** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

**Quarterly Report Under Section 13or 15(d)of the Securities Exchange Act of 1934**

 

**ForQuarterly Period Ended September 30, 2004**

** **

**CommissionFile Number 0-14602**

 

 

**CYANOTECH CORPORATION**

(Exactname of registrant as specified in its charter)

 

 

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

 

 

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

(Addressof principal executive offices)

 

**(808)326-1353**

(Registrant’s telephone number)

 

 

Check whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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 ý  No o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).                 Yes o  No ý

 

Number of common sharesoutstanding as of October 31, 2004:

 

| **Title of  Class**              | ** ** | **Shares  Outstanding** |
|----------------------------------|------------|-------------------------|
| Common stock - $0.005  par value |       | 20,764,140              |

 

 

 

----

 

 

CYANOTECHCORPORATION

FORM10-Q

 

INDEX

 

 
| PART I. FINANCIAL  INFORMATION                                                                                            |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                      |   |
| Item 1. Financial  Statements                                                                                             |   |
|                                                                                                                      |   |
| Consolidated Balance Sheets  (unaudited)  As of September 30, 2004 and March 31, 2004.                                    |   |
|                                                                                                                      |   |
| Consolidated  Statements of Operations (unaudited)  For the three and six month periods ended September 30, 2004 and 2003 |   |
|                                                                                                                      |   |
| Consolidated  Statements of Cash Flows (unaudited)  For the six month periods ended September 30, 2004 and 2003           |   |
|                                                                                                                      |   |
| Notes to  Consolidated Financial Statements (unaudited)                                                                   |   |
|                                                                                                                      |   |
| Item  2. Management’s Discussion and Analysis of Financial Condition and Results of  Operations                      |   |
|                                                                                                                      |   |
| Item  3. Quantitative and Qualitative Disclosures About Market Risk                                                       |   |
|                                                                                                                      |   |
| Item 4. Controls and  Procedures.                                                                                         |   |
|                                                                                                                      |   |
| PART II. OTHER INFORMATION                                                                                                |   |
|                                                                                                                      |   |
| Item 1. Legal Proceedings                                                                                                 |   |
|                                                                                                                      |   |
| Item  4. Submission of Matters to a Vote of Security Holders                                                              |   |
|                                                                                                                      |   |
| Item 6.  Exhibits and Reports on Form 8-K.                                                                                |   |
|                                                                                                                      |   |
| SIGNATURES                                                                                                                |   |

 

 

 

2

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PART 1.  FINANCIAL INFORMATION

Item 1.  Financial Statements

 

CYANOTECHCORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollarsin thousands except per share amounts)

(Unaudited)

 
| ** **                                                                                                                                                                                                                              | ** ** | **September 30,  2004** | ** ** | **March 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|---------------------|------------|
| ASSETS                                                                                                                                                                                                                                  |       |                    |       |                |       |
| Current assets:                                                                                                                                                                                                                         |       |                    |       |                |       |
| Cash and cash equivalents                                                                                                                                                                                                               |       | $                       | 2,395      |                | $          | 2,531 |   |
| Accounts receivable, net                                                                                                                                                                                                                |       | 2,102                   |       | 2,211               |       |
| Refundable income taxes                                                                                                                                                                                                                 |       | —                  |       | 11                  |       |
| Inventories (see Note 2)                                                                                                                                                                                                                |       | 1,404                   |       | 1,099               |       |
| Prepaid expenses                                                                                                                                                                                                                        |       | 225                     |       | 55                  |       |
| Total current assets                                                                                                                                                                                                                    |       | 6,126                   |       | 5,907               |       |
|                                                                                                                                                                                                                                    |       |                    |       |                |       |
| Equipment and leasehold improvements, net (see Note 3)                                                                                                                                                                                  |       | 11,598                  |       | 11,844              |       |
| Other assets                                                                                                                                                                                                                            |       | 572                     |       | 606                 |       |
| Total assets                                                                                                                                                                                                                            |       | $                       | 18,296     |                | $          | 18,357 |   |
|                                                                                                                                                                                                                                    |       |                    |       |                |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                               |       |                    |       |                |       |
| Current liabilities:                                                                                                                                                                                                                    |       |                    |       |                |       |
| Current maturities of long-term debt                                                                                                                                                                                                    |       | $                       | 346        |                | $          | 346 |   |
| Accounts payable                                                                                                                                                                                                                        |       | 676                     |       | 874                 |       |
| Accrued expenses                                                                                                                                                                                                                        |       | 630                     |       | 604                 |       |
| Total current liabilities                                                                                                                                                                                                               |       | 1,652                   |       | 1,824               |       |
|                                                                                                                                                                                                                                    |       |                    |       |                |       |
| Long-term debt, excluding current maturities                                                                                                                                                                                            |       | 1,924                   |       | 2,093               |       |
| Total liabilities                                                                                                                                                                                                                       |       | 3,576                   |       | 3,917               |       |
|                                                                                                                                                                                                                                    |       |                    |       |                |       |
| Stockholders’ equity:                                                                                                                                                                                                              |       |                    |       |                |       |
| Common Stock of $0.005 par value; as of September 30, 2004,  30,000,000 shares authorized, 20,764,140 shares issued and outstanding; and  as of March 31, 2004, 25,000,000 shares authorized, 20,714,246 shares issued and  outstanding |       | 104                     |       | 104                 |       |
| Additional paid-in capital                                                                                                                                                                                                              |       | 27,197                  |       | 27,141              |       |
| Accumulated other comprehensive income — foreign currency translation  adjustments                                                                                                                                                 |       | 20                      |       | 30                  |       |
| Accumulated deficit                                                                                                                                                                                                                     |       | (12,601                 | )          | (12,835             | )          |
| Total stockholders’ equity                                                                                                                                                                                                         |       | 14,720                  |       | 14,440              |       |
|                                                                                                                                                                                                                                    |       |                    |       |                |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                         |       | $                       | 18,296     |                | $          | 18,357 |   |

 

 

See accompanying Notes to Consolidated Financial Statements.

 

3

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CYANOTECH CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 
| ** **                        | ** ** | **Three Months Ended September 30,** | ** ** | **Six Months Ended September 30,** | ** ** |
|-----------------------------------|------------|-------------------------------------------|------------|-----------------------------------------|------------|
| ** **                        | ** ** | **2004**                                  | ** ** | **2003**                                | ** ** | **2004** | ** ** | **2003** | ** ** |
| NET SALES                         |       | $                                         | 2,998      |                                    | $          | 2,840 |   | 5,705 |   | $ | 5,268 |   |
| COST OF PRODUCT SALES             |       | 1,944                                     |       | 1,979                                   |       | 3,764 |   | 3,703 |   |
| Gross profit                      |       | 1,054                                     |       | 861                                     |       | 1,941 |   | 1,565 |   |
|                              |       |                                      |       |                                    |       |   |   |   |   |
| OPERATING EXPENSES:               |       |                                      |       |                                    |       |   |   |   |   |
| Research and development          |       | 62                                        |       | 26                                      |       | 127 |   | 64 |   |
| Sales and marketing               |       | 297                                       |       | 354                                     |       | 591 |   | 663 |   |
| General and administrative        |       | 522                                       |       | 449                                     |       | 889 |   | 856 |   |
| Total operating expenses          |       | 881                                       |       | 829                                     |       | 1,607 |   | 1,583 |   |
|                              |       |                                      |       |                                    |       |   |   |   |   |
| Income (loss) from operations     |       | 173                                       |       | 32                                      |       | 334 |   | (18 | ) |
|                              |       |                                      |       |                                    |       |   |   |   |   |
| OTHER INCOME (EXPENSE):           |       |                                      |       |                                    |       |   |   |   |   |
| Interest income                   |       | 9                                         |       | 4                                       |       | 17 |   | 12 |   |
| Interest expense                  |       | (40                                       | )          | (78                                     | )          | (79 | ) | (166 | ) |
| Other income (expense), net       |       | (9                                        | )          | 32                                      |       | (11 | ) | 3 |   |
|                              |       |                                      |       |                                    |       |   |   |   |   |
| Total other expense, net          |       | (40                                       | )          | (42                                     | )          | (73 | ) | (151 | ) |
|                              |       |                                      |       |                                    |       |   |   |   |   |
| Income (loss) before income taxes |       | 133                                       |       | (10                                     | )          | 261 |   | (169 | ) |
|                              |       |                                      |       |                                    |       |   |   |   |   |
| INCOME TAX BENEFIT (EXPENSE)      |       | (12                                       | )          | —                                  |       | (27 | ) | 18 |   |
|                              |       |                                      |       |                                    |       |   |   |   |   |
| NET INCOME (LOSS)                 |       | $                                         | 121        |                                    | $          | (10 | ) | $ | 234 |   | $ | (151 | ) |
|                              |       |                                      |       |                                    |       |   |   |   |   |
| NET INCOME (LOSS) PER SHARE       |       |                                      |       |                                    |       |   |   |   |   |
| Basic                             |       | $                                         | 0.01       |                                    | $          | (0.00 | ) | $ | 0.01 |   | $ | (0.01 | ) |
| Diluted                           |       | $                                         | 0.01       |                                    | $          | (0.00 | ) | $ | 0.01 |   | $ | (0.01 | ) |
|                              |       |                                      |       |                                    |       |   |   |   |   |
| SHARES USED IN CALCULATION OF     |       |                                      |       |                                    |       |   |   |   |   |
| NET INCOME (LOSS) PER SHARE:      |       |                                      |       |                                    |       |   |   |   |   |
| Basic                             |       | 20,752                                    |       | 18,317                                  |       | 20,744 |   | 18,317 |   |
| Diluted                           |       | 21,035                                    |       | 18,317                                  |       | 21,017 |   | 18,317 |   |
|                              |       |                                      |       |                                    |       |   |   |   |   |
| COMPREHENSIVE INCOME (LOSS):      |       |                                      |       |                                    |       |   |   |   |   |
| Net income (loss)                 |       | $                                         | 121        |                                    | $          | (10 | ) | $ | 234 |   | $ | (151 | ) |
| Other comprehensive income (loss) |       | (24                                       | )          | 24                                      |       | (10 | ) | 19 |   |
|                              |       | $                                         | 97         |                                    | $          | 14 |   | $ | 224 |   | $ | (132 | ) |

 

 

See accompanying Notes to Consolidated Financial Statements.

 

4

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CYANOTECH CORPORATION

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 
| ** **                                                                                | ** ** | **Six Months Ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                | ** ** | **2004**                                | ** ** | **2003** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |       |                                    |       |   |   |
| Net income (loss)                                                                         |       | $                                       | 234        |   | $ | (151 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by  operating activities: |       |                                    |       |   |   |
| Depreciation and amortization                                                             |       | 657                                     |       | 671 |   |
| Issuance of stock in exchange for services                                                |       | 15                                      |       | — |   |
| Issuance of stock options in exchange for services                                        |       | 7                                       |       | — |   |
| Amortization of debt issue costs and other assets                                         |       | 15                                      |       | 48 |   |
| Allowance for doubtful accounts                                                           |       | —                                  |       | 40 |   |
| Net (increase) decrease in:                                                               |       |                                    |       |   |   |
| Accounts receivable                                                                       |       | 109                                     |       | 69 |   |
| Refundable income taxes                                                                   |       | 11                                      |       | (11 | ) |
| Inventories                                                                               |       | (305                                    | )          | (13 | ) |
| Prepaid expenses and other assets                                                         |       | (161                                    | )          | (124 | ) |
| Net increase (decrease) in:                                                               |       |                                    |       |   |   |
| Accounts payable                                                                          |       | (198                                    | )          | 63 |   |
| Accrued expenses                                                                          |       | 26                                      |       | 21 |   |
| Net cash provided by operating activities                                                 |       | 410                                     |       | 613 |   |
|                                                                                      |       |                                    |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                     |       |                                    |       |   |   |
| Investment in equipment and leasehold improvements                                        |       | (411                                    | )          | (87 | ) |
|                                                                                      |       |                                    |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                     |       |                                    |       |   |   |
| Proceeds from exercise of stock options and warrants                                      |       | 34                                      |       | — |   |
| Release of long-term debt restricted cash deposit                                         |       | —                                  |       | 250 |   |
| Principal payments on long-term debt                                                      |       | (169                                    | )          | (162 | ) |
| Net cash provided by (used in) financing activities                                       |       | (135                                    | )          | 88 |   |
|                                                                                      |       |                                    |       |   |   |
| Net increase (decrease) in cash and cash equivalents                                      |       | (136                                    | )          | 614 |   |
|                                                                                      |       |                                    |       |   |   |
| Cash and cash equivalents at beginning of period                                          |       | 2,531                                   |       | 579 |   |
|                                                                                      |       |                                    |       |   |   |
| Cash and cash equivalents at end of period                                                |       | $                                       | 2,395      |   | $ | 1,193 |   |
|                                                                                      |       |                                    |       |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                         |       |                                    |       |   |   |
| Cash paid during the period for:                                                          |       |                                    |       |   |   |
| Interest                                                                                  |       | $                                       | 65         |   | $ | 136 |   |
| Income taxes                                                                              |       | $                                       | 118        |   | $ | 11 |   |

 

 

See accompanying Notes to Consolidated Financial Statements.

 

5

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CYANOTECH CORPORATION

FORM 10-Q

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

As of September 30, 2004

(Unaudited)

 

1.                                       BASIS OFPRESENTATION

 

The accompanying unauditedconsolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States of America forinterim financial information and with the instructions to Form 10-Q andRegulation S-X.  Accordingly, they do notinclude all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements.  These consolidated financial statements andnotes should be read in conjunction with the Company’s consolidated financialstatements contained in the Company’s previously filed report on Form 10-K forthe year ended March 31, 2004.

 

The Company consolidates enterprises in which it has a controllingfinancial interest. The accompanying consolidated financial statements includethe accounts of Cyanotech Corporation and its wholly-owned subsidiaries, NutrexHawaii, Inc. and Cyanotech Japan YK.  Allsignificant intercompany balances and transactions have been eliminated in consolidation.While the financial information furnished for the three and six month periodsended September 30, 2004 is unaudited, the statements in this report reflectall material items which, in the opinion of management, are necessary for afair presentation of the results of operations for the interim periods coveredand of the financial condition of the Company at the dates of the consolidatedbalance sheets. The operating results for the interim period presented are notnecessarily indicative of the results that may be expected for the year endingMarch 31, 2005.

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and the disclosure of any contingent assets andliabilities as of the date of the financial statements and the reported amountsof revenues and expenses during the reporting period.  Management reviews these estimates andassumptions periodically and reflects the effect of revisions in the periodthat they are determined to be necessary. Actual results could differ significantly from those estimates.

 

 

2.                                       INVENTORIES

 

Inventories are stated at the lower of cost (which approximatesfirst-in, first-out) or market and consist of the following (dollars inthousands):

 

| ** **      | ** ** | **September 30, 2004** | ** ** | **March 31, 2004** | ** ** |
|-----------------|------------|------------------------|------------|--------------------|------------|
| Raw materials   |       | $                      | 162        |               | $          | 191 |   |
| Work in process |       | 255                    |       | 154                |       |
| Finished goods  |       | 862                    |       | 567                |       |
| Supplies        |       | 125                    |       | 187                |       |
|            |       | $                      | 1,404      |               | $          | 1,099 |   |

 

 

6

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3.             EQUIPMENT ANDLEASEHOLD IMPROVEMENTS

 

Equipment and leasehold improvements arestated at cost. Depreciation and amortization are provided using thestraight-line method over the estimated useful lives for equipment andfurniture and fixtures, or the shorter of the land lease term or estimateduseful lives for leasehold improvements as follows:

 

| Equipment              |   | 3  to 10 years  |
|------------------------|--------|-----------------|
| Furniture and fixtures |   | 7  years        |
| Leasehold improvements |   | 10  to 21 years |

 

 

Equipment and leasehold improvements consist of the following (dollarsin thousands):

 

 

| ** **                                     | ** ** | **September 30, 2004** | ** ** | **March 31, 2004** | ** ** |
|------------------------------------------------|------------|------------------------|------------|--------------------|------------|
|                                           |       |                   |       |               |       |
| Equipment                                      |       | $                      | 9,815      |               | $          | 9,753 |   |
| Leasehold improvements                         |       | 14,567                 |       | 14,326             |       |
| Furniture and fixtures                         |       | 84                     |       | 83                 |       |
|                                           |       | 24,466                 |       | 24,162             |       |
| Less accumulated depreciation and amortization |       | (13,344                | )          | (12,687            | )          |
| Construction in-progress                       |       | 476                    |       | 369                |       |
| Equipment and leasehold improvements, net      |       | $                      | 11,598     |               | $          | 11,844 |   |

 

 

4.              INDEPENDENT DIRECTOR STOCK OPTIONAND STOCK GRANT PLAN

 

OnAugust 16, 2004, the stockholders approved the Independent Director StockOption and Stock Grant Plan (the “2004 Plan”).  300,000 shares of common stock are reserved for issuance under the 2004Plan.  Under the 2004 Plan, upon electionto the Board of Directors, a newly elected non-employee director is granted aten-year option to purchase 4,000 shares of the Company’s common stock at afair market value on the date of grant. All options granted under the 2004 Plan shall vest and becomeexercisable six months from the date of grant. In addition, on the date of each Annual Meeting of Stockholders, eachnon-employee director continuing in office will be automatically granted,without payment, 3,500 shares of common stock, non-transferable for six monthsfollowing the date of grant.  Concurrently with the 2004 Plan approval, the 1994 Non-Employee DirectorStock Option and Stock Grant Plan was terminated except for outstanding optionsissued thereunder.

 

TheCompany applies the intrinsic value-based method of accounting prescribed byAccounting Principles Board Opinion No. 25, *Accounting for StockIssued to Employees,*and related interpretations, in accounting forits fixed plan stock options issued to employees, including non-employeedirectors.  As such, compensation expensewould be recorded on the date of grant only if the current market price of theunderlying stock exceeded the exercise price. For the three and six months ended September 30, 2004, an expense of$22,000 was recognized in connection with common stock grants and issuances ofcommon stock options.

 

 

5.             EARNINGS PER SHARE

 

Basic earnings per share is computed on the basis of the weightedaverage number of common shares outstanding. Diluted earnings per share is computed on the basis of the weightedaverage number of common shares outstanding plus the potentially dilutiveeffect of outstanding stock options and warrants using the “treasury stock”method.

 

 

7

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Reconciliations between the numerator and the denominator of the basicand diluted earnings per share computations for the three and six months endedSeptember 30, 2004 are as follows (in thousands, except per share amounts):

 
| ** **                                                             | ** ** | **Three Months Ended September 30, 2004** | ** ** | **Six Months Ended September 30, 2004** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                             | ** ** | **Net Income**                            | ** ** | **Shares**                              | ** ** | **Per Share** | ** ** | **Net Income** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
| ** **                                                             | ** ** | **(Numerator)**                           | ** ** | **(Denominator)**                       | ** ** | **Amount** | ** ** | **(Numerator)** | ** ** | **(Denominator)** | ** ** | **Amount** | ** ** |
| Basic earnings per share                                               |       | $                                         | 121        |                                    | 20,752     |   | $ | 0.01 |   | $ | 234 |   | 20,744 |   | $ | 0.01 |   |
| Effect of dilutive securities — Common stock options and warrants |       | —                                    |       | 283                                     |       |   |   | — |   | 273 |   |   |   |
| Dilutive earnings per share                                            |       | $                                         | 121        |                                    | 21,035     |   | $ | 0.01 |   | $ | 234 |   | 21,017 |   | $ | 0.01 |   |
|                                                                        |            |                                           |            |                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

There were no reconciling items for the three and six months endedSeptember 30, 2003.

 

The following securities were excluded from the calculation of dilutedearnings per share because their effect was antidilutive (in thousands):

 

| ** **                 | ** ** | **Three Months Ended September 30,** | ** ** | **Six Months Ended September 30,** | ** ** |
|----------------------------|------------|-------------------------------------------|------------|-----------------------------------------|------------|
| ** **                 | ** ** | **2004**                                  | ** ** | **2003**                                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Stock options and warrants |       | 169                                       |       | 1,280                                   |       | 172 |   | 1,280 |   |
| Convertible debentures     |       | —                                    |       | 1,923                                   |       | — |   | 1,923 |   |

 

 

6.             STOCK-BASEDCOMPENSATION

 

As allowed byStatement of Financial Accounting Standards (“SFAS”) No. 123 “Accounting forStock-Based Compensation”, the Company has elected to continue to apply theintrinsic value-based method of accounting for employee based stock options andadopted only the disclosure requirements of SFAS No. 123.   The following table illustrates the effecton net income (loss) and net income (loss) per common share if the Company hadapplied the fair-value method under SFAS No. 123 to its employee stock options:

 
| ** **                                                | ** ** | **Three Months Ended September 30,** | ** ** | **Six Months Ended September 30,** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                | ** ** | **2004**                                  | ** ** | **2003**                                | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                      |       |                                      |       |                                    |       |   |   |   |   |
| Net income (loss), as reported                            |       | $                                         | 121        |                                    | $          | (10 | ) | $ | 234 |   | $ | (151 | ) |
| Deduct stock-based employee compensation                  |       |                                      |       |                                    |       |   |   |   |   |
| Expense determined under fair-value method for all awards |       | (24                                       | )          | (23                                     | )          | (41 | ) | (44 | ) |
| Pro-forma net income (loss)                               |       | $                                         | 97         |                                    | $          | (33 | ) | $ | 193 |   | $ | (195 | ) |
|                                                      |       |                                      |       |                                    |       |   |   |   |   |
| Basic net income (loss) per common share:                 |       |                                      |       |                                    |       |   |   |   |   |
| As reported                                               |       | $                                         | 0.01       |                                    | $          | (0.00 | ) | $ | 0.01 |   | $ | (0.01 | ) |
| Pro-forma                                                 |       | $                                         | 0.00       |                                    | $          | (0.00 | ) | $ | 0.01 |   | $ | (0.01 | ) |
|                                                      |       |                                      |       |                                    |       |   |   |   |   |
| Diluted net income (loss) per common share:               |       |                                      |       |                                    |       |   |   |   |   |
| As reported                                               |       | $                                         | 0.01       |                                    | $          | (0.00 | ) | $ | 0.01 |   | $ | (0.01 | ) |
| Pro-forma                                                 |       | $                                         | 0.00       |                                    | $          | (0.00 | ) | $ | 0.01 |   | $ | (0.01 | ) |
|                                                           |            |                                           |            |                                         |            |  |  |  |  |  |  |  |  |  |  |  |

 

 

 

8

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**CYANOTECH CORPORATION**

 

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

 

*This report on Form 10-Q contains forward-looking statements regardingthe future performance of Cyanotech and future events that involve risks anduncertainties that could cause actual results to differ materially from thestatements contained herein. This document, and the other documents that the Companyfiles from time to time with the Securities and Exchange Commission, such asits reports on Form 10-K, Form 10-Q, Form 8-K, and its proxy materials, containadditional important factors that could cause actual results to differ from theCompany’s current expectations and the forward-looking statements containedherein.*

 

 

**Overview**

 

A comparison of selected consolidatedstatements of operations data as reported herein and in the Company’spreviously filed reports on Form 10-Q for the quarterly period ended June 30,2004 and on Form 10-K for the year ended March 31, 2004 follows for the periodsindicated (dollars in thousands):

 
| ** **                   | ** ** | **Three Months Ended  September 30, 2004** | ** ** | **Prior Year  Comparable Quarter  Three Months Ended  September 30, 2003** | ** ** | **Prior  Consecutive Quarter  Three Months Ended  June 30, 2004** | ** ** |
|------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                   | ** ** | **$**                                      | ** ** | **$**                                                                           | ** ** | **Change**                                                             | ** ** | **$** | ** ** | **Change** | ** ** |
| Net sales:                   |       |                                       |       |                                                                            |       |                                                                   |       |   |   |   |   |
| Spirulina products           |       | $                                          | 1,789      |                                                                            | $          | 1,445                                                                  |       | 24 | % | $ | 1,379 |   | 30 | % |
| Natural astaxanthin products |       | 1,139                                      |       | 1,362                                                                           |       | (16                                                                    | %)         | 1,303 |   | (13 | %) |
| Other products               |       | 70                                         |       | 33                                                                              |       | 112                                                                    | %          | 25 |   | 180 | % |
|                         |       | $                                          | 2,998      |                                                                            | $          | 2,840                                                                  |       | 6 | % | $ | 2,707 |   | 11 | % |
|                         |       |                                       |       |                                                                            |       |                                                                   |       |   |   |   |   |
| Gross profit                 |       | $                                          | 1,054      |                                                                            | $          | 861                                                                    |       | 22 | % | $ | 887 |   | 19 | % |

 

For the three months ended September 30, 2004, net sales improved 6%from the comparable prior year quarter and 11% from the current year’s firstquarter results.  However, the Company’ssales by product line reflected mixed results with increasing Spirulina saleswhile natural astaxanthin sales declined as compared to both the comparableprior year quarter and the first quarter of the current fiscal year.  Our Spirulina products havelower profit margins than our astaxanthin products due to an established,mature and competitive market for Spirulina. Our natural astaxanthin sales for the three months endedSeptember 30, 2004 were impacted primarily by two factors which loweredcustomer demand in the quarter:  (1)inclement weather in Japan (ranging from a heat wave to typhoons) and (2)competitive pricing issues from synthetic astaxanthin products in Europe.  As NatuRose, our natural astaxanthin productfor the animal nutrition market, has widespread acceptance in the aquaculturemarket in Japan, we believe the demand for NatuRose will rebound in the futureto levels consistent with prior demand patterns.  In anticipation of increasing worldwidecompetition, the Company continues to actively increase customer acceptance ofits natural astaxanthin products and to diversify its customer base.

 

Spirulina product sales for the quarter ended September 30, 2004increased 24% from the same period a year ago and 30% above the current year’sfirst quarter sales primarily due to the fulfillment of most of the first

 

 

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quarter’s backlogged orders.  Thebacklog of orders at the end of this fiscal year’s first quarter was higherthan prior period levels due to production shortfalls of certain spirulinaproducts resulting from the unseasonably rainy weather.  The increase in other products sales is dueto higher sales of phycobiliproteins resulting from both an increase in unitssold and an overall reduction in unit pricing of approximately 20%.

 

For the three months ended September 30, 2004, the Company experienceda change in the mix of products sold.  Spirulina and astaxanthin sales were 60% and 38% of total net sales forthe quarter ended September 30, 2004, respectively, compared to 51% and 48% forthe comparable quarter a year ago. Responding to the shift in product demand, the Company deferred theconversion of six ponds by retaining these ponds for Spirulinacultivation.  These six ponds were partof the Company’s natural astaxanthin expansion project which consists ofshifting culture ponds from Spirulina to Haematococcus cultivation.  The Haematococcus pluvialis microalgae areused by the Company to produce its natural astaxanthin products.  In future periods, the Company intends tocomplete the conversion of these six ponds to Haematococcus cultivation at noadditional cost to the original budget.

 

The Company achieved increased production volumes during the currentquarter for both Spirulina and natural astaxanthin above levels achieved in anyof the past five consecutive quarters. At these volumes, the Company was able to achieve increasing economies ofscale which favorably impacted cost of sales.  As a result, the gross profit margin as a percentage of net salesimproved to 35% for the three months ended September 30, 2004, compared to 30%for the same period a year ago and 33% for the first quarter of fiscal 2005.

 

 

**Results of Operations**

 

*Second Quarter of Fiscal 2004 Compared to Second Quarter of Fiscal 2003*

 

Net sales for the three months ended September 30, 2004 were$2,998,000, a 6% increase from the $2,840,000 for the comparable period a yearago.   Sales of Spirulina productsincreased 24% due primarily to the fulfillment of the majority of the firstquarter’s delayed backlog of orders.  The increased Spirulina sales were offset by a 16% decrease in sales ofnatural astaxanthin products. International sales represented 47% of net sales for the three monthsended September 30, 2004 compared to 57% for the same period a year agoreflecting lower sales in Japan and Europe. For the three months ended September 30, 2004 and 2003, no singlecustomer had net sales of 10% or more of total net sales.

 

Gross profit represents net sales less cost of goods sold, whichincludes the cost of materials, manufacturing overhead costs, direct laborexpenses and depreciation and amortization. Gross profit for the three monthsended September 30, 2004 was $1,054,000, an increase of 22% from the comparableperiod a year ago due primarily increasing economies of scale inproduction.  As a percent of net sales,the gross profit margin of 35% was an increase of five percentage points fromthe same period a year ago.

 

Operating expenses for the quarter ended September 30, 2004 were$881,000, an increase of $52,000 or 6% from the comparable prior yearperiod.   The increase in spendingreflects a combination of increased investment in research and development andhigher general and administrative expenses, partially offset by lower sales andmarketing expenses.  The Companycontinues to carefully manage its operating expenses.

 

Research and development expenses increased due primarily to thecontinued participation in an ongoing customer sponsored clinical study.  Although the Company does not plan to incuradditional expenses for this particular clinical study, the Company mayparticipate in other similar studies to establish the efficacy of our products.

 

 

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The Company also incurred additional general and administrativeexpenses related to compliance with changing securities laws and regulationsand higher independent director costs resulting from action taken bystockholders at the Company’s Annual Meeting in August 2004.   Offsetting these increased expenditures werethe reductions in bad debt expense and the cessation of royalty paymentsincurred in the prior year period.  Salesand marketing expenses decreased primarily due to reduced spending on ourpackaged products business offset partially by increased advertising.

 

Net other expenseremained about the same as in the prior year comparable quarter.  However, current year’s interest expensedecreased as a result of the conversion of debentures in December 2003.  The decrease in interest expense was offsetby losses arising from exchange rate fluctuations in the current period ontransactions of our Japan subsidiary (whose transactions are denominated inYen) as compared with gains incurred in the comparable prior year quarter.

 

For the three months ended September 30,2004, an income tax provision of $12,000 was recorded for our operations inJapan.   The Company does not expect anyUnited States income taxes for the current fiscal year as a result of availablenet operating loss carryforwards.  Forthe three months ended September 30, 2003, no tax provision was recorded due tothe Company’s taxable loss position in the period.

 

The Company recorded net income of $121,000 ($0.01 per diluted share)for the three months ended September 30, 2004, compared with a net loss of$10,000 reported for the comparable prior year period.  The generation of net income in the currentperiod resulted from the improvement in the gross profit margin from 30% a yearago to 35% in the current period and the growth in sales partially offset byincreased operating expenses.

 

 

*Six Months Ended September 30, 2004 Compared to Six Months EndedSeptember 30, 2003*

 

Net sales for the six months ended September 30, 2004 were $5,705,000,an increase of 8% from the comparable period a year ago.   Comparing year-to-year sales by productline, Spirulina sales increased 10% and natural astaxanthin sales increased7%.  Spirulina sales increased for bothbulk powder and tablet products partially offset by reduced packaged consumerproduct sales.  While Spirulina is animportant component of our business, the Spirulina market is mature and we faceestablished product and pricing competition. Sales of BioAstin, the Company’s natural astaxanthin product for thehuman nutrition market increased for the six months ended September 30, 2004compared to the same period a year ago, however, sales of NatuRose declinedprimarily due to lower sales in Japan due to issues previously mentioned.  As the natural astaxanthin market is anemerging market, the Company is investing in ways to increase acceptance of itsnatural astaxanthin products worldwide. International sales represented 47% and 62% of net sales for the sixmonth periods ended September 30, 2004 and 2003, respectively.   For the six months ended September 30, 2004,sales to a distributor in the United States accounted for 10% of sales.  For the six months ended September 30, 2003,sales to a European distributor accounted for 10% of sales.

 

Gross profit increased 24% to $1,941,000 for the six months endedSeptember 30, 2004, from $1,565,000 for the comparable period a year ago.  As a percentage of sales, the gross profitmargin improved to 34% for the current year period from 30% a year ago.   The improvement is primarily attributable toproduction scale efficiencies in the current quarter partially offset by firstquarter costs associated with Spriulina pond instability issues resulting frominclement weather.  In addition, theprior year gross profit margin was impacted by a finished goods loss resultingfrom a problem at a contract extraction facility which was subsequentlyremedied in the prior year.

 

 

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Operating expenses were $1,607,000 during the six months endedSeptember 30, 2004, an increase of $24,000 or 2% above the comparable period offiscal 2004.   Consistent with changes inoperating expenses for the three month periods ended September 30, 2004 and2003, the increase in spending reflects a combination of increased investmentin research and development and higher general and administrative expenses,partially offset by lower sales and marketing expenses.  The Company continues to carefully manage itsoperating expenses.

 

Net other expenseamounted to $73,000, a decrease of $78,000 or 52% from the comparable period ayear ago primarily due to lower interest expense in the current period as aresult of the conversion of debentures in December 2003.

 

An income tax provision of $27,000 wasrecorded for our operations in Japan for the six months ended September 30,2004.  An income tax benefit forestimated state income tax refunds of $18,000 was recorded in the six monthsended September 30, 2003.

 

Net income of $234,000 or $0.01 per diluted share was recorded for thesix months ended September 30, 2004 compared to a net loss of $151,000 or $0.01per diluted share for the comparable period of the prior year.   The $385,000 improvement is primarily attributableto increased net sales, improved gross margins and lower interest expense inthe current year.

 

 

*Variability of Results*

 

The Company has experienced significant quarterly fluctuations inoperating results and anticipates that these fluctuations may continue infuture periods. Future operating results may fluctuate as a result of changesin sales levels to our largest customers, new product introductions, productiondifficulties, weather patterns, the mix between sales of bulk products andpackaged consumer products, start-up costs associated with new facilities,expansion into new markets, sales promotions, competition, increased energycosts, foreign exchange fluctuations, the announcement or introduction of newproducts by competitors, changes in our customer mix, overall trends in themarket for our  products, governmentregulations and other factors beyond our control.  While a significant portion of our expenselevels are relatively fixed and the timing of increases in expense levels isbased in large part on forecasts of future sales, if net sales are belowexpectations in any given period, the adverse impact on results of operationsmay be magnified by our inability to adjust spending quickly enough tocompensate for the sales shortfall. We may also choose to reduce prices orincrease spending in response to market conditions, which may have a materialadverse effect on financial condition and results of operations.

 

 

**Liquidity and Capital Resources**

 

Working capital for the six months ended September 30, 2004 increasedby $391,000 to $4,474,000 from $4,083,000 at March 31, 2003 primarily due to anincrease in inventories and a reduction in trade accounts payable.  Inventory balances increased as a result ofunexpected changes in customer demands for our natural astaxanthin products inboth Japan and Europe.  The Companyresponded by shifting production capacity to Spirulina in an effort to fillbacklogged orders and to avoid excessive levels of inventories.

 

For the six months ended September 30, 2004, cash and cash equivalentsdecreased $136,000 to $2,395,000.   Thedecrease in cash balances resulted from planned investments in equipment andleasehold improvements primarily for our natural astaxanthin expansion projectand principal payments on long-term debt partially offset by cash flowsprovided by operating activities.

 

 

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Net cash and cash equivalents of $410,000 and $613,000 were provided byoperations for the six months ended September 30, 2004 and 2003,respectively.   Although the Companygenerated net income of $234,000 in the current year period versus a $151,000net loss for the same period a year ago, overall cash generated from operationsdeclined as compared to the comparable prior year period due to increasinginventory balances, payments on trade accounts payables and an increase inprepaid expenses primarily for insurance premiums paid in advance.

 

Cash used in investing activities (for capital expenditures) increasedby $324,000 for the six months ended September 30, 2004 to $411,000 from$87,000 in the comparable prior year period principally due to our naturalastaxanthin expansion project.   Thisproject consists of shifting ten culture ponds from Spirulina to Haematococcuscultivation and upgrading key elements of our production system.   As of September 30, 2004, the project isapproximately 80% complete with four ponds converted and substantially allupgrades of key production elements done.  During the quarter ended September 30, 2004, the Company experienced ashift in product demand and responded by deferring the conversion of six ponds toHaematococcus cultivation.  The Companyintends to complete this project, which is being funded entirely by cash flowgenerated from operations, within budgeted targets.  Upon project completion, the converted pondswill increase our flexibility to better respond to changing market conditions.

 

Cash used in financing activities amounted to $135,000 for the sixmonths ended September 30, 2004 compared to cash provided by financingactivities of $88,000 for the comparable prior year period.  The decrease was primarily due to therelease, in July 2003, of $250,000 of restricted cash deposits by the Company’slong-term debt holder.

 

The Company’s contractual obligations and commitments (consisting of aterm loan and operating leases) are disclosed in the Company’s previously filedreport on Form 10-K for the fiscal year ended March 31, 2004 in the followingsections:  Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations — Liquidity andCapital Resources, and Item 8. Financial Statements and Supplementary Data —Notes 5 and 6 of Notes to Consolidated Financial Statements.  There have been no significant changes incontractual obligations and commitments from March 31, 2004 to September 30,2004, other than those reported elsewhere in this Form 10-Q.

 

 

**Critical Accounting Policies**

 

Our unaudited financial statements andaccompanying notes are prepared in accordance with accounting principlesgenerally accepted in the United States of America for interim financialinformation and with the instructions to Form 10-Q and Regulation S-X.  Preparing financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management’s applicationof accounting policies.  The Company hasidentified certain policies that require the application of significantjudgment by management.  Our mostcritical accounting policies are those related to inventory valuation, revenuerecognition, equipment and leasehold improvements, income taxes and impairmentof long-lived assets.  These criticalaccounting policies are discussed in the Notes to Consolidated FinancialStatements in the Company’s previously filed report on Form 10-K for the fiscalyear ended March 31, 2004.  Thisdiscussion and analysis should be read in conjunction with such notes and our consolidatedfinancial statements and related notes included elsewhere in this report.

 

 

 

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**Outlook**

 

*This outlook section contains a number of forward-looking statements,all of which are based on current expectations. Actual results may differmaterially. See first paragraph of this Item 2.*

 

The successful production and marketing ofhigh-value natural products derived from microalgae has been the strategy ofCyanotech Corporation since our inception. Our current product offerings include Certified Organic and NaturallyCultivated Spirulina Pacifica® in powder, flake and tablet form, NatuRose®natural astaxanthin powder for the animal nutrition market, BioAstin® naturalastaxanthin antioxidant in lipid extract, softgel caplet and micro-encapsulatedbeadlet form for the human nutrition and cosmetic industries and algae-basedPhycobiliproteins for use in medical diagnostics.  Information about our Company and ourproducts can be viewed at www.cyanotech.com, www.nutrex-hawaii.com orwww.phycobiliprotein.com.  Consumerproducts can also be purchased online at www.nutrex-hawaii.com.

 

Net sales of $2,998,000 for the secondquarter of fiscal 2005 demonstrate the consistent demand for our SpirulinaPacifica, BioAstin and NatuRose products. Overall, our net sales compare favorably with the first quarter offiscal 2005 as well as with the comparable quarter of the prior fiscalyear.  However, compared to both thefirst quarter of this year and the comparable prior year quarter, our productmix shifted due to changes in our customers’ requirements.  As such, a larger proportion of total salesfor the second quarter of fiscal year 2005 were Spirulina Pacifica productswhich have lower profit margins than our astaxanthin products.

 

Our gross profit margin improved to 35% dueto improvements in our production efficiency for all products.  Recovering quickly from the adverse effect ofrain on our first quarter production, we achieved high levels of productionallowing us to ship higher volumes of Spirulina Pacifica, reducing ouroutstanding backlog of orders and offsetting the effect of the change inproduct mix.

 

Substantial progress was made during thequarter on our ongoing project to increase the capacity for astaxanthin productionwith essentially all non-pond upgrades and improvements to key elements of ourprocessing capacity completed and functioning. In response to the shift in product demand, we deferred some of our pondconversion work by retaining six ponds for cultivation of SpirulinaPacifica.  When complete, our ten pondconversion will allow our Company greater flexibility in adapting to changes inproduct mix.  An important fact which wewish to emphasize is that while this project represents a substantial investment,it is being funded by cash flows generated from operations.

 

Entering the second half of fiscal 2005 weare confident of our ability to sustain and improve our profitability.  After several years of loss we have nowachieved four consecutive quarters of profit and we believe we can adapt morereadily to changing demands in our markets. Our sales and marketing efforts are targeted at increasing theacceptance of both of our natural astaxanthin products and to firmly establishCyanotech as the world’s leading manufacturer of this high-value product.  We are confident that our sales of BioAstinand NatuRose will grow and that our Company will be able to capitalize on theincreasing demand.

 

Beyond our natural astaxanthin products, wecurrently are evaluating three additional microalgal based products forpotential commercialization.  Ourevaluation includes an assessment of potential markets, preliminary processdevelopment and profit analyses.  Therecan be no assurance that Cyanotech will commercially produce any of the threepotential new products, however, we are committed to continuing development ofnew microalgal products.

 

 

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The Company’s future results of operationsand the other forward-looking statements contained in this Outlook, inparticular the statements regarding revenues, gross margin and capital spendinginvolve a number of risks and uncertainties. In addition to the factors discussed above that could cause actualresults to differ materially are the following: business conditions and growth in the natural products industry and inthe general economy, changes in customer order patterns, changes in demand fornatural products in general, changes in weather conditions, competitive factors,such as competing spirulina and astaxanthin producers increasing theirproduction capacity and the resulting impact, if any, on world market pricesfor these products, government actions, shortage of manufacturing capacity, andother factors beyond our control.  Riskfactors are discussed in detail in Exhibit 99.1, included in this report.

 

Cyanotech believes that it has the productofferings, facilities, personnel, and competitive and financial resources forimproved results, but future revenues, costs, margins and profits are allinfluenced by a number of factors, as discussed above, all of which areinherently difficult to forecast.

 

 

 

 

 

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**Item 3.    Quantitative and Qualitative DisclosuresAbout Market Risk**

 

We have not entered into any transactions using derivative financialinstruments or derivative commodity instruments and believe that our exposureto market risk associated with other financial instruments is not material.

 

 

**Item 4.  Controls and Procedures**

 

Under the supervision andwith the participation of management, including the President and ChiefExecutive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of theCompany (the “Certifying Officers”), we have evaluated the effectiveness of thedesign and operation of our disclosure controls and procedures as of the end ofthe period covered by this report in accordance with Item 307 of Regulation S-Kpromulgated by the Securities and Exchange Commission.  As defined under Rules 13a-15(e) or 15d-15(e)issued under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),the term “disclosure controls and procedures” refers to controls and otherprocedures of an issuer that are designed to ensure that information requiredto be disclosed by the issuer in the reports that it files or submits under theExchange Act is recorded, processed, summarized and reported, within the timeperiods specified in the Commission’s rules and forms.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by an issuer in the reports that it files or submitsunder the Exchange Act is accumulated and communicated to the issuer’smanagement, including its principal executive officer or officers and principalfinancial officer or officers, or persons performing similar functions, asappropriate to allow timely decisions regarding required disclosure.

 

 Based on that evaluation, the CEO and CFO haveconcluded that the Company’s disclosure controls and procedures are effective.There were no changes in our internal controls over financial reporting duringthe quarter ended September 30, 2004 that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

 

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**PART II.****                                               ****OTHER INFORMATION**

 

Item 1.             **                                               **Legal Proceedings

                                                                                                None

 

Item 4.             **                                               **Submission of Matters to aVote of Security Holders

 

On August 16, 2004, the following matters were submitted and voted bystockholders entitled to vote at the Company’s Annual Meeting of Stockholders:

 

a)            The followingdirectors were elected to serve until the next Annual Meeting or until theirsuccessors are elected:

 

| ** **         | ** ** | **For Votes** | ** ** | **Withheld Votes** | ** ** |
|--------------------|------------|---------------|------------|--------------------|------------|
| Gerald R. Cysewski |       | 18,255,773    |       | 79,773             |       |
| Michael A. Davis   |       | 18,245,581    |       | 89,965             |       |
| Gregg W. Robertson |       | 18,246,661    |       | 88,885             |       |
| David I. Rosenthal |       | 18,254,581    |       | 80,965             |       |
| John T. Waldron    |       | 18,237,431    |       | 98,115             |       |
| Paul C. Yuen       |       | 18,235,931    |       | 99,615             |       |

 

b)   Approval to amend theCompany’s Articles of Incorporation to increase the number of authorized sharesof common stock (par value $0.005 per share) from 25,000,000 to30,000,000.   The vote was 17,455,834for, 814,907 against and 74,805 abstaining.

 

c)  Approval of the IndependentDirector Stock Option and Stock Grant Plan (the “2004 Plan), reserving a totalof 300,000 authorized shares of common stock of the Company for issuance ofoptions and grants under the 2004 Plan.  The vote was 9,018,193 for, 781,277 against, 91,890 abstaining and8,444,186 broker not voted.

 

d)           Ratification ofthe selection of KPMG LLP as the Company’s independent Registered PublicAccounting Firm for the fiscal year ending March 31, 2005.  The vote on the ratification was 18,236,652for, 42,083 against and 56,811 abstaining.

 

Item 6.                                                             Exhibits and Reports on Form8-K

 

a)     The following exhibits arefurnished with this report:

 

31.1                           Certificationby the Chief Executive Officer pursuant to

                Rule13a-14(a)/15d-14(a) of the Exchange Act

 

31.2                           Certificationby the Chief Financial Officer pursuant to

                Rule13a-14(a)/15d-14(a) of the Exchange Act

 

32.1                           Certificationby the Chief Executive Officer pursuant to 18 U. S. C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2                           Certificationby the Chief Financial Officer pursuant to 18 U. S. C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

99.1         Risk Factors

 

 

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b)    Reports on Form 8-K

 

A report on Form 8-K dated August 2, 2004 included Item 12. Results ofOperations and Financial Condition in conjunction with the Company’s pressrelease announcing the financial results for the Quarter ended June 30, 2004.

 

A report on Form 8-K dated August 19, 2004 included Item 5. OtherEvents and Regulation FD Disclosure and Item 7. Financial Statements, Pro FormaFinancial Information and Exhibits in conjunction with a news article on theCompany published in the Honolulu Star Bulletin comprised primarily of aninterview with the Company’s Chief Executive Officer, Gerald R. Cysewski.

 

 

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** **

**SIGNATURES**

 

In accordance with the requirements of the Securities Exchange Act of1934, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 

 
|               | CYANOTECH CORPORATION  (Registrant) |
|--------------------|-------------------------------------|
|               |                                |
| November  12, 2004 |                                | By: | /s/ Gerald R. Cysewski |
| (Date)             |                                |   | Gerald R. Cysewski |
|               |                                | Chairman of the Board,  President and Chief Executive Officer |
|               |                                |   |
|               | By:                                 | /s/ Jeffrey H. Sakamoto |
|               |                                | Jeffrey H. Sakamoto |
|               |                                | Vice President — Finance  & Administration  (Principal Financial and Accounting Officer) |

 

 

 

 

 

 

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