Filings Flow: Cyanotech Corp: Meridian Ohc Partners Opened Big New Position

Filings Flow: Cyanotech Corp: Meridian Ohc Partners Opened Big New Position

The New Meridian Ohc Partners Holding in Cyanotech Corp

Meridian Ohc Partners filed with the SEC SC 13D form for Cyanotech Corp. The form can be accessed here: 000144586616002710. As reported in Meridian Ohc Partners’s form, the filler as of late owns 13.3% or 749,610 shares of the -company.

Cyanotech Corp stake is a new one for the and it was filed because of activity on October 6, 2016. We feel this shows Meridian Ohc Partners’s positive view for the stock.

Reasons Why Meridian Ohc Partners Bought – Cyanotech Corp Stock

Item 4.Purpose of Transaction

The following supplements the information provided in prior Schedule 13D filings by the Reporting Entities.


Background


On May 6, 2016, Meridian delivered a letter to Cyanotech’s board of directors detailing extensive reporting and governance issues involving Cyanotech’s chairman and largest shareholder, Michael Davis. After delivering the May 6 letter, Meridian sought to discuss its contents with Cyanotech’s board of directors and when it became clear that Cyanotech’s board was unwilling to engage in any discussions, Meridian filed a lawsuit in Federal court on May 24, 2016. On June 8, 2016, Cyanotech announced that it had engaged counsel to represent a special committee of the board that had been formed to investigate the issues raised in Meridian’s May 6 letter. Four months later, Cyanotech disclosed a summary of the special committee’s findings in a Form 8-K filing with the SEC.


In this Amendment to Schedule 13D, Meridian will update and discuss the securities reporting issues raised in its May 6 letter. There have been three recent SEC filings made by Cyanotech or Davis that have provided new information on these topics:


(i)

Form 10-Q filed by Cyanotech on August 15, 2016

(ii)

Form 8-K filed by Cyanotech on September 9, 2016

(iii)

Schedule 13D filed by Michael Davis on September 21, 2016


These filings confirm that Davis, who himself owns 19.5% of Cyanotech’s stock, caused the Rudolph Steiner Foundation (RSF) to become the holder of another 13.5%, bringing the combined ownership of the two shareholders to 33%. While it is not illegal or even improper to become a large shareholder with substantial influence over the activities of a public company, the Securities and Exchange Act of 1934, and SEC rules promulgated thereunder, require prompt and full disclosure of such facts.


The relevant SEC rules begin with the requirement that any investor acquiring more than 5% of a public company make a filing with the SEC within ten days. Passive investors are allowed to use a short form Schedule 13G while those who have the ability or intent to influence the company, or anyone with 20% or more of the company’s stock, must file on Schedule 13D. In addition, anyone reaching the 10% level must report every transaction in the company’s stock within two business days on Form 4. Finally, even stricter requirements are placed on insiders and control entities of public companies, this includes anyone who is a named executive officer or board member. Such persons must report all transactions, of any size and regardless of their ownership level, on Form 4 within two business days.


Davis’ History of Securities Reporting Deficiencies


Meridian discovered in 2016 that Michael Davis has a long history of failing to make the required SEC disclosures regarding his ownership of Cyanotech stock. These deficiencies raise several issues. First, until last month Davis reported his Cyanotech holdings on short form Schedule 13G rather than the required Schedule 13D. Persons who have the ability to control public companies, such as board members, are not eligible to file on Schedule 13G. Davis has been on the Cyanotech board of directors for 13 years, since 2003, and has been the board’s chairman since 2011. The special committee agreed that Davis is required to file on Schedule 13D.


Second, the special committee confirmed Meridian’s allegation that Davis did not even comply with the lesser Schedule 13G reporting requirements. According to the special committee, “Mr. Davis made late Schedule 13G filings (in 2004, 2005, 2010, 2011, 2014, and 2015) and failed to file reports pursuant to Section 13 in 2006, 2008, 2009 and 2012.”


Third, the filings Davis did make contained misstatements and omissions. According to the special committee, “Certain of [Davis’] prior reports in 2002, 2011 and 2013 also contained immaterial inaccuracies related to share totals, beneficial ownership calculations or co-trustee names.” Meridian believes the special committee’s summary understates the problem. The following is only one example.


The last known transaction between Michael Davis and RSF involved Davis donating 30,769 shares to RSF on 2/18/14, which was reported on a Form 4 filed by Davis on 2/20/14. This Form 4 also reported that Davis acquired 50,000 shares in open market purchases on 2/19/14. One month later, on 3/14/14, Davis made a Schedule 13G filing. Filers eligible to use Schedule 13G are required to make annual reports of their year-end holdings within 45 days; this means such filings are due on or before February 14 of each year. Davis made his filing a month late but still purported to report his holdings as of the prior year-end, 12/31/13. But this is not what his Schedule 13G reported. On 9/23/14, Davis filed a Form 4 to report an equity grant of 6,369 shares and then on 3/25/15, filed a Schedule 13G reporting his year-end 12/31/14 holdings as precisely 6,369 shares higher than reported in the Schedule 13G filed on 3/14/14. This means that Davis’ 3/14/14 Schedule 13G reported his holdings after the transactions on 2/18/14 and 2/19/14 rather than his holdings as of the prior year-end on 12/31/13.


Thus, in the case of this one filing, we see that (i) Davis filed on the wrong form (Schedule 13G rather than the required Schedule 13D); (ii) Davis filed his Schedule 13G a month late; and (iii) Davis misstated his holdings as of the date required for the filing and (iv) Davis misstated his holdings as of the date he claimed within his filing. Meridian does not believe Davis’ compounding of errors was accidental or that such compounding of errors by a public company’s chairman of the board, who is also the company’s largest shareholder, can be considered immaterial.


Fourth, Davis failed to make the required Form 4 filings when he transferred shares to RSF in 2010 and 2011. Davis did make the required Form 4 filings with respect to his open-market purchases of Cyanotech shares during those years. This “one-sided” reporting, with respect to acquisitions, but not all transfers out, provides linkage to the next topic relating to Davis’ SEC reporting practices.


Parking


In its May 6 letter, Meridian observed that Davis’ Schedule 13G filings show two seemingly related patterns. First, Davis regularly shifted and moved his Cyanotech shares among numerous entities. Second, he never allowed his reported holdings to go above 20%. The additional disclosure by Davis and Cyanotech confirmed another pattern, which is Davis repeatedly donated shares to RSF when such gifts were necessary to keep his direct holdings below the 20% threshold.


Starting around August 2010 and ending around March 2011, Davis executed a series of open-market purchases in which he accumulated more than 300,000 shares of Cyanotech stock. Davis’ first gift of shares to RSF occurred in 2010 and therefore coincided with the beginning of Davis’ buying activity. The next known gift occurred in February 2011 and therefore coincided with the end of Davis’ buying activity. Davis’ last known gift to RSF of 30,769 shares on February 18, 2014 made it possible for Davis to report on his subsequent Schedule 13G that he had kept his ownership below the 20% threshold.


Davis’ Form 4 filing on February 20, 2014 is very interesting as it shows in a single filing, both a transaction (buying 50,000 shares) that would have taken his ownership above 20%, coinciding with a gift to RSF (30,769 shares) that reduced his holdings sufficiently for Davis to remain below the 20% threshold. The February 18, 2014 gift of 30,769 shares came just one day prior to Davis’ February 19, 2014 open market purchase of 50,000 shares. According to the trading data available on nasdaq.com, Cyanotech’s average trading volume for the ten trading days prior to Davis’ February 19, 2014 purchase was only 4,002 shares. This suggests Davis knew of an opportunity to make a large purchase and delayed that transaction until after he had reduced his holdings sufficiently (via the gift of 30,769 shares to RSF) to allow for the purchase without going above the 20% threshold.


Nasdaq rules define “parking” as the “Illegal holding of stock by a third party, or the financing of such a stock, in which the third party’s sole reason for holding the stock is to conceal ownership or control.”


Davis did not just transfer shares to RSF when necessary to keep his direct holdings below the 20% threshold, he also financed RSF purchases. The recent filings confirm Meridian’s allegations concerning Davis’ involvement with RSF’s acquisition of a 9.7% block of stock from VitaeLab. Davis acknowledged in his Schedule 13D that when he learned of the existence of the 9.7% block, he took that information to RSF. Davis also disclosed that “[i]n or about the same time” he provided RSF with the funds RSF used to acquire the 9.7% block.


Davis has for years been causing RSF to accumulate shares in Cyanotech while at the same time he has entered into agreements with RSF by which he retains an interest in those shares. Cyanotech’s 10-Q reports that, “the shares of Company Common Stock owned by RSF are held by RSF in an endowment fund for the benefit of Ginungagap Foundation, a non-profit corporation” and “Mr. Davis serves as the president of Ginungagap.”


The recent SEC filings by Cyanotech and Davis confirm the following:


·

All of the shares held by RSF are directly traceable to Skywords, a Davis-controlled entity, either as gifts of shares or gifts of cash used by buy shares in a transaction instigated by Davis.

·

The timing of the Davis gifts corresponds with Davis’ need to manage his direct holdings to maintain an ownership level below 20%.

·

RSF holds and serves as the reporting entity for all of the shares it acquired via Davis’ actions, but did not spend any of its own capital on the shares and does not hold the shares for its own benefit, but rather for the benefit of Ginungagap.

·

Ginungagap, like Skywords, is a Davis-controlled entity.


Undisclosed “Group”


According to the SEC, a “group” is formed “[w]hen two or more persons agree to act together

for the purpose of acquiring, holding, voting or disposing of equity securities”

of a public company. When a “group” is present, the “group” must report its combined holdings on the applicable schedule.


Here is what Cyanotech and Davis have disclosed about Davis’ relationship with RSF:


·

Agreement relating to the holding of securities:

From Cyanotech’s Form 10-Q: “the shares of Company Common Stock owned by RSF are held by RSF in an endowment fund for the benefit of Ginungagap Foundation, a non-profit corporation” and “Mr. Davis serves as the president of Ginungagap.” “

The terms of the written agreement between Ginungagap and RSF regarding the endowment permit Ginungagap to make non-binding recommendations to RSF with regards to the investment of the endowment fund”.

·

Agreement relating to the acquisition of securities:

From Davis’ Schedule 13D: “In 2011, Davis learned that a significant Cyanotech customer and shareholder wished to sell its shares of Common Stock (approximately 9% of the Issuer). He put the shareholder in touch with RSF. In or about the same time, Skywords donated approximately $2.5 million to RSF with the understanding that RSF may use some or all of the funds to attempt to purchase shares of Common Stock.”

·

Agreement relating to the disposal of securities:

From Davis’ 13D: “The terms of the [agreement] permit Ginungagap to make non-binding recommendations to RSF with regards to the investment of the [endowment] and to request grants from that fund to Ginungagap”.


The special committee’s summary report on Form 8-K acknowledged the presence of group elements: “

The Special Committee notes that certain of the facts relating to the relationship between Mr. Davis and RSF could be consistent with the existence a “group” and the Special Committee “has therefore recommended that Mr.Davis consider whether or not a “group” exists and, in any case, that Mr. Davis include additional disclosures in his filings under the Exchange Act regarding the relationship between Mr.Davis and RSF”


In his subsequent Schedule 13D filing, Davis

and his related entities “expressly disclaim that a “group” within the meaning of Section 13(d)(3) of the Act exists between any of [Davis and such entities] and RSF.” This claim by Davis appears inconsistent with the other recent disclosures made by Davis and Cyanotech (cited above), and with the following:

·

RSF has never acted with respect to the acquisition or holding of Cyanotech stock without the instigation and direct involvement of Davis.

·

RSF has never expended any of its own capital to acquire shares of Cyanotech; every share held by RSF was originally acquired or paid for by Davis.

·

Other than the $2.5 million provided by Davis that was used by RSF to acquire the 9.7% block, there is no record that Davis has made cash donations to RSF.

·

Other than with respect to Cyanotech, RSF has never held more than a 5% equity interest in any public company.

·

The transaction in which RSF acquired the 9.7% block – an international, privately-negotiated block trade of nearly 10% of a public company – is unusual for a non-profit and involved not a random company, but a company in which Michael Davis was already the largest shareholder, with such transaction resulting in RSF becoming the company’s second largest shareholder. Around the same time Davis and RSF collaborated on the purchase of the 9.7% block, Davis became chairman of the board of Cyanotech.

·

All of RSF’s shares are the result of gifts from Davis’ Skywords Foundation. All the shares held by RSF are held for the benefit of Ginungagap. Michael Davis is the president of both Skywords and Ginungagap and both Skywords and Ginungagap share office space with Michael Davis in Tiburon, California.



Meridian is always interested in hearing from fellow stockholders and has created a special email address to help Cyanotech stockholders contact us.


Email Meridian at: [email protected]



FORWARD-LOOKING STATEMENTS


This filing contains “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts contained in this report, including statements regarding Meridian’s beliefs about Cyanotech’s prospects, product market position, future revenues and future stock price, are forward-looking statements. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or other similar words.


These forward-looking statements are only predictions. These statements relate to future events and involve known and unknown risks, uncertainties and other important factors that may cause Cyanotech’s actual results, levels of activity, performance or achievements to materially differ from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Actual results may differ materially due to action or inaction by Cyanotech’s board of directors and management, Cyanotech’s inability to overcome its production problems and other risks, some of which may be unknown. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as guarantees of future events.


The forward-looking statements in this report represent the views of the Reporting Entities as of the date of this filing. Subsequent events and developments may cause those views to change.


Cyanotech Corp Institutional Sentiment

Latest Security and Exchange filings show 11 investors own Cyanotech Corp. The institutional ownership in Q3 2015 is low, at 98.07% of the outstanding shares. This is increased by 4417433 the total institutional shares. 5541133 were the shares owned by these institutional investors. In total 0 funds opened new Cyanotech Corp stakes, 4 increased stakes. There were 3 that closed positions and 1 reduced them.

Tower Research Capital Llc Trc is an institutional investor bullish on Cyanotech Corp, owning 1446 shares as of Q3 2015 for less than 0.01% of its portfolio. Wells Fargo & Company owns 875150 shares or less than 0.01% of its portfolio. RI Coastline Trust Co have 0.11% of their stock portfolio for 82400 shares. Further, Vanguard Group Inc reported stake worth 0.01% of its US stock portfolio. The NC Salem Investment Counselors Inc owns 12078 shares. Cyanotech Corp is less than 0.01% of the manager’s US portfolio.

Business Profile

Cyanotech Corporation is engaged in the production of natural products derived from microalgae for the nutritional supplements market. The Company’s products include Hawaiian Spirulina Pacifica and Hawaiian BioAstin. Hawaiian Spirulina Pacifica is a dietary supplement used for extra energy, a strengthened immune system, cardiovascular benefits and as a source of antioxidant carotenoids. Hawaiian BioAstin is a dietary antioxidant shown to support and maintain the body’s natural inflammatory response, to enhance skin, and to support eye and joint health. The Company cultivates over two microalgal species from which its product lines, natural astaxanthin products and spirulina products, are derived. The Company produces its algae in Hawaii and manufactures the finished products in Hawaii and California.

SEC Form 13D is filed within 10 days, by anyone who acquires beneficial ownership of 5%+ of any public firm. Activist investors and practices such as: company breakups, hostile takeovers, and change of control events, are permitted for this form filers. A filer must promptly update its 13D filing in case of acquisition or disposition of 1% or more of the securities that are the subject of the filing.

Insitutional Activity: The institutional sentiment increased to 2 in Q2 2016. Its up 0.50, from 1.5 in 2016Q1. The ratio increased, as 1 funds sold all CYANOTECH CORP shares owned while 1 reduced positions. 1 funds bought stakes while 3 increased positions. They now own 1.13 million shares or 0.49% more from 1.12 million shares in 2016Q1.

The California-based Wells Fargo Mn has invested 0% in CYANOTECH CORP (NASDAQ:CYAN). Coastline Trust last reported 82,400 shares in the company. Vanguard Grp Inc has 0% invested in the company for 25,563 shares. Renaissance Lc last reported 96,300 shares in the company. Moreover, California Public Employees Retirement Sys has 0% invested in CYANOTECH CORP (NASDAQ:CYAN) for 19,300 shares. Royal Bancorp Of Canada, a Ontario – Canada-based fund reported 500 shares. Moreover, Morgan Stanley has 0% invested in CYANOTECH CORP (NASDAQ:CYAN) for 1,500 shares. The North Carolina-based Salem Investment Counselors has invested 0.01% in CYANOTECH CORP (NASDAQ:CYAN). Blackrock Fund last reported 755 shares in the company. Deutsche Savings Bank Ag holds 0% of its portfolio in CYANOTECH CORP (NASDAQ:CYAN) for 88 shares. Blackrock Institutional Tru Na has 10,562 shares for 0% of their US portfolio.

Analysts await CYANOTECH CORP (NASDAQ:CYAN) to report earnings on November, 10.

About 102 shares traded hands. CYANOTECH CORP (NASDAQ:CYAN) has declined 15.06% since March 3, 2016 and is downtrending. It has underperformed by 23.40% the S&P500.

Cyanotech Corporation is engaged in the production of natural products derived from microalgae for the nutritional supplements market. The company has a market cap of $22.30 million. The Company’s products include Hawaiian Spirulina Pacifica and Hawaiian BioAstin. It currently has negative earnings. Hawaiian Spirulina Pacifica is a dietary supplement used for extra energy, a strengthened immune system, cardiovascular benefits and as a source of antioxidant carotenoids.

More notable recent CYANOTECH CORP (NASDAQ:CYAN) news were published by: Bizjournals.com which released: “Hawaii-based Cyanotech Corp. embroiled in legal case involving shareholder” on May 27, 2016, also Reuters.com with their article: “BRIEF-Cyanotech Corp – Revolving credit agreement with First Foundation Ba…” published on September 01, 2016, Streetinsider.com published: “Meridian OHC Partners Changes Filing Status on Cyanotech Corp (CYAN) from …” on May 09, 2016. More interesting news about CYANOTECH CORP (NASDAQ:CYAN) were released by: Bizjournals.com and their article: “Cyanotech CEO resigns, founder steps in for the interim” published on April 04, 2016 as well as Streetinsider.com‘s news article titled: “Form 4 CYANOTECH CORP For: Aug 25 Filed by: MULDER DAVID M” with publication date: August 29, 2016.

According to Zacks Investment Research, “CYANOTECH CORP. develops and commercializes natural products from microalgae. Co. is currently producing microalgae products for the nutritional supplement and immunological diagnostics markets and is also developing microalgae-based products for the aquaculture feed/pigments, biopesticide and food coloring markets. Microalgae are a diverse group of over 30,000 species of microscopic plants which have a wide range of physiological and biochemical characteristics and naturally contain high levels of nutrients.”

CYAN Company Profile

Cyanotech Corporation, incorporated on March 3, 1980, is engaged in the production of natural products derived from microalgae for the nutritional supplements market. The Company’s products include Hawaiian Spirulina Pacifica and Hawaiian BioAstin. Hawaiian Spirulina Pacifica is a dietary supplement used for extra energy, a strengthened immune system, cardiovascular benefits and as a source of antioxidant carotenoids. Hawaiian BioAstin is a dietary antioxidant shown to support and maintain the body’s natural inflammatory response, to enhance skin, and to support eye and joint health. The Firm cultivates over two microalgal species from which its product lines, natural astaxanthin products and spirulina products, are derived.

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