CYANOTECH CORPORATION 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
? 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*
*These statements have not been evaluated by the
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
Results of Operations
The following tables present selected consolidated financial data for each of the periods indicated ($ in thousands):
Three Months Ended
June 30,
2022 2021
Net sales $ 6,716 $ 8,964
Net sales decrease 25.1 %
Gross profit $ 2,318 $ 3,672
Gross profit as % of net sales 34.5 % 41.0 %
Operating expenses $ 2,743 $ 3,053
Operating expenses as % of net sales 40.8 % 34.1 %
Operating (loss) income $ (425 ) $ 619
Operating (loss) income as % of net sales (6.3 )% 6.9 %
Income tax expense $ 3 $ 4
Net (loss) income $ (472 ) $ 520
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Comparison of the Three Months Ended
Net Sales (in thousands) Three Months Ended June 30, $ % 2022 2021 Change Change Packaged sales Astaxanthin$ 3,524 $ 4,040 $ (516 ) (12.8 )% Spirulina 1,511 2,742 (1,231 ) (44.9 )% Total Packaged sales$ 5,035 $ 6,782 $ (1,747 ) (25.6 )% Bulk sales Astaxanthin$ 494 $ 405 $ 89 22.0 % Spirulina 1,093 1,583 (490 ) (31.0 )% Total Bulk sales$ 1,587 $ 1,988 $ (401 ) (20.2 )% Contract extraction revenue$ 94 $ 194 $ (100 ) (51.5 )% Total sales Astaxanthin$ 4,018 $ 4,445 $ (427 ) (9.6 )% Spirulina 2,604 4,325 (1,721 ) (39.8 )% Contract extraction revenue 94 194 (100 ) (51.5 )% Total sales$ 6,716 $ 8,964 $ (2,248 ) (25.1 )%
Net Sales The net sales decrease of 25.1% for the current quarter compared to the same period last year was primarily driven by a decrease in spirulina and astaxanthin packaged sales, spirulina bulk sales and contract extraction sales. The decrease in both spirulina and astaxanthin packaged sales in the current quarter was primarily due to decreased sales due to timing of shipments to a significant customer as we transitioned to their selling platform in the prior year, offset by strong sales to key existing customers. Sales of bulk products were lower due to lower demand by our top customer for the quarter coupled with timing of orders from other customers.
Gross Profit Gross profit as a percent of net sales decreased by 6.5 percentage points compared to the same period last year, which was the result of higher costs per kilogram of astaxanthin in the current quarter as well as customer mix.
Operating Expenses Operating expenses decreased by
Income Taxes We recorded a state income tax expense of
Liquidity and Capital Resources
As of
As of
In
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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. We have developed our operating plan to produce the cash flows necessary to grow our business and meet all financing requirements. Although we have a history of either being in compliance with debt covenants or obtaining the necessary waivers, execution of our operating plan is dependent on many factors, some of which are not within the control of the Company. Consequently, future results may 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,
2022 2021
Total cash provided by (used in):
Operating activities $ (1,299 ) $ (1,858 )
Investing activities (376 ) (171 )
Financing activities (177 ) (677 )
(Decrease) increase in cash $ (1,852 ) $ (2,706 ) Cash used in operating activities for the three months ended
Cash used in investing activities for the three months ended
Cash used in financing activities for the three months ended
Sources and Uses of Capital
As of
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.
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Table of Contents 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
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
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
Impact of Inflation
Inflationary factors such as increases in the costs of materials and labor directly affect our operations. While we have experienced some cost inflation on our inputs, it has not had a material effect on our financial results for the current quarter. 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.
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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
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