accrues on the outstanding principal balance at an annual variable rate equal to the published Wall Street Journal prime rate (3.25% at both June 30, 2021 and March 31, 2021, respectively) plus 2.0% and is adjustable on the first day of each calendar quarter and fixed for that quarter, provided that at no time shall the annual interest rate be less than 6.0%. The 2015 Loan has a prepayment penalty of 5.0% for any prepayment made prior to the first anniversary of the date of the 2015 Loan Agreement, which penalty is reduced by 1.0% each year thereafter until the fifth anniversary of such date, after which there is no prepayment penalty. The balance under the 2015 Loan was $533,000 and $635,000 at June 30, 2021 and March 31, 2021, respectively, and was included in long-term debt in the debt table above.

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

The provisions of the 2012 Loan required the payment of interest only for the first 12 months of the term; thereafter, and until its maturity on August 14, 2032, the obligation fully amortizes over nineteen (19) years. Interest on the 2012 Loan accrues on the outstanding principal balance at an annual variable rate equal to the published Wall Street Journal prime rate (3.25% at June 30, 2021 and March 31, 2021) plus 1.0% and is adjustable on the first day of each calendar quarter and fixed for that quarter, provided that at no time shall the annual interest rate be less than 5.5%. The balance under the 2012 Loan was $3,915,000 and $3,978,000 at June 30, 2021 and March 31, 2021, respectively, and was included in long-term debt in the debt table above.

The 2015 Loan includes a one-time origination and guaranty fee totaling $113,900 and an annual renewal fee payable in the amount of 0.5% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year, beginning December 31, 2015. The USDA has guaranteed 80% of all amounts owing under the 2015 Loan. The 2012 Loan included a one-time origination and guaranty fees totaling $214,500 and an annual renewal fee payable in the amount of 0.25% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year, beginning December 31, 2012. The USDA has guaranteed 80% of all amounts owing under the 2012 Loan. The balance in unamortized debt issuance costs was $132,000 and $140,000 at June 30, 2021 and March 31, 2021, respectively.

Loan Covenants

The Company’s Credit Agreement, 2015 Loan and 2012 Loan are subject to annual debt service and other financial covenants, including covenants which require the Company to meet key financial ratios and customary affirmative and negative covenants.  As of March 31, 2021, the Company was in compliance with all required annual financial covenants. The next remeasurement date will be March 31, 2022.

Long-term Debt – PPP

In May 2020, the Company obtained a PPP loan in the amount of $1,381,000 with an original maturity date of May 2022. In December 2020, the Company received notice of forgiveness of the PPP loan in whole, including all accrued unpaid interest. In fiscal 2021, the Company recorded the forgiveness of $1,381,000 of principal and $8,000 of accrued interest for a total of $1,389,000. The Company has used the proceeds of the PPP loan for certain payroll costs in accordance with the PPP.

Debt – Related Party

In April 2019, the Company obtained a loan in the amount of $1,500,000 and the interest was payable quarterly.  The loan was originally due in April 2021. In April 2021, the Company amended the loan, which extended the expiration to April 2024, converted $500,000 into revolving loans, adjusted the interest rate to reflect a floor of 5%, and granted a security interest in substantially all of the Company’s personal property assets, subject to limited exceptions. Concurrently, with the amendment and conversion of the original loan, the Company repaid in cash the principal amount of $500,000 plus accrued interest to date of $1,900 (see Note 13).  At June 30, 2021, the balance under this loan was $1,000,000 and was included in long-term debt, and at March 31, 2021, the balance under this loan was $1,500,000 and $500,000 was included in current maturities of long-term debt and $1,000,000 was included in long-term debt, in the debt table above. Interest is payable quarterly.

Equipment Finance Agreement

In October 2017, the Company entered into an Equipment Finance Agreement (the “Equipment Agreement”) with a lender, which provides up to $175,000 of financing for equipment. The interest rate on this loan is 4.75%. The provisions of the Equipment Agreement require the payment of principal and interest until its maturity on October 31, 2022. The balance under this loan was $51,000 and $60,000 at June 30, 2021 and March 31, 2021, respectively, and was included in long-term debt in the debt table above.

Future principal payments under the loans and finance lease obligations at June 30, 2021 are as follows:

Payments Due	(in thousands)
Remainder of 2022	$	539
2023		477
2024		1,289
2025		306
2026		322
Thereafter		2,566
Total principal payments	$	5,499

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Note 7 - Operating Leases

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Leases of Lessee Disclosure [Text Block]

7. OPERATING LEASES

The Company leases facilities, equipment and land under non-cancelable operating leases expiring through 2037. One of its facility leases contains price escalations and a renewal option for five years. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and liabilities were recognized at April 1, 2019 based on the present value of lease payments over the lease term, using the Bank’s incremental borrowing rate based on the information available at recognition, and the Company has elected to exclude non-lease components. At June 30, 2021, the weighted average remaining lease terms is 13.4 years, the weighted average discount rate is 7.5% and for both the three months ended June 30, 2021 and 2020, the operating lease costs are $147,000.

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

Operating leases	Balance Sheet Classification	June 30, 2021			March 31, 2021
		(in thousands)
Right-of-use assets	Operating lease right-of-use assets	$	4,128		$	4,128
Accumulated lease amortization	Operating lease right-of-use assets		(693	)		(611	)
Total right-of-use assets		$	3,435		$	3,517
Current lease liabilities	Operating lease obligations	$	348		$	343
Non-current lease liabilities	Long-term operating lease obligations		3,085			3,175
Total lease liabilities		$	3,433		$	3,518

Maturities of lease liabilities at June 30, 2021 are as follows:

Payments	(in thousands)
Remainder of 2022	$	444
2023		482
2024		371
2025		365
2026		336
Thereafter		3,416
Total undiscounted lease payments		5,414
Less: present value discount		(1,981	)
Total lease liability balance	$	3,433

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Note 8 - Accrued Expenses

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

8. ACCRUED EXPENSES

Accrued expenses consist of the following as of:

	June 30, 2021		March 31, 2021
	(in thousands)
Wages, commissions, bonus and profit sharing	$	453	$	211
Vacation		409		408
Rent, interest and legal		115		86
Other accrued expenses		156		139
Total accrued expenses	$	1,133	$	844

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Note 9 - Commitments and Contingencies

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

9. COMMITMENTS AND CONTINGENCIES

From time to time, the Company may be involved in litigation and investigations relating to claims and matters arising out of its operations in the normal course of business. There were no significant legal matters outstanding at June 30, 2021.

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Note 10 - Share-based Compensation

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

10. SHARE-BASED COMPENSATION

The Company has share-based compensation plans, which are more fully described in Note 10, Share-Based Compensation, to the Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2021 as filed with the SEC on June 22, 2021.

As of June 30, 2021, the Company had two equity-based compensation plans: the 2016 Equity Incentive Plan (the “2016 Plan”) and the 2014 Independent Director Stock Option and Restricted Stock Grant Plan (the “2014 Directors Plan”). The Company has also issued stock options, which remain outstanding as of June 30, 2021, under two equity-based compensation plans which have expired according to their terms: the 2005 Stock Option Plan (the “2005 Plan”) and the 2004 Independent Director Stock Option and Stock Grant Plan (the “2004 Directors Plan”). These plans allowed the Company to award stock options and shares of restricted common stock to eligible employees, certain outside consultants and independent directors. No additional awards will be issued under the 2005 Plan or the 2004 Directors Plan. 

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

	As of June 30, 2021
	Authorized		Available		Outstanding
2016 Plan		1,300,000		1,028,302		211,203
2014 Directors Plan		350,000		43,133		12,000
2005 Plan		—		—		197,500
2004 Directors Plan		—		—		12,000
Total		1,650,000		1,071,435		432,703

Stock Options

All stock option grants made under the equity-based compensation plans were issued at exercise prices no less than the Company’s closing stock price on the date of grant. Options under the 2016 Plan, 2005 Plan and 2014 Directors Plan were determined by the Board of Directors or the Compensation Committee of the Board of Directors in accordance with the provisions of the respective plans.  The terms of each option grant include vesting, exercise, and other conditions set forth in a Stock Option Agreement evidencing each grant. No option can have a life in excess of ten (10) years. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The model requires various assumptions, including a risk-free interest rate, the expected term of the options, the expected stock price volatility over the expected term of the options, and the expected dividend yield. Compensation expense for employee stock options is recognized ratably over the vesting term. Compensation expense recognized for options issued under all Plans was $13,000 and $5,000 for the three months ended June 30, 2021 and 2020, respectively.

A summary of option activity under the Company’s stock plans for the three months ended June 30, 2021 is presented below: 

Option Activity	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at March 31, 2021		374,300		$	3.64		3.0	$	129,700
Granted		50,000		$	2.96
Forfeited		(1,000	)	$	3.63
Expired		(16,800	)	$	3.58
Outstanding at June 30, 2021		406,500		$	3.56		4.0	$	98,600
Exercisable at June 30, 2021		231,500		$	4.35		1.0	$	7,850

The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price optionees would have received if all options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price of $3.04 and $3.30 at June 30, 2021 and March 31, 2021, respectively.

A summary of the Company’s non-vested options for the three months ended June 30, 2021 is presented below:

Nonvested Options	Shares		Weighted Average Grant-Date Fair Value
Nonvested at March 31, 2021		125,000	$	1.19
Granted		50,000		1.60
Nonvested at June 30, 2021		175,000	$	1.31

The weighted average grant-date fair value of stock options granted during the three months ended June 30, 2021 was $79,000. As of June 30, 2021, total unrecognized stock-based compensation expense related to all unvested stock options was $189,000, which is expected to be expensed over a weighted average period of 2.9 years.

Restricted Stock Units (“RSUs”) 

RSUs are service-based awards granted to eligible employees under the 2016 Plan. Compensation expense recognized for RSUs issued under the 2016 Plan was $8,000 and $5,000 for the three months ended June 30, 2021 and 2020, respectively.

The following table summarizes information related to awarded RSUs for the three months ended June 30, 2021:

Nonvested Restricted Stock Units	Shares			Weighted Average Grant Price
Nonvested restricted stock units at March 31, 2021		28,188		$	2.38
Granted		1,072			3.36
Vested		(2,541	)		2.07
Forfeited		(516	)		2.30
Nonvested restricted stock units at June 30, 2021		26,203		$	2.46

As of June 30, 2021, total unrecognized stock-based compensation expense related to unvested restricted stock units was $36,000, which is expected to be expensed over a weighted average period of 2.0 years.

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Note 11 - Income Taxes

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

11. INCOME TAXES

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

The Company utilizes its estimated annual effective tax rate to determine its provision or benefit for income taxes for interim periods. The income tax provision or benefit is computed by multiplying the estimated annual effective tax rate by the year-to-date pre-tax book income (loss). The Company recorded an income tax expense of $4,000 and income tax benefit of $1,000 for the three months ended June 30, 2021 and 2020, respectively. The Company’s effective tax rate was 0.8% and 0.4% for the three months ended June 30, 2021 and 2020, respectively. The effective tax rates for all periods differ from the statutory rate of 21% as a result of state taxes (net of federal benefit) and the net change in valuation allowance against the net deferred tax asset the Company believes is not more likely than not to be realized.  The Company continues to carry a full valuation allowance on its net deferred tax assets.

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

As of June 30, 2021 and 2020, there was no liability for income tax associated with unrecognized tax benefits. The Company recognizes accrued interest related to unrecognized tax benefits as well as any related penalties in interest income or expense in its Consolidated Condensed Statements of Operations, which is consistent with the recognition of these items in prior reporting periods.

With few exceptions, the Company is no longer subject to U.S. federal, state, local, and non-U.S. income tax examination by tax authorities for tax years before 2017.

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

In addition, the CARES Act increases the limitation applied to the deductibility of business interest from 30% of adjusted taxable income to 50% of adjusted taxable income for the 2019 and 2020 tax years, raises the corporate charitable deduction limit to 25% of taxable income, and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to the Company’s income tax provision for the three months ended June 30, 2021 or 2020.

On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was enacted. The CAA includes the COVID related Tax Relief Act of 2020 (“COVID TRA”). Section 276 of the COVID TRA includes provisions that overturn IRS Notice 2020-32 and Rev. Rul. 2020-27, allowing full deductibility of expenses incurred to receive full forgiveness of its PPP loan. The Company received full forgiveness of its PPP loan during the third quarter of fiscal 2021. For income tax purposes, the forgiveness has been excluded from income and the applicable expenses incurred during the prior fiscal year have been deducted.

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Note 12 - Earnings Per Share

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Earnings Per Share [Text Block]

12. EARNINGS PER SHARE

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

Reconciliations between the numerator and the denominator of the basic and diluted income per share computations for the three months ended June 30, 2021 and 2020 are as follows:

	Three Months Ended June 30, 2021
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	520		6,117	$	0.09
Effective dilutive securities – common stock options and restricted stock units		—		176		—
Diluted income per share	$	520		6,293	$	0.08

	Three Months Ended June 30, 2020
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	138		6,029	$	0.02
Effective dilutive securities – restricted stock units		—		7		—
Diluted income per share	$	138		6,036	$	0.02

Restricted stock units become dilutive within the period granted and remain dilutive until the units vest and are issued as common stock.

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Note 13 - Related Party Transactions

3 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

13. RELATED PARTY TRANSACTIONS 

In April 2019, the Company obtained an unsecured subordinated loan from Skywords Family Foundation, Inc. (“Skywords”) in the principal amount of $1,500,000 pursuant to a Promissory Note (“the Skywords Note”) executed by the Company in favor of Skywords. Skywords is controlled by the Company’s Chairman of the Board of Directors and largest stockholder. The Skywords Note bore interest at a rate of 1% plus the prime rate (as published by the Wall Street Journal), which was recalculated and payable on a quarterly basis. The principal amount and any accrued and unpaid interest was due and payable on April 12, 2021. The proceeds of the Skywords Note were used to pay down accounts payable and for general operating capital purposes.

On April 12, 2021, the Company entered into an Amended and Restated Promissory Note (the “Skywords Amended Note”) with Skywords. The Company and Skywords agreed to amend, restate, replace and otherwise modify without novation, the Skywords Note in order to covert $500,000 of the outstanding principal amount into revolving loans that may be prepaid and reborrowed from time to time in principal amounts not to exceed $500,000, extend the maturity date by three years, adjust the interest rate to reflect a floor of 5% and secure Skywords’ interest by granting a security interest in substantially all of the Company’s personal property assets, subject to limited exceptions (the “Collateral”). On April 12, 2021, concurrently with the conversion, the Company repaid in cash to Skywords, the principal amount of $500,000 plus accrued interest to date of $1,900. The Skywords Amended Note bears interest at a rate of 1% plus the prime rate (as published by the Wall Street Journal), which will be recalculated and payable on a quarterly basis, provided that at no time shall the annual interest rate be less than 5%. The principal amount and any accrued and unpaid interest will be due and payable on April 12, 2024, unless accelerated in an event of default. The Company may prepay the Skywords Amended Note at any time without penalty.

On April 12, 2021, in connection with the grant of a security interest in the Collateral, the Company also entered into an Intercreditor and Subordination Agreement with the Bank and Skywords. The Company is indebted to the Bank pursuant to two Term Loans and a Credit Agreement, each of which granted the Bank a security interest in substantially all of the Company’s personal property assets. The Bank’s security interest in the Company’s personal property assets ranks senior to Skywords’ security interest in the Collateral, and the Intercreditor and Subordination Agreement generally governs the relationship between the Bank and Skywords as secured lenders to the Company and includes customary terms.

At June 30, 2021 and March 31, 2021, the Skywords Note principal balance was $1,000,000 and $1,500,000, respectively. The loan balance at June 30, 2021 was included in long-term debt and at March 31, 2021, $500,000 was included in current maturities of long-term debt and $1,000,000 was included in long-term debt on the Condensed Consolidated Balance Sheets.

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Significant Accounting Policies (Policies)

3 Months Ended

Jun. 30, 2021

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Consolidation

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

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

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

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash

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

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration Risk

A significant portion of revenue and accounts receivable are derived from a few major customers. For the three months ended June 30, 2021, two customers individually accounted for 26% and 14% of the Company’s total net sales and for the three months ended June 30, 2020, two customers individually accounted for 20% and 19% of the Company’s total net sales. Two customers accounted for 67% of the Company’s accounts receivable balance as of June 30, 2021, and three customers accounted for 57% of the Company’s accounts receivable balance as of March 31, 2021.

Revenue from Contract with Customer [Policy Text Block]

Revenue Recognition

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

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

Customer contract liabilities consist of customer deposits received in advance of fulfilling an order and are shown separately on the consolidated balance sheets. During the three months ended June 30, 2021 and 2020, the Company recognized $49,000 and $251,000, respectively, of revenue from deposits that were included in contract liabilities as of March 31, 2021 and 2020, respectively. The Company’s contracts have a duration of one year or less and therefore, the Company has elected the practical expedient of not disclosing revenues allocated to partially unsatisfied performance obligations.

Disaggregation of Revenue

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

($ in thousands)	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Packaged sales
Astaxanthin packaged	$	4,040	$	3,242
Spirulina packaged		2,742		1,842
Total packaged sales		6,782		5,084
Bulk sales
Astaxanthin bulk		405		419
Spirulina bulk		1,583		1,530
Total bulk sales		1,988		1,949
Contract extraction revenue		194		319
Total net sales	$	8,964	$	7,352

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes, removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 as of April 1, 2021 with no impact on its consolidated financial statements and related disclosures.

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

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

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

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Note 2 - Significant Accounting Policies (Tables)

3 Months Ended

Jun. 30, 2021

Notes Tables

Disaggregation of Revenue [Table Text Block]

($ in thousands)	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Packaged sales
Astaxanthin packaged	$	4,040	$	3,242
Spirulina packaged		2,742		1,842
Total packaged sales		6,782		5,084
Bulk sales
Astaxanthin bulk		405		419
Spirulina bulk		1,583		1,530
Total bulk sales		1,988		1,949
Contract extraction revenue		194		319
Total net sales	$	8,964	$	7,352

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Note 3 - Inventories (Tables)

3 Months Ended

Jun. 30, 2021

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	June 30, 2021		March 31, 2021
	(in thousands)
Raw materials	$	926	$	547
Work in process		4,328		3,206
Finished goods		3,755		4,423
Supplies		225		239
Inventories, net	$	9,234	$	8,415

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Note 4 - Equipment and Leasehold Improvements (Tables)

3 Months Ended

Jun. 30, 2021

Notes Tables

Property, Plant and Equipment [Table Text Block]

	June 30, 2021			March 31, 2021
	(in thousands)
Equipment	$	19,347		$	19,056
Leasehold improvements		14,705			14,703
Furniture and fixtures		373			372
		34,425			34,131
Less accumulated depreciation and amortization		(23,140	)		(22,740	)
Construction-in-progress		620			745
Equipment and leasehold improvements, net	$	11,905		$	12,136

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Note 6 - Line of Credit and Long-term Debt (Tables)

3 Months Ended

Jun. 30, 2021

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	June 30, 2021			March 31, 2021
	(in thousands)
Line of credit	$	1,000		$	1,000
Long-term debt		4,499			4,673
Debt - related party		1,000			1,500
Less current maturities		(1,720	)		(2,210	)
Long-term debt, excluding current maturities		4,779			4,963
Less unamortized debt issuance costs		(132	)		(140	)
Total long-term debt, net of current maturities and unamortized debt issuance costs	$	4,647		$	4,823

Schedule of Maturities of Long-term Debt [Table Text Block]

Payments Due	(in thousands)
Remainder of 2022	$	539
2023		477
2024		1,289
2025		306
2026		322
Thereafter		2,566
Total principal payments	$	5,499

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Note 7 - Operating Leases (Tables)

3 Months Ended

Jun. 30, 2021

Notes Tables

Schedule of Supplement Balance Sheet Information for Operating Lease [Table Text Block]

Operating leases	Balance Sheet Classification	June 30, 2021			March 31, 2021
		(in thousands)
Right-of-use assets	Operating lease right-of-use assets	$	4,128		$	4,128
Accumulated lease amortization	Operating lease right-of-use assets		(693	)		(611	)
Total right-of-use assets		$	3,435		$	3,517
Current lease liabilities	Operating lease obligations	$	348		$	343
Non-current lease liabilities	Long-term operating lease obligations		3,085			3,175
Total lease liabilities		$	3,433		$	3,518

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Payments	(in thousands)
Remainder of 2022	$	444
2023		482
2024		371
2025		365
2026		336
Thereafter		3,416
Total undiscounted lease payments		5,414
Less: present value discount		(1,981	)
Total lease liability balance	$	3,433

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Note 8 - Accrued Expenses (Tables)

3 Months Ended

Jun. 30, 2021

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	June 30, 2021		March 31, 2021
	(in thousands)
Wages, commissions, bonus and profit sharing	$	453	$	211
Vacation		409		408
Rent, interest and legal		115		86
Other accrued expenses		156		139
Total accrued expenses	$	1,133	$	844

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Note 10 - Share-based Compensation (Tables)

3 Months Ended

Jun. 30, 2021

Notes Tables

Schedule of Share-based Compensation Shares Authorized Available and Outstanding by Plan [Table Text Block]

	As of June 30, 2021
	Authorized		Available		Outstanding
2016 Plan		1,300,000		1,028,302		211,203
2014 Directors Plan		350,000		43,133		12,000
2005 Plan		—		—		197,500
2004 Directors Plan		—		—		12,000
Total		1,650,000		1,071,435		432,703

Share-based Payment Arrangement, Option, Activity [Table Text Block]

Option Activity	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at March 31, 2021		374,300		$	3.64		3.0	$	129,700
Granted		50,000		$	2.96
Forfeited		(1,000	)	$	3.63
Expired		(16,800	)	$	3.58
Outstanding at June 30, 2021		406,500		$	3.56		4.0	$	98,600
Exercisable at June 30, 2021		231,500		$	4.35		1.0	$	7,850

Schedule of Nonvested Share Activity [Table Text Block]

Nonvested Options	Shares		Weighted Average Grant-Date Fair Value
Nonvested at March 31, 2021		125,000	$	1.19
Granted		50,000		1.60
Nonvested at June 30, 2021		175,000	$	1.31

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

Nonvested Restricted Stock Units	Shares			Weighted Average Grant Price
Nonvested restricted stock units at March 31, 2021		28,188		$	2.38
Granted		1,072			3.36
Vested		(2,541	)		2.07
Forfeited		(516	)		2.30
Nonvested restricted stock units at June 30, 2021		26,203		$	2.46

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Note 12 - Earnings Per Share (Tables)

3 Months Ended

Jun. 30, 2021

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended June 30, 2021
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	520		6,117	$	0.09
Effective dilutive securities – common stock options and restricted stock units		—		176		—
Diluted income per share	$	520		6,293	$	0.08

	Three Months Ended June 30, 2020
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	138		6,029	$	0.02
Effective dilutive securities – restricted stock units		—		7		—
Diluted income per share	$	138		6,036	$	0.02

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Note 1 - Organization and Basis of Presentation (Details Textual) - USD ($)	1 Months Ended	3 Months Ended
	May 31, 2020	Jun. 30, 2021	Jun. 30, 2020	Mar. 31, 2021	Apr. 30, 2019	Aug. 30, 2016
Cash and Cash Equivalents, at Carrying Value, Ending Balance		$ 1,061,000		$ 3,767,000
Working Capital (Deficit)		9,877,000		9,298,000
Line of Credit, Current		1,000,000		$ 1,000,000
Long-term Debt and Capital Lease Obligations, Current and Noncurrent		4,448,000
Proceeds from Issuance of Unsecured Debt		0	$ 1,381,000
SBA CARES Act Paycheck Protection Program [Member]
Proceeds from Issuance of Unsecured Debt	$ 1,381,000
Unsecured Subordinated Loan From Skywords [Member]
Debt Instrument, Face Amount					$ 1,500,000
First Foundation Bank [Member]
Line of Credit, Current		1,000,000
First Foundation Bank [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity		2,000,000				$ 2,000,000
Line of Credit, Current		$ 1,000,000

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Note 2 - Significant Accounting Policies (Details Textual)	3 Months Ended		12 Months Ended
	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)	Mar. 31, 2021
Contract with Customer, Liability, Revenue Recognized	$ 49,000	$ 251,000
Customer Concentration Risk [Member] | Revenue Benchmark [Member]
Number of Major Customers	2	2
Customer Concentration Risk [Member] | Revenue Benchmark [Member] | Customer Number 1 [Member]
Concentration Risk, Percentage	26.00%	20.00%
Customer Concentration Risk [Member] | Revenue Benchmark [Member] | Customer Number 2 [Member]
Concentration Risk, Percentage	14.00%	19.00%
Customer Concentration Risk [Member] | Accounts Receivable [Member]
Number of Major Customers	2		3
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Two Customers [Member]
Concentration Risk, Percentage	67.00%
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Three Customers [Member]
Concentration Risk, Percentage			57.00%

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Note 2 - Significant Accounting Policies - Revenue By Product (Details) - USD ($) $ in Thousands	3 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Net sales	$ 8,964	$ 7,352
Packaged Astaxanthin [Member]
Net sales	4,040	3,242
Packaged Spirulina [Member]
Net sales	2,742	1,842
Packaged Products [Member]
Net sales	6,782	5,084
Bulk Astaxanthin [Member]
Net sales	405	419
Bulk Spirulina [Member]
Net sales	1,583	1,530
Bulk Products [Member]
Net sales	1,988	1,949
Contract Extraction [Member]
Net sales	$ 194	$ 319

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Note 3 - Inventories (Details Textual) - USD ($)	3 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Inventory Abnormal Production Costs	$ 0	$ 0
Non Inventoriable Fixed Costs	$ 4,000	$ 28,000

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Note 3 - Inventories - Components of Inventory (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Mar. 31, 2021
Raw materials	$ 926	$ 547
Work in process	4,328	3,206
Finished goods	3,755	4,423
Supplies	225	239
Inventories, net	$ 9,234	$ 8,415

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Note 4 - Equipment and Leasehold Improvements (Details Textual) - USD ($)	3 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Asset Impairment Charges, Total	$ 0	$ 0
Depreciation, Depletion and Amortization, Total	$ 400,000	$ 467,000

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Note 4 - Equipment and Leasehold Improvements - Components of Equipment and Leasehold Improvements (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Mar. 31, 2021
Equipment and leasehold improvements, gross	$ 34,425	$ 34,131
Less accumulated depreciation and amortization	(23,140)	(22,740)
Construction-in-progress	620	745
Equipment and leasehold improvements, net	11,905	12,136
Equipment [Member]
Equipment and leasehold improvements, gross	19,347	19,056
Leasehold Improvements [Member]
Equipment and leasehold improvements, gross	14,705	14,703
Furniture and Fixtures [Member]
Equipment and leasehold improvements, gross	$ 373	$ 372

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Note 5 - Short-term Contract Obligation (Details Textual)	Nov. 30, 2018 USD ($) a	Jun. 30, 2021 USD ($)	Mar. 31, 2021 USD ($)	Jun. 30, 2020 USD ($)
Short-term Obligation for Cellana Asset Purchase [Member]
Debt Instrument, Face Amount	$ 180,000
Debt Instrument, Interest Rate, Stated Percentage	6.25%
Debt Instrument, Periodic Payment, Number of Monthly Payments	4
Short-term Non-bank Loans and Notes Payable			$ 0
Short-term Obligation for Cellana Asset Purchase 2 [Member]
Debt Instrument, Face Amount	$ 215,000
Debt Instrument, Periodic Payment, Number of Monthly Payments	12
Short-term Non-bank Loans and Notes Payable		$ 0	$ 19,000
Debt Instrument, Hold-back, Amount				$ 38,000
Cellana Asset Purchase [Member]
Noncash or Part Noncash Acquisition, Value of Assets Acquired, Total	$ 495,000
Payments to Acquire Buildings	100,000
Issuance of Short Term Obligations	$ 395,000
Research Facility Owned by Cellana [Member]
Area of Real Estate Property (Acre) | a	6

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Note 6 - Line of Credit and Long-term Debt (Details Textual) - USD ($)						1 Months Ended			3 Months Ended		12 Months Ended
	Apr. 12, 2021	Aug. 30, 2016	Sep. 18, 2015	Jul. 30, 2015	Aug. 14, 2012	Apr. 30, 2021	May 31, 2020	Apr. 30, 2019	Jun. 30, 2021	Jun. 30, 2020	Mar. 31, 2021	Oct. 06, 2017
Line of Credit, Current									$ 1,000,000		$ 1,000,000
Repayments of Notes Payable			$ 500,000
Long-term Debt and Capital Lease Obligations, Current and Noncurrent									4,448,000
Debt Issuance Costs, Net, Total									132,000		140,000
Proceeds from Issuance of Unsecured Debt									0	$ 1,381,000
Long-term Debt, Current Maturities, Total									1,720,000		2,210,000
Interest Paid, Excluding Capitalized Interest, Operating Activities									91,000	$ 117,000
Long-term Debt, Excluding Current Maturities, Total									4,647,000		4,823,000
Long-term Debt, Total									5,499,000
Unsecured Subordinated Loan [Member]
Long-term Debt, Gross									$ 1,000,000		1,500,000
The 2015 Loan Agreement [Member]
Debt Instrument Reference Rate									3.25%
Proceeds from Issuance of Debt				$ 2,500,000
Debt Instrument, Term (Year)				7 years
Debt Instrument, Prepayment Penalty Percentage				5.00%
Debt Instrument, Prepayment Penalty Percentage Reduction During Each Year				1.00%
Long-term Debt and Capital Lease Obligations, Current and Noncurrent									$ 533,000		635,000
Debt Instrument One Time Origination and Guaranty Fees									$ 113,900
Debt Instrument Annual Renewal Fee Payable Percentage									0.50%
Debt Instrument Guaranteed Portion									80.00%
Term Loan Agreement, Maturing on August 14, 2032 [Member]
Debt Instrument Reference Rate									3.25%
Debt Instrument, Basis Spread on Variable Rate									1.00%
Proceeds from Issuance of Debt					$ 5,500,000
Long-term Debt and Capital Lease Obligations, Current and Noncurrent									$ 3,915,000		3,978,000
Debt Instrument Interest Payment Period (Month)					12 months
Debt Instrument Amortization Period (Year)					19 years
Debt Instrument One Time Origination and Guaranty Fees									$ 214,500
Debt Instrument Annual Renewal Fee Payable Percentage									0.25%
Debt Instrument Guaranteed Portion									80.00%
Term Loan Agreement, Promissory Note One [Member]
Proceeds from Issuance of Debt					$ 2,250,000
Term Loan Agreement, Promissory Note Two [Member]
Proceeds from Issuance of Debt					$ 3,250,000
SBA CARES Act Paycheck Protection Program [Member]
Proceeds from Issuance of Unsecured Debt							$ 1,381,000
Debt Instrument, Decrease, Principal Forgiveness											1,381,000
Debt Instrument, Decrease, Accrued Interest Forgiveness											8,000
Gain (Loss) on Extinguishment of Debt, Total											1,389,000
Skywords Note [Member]
Repayments of Long-term Debt, Total	$ 500,000					$ 500,000
Interest Paid, Excluding Capitalized Interest, Operating Activities	$ 1,900					$ 1,900
Skywords Note [Member] | Unsecured Subordinated Loan [Member]
Debt Instrument, Face Amount								$ 1,500,000
Long-term Debt, Current Maturities, Total											500,000
Long-term Debt, Gross									$ 1,000,000		1,500,000
Long-term Debt, Excluding Current Maturities, Total											1,000,000
Long-term Debt, Total									1,000,000		1,500,000
Skywords Amended Note [Member]
Debt Instrument, Term (Year)	3 years
Debt Instrument, Face Amount	$ 500,000
Debt Instrument, Floor Interest Rate	5.00%					5.00%
Equipment Finance Agreement [Member]
Debt Instrument, Interest Rate, Stated Percentage												4.75%
Debt Agreement, Maximum Borrowing Capacity												$ 175,000
Long-term Debt, Total									$ 51,000		$ 60,000
Minimum [Member] | The 2015 Loan Agreement [Member]
Debt Instrument, Interest Rate, Stated Percentage				6.00%
Minimum [Member] | Term Loan Agreement, Maturing on August 14, 2032 [Member]
Debt Instrument, Interest Rate During Period									5.50%
Prime Rate [Member] | The 2015 Loan Agreement [Member]
Debt Instrument, Basis Spread on Variable Rate				2.00%
Prime Rate [Member] | Skywords Note [Member] | Unsecured Subordinated Loan [Member]
Debt Instrument, Basis Spread on Variable Rate								1.00%
Prime Rate [Member] | Skywords Amended Note [Member]
Debt Instrument, Basis Spread on Variable Rate	1.00%
First Foundation Bank [Member]
Line of Credit, Current									$ 1,000,000
First Foundation Bank [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage		5.25%
First Foundation Bank [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 2,000,000							2,000,000
Line of Credit, Current									$ 1,000,000
First Foundation Bank [Member] | Revolving Credit Facility [Member] | Prime Rate [Member]
Debt Instrument Reference Rate									3.25%
Debt Instrument, Basis Spread on Variable Rate		2.00%

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Note 6 - Line of Credit and Long-term Debt - Summary of Line of Credit and Long-term Debt (Details) - USD ($)	Jun. 30, 2021	Mar. 31, 2021
Less current maturities	$ (1,720,000)	$ (2,210,000)
Long-term debt, excluding current maturities	4,779,000	4,963,000
Less unamortized debt issuance costs	(132,000)	(140,000)
Total long-term debt, net of current maturities and unamortized debt issuance costs	4,647,000	4,823,000
Line of Credit [Member]
Long-term debt	1,000,000	1,000,000
Long-term Debt, Excluding Related Party Debt [Member]
Long-term debt	4,499,000	4,673,000
Unsecured Subordinated Loan [Member]
Long-term debt	$ 1,000,000	$ 1,500,000

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Note 6 - Line of Credit and Long-term Debt - Future Payments (Details) $ in Thousands	Jun. 30, 2021 USD ($)
Remainder of 2022	$ 539
2023	477
2024	1,289
2025	306
2026	322
Thereafter	2,566
Total principal payments	$ 5,499

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Note 7 - Operating Leases (Details Textual) - USD ($)	3 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Operating Lease, Weighted Average Remaining Lease Term (Year)	13 years 4 months 24 days
Operating Lease, Weighted Average Discount Rate, Percent	7.50%
Operating Lease, Expense	$ 147,000	$ 147,000

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Note 7 - Operating Leases - Supplemental Balance Sheet Information (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Mar. 31, 2021
Right-of-use assets	$ 4,128	$ 4,128
Accumulated lease amortization	(693)	(611)
Total right-of-use assets	3,435	3,517
Current lease liabilities	348	343
Non-current lease liabilities	3,085	3,175
Total lease liabilities	$ 3,433	$ 3,518

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Note 7 - Operating Leases - Operating Leases Maturities (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Mar. 31, 2021
Remainder of 2022	$ 444
2023	482
2024	371
2025	365
2026	336
Thereafter	3,416
Total undiscounted lease payments	5,414
Less: present value discount	(1,981)
Total lease liability balance	$ 3,433	$ 3,518

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Note 8 - Accrued Expenses - Components of Accrued Expenses (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Mar. 31, 2021
Wages, commissions, bonus and profit sharing	$ 453	$ 211
Vacation	409	408
Rent, interest and legal	115	86
Other accrued expenses	156	139
Total accrued expenses	$ 1,133	$ 844

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Note 10 - Share-based Compensation (Details Textual)	3 Months Ended
	Jun. 30, 2021 USD ($) $ / shares shares	Jun. 30, 2020 USD ($)	Mar. 31, 2021 $ / shares
Number of Shareholder Approved Share-based Compensation Plans	2
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares) | shares	1,071,435
Share Price (in dollars per share) | $ / shares	$ 3.04		$ 3.30
ShareBased Compensation Arrangement By Share Based Payment Award Weighted Average Grant Date Fair Value Options Granted	$ 79,000
Share-based Payment Arrangement, Option [Member]
Share-based Payment Arrangement, Expense	13,000	$ 5,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 189,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)	2 years 10 months 24 days
Share-based Payment Arrangement, Option [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)	10 years
Restricted Stock Units (RSUs) [Member]
Share-based Payment Arrangement, Expense	$ 8,000	$ 5,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 36,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)	2 years
The 2005 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares) | shares	0
The 2004 Directors Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares) | shares	0

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Note 10 - Share-based Compensation - Shares Authorized, Available for Future Grant and Outstanding Under Each Plan (Details)	Jun. 30, 2021 shares
Authorized (in shares)	1,650,000
Available (in shares)	1,071,435
Outstanding (in shares)	432,703
The 2016 Plan [Member]
Authorized (in shares)	1,300,000
Available (in shares)	1,028,302
Outstanding (in shares)	211,203
2014 Directors Plan [Member]
Authorized (in shares)	350,000
Available (in shares)	43,133
Outstanding (in shares)	12,000
The 2005 Plan [Member]
Authorized (in shares)	0
Available (in shares)	0
Outstanding (in shares)	197,500
The 2004 Directors Plan [Member]
Authorized (in shares)	0
Available (in shares)	0
Outstanding (in shares)	12,000

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Note 10 - Share-based Compensation - Summary of Option Activity Under Stock Plans (Details) - USD ($)	3 Months Ended	12 Months Ended
	Jun. 30, 2021	Mar. 31, 2021
Outstanding (in shares)	374,300
Outstanding, weighted average exercise price (in dollars per share)	$ 3.64
Outstanding, weighted average remaining contractual term (Year)	4 years	3 years
Outstanding, aggregate intrinsic value	$ 98,600	$ 129,700
Granted (in shares)	50,000
Granted, weighted average exercise price (in dollars per share)	$ 2.96
Forfeited (in shares)	(1,000)
Forfeited, weighted average exercise price (in dollars per share)	$ 3.63
Expired (in shares)	(16,800)
Expired, weighted average exercise price (in dollars per share)	$ 3.58
Outstanding (in shares)	406,500	374,300
Outstanding, weighted average exercise price (in dollars per share)	$ 3.56	$ 3.64
Exercisable (in shares)	231,500
Exercisable, weighted average exercise price (in dollars per share)	$ 4.35
Exercisable, weighted average remaining contractual term (Year)	1 year
Exercisable, aggregate intrinsic value	$ 7,850

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Note 10 - Share-based Compensation - Summary of Non-vested Options (Details)	3 Months Ended
	Jun. 30, 2021 $ / shares shares
Nonvested (in shares) | shares	125,000
Nonvested (in dollars per share) | $ / shares	$ 1.19
Granted (in shares) | shares	50,000
Granted (in dollars per share) | $ / shares	$ 1.60
Nonvested (in shares) | shares	175,000
Nonvested (in dollars per share) | $ / shares	$ 1.31

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Note 10 - Share-based Compensation - Restricted Stock Units (Details) - Restricted Stock Units (RSUs) [Member]	3 Months Ended
	Jun. 30, 2021 $ / shares shares
Nonvested restricted stock units (in shares) | shares	28,188
Nonvested restricted stock units, weighted average grant price (in dollars per share) | $ / shares	$ 2.38
Granted (in shares) | shares	1,072
Granted, weighted average grant price (in dollars per share) | $ / shares	$ 3.36
Vested (in shares) | shares	(2,541)
Vested, weighted average grant price (in dollars per share) | $ / shares	$ 2.07
Forfeited (in shares) | shares	(516)
Forfeited, weighted average grant price (in dollars per share) | $ / shares	$ 2.30
Nonvested restricted stock units (in shares) | shares	26,203
Nonvested restricted stock units, weighted average grant price (in dollars per share) | $ / shares	$ 2.46

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Note 11 - Income Taxes (Details Textual) - USD ($)			3 Months Ended		12 Months Ended
	Jan. 01, 2018	Dec. 22, 2017	Jun. 30, 2021	Jun. 30, 2020	Mar. 31, 2019
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	21.00%	34.00%	21.00%		21.00%
Income Tax Expense (Benefit), Total			$ 4,000	$ (1,000)
Effective Income Tax Rate Reconciliation, Percent, Total			0.80%	0.40%
Unrecognized Tax Benefits, Ending Balance			$ 0	$ 0

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Note 12 - Earnings Per Share - Summary of Reconciliations Between the Numerator and the Denominator of the Basic and Diluted Earnings Per Share Computations (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Net income	$ 520	$ 138
Shares outstanding - basic (in shares)	6,117	6,029
Earnings per share - basic (in dollars per share)	$ 0.09	$ 0.02
Effective dilutive securities – common stock options and restricted stock units (in shares)	176	7
Net income - diluted	$ 520	$ 138
Shares outstanding - diluted (in shares)	6,293	6,036
Diluted income per share (in dollars per share)	$ 0.08	$ 0.02

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Note 13 - Related Party Transactions (Details Textual) - USD ($)		1 Months Ended		3 Months Ended
	Apr. 12, 2021	Apr. 30, 2021	Apr. 30, 2019	Jun. 30, 2021	Jun. 30, 2020	Mar. 31, 2021
Interest Paid, Excluding Capitalized Interest, Operating Activities				$ 91,000	$ 117,000
Long-term Debt, Total				5,499,000
Long-term Debt, Current Maturities, Total				1,720,000		$ 2,210,000
Long-term Debt, Excluding Current Maturities, Total				4,647,000		4,823,000
Conversion of Skywords Note Into Revolving Loans [Member]
Debt Conversion, Original Debt, Amount	$ 500,000
Skywords Note [Member]
Repayments of Long-term Debt, Total	500,000	$ 500,000
Interest Paid, Excluding Capitalized Interest, Operating Activities	1,900	$ 1,900
Skywords Note [Member] | Unsecured Subordinated Loan [Member]
Debt Instrument, Face Amount			$ 1,500,000
Long-term Debt, Total				$ 1,000,000		1,500,000
Long-term Debt, Current Maturities, Total						500,000
Long-term Debt, Excluding Current Maturities, Total						$ 1,000,000
Skywords Note [Member] | Unsecured Subordinated Loan [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate			1.00%
Skywords Amended Note [Member]
Debt Instrument, Face Amount	$ 500,000
Debt Instrument, Term (Year)	3 years
Debt Instrument, Floor Interest Rate	5.00%	5.00%
Skywords Amended Note [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	1.00%