KAILUA-KONA — Nearly $280,000 in rent owed to the state by Cellana Inc. will be repaid as part of the sale of the company’s assets to microalgae producer Cyanotech Corp.
Cellana had not paid rent to the Natural Energy Laboratory of Hawaii Authority since November 2017; about the same time the company ceased operations at its Kona Demonstration Facility after experiencing “significant financial difficulties” for several years.
By the end of August, three months after NELHA’s board of directors gave Cellana 90 days to cure the default, the company owed NELHA some $279,537.
The details were divulged in submittals to the Board of Land and Natural Resources, which will take up assigning Cellana’s current lease over the 6.2 acres to Cyanotech today during its monthly meeting in Honolulu.
The lease change follows Cellana announcing in September its plans to sell its research and development plant, the Kona Demonstration Facility, in an asset purchase agreement with Cyanotech.
It is among the final steps to closing the transaction and it is likely to go through after having received a favorable recommendation from the Department of Land and Natural Resources.
NELHA’s board of directors has already approved reassigning the lease, with members voting 9-0 during the board’s Sept. 18 meeting. Both parties must sign off, as DLNR owns the land that NELHA administers.
Cyanotech said Sept. 7 it expected the transaction to close later this year.
“It’s just waiting to go through the various approvals they have,” Bruce Russell, who heads investor and media relations for Cyanotech, said Wednesday. “From my knowledge, everything is going along fine.”
As of Wednesday, Cellana had already paid more than a third of the back rent to NELHA after the state-administered facility’s board of directors sent the company notice on Aug. 31 that it would terminate the lease if $100,000 wasn’t received by Sept. 10.
Cellana made the $100,000 payment Sept. 5, just two days before it and Cyanotech announced simultaneously the asset purchase agreement in which Cyanotech would acquire the 6-acre Kona Demonstration Facility.
The companies declined to disclose details or terms of the transaction when they announced the agreement Sept. 7.
But, according to the submittals to the Land Board, Cyanotech is paying $495,000 over 12 months for Cellana’s facilities. The payment of the full $279,537 owed in back rent to the state is also part of the deal. Cellana is expected to pay the remainder of the balance, $170,857.83, upon closing of the transaction.
Cellana CEO Martin Sabarsky did not respond to a request for comment as of press time Wednesday.
The Land Board Friday will also take up a request by Cyanotech to amend the lease in which the company is seeking a lower base rent rate than Cellana currently pays because the facility will be used differently.
Cyanotech produces microalgae-derived products, including the supplement BioAstin Hawaiian Astaxanthin. Cellana makes algae-based products in the fields of nutrition, ink, and energy.
Base rent is based on three uses at NELHA: productive (aquaculture/agriculture), energy, and extractive. Currently, Cellana is paying the energy rate of $1,800 per acre, per month, or $136,265, per year. Cyanotech is seeking the lower productive rate of $500 per acre, per month, or $37,296 per year.
A provision — that should 2 percent of gross sales exceed the base rent, then the lessee shall pay rent equal to 2 percent of gross sales, less rental fees already paid that year — will carry over should the amendment be granted.
Cyanotech has operated at NELHA since 1996, currently leasing 90 acres off Makako Bay Drive for its operations. Barbour said Cyanotech is NELHA’s largest client and among the facility’s success stories.
“They have a lot of upsides, they are doing really well and they’ve got good leadership,” said NELHA executive director Greg Barbour. “I think they’re going places.”
The publicly traded company for reported sales of $34.1 million in 2018.
Cyanotech said in its Sept. 7 press release that the company expects to use the Kona Demonstration Facility in various ways, including expanding its research and development along with product development and supplementing its production capacity.