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 ~~December 31, 2021~~June 30, 2022

☐

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 ~~February 4,~~August 5, 2022, the number of shares outstanding of the registrant’s common stock was ~~6,194,166.~~6,207,482.

Table of Contents

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:

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.~~2022. 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:

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.”

	December 31, 2021			March 31, 2021			June 30, 2022			March 31, 2022
ASSETS
Current assets:
Cash	$	2,298		$	3,767		$	737		$	2,589
Accounts receivable, net of allowance for doubtful accounts of $156 as of December 31, 2021 and $32 as of March 31, 2021		4,526			2,436
Accounts receivable, net of allowance for doubtful accounts of $67 as of June 30, 2022 and March 31, 2022								3,201			3,664
Inventories		8,724			8,415			10,699			9,466
Prepaid expenses and other current assets		293			488			386			545
Total current assets		15,841			15,106			15,023			16,264

Equipment and leasehold improvements, net		11,936			12,136			11,916			11,885
Operating lease right-of-use assets, net		3,412			3,517			3,682			3,787
Other assets		112			120			95			109
Total assets	$	31,301		$	30,879		$	30,716		$	32,045

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,275		$	2,287		$	1,927		$	2,362
Accrued expenses		1,291			844			1,337			1,412
Customer deposits		83			124			79			164
Operating lease obligations, current portion		382			343			344			393
Line of credit		0			1,000
Current maturities of long-term debt		626			1,210			386			490
Total current liabilities		4,657			5,808			4,073			4,821

Long-term debt, less current maturities		4,400			4,823			4,273			4,336
Long-term operating lease obligations		3,027			3,175			3,325			3,386
Other long-term liabilities		20			32			11			15
Total liabilities		12,104			13,838			11,682			12,558

Commitments and contingencies

Stockholders’ equity:
Preferred stock of $0.01 par value, authorized 10,000,000 shares; no shares issued and outstanding		0			0			0			0
Common stock of $0.02 par value, authorized 50,000,000 shares; issued and outstanding 6,194,166 shares at December 31, 2021 and 6,116,073 shares at March 31, 2021		124			122
Common stock of $0.02 par value, authorized 50,000,000 shares; issued and outstanding 6,203,643 shares at June 30, 2022 and 6,202,223 shares at March 31, 2022								124			124
Additional paid-in capital		33,544			33,267			33,576			33,557
Accumulated deficit		(14,471	)		(16,348	)		(14,666	)		(14,194	)
Total stockholders’ equity		19,197			17,041			19,034			19,487
Total liabilities and stockholders’ equity	$	31,301		$	30,879		$	30,716		$	32,045

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

Issuances of common stock for Director Stock Grants
55,438 1 157 0 158
Issuance of vested shares of restricted stock
34,751 1 (40
)
0 (39
)
Shares withheld for tax payments
(12,096
)
0 0 0 0
Share-based compensation expense
— 0 160 0 160
Net income
— 0 0 1,877 1,877
Balances at December 31, 2021
6,194,166 $ 124 $ 33,544 $ (14,471
)
$ 19,197

Balances at March 31, 2020
6,011,885 $ 120 $ 32,994 $ (17,268
)
$ 15,846
Issuances of common stock for Director Stock Grants
66,385 1 157 0 158
Issuance of common stock in connection with severance of former executive
11,400 0 0 0 0
Shares withheld from former executive for tax payments
(3,635
)
0 0 0 0
Issuance of vested shares of restricted stock
17,469 1 (7
)
0 (6
)
Shares withheld for tax payments
(6,431
)
0 0 0 0
Share-based compensation expense
— 0 38 0 38
Net income
— 0 0 1,121 1,121
Balances at December 31, 2020
6,097,073 $ 122 $ 33,182 $ (16,147
)
$ 17,157

	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, 2022		6,202,223		$	124	$	33,557		$	(14,194	)	$	19,487
Issuances of vested shares of restricted stock		2,277			—		(3	)		—			(3	)
Shares withheld for tax payments		(857	)		—		—			—			—
Share-based compensation expense		—			—		22			—			22
Net loss		—			—		—			(472	)		(472	)
Balances at June 30, 2022		6,203,643		$	124	$	33,576		$	(14,666	)	$	19,034

Balances at March 31, 2021		6,116,073		$	122	$	33,267		$	(16,348	)	$	17,041
Issuances 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

	Nine Months Ended December 31,						Three Months Ended June 30,
	2021			2020			2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,877		$	1,121
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net (loss) income							$	(472	)	$	520
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,202			1,340			417			400
Gain from extinguishment of debt – PPP loan		0			(1,389	)
Amortization of debt issue costs and other assets		45			73			13			17
Amortization of operating leases right-of-use assets		232			236			105			82
Share-based compensation expense		318			196			22			21
Provision for doubtful accounts		124			31			—			43
Net (increase) decrease in assets:
Accounts receivable		(2,214	)		441			463			(2,643	)
Inventories		(309	)		64			(1,233	)		(819	)
Prepaid expenses and other assets		180			78			168			103
Net increase (decrease) in liabilities:
Accounts payable		(269	)		(665	)		(509	)		186
Accrued expenses		447			(140	)		(75	)		289
Customer deposits		(41	)		(211	)		(85	)		32
Operating lease obligations		(236	)		(236	)		(110	)		(85	)
Deferred rent and other liabilities		(12	)		(20	)		(3	)		(4	)
Net cash provided by operating activities		1,344			919
Net cash used in operating activities								(1,299	)		(1,858	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements		(745	)		(583	)		(376	)		(171	)
Net cash used in investing activities		(745	)		(583	)		(376	)		(171	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term contract obligation		0			(38	)
Net payments on line of credit		(1,000	)		(250	)
Net payments on debt – related party		(500	)		0			—			(500	)
Proceeds from long-term debt – PPP loan		0			1,381
Principal payments on long-term debt		(529	)		(498	)		(174	)		(174	)
Payments on finance leases		0			(20	)
Taxes paid related to net share settlement of restricted stock units		(39	)		(6	)		(3	)		(3	)
Net cash (used in) provided by financing activities		(2,068	)		569
Net (decrease) increase in cash		(1,469	)		905
Net cash used in financing activities								(177	)		(677	)
Net decrease in cash								(1,852	)		(2,706	)
Cash at beginning of period		3,767			2,417			2,589			3,767
Cash at end of period	$	2,298		$	3,322		$	737		$	1,061

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	268		$	344		$	65		$	91
Income taxes	$	2		$	14		$	0		$	0

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 BioAstin®Hawaiian ~~BioAstin,~~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 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~~2022 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,~~2022, contained in the Company’s annual report on Form 10-K as filed with the SEC on June 22, ~~2021.~~2022.

As of ~~December 31, 2021,~~June 30, 2022, the Company had cash of ~~$2,298,000~~$737,000 and working capital of ~~$11,186,000~~$10,950,000 compared to ~~$3,767,000~~$2,589,000 and ~~$9,298,000,~~$11,443,000, respectively, as of March 31, ~~2021.~~2022. 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 both ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, the Company had 0 outstanding borrowings ~~of $0 and $1,000,000, respectively,~~ on the line of credit. The line of credit is subject to renewal on August 30, 2022 and the Company intends to renew or replace it with another line of credit on or before the expiration date. The Company also has a loan facility with a related party that allows the Company to borrow up to $500,000 on a revolving basis (the “Revolver”). At June 30, 2022 and March 31, 2022, the Company had 0 outstanding borrowings on the Revolver. The Revolver expires on April 12, 2024.

As of ~~December 31, 2021,~~June 30, 2022, the Company had ~~$4,111,000~~$3,764,000 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,~~2022, 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). As of June 30, 2022 and March 31, 2022, the Company had $1,000,000 outstanding on the related party note.

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~~ The Company has developed its operating plan ~~and related cash flow and financial projections,~~to produce the cash flows ~~expected~~necessary to ~~be generated by operating activities~~grow its business and ~~available~~meet all financing ~~are expected to be sufficient to fund its operations through at least~~ ~~December 31, 2022,~~ ~~and~~requirements. Although the ~~Company’s debt service coverage ratio and current ratio covenants are expected to be~~Company has a history of either being in compliance with debt covenants or obtaining the ~~annual Term Loans and Credit Agreement covenant requirements as~~necessary waivers, execution 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~~is dependent on many factors, some of which are not within the ~~next fiscal years or its projected consolidated financial position as~~control of ~~March 31, 2022.~~ ~~Such estimates are subject to change based on~~the Company. Consequently, future results ~~and such change could cause future results to~~ may vary significantly from expected results.

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.

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.

A significant portion of revenue and accounts receivable are derived from a few major customers. For the three months ended ~~December 31, 2021,~~June 30, 2022, two customers individually accounted for ~~22%~~24% and ~~21%~~17% of the Company’s total net sales, and for the three months ended ~~December 31, 2020,~~June 30, 2021, two customers individually accounted for ~~18%~~26% and ~~19%~~14% of the Company’s total net sales. ~~For the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2021,~~ ~~two~~Two ~~customers individually accounted for 21% and 18% of the Company’s total net sales, and for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2020,~~ ~~two~~ ~~customers individually accounted for 17% each of the Company’s total net sales. Two~~ customers accounted for ~~67%~~63% of the Company’s accounts receivable balance as of both ~~December 31, 2021,~~June 30, 2022 and~~three~~ ~~customers accounted for 57% of the Company’s accounts receivable balance as of~~ March 31, ~~2021.~~2022.

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~~dietary 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 ~~December 31, 2021~~June 30, 2022 and ~~2020,~~2021, the Company recognized ~~$6,000~~$91,000 and ~~$0,~~$49,000, respectively, of revenue from deposits that were included in contract liabilities as of March 31, ~~2021~~2022 and ~~2020,~~ ~~respectively. During the~~ ~~nine~~ ~~months ended~~ ~~December 31,~~ 2021,~~and~~ ~~2020,~~ ~~the Company recognized $55,000 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.

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

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.~~

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:

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 0 abnormal productions costs for the three or ~~nine~~months ended ~~December 31, 2021~~June 30, 2022 or ~~2020.~~2021.

Beginning 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~~A similar approach is being followed in fiscal year ~~2022.~~2023. 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 ~~$76,000~~$35,000 and ~~$79,000~~$4,000 were expensed to cost of sales for the three months ended ~~December 31, 2021~~June 30, 2022 and ~~2020,~~ ~~respectively. Other non-inventoriable fixed costs of $113,000 and $124,000 were expensed to cost of sales for the~~ ~~nine~~ ~~months ended~~ ~~December 31,~~ 2021,~~and~~ ~~2020,~~ respectively.

Management has determined 0 asset impairment existed as of ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, respectively. Depreciation and amortization expense were approximately ~~$404,000~~$417,000 and ~~$423,000~~$400,000 for the three months ended ~~December 31, 2021~~June 30, 2022 and ~~2020,~~2021, respectively. ~~Depreciation and amortization expense were approximately $1,202,000 and $1,340,000 for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2021~~ ~~and~~ ~~2020,~~ ~~respectively.~~

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~~ 0 ~~principal amounts outstanding at~~ ~~December 31, 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 in fiscal year~~ ~~2021,~~ ~~with 0 principal amounts outstanding at~~ ~~December 31, 2021~~ or ~~March 31, 2021.~~

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%~~(3.5% at ~~both~~ ~~December 31, 2021~~June 30, 2022 and 3.25% at March 31, ~~2021)~~2022) plus 2%, floating, provided that at no time shall the annual interest rate be less than 5.25%.

At ~~December~~June 30, 2022 and March 31, ~~2021,~~2022, there was 0 outstanding balance under the Credit ~~Agreement and at~~ ~~March 31, 2021,~~ ~~the outstanding balance was $1,000,000, and was included in current liabilities on the Condensed Consolidated Balance Sheets.~~Agreement. The line of credit, which is subject to annual renewal, was renewed on August 30, 2021 and will be subject to renewal upon expiration on August 30, 2022.

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%~~(3.5% and 3.25% at ~~both~~ ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, 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 ~~$324,000~~$110,000 and ~~$635,000~~$218,000 at ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, 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%~~(3.5% and 3.25% at ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021~~2022,) respectively) 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 ~~$3,787,000~~$3,654,000 and ~~$3,978,000~~$3,720,000 at ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, 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 ~~$119,000~~$105,000 and ~~$140,000~~$112,000 at ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, respectively.

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,~~2022, the Company was in compliance with all required annual financial covenants. The next remeasurement date will be March 31, ~~2022.~~2023.

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. For the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~December 31, 2020,~~ the Company recorded the forgiveness of $1,381,000 of principal and $8,000 of accrued interest for a total of $1,389,000, which was included in gain on extinguishment of debt on the Condensed Consolidated Statements of Operations. The Company used the proceeds of the PPP loan for certain payroll costs in accordance with the PPP.

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 1312). At ~~December~~June 30, 2022 and March 31, ~~2021,~~2022, 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, of which $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.

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 $34,000 and $60,000 at~~ ~~December 31, 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 ~~December~~June ~~31,~~30, ~~2021~~2022 are as follows:

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. ~~In the~~ ~~second~~ ~~quarter of fiscal~~ ~~2021,~~ ~~the~~The Company ~~commenced a~~also leases two 84-month solar ~~lease for~~ ~~one~~ ~~of its buildings~~leases, which ~~was added to~~are included in the right-of-use assets and liabilities. At ~~December 31, 2021,~~June 30, 2022, the weighted average remaining lease terms was ~~13.0~~12.1 years, the weighted average discount rate was ~~7.4%~~7.2%, and for ~~both~~the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 and ~~2020,~~2021, the operating lease costs were ~~$445,000.~~$171,000 and $147,000, respectively.

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

Maturities of lease liabilities at ~~December 31, 2021~~June 30, 2022 are as follows:

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 ~~December 31, 2021.~~June 30, 2022.

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~~2022 as filed with the SEC on June 22, ~~2021.~~2022.

As of ~~December~~June 30, 2022, ~~31,~~~~2021,~~the Company had 2two 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 ~~December 31, 2021,~~June 30, 2022, 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. NaN additional awards will be issued under the 2005 Plan or the 2004 Directors Plan.

~~At the~~ ~~2021~~ ~~Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the~~ ~~2014~~ ~~Directors Plan to increase the number of shares of common stock available for issuance under the plan by 300,000 shares. These shares are reflected in the table below.~~

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

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 $17,000 and ~~$10,000~~$13,000 for the three months ended ~~December 31, 2021~~June 30, 2022 and ~~2020,~~ ~~respectively. Compensation expense recognized for options issued under all Plans was $47,000 and $19,000 for the~~ ~~nine~~ ~~months ended~~ ~~December 31,~~ 2021,~~and~~ ~~2020,~~ respectively.

A summary of option activity under the Company’s stock plans for the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 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 ~~$3.24~~$2.92 and ~~$3.30~~$3.37 at ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, respectively.

A summary of the Company’s non-vested options for the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 is presented below:

The weighted average grant-date fair value of stock options granted during the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 was ~~$79,000.~~$97,000. As of ~~December 31, 2021,~~June 30, 2022, total unrecognized stock-based compensation expense related to all unvested stock options was ~~$155,000,~~$186,000, which is expected to be expensed over a weighted average period of ~~2.4~~2.3 years.

~~Grants of fully vested restricted stock issued to Non-Employee Directors during the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2021~~ ~~and~~ ~~2020~~ ~~were 55,438 and 66,385 shares, respectively. Compensation expense recognized for these grants issued under the~~ ~~2014~~ ~~Directors Plan was $158,000 and $0 for the~~ ~~three~~ ~~months ended~~ ~~December 31, 2021~~ ~~and~~ ~~2020,~~ ~~respectively, and $158,000 for both~~ ~~nine~~ ~~months ended~~ ~~December 31, 2021~~ ~~and~~ ~~2020.~~

RSUs are service-based awards granted to eligible employees under the 2016 Plan. Compensation expense recognized for RSUs issued under the 2016 Plan was ~~$23,000~~$5,000 and $8,000 for the three months ended ~~December 31, 2021~~June 30, 2022 and ~~2020,~~ ~~respectively. Compensation expense recognized for RSUs issued under the~~ ~~2016~~ ~~Plan was $113,000 and $20,000 for the~~ ~~nine~~ ~~months ended~~ ~~December 31,~~ 2021,~~and~~ ~~2020,~~ respectively.

The following table summarizes information related to awarded RSUs for the ~~nine~~three months ended ~~December 31, 2021:~~June 30, 2022:

As of ~~December 31, 2021,~~June 30, 2022, total unrecognized stock-based compensation expense related to unvested restricted stock units was ~~$35,000,~~$17,000, which is expected to be expensed over a weighted average period of ~~1.1~~1.0 years.

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 ~~$6,000~~$3,000 and ~~an income tax benefit of $2,000~~$4,000 for the three months ended ~~December 31, 2021~~June 30, 2022 and ~~2020,~~ ~~respectively. The Company recorded an income tax expense of $21,000 and $3,000 for the~~ ~~nine~~ ~~months ended~~ ~~December 31,~~ 2021,~~and~~ ~~2020,~~ respectively. The Company’s effective tax rate was ~~1.5%~~(0.7%) and ~~0.2%~~0.8% for the three months ended ~~December 31, 2021~~June 30, 2022 and ~~2020,~~ ~~respectively. The Company’s effective tax rate was 1.1% and 0.3% for the~~ ~~nine~~ ~~months ended~~ ~~December 31,~~ 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 ~~December 31, 2021~~June 30, 2022 and ~~2020,~~2021, there was 0 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.~~2018.

~~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~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~December 31, 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.~~

Basic earnings (loss) per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings (loss) 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 (loss) income per share computations for the three ~~and~~ ~~nine~~months ended ~~December 31, 2021~~June 30, 2022 and ~~2020~~2021 are as follows:

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. Diluted earnings per share does not include the impact of common stock options and restricted stock units totaling 12,000 for the three months ended June 30, 2022, as the effect of their inclusion would be anti-dilutive. Restricted stock units become dilutive within the period granted and remain dilutive until the units vest and are issued as common stock.

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~~(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,~~$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 both ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, the Skywords Note principal balance was $1,000,000, and ~~$1,500,000, respectively. The loan balance at~~ ~~December 31, 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.

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:

*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.

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.

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

	Three Months Ended						Nine Months Ended						Three Months Ended
	December 31,						December 31,						June 30,
	2021			2020			2021			2020			2022			2021
Net sales	$	9,459		$	6,985		$	27,842		$	22,907		$	6,716		$	8,964
Net sales increase		35.4	%					21.5	%
Net sales decrease														25.1	%
Gross profit	$	3,238		$	2,071		$	10,672		$	8,347		$	2,318		$	3,672
Gross profit as % of net sales		34.2	%		29.6	%		38.3	%		36.4	%		34.5	%		41.0	%
Operating expenses	$	2,730		$	2,512		$	8,462		$	8,238		$	2,743		$	3,053
Operating expenses as % of net sales		28.9	%		36.0	%		30.4	%		36.0	%		40.8	%		34.1	%
Operating income (loss)	$	508		$	(441	)	$	2,210		$	109
Operating income (loss) as % of net sales		5.4	%		(6.3	)%		7.9	%		0.5	%
Income tax expense (benefit)	$	6		$	(2	)	$	21		$	3
Net income	$	386		$	827		$	1,877		$	1,121
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

Comparison of the Three Months Ended ~~December 31,~~June 30, 2022 and 2021 ~~and 2020~~

*Net Sales* (in thousands)
	Three Months Ended										Three Months Ended
	December 31,					$		%			June 30,				$			%
	2021		2020		Change			Change			2022		2021		Change			Change
Packaged sales
Astaxanthin	$	3,563	$	3,388	$	175			5.2	%	$	3,524	$	4,040	$	(516	)		(12.8	)%
Spirulina		1,612		1,659		(47	)		(2.8	)%		1,511		2,742		(1,231	)		(44.9	)%
Total Packaged sales	$	5,175	$	5,047	$	128			2.5	%	$	5,035	$	6,782	$	(1,747	)		(25.6	)%

Bulk sales
Astaxanthin	$	1,128	$	291	$	837			287.6	%	$	494	$	405	$	89			22.0	%
Spirulina		2,990		1,413		1,577			111.6	%		1,093		1,583		(490	)		(31.0	)%
Total Bulk sales	$	4,118	$	1,704	$	2,414			141.7	%	$	1,587	$	1,988	$	(401	)		(20.2	)%

Contract extraction revenue	$	166	$	234	$	(68	)		(29.1	)%	$	94	$	194	$	(100	)		(51.5	)%

Total sales
Astaxanthin	$	4,691	$	3,679	$	1,012			27.5	%	$	4,018	$	4,445	$	(427	)		(9.6	)%
Spirulina		4,602		3,072		1,530			49.8	%		2,604		4,325		(1,721	)		(39.8	)%
Contract extraction revenue		166		234		(68	)		(29.1	)%		94		194		(100	)		(51.5	)%
Total sales	$	9,459	$	6,985	$	2,474			35.4	%	$	6,716	$	8,964	$	(2,248	)		(25.1	)%

Net Sales The net sales ~~increase~~decrease of ~~35.4%~~25.1% for the current quarter compared to the same period last year was primarily driven by ~~an increase~~a decrease in spirulina and astaxanthin ~~bulk~~packaged sales, ~~offset by a decrease in~~ spirulina ~~packaged~~bulk sales and contract extraction sales. The ~~increase~~decrease in both spirulina and astaxanthin ~~bulk~~packaged sales in the current quarter was primarily due to ~~increased~~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 ~~a few~~key existing customers. Sales of ~~our major customers~~bulk products were lower due to ~~their high~~lower demand ~~combined~~by our top customer for the quarter coupled with ~~higher production volumes~~timing of ~~spirulina.~~orders from other customers.

Gross Profit Gross profit as a percent of net sales ~~increased~~decreased by ~~4.6~~6.5 percentage points compared to the same period last year, which was the result of ~~lower~~higher costs per kilogram of ~~both spirulina and~~ astaxanthin ~~due to higher production volumes.~~in the current quarter as well as customer mix.

Operating Expenses Operating expenses ~~increased~~decreased by ~~$0.2~~$0.3 million, or ~~8.7%~~10.2%, for the current year ~~third~~first quarter compared to the prior year same quarter, primarily due to ~~bonus and profit sharing and Board of Directors annual stock grants in the current year third quarter, offset by lower advertising fees in the current year third quarter.~~marketing mix.

Income Taxes We recorded a state income tax expense of ~~$6,000~~$3,000 for the ~~third quarter of this fiscal year compared to an income tax benefit of $2,000 for the same period last year. We continue to carry a full valuation allowance on our net deferred tax assets.~~

~~Net Sales~~ ~~The net sales increase of 21.5% for the~~ first nine months of fiscal 2022 compared to the same period last year was primarily driven by an increase in spirulina and astaxanthin bulk sales and packaged sales for both products, offset by a decrease in contract extraction sales. The increase in astaxanthin and spirulina packaged sales in the period was primarily due to an increase in sales to one of our major customers driven by consumer demand as COVID-19 restrictions have been relaxed, and as we transition from selling direct to a large customer to utilizing an integrated third-party logistics and marketing provider with a data science driven platform. The increase in bulk astaxanthin sales is primarily due to strong demand for a few significant customers. The increase in bulk sales of spirulina is due to high demand, with key customers in particular, combined with higher production volumes of spirulina.

~~Gross Profit~~ Gross profit as a percent of net sales increased by 1.9 percentage points compared to the same period last year, which was the result of lower costs of both spirulina and astaxanthin due to higher production volumes.

~~Operating Expenses~~ Operating expenses increased by $0.2 million, or 2.7%, for the first nine months of fiscal 2022 compared to the prior year same quarter, primarily due to bonus and profit sharing in the current year, offset by lower advertising expenses.

~~Income Taxes~~ ~~We recorded a state income tax expense of $21,000 for the third~~ quarter of this fiscal year compared to an income tax expense of ~~$3,000~~$4,000 for the same period last year. We continue to carry a full valuation allowance on our net deferred tax assets.

As of ~~December 31, 2021,~~June 30, 2022, we had cash of ~~$2.3~~$0.7 million and working capital of ~~$11.2~~$11.0 million compared to ~~$3.8~~$2.6 million and ~~$9.3~~$11.4 million, respectively, at March 31, ~~2021.~~2022. We have a Credit Agreement with the Bank that allows us to borrow up to $2.0 million on a revolving basis. At ~~December~~June 30, 2022 and March 31, ~~2021,~~2022, we had no outstanding borrowings ~~and at 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, 2022, and we intend to renew or replace it with another line of credit on or before the expiration date. We also have a $0.5 million of borrowing capacity under the Revolver with Skywords Family Foundation. At June 30, 2022 and March 31, 2022, we had no outstanding borrowings on the Revolver. The Revolver expires on April 12, 2024.

As of ~~December 31, 2021,~~June 30, 2022, we had ~~$4.1~~$3.8 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,~~2022, 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 65 and 1312 in the ~~notes~~Notes to ~~condensed consolidated financial statements)~~Condensed Consolidated Financial Statements).

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~~We have developed our operating plan ~~and related cash flow and financial projections,~~to produce the cash flows ~~expected~~necessary to ~~be generated by operating activities~~grow our business and ~~available~~meet all financing ~~are expected to be sufficient to fund our operations through at least December 31, 2022, and our debt service coverage ratio and current ratio covenants are expected to be~~requirements. Although we have a history of either being in compliance with debt covenants or obtaining the ~~annual Term Loans and Credit Agreement covenant requirements as~~necessary waivers, execution 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~~is dependent on many factors, some of which are not within the ~~next fiscal years or our projected consolidated financial position as~~control of ~~March 31, 2022. Such estimates are subject to change based on~~the Company. Consequently, future results ~~and such change could cause future results to~~may vary significantly from expected results.

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

Cash used in operating activities for the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 was the result of a net loss of $0.5 million, an increase of ~~$2.2~~$1.2 million in ~~accounts receivable balances,~~inventories, offset by ~~$1.9 million net income and~~ non-cash charges of ~~$1.9~~$0.5 million.

Cash used in investing activities for the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 primarily includes costs for acquiring equipment and leasehold improvements at our Kona facility.

Cash used in financing activities for the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 consists primarily of ~~principal payments of our related party loan of $0.5 million, payments on the line of credit of $1.0 million and~~ debt service payments of ~~$0.5~~$0.2 million.

As of ~~December 31, 2021,~~June 30, 2022, our working capital was ~~$11.2~~$11.0 million, ~~an increase~~a decrease of ~~$1.9~~$0.4 million compared to March 31, ~~2021.~~2022. There was ~~an increase in accounts receivable balances, primarily due to timing of shipments and increased sales, and~~ an increase in inventories in the first ~~half~~quarter of fiscal ~~2022,~~2023, due to lower bulk sales and as we ~~continued~~commence cultivation of ~~astaxanthin and higher inventories at our third-party processors.~~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 payments of $0.5 million on the related party loan, $1.0 million on the line of credit and $0.5 million of debt service.~~

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.

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 2022, our~~Our primary focus is stabilizing our production volume, rationalizing market channel participation, 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.~~2022.

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.

As of ~~December 31, 2021,~~June 30, 2022, we had no off-balance sheet arrangements or obligations.

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.

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.

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~~2022 filed with the SEC on June 22, ~~2021.~~2022. In the ~~nine~~three months ended ~~December 31, 2021,~~June 30, 2022, there were no changes to the application of critical accounting policies previously disclosed in our most recent Annual Report on Form 10-K.

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.

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 ~~December 31, 2021.~~June 30, 2022. 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 ~~December 31, 2021.~~June 30, 2022.

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 ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 that has materially affected, or was reasonably likely to materially affect, our internal control over financial reporting.

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,~~2022, filed June 22, ~~2021.~~2022.

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 ~~December 31, 2021.~~June 30, 2022.

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,~~2022, which is incorporated by reference herein.

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.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021~~2022 (unaudited)	4
	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2022 and 2021 ~~and 2020~~ (unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2022 and 2021 ~~and 2020~~ (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~December 31,~~June 30, 2022 and 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	2017
Item 4.	Controls and Procedures	2521

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	2622
Item 1A	Risk Factors	2622
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2622
Item 3.	Defaults upon Senior Securities	2622
Item 5.	Other Information	2622
Item 6.	Exhibits	2723

SIGNATURES		2824

	Three Months Ended December 31,						Nine Months Ended December 31,						Three Months Ended June 30,
	2021			2020			2021			2020			2022			2021

Net sales	$	9,459		$	6,985		$	27,842		$	22,907		$	6,716		$	8,964
Cost of sales		6,221			4,914			17,170			14,560			4,398			5,292
Gross profit		3,238			2,071			10,672			8,347			2,318			3,672

Operating expenses:
General and administrative		1,403			1,001			4,171			3,801			1,329			1,347
Sales and marketing		1,127			1,300			3,808			3,918			1,168			1,550
Research and development		200			211			483			519			246			156
Total operating expenses		2,730			2,512			8,462			8,238			2,743			3,053

Income (loss) from operations		508			(441	)		2,210			109
(Loss) income from operations														(425	)		619

Interest expense, net		(116	)		(123	)		(312	)		(374	)		(44	)		(95	)
Gain on extinguishment of debt		0			1,389			0			1,389

Income before income taxes		392			825			1,898			1,124
(Loss) income before income taxes														(469	)		524

Income tax expense (benefit)		6			(2	)		21			3
Income tax expense														3			4

Net income	$	386		$	827		$	1,877		$	1,121
Net (loss) income													$	(472	)	$	520

Net income per share:
Net (loss) income per share:
Basic	$	0.06		$	0.14		$	0.31		$	0.18		$	(0.08	)	$	0.09
Diluted	$	0.06		$	0.13		$	0.30		$	0.18		$	(0.08	)	$	0.08

Shares used in calculation of net income per share:
Shares used in calculation of net (loss) income per share:
Basic		6,183			6,097			6,144			6,060			6,204			6,117
Diluted		6,371			6,222			6,219			6,169			6,204			6,293

($ in thousands)	Nine Months Ended December 31, 2021		Nine Months Ended December 31, 2020		Three Months Ended June 30, 2022		Three Months Ended June 30, 2021
Packaged sales
Astaxanthin packaged	$	11,618	$	10,767	$	3,524	$	4,040
Spirulina packaged		6,150		5,626		1,511		2,742
Total packaged sales		17,768		16,393		5,035		6,782

Bulk sales
Astaxanthin bulk		2,041		1,173		494		405
Spirulina bulk		7,558		4,628		1,093		1,583
Total bulk sales		9,599		5,801		1,587		1,988

Contract extraction revenue		475		713		94		194
Total net sales	$	27,842	$	22,907	$	6,716	$	8,964

	December 31, 2021		March 31, 2021		June 30, 2022		March 31, 2022
	(in thousands)				(in thousands)
Raw materials	$	1,399	$	547	$	2,125	$	1,490
Work in process		3,273		3,206		2,244		2,868
Finished goods		3,743		4,423		5,788		4,595
Supplies		309		239		542		513
Inventories	$	8,724	$	8,415	$	10,699	$	9,466

	December 31, 2021			March 31, 2021			June 30, 2022			March 31, 2022
	(in thousands)						(in thousands)
Equipment	$	20,128		$	19,056		$	20,386		$	20,231
Leasehold improvements		14,751			14,703			14,786			14,751
Furniture and fixtures		376			372			401			394
		35,255			34,131			35,573			35,376
Less accumulated depreciation and amortization		(23,942	)		(22,740	)		(24,756	)		(24,339	)
Construction-in-progress		623			745			1,099			848
Equipment and leasehold improvements, net	$	11,936		$	12,136		$	11,916		$	11,885

($ in thousands)	Three Months Ended December 31, 2021		Three Months Ended December 31, 2020
Packaged sales
Astaxanthin packaged	$	3,563	$	3,388
Spirulina packaged		1,612		1,659
Total packaged sales		5,175		5,047

Bulk sales
Astaxanthin bulk		1,128		291
Spirulina bulk		2,990		1,413
Total bulk sales		4,118		1,704

Contract extraction revenue		166		234
Total net sales	$	9,459	$	6,985

Payments Due	(in thousands)		(in thousands)
Remainder of 2022	$	243
2023		477
Remainder of 2023			$	386
2024		1,289		291
2025		306		1,308
2026		322		325
2027				344
Thereafter		2,508		2,110
Total principal payments	$	5,145	$	4,764

Operating leases	Balance Sheet Classification	December 31, 2021			March 31, 2021			Balance Sheet Classification	June 30, 2022			March 31, 2022
		(in thousands)							(in thousands)
Right-of-use assets	Operating lease right-of-use assets	$	4,255		$	4,128		Operating lease right-of-use assets	$	4,720		$	4,720
Accumulated lease amortization	Operating lease right-of-use assets		(843	)		(611	)	Operating lease right-of-use assets		(1,038	)		(933	)

Total right-of-use assets	Total right-of-use assets	$	3,412		$	3,517		Total right-of-use assets	$	3,682		$	3,787

Current lease liabilities	Operating lease obligations	$	382		$	343		Operating lease obligations	$	344		$	393
Non-current lease liabilities	Long-term operating lease obligations		3,027			3,175		Long-term operating lease obligations		3,325			3,386

Total lease liabilities	Total lease liabilities	$	3,409		$	3,518		Total lease liabilities	$	3,669		$	3,779

Payments	(in thousands)			(in thousands)
Remainder of 2022	$	464
2023		396
Remainder of 2023				$	443
2024		396			480
2025		374			474
2026		362			441
2027					437
Thereafter		3,299			3,235
Total undiscounted lease payments		5,291			5,510
Less: present value discount		(1,882	)		(1,841	)
Total lease liability balance	$	3,409		$	3,669

	As of December 31, 2021						As of June 30, 2022
	Authorized		Available		Outstanding		Authorized		Available		Outstanding

2016 Plan		1,300,000		993,121		214,174		1,300,000		944,938		247,868
2014 Directors Plan		650,000		287,695		12,000		650,000		287,695		12,000
2005 Plan		0		0		51,500		—		—		49,500
2004 Directors Plan		0		0		6,000		—		—		6,000
Total		1,950,000		1,280,816		283,674		1,950,000		1,232,633		315,368

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		(3,000	)	$	4.95
Expired		(166,800	)	$	3.84
Outstanding at December 31, 2021		254,500		$	3.36		6.7	$	135,600
Exercisable at December 31, 2021		112,833		$	4.37		4.1	$	39,183

Nonvested Options	Shares			Weighted Average Grant-Date Fair Value		Shares			Weighted Average Grant-Date Fair Value
Nonvested at March 31, 2021		125,000		$	1.19
Nonvested at March 31, 2022							141,667		$	1.33
Granted		50,000			1.60		50,000			1.94
Vested		(33,333	)		1.20		(16,667	)		1.60
Nonvested at December 31, 2021		141,667		$	1.33
Nonvested at June 30, 2022							175,000		$	1.48

Nonvested Restricted Stock Units	Shares			Weighted Average Grant Price		Shares			Weighted Average Grant Price
Nonvested restricted stock units at March 31, 2021		28,188		$	2.38
Nonvested restricted stock units at March 31, 2022							14,465		$	2.22
Granted		38,672			2.91		850			3.03
Vested		(34,751	)		2.84		(2,277	)		2.29
Forfeited		(2,935	)		2.61		(170	)		2.52
Nonvested restricted stock units at December 31, 2021		29,174		$	2.52
Nonvested restricted stock units at June 30, 2022							12,868		$	2.26

	Three Months Ended December 31, 2021
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	386		6,183	$	0.06
Effective dilutive securities – common stock options and restricted stock units		—		188		—
Diluted income per share	$	386		6,371	$	0.06

	Three Months Ended June 30, 2022
	Net Loss			Shares		Per Share
	(Numerator)			(Denominator)		Amount
	(in thousands)
Basic and diluted loss per share	$	(472	)		6,204	$	(0.08	)

	Three Months Ended December 31, 2020
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	827		6,097	$	0.14
Effective dilutive securities – common stock options and restricted stock units		—		125		—
Diluted income per share	$	827		6,222	$	0.13

	Nine Months Ended December 31, 2021
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	1,877		6,144	$	0.31
Effective dilutive securities – common stock options and restricted stock units		—		75		—
Diluted income per share	$	1,877		6,219	$	0.30

	Nine Months Ended December 31, 2020						Three Months Ended June 30, 2021
	Net Income		Shares		Per Share		Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
	(in thousands)						(in thousands)
Basic income per share	$	1,121		6,060	$	0.18	$	520		6,117	$	0.09
Effective dilutive securities – common stock options and restricted stock units		—		109		—		—		176		—
Diluted income per share	$	1,121		6,169	$	0.18	$	520		6,293	$	0.08

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

	10.1	Executive Employment Agreement, dated as of June 16, 2022, by and between Mathhew K. Custer and Cyanotech Corporation (Incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 22, 2022

	31.1*	Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of ~~February~~August 10, ~~2022.~~2022

	31.2*	Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of ~~February~~August 10, ~~2022.~~2022

	32*	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed as of ~~February~~August 10, ~~2022.~~2022

	99.1*	Press Release dated ~~February~~August 10, ~~2022.~~2022

	101	The following financial statements from Cyanotech Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2021,~~June 30, 2022, 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.

	CYANOTECH CORPORATION
	(Registrant)


~~February~~August 10, 2022	By:	/s/ ~~Gerald R. Cysewski, PH.D.~~Matthew K. Custer
(Date)		~~Gerald R. Cysewski, PH.D.~~Matthew K. Custer
		President and Chief Executive ~~Officer; Vice Chairman of the Board~~Officer


~~February~~August 10, 2022	By:	/s/ Felicia Ladin
(Date)		Felicia Ladin
		Chief Financial Officer, Vice President — Finance & Administration, and Treasurer
		(Principal Financial Officer)

Exhibit Number		Description
10.1		Executive Employment Agreement, dated as of June 16, 2022, by and between Mathhew K. Custer and Cyanotech Corporation (Incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 22, 2022

31.1*		Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of ~~February~~August 10, ~~2022.~~2022

31.2*		Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of ~~February~~August 10, ~~2022.~~2022

32*		Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed as of ~~February~~August 10, ~~2022.~~2022

99.1*		Press Release dated ~~February~~August 10, ~~2022.~~2022

101		The following financial statements from Cyanotech Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2021,~~June 30, 2022, 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.