Cyanotech Corp.'s stock, which is facing delisting from the Nasdaq Stock Market, plunged 20.6 percent today after an auditor expressed doubt about the company's ability to continue as a "going concern." Cyanotech auditor posts
bleak assessmentAlready languishing under a dollar,
the company's shares tumbled
further after the SEC filingBy Dave Segal
desegal@starbulletin.comAuditor KPMG LLP said the Kona company's recurring losses from operations and limited sources of additional liquidity to pay its debts, including $1.2 million in convertible debentures due Oct. 31, 2002, "raise substantial doubt" about the company's future.
The auditor's statement came in Cyanotech's annual report, which was released late Friday. It sent shares of the company down more than 27 percent to 40 cents on heavy volume early today before it pared some of its losses. The stock ended down 13 cents to 50 cents on volume of 76,900 shares; triple its daily volume of the last six months. It was the stock's lowest close since it ended at 50 cents on Sept. 27, 2001.
Cyanotech Chief Financial Officer Ron Scott, however, said he wasn't concerned about the warning because the company is on the verge of becoming profitable and is in the process of raising additional funds.
"I missed a good buying opportunity," Scott said. "At the end of March we had $1,051,000 in cash, and the debentures are due at end of October. The auditor only looks at where we are today as a snapshot in time and won't take into account anything that may happen in the future. We're looking to raise additional financing and I'm confident between now and October we'll get it resolved. This is not the first time we've had a 'going concern' opinion. We had one of these two years ago when we needed to bring in some new financing as well."
Cyanotech, which produces the neutraceutical BioAstin from algae it grows on Kona, has incurred losses of $2.6 million, $1.1 million and $4.5 million the three previous years. However, Scott said the company, whose fiscal year ends in March, expects to be profitable in the December 2002 and March 2003 quarters. He said the company lost money in the June quarter that just ended and should be break-even in the current quarter.
"We've got $8 million a year in revenue and $18 million in total assets," Scott said. "We're a real company and we're here for the long haul."
Scott said the company has raised $350,000 since the end of March and has had discussions with several other groups to raise additional financing.
Cyanotech, which renegotiated its convertible debentures in May at more favorable terms for the debenture holders, last had a profitable three-month period in the first quarter of 1998. Its last profitable year was in 1997 when it earned $4.2 million on $11.4 million in sales.
Under the revised terms of the debentures, the interest rate during the remaining period the debentures are outstanding was increased to 10 percent from 6 percent and the holders can convert the debentures to shares of common stock at $1 a share instead of the previously agreed-upon price of $1.50 a share. The company can force the conversion to common stock at $1.50 a share.
The company's shares, which have traded below $1 for 40 consecutive days, will get delisted from the Nasdaq if it doesn't trade at $1 or more for 10 consecutive days by Sept. 16.
If that happens, its only option would be to trade on the lesser-regarded and less-liquid Nasdaq SmallCap Market. Scott said Cyanotech would apply ahead of time to trade on that index so that it would be eligible if the company fails to meet the $1 requirement of the Nasdaq National Market.