Cyanotech in crucial discussion about debt
By John Duchemin
Advertiser Staff Writer
Following its 20th consecutive quarter of losses, Big Island microalgae grower Cyanotech Corp. faces financial challenges that could threaten its existence.
The Kailua, Kona, company faces an Oct. 31 deadline on a convertible debt agreement that, if it cannot be renegotiated in time, could force the company to repay the $1.25 million obligation — which is about double Cyanotech's current supply of cash.
Company president Gerry Cysewski said yesterday that Cyanotech is in talks with the debt holders, who are affiliated with New York-based firm Taglich Brothers, and he hopes the company can buy itself some breathing room.
The debt holders had earlier given Cyanotech a six-month extension.
"They certainly were willing to renegotiate the last time, and though I'm not sure what their position is at this point, we're working hard," he said.
The looming deadline has led the publicly traded company to formally state that it may not be able to continue as a "going concern" without a new supply of cash. The statement, in Cyanotech's quarterly report filed yesterday, is a routine pronouncement for public companies that are suffering through cash crises.
But Cysewski also said yesterday that Cyanotech's financial difficulties, which have lasted years as the company has struggled to find a market for its algae-derived nutritional supplements, could soon be over thanks to new scientific studies demonstrating the supplements' beneficial effects on health.
The debt negotiations are one of several obstacles the company faces, according to its financial filings for the quarter ended June 30. Cyanotech lost $785,000 in the quarter, about twice the $413,000 loss in second-quarter 2001.
Cash has dropped to about $670,000 as recurring losses have sapped the company's reserves. The drop in cash pushed the company into default status on a $3.5 million loan backed by the U.S. Department of Agriculture, which required Cyanotech to maintain a high enough level of cash to service the loan.
The lender, a Mainland bank, has given Cyanotech until March 31, 2003, to show improvement.
Cyanotech's stock is also on verge of de-listing by the Nasdaq stock exchange, which requires companies to maintain a $1-per-share price. The Cyanotech stock closed at 64 cents a share yesterday, and has traded below $1 since mid-May. Nasdaq officials have given Cyanotech until Sept. 16 to regain compliance, or be bumped from the Nasdaq National Market exchange.
Meanwhile, the company reported that quarterly sales fell 12.1 percent to $2 million, a drop Cysewski blamed on tough competition and industrywide credibility problems.
Cyanotech is one of three companies that have attempted to use Hawai'i as a breeding ground for blue-green algae, or cyanobacteria. The algae produce astaxanthin, a natural anti-oxidant that has been investigated for benefits in arthritis, heart disease, skin maladies and a host of other conditions.
But scientific proof of astaxanthin's benefits has been scarce, Cysewski said, causing the companies to struggle. Fellow Kailua, Kona, company Aquasearch last year was forced into bankruptcy by creditors, and Cyanotech has lost money in most years since it was founded in 1983.
But Cysewski said scientific proof of astaxanthin's benefits is forthcoming in an independent study to be published this fall in the journal of the American College of Nutrition. He hopes the study will help open doors to distributors who could market Cyanotech's flagship BioAstin product on the Mainland, or use Hawai'i-grown astaxanthin in widely used products.
"The business climate for nutrition has been difficult because there's been some negative press about some questionable products," Cysewski said. "People have started to question their value. To get over that skepticism, we need solid science, and we have that now."
If that's the case, Cyanotech will leave its cash problems behind, Cysewski said. The company can quickly ramp up production at its algae ponds without much extra cost, he said.
