CYANOTECH CORP

Previous wording

Our success depends, to a significant extent, upon the services of our officers and key personnel, including qualified management, professional, scientific, and technical operating staff. The loss of any such personnel or the delay in the replacement of such personnel could significantly delay the achievement of our business objectives and could adversely affect our ability to do business or provide needed management. Attracting permanent skilled executives in Hawaii can be difficult due to limited local qualified applicants. If we are unable to attract qualified candidates, or if the search process takes longer than expected, it could adversely impact our business.

Current wording

Our success depends, to a significant extent, upon the services of our officers and key personnel, including qualified management, professional, scientific, and technical operating staff. The loss of any such personnel or the delay in the replacement of such personnel could significantly delay the achievement of our business objectives and could adversely affect our ability to do business or provide the management needed. Attracting permanent skilled executives in Hawaii can be difficult due to limited qualified local applicants. If we are unable to attract qualified candidates, or if the search process takes longer than expected, it could adversely impact our business.

Previous wording

Our top ten customers generated 69% and 66% of our net sales for fiscal years 2024 and fiscal 2023, respectively. Two customers individually accounted for 34% and 17%, and 34% and 6% of our total net sales in the fiscal years ended March 31, 2024 and 2023, respectively. Accordingly, the loss of one or more of those customers or a substantial decrease in such customers' purchases from us could result in a material reduction in our revenues and profitability.

Current wording

Our top ten customers generated 70% and 69% of our net sales for fiscal years 2025 and fiscal 2024, respectively. Two customers individually accounted for 31% and 10%, and 34% and 17% of our total net sales in the fiscal years ended March 31, 2025 and 2024, respectively. Accordingly, the loss of one or more of those customers or a substantial decrease in such customers' purchases from us could result in a material reduction in our revenues and profitability.

Previous wording

Compliance with new and existing governmental regulations could increase our costs significantly and adversely affect our results of operations.

Current wording

Compliance with new and existing government regulations could increase our costs significantly and adversely affect our results of operations.

Previous wording

Our two largest shareholders collectively own approximately 32.7% of our common stock. According to publicly filed beneficial ownership reports, as of the respective dates of such reports, Michael Davis, chairman of our board of directors, beneficially owned 1,356,894 of shares representing a 19.5% beneficial ownership and the Rudolf Steiner Foundation ("RSF"), beneficially owned 917,133 shares representing a 13.2% beneficial ownership. The shares held by RSF were originally donated by a foundation affiliated with Mr. Davis or acquired from the proceeds of donations made by that foundation. In addition, Mr. Davis and RSF filed a Schedule 13D with the SEC on March 17, 2017, announcing the formation of a “group” among the two of them and certain of Mr. Davis’ affiliates under Section 13 of the Exchange Act. As part of the agreement between Mr. Davis and RSF, RSF has agreed not to sell, transfer or otherwise dispose of any of its shares in the Company unless RSF provides concurrent written notice to an affiliate of Mr. Davis and the Company at least three days prior to the consummation of any such sale, transfer or other disposition. On August 24, 2023, 424,621 shares of our common stock owned by Skywords Family Foundation, Inc. (“Skywords”) was donated to Ginungagap Foundation, a Delaware corporation (“Ginungagap”), recognized as a tax-exempt organization. Mr. Davis serves as the President of both Skywords and Ginungagap and has recused himself from all matters related to the common stock owned by Ginungagap, including, without limitation, decisions to vote or dispose of Cyanotech common stock. Along with this recusal, the formation of this “group” was dissolved In addition, on April 12, 2019, the Company borrowed $1.5 million from an entity affiliated with Mr. Davis pursuant to an unsecured promissory note. 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. In December 2022, the Company amended the promissory note which extended the maturity to April 2025 and increased the revolving line amount from $0.5 million to $1.0 million. In August 2023, the Company amended the loan to increase the revolving line amount from $1.0 million to $2.0 million. As of both March 31, 2024 and 2023, $1.0 million remained due under this promissory note, and at March 31, 2024 and 2023, $1.25 million and $0.5 million were outstanding on the revolving line, respectively.

Current wording

Our two largest shareholders collectively own approximately 37.6% of our common stock. According to publicly filed beneficial ownership reports, as of the respective dates of such reports, Michael Davis, chairman of our board of directors, beneficially owned 1,788,756 of shares representing a 24.8% beneficial ownership and the Rudolf Steiner Foundation ("RSF") beneficially owned 917,133 shares representing a 12.7% beneficial ownership. The shares held by RSF were originally donated by a foundation affiliated with Mr. Davis or acquired from the proceeds of donations made by that foundation. In addition, Mr. Davis and RSF filed a Schedule 13D with the SEC on March 17, 2017, announcing the formation of a “group” among the two of them and certain of Mr. Davis’ affiliates under Section 13 of the Exchange Act. As part of the agreement between Mr. Davis and RSF, RSF has agreed not to sell, transfer or otherwise dispose of any of its shares in the Company unless RSF provides concurrent written notice to an affiliate of Mr. Davis and the Company at least three days prior to the consummation of any such sale, transfer or other disposition. On August 24, 2023, 424,621 shares of our common stock owned by Skywords Family Foundation, Inc. (“Skywords”) was donated to Ginungagap Foundation (“Ginungagap”), a Delaware corporation, recognized as a tax-exempt organization. Mr. Davis serves as the President of both Skywords and Ginungagap and has recused himself from all matters related to the common stock owned by Ginungagap, including, without limitation, decisions to vote or dispose of Cyanotech common stock. Along with this recusal, the formation of this “group” was dissolved. In addition, on April 12, 2019, the Company borrowed $1.5 million from an entity affiliated with Mr. Davis pursuant to an unsecured promissory note. In April 2021, the Company amended the loan, which extended the maturity date 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. In December 2022, the Company amended the promissory note which extended the maturity date to April 2025 and increased the revolving line amount from $0.5 million to $1.0 million. In August 2023, the Company amended the loan to increase the revolving line amount from $1.0 million to $2.0 million. In August 2024, the Company further amended the loan to increase the revolving line amount from $2.0 million to $4.0 million and extend the maturity date to April 2026. As of both March 31, 2025 and 2024, $1.0 million remained due under this promissory note, and as of March 31, 2025 and 2024, $3.0 million and $1.25 million, respectively, were outstanding on the revolving line, respectively.

Previous wording

The global cost of oil derived energy impacts us in several ways, and it may hinder our efforts to achieve profitability. Oil prices primarily impact us through the costs of electricity, transportation, materials and supplies which are tied to the cost of oil either directly or indirectly. The return of a high cost of oil on a global basis may signal a prolonged economic downturn resulting in a material adverse effect on our business.

Current wording

The global cost of oil derived energy impacts us in several ways, and it may hinder our efforts to achieve profitability. Oil prices primarily impact us through the costs of electricity, transportation, materials and supplies which are tied to the cost of oil either directly or indirectly. The return of the high cost of oil on a global basis may signal a prolonged economic downturn resulting in a material adverse effect on our business.

Previous wording

Our products are marketed in a number of countries around the world. For the year ended March 31, 2024, approximately 18% of our net sales were from sales to foreign customers. As a result, we are subject to a number of risks which include, but are not limited to:

Current wording

Our products are marketed in a number of countries around the world. For the year ended March 31, 2025, approximately 21% of our net sales were from sales to foreign customers. As a result, we are subject to a number of risks which include, but are not limited to:

Previous wording

Our manufacturing processes require that we purchase significant quantities of energy from third parties, which results in the generation of greenhouse gases, either directly onsite or indirectly at electric utilities. Both domestic and international legislation to address climate change by reducing greenhouse gas emissions and establishing a price on carbon could create increases in energy costs and price volatility. Considerable international attention is now focused on development of an international policy framework to address climate change. Proposed and existing legislative efforts to control or limit greenhouse gas emissions could affect our energy source and supply choices as well as increase the cost of energy and raw materials derived from sources that generate greenhouse gas emissions. If our suppliers are unable to obtain energy at a reasonable cost in the future, the cost of our raw materials could be negatively impacted which could result in increased manufacturing costs.

Current wording

Our manufacturing processes require that we purchase significant quantities of energy from third parties, which results in the generation of greenhouse gases, either directly onsite or indirectly at electric utilities. Both domestic and international legislation to address climate change by reducing greenhouse gas emissions and establishing a price on carbon could create increases in energy costs and price volatility. Considerable international attention is now focused on the development of an international policy framework to address climate change. Proposed and existing legislative efforts to control or limit greenhouse gas emissions could affect our energy source and supply choices as well as increase the cost of energy and raw materials derived from sources that generate greenhouse gas emissions. If our suppliers are unable to obtain energy at a reasonable cost in the future, the cost of our raw materials could be negatively impacted, which could result in increased manufacturing costs.

Previous wording

We regard our proprietary technology, trade secrets, trademarks and similar intellectual property as important and we rely on a combination of trade secret, contract, copyright and trademark law to establish and protect our rights in our products and technology. However, there can be no assurance that we will be able to protect our technology adequately or that competitors will not be able to develop similar technology independently, particularly following the expiration of our patents relating to the use of astaxanthin. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. Litigation in the United States or abroad may be necessary to enforce intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation, even if successful, could result in substantial costs and diversion of resources and could have a material adverse effect on our business, results of operations and financial condition. Additionally, if any such claims are asserted against us, we may seek to obtain a license under the third party’s intellectual property rights. There can be no assurance, however, that a license would be available on terms acceptable or favorable to us, if at all.

Current wording

We regard our proprietary technology, trade secrets, trademarks and similar intellectual property as important and we rely on a combination of trade secret, contract, copyright and trademark law to establish and protect our rights in our products and technology. However, there can be no assurance that we will be able to protect our technology adequately or that competitors will not be able to develop similar technology independently, particularly following the expiration of our patents relating to the use of astaxanthin. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. Litigation in the United States or abroad may be necessary to enforce intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation, even if successful, could result in substantial costs and diversion of resources and could have a material adverse effect on our business, results of operations and financial condition. Additionally, if any such claims are asserted against us, we may seek obtaining a license under the third party’s intellectual property rights. There can be no assurance, however, that a license would be available on terms acceptable or favorable to us, if at all.

Previous wording

We believe our cash to be provided from operations will be sufficient to meet a portion of our working capital and operating requirements for at least the next 12 months and may have to secure a commitment to fund the remaining gap, but we may experience unexpected reductions in sales due to changes in customer demand, customer purchasing practices, or other factors described in these Risk Factors. If we have an unexpected decline in sales, or we have other unexpected capital needs, we may need to raise additional funds. There is no guarantee that we will be able to secure such funding on acceptable terms, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our then current stockholders may be reduced. If we raise additional funds through the issuance of convertible debt securities, or through additional debt or similar instruments, such securities, debt, or similar instruments could have rights senior to those of our common stockholders and such instruments could contain provisions restricting our operations. If adequate funds are not available to satisfy either short-term or long-term capital requirements, we may be required to limit operations with adverse results.

Current wording

We believe our cash to be provided from operations will be sufficient to meet a portion of our working capital and operating requirements and may have to secure a commitment to fund the remaining gap, but we may experience unexpected reductions in sales due to changes in customer demand, customer purchasing practices, or other factors described in these Risk Factors. If we have an unexpected decline in sales, or we have other unexpected capital needs, we may need to raise additional funds. There is no guarantee that we will be able to secure such funding on acceptable terms, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our then current stockholders may be reduced. If we raise additional funds through the issuance of convertible debt securities, or through additional debt or similar instruments, such securities, debt, or similar instruments could have rights senior to those of our common stockholders and such instruments could contain provisions restricting our operations. If adequate funds are not available to satisfy either short-term or long-term capital requirements, we may be required to limit operations with adverse results.

Previous wording

As of March 31, 2024, we owed First Foundation Bank (the “Bank”) approximately $3.2 million under a Term Loan Agreement dated August 14, 2012, which requires monthly payments of principal and interest until its maturity on August 14, 2032. If we are unable to make payments when due under this agreement, or repay this obligation at maturity, and we are otherwise unable to extend the maturity date or refinance this obligation, we would be in default. We cannot provide any assurances that we will be able to generate the necessary amount of capital to make payments as they become due, or to repay this obligation, or that we will be able to extend the maturity date or otherwise refinance this obligation. In the event of default, the Bank would have the right to exercise its rights and remedies to collect, which would include foreclosing on our assets. Accordingly, a default would have a material adverse effect on our business and, if the Bank exercises its rights and remedies, we would likely be forced to seek bankruptcy protection.

Current wording

As of March 31, 2025, we owed First Foundation Bank (the “Bank”) approximately $3.0 million under a Term Loan Agreement dated August 14, 2012, which requires monthly payments of principal and interest until its maturity on August 14, 2032. If we are unable to make payments when due under this agreement, or repay this obligation at maturity, and we are otherwise unable to extend the maturity date or refinance this obligation, we would be in default. We cannot provide any assurances that we will be able to generate the necessary amount of capital to make payments as they become due, or to repay this obligation, or that we will be able to extend the maturity date or otherwise refinance this obligation. In the event of default, the Bank would have the right to exercise its rights and remedies to collect, which would include foreclosing on our assets. Accordingly, a default would have a material adverse effect on our business and, if the Bank exercises its rights and remedies, we would likely be forced to seek bankruptcy protection.

Previous wording

In addition, the agreements governing our indebtedness include certain debt service and other financial covenants that we must satisfy. In previous years, we have defaulted on certain of these covenants and have received waivers of the defaults from the Bank. As of March 31, 2024, the Company was not in compliance with the required debt service coverage and current ratios. The Company is currently seeking a waiver of such default, however, we cannot provide any assurance that the Bank will provide us with such a waiver. As of March 31, 2023, the Company was not in compliance with the required debt service coverage ratio, but the Bank provided a waiver of the default on June 22, 2023 and implemented an immediate freeze on any and all further advances of the Revolving Credit Agreement (the “Credit Agreement”) through the maturity date. We cannot provide any assurance that the Bank would provide us with a waiver should we not be in compliance in the future. A failure to maintain compliance along with our lender not agreeing to a waiver for the non-compliance would cause the outstanding borrowings to be in default and payable on demand which would have a material adverse effect on us and our ability to continue as a going concern.

Current wording

In addition, the agreements governing our indebtedness include certain debt service and other financial covenants that we must satisfy. In previous years, we have defaulted on certain of these covenants and have received waivers of the defaults from the Bank. As of March 31, 2025, the Company was not in compliance with the required debt service coverage and current ratios, however, was in compliance with the third covenant. On June 4, 2025, the Bank issued a letter waiving the covenant violations as of March 31, 2025. As of March 31, 2024, the Company was not in compliance with the debt service coverage and current ratios. On September 12, 2024, the Bank issued a letter waiving the covenant violations as of March 31, 2024. As of March 31, 2023, the Company was not in compliance with the required debt service coverage ratio, but the Bank provided a waiver of the default on June 22, 2023 and implemented an immediate freeze on any and all further advances of the Revolving Credit Agreement (the “Credit Agreement”) through the maturity date. We cannot provide any assurance that the Bank will provide us with a waiver should we not be in compliance in the future. A failure to maintain compliance along with our lender not agreeing to a waiver for the non-compliance would cause the outstanding borrowings to be in default and payable on demand which would have a material adverse effect on us and our ability to continue as a going concern.

Previous wording

As of March 31, 2024, we had an accumulated deficit of approximately $22.9 million, primarily as a result of current and prior year losses. Historically, we have relied upon cash from operations and financing activities to fund all of the cash requirements of our business. However, no assurance can be provided that we will return to profitability and, even if we do return to profitability, extended periods of profitability and net income do not assure positive cash flows. Future periods of net losses from operations could result in negative cash flow, may cause us to default on certain covenants in our existing debt instruments and may hamper ongoing operations and prevent us from sustaining or expanding our business. We cannot assure you that we will achieve, sustain or increase profitability on a quarterly or annual basis in the future. If we do not achieve, sustain or increase profitability, our business will be adversely affected and our stock price may decline.

Current wording

As of March 31, 2025, we had an accumulated deficit of approximately $26.1 million, primarily as a result of current and prior year losses. Historically, we have relied upon cash from operations and financing activities to fund all of the cash requirements of our business. However, no assurance can be provided that we will return to profitability and, even if we do return to profitability, extended periods of profitability and net income do not assure positive cash flows. Future periods of net losses from operations could result in negative cash flow, may cause us to default on certain covenants in our existing debt instruments and may hamper ongoing operations and prevent us from sustaining or expanding our business. We cannot assure you that we will achieve, sustain or increase profitability on a quarterly or annual basis in the future. If we do not achieve, sustain or increase profitability, our business will be adversely affected and our stock price may decline.

Previous wording

The price at which you purchase shares of our common stock may not be indicative of the price that will prevail later in the trading market. You may be unable to sell your shares of common stock at or above your purchase price, which may result in substantial losses to you. As of March 31, 2024, there were approximately 6.9 million shares of our common stock outstanding and stockholders holding at least 5% of our stock, individually or with affiliated persons or entities, collectively beneficially owned or controlled approximately 32.7% of such shares. Sales of large numbers of shares by any of our large stockholders could adversely affect our trading price, particularly given our relatively small historic trading volumes. If stockholders holding shares of our common stock sell, indicate an intention to sell, or if it is perceived that they will sell, substantial amounts of their common stock in the public market, the trading price of our common stock could decline. Moreover, if there is no active trading market or if the volume of trading is limited, holders of our common stock may have difficulty selling their shares.

Current wording

The price at which you purchase shares of our common stock may not be indicative of the price that will prevail later in the trading market. You may be unable to sell your shares of common stock at or above your purchase price, which may result in substantial losses to you. As of March 31, 2025, there were approximately 7.2 million shares of our common stock outstanding and stockholders holding at least 5% of our stock, individually or with affiliated persons or entities, collectively beneficially owned or controlled approximately 32.4% of such shares. Sales of large numbers of shares by any of our large stockholders could adversely affect our trading price, particularly given our relatively small historic trading volumes. If stockholders holding shares of our common stock sell, indicate an intention to sell, or if it is perceived that they will sell, substantial amounts of their common stock in the public market, the trading price of our common stock could decline. Moreover, if there is no active trading market or if the volume of trading is limited, holders of our common stock may have difficulty selling their shares.