10-Q

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 September 30, 2017

Or

☐ 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)

 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 ☒
(Do not check if a 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 ☒

Number of common shares outstanding as of November 6, 2017:

Title of Class	Shares Outstanding
Common stock - $0.02 par value	5,743,882

CYANOTECH CORPORATION

FORM 10-Q

INDEX

PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2017 and March 31, 2017 (unaudited)	3
	Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2017 and 2016 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2017 and 2016 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults upon Senior Securities	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
SIGNATURES		27

2

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	September 30, 2017			March 31, 2017
ASSETS
Current assets:
Cash	$	2,102		$	1,407
Accounts receivable, net of allowance for doubtful accounts of $27 at September 30, 2017 and $49 at March 31, 2017		1,541			2,135
Inventories, net		9,315			7,972
Prepaid expenses and other current assets		447			565
Total current assets		13,405			12,079
Equipment and leasehold improvements, net		16,023			16,712
Other assets		251			213
Total assets	$	29,679		$	29,004
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	500		$	611
Current maturities of long-term debt		626			623
Customer deposits		72			119
Accounts payable		3,473			3,666
Accrued expenses		1,012			1,013
Total current liabilities		5,683			6,032
Long-term debt, less current maturities		5,959			6,249
Other long-term liabilities		110			116
Total liabilities		11,752			12,397
Commitments and contingencies
Stockholders’ equity:
Preferred stock of $0.01 par value, authorized 10,000,000 shares; no shares issued and outstanding		—			—
Common stock of $0.02 par value, shares authorized 50,000,000; 5,743,882 shares issued and outstanding at September 30, 2017 and 5,685,381 shares at March 31, 2017		115			114
Additional paid-in capital		31,919			31,577
Accumulated deficit		(14,107	)		(15,084	)
Total stockholders’ equity		17,927			16,607
Total liabilities and stockholders’ equity	$	29,679		$	29,004

See accompanying Notes to Condensed Consolidated Financial Statements.

3

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,						Six Months Ended September 30,
	2017			2016			2017			2016
NET SALES	$	8,055		$	9,862		$	16,864		$	17,184
COST OF SALES		4,435			5,977			9,641			10,478
Gross profit		3,620			3,885			7,223			6,706
OPERATING EXPENSES:
General and administrative		1,412			2,016			2,764			3,726
Sales and marketing		1,440			1,470			2,929			3,025
Research and development		149			152			291			318
Total operating expenses		3,001			3,638			5,984			7,069
Income (loss) from operations		619			247			1,239			(363	)
Interest expense, net		(133	)		(122	)		(241	)		(253	)
Income (loss) before income taxes		486			125			998			(616	)
INCOME TAX EXPENSE (BENEFIT)		11			26			21			(24	)
NET INCOME (LOSS)	$	475		$	99		$	977		$	(592	)
NET INCOME (LOSS) PER SHARE:
Basic	$	0.08		$	0.02		$	0.17		$	(0.10	)
Diluted	$	0.08		$	0.02		$	0.17		$	(0.10	)
SHARES USED IN CALCULATION OF NET INCOME (LOSS) PER SHARE:
Basic		5,709			5,657			5,697			5,645
Diluted		5,771			5,727			5,743			5,645

See accompanying Notes to Condensed Consolidated Financial Statements.

4

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Six Months Ended September 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	977		$	(592	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss (gain) on disposal of assets		32			(13	)
Depreciation and amortization		938			1,007
Amortization of debt issue costs and other assets		32			28
Share-based compensation expense		341			215
Net (increase) decrease in assets:
Accounts receivable		594			(70	)
Inventories		(1,343	)		397
Prepaid expenses and other assets		66			(259	)
Net increase (decrease) in liabilities:
Customer deposits		(47	)		(67	)
Accounts payable		(193	)		184
Accrued expenses		(1	)		73
Deferred rent and other liabilities		(5	)		8
Net cash provided by operating activities		1,391			911
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements		(281	)		(277	)
Net cash used in investing activities		(281	)		(277	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term note payable		—			600
Net (payments) draws on line of credit		(111	)		611
Payment of short term notes payable		—			(600	)
Payments on capitalized leases		(46	)		(35	)
Principal payments on long-term debt		(260	)		(252	)
Payments in stock withheld for tax payment on issuance		—			(147	)
Proceeds from stock options exercised		2			4
Net cash (used in) provided by financing activities		(415	)		181
Net increase in cash		695			815
Cash at beginning of period		1,407			1,240
Cash at end of period	$	2,102		$	2,055
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	210		$	213
Income taxes	$	—		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

5

CYANOTECH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017

(Unaudited)

1. BASIS OF PRESENTATION

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, 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, 2017 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, 2017, contained in the Company’s annual report on Form 10-K as filed with the SEC on June 22, 2017.

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 significant 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.

Liquidity and Debt Covenant Compliance

As of September 30, 2017, the Company had cash of $2.1 million and working capital of $7.7 million compared to $1.4 million and $6.0 million, respectively, at March 31, 2017. The Company has a revolving line of credit agreement with First Foundation Bank (the Bank) that allows it to borrow up to $2 million. The line is subject to renewal on August 30, 2018. As of September 30, 2017, the Company had borrowed $0.5 million and had $1.5 million available on the line.

 As of September 30, 2017, the Company had $6.6 million of term loans payable to the Bank that require the payment of principal and interest monthly through August 2032. Pursuant to the term loans, the Company is subject to annual financial covenants, customary affirmative and negative covenants and certain subjective acceleration clauses. As of March 31, 2017 and 2016, the Company's current ratio of 1.92:1 and 1.97:1, respectively, fell short of the Bank's annual requirement of 2.10:1. The Bank has provided the Company with letters stating they found the Company to be in compliance with this covenant requirement and all other financial covenants as of March 31, 2017 and 2016, and do not consider these shortfalls to be defaults under the Loan Agreements.

 Funds generated by operating activities and available cash 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 fiscal year 2018 operating plan and related cash flow projections and the Company's projected consolidated financial position as of March 31, 2018, cash flows expected to be generated by operating activities and available financing are expected to be sufficient to fund the Company's operations for at least the next twelve months, and the Company's current ratio is expected to be in compliance with the annual term loan covenant requirement as of March 31, 2018. However, no assurances can be provided that the Company will achieve its operating plan and cash flow objectives for the next fiscal year or its projected consolidated financial position as of March 31, 2018. Such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results.

6

 As indicated above, the Bank has not considered the shortfalls as of March 31, 2017 and 2016 in the Company's current ratio relative to the covenant requirement to be violations of the Loan Agreements. However, in the event the Company has a shortfall under the Loan Agreements as of March 31, 2018 or future fiscal year ends, there is no assurance that the Bank will not consider such to be a violation of the Loan Agreements and pursue its rights under the arrangements to call for the repayment of the outstanding borrowings payable to the Bank. If this occurs, the Company may need to raise additional funds to repay the loans; however, the Company may not be able to secure such funding on acceptable terms, or at all.

Reclassification

Certain amounts in the fiscal 2017 consolidated financial statements have been reclassified to conform to the fiscal 2018 financial presentation. These reclassifications have no impact on net income (loss).

 Recent Accounting Pronouncements

In May 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting. ASU 2017-09 will clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718, to a change to the terms and conditions of a share-based payment award. This guidance will become effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact of this updated standard. The Company does not believe this update will have a significant impact on its consolidated financial statements.

In December 2016, the FASB issued ASU 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU No. 2016-20”) and ASU 2016-19 “Technical Corrections and Improvements” ("ASU No. 2016-19") which contains amendments that affect a wide variety of topics in the Accounting Standards Codification (“ASC”). The amendments generally fall into one of the following four categories: (a) Amendments related to differences between original guidance and the ASC that either carry forward pre-codification guidance or subsequent amendments into the ASC or to guidance that was codified without some text, reference, or phrasing that, upon review, was deemed important to the guidance; (b) Guidance clarification and reference corrections; (c) Simplification; and (d) Minor improvements. ASU 2016-20 will take effect for public companies for the fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. This guidance is applicable to the Company’s fiscal year beginning April 1, 2018. The Company does not expect that the adoption of this guidance will have a significant impact on its consolidated financial position, results of operations or cash flows.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU No. 2016-18”).  This update addresses the fact that diversity exists in the classification and presentation of changes in restricted cash on the statement of cash flows under Topic 230, Statement of Cash Flows. ASU 2016-18 will take effect for public companies for the fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. This guidance is applicable to the Company’s fiscal year beginning April 1, 2018. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements and related disclosures.

In August 2016, FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU No. 2016-15”). This ASU clarifies and provides specific guidance on eight cash flow classification issues that are not currently addressed by current GAAP and thereby reduces the current diversity in practice. ASU No. 2016-15 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early application permitted. This guidance is applicable to the Company’s fiscal year beginning April 1, 2018. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements and related disclosures. 

7

 In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU No. 2016-09”). This ASU makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation, and the financial statement presentation of excess tax benefits or deficiencies. ASU No. 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement must be applied prospectively. Amendments related to the presentation of excess tax benefits on the statement of cash flows may be applied either prospectively or retrospectively based on the Company’s election. Amendments related to the statement of cash flows presentation of employee taxes paid when an employer withholds shares must be applied retrospectively. As of April 1, 2017, the Company adopted ASU 2016-09 and elected to present excess tax benefits as an operating activity prospectively and continues to estimate forfeitures rather than recognize them as they occur. The adoption of ASU 2016-09 did not have an impact on its consolidated financial statements and related disclosures.

 In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU No. 2016-08”), which clarified the revenue recognition implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, which clarified the revenue recognition guidance regarding the identification of performance obligations and the licensing implementation. In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. ASU No. 2016-08, ASU No. 2016-10 and ASU No. 2016-12 are effective during the same period as ASU No. 2014-09, Revenue from Contracts with Customers, which is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt one year earlier. This guidance is applicable to the Company’s fiscal year beginning April 1, 2018. The Company does not anticipate that the adoption of ASU No. 2016-08, ASU No. 2016-10 and ASU No. 2016-12 will have a material impact on its consolidated financial statements and related disclosures. 

 In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU No. 2016-02”). The principle objective of ASU No. 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet. ASU No. 2016-02 continues to retain a distinction between finance and operating leases but requires lessees to recognize a right-of-use asset representing its right to use the underlying asset for the lease term and a corresponding lease liability on the balance sheet for all leases with terms greater than twelve months. ASU No. 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption of ASU No. 2016-02 is permitted. Entities are required to apply the amendments at the beginning of the earliest period presented using a modified retrospective approach. This guidance is applicable to the Company’s fiscal year beginning April 1, 2019. The Company expects this guidance will have a material impact on its consolidated balance sheets due to the recognition of lease rights and obligations as assets and liabilities, respectively. The Company does not expect this guidance to have a material effect on its consolidated results of operations and cash flows. 

 In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”. This guidance simplifies the presentation of deferred income taxes and requires that deferred tax assets and liabilities be classified as noncurrent in the classified statement of financial position. ASU 2015-17 will take effect for public companies for the fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. As required, the Company adopted this standard as of April 1, 2017 and accordingly all deferred tax assets and liabilities are classified as non-current. Prior periods were retrospectively adjusted.

 In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, which defers the effective date of ASU 2014-09 by one year to December 15, 2017 for interim and annual reporting periods beginning after that date, and permitted early adoption of the standard, but not before the original effective date. 

 In July 2015, the FASB issued ASU No. 2015-11, “Inventory: Simplifying the Measurement of Inventory”, that requires inventory not measured using either the last in, first out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation.  Prior to the issuance of the standard, inventory was measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin). The new standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and will be applied prospectively. Early adoption is permitted. As required, the Company adopted this standard as of April 1, 2017. The adoption of this standard did not have a material impact on the Company's financial position or results of operations.

8

 In May 2014, The FASB issued ASU No 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This guidance, as amended by subsequent ASUs on the topic, supersedes current guidance on revenue recognition in topic 605, Revenue Recognition. This guidance will be effective for annual periods beginning after December 15, 2017, including interim reporting periods. Early application of the guidance is permitted for annual periods beginning after December 31, 2016. This guidance is applicable to our fiscal year beginning April 1, 2018. The Company plans to adopt this guidance when effective in the first quarter of the fiscal year ended March 31, 2019. The Company has begun to consider the alternatives of adoption of this ASU and has started its review of the likely impact to the existing portfolio of customers contracts entered into prior to adoption. The Company will also continue to evaluate the effect of adopting this guidance upon the its results of operations, cash flows and financial position. The Company expects to complete this evaluation in December 2017.

2. INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Inventories consist of the following:

	September 30, 2017		March 31, 2017
	(in thousands)
Raw materials	$	326	$	347
Work in process		2,504		2,323
Finished goods (1)		6,335		5,173
Supplies		150		129
Inventories, net	$	9,315	$	7,972

(1) Net of reserve for obsolescence of $3,000 at September 30, 2017 and March 31, 2017, respectively.

The Company recognizes abnormal production costs, including fixed cost variances from normal production capacity, as an expense in the period incurred. Non-inventoriable fixed costs related to spirulina production of $75,000 and $84,000 were charged to cost of sales for the three and six months ended September 30, 2017, respectively. Non-inventoriable fixed costs related to astaxanthin production of $73,000 and $101,000 were charged to cost of sales for the three and six months ended September 30, 2016, respectively

3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

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

	Years
Equipment		3	to	10
Furniture and fixtures		3	to	7
Leasehold improvements		10	to	25

Equipment and leasehold improvements consist of the following:

	September 30, 2017			March 31, 2017
	(in thousands)
Equipment	$	17,623		$	17,492
Leasehold improvements		14,239			13,892
Furniture and fixtures		348			380
		32,210			31,764
Less accumulated depreciation and amortization		(16,631	)		(15,835	)
Construction-in-progress		444			783
Equipment and leasehold improvements, net	$	16,023		$	16,712

9

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amount to forecasted undiscounted future cash flows expected to be generated by the asset. If the carrying amount exceeds its estimated future cash flows, then an impairment charge is recognized to the extent that the carrying amount exceeds the asset’s fair value. Management has determined no asset impairment existed as of September 30, 2017 and 2016, respectively.

4. LINE OF CREDIT

On August 30, 2016, the Revolving Credit Agreement (the “Credit Agreement”), which the Company and First Foundation Bank (“the Bank”) entered into 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 (4.25% at September 30, 2017) + 2%, floating. The Credit Agreement includes various covenants as defined in the Credit Agreement. The Credit Agreement also contains standard acceleration provisions in the event of a default by the Company. As of September 30, 2017, the Company had borrowed $500,000 and had $1,500,000 available on the line. The line of credit is subject to annual renewal and was renewed on August 30, 2017 and will be subject to renewal upon expiration on August 30, 2018.

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.

5. ACCRUED EXPENSES

Accrued expenses consist of the following:

	September 30, 2017		March 31, 2017
	(in thousands)
Wages, commissions, bonus and profit sharing	$	812	$	793
Rent and utilities		98		69
Other accrued expenses		102		151
Total accrued expenses	$	1,012	$	1,013

6. LONG-TERM DEBT

Long-term debt consists of the following:

	September 30, 2017			March 31, 2017
	(in thousands)
Long-term debt	$	6,835		$	7,139
Less current maturities		(626	)		(623	)
Long-term debt, excluding current maturities		6,209			6,516
Less unamortized debt issuance costs		(250	)		(267	)
Total long-term debt, net of current maturities and unamortized debt issuance costs	$	5,959		$	6,249

Term Loans

 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 Agreement is evidenced by a promissory note in the amount of $2,500,000, the repayment of which is partially guaranteed under the provisions of a United States Department of Agriculture (“USDA”) Rural Development Guarantee program. The provisions of the 2015 Loan Agreement 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 (4.25% at September 30, 2017) plus 2.0% and is adjustable on the first day of each calendar quarter and fixed for that quarter. At no time shall the annual interest rate be less than 6.00%. The 2015 Loan has a prepayment penalty of 5% for any prepayment made prior to the first anniversary of the date of the 2015 Loan Agreement, which penalty is reduced by 1% each year thereafter until the fifth anniversary of such date, after which there is no prepayment penalty. The balance under the 2015 Loan was $1,890,000 and $2,049,000 at September 30, 2017 and March 31, 2017, respectively.

10

  The 2015 Loan includes a one-time origination and guaranty fee totaling $113,900 and an annual renewal fee payable in the amount of 0.50% 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 Company is subject to financial covenants and customary affirmative and negative covenants.

 The Company executed a loan agreement with a lender providing for $5,500,000 in aggregate credit facilities (the “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 “Loan Agreement”). The Loan Agreement 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 provisions of the 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 Loan accrues on the outstanding principal balance at an annual variable rate equal to the published Wall Street Journal prime rate (4.25% at September 30, 2017) plus 1.0% and is adjustable on the first day of each calendar quarter and fixed for that quarter. At no time shall the annual interest rate be less than 5.50%. The Loan has a prepayment penalty of 5% for any prepayment made prior to the first anniversary of the date of the Loan Agreement, which penalty is reduced by 1% each year thereafter until the fifth anniversary of such date, after which there is no prepayment penalty. The balance under this Loan was $4,754,000 and $4,854,000 at September 30, 2017 and March 31, 2017, respectively. Proceeds from the Loan were classified as restricted cash until drawn upon to acquire new processing equipment and leasehold improvements.  

The Loan includes 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 Loan. The Company is subject to financial covenants and customary affirmative and negative covenants.  

The Company’s current ratio of 1.92 to 1 and 1.97 to 1 as of March 31, 2017 and 2016, respectively, fell short of the bank’s requirement of 2.10 to 1; however, the Company has received letters from its bank stating that they found the Company to be in compliance with this and all other financial covenants as of March 31, 2017 and 2016, and do not consider these shortfalls to be a defaults under the Loan Agreements.   

On October 6, 2017 the Company entered into an Equipment Finance Agreement (the “Equipment Agreement”), which provides up to $175,000 of financing for equipment with repayment terms of 36 to 60 months. As of November 6, 2017, there was no advance of funds or balance outstanding.

Capital Leases

The Company has four capital leases providing for $364,000 in equipment, secured by the equipment financed. The capital leases mature at various dates between March 2018 and March 2021 and are payable in 60 equal monthly payments, except for one which is payable in 36 equal monthly payments. The interest rates under these capital leases range from 4.18% to 12.90%. The balance under these leases was $191,000 and $236,000 at September 30, 2017 and March 31, 2017, respectively.

Future principal payments under the term loans and capital lease agreements as of September 30, 2017 are as follows:

Payments Due	(in thousands)
Next 12 Months	$	626
Year 2		640
Year 3		656
Year 4		655
Year 5		688
Thereafter		3,570
Total principal payments	$	6,835

11

7. OPERATING LEASES

The Company leases facilities, equipment and land under operating leases expiring through 2035. The land lease provides for contingent rentals in excess of minimum rental commitments based on a percentage of the Company’s sales. Management has accrued for the estimated contingent rent as of September 30, 2017.

Future minimum lease payments under all non-cancelable operating leases at September 30, 2017 are as follows:

Payments Due	(in thousands)
Next 12 Months	$	616
Year 2		619
Year 3		583
Year 4		528
Year 5		533
Thereafter		4,023
Total minimum lease payments	$	6,902

8. OTHER COMMITMENTS AND CONTINGENCIES

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. The Company believes that it currently is not a party to any legal proceedings or claims which, individually or in aggregate, would have a material effect on its consolidated financial position, results of operations or cash flows.

  9. SHARE-BASED COMPENSATION

The Company accounts for share-based payment arrangements using fair value. If an award vests or becomes exercisable based on the achievement of a condition other than service, such as for meeting certain performance or market conditions, the award is classified as a liability. Liability-classified awards are remeasured to fair value at each balance sheet date until the award is settled. The Company currently has no liability-classified awards. Equity-classified awards, including grants of employee stock options, are measured at the grant-date fair value of the award and are not subsequently remeasured unless an award is modified. The cost of equity-classified awards is recognized in the statement of operations over the period during which an employee is required to provide the service in exchange for the award, or the vesting period. All of the Company’s stock options are service-based awards, and because the Company’s stock options are “plain vanilla,” as defined by the U.S. Securities and Exchange Commission in Staff Accounting Bulletin No. 107, they are reflected only in equity and compensation expense accounts.

As of September 30, 2017, the Company had two 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 September 30, 2017, 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. No additional awards will be issued under the 2005 Plan or the 2004 Directors Plan.

On August 25, 2016, the Company’s shareholders approved the 2016 Plan as a successor to the 2005 Plan, authorizing the Board of Directors to provide incentive to the Company’s officers, employees and certain independent consultants through equity based compensation in the form of stock options, restricted stock, restricted stock units, stock appreciation rights and other stock based awards (together, “Stock Awards”) and performance shares and performance units (together “Performance Awards”). Awards under the 2016 Plan are limited to the authorized amount of 1,300,000 shares, up to 600,000 of which are available for issuance in connection with Performance Awards and Stock Awards. As of September 30, 2017, there were 1,174,216 shares available for grant under the 2016 Plan.

On August 28, 2014, the Company’s shareholders approved the 2014 Directors Plan authorizing the Board of Directors to provide incentive to the Company’s independent directors through equity based compensation in the form of stock options and restricted stock. Awards under the 2014 Directors Plan are limited to the authorized amount of 350,000 shares. As of September 30, 2017, there were 231,623 shares available for grant under the 2014 Directors Plan.

12

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

	As of September 30, 2017
	Authorized		Available		Outstanding
2016 Plan		1,300,000		1,174,216		125,784
2014 Directors Plan		350,000		231,623		12,000
2005 Plan		—		—		476,500
2004 Directors Plan		—		—		12,000
Total		1,650,000		1,405,839		626,284

Stock Options

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 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 are 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 $19,000 and $34,000 for the three and six months ended September 30, 2017, respectively. Compensation expense recognized for options issued under all Plans was $59,000 and $137,000 for the three and six months ended September 30, 2016, respectively. Compensation expense recognized for restricted stock issued under the 2014 Directors Plan was $276,000 for the three and six months ended September 30, 2017. Compensation expense recognized for restricted stock issued under the 2014 Directors Plan was $78,000 for the three and six months ended September 30, 2016. All stock-based compensation has been classified as general and administrative expense in the condensed consolidated statement of operations.

A summary of option activity under the Company’s stock plans for the six months ended September 30, 2017 is presented below: 

Option Activity	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at March 31, 2017		503,000		$	4.10		4.7	$	145,946
Granted		75,000		$	3.35
Exercised		(1,000	)	$	1.60
Forfeited		(1,500	)	$	3.11
Outstanding at September 30, 2017		575,500		$	4.01		4.9	$	261,755
Exercisable at September 30, 2017		496,000		$	4.10		4.1	$	208,550

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 $4.06 for such day.

A summary of the Company’s non-vested options for the six months ended September 30, 2017 is presented below:

Nonvested Options	Shares			Weighted Average Grant-Date Fair Value
Nonvested at March 31, 2017		19,500		$	2.93
Granted		75,000			1.71
Vested		(15,000	)		2.73
Forfeited		—			—
Nonvested at September 30, 2017		79,500		$	1.82

13

The following table summarizes the weighted average characteristics of outstanding stock options as of September 30, 2017:

			Outstanding Options						Exercisable Options
Range of Exercise Prices			Number of Shares		Remaining Life (Years)		Weighted Average Price		Number of Shares		Weighted Average Price
$1.60	-	$3.70		198,620		5.2	$	2.97		123,620	$	2.74
$3.71	-	$4.42		197,380		4.1	$	3.83		197,380	$	3.83
$4.43	-	$5.40		95,000		5.7	$	5.00		90,500	$	4.98
$5.41	-	$7.08		84,500		5.1	$	5.77		84,500	$	5.77
Total stock options				575,500		4.9	$	4.01		496,000	$	4.10

The range of fair value assumptions related to options granted during the six months ended September 30, 2017 were as follows:

	2017
Exercise Price	$	3.35
Volatility		52.50	%
Risk Free Rate		1.99	%
Vesting Period (years)		3.0
Forfeiture Rate		0.00	%
Expected Life (in years)		6.00
Dividend Rate		0	%

As of September 30, 2017, total unrecognized stock-based compensation expense related to all unvested stock options was $121,000, which is expected to be expensed over a weighted average period of 2.7 years. 

Restricted Stock Units (“RSUs”)

RSUs are service-based awards granted to eligible employees under the 2016 Plan.

On March 31, 2017, 25,000 restricted stock units (“RSUs”) were awarded to the CEO. This award is valued at $3.85 per share, the closing market price of Cyanotech common stock on the grant date, and vest over a period of three years.

On April 5, 2017, 28,074 RSUs were awarded to employees of the Company. This award is valued at $3.92 per share, the closing market price of Cyanotech common stock on the grant date, and vests over a period of three years. 

The following table summarizes information related to awarded RSUs:

Nonvested Restricted Stock Units	Shares			Weighted Average Grant Price
Nonvested restricted stock units at March 31, 2017		25,000		$	3.85
Granted		28,074			3.92
Vested		—			—
Exercised		—			—
Forfeited		(2,290	)		3.92
Nonvested restricted stock units at September 30, 2017		50,784		$	3.89

 As of September 30, 2017, total unrecognized stock-based compensation expense related to unvested restricted stock units was $162,000, which is expected to be expensed over a weighted average period of 2.5 years.

14

10. INCOME TAXES

We utilize our estimated annual effective tax rate to determine our provision (benefit) for income taxes for interim periods. The income tax provision (benefit) is computed by multiplying the estimated annual effective tax rate by the year to date pre-tax book income (loss). We recorded income tax expense of $11,000 and $26,000 for the three months ended September 31, 2017 and 2016, respectively. We recorded income tax expense of $21,000 and income tax benefit of ($24,000) for the six months ended September 30, 2017 and 2016, respectively. Our effective tax rate was 2.2% and 2.1% for the three and six months ended September 30, 2017, respectively, and 21.0% and (3.9%) for the three and six months ended September 30, 2016, respectively. The effective tax rate for the three and six months ended September 30, 2017 differs from the statutory rate of 34% 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 is subject to taxation in the United States and two 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 September 30, 2017, there was no 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 2012.

11. EARNINGS (LOSS) PER SHARE

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 earnings per share computations for the three months ended September 30, 2017 and 2016 are as follows:

	Three Months Ended September 30, 2017
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	475		5,709	$	0.08
Effect of dilutive securities—Common stock options		—		62		—
Diluted income per share	$	475		5,771	$	0.08

	Three Months Ended September 30, 2016
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	99		5,657	$	0.02
Effect of dilutive securities — Common stock options		—		70		—
Diluted income per share	$	99		5,727	$	0.02

15

Reconciliations between the numerator and the denominator of the basic and diluted earnings per share computations for the six months ended September 30, 2017 and 2016 are as follows:

	Six Months Ended September 30, 2017
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	977		5,697	$	0.17
Effect of dilutive securities—Common stock options		—		46		—
Basic and diluted loss per share	$	977		5,743	$	0.17

	Six Months Ended September 30, 2016
	Net Income			Shares		Per Share
	(Numerator)			(Denominator)		Amount
	(in thousands)
Basic and diluted loss per share	$	(592	)		5,645	$	(0.10	)

Basic and diluted earnings per share 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 totaling 75,000 and 6,000 for the three months ended September 30, 2017 and 2016, respectively, and 75,000 and 6,000 for the six months ended September 30, 2017 and 2016, respectively, 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. 

12. CONCENTRATIONS OF RISK

   Concentration of Accounts Receivable and Revenues

At September 30, 2017, 33% of the Company’s accounts receivable was comprised of two customer balances of 20% and 13%, respectively. At March 31, 2017, 59% of the Company’s accounts receivable was comprised of three customer balances of 38%, 12% and 9%, respectively. Two customers accounted for 46% of total net sales for the three months ended September 30, 2017 comprised of 32% and 14%, respectively. One customer accounted for 28% of total net sales for the three months ended September 30, 2016. Two customers accounted for 45% of total net sales for the six months ended September 30, 2017 comprised of 32% and 13%, respectively. One customer accounted for 24% of total net sales for the six months ended September 30, 2016.

16

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

FORWARD-LOOKING STATEMENTS

This Report and other presentations made by Cyanotech Corporation (“CYAN”) and its subsidiary (collectively, the “Company”) 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 the Company the performance of the industry in which the Company 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:

● Statements relating to our business strategy;

● Statements relating to our business objectives; and

● Expectations concerning future operations, profitability, liquidity and financial resources.

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. 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:

● Environmental restrictions, soil and water conditions, levels of sunlight and seasonal weather patterns, particularly heavy rain, wind and other hazards;

● Consumer perception of our products due to adverse scientific research or findings, publicity regarding nutritional supplements, litigation, regulatory investigations or other events, conditions and circumstances involving the Company which receive national media coverage;

● Effects of competition, including tactics and locations of competitors and operating and market competition;

● Demand for our products, the quantities and qualities thereof available for sale and levels of customer satisfaction, including significant unforeseen fluctuations in global demand for products similar to our products;

● Our dependence on the experience, continuity and competence of our executive officers and other key employees;

● The added risks associated with or attributed to the current local, national and world economic conditions, including but not limited to, the volatility of crude oil prices, inflation and currency fluctuations;

● Changes in domestic and/or foreign laws, regulations or standards, affecting nutraceutical products or our methods of operation;

● Access to available and reasonable financing on a timely basis;

● The Company’s inability to generate enough revenues to meet its obligations or repay maturing indebtedness;

● Failure of capital projects to operate as expected or meet expected results;

● Changes in laws, corporate governance requirements and tax rates, regulations, accounting standards and the application to us or the nutritional products industry of new decisions by courts, regulators or other government authorities;

17

● Legal costs associated with any legal proceedings, and the potential direct and indirect cost and other effects on our business or financial condition resulting from any legal proceedings.

● Risk associated with the geographic concentration of our business;

● Acts of war, terrorist incidents or natural disasters; and

● Other risks or uncertainties described elsewhere in this Report and in other periodic reports previously and subsequently filed by us with the Securities and Exchange Commission.

Overview:

We are a world leader in the production of high value natural products derived from microalgae. Incorporated in 1983, we are guided by the principle of providing beneficial, quality microalgal products for health and human nutrition in a sustainable, reliable and environmentally sensitive operation. We operate under GMP (Good Manufacturing Practices), 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:

● Hawaiian BioAstin® natural astaxanthin - a powerful dietary antioxidant shown to support and maintain the body’s natural inflammatory response, to enhance skin, and to support eye and joint health. It has expanding applications as a human nutraceutical and functional food ingredient; and

● Hawaiian Spirulina Pacifica® - a nutrient-rich dietary supplement used for extra energy, a strengthened immune system, cardiovascular benefits and as a source of antioxidant carotenoids

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 nutritional products derived from microalgae.

Our production of these products at the 90-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’s). 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.

18

Results of Operations

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

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net sales	$	8,055		$	9,862		$	16,864		$	17,184
Net sales decrease		(18.3	)%					(1.9	)%
Gross profit	$	3,620		$	3,885		$	7,223		$	6,706
Gross profit as % of net sales		44.9	%		39.4	%		42.8	%		39.0	%
Operating expenses	$	3,001		$	3,638		$	5,984		$	7,069
Operating expenses as % of net sales		37.3	%		36.9	%		35.5	%		41.1	%
Operating income (loss)	$	619		$	247		$	1,239		$	(363	)
Operating income (loss) as % of net sales		7.7	%		2.5	%		7.3	%		(2.1	)%
Income tax expense (benefit)	$	11		$	26		$	21		$	(24	)
Net income (loss)	$	475		$	99		$	977		$	(592	)
Net sales by product
Packaged sales
Astaxanthin packaged	$	4,399		$	5,987		$	9,904		$	9,635
Astaxanthin packaged sales (decrease) increase		(26.5	)%					2.8	%
Spirulina packaged	$	2,365		$	2,087		$	4,292		$	3,668
Spirulina packaged sales increase		13.3	%					17.0	%
Total Packaged sales	$	6,764		$	8,074		$	14,196		$	13,303
Total Packaged sales (decrease) increase		(16.2	)%					6.7	%
Bulk sales
Astaxanthin bulk	$	209		$	216		$	430		$	634
Astaxanthin bulk sales decrease		(3.2	)%					(32.2	)%
Spirulina bulk	$	1,082		$	1,572		$	2,238		$	3,247
Spirulina bulk sales decrease		(31.2	)%					(31.1	)%
Total Bulk sales	$	1,291		$	1,788		$	2,668		$	3,881
Total Bulk sales decrease		(27.8	)%					(31.3	)%

Comparison of the Three Months Ended September 30, 2017 and 2016

Net Sales The net sales decrease of 18% for the quarter was driven by a 16% decrease in sales of our packaged products and a 28% decrease in sales of our bulk products. The 16% decrease in packaged sales this quarter is related to the quarterly variance year to year in the timing of orders, as well as the shift away from lower margin channels into higher margin ones. The 28% decrease in bulk sales is due primarily to a lack of available supply of spirulina driven by lower production during the quarter, as well as increased demand for packaged products. International sales represented 19% of net sales for the three months ended September 30, 2017 compared to 27% for the same period a year ago.

Gross Profit Our gross profit margin increased by 5.5 percentage points compared to the same period last year. The current period was favorably impacted by the higher mix of packaged sales this quarter, which deliver a higher gross profit margin. Additionally, the current quarter reflects lower astaxanthin production costs resulting from improved production beginning with the fourth quarter of fiscal 2017, including a 29% increase in production this quarter compared to the same period last year. These production improvements are the result of new cultivation techniques and farm management practices that have been integrated over the last two years which have resulted in stabilized open pond cultivation and improved consistency of our production over recent quarters. Gross profit this quarter was unfavorably impacted by $0.07 million of non-inventoriable costs due to a decrease in spirulina production compared to the same period last year. This decrease was due to a short-term change in cultivation methods associated with local water restrictions and self-imposed water conservation efforts. These restrictions have since been lifted as of the end of the quarter.

Operating Expenses Operating expenses decreased by $0.6 million for the second quarter compared to the same period in last year. Included in this is a decrease in general and administrative costs of $0.6 million, primarily due to a reduction in legal fees of $0.9 million, offset by a $0.1 million increase in labor costs and a $0.1 million increase in incentive expense that have been accrued based on pretax profit earned to date.

19

Income Taxes We recorded an income tax expense of $11,000 in the current quarter compared to income tax expense of $26,000 for the same period last year. Our effective tax rate was 2.2% for the current quarter and 21.0% for the same period last year. The change in effective tax rate and tax expense is primarily due to changes in the estimate of pretax income used in the prior year. We continue to carry a full valuation allowance on our deferred tax assets.

Net IncomeNet income for the three months ended September 30, 2017 was $0.5 million, or 5.9% of net sales, compared to net income of $0.1 million, or 1.0% of net sales, for the same period last year, an increase of $0.4 million or 380%. This increase is primarily the result of lower legal expenses and lower production costs.

  Comparison of the Six Months Ended September 30, 2017 and 2016

Net Sales The net sales decrease of 2% for the first six months of this year was driven by a 31% decrease in sales of our bulk products, offset by a 7% increase in sales of our packaged products which is the result of our continued focus on Costco and Amazon, up $1.3 million and $2.2 million, respectively, compared to the same period last year. The 31% decrease in sales of our bulk products was the result of lack of available spirulina supply due to lower production in the last quarter of fiscal 2017 and the second quarter of this current year. International sales represented 23% of net sales for the six months ended September 30, 2017 compared to 31% for the same period a year ago.

Gross Profit Our gross profit margin increased by 3.8 percentage points in the first six months of this year, as a result of a higher mix of packaged sales, which deliver a higher gross profit margin, and lower astaxanthin costs. Astaxanthin production for the first six months of the year increased 25% compared to the same period last year. Spirulina production for the quarter was 15% below the same period last year. Gross profit was unfavorably impacted by $0.1 million in non-inventoriable costs related to spirulina production in the current fiscal year.

Operating Expenses Operating expenses decreased by $1.1 million for the six months ended September 30, 2017, compared to the same period last year. Included in this is a decrease in general and administrative expenses of $1.0 million, or 26%, due to a decrease in legal costs of $1.3 million offset by increased labor costs of $0.2 million and a $0.3 increase in incentive expenses that have been accrued based on pretax profit earned to date. Sales and marketing expenses decreased $0.1 million, or 3%, due primarily to lower labor costs.

 Income Taxes We recorded an income tax expense of $21,000 for the first six months of this year compared to a benefit of $24,000 for the same period last year. Our effective tax rate was 2.1% for the first six months compared to (3.9%) for the same period last year. The change in effective tax rate and tax expense is primarily due to the net loss in the prior year. We continue to carry a full valuation allowance on our deferred tax asset.

Net IncomeNet income for the six months ended September 30, 2017 was $1.0 million, or 5.8% of net sales, compared to a net loss of $0.6 million, or (3.4%) of net sales, for the same period last year, an increase of $1.6 million. This increase is primarily the result of lower legal expenses and lower production costs.

Liquidity and Capital Resources

As of September 30, 2017, we had cash of $2.1 million and working capital of $7.7 million compared to $1.4 million and $6.0 million, respectively, at March 31, 2017. On August 30, 2016, the Credit Agreement, which we and First Foundation Bank (the Bank) entered into on June 3, 2016, became effective. The Credit Agreement allows us to borrow up to $2.0 million on a revolving basis. The line of credit was renewed on August 30, 2017 and will expire on August 30, 2018. At September 30, 2017, we had borrowed $0.5 million and had $1.5 million available on the line.

As of September 30, 2017, we had $6.6 million of term loans payable to the Bank that require the payment of principal and interest monthly through August 2032. Pursuant to the term loans, we are subject to annual financial covenants, customary affirmative and negative covenants and certain subjective acceleration clauses. As of March 31, 2017 and 2016, our current ratio of 1.92:1 and 1.97:1, respectively, fell short of the Bank's annual requirement of 2.10:1. The Bank has provided us with letters stating they found us to be in compliance with this covenant requirement and all other financial covenants as of March 31, 2017 and 2016, and do not consider these shortfalls to be defaults under the Loan Agreement.  

20

Funds generated by operating activities and available cash 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 our fiscal year 2018 operating plan and related cash flow projections and our projected consolidated financial position as of March 31, 2018, cash flows expected to be generated by operating activities and available financing are expected to be sufficient to fund our operations for at least the next twelve months, and our current ratio is expected to be in compliance with the annual term loan covenant requirement as of March 31, 2018. However, no assurances can be provided that we will achieve our operating plan and cash flow objectives for the next fiscal year ended March 31, 2018 or our projected consolidated financial position as of March 31, 2018. Such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results.

As indicated above, the Bank has not considered the shortfalls as of March 31, 2017 and 2016 in our current ratio relative to the covenant requirement to be violations of the Loan Agreements. However, in the event we have a shortfall under the Loan Agreements as of March 31, 2018 or future fiscal year ends, there is no assurance that the Bank will not consider such to be a violation of the Loan Agreements and pursue its rights under the arrangements to call for the repayment of the outstanding borrowings payable to the Bank. If this occurs, we may need to raise additional funds to repay the loans; however, we may not be able to secure such funding on acceptable terms, or at all.

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

	Six months ended September 30
	2017			2016
Total cash provided by (used in):
Operating activities	$	1,391		$	911
Investing activities		(281	)		(277	)
Financing activities		(415	)		181
Increase in cash	$	695		$	815

Cash provided by operating activities for the six months ended September 30, 2017 was the result of $1 million in net earnings and non-cash charges of $1.3 million, totaling $2.3 million. This was offset by an increase in working capital of $0.9 million. The increase in working capital was primarily the result of a $1.3 million increase in inventory, primarily in astaxanthin, and a $0.6 million decrease in accounts receivable due to a decrease in days sales outstanding.

Cash provided by operating activities for the six months ended September 30, 2016 was the result of a $0.6 million net loss and non-cash charges of $1.2 million, totaling $0.6 million.  In addition, there was a decrease in working capital of $0.3 million. The decrease in working capital was primarily the result of a $0.4 million decrease in inventory levels.

Cash used in investing activities for the six months ended September 30, 2017 and September 30, 2016 includes costs for leasehold improvements and equipment acquisitions at our Kona facility.

Cash used in financing activities for the six months ended September 30, 2017 consists of $0.3 million in principal payments on debt in the normal course of business and a $0.1 million reduction in our outstanding credit line balance.

Cash provided by financing activities for the six months ended September 30, 2016 consists of a $0.6 million advance against our line of credit, offset by $0.3 million in principal payments on debt in the normal course of business and $0.15 million in taxes paid upon issuance of stock connected with the severance agreement of our former CEO.

Sources and Uses of Capital

At September 30, 2017, our working capital was $7.7 million, an increase of $1.7 million compared to March 31, 2017. The increase is due primarily to an increase in inventory levels.

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.

21

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.

Outlook

This outlook section contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially. (See forward-looking statements on page 17)

Our strategic direction has been to position the Company 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 90-acre facility in Hawaii, and integrating those raw materials into finished products. In fiscal 2018, our primary focus is on building our consumer brands, increasing our astaxanthin production volume and improving the consistency of our production for both astaxanthin and spirulina. We will continue to put emphasis on our Nutrex Hawaii consumer products to introduce them to a broader consumer market, and leverage our experience and reputation for quality, building nutritional brands 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 caplet 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.

We are focused on sustainability of production levels in order to promote growth in our astaxanthin and spirulina product lines. We will continue to improve and expand these lines to meet the demand of consumers. We will continue to promote the nutritional superiority of Hawaiian grown microalgae to maintain and expand market share. Significant sales variability between periods and even across several periods can be expected based on historical results.

Gross profit margin percentages going forward will be impacted by production volumes and continued pressure on input costs and 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. We are dedicated to continuous improvements in process and production methods to stabilize and increase production levels for the future.

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 continue to balance production in light of sales demand, minimizing the cost associated with build-ups in inventory when appropriate. 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 minimize our ability to attract additional capital investment which could become necessary in order to expand facilities, enter into new markets or maintain optimal production levels.

22

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; 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, 2017.

  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.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4.    Controls and Procedures 

Disclosure Controls and Procedures

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.  

 Management’s Report on Internal Control over Financial Reporting 

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 September 30, 2017. 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 that assessment, management concluded that our internal control over financial reporting was effective as of September 30, 2017. 

Changes to Internal Control Over Financial Reporting

There was no change 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 quarterly period ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. 

23

The inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error 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, 2017, filed June 22, 2017.

24

PART II.     OTHER INFORMATION

Item 1.     Legal Proceedings 

From time to time the Company may become party to lawsuits and claims that arise in the ordinary course of business relating to employment, intellectual property, and other matters. There were no significant legal matters outstanding at September 30, 2017. 

Item 1A.     Risk Factors

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, 2017, which is incorporated by reference herein.

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

None.

Item 3.    Defaults upon Senior Securities

None.

Item 5.    Other Information

None.

25

Item 6. Exhibits

a)     The following exhibits are furnished with this report:

31.1	Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of November 6, 2017.
31.2	Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of November 6, 2017.
32	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed as of November 6, 2017.
99.1	Press Release dated November 6, 2017
101	The following financial statements from Cyanotech Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in 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.

26

SIGNATURES

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.

	CYANOTECH CORPORATION
	(Registrant)
November 6, 2017	By:	/s/ Gerald R. Cysewski
(Date)		Gerald R. Cysewski
		Chief Executive Officer; Director
November 6, 2017	By:	/s/ Jole Deal
(Date)		Jole Deal
		Vice President — Finance & Administration and CFO
		(Principal Financial and Accounting Officer)

27

EXHIBIT INDEX

Exhibit Number	Description
31.1	Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of November 6, 2017.
31.2	Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed as of November 6, 2017.
32	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed as of November 6, 2017.
99.1	Press Release dated November 6, 2017.
101	The following financial statements from Cyanotech Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in 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

EX-31.1

Exhibit 31.1

Certification Pursuant

To 18 U. S. C. Section 1350,

As Adopted Pursuant To

Section 302 of the Sarbanes-Oxley Act of 2002

I, Gerald R. Cysewski, Chief Executive Officer certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cyanotech Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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.

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 6, 2017	/s/ Gerald R. Cysewski
	Gerald R. Cysewski  Chief Executive Officer; Director

EX-31.2

Exhibit 31.2

Certification Pursuant

To 18 U. S. C. Section 1350,

As Adopted Pursuant To

Section 302 of the Sarbanes-Oxley Act of 2002

I, Jole Deal, Chief Financial Officer certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cyanotech Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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.

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 6, 2017	/s/ Jole E. Deal
	Jole E. Deal Vice President—Finance & Administration and CFO  (Principal Financial and Accounting Officer)

EX-32

Exhibit 32

Certification of CEO and CFO

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Cyanotech Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2017 (the “Report”) as filed with the Securities and Exchange Commission on the date hereof, each of the undersigned certifies that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act (15 U.S.C. 78m or 78o (d)); and

2) The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

Date: November 6, 2017	/s/ Gerald R. Cysewski
	Gerald R. Cysewski  Chief Executive Officer; Director
Date: November 6, 2017	/s/ Jole E. Deal
	Jole E. Deal Vice President—Finance & Administration and CFO (Principal Financial and Accounting Officer)

EX-99.1

Exhibit 99.1

News Release	Contact: Bruce Russell
	(310) 346-6131
	brussell@cyanotech.com

Cyanotech Reports Financial Results for the Second Quarter of Fiscal Year 2018

KAILUA KONA, Hawaii (November 6, 2017) — Cyanotech Corporation (Nasdaq Capital Market: CYAN), a world leader in microalgae-based, high-value nutrition and health products, announced financial results for the second quarter and first six months of fiscal year 2018, ended September 30, 2017.

Second Quarter 2018

For the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017, net sales were $8,055,000 compared to $9,862,000. Gross profit was $3,620,000, with gross profit margin of 44.9%, compared to gross profit of $3,885,000 and gross profit margin of 39.4%. Operating income was $619,000 compared to $247,000. Net income was $475,000 or $0.08 per diluted share, compared to $99,000 or $0.02 per diluted share.

“While net sales were lower compared to the second quarter of fiscal 2017, gross profit margin increased 5.5 percentage points due to our continuing focus on the marketing of our higher margin Nutrex Hawaii branded products at retail, as well as lower net overall product costs from improved Astaxanthin production practices,” said Gerry Cysewski, Ph.D., Cyanotech’s CEO.

Commenting on the second quarter results (changes shown vs. second quarter of fiscal 2017), Cyanotech’s President, Mawae Morton, added:

“On a year to date basis, sales of our packaged products remain stable, showing a 7% increase over last year. The company’s second quarter net sales decrease of 18% was driven by a 16% decrease in sales of our packaged products and a 28% decrease in sales of our bulk products. The packaged sales decrease is related to the quarterly variance year to year in the timing of orders, as well as the shift away from lower margin channels into higher margin ones. The 28% decrease in bulk sales was primarily the result of a lack of sufficient Spirulina supply. The company engaged in various alternative cultivation methods for Spirulina during the quarter prompted by self-imposed water conservation efforts related to county wide water restrictions. These alternative methods had a net negative impact on Spirulina production for the quarter. The county wide water restrictions were lifted at the end of the quarter.

“Operating expenses decreased by $0.6 million for the second quarter compared to the same period in last year. Included in this is a decrease in general and administrative costs of $0.6 million, primarily due to a reduction in legal fees of $0.9 million, offset by a $0.1 million increase in labor costs and a $0.1 million increase in incentive expense that have been accrued based on pretax profit earned to date.”

First Six Months 2018

For the first six months of fiscal 2018 compared to the first six months of fiscal 2017, net sales were $16,864,000 compared to $17,184,000. Gross profit was $7,223,000, with gross profit margin of 42.8%, compared to $6,706,000 and 39.0%. Operating income was $1,239,000 compared to operating loss of ($363,000). Net income was $977,000 or $0.17 per diluted share, compared to net loss of ($592,000) or ($0.10) per diluted share.

73-4460 Queen Kaahumanu Highway, #102  ~  Kailua-Kona, Hawaii 96740

(808) 326-1353  fax (808) 329-3597  ~ www.cyanotech.com

Trailing 12 Months ended September 30, 2017
For the trailing 12 months ended September 30, 2017 compared to the trailing 12 months ended September 30, 2016, net sales were $31,722,000 compared to $32,914,000. Gross profit was $12,741,000, with gross profit margin of 40.2%, compared to gross profit of $12,548,000 and gross profit margin of 38.1%. Net income was $353,000 or $0.06 per diluted share, compared to a net loss of ($4,896,000) or ($0.87) per diluted share.

Please review the Company’s Form 10-Q for the quarter ended September 30, 2017 for more detailed information.

— Cyanotech will host a Skype broadcast at 5:00 p.m. EDT on Thursday, November 9, 2017 to respond to questions about its operating results and other topics of interest. Interested parties are asked to submit questions to questions@cyanotech.com before midnight EDT on Tuesday, November 7, 2017. The Company will respond only to relevant questions relating to the Company’s second quarter financial performance, and will not be accepting any questions or comments during the broadcast.

To join the broadcast, please browse http://cyanotech.com/meet approximately five minutes prior to the start time.

About Cyanotech — Cyanotech Corporation, a world leader in microalgae technology for over 30 years, produces BioAstin® Hawaiian Astaxanthin® and Hawaiian Spirulina Pacifica®. These all natural, dietary ingredients and supplements leverage our experience and reputation for quality, building nutritional brands which promote health and well-being. The Company’s mission is to fulfill the promise of whole health through Hawaiian microalgae. Cyanotech’s BioAstin® offers superior antioxidant activity which supports skin, eye and joint health, as well as recovery from exercise*. Cyanotech's Spirulina products offer nutrition that supports cardiovascular health and immunity.* All Cyanotech products are produced from microalgae grown at our 90-acre facility in Kona, Hawaii using patented and proprietary technology and are Generally Recognized as Safe (GRAS) for use in food products. Cyanotech sells its products direct to consumers at retail locations in the United States and online at www.nutrex-hawaii.com and also distributes to dietary supplement, nutraceutical and cosmeceutical manufacturers and marketers. The Company is regulated by the FDA. Visit www.cyanotech.com for more information.

*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.

“Safe Harbor” Statement under the U.S. Private Securities Litigation Reform Act of 1995 Besides statements of present fact and historical fact, this press release may contain forward-looking statements. Forward-looking statements relate to the future and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by forward-looking statements. We caution against relying on forward-looking statements. Important factors that could change actual, future results include: changes in sales levels to our largest customers, weather patterns in Hawaii, production problems, risks associated with new products, foreign exchange fluctuations, and availability of financing, as well as national and global political, economic, business, competitive, market and regulatory conditions. Other factors are more fully detailed in the Company’s annual Form 10-K filings with the Securities and Exchange Commission.

Financial Tables Follow: The following tables do not contain footnotes or other information contained in the Company’s Form 10-Q for the period ended September 30, 2017, which can be found on the Cyanotech website (www.cyanotech.com) under Investors>Investor Filings upon filing. As such the following Financial Tables are provided only as a guide and other factors are more fully detailed in the Company’s annual Form 10-Q filings with the Securities and Exchange Commission.)

73-4460 Queen Kaahumanu Highway, #102  ~  Kailua-Kona, Hawaii 96740

(808) 326-1353  fax (808) 329-3597  ~ www.cyanotech.com

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	September 30, 2017			March 31, 2017
ASSETS
Current assets:
Cash	$	2,102		$	1,407
Accounts receivable, net of allowance for doubtful accounts of $27 at September 30, 2017 and $49 at March 31, 2017		1,541			2,135
Inventories, net		9,315			7,972
Prepaid expenses and other current assets		447			565
Total current assets		13,405			12,079
Equipment and leasehold improvements, net		16,023			16,712
Other assets		251			213
Total assets	$	29,679		$	29,004
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	500		$	611
Current maturities of long-term debt		626			623
Customer deposits		72			119
Accounts payable		3,473			3,666
Accrued expenses		1,012			1,013
Total current liabilities		5,683			6,032
Long-term debt, less current maturities		5,959			6,249
Other long-term liabilities		110			116
Total liabilities		11,752			12,397
Commitments and contingencies
Stockholders’ equity:
Preferred stock of $0.01 par value, authorized 10,000,000 shares; no shares issued and outstanding		—			—
Common stock of $0.02 par value, shares authorized 50,000,000; 5,743,882 shares issued and outstanding at September 30, 2017 and 5,685,381 shares at March 31, 2017		115			114
Additional paid-in capital		31,919			31,577
Accumulated deficit		(14,107	)		(15,084	)
Total stockholders’ equity		17,927			16,607
Total liabilities and stockholders’ equity	$	29,679		$	29,004

73-4460 Queen Kaahumanu Highway, #102  ~  Kailua-Kona, Hawaii 96740

(808) 326-1353  fax (808) 329-3597  ~ www.cyanotech.com

CYANOTECH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,						Six Months Ended September 30,
	2017			2016			2017			2016
NET SALES	$	8,055		$	9,862		$	16,864		$	17,184
COST OF SALES		4,435			5,977			9,641			10,478
Gross profit		3,620			3,885			7,223			6,706
OPERATING EXPENSES:
General and administrative		1,412			2,016			2,764			3,726
Sales and marketing		1,440			1,470			2,929			3,025
Research and development		149			152			291			318
Total operating expenses		3,001			3,638			5,984			7,069
Income (loss) from operations		619			247			1,239			(363	)
Interest expense, net		(133	)		(122	)		(241	)		(253	)
Income (loss) before income taxes		486			125			998			(616	)
INCOME TAX EXPENSE (BENEFIT)		11			26			21			(24	)
NET INCOME (LOSS)	$	475		$	99		$	977		$	(592	)
NET INCOME (LOSS) PER SHARE:
Basic	$	0.08		$	0.02		$	0.17		$	(0.10	)
Diluted	$	0.08		$	0.02		$	0.17		$	(0.10	)
SHARES USED IN CALCULATION OF NET INCOME (LOSS) PER SHARE:
Basic		5,709			5,657			5,697			5,645
Diluted		5,771			5,727			5,743			5,645

73-4460 Queen Kaahumanu Highway, #102  ~  Kailua-Kona, Hawaii 96740

(808) 326-1353  fax (808) 329-3597  ~ www.cyanotech.com

XML

Document And Entity Information - shares	6 Months Ended
	Sep. 30, 2017	Nov. 06, 2017
Document Information [Line Items]
Entity Registrant Name	Cyanotech Corp
Entity Central Index Key	0000768408
Trading Symbol	cyan
Current Fiscal Year End Date	--03-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		5,743,882
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2017	Mar. 31, 2017
Current assets:
Cash	$ 2,102	$ 1,407
Accounts receivable, net of allowance for doubtful accounts of $27 at September 30, 2017 and $49 at March 31, 2017	1,541	2,135
Inventories, net	9,315	7,972
Prepaid expenses and other current assets	447	565
Total current assets	13,405	12,079
Equipment and leasehold improvements, net	16,023	16,712
Other assets	251	213
Total assets	29,679	29,004
Current liabilities:
Line of credit	500	611
Current maturities of long-term debt	626	623
Customer deposits	72	119
Accounts payable	3,473	3,666
Accrued expenses	1,012	1,013
Total current liabilities	5,683	6,032
Long-term debt, less current maturities	5,959	6,249
Other long-term liabilities	110	116
Total liabilities	11,752	12,397
Commitments and contingencies
Stockholders’ equity:
Preferred stock of $0.01 par value, authorized 10,000,000 shares; no shares issued and outstanding
Common stock of $0.02 par value, shares authorized 50,000,000; 5,743,882 shares issued and outstanding at September 30, 2017 and 5,685,381 shares at March 31, 2017	115	114
Additional paid-in capital	31,919	31,577
Accumulated deficit	(14,107)	(15,084)
Total stockholders’ equity	17,927	16,607
Total liabilities and stockholders’ equity	$ 29,679	$ 29,004

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2017	Mar. 31, 2017
Accounts receivable, allowance for doubtful accounts	$ 27	$ 49
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred, authorized shares (in shares)	10,000,000	10,000,000
Preferred, issued shares (in shares)	0	0
Preferred outstanding, shares (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.02	$ 0.02
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, shares issued (in shares)	5,743,882	5,685,381
Common stock, shares outstanding (in shares)	5,743,882	5,685,381

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands	3 Months Ended		6 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
NET SALES	$ 8,055,000	$ 9,862,000	$ 16,864,000	$ 17,184,000
COST OF SALES	4,435,000	5,977,000	9,641,000	10,478,000
Gross profit	3,620,000	3,885,000	7,223,000	6,706,000
OPERATING EXPENSES:
General and administrative	1,412,000	2,016,000	2,764,000	3,726,000
Sales and marketing	1,440,000	1,470,000	2,929,000	3,025,000
Research and development	149,000	152,000	291,000	318,000
Total operating expenses	3,001,000	3,638,000	5,984,000	7,069,000
Income (loss) from operations	619,000	247,000	1,239,000	(363,000)
Interest expense, net	(133,000)	(122,000)	(241,000)	(253,000)
Income (loss) before income taxes	486,000	125,000	998,000	(616,000)
INCOME TAX EXPENSE (BENEFIT)	11,000	26,000	21,000	(24,000)
NET INCOME (LOSS)	$ 475,000	$ 99,000	$ 977,000	$ (592,000)
NET INCOME (LOSS) PER SHARE:
Basic (in dollars per share)	$ 0.08	$ 0.02	$ 0.17	$ (0.10)
Diluted (in dollars per share)	$ 0.08	$ 0.02	$ 0.17	$ (0.10)
SHARES USED IN CALCULATION OF NET INCOME (LOSS) PER SHARE:
Basic (in shares)	5,709	5,657	5,697	5,645
Diluted (in shares)	5,771	5,727	5,743	5,645

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 977	$ (592)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss (gain) on disposal of assets	32	(13)
Depreciation and amortization	938	1,007
Amortization of debt issue costs and other assets	32	28
Share-based compensation expense	341	215
Net (increase) decrease in assets:
Accounts receivable	594	(70)
Inventories	(1,343)	397
Prepaid expenses and other assets	66	(259)
Net increase (decrease) in liabilities:
Customer deposits	(47)	(67)
Accounts payable	(193)	184
Accrued expenses	(1)	73
Deferred rent and other liabilities	(5)	8
Net cash provided by operating activities	1,391	911
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements	(281)	(277)
Net cash used in investing activities	(281)	(277)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term note payable		600
Net (payments) draws on line of credit	(111)	611
Payment of short term notes payable		(600)
Payments on capitalized leases	(46)	(35)
Principal payments on long-term debt	(260)	(252)
Payments in stock withheld for tax payment on issuance		(147)
Proceeds from stock options exercised	2	4
Net cash (used in) provided by financing activities	(415)	181
Net increase in cash	695	815
Cash at beginning of period	1,407	1,240
Cash at end of period	2,102	2,055
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest	210	213
Income taxes

XML

Note 1 - Basis of Presentation

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]

1. BASIS OF PRESENTATION

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, 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,

2017

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,

2017,

contained in the Company’s annual report on Form 

10

-K as filed with the SEC on

June 

22,

2017.

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 significant 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.

Liquidity and Debt Covenant Compliance

As of

September 30, 2017,

the Company had cash of

$2.1

million and working capital of

$7.7

million compared to

$1.4

million and

$6.0

million, respectively, at

March 31, 2017.

The Company has a revolving line of credit agreement with First Foundation Bank (the Bank) that allows it to borrow up to

$2

million. The line is subject to renewal on

August 30, 2018.

As of

September 30, 2017,

the Company had borrowed

$0.5

million and had

$1.5

million available on the line.

 

As of

September 30, 2017,

the Company had

$6.6

million of term loans payable to the Bank that require the payment of principal and interest monthly through

August 2032.

Pursuant to the term loans, the Company is subject to annual financial covenants, customary affirmative and negative covenants and certain subjective acceleration clauses. As of

March 31, 2017

and

2016,

the Company's current ratio of

1.92:1

and

1.97:1,

respectively, fell short of the Bank's annual requirement of

2.10:1.

The Bank has provided the Company with letters stating they found the Company to be in compliance with this covenant requirement and all other financial covenants as of

March 31, 2017

and

2016,

and do

not

consider these shortfalls to be defaults under the Loan Agreements.

 

Funds generated by operating activities and available cash 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 fiscal year

2018

operating plan and related cash flow projections and the Company's projected consolidated financial position as of

March 31, 2018,

cash flows expected to be generated by operating activities and available financing are expected to be sufficient to fund the Company's operations for at least the next

twelve

months, and the Company's current ratio is expected to be in compliance with the annual term loan covenant requirement as of

March 31, 2018.

However,

no

assurances can be provided that the Company will achieve its operating plan and cash flow objectives for the next fiscal year or its projected consolidated financial position as of

March 31, 2018.

Such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results.

 

As indicated above, the Bank has

not

considered the shortfalls as of

March 31, 2017

and

2016

in the Company's current ratio relative to the covenant requirement to be violations of the Loan Agreements. However, in the event the Company has a shortfall under the Loan Agreements as of

March 31, 2018

or future fiscal year ends, there is

no

assurance that the Bank will

not

consider such to be a violation of the Loan Agreements and pursue its rights under the arrangements to call for the repayment of the outstanding borrowings payable to the Bank. If this occurs, the Company

may

need to raise additional funds to repay the loans; however, the Company

may

not

be able to secure such funding on acceptable terms, or at all.

Reclassification

Certain amounts in the fiscal

2017

consolidated financial statements have been reclassified to conform to the fiscal

2018

financial presentation. These reclassifications have

no

impact on net income (loss).

 

Recent Accounting Pronouncements

In

May 2017,

the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")

2017

-

09,

Compensation-Stock Compensation (Topic

718

) Scope of Modification Accounting.

ASU

2017

-

09

will clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic

718,

to a change to the terms and conditions of a share-based payment award. This guidance will become effective for fiscal years beginning after

December 15, 2017

and interim periods within those fiscal years. Early adoption is permitted. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact of this updated standard. The Company does

not

believe this update will have a significant impact on its consolidated financial statements.

In

December 2016,

the FASB issued ASU

2016

-

20

 

“Technical Corrections and Improvements to Topic

606,

Revenue from Contracts with Customers”

(“ASU

No.

2016

-

20”

) and ASU

2016

-

19

“Technical Corrections and Improvements”

("ASU

No.

2016

-

19"

)which contains amendments that affect a wide variety of topics in the Accounting Standards Codification (“ASC”). The amendments generally fall into

one

of the following

four

categories: (a) Amendments related to differences between original guidance and the ASC that either carry forward pre-codification guidance or subsequent amendments into the ASC or to guidance that was codified without some text, reference, or phrasing that, upon review, was deemed important to the guidance; (b) Guidance clarification and reference corrections; (c) Simplification; and (d) Minor improvements. ASU

2016

-

20

will take effect for public companies for the fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. This guidance is applicable to the Company’s fiscal year beginning

April 1, 2018.

The Company does

not

expect that the adoption of this guidance will have a significant impact on its consolidated financial position, results of operations or cash flows.

In

November 2016,

the FASB issued ASU

 

2016

-

18,

 “

Statement of Cash Flows (Topic

230

): Restricted Cash”

(“ASU

No.

2016

-

18”

)

.  

This update addresses the fact that diversity exists in the classification and presentation of changes in restricted cash on the statement of cash flows under Topic

230,

Statement of Cash Flows. ASU

2016

-

18

will take effect for public companies for the fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. This guidance is applicable to the Company’s fiscal year beginning

April 1, 2018.

The Company does

not

anticipate that this guidance will have a material impact on its consolidated financial statements and related disclosures.

In

August 2016,

FASB issued ASU

2016

-

15,

“

Statement of Cash Flows (Topic

230

)

:

Classification of Certain Cash Receipts and Cash Payments”

(“ASU

No.

2016

-

15”

). This ASU clarifies and provides specific guidance on

eight

cash flow classification issues that are

not

currently addressed by current GAAP and thereby reduces the current diversity in practice. ASU

No.

2016

-

15

is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after

December 15, 2017,

with early application permitted. This guidance is applicable to the Company’s fiscal year beginning

April 1, 2018.

The Company does

not

anticipate that this guidance will have a material impact on its consolidated financial statements and related disclosures. 

 

In

March 2016,

the FASB issued ASU

2016

-

09,

“

Compensation – Stock Compensation (Topic

718

)

:

Improvements to Employee Share-Based Payment Accounting” (“

ASU

No.

2016

-

09

”)

. This ASU makes several modifications to Topic

718

related to the accounting for forfeitures, employer tax withholding on share-based compensation, and the financial statement presentation of excess tax benefits or deficiencies. ASU

No.

2016

-

09

also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for annual periods beginning after

December 15, 2016,

and interim periods within those annual periods, with early adoption permitted. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement must be applied prospectively. Amendments related to the presentation of excess tax benefits on the statement of cash flows

may

be applied either prospectively or retrospectively based on the Company’s election. Amendments related to the statement of cash flows presentation of employee taxes paid when an employer withholds shares must be applied retrospectively. As of

April 1, 2017,

the Company adopted ASU

2016

-

09

and elected to present excess tax benefits as an operating activity prospectively and continues to estimate forfeitures rather than recognize them as they occur. The adoption of ASU

2016

-

09

did

not

have an impact on its consolidated financial statements and related disclosures.

 

In

March 2016,

the FASB issued ASU

No.

2016

-

08,

“Revenue from Contracts with Customers (Topic

606

): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”

(“ASU

No.

2016

-

08”

), which clarified the revenue recognition implementation guidance on principal versus agent considerations. In

April 2016,

the FASB issued ASU

No.

2016

-

10,

“Revenue from Contracts with Customers (Topic

606

): Identifying Performance Obligations and Licensing”,

which clarified the revenue recognition guidance regarding the identification of performance obligations and the licensing implementation. In

May 2016,

the FASB issued ASU

No.

2016

-

12,

“Revenue from Contracts with Customers (Topic

606

): Narrow-Scope Improvements and Practical Expedients”,

which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. ASU

No.

2016

-

08,

ASU

No.

2016

-

10

and ASU

No.

2016

-

12

are effective during the same period as ASU

No.

2014

-

09,

Revenue from Contracts with Customers

, which is effective for annual reporting periods beginning after

December 15, 2017,

with the option to adopt

one

year earlier. This guidance is applicable to the Company’s fiscal year beginning

April 1, 2018.

The Company does

not

anticipate that the adoption of ASU

No.

2016

-

08,

ASU

No.

2016

-

10

and ASU

No.

2016

-

12

will have a material impact on its consolidated financial statements and related disclosures. 

 

In

February 2016,

the FASB issued ASU

2016

-

02,

“

Leases (Topic

842

)” (“

ASU

No.

2016

-

02”

). The principle objective of ASU

No.

2016

-

02

is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet. ASU

No.

2016

-

02

continues to retain a distinction between finance and operating leases but requires lessees to recognize a right-of-use asset representing its right to use the underlying asset for the lease term and a corresponding lease liability on the balance sheet for all leases with terms greater than

twelve

months. ASU

No.

2016

-

02

is effective for fiscal years and interim periods beginning after

December 15, 2018.

Early adoption of ASU

No.

2016

-

02

is permitted. Entities are required to apply the amendments at the beginning of the earliest period presented using a modified retrospective approach. This guidance is applicable to the Company’s fiscal year beginning

April 1, 2019.

The Company expects this guidance will have a material impact on its consolidated balance sheets due to the recognition of lease rights and obligations as assets and liabilities, respectively. The Company does

not

expect this guidance to have a material effect on its consolidated results of operations and cash flows. 

 In

November 2015,

the FASB issued ASU

No.

2015

-

17,

“

Income Taxes (Topic

740

): Balance Sheet Classification of Deferred Taxes”

. This guidance simplifies the presentation of deferred income taxes and requires that deferred tax assets and liabilities be classified as noncurrent in the classified statement of financial position. ASU

2015

-

17

will take effect for public companies for the fiscal years beginning after

December 15, 2016,

and interim periods within those fiscal years. As required, the Company adopted this standard as of

April 1, 2017

and accordingly all deferred tax assets and liabilities are classified as non-current. Prior periods were retrospectively adjusted.

 In

August 2015,

the FASB issued ASU

2015

-

14,

“Revenue from Contracts with Customers (Topic

606

): Deferral of the Effective Date”

, which defers the effective date of ASU

2014

-

09

by

one

year to

December 15, 2017

for interim and annual reporting periods beginning after that date, and permitted early adoption of the standard, but

not

before the original effective date. 

 

In

July 2015,

the FASB issued ASU

No.

2015

-

11,

“Inventory: Simplifying the Measurement of Inventory”

, that requires inventory

not

measured using either the last in,

first

out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation.  Prior to the issuance of the standard, inventory was measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin). The new standard will be effective for fiscal years beginning after

December 15, 2016,

including interim periods within those fiscal years, and will be applied prospectively. Early adoption is permitted. As required, the Company adopted this standard as of

April 1, 2017. 

The adoption of this standard did

not

have a material impact on the Company's financial position or results of operations.

 

In

May 2014,

The FASB issued ASU

No

2014

-

09,

“Revenue from Contracts with Customers (Topic

606

)”

. This guidance, as amended by subsequent ASUs on the topic, supersedes current guidance on revenue recognition in topic

605,

Revenue Recognition. This guidance will be effective for annual periods beginning after

December 15, 2017,

including interim reporting periods. Early application of the guidance is permitted for annual periods beginning after

December 31, 2016.

This guidance is applicable to our fiscal year beginning

April 1, 2018.

The Company plans to adopt this guidance when effective in the

first

quarter of the fiscal year ended

March 31, 2019.

The Company has begun to consider the alternatives of adoption of this ASU and has started its review of the likely impact to the existing portfolio of customers contracts entered into prior to adoption. The Company will also continue to evaluate the effect of adopting this guidance upon the its results of operations, cash flows and financial position. The Company expects to complete this evaluation in

December 2017.

XML

Note 2 - Inventories

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Inventory Disclosure [Text Block]

2. INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined by the

first

-in,

first

-out method. Inventories consist of the following:

	September 30, 201 7		March 31, 201 7
	(in thousands)
Raw materials	$	326	$	347
Work in process		2,504		2,323
Finished goods (1)		6,335		5,173
Supplies		150		129
Inventories, net	$	9,315	$	7,972

( 1 ) Net of reserve for obsolescence of $3,000 at September  30, 2017 and March  31, 2017, respectively.

The Company recognizes abnormal production costs, including fixed cost variances from normal production capacity, as an expense in the period incurred. Non-inventoriable fixed cost

s related to spirulina production of

$75,000

and

$84,000

were charged to cost of sales for the

three

and

six

months ended

September 

30,

2017,

respectively. Non-inventoriable fixed costs related to astaxanthin production of

$73,000

and

$101,000

were charged to cost of sales for the

three

and

six

months ended

September 

30,

2016,

respectively

XML

Note 3 - Equipment and Leasehold Improvements, Net

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

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

	Years
Equipment		3	to	10
Furniture and fixtures		3	to	7
Leasehold improvements		10	to	25

Equipment and leasehold improvements consist of the following:

	September 30, 201 7			March 31, 201 7
	(in thousands)
Equipment	$	17,623		$	17,492
Leasehold improvements		14,239			13,892
Furniture and fixtures		348			380
		32,210			31,764
Less accumulated depreciation and amortization		(16,631	)		(15,835	)
Construction-in-progress		444			783
Equipment and leasehold improvements, net	$	16,023		$	16,712

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets

may

not

be recoverable. Recoverability of these assets is measured by a comparison of the carrying amount to forecasted undiscounted future cash flows expected to be generated by the asset. If the carrying amount exceeds its estimated future cash flows, then an impairment charge is recognized to the extent that the carrying amount exceeds the asset

’s fair value. Management has determined

no

asset impairment existed as of

September 

30,

2017

and

2016,

respectively.

XML

Note 4 - Line of Credit

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Short-term Debt [Text Block]

4. LINE OF CREDIT

On

August 30, 2016,

the Revolving Credit Agreement (the “Credit Agreement”), which the Company and First Foundation Bank (“the Bank”) entered into 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 (

4.25%

at

September 

30,

2017

) +

2%,

floating. The Credit Agreement includes various covenants as defined in the Credit Agreement. The Credit Agreement also contains standard acceleration provisions in the event of a default by the Company. As of

September 30, 2017,

the Company had borrowed

$500,000

and had

$1,500,000

available on the line. The line of credit is subject to annual renewal and was renewed on

August 30, 2017

and will be subject to renewal upon expiration on

August 30, 2018.

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.

XML

Note 5 - Accrued Expenses

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

5. ACCRUED EXPENSES

Accrued expenses consist of the following:

	September 30, 201 7		March 31, 201 7
	(in thousands)
Wages, commissions, bonus and profit sharing	$	812	$	793
Rent and utilities		98		69
Other accrued expenses		102		151
Total accrued expenses	$	1,012	$	1,013

XML

Note 6 - Long-term Debt

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Long-term Debt [Text Block]

6. LONG-TERM DEBT

Long-term debt consists of the following:

	September 30, 201 7			March 31, 201 7
	(in thousands)
Long-term debt	$	6,835		$	7,139
Less current maturities		(626	)		(623	)
Long-term debt, excluding current maturities		6,209			6,516
Less unamortized debt issuance costs		(250	)		(267	)
Total long-term debt, net of current maturities and unamortized debt issuance costs	$	5,959		$	6,249

Term Loans

 

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 Agreement is evidenced by a promissory note in the amount of

$2,500,000,

the repayment of which is partially guaranteed under the provisions of a United States Department of Agriculture (“USDA”) Rural Development Guarantee program. The provisions of the

2015

Loan Agreement 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 (

4.25%

at

September 

30,

2017

) plus

2.0%

and is adjustable on the

first

day of each calendar quarter and fixed for that quarter. At

no

time shall the annual interest rate be less than

6.00%.

The

2015

Loan has a prepayment penalty of

5%

for any prepayment made prior to the

first

anniversary of the date of the

2015

Loan Agreement, which penalty is reduced by

1%

each year thereafter until the

fifth

anniversary of such date, after which there is

no

prepayment penalty. The balance under the

2015

Loan was

$1,890,000

and

$2,049,000

at

September 30, 2017

and

March 

31,

2017,

respectively.

 

 The

2015

Loan includes a

one

-time origination and guaranty fee totaling

$113,900

and an annual renewal fee payable in the amount of

0.50%

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 Company is subject to financial covenants and customary affirmative and negative covenants.

 

The Company executed a loan agreement with a lender providing for

$5,500,000

in aggregate credit facilities (the “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 “Loan Agreement”). The Loan Agreement 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 provisions of the 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 Loan accrues on the outstanding principal balance at an annual variable rate equal to the published Wall Street Journal prime rate (

4.25%

at

September 

30,

2017

) plus

1.0%

and is adjustable on the

first

day of each calendar quarter and fixed for that quarter. At

no

time shall the annual interest rate be less than

5.50%.

The Loan has a prepayment penalty of

5%

for any prepayment made prior to the

first

anniversary of the date of the Loan Agreement, which penalty is reduced by

1%

each year thereafter until the

fifth

anniversary of such date, after which there is

no

prepayment penalty. The balance under this Loan was

$4,754,000

and

$4,854,000

at

September 30, 2017

and

March 

31,

2017,

respectively. Proceeds from the Loan were classified as restricted cash until drawn upon to acquire new processing equipment and leasehold improvements.  

The Loan includes 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 Loan. The Company is subject to financial covenants and customary affirmative and negative covenants.  

The Company

’s current ratio of

1.92

to

1

and

1.97

to

1

as of

March 31, 2017

and

2016,

respectively, fell short of the bank’s requirement of

2.10

to

1;

however, the Company has received letters from its bank stating that they found the Company to be in compliance with this and all other financial covenants as of

March 31, 2017

and

2016,

and do 

not

consider these shortfalls to be a defaults under the Loan Agreements.   

On

October 6, 2017

the Company entered into an Equipment Finance Agreement (the “Equipment Agreement”), which provides up to

$175,000

of financing for equipment with repayment terms of

36

to

60

months. As of

November

6,

2017,

there was

no

advance of funds or balance outstanding.

Capital Leases

The

Company has

four

capital leases providing for

$364,000

in equipment, secured by the equipment financed. The capital leases mature at various dates between

March 2018

and

March 2021

and are payable in

60

equal monthly payments, except for

one

which is payable in

36

equal monthly payments. The interest rates under these capital leases range from

4.18%

to

12.90%.

The balance under these leases was

$191,000

and

$236,000

at

September 

30,

2017

and

March 31, 2017,

respectively.

Future principal payments under the term loans and capital lease agreements as of

September

 

30,

2017

are as follows:

Payments Due	(in thousands)
Next 12 Months	$	626
Year 2		640
Year 3		656
Year 4		655
Year 5		688
Thereafter		3,570
Total principal payments	$	6,835

XML

Note 7 - Operating Leases

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Leases of Lessee Disclosure [Text Block]

7. OPERATING LEASES

The Company leases facilities, equipment and land under operating leases expiring through

2035.

The land lease provides for contingent rentals in excess of minimum rental commitments based on a percentage of the Company

’s sales. Management has accrued for the estimated contingent rent as of

September 

30,

2017.

Future minimum lease payments under all non-cancelable operating leases at

September

 

30,

2017

are as follows:

Payments Due	(in thousands)
Next 12 Months	$	616
Year 2		619
Year 3		583
Year 4		528
Year 5		533
Thereafter		4,023
Total minimum lease payments	$	6,902

XML

Note 8 - Other Commitments and Contingencies

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

8. OTHER COMMITMENTS AND CONTINGENCIES

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. The Company believes that it currently is

not

a party to any legal proceedings or claims which, individually or in aggregate, would have a material effect on its consolidated financial position, results of operations or cash flows.

XML

Note 9 - Share-based Compensation

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

  9. SHARE-BASED COMPENSATION

The Company accounts for share-based payment arrangements using fair value. If an award vests or becomes exercisable based on the achievement of a condition other than service, such as for meeting certain performance or market conditions, the award is classified as a liability. Liability-classified awards are remeasured to fair value at each balance sheet date until the award is settled. The Company currently has

no

liability-classified awards. Equity-classified awards, including grants of employee stock options, are measured at the grant-date fair value of the award and are

not

subsequently remeasured unless an award is modified. The cost of equity-classified awards is recognized in the statement of operations over the period during which an employee is required to provide the service in exchange for the award, or the vesting period. All of the Company

’s stock options are service-based awards, and because the Company’s stock options are “plain vanilla,” as defined by the U.S. Securities and Exchange Commission in Staff Accounting Bulletin

No.

 

107,

they are reflected only in equity and compensation expense accounts.

As of

September

 

30,

2017,

the Company had

two

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

September 30, 2017,

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.

No

additional awards will be issued under the

2005

Plan or the

2004

Directors Plan.

On

August 25, 2016,

the Company

’s shareholders approved the

2016

Plan as a successor to the

2005

Plan, authorizing the Board of Directors to provide incentive to the Company’s officers, employees and certain independent consultants through equity based compensation in the form of stock options, restricted stock, restricted stock units, stock appreciation rights and other stock based awards (together, “Stock Awards”) and performance shares and performance units (together “Performance Awards”). Awards under the

2016

Plan are limited to the authorized amount of

1,300,000

shares, up to

600,000

of which are available for issuance in connection with Performance Awards and Stock Awards. As of

September 30, 2017,

there were

1,174,216

shares available for grant under the

2016

Plan.

On

August 28, 2014,

the Company

’s shareholders approved the

2014

Directors Plan authorizing the Board of Directors to provide incentive to the Company’s independent directors through equity based compensation in the form of stock options and restricted stock. Awards under the

2014

Directors Plan are limited to the authorized amount of

350,000

shares. As of

September 30, 2017,

there were

231,623

shares available for grant under the

2014

Directors Plan.

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

’s plans:

	As of September 30, 201 7
	Authorized		Available		Outstanding
2016 Plan		1,300,000		1,174,216		125,784
2014 Directors Plan		350,000		231,623		12,000
2005 Plan		—		—		476,500
2004 Directors Plan		—		—		12,000
Total		1,650,000		1,405,839		626,284

Stock Options

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

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 are 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

$19,000

and

$34,000

for the

three

and

six

months ended

September 

30,

2017,

respectively. Compensation expense recognized for options issued under all Plans was

$59,000

and

$137,000

for the

three

and

six

months ended

September 

30,

2016,

respectively. Compensation expense recognized for restricted stock issued under the

2014

Directors Plan was

$276,000

for the

three

and

six

months ended

September 

30,

2017.

Compensation expense recognized for restricted stock issued under the

2014

Directors Plan was

$78,000

for the

three

and

six

months ended

September 

30,

2016.

All stock-based compensation has been classified as general and administrative expense in the condensed consolidated statement of operations.

A summary of option activity under the Company

’s stock plans for the

six

months ended

September 

30,

2017

is presented below: 

Option Activity	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at March 31, 201 7		503,000		$	4.10		4.7	$	145,946
Granted		75,000		$	3.35
Exercised		(1,000	)	$	1.60
Forfeited		(1,500	)	$	3.11
Outstanding at September 30, 201 7		575,500		$	4.01		4.9	$	261,755
Exercisable at September 30, 201 7		496,000		$	4.10		4.1	$	208,550

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

$4.06

for such day.

A summary of the Company

’s non-vested options for the

six

months ended

September 

30,

2017

is presented below:

Nonvested Options	Shares			Weighted Average Grant-Date Fair Value
Nonvested at March 31, 201 7		19,500		$	2.93
Granted		75,000			1.71
Vested		(15,000	)		2.73
Forfeited		—			—
Nonvested at September 30, 201 7		79,500		$	1.82

The following table summarizes the weighted average characteristics of outstanding stock options as of

September

 

30,

2017:

			Outstanding Options						Exercisable Options
Range of Exercise Prices			Number of Shares		Remaining Life (Years)		Weighted Average Price		Number of Shares		Weighted Average Price
$1.60	-	$3.70		198,620		5.2	$	2.97		123,620	$	2.74
$3.71	-	$4.42		197,380		4.1	$	3.83		197,380	$	3.83
$4.43	-	$5.40		95,000		5.7	$	5.00		90,500	$	4.98
$5.41	-	$7.08		84,500		5.1	$	5.77		84,500	$	5.77
Total stock options				575,500		4.9	$	4.01		496,000	$	4.10

The range of fair value assumptions related to options granted during the

six

months ended

September 30,

201

7

were as follows:

	201 7
Exercise Price	$	3.35
Volatility		52.50	%
Risk Free Rate		1.99	%
Vesting Period (years)		3.0
Forfeiture Rate		0.00	%
Expected Life (in years)		6.00
Dividend Rate		0	%

As of

September

 

30,

2017,

total unrecognized stock-based compensation expense related to all unvested stock options was

$121,000,

which is expected to be expensed over a weighted average period of

2.7

years. 

Restricted Stock Units (“RSUs”)

RSUs are service-based awards granted to eligible employees under the

2016

Plan.

On

March 31, 2017,

25,000

restricted stock units (“RSUs”) were awarded to the CEO. This award is valued at

$3.85

per share, the closing market price of Cyanotech common stock on the grant date, and vest over a period of

three

years.

On

April 5, 2017,

28,074

RSUs were awarded to employees of the Company. This award is valued at

$3.92

per share, the closing market price of Cyanotech common stock on the grant date, and vests

 over a period of

three

years. 

The following table summarizes information related to awarded RSUs:

Nonvested Restricted Stock Units	Shares			Weighted Average Grant Price
Nonvested restricted stock units at March 31, 2017		25,000		$	3.85
Granted		28,074			3.92
Vested		—			—
Exercised		—			—
Forfeited		(2,290	)		3.92
Nonvested restricted stock units at September 30, 2017		50,784		$	3.89

 

As of

September 

30,

2017,

total unrecognized stock-based compensation expense related to unvested restricted stock units was

$162,000,

which is expected to be expensed over a weighted average period of

2.5

years.

XML

Note 10 - Income Taxes

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

10. INCOME TAXES

We utilize our estimated annual effective tax rate to determine our provision (benefit) for income taxes for interim periods. The income tax provision (benefit) is computed by multiplying the estimated annual effective tax rate by the year to date pre-tax book income (loss).

We recorded income tax expense of

$11,000

and

$26,000

for the

three

months ended

September

31,

2017

and

2016,

respectively. We recorded income tax expense of

$21,000

and income tax benefit of (

$24,000

) for the

six

months ended

September 30, 2017

and

2016,

respectively. Our effective tax rate was

2.2%

and

2.1%

for the

three

and

six

months ended

September 

30,

2017,

respectively, and

21.0%

and (

3.9%

) for the

three

and

six

months ended

September 

30,

2016,

respectively. The effective tax rate for the

three

and

six

months ended

September 30, 2017

differs from the statutory rate of

34%

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 is subject to taxation in the United States and

two

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

September

 

30,

2017,

there was

no

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

201

2.

XML

Note 11 - Earnings (Loss) Per Share

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

11. EARNINGS (LOSS) PER SHARE

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 earnings per share

computations for the

three

months ended

September 

30,

2017

and

2016

are as follows:

	Three Months Ended September 30, 201 7
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	475		5,709	$	0.08
Effect of dilutive securities —Common stock options		—		62		—
Diluted income per share	$	475		5,771	$	0.08

	Three Months Ended September 30, 201 6
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	99		5,657	$	0.02
Effect of dilutive securities — Common stock options		—		70		—
Diluted income per share	$	99		5,727	$	0.02

Reconciliations between the numerator and the denominator of the basic and diluted earnings per share computations for the

six

months ended

September

 

30,

2017

and

2016

are as follows:

	Six Months Ended September 30, 201 7
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	977		5,697	$	0.17
Effect of dilutive securities —Common stock options		—		46		—
Basic and diluted loss per share	$	977		5,743	$	0.17

	Six Months Ended September 30, 201 6
	Net Income			Shares		Per Share
	(Numerator)			(Denominator)		Amount
	(in thousands)
Basic and diluted loss per share	$	(592	)		5,645	$	(0.10	)

Basic and diluted earnings per share 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 totaling

75,000

and

6,000

for the

three

months ended

September 

30,

2017

and

2016,

respectively, and

75,000

and

6,000

for the

six

months ended

September 

30,

2017

and

2016,

respectively, 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. 

XML

Note 12 - Concentrations of Risk

6 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

12. CONCENTRATIONS OF RISK

 

 

Concentration of Accounts Receivable and Revenues

At

September 30,

201

7,

33%

of the Company’s accounts receivable was comprised of

two

customer balances of

20%

and

13%,

respectively. At

March 31, 2017,

59%

of the Company’s accounts receivable was comprised of

three

customer balances of

38%,

12%

and

9%,

respectively. Two customers accounted for

46%

of total net sales for the

three

months ended

September 30, 2017

comprised of

32%

and

14%,

respectively.

One

customer accounted for

28%

of total net sales for the

three

months ended

September 30, 2016.

Two

customers accounted for

45%

of total net sales for the

six

months ended

September 30, 2017

comprised of

32%

and

13%,

respectively.

One

customer accounted for

24%

of total net sales for the

six

months ended

September 30, 2016.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Liquidity and Debt Covenant Compliance [Policy Text Block]

Liquidity and Debt Covenant Compliance

As of

September 30, 2017,

the Company had cash of

$2.1

million and working capital of

$7.7

million compared to

$1.4

million and

$6.0

million, respectively, at

March 31, 2017.

The Company has a revolving line of credit agreement with First Foundation Bank (the Bank) that allows it to borrow up to

$2

million. The line is subject to renewal on

August 30, 2018.

As of

September 30, 2017,

the Company had borrowed

$0.5

million and had

$1.5

million available on the line.

 

As of

September 30, 2017,

the Company had

$6.6

million of term loans payable to the Bank that require the payment of principal and interest monthly through

August 2032.

Pursuant to the term loans, the Company is subject to annual financial covenants, customary affirmative and negative covenants and certain subjective acceleration clauses. As of

March 31, 2017

and

2016,

the Company's current ratio of

1.92:1

and

1.97:1,

respectively, fell short of the Bank's annual requirement of

2.10:1.

The Bank has provided the Company with letters stating they found the Company to be in compliance with this covenant requirement and all other financial covenants as of

March 31, 2017

and

2016,

and do

not

consider these shortfalls to be defaults under the Loan Agreements.

 

Funds generated by operating activities and available cash 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 fiscal year

2018

operating plan and related cash flow projections and the Company's projected consolidated financial position as of

March 31, 2018,

cash flows expected to be generated by operating activities and available financing are expected to be sufficient to fund the Company's operations for at least the next

twelve

months, and the Company's current ratio is expected to be in compliance with the annual term loan covenant requirement as of

March 31, 2018.

However,

no

assurances can be provided that the Company will achieve its operating plan and cash flow objectives for the next fiscal year or its projected consolidated financial position as of

March 31, 2018.

Such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results.

 

As indicated above, the Bank has

not

considered the shortfalls as of

March 31, 2017

and

2016

in the Company's current ratio relative to the covenant requirement to be violations of the Loan Agreements. However, in the event the Company has a shortfall under the Loan Agreements as of

March 31, 2018

or future fiscal year ends, there is

no

assurance that the Bank will

not

consider such to be a violation of the Loan Agreements and pursue its rights under the arrangements to call for the repayment of the outstanding borrowings payable to the Bank. If this occurs, the Company

may

need to raise additional funds to repay the loans; however, the Company

may

not

be able to secure such funding on acceptable terms, or at all.

Reclassification, Policy [Policy Text Block]

Reclassification

Certain amounts in the fiscal

2017

consolidated financial statements have been reclassified to conform to the fiscal

2018

financial presentation. These reclassifications have

no

impact on net income (loss).

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

May 2017,

the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")

2017

-

09,

Compensation-Stock Compensation (Topic

718

) Scope of Modification Accounting.

ASU

2017

-

09

will clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic

718,

to a change to the terms and conditions of a share-based payment award. This guidance will become effective for fiscal years beginning after

December 15, 2017

and interim periods within those fiscal years. Early adoption is permitted. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact of this updated standard. The Company does

not

believe this update will have a significant impact on its consolidated financial statements.

In

December 2016,

the FASB issued ASU

2016

-

20

 

“Technical Corrections and Improvements to Topic

606,

Revenue from Contracts with Customers”

(“ASU

No.

2016

-

20”

) and ASU

2016

-

19

“Technical Corrections and Improvements”

("ASU

No.

2016

-

19"

)which contains amendments that affect a wide variety of topics in the Accounting Standards Codification (“ASC”). The amendments generally fall into

one

of the following

four

categories: (a) Amendments related to differences between original guidance and the ASC that either carry forward pre-codification guidance or subsequent amendments into the ASC or to guidance that was codified without some text, reference, or phrasing that, upon review, was deemed important to the guidance; (b) Guidance clarification and reference corrections; (c) Simplification; and (d) Minor improvements. ASU

2016

-

20

will take effect for public companies for the fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. This guidance is applicable to the Company’s fiscal year beginning

April 1, 2018.

The Company does

not

expect that the adoption of this guidance will have a significant impact on its consolidated financial position, results of operations or cash flows.

In

November 2016,

the FASB issued ASU

 

2016

-

18,

 “

Statement of Cash Flows (Topic

230

): Restricted Cash”

(“ASU

No.

2016

-

18”

)

.  

This update addresses the fact that diversity exists in the classification and presentation of changes in restricted cash on the statement of cash flows under Topic

230,

Statement of Cash Flows. ASU

2016

-

18

will take effect for public companies for the fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. This guidance is applicable to the Company’s fiscal year beginning

April 1, 2018.

The Company does

not

anticipate that this guidance will have a material impact on its consolidated financial statements and related disclosures.

In

August 2016,

FASB issued ASU

2016

-

15,

“

Statement of Cash Flows (Topic

230

)

:

Classification of Certain Cash Receipts and Cash Payments”

(“ASU

No.

2016

-

15”

). This ASU clarifies and provides specific guidance on

eight

cash flow classification issues that are

not

currently addressed by current GAAP and thereby reduces the current diversity in practice. ASU

No.

2016

-

15

is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after

December 15, 2017,

with early application permitted. This guidance is applicable to the Company’s fiscal year beginning

April 1, 2018.

The Company does

not

anticipate that this guidance will have a material impact on its consolidated financial statements and related disclosures. 

 

In

March 2016,

the FASB issued ASU

2016

-

09,

“

Compensation – Stock Compensation (Topic

718

)

:

Improvements to Employee Share-Based Payment Accounting” (“

ASU

No.

2016

-

09

”)

. This ASU makes several modifications to Topic

718

related to the accounting for forfeitures, employer tax withholding on share-based compensation, and the financial statement presentation of excess tax benefits or deficiencies. ASU

No.

2016

-

09

also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for annual periods beginning after

December 15, 2016,

and interim periods within those annual periods, with early adoption permitted. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement must be applied prospectively. Amendments related to the presentation of excess tax benefits on the statement of cash flows

may

be applied either prospectively or retrospectively based on the Company’s election. Amendments related to the statement of cash flows presentation of employee taxes paid when an employer withholds shares must be applied retrospectively. As of

April 1, 2017,

the Company adopted ASU

2016

-

09

and elected to present excess tax benefits as an operating activity prospectively and continues to estimate forfeitures rather than recognize them as they occur. The adoption of ASU

2016

-

09

did

not

have an impact on its consolidated financial statements and related disclosures.

 

In

March 2016,

the FASB issued ASU

No.

2016

-

08,

“Revenue from Contracts with Customers (Topic

606

): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”

(“ASU

No.

2016

-

08”

), which clarified the revenue recognition implementation guidance on principal versus agent considerations. In

April 2016,

the FASB issued ASU

No.

2016

-

10,

“Revenue from Contracts with Customers (Topic

606

): Identifying Performance Obligations and Licensing”,

which clarified the revenue recognition guidance regarding the identification of performance obligations and the licensing implementation. In

May 2016,

the FASB issued ASU

No.

2016

-

12,

“Revenue from Contracts with Customers (Topic

606

): Narrow-Scope Improvements and Practical Expedients”,

which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. ASU

No.

2016

-

08,

ASU

No.

2016

-

10

and ASU

No.

2016

-

12

are effective during the same period as ASU

No.

2014

-

09,

Revenue from Contracts with Customers

, which is effective for annual reporting periods beginning after

December 15, 2017,

with the option to adopt

one

year earlier. This guidance is applicable to the Company’s fiscal year beginning

April 1, 2018.

The Company does

not

anticipate that the adoption of ASU

No.

2016

-

08,

ASU

No.

2016

-

10

and ASU

No.

2016

-

12

will have a material impact on its consolidated financial statements and related disclosures. 

 

In

February 2016,

the FASB issued ASU

2016

-

02,

“

Leases (Topic

842

)” (“

ASU

No.

2016

-

02”

). The principle objective of ASU

No.

2016

-

02

is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet. ASU

No.

2016

-

02

continues to retain a distinction between finance and operating leases but requires lessees to recognize a right-of-use asset representing its right to use the underlying asset for the lease term and a corresponding lease liability on the balance sheet for all leases with terms greater than

twelve

months. ASU

No.

2016

-

02

is effective for fiscal years and interim periods beginning after

December 15, 2018.

Early adoption of ASU

No.

2016

-

02

is permitted. Entities are required to apply the amendments at the beginning of the earliest period presented using a modified retrospective approach. This guidance is applicable to the Company’s fiscal year beginning

April 1, 2019.

The Company expects this guidance will have a material impact on its consolidated balance sheets due to the recognition of lease rights and obligations as assets and liabilities, respectively. The Company does

not

expect this guidance to have a material effect on its consolidated results of operations and cash flows. 

 In

November 2015,

the FASB issued ASU

No.

2015

-

17,

“

Income Taxes (Topic

740

): Balance Sheet Classification of Deferred Taxes”

. This guidance simplifies the presentation of deferred income taxes and requires that deferred tax assets and liabilities be classified as noncurrent in the classified statement of financial position. ASU

2015

-

17

will take effect for public companies for the fiscal years beginning after

December 15, 2016,

and interim periods within those fiscal years. As required, the Company adopted this standard as of

April 1, 2017

and accordingly all deferred tax assets and liabilities are classified as non-current. Prior periods were retrospectively adjusted.

 In

August 2015,

the FASB issued ASU

2015

-

14,

“Revenue from Contracts with Customers (Topic

606

): Deferral of the Effective Date”

, which defers the effective date of ASU

2014

-

09

by

one

year to

December 15, 2017

for interim and annual reporting periods beginning after that date, and permitted early adoption of the standard, but

not

before the original effective date. 

 

In

July 2015,

the FASB issued ASU

No.

2015

-

11,

“Inventory: Simplifying the Measurement of Inventory”

, that requires inventory

not

measured using either the last in,

first

out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation.  Prior to the issuance of the standard, inventory was measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin). The new standard will be effective for fiscal years beginning after

December 15, 2016,

including interim periods within those fiscal years, and will be applied prospectively. Early adoption is permitted. As required, the Company adopted this standard as of

April 1, 2017. 

The adoption of this standard did

not

have a material impact on the Company's financial position or results of operations.

 

In

May 2014,

The FASB issued ASU

No

2014

-

09,

“Revenue from Contracts with Customers (Topic

606

)”

. This guidance, as amended by subsequent ASUs on the topic, supersedes current guidance on revenue recognition in topic

605,

Revenue Recognition. This guidance will be effective for annual periods beginning after

December 15, 2017,

including interim reporting periods. Early application of the guidance is permitted for annual periods beginning after

December 31, 2016.

This guidance is applicable to our fiscal year beginning

April 1, 2018.

The Company plans to adopt this guidance when effective in the

first

quarter of the fiscal year ended

March 31, 2019.

The Company has begun to consider the alternatives of adoption of this ASU and has started its review of the likely impact to the existing portfolio of customers contracts entered into prior to adoption. The Company will also continue to evaluate the effect of adopting this guidance upon the its results of operations, cash flows and financial position. The Company expects to complete this evaluation in

December 2017.

XML

Note 2 - Inventories (Tables)

6 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	September 30, 201 7		March 31, 201 7
	(in thousands)
Raw materials	$	326	$	347
Work in process		2,504		2,323
Finished goods (1)		6,335		5,173
Supplies		150		129
Inventories, net	$	9,315	$	7,972

XML

Note 3 - Equipment and Leasehold Improvements, Net (Tables)

6 Months Ended

Sep. 30, 2017

Notes Tables

Property, Plant, and Equipment, Estimated Useful Lives [Table Text Block]

	Years
Equipment		3	to	10
Furniture and fixtures		3	to	7
Leasehold improvements		10	to	25

Property, Plant and Equipment [Table Text Block]

	September 30, 201 7			March 31, 201 7
	(in thousands)
Equipment	$	17,623		$	17,492
Leasehold improvements		14,239			13,892
Furniture and fixtures		348			380
		32,210			31,764
Less accumulated depreciation and amortization		(16,631	)		(15,835	)
Construction-in-progress		444			783
Equipment and leasehold improvements, net	$	16,023		$	16,712

XML

Note 5 - Accrued Expenses (Tables)

6 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	September 30, 201 7		March 31, 201 7
	(in thousands)
Wages, commissions, bonus and profit sharing	$	812	$	793
Rent and utilities		98		69
Other accrued expenses		102		151
Total accrued expenses	$	1,012	$	1,013

XML

Note 6 - Long-term Debt (Tables)

6 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	September 30, 201 7			March 31, 201 7
	(in thousands)
Long-term debt	$	6,835		$	7,139
Less current maturities		(626	)		(623	)
Long-term debt, excluding current maturities		6,209			6,516
Less unamortized debt issuance costs		(250	)		(267	)
Total long-term debt, net of current maturities and unamortized debt issuance costs	$	5,959		$	6,249

Schedule of Maturities of Long-term Debt [Table Text Block]

Payments Due	(in thousands)
Next 12 Months	$	626
Year 2		640
Year 3		656
Year 4		655
Year 5		688
Thereafter		3,570
Total principal payments	$	6,835

XML

Note 7 - Operating Leases (Tables)

6 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Payments Due	(in thousands)
Next 12 Months	$	616
Year 2		619
Year 3		583
Year 4		528
Year 5		533
Thereafter		4,023
Total minimum lease payments	$	6,902

XML

Note 9 - Share-based Compensation (Tables)

6 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Share-based Compensation Shares Authorized Available and Outstanding by Plan [Table Text Block]

	As of September 30, 201 7
	Authorized		Available		Outstanding
2016 Plan		1,300,000		1,174,216		125,784
2014 Directors Plan		350,000		231,623		12,000
2005 Plan		—		—		476,500
2004 Directors Plan		—		—		12,000
Total		1,650,000		1,405,839		626,284

Share-based Compensation, Stock Options, Activity [Table Text Block]

Option Activity	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at March 31, 201 7		503,000		$	4.10		4.7	$	145,946
Granted		75,000		$	3.35
Exercised		(1,000	)	$	1.60
Forfeited		(1,500	)	$	3.11
Outstanding at September 30, 201 7		575,500		$	4.01		4.9	$	261,755
Exercisable at September 30, 201 7		496,000		$	4.10		4.1	$	208,550

Schedule of Nonvested Share Activity [Table Text Block]

Nonvested Options	Shares			Weighted Average Grant-Date Fair Value
Nonvested at March 31, 201 7		19,500		$	2.93
Granted		75,000			1.71
Vested		(15,000	)		2.73
Forfeited		—			—
Nonvested at September 30, 201 7		79,500		$	1.82

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

			Outstanding Options						Exercisable Options
Range of Exercise Prices			Number of Shares		Remaining Life (Years)		Weighted Average Price		Number of Shares		Weighted Average Price
$1.60	-	$3.70		198,620		5.2	$	2.97		123,620	$	2.74
$3.71	-	$4.42		197,380		4.1	$	3.83		197,380	$	3.83
$4.43	-	$5.40		95,000		5.7	$	5.00		90,500	$	4.98
$5.41	-	$7.08		84,500		5.1	$	5.77		84,500	$	5.77
Total stock options				575,500		4.9	$	4.01		496,000	$	4.10

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	201 7
Exercise Price	$	3.35
Volatility		52.50	%
Risk Free Rate		1.99	%
Vesting Period (years)		3.0
Forfeiture Rate		0.00	%
Expected Life (in years)		6.00
Dividend Rate		0	%

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

Nonvested Restricted Stock Units	Shares			Weighted Average Grant Price
Nonvested restricted stock units at March 31, 2017		25,000		$	3.85
Granted		28,074			3.92
Vested		—			—
Exercised		—			—
Forfeited		(2,290	)		3.92
Nonvested restricted stock units at September 30, 2017		50,784		$	3.89

XML

Note 11 - Earnings (Loss) Per Share (Tables)

6 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended September 30, 201 7
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	475		5,709	$	0.08
Effect of dilutive securities —Common stock options		—		62		—
Diluted income per share	$	475		5,771	$	0.08

	Three Months Ended September 30, 201 6
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	99		5,657	$	0.02
Effect of dilutive securities — Common stock options		—		70		—
Diluted income per share	$	99		5,727	$	0.02

	Six Months Ended September 30, 201 7
	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
	(in thousands)
Basic income per share	$	977		5,697	$	0.17
Effect of dilutive securities —Common stock options		—		46		—
Basic and diluted loss per share	$	977		5,743	$	0.17

	Six Months Ended September 30, 201 6
	Net Income			Shares		Per Share
	(Numerator)			(Denominator)		Amount
	(in thousands)
Basic and diluted loss per share	$	(592	)		5,645	$	(0.10	)

XML

Note 1 - Basis of Presentation (Details Textual)	Sep. 30, 2017 USD ($)	Mar. 31, 2017 USD ($)	Sep. 30, 2016 USD ($)	Aug. 30, 2016 USD ($)	Mar. 31, 2016 USD ($)
Cash and Cash Equivalents, at Carrying Value	$ 2,102,000	$ 1,407,000	$ 2,055,000		$ 1,240,000
Working Capital (Deficit)	7,700,000	6,000,000
Line of Credit, Current	500,000	611,000
Term Loan Agreement, Maturing on August 14, 2032 [Member]
Long-term Debt and Capital Lease Obligations, Current and Noncurrent	4,754,000	$ 4,854,000
Current Ratio		1.92			1.97
Debt Covenant, Minimum Current Ratio		2.1
First Foundation Bank [Member]
Long-term Debt and Capital Lease Obligations, Current and Noncurrent	6,600,000
First Foundation Bank [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity	2,000,000			$ 2,000,000
Line of Credit, Current	500,000
Line of Credit Facility, Remaining Borrowing Capacity	$ 1,500,000

XML

Note 2 - Inventories (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Mar. 31, 2017
Inventory Valuation Reserves	$ 3,000		$ 3,000		$ 3,000
Non Inventoriable Fixed Costs	$ 75,000	$ 73,000	$ 84,000	$ 101,000

XML

Note 2 - Inventories - Components of Inventory (Details) - USD ($) $ in Thousands		Sep. 30, 2017	Mar. 31, 2017
Raw materials		$ 326	$ 347
Work in process		2,504	2,323
Finished goods (1)	[1]	6,335	5,173
Supplies		150	129
Inventories, net		$ 9,315	$ 7,972

[1] Net of reserve for obsolescence of $3,000 at September 30, 2017 and March 31, 2017, respectively.

XML

Note 3 - Equipment and Leasehold Improvements, Net (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Asset Impairment Charges	$ 0	$ 0

XML

Note 3 - Equipment and Leasehold Improvements, Net - Estimated Useful Lives (Details)	6 Months Ended
	Sep. 30, 2017
Equipment [Member] | Minimum [Member]
Estimated useful lives (Year)	3 years
Equipment [Member] | Maximum [Member]
Estimated useful lives (Year)	10 years
Furniture and Fixtures [Member] | Minimum [Member]
Estimated useful lives (Year)	3 years
Furniture and Fixtures [Member] | Maximum [Member]
Estimated useful lives (Year)	7 years
Leasehold Improvements [Member] | Minimum [Member]
Estimated useful lives (Year)	10 years
Leasehold Improvements [Member] | Maximum [Member]
Estimated useful lives (Year)	25 years

XML

Note 3 - Equipment and Leasehold Improvements, Net - Components of Equipment and Leasehold Improvements (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Mar. 31, 2017
Equipment and leasehold improvements, gross	$ 32,210	$ 31,764
Less accumulated depreciation and amortization	(16,631)	(15,835)
Construction-in-progress	444	783
Equipment and leasehold improvements, net	16,023	16,712
Equipment [Member]
Equipment and leasehold improvements, gross	17,623	17,492
Leasehold Improvements [Member]
Equipment and leasehold improvements, gross	14,239	13,892
Furniture and Fixtures [Member]
Equipment and leasehold improvements, gross	$ 348	$ 380

XML

Note 4 - Line of Credit (Details Textual) - USD ($)	Aug. 30, 2016	Sep. 30, 2017	Mar. 31, 2017
Line of Credit, Current		$ 500,000	$ 611,000
First Foundation Bank [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 2,000,000	2,000,000
Line of Credit, Current		500,000
Line of Credit Facility, Remaining Borrowing Capacity		$ 1,500,000
First Foundation Bank [Member] | Revolving Credit Facility [Member] | Prime Rate [Member]
Debt Instrument Reference Rate		4.25%
Debt Instrument, Basis Spread on Variable Rate	2.00%

XML

Note 5 - Accrued Expenses - Components of Accrued Expenses (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Mar. 31, 2017
Wages, commissions, bonus and profit sharing	$ 812	$ 793
Rent and utilities	98	69
Other accrued expenses	102	151
Total accrued expenses	$ 1,012	$ 1,013

XML

Note 6 - Long-term Debt (Details Textual)			1 Months Ended		3 Months Ended	6 Months Ended
	Oct. 06, 2017 USD ($)	Aug. 14, 2012 USD ($)	Nov. 06, 2017 USD ($)	Jul. 30, 2015 USD ($)	Jun. 30, 2017	Sep. 30, 2017 USD ($)	Mar. 31, 2017 USD ($)	Mar. 31, 2016
Bank of the West Finance [Member]
Capital Leased Assets, Number of Units						4
Capital Leased Assets, Gross						$ 364,000
Debt Instrument Periodic Payments Number						60
Capital Lease Obligations						$ 191,000	$ 236,000
Bank of the West Finance [Member] | Capital Lease Asses Payable in 36 Equal Monthly Payments [Member]
Capital Leased Assets, Number of Units						1
Debt Instrument Periodic Payments Number					36
Minimum [Member] | Bank of the West Finance [Member]
Debt Instrument, Interest Rate, Stated Percentage						4.18%
Maximum [Member] | Bank of the West Finance [Member]
Debt Instrument, Interest Rate, Stated Percentage						12.90%
The 2015 Loan Agreement [Member]
Proceeds from Issuance of Debt				$ 2,500,000
Debt Instrument, Term				7 years
Debt Instrument, Prepayment Penalty Percentage						5.00%
Debt Instrument, Prepayment Penalty Percentage Reduction During Each Year						1.00%
Long-term Debt and Capital Lease Obligations, Current and Noncurrent						$ 1,890,000	2,049,000
Debt Instrument One Time Origination and Guaranty Fees						$ 113,900
Debt Instrument Annual Renewal Fee Payable Percentage						0.50%
Debt Instrument Guaranteed Portion						80.00%
The 2015 Loan Agreement [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage						6.00%
The 2015 Loan Agreement [Member] | Prime Rate [Member]
Debt Instrument Reference Rate						4.25%
Debt Instrument, Basis Spread on Variable Rate						2.00%
Term Loan Agreement, Maturing on August 14, 2032 [Member]
Proceeds from Issuance of Debt		$ 5,500,000
Debt Instrument Reference Rate						4.25%
Debt Instrument, Basis Spread on Variable Rate						1.00%
Debt Instrument, Prepayment Penalty Percentage						5.00%
Debt Instrument, Prepayment Penalty Percentage Reduction During Each Year						1.00%
Long-term Debt and Capital Lease Obligations, Current and Noncurrent						$ 4,754,000	$ 4,854,000
Debt Instrument One Time Origination and Guaranty Fees						$ 214,500
Debt Instrument Annual Renewal Fee Payable Percentage						0.25%
Debt Instrument Guaranteed Portion						80.00%
Debt Instrument Interest Payment Period		1 year
Debt Instrument Amortization Period		19 years
Current Ratio							1.92	1.97
Debt Covenant, Minimum Current Ratio							2.1
Term Loan Agreement, Maturing on August 14, 2032 [Member] | Minimum [Member]
Debt Instrument, Interest Rate During Period						5.50%
Term Loan Agreement, Promissory Note One [Member]
Proceeds from Issuance of Debt		$ 2,250,000
Term Loan Agreement, Promissory Note Two [Member]
Proceeds from Issuance of Debt		$ 3,250,000
Equipment Finance Agreement [Member] | Scenario, Forecast [Member]
Proceeds from Issuance of Long-term Debt			$ 0
Long-term Debt			$ 0
Equipment Finance Agreement [Member] | Subsequent Event [Member]
Debt Agreement, Maximum Borrowing Capacity	$ 175,000
Equipment Finance Agreement [Member] | Minimum [Member] | Subsequent Event [Member]
Debt Instrument, Term	3 years
Equipment Finance Agreement [Member] | Maximum [Member] | Subsequent Event [Member]
Debt Instrument, Term	5 years

XML

Note 6 - Long-term Debt - Summary of Long-term Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Mar. 31, 2017
Total principal payments	$ 6,835	$ 7,139
Less current maturities	(626)	(623)
Long-term debt, excluding current maturities	6,209	6,516
Less unamortized debt issuance costs	(250)	(267)
Total long-term debt, net of current maturities and unamortized debt issuance costs	$ 5,959	$ 6,249

XML

Note 6 - Long-term Debt - Future Payments (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Mar. 31, 2017
Next 12 Months	$ 626
Year 2	640
Year 3	656
Year 4	655
Year 5	688
Thereafter	3,570
Total principal payments	$ 6,835	$ 7,139

XML

Note 7 - Operating Leases - Summary of Future Minimum Lease Payments Under Non-cancelable Operating Leases (Details) $ in Thousands	Sep. 30, 2017 USD ($)
Next 12 Months	$ 616
Year 2	619
Year 3	583
Year 4	528
Year 5	533
Thereafter	4,023
Total minimum lease payments	$ 6,902

XML

Note 9 - Share-based Compensation (Details Textual)			3 Months Ended		6 Months Ended
	Apr. 05, 2017 $ / shares shares	Mar. 31, 2017 $ / shares shares	Sep. 30, 2017 USD ($) shares	Sep. 30, 2016 USD ($) $ / shares	Sep. 30, 2017 USD ($) $ / shares shares	Sep. 30, 2016 USD ($) $ / shares	Aug. 25, 2016 shares	Aug. 28, 2014 shares
Number of Shareholder Approved Share-based Compensation Plans			2		2
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			1,405,839		1,405,839
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized			1,650,000		1,650,000
Share Price | $ / shares				$ 4.06		$ 4.06
Employee Stock Option [Member]
Allocated Share-based Compensation Expense | $			$ 19,000	$ 59,000	$ 34,000	$ 137,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized | $				121,000		$ 121,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition						2 years 255 days
Restricted Stock Units (RSUs) [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized | $			$ 162,000		$ 162,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition					2 years 182 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period					28,074
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares					$ 3.92
Restricted Stock Units (RSUs) [Member] | Chief Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period		25,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares		$ 3.85
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		3 years
Restricted Stock Units (RSUs) [Member] | Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	28,074
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares	$ 3.92
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Maximum [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period					10 years
The 2005 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			0		0
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized
The 2016 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			1,174,216		1,174,216
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized							1,300,000
The 2016 Plan [Member] | Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			1,174,216		1,174,216
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized			1,300,000		1,300,000
The 2016 Plan [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized for Issuance in Connection with Performance Awards and Stock Awards							600,000
2014 Directors Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			231,623		231,623
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized			350,000		350,000			350,000
2014 Directors Plan [Member] | Restricted Stock [Member]
Allocated Share-based Compensation Expense | $			$ 276,000	$ 78,000	$ 276,000	$ 78,000

XML

Note 9 - Share-based Compensation - Shares Authorized, Available for Future Grant and Outstanding Under Each Plan (Details) - shares	Sep. 30, 2017	Mar. 31, 2017	Aug. 25, 2016	Aug. 28, 2014
Authorized (in shares)	1,650,000
Available (in shares)	1,405,839
Outstanding (in shares)	575,500	503,000
Outstanding (in shares)	626,284
Restricted Stock Units (RSUs) [Member]
Outstanding (in shares)	50,784	25,000
The 2016 Plan [Member]
Authorized (in shares)			1,300,000
Available (in shares)	1,174,216
The 2016 Plan [Member] | Restricted Stock Units (RSUs) [Member]
Authorized (in shares)	1,300,000
Available (in shares)	1,174,216
Outstanding (in shares)	125,784
2014 Directors Plan [Member]
Authorized (in shares)	350,000			350,000
Available (in shares)	231,623
Outstanding (in shares)	12,000
The 2005 Plan [Member]
Authorized (in shares)
Available (in shares)	0
Outstanding (in shares)	476,500
2004 Directors Plan [Member]
Authorized (in shares)
Available (in shares)
Outstanding (in shares)	12,000

XML

Note 9 - Share-based Compensation - Summary of Option Activity Under Stock Plans (Details) - USD ($)	6 Months Ended	12 Months Ended
	Sep. 30, 2017	Mar. 31, 2017
Outstanding (in shares)	503,000
Outstanding, weighted average exercise price (in dollars per share)	$ 4.10
Outstanding, weighted average remaining contractual term (Year)	4 years 328 days	4 years 255 days
Outstanding, aggregate intrinsic value	$ 261,755	$ 145,946
Granted (in shares)	75,000
Granted, weighted average exercise price (in dollars per share)	$ 3.35
Exercised (in shares)	(1,000)
Exercised, weighted average exercise price (in dollars per share)	$ 1.60
Forfeited (in shares)	(1,500)
Forfeited, weighted average exercise price (in dollars per share)	$ 3.11
Outstanding (in shares)	575,500	503,000
Outstanding, weighted average exercise price (in dollars per share)	$ 4.01	$ 4.10
Exercisable (in shares)	496,000
Exercisable, weighted average exercise price (in dollars per share)	$ 4.10
Exercisable, weighted average remaining contractual term (Year)	4 years 36 days
Exercisable, aggregate intrinsic value	$ 208,550

XML

Note 9 - Share-based Compensation - Summary of Non-vested Options (Details)	6 Months Ended
	Sep. 30, 2017 $ / shares shares
Nonvested (in shares) | shares	19,500
Nonvested (in dollars per share) | $ / shares	$ 2.93
Granted (in shares) | shares	75,000
Granted (in dollars per share) | $ / shares	$ 1.71
Vested (in shares) | shares	(15,000)
Vested (in dollars per share) | $ / shares	$ 2.73
Forfeited (in shares) | shares
Forfeited (in dollars per share) | $ / shares
Nonvested (in shares) | shares	79,500
Nonvested (in dollars per share) | $ / shares	$ 1.82

XML

Note 9 - Share-based Compensation - Summary of the Weighted-average Characteristics of Outstanding Stock Options (Details)	6 Months Ended
	Sep. 30, 2017 $ / shares shares
Outstanding Options Number of Shares (in shares) | shares	575,500
Outstanding Options Remaining Life (Year)	4 years 328 days
Outstanding Options Weighted Average Price (in dollars per share)	$ 4.01
Exercisable Options Number of Shares (in shares) | shares	496,000
Exercisable Options Weighted Average Price (in dollars per share)	$ 4.10
Range 01 [Member]
Lower Range of Exercise (in dollars per share)	1.60
Upper Range of Exercise (in dollars per share)	$ 3.70
Outstanding Options Number of Shares (in shares) | shares	198,620
Outstanding Options Remaining Life (Year)	5 years 73 days
Outstanding Options Weighted Average Price (in dollars per share)	$ 2.97
Exercisable Options Number of Shares (in shares) | shares	123,620
Exercisable Options Weighted Average Price (in dollars per share)	$ 2.74
Range 02 [Member]
Lower Range of Exercise (in dollars per share)	3.71
Upper Range of Exercise (in dollars per share)	$ 4.42
Outstanding Options Number of Shares (in shares) | shares	197,380
Outstanding Options Remaining Life (Year)	4 years 36 days
Outstanding Options Weighted Average Price (in dollars per share)	$ 3.83
Exercisable Options Number of Shares (in shares) | shares	197,380
Exercisable Options Weighted Average Price (in dollars per share)	$ 3.83
Range 03 [Member]
Lower Range of Exercise (in dollars per share)	4.43
Upper Range of Exercise (in dollars per share)	$ 5.40
Outstanding Options Number of Shares (in shares) | shares	95,000
Outstanding Options Remaining Life (Year)	5 years 255 days
Outstanding Options Weighted Average Price (in dollars per share)	$ 5
Exercisable Options Number of Shares (in shares) | shares	90,500
Exercisable Options Weighted Average Price (in dollars per share)	$ 4.98
Range 04 [Member]
Lower Range of Exercise (in dollars per share)	5.41
Upper Range of Exercise (in dollars per share)	$ 7.08
Outstanding Options Number of Shares (in shares) | shares	84,500
Outstanding Options Remaining Life (Year)	5 years 36 days
Outstanding Options Weighted Average Price (in dollars per share)	$ 5.77
Exercisable Options Number of Shares (in shares) | shares	84,500
Exercisable Options Weighted Average Price (in dollars per share)	$ 5.77

XML

Note 9 - Share-based Compensation - Summary of Valuation Assumptions Related to Options Granted (Details)	6 Months Ended
	Sep. 30, 2017 $ / shares
Exercise Price (in dollars per share)	$ 3.35
Volatility	52.50%
Risk Free Rate	1.99%
Vesting Period (years) (Year)	3 years
Forfeiture Rate	0.00%
Expected Life (in years) (Year)	6 years
Dividend Rate	0.00%

XML

Note 9 - Share-based Compensation - Restricted Stock Units (Details) - Restricted Stock Units (RSUs) [Member]	6 Months Ended
	Sep. 30, 2017 $ / shares shares
Nonvested restricted stock units at March 31, 2017 (in shares) | shares	25,000
Nonvested restricted stock units at March 31, 2016, weighted average grant price (in dollars per share) | $ / shares	$ 3.85
Granted (in shares) | shares	28,074
Granted, weighted average grant price (in dollars per share) | $ / shares	$ 3.92
Vested (in shares) | shares
Vested, weighted average grant price (in dollars per share) | $ / shares
Exercised (in shares) | shares
Exercised, weighted average grant price (in dollars per share) | $ / shares
Forfeited (in shares) | shares	(2,290)
Forfeited, weighted average grant price (in dollars per share) | $ / shares	$ 3.92
Nonvested restricted stock units at September 30, 2017 (in shares) | shares	50,784
Nonvested restricted stock units at March 31, 2017, weighted average grant price (in dollars per share) | $ / shares	$ 3.89

XML

Note 10 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Income Tax Expense (Benefit)	$ 11,000	$ 26,000	$ 21,000	$ (24,000)
Effective Income Tax Rate Reconciliation, Percent	2.20%	21.00%	2.10%	(3.90%)
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	34.00%		34.00%
Unrecognized Tax Benefits	$ 0		$ 0

XML

Note 11 - Earnings (Loss) Per Share (Details Textual) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	75,000	6,000	75,000	6,000

XML

Note 11 - Earnings (Loss) Per Share - Summary of Reconciliations Between the Numerator and the Denominator of the Basic and Diluted Earnings Per Share Computations (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net income (loss)	$ 475	$ 99	$ 977	$ (592)
Shares outstanding - basic (in shares)	5,709	5,657	5,697	5,645
Earnings per share - basic (in dollars per share)	$ 0.08	$ 0.02	$ 0.17	$ (0.10)
Effect of dilutive securities on net income	$ 0
Shares - dilutive securities (in shares)	62	70	46
Net income - diluted	$ 475	$ 99	$ 977
Shares outstanding - diluted (in shares)	5,771	5,727	5,743	5,645
Earnings per share - diluted (in dollars per share)	$ 0.08	$ 0.02	$ 0.17	$ (0.10)
Shares outstanding - basic and diluted (in shares)			5,743	5,645
Earnings per share - basic and diluted (in dollars per share)			$ 0.17	$ (0.10)

XML

Note 12 - Concentrations of Risk (Details Textual) - Customer Concentration Risk [Member]	3 Months Ended		6 Months Ended		12 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Mar. 31, 2017
Accounts Receivable [Member]
Concentration Risk, Percentage			33.00%		59.00%
Number of Major Customers			2		3
Accounts Receivable [Member] | Customer Number 1 [Member]
Concentration Risk, Percentage			20.00%		38.00%
Accounts Receivable [Member] | Customer Number 2 [Member]
Concentration Risk, Percentage			13.00%		12.00%
Accounts Receivable [Member] | Customer Number 3 [Member]
Concentration Risk, Percentage					9.00%
Sales Revenue, Net [Member]
Concentration Risk, Percentage	46.00%	28.00%	45.00%	24.00%
Number of Major Customers	2	1	2	1
Sales Revenue, Net [Member] | Customer Number 1 [Member]
Concentration Risk, Percentage	32.00%		32.00%
Sales Revenue, Net [Member] | Customer Number 2 [Member]
Concentration Risk, Percentage	14.00%		13.00%