CYANOTECH CORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2025

Cyanotech Corporation (collectively with its subsidiary referred to herein as the “Company”), located in Kailua-Kona, Hawaii, was incorporated in the state of Nevada on* March 3, 1983,*and is traded on the OTCQB Market under the symbol “CYAN”. The Company is engaged in the production of natural products derived from microalgae for the dietary 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 includeHawaiian Spirulina Pacifica®, a superfood with numerous benefits, including boosting the immune system and overall cellular health; andBioAstin®* Hawaiian Astaxanthin*®, 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 Form10-Q and Regulation S-X of the Securities and Exchange Commission (the “SEC”). These interim condensed consolidated financial statements are unaudited and, accordingly, they donot include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements 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.

The results of operations for the interim periods arenot necessarily indicative of the results expected for the full fiscal year. The Condensed Consolidated Balance Sheet as of* March31,* 2025 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* March31,* 2025, contained in the Company’s annual report on Form10-K as filed with the SEC on* June 20, 2025.*

Liquidity and Going Concern

The accompanying condensed consolidated financial statements, as of and for thethree andsix months ended* September 30, 2025and2024,* and as of* March 31, 2025have been prepared assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company sustained operating losses and negative cash flows from operations for most of these same periods. Further, as discussed below, the Company wasnot* in compliance withtwo debt covenant requirements as of* March 31, 2025and2024.* In* June 2023,First Foundation Bank (the “Bank”) instituted a freeze on additional advances from the Revolving Credit Agreement (the “Line of Credit”). These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements donot* include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expense that* may*be necessary if the Company was unable to continue as a going concern.

As of* September 30, 2025,the Company had cash of $649,000 and working capital of $39,000 compared to $257,000 and $302,000, respectively, as of March 31, 2025.The Company had the Line of Credit with the Bank that provided for borrowings up to $2,000,000 on a revolving basis, however, as part of the covenant waiver as of March 31, 2023,the borrowings under the Line of Credit were frozen. On October 13, 2023,the Bank converted the Line of Credit to a term loan in the amount of $1,480,000 with an original maturity date of August 30, 2024 (the“2023* Loan”). As of* September 30, 2025and March 31, 2025,the Company had $370,000 and $760,000, respectively, outstanding on the2023* Loan, with a maturity date extended to* March 31, 2026 (see Note5*).

The Company also has a loan facility with a related party that allows the Company to borrow up to $4,600,000 on a revolving basis (the “Revolver”). As of* September 30, 2025and March 31, 2025,the Company had $4,200,000 and $3,000,000, respectively, of outstanding borrowings on the Revolver, which was included in line of credit – related party on the Condensed Consolidated Balance Sheets. The Revolver expires on April 12, 2027 (see Notes5* and12).

As of* September 30, 2025,the Company had $2,809,000 outstanding debt payable to the Bank (“2012* Loan”) that requires the payment of principal and interest monthly through* August 2032.Pursuant to the2012* Loan and the2023 Loan, the Company is subject to annual financial covenants, customary affirmative and negative covenants, and certain subjective acceleration clauses. As of* March 31, 2025,the Company’s debt service coverage ratio and current ratio fell short of the Bank’s annual requirement. On June 4, 2025,the Bank provided the Company with a letter waiving the covenant violations as of March 31, 2025,*but noting that the Bank reserves its right to declare a default in the future if any covenants remain out of compliance at applicable measurement dates.

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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,** December 14, 2022,** August 14, 2023,** August 9, 2024,and May 2, 2025,the Company amended this loan (see Notes5* and12). As of both* September 30, 2025and March 31, 2025,the Company had $1,000,000 outstanding on the related party note. The loan matures on April 12, 2027.*

The Company has historically incurred losses from operations and continues to rely on its funding sources to provide liquidity. To address the resulting continued cash flow challenges, the Company continues to monitor cost savings initiatives implemented in fiscal year2023. This includes stopping or slowing production of inventory in alignment with current customer demand, maintaining a reduced headcount and compensation, primarily through attrition and furloughs, respectively, and eliminating certain discretionary selling, general and administrative expenses.

Funds generated by operating activities and available cash are the Company’s most significant sources of liquidity for working capital requirements, debt service, and funding of maintenance levels of capital expenditures. The Company has developed its operating plan to generate a significant portion of the cash flows necessary to meet all financing requirements, with the remaining need for capital raising. Although the Company has a history of either being in compliance with debt covenants, or obtaining the necessary waivers, execution of its operating plan is dependent on many factors, some of which arenot within the control of the Company. However,no assurances can be provided that the Company will achieve its operating plan and cash flow projections for the next fiscal year or its projected consolidated financial position as of* September 30, 2026.*Such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results.

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”. The Company operates inone business segment and usesone measurement of profitability for its business. Intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated 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 condensed consolidated 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.

Financial Instruments and Fair Value

The Company applies a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level1 measurements) and the lowest priority to unobservable inputs (level3 measurements). Thethree levels of the fair value hierarchy are described below:

If the asset or liability has a specified contractual term, the Level2 input must be observable for substantially the full term of the asset or liability.

There wereno financial assets or liabilities measured at fair value on a recurring basis as of* September 30, 2025and March 31, 2025.*

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Accounts Receivable, Accounts Payable, Accrued Expenses and Customer Deposits - Due to the short-term nature of these instruments, management believes that the carrying amounts approximate fair value.

Line of Credit, Revolver, Short-Term and Long-Term Debt - The carrying amount of the Line of Credit, Revolver and short and long-term debt approximates fair value as interest rates applied to the underlying debt are adjusted quarterly to market interest rates, which approximate current interest rates for similar debt instruments of comparable maturities.

Cash

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

Concentration Risk

A significant portion of revenues and accounts receivables are derived from a few major customers. For thethree months ended* September 30, 2025,three customers individually accounted for 23%,16% and 11% of the Company’s total net sales, and for thethree* months ended* September 30, 2024,two customers individually accounted for 33% and 9% of the Company’s total net sales. For thesix* months ended* September 30, 2025,three customers individually accounted for 22%,14% and 11% of the Company’s total net sales, and for thesix months ended September 30, 2024,two customers individually accounted for 32% and 11% of the Company’s total net sales. Three customers accounted for 74% of the Company’s accounts receivable balance as of September 30, 2025andtwo customers accounted for 61% of the Company’s accounts receivable balance as of March 31, 2025.*

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and donot accrue interest. Credit is extended based on evaluation of the customer’s financial condition. Collateral isnot required. The allowance for credit losses reflects management’s best estimate of expected credit losses inherent in the accounts receivable balance. Management determines the allowance based on historical experience, specifically identified nonpaying accounts and other currently available evidence. Management reviews its customer account balances monthly with a focus on significant individual past due balances over90 days. All other balances are reviewed on a pooled basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company doesnot have any off-balance sheet credit exposure related to its customers or otherwise.

Segment Reporting

Operating segments are identified as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company determined that based on the regularly reviewed and provided financial package to its Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), that the CEO and CFO together are its singular Chief Operating Decision Maker (the “CODM”). Additionally, the Company determined that due to its sole focus on the cultivation and production of microalgal products, the Company views its operations and manages its business asone operating and reportable segment focused on the manufacture and distribution of natural products derived from microalgae, astaxanthin and spirulina.

The CODM manages the business based on condensed consolidated financial results and use consolidated net income or loss, including significant operating expenses, for the purpose of assessing performance, allocating resources across departments, and making operating decisions.

The CODM uses consolidated income (loss) from operations and operating expenses to monitor actual results versus budget and prior year’s results, which facilitates the assessment of the Company’s performance in line with the Company’s strategic goals. Monitoring of budget versus actual results are used in assessing performance of the segment and in establishing management’s compensation.

All revenue, operating expenses and assets attributed to thisone segment are reflected in the condensed consolidated financial statements. The Company’s significant segment expenses align with the categories on the Condensed Consolidated Statements of Operations. The measure of segment assets is reported on the Condensed Consolidated Balance Sheets as total consolidated assets. All segment long-lived assets are located in the United States of America.

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Revenue Recognition

The Company records revenue based on thefive-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 its microalgal dietary supplements to retailers, wholesalers, or direct to consumers via online channels, with each order considered to be a distinct performance obligation. These orders* maybe 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 arenot* 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, typically30 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 fromone 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 Condensed Consolidated Balance Sheets. During thethree months ended* September 30, 2025and2024,* the Company recognized $485 and $33, respectively, of revenue from deposits that were included in contract liabilities as of* March 31, 2025and2024,* respectively. During thesix months ended* September 30, 2025and2024,* the Company recognized $42,000 and $45,000, respectively, of revenue from deposits that were included in contract liabilities as of* March 31, 2025and2024,* respectively. The Company’s contracts have a duration ofone year or less and therefore, the Company has elected the practical expedient ofnot 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:

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Recent Accounting Pronouncements

In* December 2023,the FASB issued ASU2023*-09, “Income Taxes (Topic740*): Improvements to Income Tax Disclosure*” (“ASU2023-09”), which enhances the transparency and decision usefulness of income tax disclosures. Adjustments to the annual disclosure of income taxes include: a tabulate rate reconciliation comprised ofeight specific categories; income taxes paid, disaggregated between significant federal, state, and foreign jurisdictions; eliminating requirements to disclose the nature and estimate of reasonably possible changes to unrecognized tax benefits in the next12 months or that an estimated range cannot be made; and adds a requirement to disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) from continuing operations disaggregated between domestic and foreign. ASU2023-09 is effective for public business entities for fiscal years beginning on or after* December 15, 2024,with early adoption permitted. The amendments in ASU2023*-09 should be applied on a prospective basis, however retrospective application is permitted. The Company is currently evaluating ASU2023-09 to determine its impact on the Company’s disclosures.

In* November 2024,the FASB issued ASU2024*-03, “Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic220*-40) Disaggregation of Income Statement Expenses*” (“ASU2024-03”), which enhances the disclosure of expenses on the income statement. ASU2024-03 is effective for annual reporting periods beginning after* December 15, 2026,and interim reporting periods within annual reporting periods beginning after December 15, 2027.The Company is currently evaluating ASU2024*-03 to determine its impact on the Company’s disclosures.

In* July 2025,the FASB issued ASU2025*-05, “Financial Instruments–* Credit Losses (Topic326): Measurement of Credit Losses for Accounts Receivable and Contract Assets*” (“ASU2025-05”). This update introduces a practical expedient and an accounting policy election intended to simplify the application of the credit loss model to current accounts receivable and contract assets arising from transactions accounted for under Topic606, Revenue from Contracts with Customers. The practical expedient allows entities to assume that current conditions as of the balance sheet date remain unchanged for the remaining life of the asset. ASU2025-05 is effective for annual and interim periods beginning after* December 15, 2025,with early adoption permitted. The Company is currently evaluating the impact of ASU2025*-05 on its financial statements.

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

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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 abnormal production capitalization of $56,000 and $53,000 for thesix months ended* September 30, 2025and2024,* respectively.

Starting in fiscal year2025, cultivation of astaxanthin was completed in the most productive months of the year. 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 $0 and $15,000 were expensed to cost of sales for thethree months ended* September 30, 2025and2024,* respectively. Other non-inventoriable fixed costs of $0 and $83,000 were expensed to cost of sales for thesix months ended* September 30, 2025and2024,* respectively.

Equipment and leasehold improvements, net consist of the following as of:

Management has determined thatno asset impairment existed as of* September 30, 2025.Depreciation and amortization expense was approximately $346,000 and $373,000 for thethree* months ended* September 30, 2025and2024,* respectively. Depreciation and amortization expense was approximately $708,000 and $751,000 for thesix months ended* September 30, 2025and2024,* respectively.

Total debt consists of the following as of:

Line of Credit and Term Loans

On* June 3, 2016,the Company entered into a Credit Agreement with the Bank, after the necessary approvals from the State of Hawaii were received, to secure the lien on the Company’s leasehold property in Kona, Hawaii. The Credit Agreement further defined the terms and conditions for the2012* Loan and allowed for the Line of Credit, which was subsequently converted to the2023 Loan. 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. Borrowings under the Credit Agreement bear interest at the Wall Street Journal prime rate plus 2%, floating, provided that atno time shall the annual interest rate be less than 5.25%.

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On* October 13, 2023,the Bank converted the Line of Credit to the2023* Loan in the amount of $1,480,000, withno further advances or disbursements under this facility, with an original maturity of* August 30, 2024.On August 28, 2024,the Bank extended the maturity date of the2023* Loan from* August 30, 2024to March 31, 2025.On June 2, 2025,the Bank extended the maturity date of the2023* Loan from* March 31, 2025to March 31, 2026,at which time the full unpaid principal balance owed under the Credit Agreement, together with all interest, shall be due and payable in full. The2023* Loan was amended to requirefour equal installments due* May 2025through August 2025of $77,500 plus interest accrued, then beginning in September 2025,monthly payments of $40,000 plus interest accrued. All interest on the unpaid balance of the loan is accrued at the Wall Street Journal prime rate plus 2%, floating, provided that atno* time shall the annual interest rate be less than 7.0%. As of* September 30, 2025and March 31, 2025,the Company had $370,000 and $760,000, respectively, outstanding on the2023* Loan which bears interest for both periods at 7.5% plus 2%. The2023 Loan was included in current liabilities on the Condensed Consolidated Balance Sheets.

In2012, the Company executed the2012 Loan with a lender providing for $5,500,000 in aggregate borrowings 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”). The2012 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 United States Department of Agriculture (“USDA”) Rural Development Guarantee program. The proceeds of the2012 Loan were used to acquire processing equipment and leasehold improvements at its Kona, Hawaii facility.

The provisions of the2012 Loan required the payment of interest only for thefirst 12 months of the term; thereafter, and until its maturity on* August14,* 2032, the obligation fully amortizes over nineteen (19) years. Interest on the2012 Loan accrues on the outstanding principal balance at an annual variable rate equal to the published Wall Street Journal prime rate as published at the beginning of the billing cycle (7.5% at both* September 30, 2025and March31,* 2025) plus 1.0% and is adjustable on thefirst day of each calendar quarter and fixed for that quarter, provided that atno time shall the annual interest rate be less than 5.5%. The balance under the2012 Loan was $2,809,000 and $2,954,000 as of* September 30, 2025and March**31,* 2025, respectively, and was included in current maturities of long-term debt in the debt table above. See Loan Covenants, Violations and Waiver below.

The2012 Loan included aone-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* December31* of each year, beginning* December31,* 2012. The USDA has guaranteed 80% of all amounts owing under the2012 Loan. The balance in unamortized debt issuance costs was $62,000 and $68,000 as of* September 30, 2025and March 31, 2025,*respectively, and was included in current maturities of long-term debt in the debt table above. See Loan Covenants, Violations and Waiver below.

In* September 2025,the Company purchased production equipment from John Deere in the amount of $63,000. The Company made a down payment of $12,000 and financed the remaining $51,000 through a Loan Contract - Security Agreement with John Deere Financial (the “John Deere Agreement”). The related asset was recorded at $53,000 which resulted in a discount on loan payable of $10,000. The imputed interest rate is 8%. The John Deere Agreement provides for monthly payments through October 2030.*

Loan Covenants, Violation and Waiver

The Company’s2023 Loan and the2012 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, 2023,the Company wasnot* in compliance with the required debt service coverage ratio, however, was in compliance with thetwo other covenants. Due to this violation, the Bank would be contractually entitled to require immediate repayment of the outstanding term loans and the outstanding line of credit balance. On* June 22, 2023,the Bank issued the Company a letter waiving the covenant violation as of March 31, 2023,and implemented an immediate freeze on any and all further advances of the Credit Agreement through the maturity date. As of March 31, 2024,the Company wasnot* in compliance with the debt service coverage and current ratio, however, was in compliance with thethird covenant. On* September 12, 2024,the Bank issued a letter waiving the covenant violations as of March 31, 2024,but noting that the Bank reserves its right to declare a default in the future, if any covenants remain out of compliance at applicable measurement dates. As of March 31, 2025,the Company wasnot* in compliance with the debt service coverage and current ratio, however, was in compliance with thethird covenant. On* June 4, 2025,the Bank issued a letter waiving the covenant violations as of March 31, 2025,but there can beno* assurance that the Bank will provide such a waiver and* may*declare a default if any covenants remain out of compliance at applicable measurement dates.

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Although the2012 Loan matures in* August 2032,it is probable that a debt covenant violation occurs within the nexttwelve* months. Therefore, the2012 Loan and related unamortized debt issuance costs are classified as current on the Condensed Consolidated Balance Sheets as of* September 30, 2025and March 31, 2025.*

Line of Credit and Debt–* Related Party*

In* April 2019,the Company obtained a loan pursuant to the Skywords Note (as defined below in Note12* Related Party Transactions) in the amount of $1,500,000 with a related party and the interest was payable quarterly. The Skywords Note was originally due in* April 2021.In April 2021,the Company amended the Skywords Note, which extended the maturity date to April 2024,converted $500,000 into the Revolver, 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 Skywords Note, the Company repaid in cash the principal amount of $500,000 plus accrued interest to date of $1,900 (see Note12*). In* December 2022,the Company further amended the Skywords Note to extend the maturity date to April 2025and increase the Revolver to $1,000,000. On August 14, 2023,the Company further amended the Skywords Note to increase the Revolver to $2,000,000. On August 9, 2024,the Company further amended the Skywords Note to increase the Revolver from $2,000,000 to $4,000,000 and extend the maturity date to April 2026,as well as to extend the maturity of the Skywords Note to April 12, 2027.On August 29, 2025,the Company further amended the Skywords Note to increase the Revolver from $4,000,000 to $4,600,000 and extend the maturity of the Skywords Revolver to April 12, 2027.*

The balance under the Skywords Note was $1,000,000 as of both* September 30, 2025and March 31, 2025.The balance was included in long-term debt as of both September 30, 2025and March 31, 2025,in the debt table above. As of September 30, 2025and March 31, 2025,the balance under the Revolver was $4,200,000 and $3,000,000, respectively, which was included in line of credit – related party in the debt table above. Interest accrues on the outstanding principal balance and the Revolver at an annual variable rate equal to the published Wall Street Journal prime rate at the beginning of the billing cycle (7.5% at both September 30, 2025and March**31,* 2025) plus 1.0% and is adjustable on thefirst day of each calendar quarter and fixed for that quarter, provided that atno time shall the annual interest rate be less than 5.0%.

Future principal payments, excluding related party line of credit and unamortized debt issuance costs, under the term loans as of* September 30, 2025*are as follows:

The Company leases facilities, equipment and land under non-cancelable operating leases expiring through2037. One of its facility leases contains price escalations and a renewal option forfive 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 are based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate based on the information available at recognition, and the Company has elected to exclude non-lease components. The Company also leasestwo 84-month solar leases fortwo of its buildings, and a 48-month lease for equipment, which are included in the right-of-use assets and liabilities. As of* September 30, 2025,the weighted average remaining lease term of all operating leases was 8.3 years, and the weighted average discount rate was 7.4%. Operating lease costs were $205,000 and $434,000 for thethree* months ended* September 30, 2025and2024,* respectively, and $408,000 and $637,000, for thesix months ended* September 30, 2025and2024,* respectively.

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

Maturities of lease liabilities as of* September 30, 2025*are as follows:

Accrued expenses consist of the following as of:

From time to time, the Company* maybe involved in litigation and investigations relating to claims and matters arising out of its operations in the normal course of business. There wereno* significant legal matters outstanding as of* September 30, 2025.*

The Company has share-based compensation plans, which are more fully described in Note9 Share-Based Compensation, to the consolidated financial statements included in the Company’s annual report on Form10-K for the fiscal year ended* March 31, 2025as filed with the SEC on June 20, 2025.*

As of* September 30, 2025,the Company hadtwo equity-based compensation plans: the2016* Equity Incentive Plan (the*“2016* Plan”) and the2024 Independent Director Stock Option and Restricted Stock Grant Plan (the*“2024* Directors Plan”). These plans allow the Company to award stock options, restricted stock units, and shares of restricted common stock to eligible employees, certain outside consultants and independent directors. The Company has also issued stock options, which remain outstanding as of* September 30, 2025under the2014* Independent Director Stock Option and Restricted Stock Grant Plan and Amendment (the*“2014* Directors Plan”), an equity-based compensation plan which expired in accordance with its terms on* August 22, 2024.*This plan allowed the Company to award stock options and shares of restricted common stock to independent directors.

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

Stock Options

All stock option grants made under the equity-based compensation plans were issued at exercise pricesno less than the Company’s closing stock price on the date of grant. Options under the2016 Plan,2024 Directors Plan and2014 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 often (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 stock options, the expected stock price volatility over the expected term of the stock 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 $7,000 and $10,000 for thethree months ended* September 30, 2025and2024,* respectively. Compensation expense recognized for options issued under all Plans was $26,000 and $39,000 for thesix months ended* September 30, 2025and2024,* respectively.

A summary of option activity under the Company’s stock plans for thesix months ended* September 30, 2025*is presented below:

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 $0.30 and $0.35 as of* September 30, 2025and March 31, 2025,respectively. The calculation of the number of vested and expected to vest shares of 640,687 as of September 30, 2025*includes an implied forfeiture rate.

A summary of the Company’s non-vested options for thesix months ended* September 30, 2025*is presented below:

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The weighted average grant-date fair value of stock options granted during thesix months ended* September 30, 2025was $89,000. As of September 30, 2025,*total unrecognized stock-based compensation expense related to all unvested stock options was $90,000, which is expected to be expensed over a weighted average period of 2.6 years.

Restricted Stock Units (“RSUs”)

RSUs are service-based awards granted to eligible employees under the2016 Plan. RSUs represents a right toone share of the Company’s common stock upon vesting. The RSUs arenot entitled to voting rights until vested and generally vest over aone-to-three-year period, subject to the employees’ continued employment with the Company on each vesting date. The fair value of RSUs is based on the closing price of the Company’s common stock on the date of the grant and is amortized to share-based compensation expense over the estimated life of the award, generally the vesting period. Compensation expense recognized for RSUs issued under the2016 Plan was $17,000 and $32,000 for thethree months ended* September 30, 2025and2024,* respectively. Compensation expense recognized for RSUs issued under the2016 Plan was $47,000 and $51,000 for thesix months ended* September 30, 2025and2024,* respectively.

The following table summarizes information related to awarded RSUs:

As of* September 30, 2025,*total unrecognized stock-based compensation expense related to unvested restricted stock units was $23,000, which is expected to be expensed over a weighted average period of 2.6 years.

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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 recordedno income tax expense for thethree andsix months ended* September 30, 2025and2024,* therefore resulting in 0.0% effective tax rate for both periods. The effective tax rate differs 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 isnot more likely thannot 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 andeleven 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* maydisagree 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.

On* July 4, 2025,the President of the U.S. signed into law significant federal tax legislation,H.R.1 (the “Tax Reform Act of2025”). The legislation includes numerous changes to U.S. corporate income tax law, including butnot* limited to: permanent100% bonus depreciation for qualified property, immediate expensing of domestic research and experimental expenditures, modifications to the limitation on business interest expense, increased Section179 expensing limits, changes to the international tax regime, and expanded limitations on the deductibility of executive compensation under IRC Section162(m). Most provisions are effective for tax years beginning after* December 31, 2024,with certain transition rules and exceptions. The Company doesnot* expect the Tax Reform Act of2025 to have a material impact on its effective tax rate for the fiscal year ended* March 31, 2026.*

Basic income/(loss) per share is computed on the basis of the weighted average number of common shares outstanding. Diluted net income 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 net income/(loss) per share computations for thethree andsix months ended* September 30, 2025and2024* are as follows:

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Basic and diluted per share amounts are the same in periods of a net loss because common share equivalents are anti-dilutive when a net loss is recorded. The diluted shares were immaterial in the calculation of the weighted average number of shares for thethree months ended* September 30, 2025.*Restricted stock units become dilutive within the period granted and remain dilutive until the units vest and are then included in the calculation of basic net income per share.

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 theprime 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 were originally 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 (as amended from time to time, 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 convert $500,000 of the outstanding principal amount into revolving loans that maybe prepaid and reborrowed from time to time in principal amountsnot* to exceed $500,000, extend the maturity date bythree 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 theprime rate (as published by the Wall Street Journal), which will be recalculated and payable on a quarterly basis, provided that atno* time shall the annual interest rate be less than 5%. 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 totwo* 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.

On* December 14, 2022,the Company entered into a First Amendment (the “Amendment”) to the Skywords Amended Note. The Amendment extends the maturity date to April 12, 2025and increases the revolving amount that the Company may*borrow from time to time under the Skywords Note from $500,000 to $1,000,000.

On* August 14, 2023,the Company entered into a Second Amendment (the “Second Amendment”) to the Skywords Amended Note. The Second Amendment increases the revolving amount that the Company may*borrow from time to time under the Skywords Amended Note from$1,000,000 to $2,000,000.

On* August 9, 2024,the Company entered into the Third Amendment (the “Third Amendment”) to the Skywords Amended Note. The Third Amendment extends the maturity date to April 12, 2026and increases the revolving amount that the Company mayborrow from time to time under the Skywords Note from $2,000,000 to $4,000,000. The Third Amendment also extends the maturity date of the Skywords Note to April 12, 2027.*

On* May 2, 2025,the Company entered into the Fourth Amendment (the “Fourth Amendment”) to the Skywords Amended Note. To assist in reducing the Company’s ongoing cash outflows, the Fourth Amendment allows the Company to elect to pay the interest accrued during the fiscal year ended March 31, 2026*in the form of its common stock in lieu of cash.

On* August 29, 2025,the Company entered into the Fifth Amendment (the “Fifth Amendment”) to the Skywords Amended Note to increase the Revolver from $4,000,000 to $4,600,000 and extended the maturity of the Skywords Amended Note to April 12, 2027.*

As of* September 30, 2025and2024,* the Skywords Amended Note principal balance was $1,000,000, and was included in long-term debt on the Condensed Consolidated Balance Sheets. As of* September 30, 2025and March 31, 2025,the balance on the Revolver was $4,200,000 and $3,000,000, respectively, and was included in line of credit – related party on the Condensed Consolidated Balance Sheets. At September 30, 2025,the interest rate was 7.5% and March 31, 2025,*the interest rate was 7.5%.

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