Table of Contents

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 the quarterly period ended March 31, 2021.2022.

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 000-19709

 


BIOLARGO, INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware

65-0159115

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

14921 Chestnut St.

Westminster, CA 92683

(Address of principal executive offices)

 

(888) 400-2863

(Registrants telephone number, including area code)

 


 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock

BLGO

OTC Markets (OTCQB)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 every Interactive Data File required to be submitted 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 such files). Yes  ☒         No      ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     ☐

Accelerated filer ☐
 

Non-accelerated filer       ☒

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  ☒

 

The number of shares of the Registrant’s Common Stock outstanding as of May 12, 202113, 2022 was 243,391,521262,684,267 shares.

 

 

 

 

 

BIOLARGO, INC.

FORM 10-Q

INDEX

 

PARTI

 

Item 1

Financial Statements

3
   

Item 2

Management's Discussion and Analysis and Financial Condition and Results of Operations

2422
   

Item 4

Controls and Procedures

3431

 

PART II

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

3533
   

Item 5

Other Information

3633
   

Item 6

Exhibits

3734
   
 

Exhibit IndexSignatures

3735
   
 

SignaturesExhibit Index

3934

 

ii.

 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 20212022 AND DECEMBER 31, 20202021

(in thousands, except for per share data)

 

 

March 31, 2022

(Unaudited)

 

December 31,

2021

 
 

March 31, 2021

(Unaudited)

  

December 31,

2020

  

Assets

Assets

 

Assets

 

Current assets:

         

Cash and cash equivalents

 $1,341  $716  $974  $962 

Accounts receivable, net of allowance

  277   484  690  513 

Inventories, net of allowance

  242   277  270  241 

Prepaid expenses and other current assets

  62   28   114  85 

Total current assets

  1,922   1,505  2,048  1,801 
         

Non-current assets

        

In-process research and development (Note 8)

  2,150   2,150 

Equipment, net of depreciation

  63   60 

Equipment and leasehold improvements, net of depreciation

 90  61 

Other non-current assets

  35   35  99  69 

Investment in South Korean joint venture

  53   63  40  48 

Right of use operating lease, net of amortization

  326   341  421  453 

Clyra Medical prepaid marketing (Note 9)

  788   788 

Total non-current assets

  3,415   3,437 

Clyra Medical prepaid marketing (Note 8)

  591  591 

Total assets

 $5,337  $4,942  $3,289  $3,023 
 

Liabilities and stockholders equity (deficit)

Liabilities and stockholders equity (deficit)

 

Liabilities and stockholders equity (deficit)

 

Current liabilities:

         

Accounts payable and accrued expenses

 $414  $513  $672  $559 

Clyra Medical accounts payable and accrued expenses (Note 8)

 204  230 

Debt obligations, net of discount and amortization (Note 4)

  448   1,102  174  314 

Deferred revenue

  45   48  0  89 

Customer deposits

  80     91  79 

Lease liability

  114   114   103  103 

Clyra Medical accounts payable and accrued expenses (See Note 9)

  665   536 

Clyra Medical debt obligations (See Note 9)

  1,207   1,231 

Total current liabilities

  2,973   3,544  1,244  1,374 
 

Long-term liabilities:

         

Debt obligations, net of discount and amortization (Note 4)

  481   507 

Debt obligations (Note 4)

 150  180 

Clyra Medical debt obligations (Note 8)

 177  187 

Lease liability

  211   226   318  349 

Common stock held for redemption (Note 9)

  900   900 

Total long-term liabilities

  1,592   1,633   645  716 

Total liabilities

  4,565   5,177   1,889  2,090 
         

COMMITMENTS AND CONTINGENCIES (Note 12)

        

COMMITMENTS AND CONTINGENCIES (Note 10)

       
         

STOCKHOLDERS’ EQUITY (DEFICIT):

        

Preferred Series A, $0.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at March 31, 2021 and December 31, 2020

      

Common stock, $0.00067 Par Value, 400,000,000 Shares Authorized, 239,963,788 and 225,885,682 Shares Issued, at March 31, 2021 and December 31, 2020

  161   151 

STOCKHOLDERS’ EQUITY :

 

Preferred Series A, $0.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at March 31, 2022 and December 31, 2021

 0  0 

Common stock, $0.00067 Par Value, 400,000,000 Shares Authorized, 262,684,267 and 255,893,726 Shares Issued, at March 31, 2022 and December 31, 2021

 176  171 

Additional paid-in capital

  138,363   135,849  145,205  143,718 

Accumulated deficit

 (140,773) (139,121)

Accumulated other comprehensive loss

  (103)  (101)  (123) (115)

Accumulated deficit

  (133,672)  (132,041)

Total BioLargo Inc. and subsidiaries stockholders’ equity (deficit)

  4,749   3,858 

Non-controlling interest (Notes 9 and 10)

  (3,977)  (4,093)

Total stockholders’ equity (deficit)

  772   (235)

Total liabilities and stockholders’ equity (deficit)

 $5,337  $4,942 

Total BioLargo Inc. and subsidiaries stockholders’ equity

 4,485  4,653 

Non-controlling interest (Notes 8)

  (3,085) (3,720)

Total stockholders’ equity

  1,400  933 

Total liabilities and stockholders’ equity

 $3,289  $3,023 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

3

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 31, 20212022 AND 20202021

(in thousands, except for share and per share data)

(unaudited)

 

 

MARCH

31, 2021

  

MARCH

31, 2020

  

MARCH

31, 2022

 

MARCH

31, 2021

 
         

Revenue

         

Product revenue

 $444  $283  $610  $444 

Service revenue

  127   156   355  127 

Total revenue

  571   439   965  571 
         

Cost of revenue

         

Cost of goods sold

  (237)  (128) (293) (237)

Cost of service

  (102)  (132)  (151) (102)

Total cost of revenue

  (339)  (260)  (444) (339)

Gross profit

  232   179   521  232 
         
 

Operating expenses:

         

Selling, general and administrative expenses

  1,763   1,546  1,839  1,763 

Research and development

  327   335   392  327 

Total operating expenses

  2,090   1,881   2,231  2,090 
         

Operating loss

  (1,858)  (1,702)  (1,710) (1,858)
         
 

Other income (expense):

         

Grant income

  30   57  5  30 

PPP loan forgiveness

  43     174  43 

Interest expense

  (93)  (757)  (13) (93)

Loss on extinguishment of debt

     (214)

Total other income (expense)

  (20)  (914)  166  (20)
         

Net loss

  (1,878)  (2,616) (1,544) (1,878)
         

Net loss attributable to noncontrolling interest

  (247)  (342)

Net income (loss) attributable to noncontrolling interest

  108  (247)

Net loss attributable to common shareholders

 $(1,631) $(2,274) $(1,652) $(1,631)
         

Net loss per share attributable to common stockholders:

         

Loss per share attributable to shareholders – basic and diluted

 $(0.01) $(0.01) $(0.01) $(0.01)

Weighted average number of common shares outstanding:

  233,733,015   168,873,233  260,805,418  233,733,015 
         

Comprehensive loss attributable to common shareholders

         

Net loss

 $(1,878) $(2,616) $(1,544) $(1,878)

Foreign translation adjustment

  (2)     (8) (2)

Comprehensive loss

  (1,880)  (2,616) (1,552) (1,880)
       

Comprehensive loss attributable to noncontrolling interest

  (247)  (342)

Comprehensive income (loss) attributable to noncontrolling interest

  108  (247)

Comprehensive loss attributable to shareholders

 $(1,633) $(2,274) $(1,660) $(1,633)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

4

 

 

BIOLARGO, INC.NC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 20212022 AND 20202021

(in thousands, except for share data)

(unaudited)

 


 

Common stock

  

Additional

paid-in

  

Accumulated

  

Accumulated

other

comprehensive

  

Non-

controlling

  

Total stockholders

  

Common stock

 

Additional

paid-in

 

Accumulated

 

Accumulated

other comprehensive

 

Non-

controlling

 

Total

stockholders

 
 

Shares

  

Amount

  

capital

  

deficit

  

Loss

  

interest

  

equity (deficit)

  

Shares

 

Amount

 

capital

 

deficit

 

Loss

 

interest

 

equity (deficit)

 

Balance, December 31, 2020

  225,885,682  $151  $135,849  $(132,041) $(101) $(4,093) $(235)

Balance, December 31, 2021

 255,893,726  $171  $143,718  $(139,121) $(115) $(3,720) $933 

Sale of common stock for cash

  13,330,619   9   2,097            2,106  6,703,789  4  1,198  0  0  0  1,202 

Issuance of common stock for service

  747,487   1   110            111  86,752  0  17  0  0  0  17 

Stock option compensation expense

        424            424    0  660  0  0  0  660 

Warrants and conversion feature issued as discount on convertible note payable

        35            35 

Clyra Medical stock option expense

        161            161    0  141  0  0  0  141 

Noncontrolling interest allocation

        (313)        313       0  (528) 0  0  528  0 

Clyra Medical securities offering

                 50   50 

Net loss

           (1,631)     (247)  (1,878)   0  0  (1,652) 0  108  (1,544)

Foreign currency translation

              (2)     (2)    0  0  0  (8) 0  (8)

Balance, March 31, 2021

  239,963,788  $161  $138,363  $(133,672) $(103) $(3,977) $772 
               

Balance, March 31, 2022

  262,684,267  $176  $145,205  $(140,773) $(123) $(3,085) $1,400 

 

 


 

Common stock

  

Additional

paid-in

  

Accumulated

  

Accumulated

other comprehensive

  

Non-

controlling

  

Total stockholders

  

Common stock

 

Additional

paid-in

 

Accumulated

 

Accumulated

other comprehensive

 

Non-

controlling

 

Total

stockholders

 
 

Shares

  

Amount

  

capital

  

deficit

  

Loss

  

interest

  

equity (deficit)

  

Shares

 

Amount

 

capital

 

deficit

 

Loss

 

interest

 

equity (deficit)

 

Balance, December 31, 2019

  166,256,024  $111  $121,327  $(123,492) $(99) $(27) $(2,180)

Conversion of notes

  3,387,649   2   432            434 

Balance, December 31, 2020

 225,885,682  $151  $135,849  $(132,041) $(101) $(4,093) $(235)

Sale of common stock for cash

 13,330,619  9  2,097  0  0  0  2,106 

Issuance of common stock for service

  1,039,490   1   177            178  747,487  1  110  0  0  0  111 

Issuance of common stock for interest

  19,278      4            4 

Sale of common stock for cash

  4,848,305   3   898            901 

Common stock issued as a financing fee; deferred offering costs

  2,928,571   2   (124)           (122)

Stock option compensation expense

        320            320      424        424 

Deemed dividend for the change in accounting for derivative liability

        100   (100)         

Warrant and conversion feature issued as discount on convertible note payable

   0  35  0  0  0  35 

Clyra Medical stock option expense

   0  161  0  0  0  161 

Clyra Medical securities offering

        15         10   25    0  0  0  0  50  50 

Clyra Medical stock option expense

        420            420 

Allocation of noncontrolling interest from Clyra Stock option issuance

        (448)        448       0  (313) 0  0  313  0 

Net loss

           (2,274)     (342)  (2,616)   0  0  (1,631)   (247) (1,878)

Balance, March 31, 2020

  178,479,317  $119  $123,121  $(125,866) $(99) $89  $(2,636)

Foreign currency translation

    0  0  0  (2)   (2)
               

Balance, March 31, 2021

  239,963,788  $161  $138,363  $(133,672) $(103) $(3,977) $772 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

5

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 20212022 AND 20202021

(in thousands, except for per share data)

(unaudited)

 


 

MARCH

31, 2021

  

MARCH

31, 2020

  

MARCH

31, 2022

 

MARCH

31, 2021

 

Cash flows from operating activities

         

Net loss

 $(1,878) $(2,616) $(1,544) $(1,878)

Adjustments to reconcile net loss to net cash used in operating activities:

         

Stock option compensation expense

  585   526  801  585 

Common stock issued in lieu of salary to officers and fees for services from vendors

  111   178  17  111 

Common stock issued for interest

     4 

Interest expense related to amortization of the discount on convertible notes payable and line of credit

  46   668  4  46 

PPP loan forgiveness

  (43)    (174) (43)

Loss on extinguishment of debt

     214 

Loss on investment in South Korean joint venture

  10     8  10 

Bad debt expense

  1     0  1 

Depreciation expense

  7   16  2  7 

Changes in assets and liabilities:

         

Accounts receivable

  206   96  (178) 206 

Inventories

  36   (17) (29) 36 

Deferred revenue

  (4)  (26) (89) (4)

Accounts payable and accrued expenses

  (98)  158  114  (98)

Clyra Medical accounts payable and accrued expenses

  130   52  (25) 130 

Prepaid expenses and other current assets

  (34)  (5) (59) (34)

Customer deposits

  80   (1)  12  80 

Net cash used in operating activities

  (845)  (753)  (1,140) (845)

Cash flows from investing activities

         

Investment in South Korean joint venture

     (100)

Purchase and sale of equipment

  (10)  16 

Purchase of equipment

  (32) (10)

Net cash used in investing activities

  (10)  (84)  (32) (10)

Cash flows from financing activities

         

Proceeds from sales of common stock

  2,106   901  1,202  2,106 

Proceeds from the sale of stock in Clyra Medical

  50   25  0  50 

Payment of debt obligations

  (650)    0  (650)

Payment of Clyra Medical debt obligations

  (24)     (10) (24)

Net cash provided by financing activities

  1,482   926   1,192  1,482 

Net effect of foreign currency translation

  (2)     (8) (2)

Net change in cash

  625   89  12  625 

Cash at beginning of year

  716   655   962  716 

Cash at end of period

 $1,341  $744  $974  $1,341 
 

Supplemental disclosures of cash flow information

         

Cash paid for:

         

Interest

 $26  $25  $7  $26 

Income taxes

 $  $2  $  $0 

Non-cash investing and financing activities

         
Common stock issued for convertible debt $  $434 

Fair value of warrants issued with convertible notes

 $35  $  $0  $35 

Lincoln Park deferred offering costs, recorded as additional paid-in capital

 $  $(122)
Conversion of notes payable to common stock $  $434 

Deemed dividend

 $  $100 
Conversion of intercompany receivable to Clyra shares (Note 8) $633,000  $0 

Allocation of noncontrolling interest

 $313  $448  $528  $313 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

6

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

Note 1. Business and Organization

 

Description of Business

 

BioLargo, Inc. is an innovative technology developer and environmental engineering company driven by a mission to “make life better” by delivering robust, sustainable solutions for a broad range of industries and applications, with a focus on clean water, clean air and a cleaner earth. The company also owns a minoritymajority interest in a medical products subsidiary that has licensed BioLargo’s technologies.  Our business strategy is straightforward: we invent or acquire technologies that we believe have the potential to be disruptive in large commercial markets; we develop and validate these technologies to advance and promote their commercial success as we leverage our considerable scientific, engineering, and entrepreneurial talent; we then monetize these technical assets through a variety of business structures that may include licensure, joint venture, sale, spin off, or by deploying direct to market strategies.

 

Liquidity / Going concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. For the three months ended March 31, 2021, 2022, we had a net loss of $1,878,000,$1,544,000, used $845,000$1,140,000 cash in operations, and at March 31, 2021, 2022, we had a working capital deficit of $1,051,000,$804,000, and current assets of $1,922,000. $2,048,000. During the three months ended March 31, 2022, we generated revenues of $965,000. (See Note 9.)  Only one of our subsidiaries – ONM Environmental – generated positive operating income. None of our other operational subsidiaries did so.

We do not believe gross profits in 2021 the year ended December 31, 2022, will be sufficient to fund our current level of operations, or pay our debts as they become due during the next 12 months, and therefore believe we will have to obtain further investment capital to continue to fund operations, and seek to refinance our existing debt, such as through our purchase agreement with Lincoln Park Capital.Capital, and private sales of our securities. (See Note 3.) We have been, and anticipate that we will continue to be, limited in terms of our capital resources.

 

During the three months ended March 31, 2021, we generated revenues of $571,000 through our operational subsidiaries. (See Note 11.) Our subsidiaries did not individually or in the aggregate generate profits sufficient to fund their operations, or for our corporate operations or other business segments. Thus, we continued to sell securities to raise cash (see Note 3), and received additional grant aid through our Canadian subsidiary.

As of March 31, 2021, our cash and cash equivalents totaled $1,341,000, and our total liabilities included $406,000 in current debt that is convertible at the option of the debtholders , $100,000 of debt that we converted to equity at the April 2021 maturity date (see Note 13), $50,000 of debt that is due March 2023, $200,000 due on a line of credit by our partially owned subsidiary Clyra Medical Technologies, Inc. (“Clyra”) due in June 2021, and $1,007,000 owed by Clyra related to a 2018 acquisition with a maturity date that automatically extends each June (see Note 9, “Note Payable (Scion)”). We have $314,000 of loans issued as part of the Small Business Administration’s (“SBA”) Paycheck Protection Program. We have applied for forgiveness of the entire balance owed on these loans and are awaiting decisions. We have a $150,000 loan accruing interest at 3.75% annually from the SBA’s Economic Injury Disaster Loan program that is payable over 30 years beginning August 2021.

During the three months ended March 31, 2021, we received $2,001,000 in proceeds from stock sales to Lincoln Park and $105,000 from stock sales from our 2020 Unit Offering (see Note 3), and made cash payments to retire debt obligations totaling $674,000 (see Note 4 and Note 9 (“Line of Credit”)). We have two promissory notes due in August, 2021, (see Note 4, “Notes payable, mature August 12 and 16, 2021”), each of which may be converted by the holder into equity at a fixed price of $0.14 per share. If the holders do not voluntarily convert the notes to equity, we intend to pay the notes with cash, although there is no guarantee that we will be able to do so. The cash we receive from stock sales to Lincoln Park is a function of stock price and volume – a lower stock price and less trading volume results in less money we can receive from Lincoln Park. Our agreement with Lincoln Park precludes us from selling shares to Lincoln Park on a daily basis if our stock price falls below $0.10 per share. If we are unable to make daily sales, it is not likely we will be able to sell enough shares to Lincoln Park to pay the debt due in August, 2021. In such event, we intend to negotiate for a delay in repayment with the holders of the notes.

If we are unable to rely on our current arrangement with Lincoln Park to continue to fund our working capital requirements, we wouldwill have to rely on other forms of financing, and there is no assurance that we will be able to do so, or if we do so, it will be on favorable terms.

 

To reduce our operational cash burdens, we regularly issue officers and vendors stock or options in lieu of cash compensation, and we anticipate that we will continue to be able to do so in the future. In the three months ended March 31, 2021, our CEO and CSO accepted stock in lieu of $31,000 in unpaid salary. Our CFO has also agreed to receive warrants in lieu of cash, (see note xx) as compensation for his services. Each has indicated a willingness to do so in the future.

7

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The foregoing factors raise substantial doubt about our ability to continue as a going concern. Ultimately,concern, unless we are able to continue to raise funds through stock sales to Lincoln Park or other private financings, and in the long term, our ability to continue as a going concern is dependent upon our ability to attract significant new sources of capital, attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

Organization

 

We are a Delaware corporation formed in 1991. We have four wholly-owned subsidiaries: BioLargo Life Technologies, Inc., organized under the laws of the State of California in 2006; ONM Environmental, Inc., organized under the laws of the State of California in 2009; BioLargo Water Investment Group Inc., organized under the laws of the State of California in 2019, which wholly owns BioLargo Water, Inc., organized under the laws of Canada in 2014; and BioLargo Development Corp., organized under the laws of the State of California in 2016. Additionally, we own 94%89% of BioLargo Engineering Science and Technologies, LLC (“BLEST”), organized under the laws of the State of Tennessee in 2017 (see Note 10).2017. We also own 45%58% of Clyra Medical Technologies, Inc. (“Clyra” or “Clyra Medical”), organized under the laws of the State of California in 2012, and consolidate their financial statements (see Note 2, subheading “Principles of Consolidation,” and Note 9)8).

 

The unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to Rule 8-038-03 of Regulation S-XS-X under the Securities Act of 1933, as amended. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. For some of our activities, we are still operating in the early stages of the sales and distribution process, and therefore our operating results for the three months ended March 31, 2021 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021,2022, or for any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2021.31, 2022.

7

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

 

Note 2. Summary of Significant Accounting Policies

 

In the opinion of management, the accompanying balance sheet and related statements of operations, cash flows, and stockholders’ deficit include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company, its wholly ownedwholly-owned subsidiaries, and partially-owned subsidiaries BLEST and Clyra Medical. Management believes Clyra Medical’s financial statements are appropriately consolidated with that of the Company after reviewing the guidance of ASC Topic 810, “Consolidation”, and concluding that BioLargo controls Clyra Medical. While BioLargo does not have voting interest control through a majority stock ownership of Clyra Medical (it owns 45% of the outstanding voting stock), it does exercise control under the “Variable Interest Model.” There is substantial board overlap, BioLargo is the primary beneficiary since it has the power to direct Clyra Medical’s activities that most significantly impact Clyra Medical’s performance, and it has the obligation to absorb losses or receive benefits (through royalties and licensing) that could be potentially significant to Clyra Medical. BioLargo has consolidated Clyra Medical’s operations for all periods presented. (See Note 9.) 

All intercompany accounts and transactions have been eliminated in the financial statement presentation.eliminated.

 

Foreign Currency

 

The Company has designated the functional currency of BioLargo Water, Inc., our Canadian subsidiary, to be the Canadian dollar. Therefore, translation gains and losses resulting from differences in exchange rates are recorded in accumulated other comprehensive income.

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less when acquired to be cash equivalents. Substantially all cash equivalents are held in short-term money market accounts at one of the largest financial institutions in the United States. From time to time, our cash account balances are greater than the Federal Deposit Insurance Corporation insurance limit of $250,000$250,000 per owner per bank, and during such times, we are exposed to credit loss for amounts in excess of insured limits in the event of non-performance by the financial institution. We do not anticipate non-performance by our financial institution.

 

As of March 31, 2021 2022 and December 31, 2020, 2021, our cash balances were made up of the following (in thousands):

 

 

March 31,

2021

  

December 31,

2020

  

March 31,

2022

 

December 31,

2021

 

BioLargo, Inc. and subsidiaries

 $1,304  $637  $951  $941 

Clyra Medical Technologies, Inc.

  37   79   23  21 

Total

 $1,341  $716  $974  $962 

 

Accounts Receivable

 

Trade accounts receivable are recorded net of allowances for doubtful accounts. Estimates for allowances for doubtful accounts are determined based on payment history and individual customer circumstances. The allowance for doubtful accounts as of March 31, 20212022 was $12,000 and December 31, 2020, 2021, was $13,000.$13,000.

 

8

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Credit Concentration

 

We have a limited number of customers that account for significant portions of our revenue. During the three months ended March 31, 2021 2022 and 2020, we had the following customers that accounted for more than 10% of consolidated revenues, as follows:revenues:

 

  

March 31,
2021

  

March 31,

2020

 

Customer A

  39%  <10%

Customer B

  16%  11%

Customer C

  13%  <10%

Customer D

  12%  14%

Customer E

  <10%  10%

March 31,
2022

March 31,

2021

Customer A

29%

<10

%

Customer B

14%

<10

%

Customer C

<10

%39%

Customer D

<10

%16%

Customer E

<10

%13%

Customer F

<10

%12%

 

We had three2 customers that each accounted for more than 10% of consolidated accounts receivable at March 31, 2021, 2022, and two customers at December 31, 2020,2021, as follows:

 

  

March 31, 2021

2022

  

December 31, 2020

2021

 

Customer D

  29% 

<10

%

Customer E

  1324% 

<10

%

Customer F

 12%

<10

%

Customer G

<10%  32%

Customer HG

 

<10

%  1012%%

 

Inventory

 

Inventories are stated at the lower of cost or net realizable value using the average cost method. The allowance for obsolete inventory as of March 31, 2021, 2022, and December 31, 2020, 2021, was $3,000.$3,000. Inventories consisted of (in thousands):

 

  

March 31,

2021

  

December 31,

2020

 

Raw material

 $91  $111 

Finished goods

  151   166 

Total

 $242  $277 

  

March 31,

2022

  

December 31,

2021

 

Raw material

 $129  $108 

Finished goods

  141   133 

Total

 $270  $241 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Other Assets

 

Other Assetsnon-current assets consisted of (i) security deposits of $35,000 related to our business offices.offices, and (ii) three patents for $34,000, and contract assets related to ongoing projects of our BLEST subsidiary totaling $29,000.

 

Equity Method of Accounting

 

On March 20, 2020, we invested $100,000 into a South Korean entity (Odin Co. Ltd., “Odin”) pursuant to a Joint Venture agreement we had entered into with BKT Co. Ltd. and its U.S. subsidiary, Tomorrow Water. We received a 40% non-dilutive equity interest, and BKT and Tomorrow Water each received 30% equity interests for an aggregate $150,000 investment.

 

We account for our investment in the joint venture under the equity method of accounting. We have determined that while we have significant influence over the joint venture through our technology license and our position on the Board of Directors, we do not control the joint venture or are otherwise involved in managing the entity and we own less than a majority of the equity. Therefore, we record the asset on our consolidated balance sheet and record an increase or decrease the recorded balance by our percentage ownership of the profits or losses in the joint venture. During the three months ended March 31, 2022 and March 31, 2021 the joint venture incurred a loss and our 40% ownership share reduced our investment interest by $10,000.$8,000 and $10,000, respectively.

 

9

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Impairment

 

Long-lived and definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future undiscounted cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset, then an impairment loss is recognized. The impairment loss is measured based on the fair value of the asset. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the three months ended March 31, 2021 2022 and 2020,2021, management determined that there was no0 impairment of its long-lived assets, including its In-processpatents.

Nevertheless, for the year ended December 31, 2021, management determined that there was an impairment expense related to the sale back to Scion Solutions, LLC (“Scion’) of certain intellectual property, recorded on our balance sheet as “In-Process Research and Development (see Note 8).Development” and an impairment of Clyra’s prepaid marketing.  Total impairment expense for 2021 was $342,000.

 

Earnings (Loss) Per Share

 

We report basic and diluted earnings (loss) per share (“EPS”) for common and common share equivalents. Basic EPS is computed by dividing reported earnings by the weighted average shares outstanding. Diluted EPS is computed by adding to the weighted average shares the dilutive effect if stock options and warrants were exercised into common stock. For the three months ended March 31, 2021 2022 and 2020,2021, the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the anti-dilutive effect of the warrants and stock options on the Company’s net loss.

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used when accounting for stock-based transactions, debt transactions, derivative liabilities, allowance for bad debt, asset depreciation and amortization, among others.

 

The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results of our financial statements.

 

Share-Based Compensation Expense

 

We recognize compensation expense for stock option awards on a straight-line basis over the applicable service period of the award, which is the vesting period. Fair value is determined on the grant date. Share-based compensation expense is based on the grant date fair value estimated using the Black-Scholes Option Pricing Model.

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

For stock and stock options issued to consultants and other non-employees for services, the Company measures and records an expense as of the earlier of the date at which either: a commitment for performance by the non-employee has been reached or the non-employee’s performance is complete. The equity instruments are measured at the current fair value, and for stock options, the instruments are measured at fair value using the Black Scholes option model.

 

The following methodology and assumptions were used to calculate share-based compensation for the three months ended March 31, 2021 2022 and 2020:2021:

 

 

2021

  

2020

  

2022

  

2021

 
 

Non Plan

  

2018 Plan

  

Non Plan

  

2018 Plan

  

Non Plan

  

2018 Plan

  

Non Plan

  

2018 Plan

 

Risk free interest rate

  1.73

%

  0.931.73%   0.88

%

  0.881.90%

 

 2.32

%

 2.32% 1.73

%

 0.931.73%

 

Expected volatility

  124

%

    124%   131

%

  131-133%

 

 117

%

 117% 124

%

  124% 

 

Expected dividend yield

                          

Forfeiture rate

                          

Life in years

  10    10    10    10   10  10  10   10  

 

Expected price volatility is the measure by which our stock price is expected to fluctuate during the expected term of an option. Expected volatility is derived from the historical daily change in the market price of our common stock, as we believe that historical volatility is the best indicator of future volatility.

 

The risk-free interest rate used in the Black-Scholes calculation is based on the prevailing U.S. Treasury yield as determined by the U.S. Federal Reserve. We have never paid any cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future.

 

10

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Historically, we have not had significant forfeitures of unvested stock options granted to employees and Directors. A significant number of our stock option grants are fully vested at issuance or have short vesting provisions. Therefore, we have estimated the forfeiture rate of our outstanding stock options as zero.

Warrants

 

Warrants issued with our convertible promissory notes, note payables, line of credit are accounted for under the fair value and relative fair value method.

 

The warrant is first analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a derivative and not qualify for equity treatment, then it is measured at fair value using the Black Scholes option model, and recorded as a liability on the balance sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).

 

If the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note.

 

Convertible debt instruments are recorded at fair value, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the warrant. Further, the convertible debt instrument is examined for any intrinsic beneficial conversion feature (“BCF”) of which the conversion price is less than the closing common stock price on date of issuance. If the relative fair value method is used to value the convertible debt instrument and there is an intrinsic BCF, a further analysis is undertaken of the BCF using an effective conversion price which assumes the conversion price is the relative fair value divided by the number of shares the convertible debt is converted into by its terms. The BCF value is accounted for as equity.

 

The warrant and BCF relative fair values are also recorded as a discount to the convertible promissory notes. At present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received.

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Non-Cash Transactions

 

We have established a policy relative to the methodology to determine the value assigned to each intangible we acquire, and/or services or products received for non-cash consideration of our common stock. The value is based on the market price of our common stock issued as consideration, at the date of the agreement of each transaction or when the service is rendered, or product is received.

Revenue Recognition

 

We account for revenue in accordance with ASC 606, “revenue from Contacts with Customers”. The guidance focuses on the core principle for revenue recognition, which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the guidance provides that an entity should apply the following steps:

 

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

We have revenue from four subsidiaries, ONM, BLEST, BioLargo Water, and Clyra. ONM, BioLargo Water, and Clyra identify its contract with the customer through a written purchase order, in which the details of the contract are defined including the transaction price and method of shipment. The only performance obligation is to create and ship the product and each product has separate pricing. Revenue is recognized at a point in time when the order for its goods are shipped if its agreement with the customer is FOB manufacturer, and when goods are delivered to its customer if its agreement with the customer is FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order. ONM also installs misting systems for which it bills on a time and materials basis. It identifies its contract with the customer through a written purchase order in which the details of the time to be billed and materials purchased and an estimated completion date. The performance obligation is the completion of the installation, and at that time revenue is recognized.

 

11

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

BLEST identifies services to be performed in a written contract, which specifies the performance obligations and the rate at which the services will be billed. Each service is separately negotiated and priced. Revenue is recognized as services are performed and completed. BLEST’s contracts typically call for invoicing for time and materials incurred for that contract. A few contracts have called for milestone or fixed cost payments, where BLEST invoices an agreed-to amount per month for the life of the contract. In these instances, completed work, billed hourly, is recognized as revenue. If the billing amount is greater or lesser than the completed work, a receivable or payable is created. These accounts are adjusted upon additional billings as the work is completed. We recognized $118,000 in the three months ended March 31, 2022, from contracts, of which $89,000 had a deferred liability balance as of December 31, 2021. As of March 31, 2022, we have a contract receivable totaling $29,000, recorded in other assets on our balance sheet. To date, there have been no discounts or other financing terms for the contracts.

 

In the event that we generate revenues from royalties or license fees from our intellectual property, we anticipate a licensee would pay a license fee in one or more installments and ongoing royalties based on their sales of products incorporating or using our licensed intellectual property. Upon entering into a licensing agreement, we will determine the appropriate method of recognizing the royalty and license fees.

Clyra also has certain distribution agreements that call for consigned inventory. Although the product is shipped to a third party, it is not revenue until that consigned inventory is sold to end user customer.

 

Government Grants

 

We have been awarded multiple research grants from the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP) and the National Science and Engineering Research Council of Canada (NSERC). The grants received are considered other income and are included in our consolidated statements of operations. We received our first grant in 2015 and have been awarded over 80 grants totaling over $3.7 million. Some of the funds from these grants are given directly to third parties (such as the University of Alberta or a third-partythird-party research scientist) to support research on our technology. The grants have terms generally ranging between six and eighteen months and support a majority, but not all, of the related research budget costs. This cooperative research allows us to utilize (i) a depth of resources and talent to accomplish highly skilled work, (ii) financial aid to support research and development costs, (iii) independent and credible validation of our technical claims.

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The grants typically provide for (i) recurring monthly amounts, (ii) reimbursement of costs for research talent for which we invoice to request payment, and (iii) ancillary cost reimbursement for research talent travel related costs. All awarded grants have specific requirements on how the money is spent, typically to employ researchers. None of the funds may be used for general administrative expenses or overhead in the United States. These grants have substantially increased our level of research and development activities in Canada. We continue to apply for Canadian government and agency grants to fund research and development activities. Not all of our grant applications have been awarded, and no assurance can be made that any pending grant application, or any future grant applications, will be awarded.

Income Taxes

 

The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of asset and liabilities. Deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on deferred tax asset and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

We account for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by generally accepted accounting principles (“GAAP”).  Under GAAP, the tax effects of a position are recognized only if it is “more-likely-than-not”“more-likely-than-not” to be sustained by the taxing authority as of the reporting date.  If the tax position is not considered “more-likely-than-not”“more-likely-than-not” to be sustained, then no benefits of the position are recognized.  Management believes there are no0 unrecognized tax benefits or uncertain tax positions as of March 31, 2021, 2022, and December 31, 2020.2021.

 

The Company assessed its earnings history, trends and estimates of future earnings and determined that the deferred tax asset could not be realized as of March 31, 2021. 2022. Accordingly, a valuation allowance was recorded against the net deferred tax asset.

 

The Company recognizes interest and penalties on income taxes as a component of income tax expense, should such an expense be realized.

12

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Fair Value of Financial Instruments

 

Management believes the carrying amounts of the Company’s financial instruments (excluding debt and equity instruments) as of March 31, 2021 2022 and December 31, 2020, 2021, approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, prepaid assets, accounts payable, lines of credit, and other assets and liabilities.

Tax Credits

 

Our research and development activities in Canada may entitle our Canadian subsidiary to claim benefits under the “Scientific Research and Experimental Development Program”, a Canadian federal tax incentive program designed to encourage Canadian businesses of all sizes and in all sectors to conduct research and development in Canada. Benefits under the program include credits to taxable income. If our Canadian subsidiary does not have taxable income in a reporting period, we instead receive a tax refund from the Canadian Revenue Authority. Those refunds are classified in Other Income on our Consolidated Statement of Operations and Comprehensive Loss.

Leases

 

We adopted ASU 2016-122016-12 using the effective date option. Upon the transition to the ASC 842, the Company elected to use hindsight as a practical expedient with respect to determining the lease terms (as we considered our updated expectations of acceptance of the Westminster California facility lease renewal) and in assessing any impairment of right-of-use assets for existing leases. No impairment is expected at this time. As of March 31, 2021, 2022, the right of use assets on our balance sheet related to our operating leases totals $326,000.$421,000.

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued Accounting Standards Update No. 2020-06,2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20)470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40)815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. For convertible instruments, the FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1)(1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2)(2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The FASB decided to amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The FASB observed that the application of the derivatives scope exception guidance results in accounting for some contracts as derivatives while accounting for economically similar contracts as equity. The FASB also decided to improve and amend the related EPS guidance. The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Management is currently evaluating the effect on the Company’s financials if and when future convertible securities are issued. This Update does not affect the Company’s current financial statements.

 

In January 2020, the FASB issued Accounting Standards Update No 2020-01,2020-01, “Investments—Equity Securities (Topic 321)321), Investments—Equity Method and Joint Ventures (Topic 323)323), and Derivatives and Hedging (Topic 815)815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”. This Update relates to the Company’s equity method of accounting and the potential interactions between the measurement alternative in Topic 321 and the equity method of accounting in Topic 323 and that diverse views have emerged about the application of the measurement alternative and the equity method of accounting since the adoption of Update 2016-01.2016-01. The measurement alternative is the ability to measure certain equity securities without a readily determinable fair value at cost, minus impairment, if any. Paragraph 321-10-35-2,321-10-35-2, as amended, states that if an entity identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, it should measure the equity security at fair value as of the date that the observable transaction occurred (hereinafter referred to as the measurement alternative). The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. Management adopted the updates, and after evaluation, did not make any modifications to the financial statements.

Note 3. Sale of Stock for Cash

Lincoln Park Financing

On March 30, 2020, we entered into a stock purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $10,250,000 of our common stock (subject to certain limitations) from time to time over a period of three years. The agreement allows us, at our sole discretion, to direct Lincoln Park to purchase shares of our common stock, subject to limitations in both volume and dollar amount. The purchase price of the shares that may be sold to Lincoln Park under the agreement is the lower of (i) the lowest sale price on the date of purchase, or (ii) the average of the three lowest closing prices in the prior 12 business days. There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages other than a prohibition on entering into a “Variable Rate Transaction,” as defined in the agreement. This agreement replaced the August 2017 agreement with Lincoln Park. Concurrently with the Purchase Agreement, we entered into a Registration Rights Agreement, pursuant to which we filed a registration statement on Form S-1 with the SEC on April 10, 2020. This registration statement was declared effective on April 21, 2020, and as of April 29, 2020, we commenced regular purchases under the agreement. The Purchase Agreement replaced a similar agreement with Lincoln Park dated August 2017.

During the three months ended March 31, 2021 and 2020, we sold 12,455,619 and 3,198,358 shares to Lincoln Park, and received $2,001,000 and $545,000 in gross and net proceeds. Subsequent to March 31, 2021, we continue to draw on the Purchase Agreement for working capital from time to time (see Note 13).

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(UNAUDITED)Note 3. Sale of Stock for Cash

 

2020 Unit OfferingLincoln Park Financing

 

During the three months ended March 31, 2022 and 2021, we sold 1,506,821 and 12,455,619 shares to Lincoln Park, and in exchange received $346,000 and $2,001,000 in gross and net proceeds, respectively.

2020 Unit Offering

During the three months ended March 31, 2022, pursuant to an offering commenced in May 2020, we sold 5,196,968 shares of our common stock and received $856,000 in gross and net proceeds from eleven accredited investors. In addition to the shares, we issued each investor a six-month and a five-year warrant to purchase additional shares (see Note 6, “Warrants Issued in 2020 Unit Offering”).

During the three months ended March 31, 2021, pursuant to an offering commenced in May 2020, we sold 875,000 shares of our common stock and received $105,000 in gross and net proceeds from three accredited investors. In additionInaddition to the shares, we issued each investor a six-monthsix-month and a five-yearfive-year warrant to purchase additional shares (see Note 6,Warrants “Warrants Issued in 2020 Unit OfferingOffering”).

 

 

Note 4. Debt Obligations

 

The following table summarizes our debt obligations outstanding as of March 31, 2021, 2022, and December 31, 2020 (in2021 (in thousands). The table does not include debt obligations of our partially owned subsidiary Clyra Medical (see Note 9, “Debt8, “Debt Obligations of Clyra MedicalMedical”).

 

  

March 31, 2021

(Unaudited)

  

December 31, 2020

 
         

Current portion of debt:

        

Note payable, matures on demand 60 days’ notice (or March 8, 2023)

 $  $50 

Line of credit, matures on 30-day demand

     50 

Total notes payable and line of credit

 $  $100 
         

Convertible notes payable:

        

Convertible note payable, matures April 20, 2021(1)

  100   100 

Convertible note payable, matures August 9, 2021

     600 

Convertible notes, mature August 12 and 16, 2021

  406   406 

Total convertible notes payable

  506   1,106 

Debt discount, net of amortization

  (58)  (104)

Total current liabilities

 $448  $1,102 
         

Long-term debt:

        

Convertible note payable, matures March 1, 2023

 $50  $ 

SBA Paycheck Protection Program loans, mature April 2022

  314   357 

SBA EIDL Loan, matures July 2050

  150   150 

Debt discount, net of amortization

  (33)   

Total long-term liabilities

 $481  $507 
         

Total

 $929  $1,609 

(1) This note was converted at maturity (see Note 13).

  

March 31, 2022

(Unaudited, in
thousands)

  

December 31,

2021

(in thousands)

 

Current portion of debt:

        

SBA Paycheck Protection Program loans, mature April 2022

  140  $314 

Convertible note payable, matures March 1, 2023

 $50   0 

Debt discount, net of amortization

  (16)  0 

Total current portion of debt

 $174  $314 
         
         

Long-term debt:

        

SBA EIDL Loan, matures July 2050

  150   150 

Convertible note payable, matures March 1, 2023

 $0   50 

Debt discount, net of amortization

  0   (20)

Total long-term portion of debt

 $150  $180 
         

Total

 $324  $494 

 

For the three months ended March 31, 2021 2022 and 2020,2021, we recorded $93,000$4,000 and $757,000,$93,000, respectively, of interest expense related to the amortization of discounts on convertible notes payable, coupon interest from our convertible notes and line of credit.

 

The following discussion includes debt instruments to which amendments were made or included other activity that management deemed appropriate to disclose. Each of the debt instruments contained in the above table are disclosed more fully in the financial statements contained in the Company’s Form 10-K10-K filed March 30, 2021.2022.

 

Cash payment of debt obligationsSBAProgramLoans

 

In April 2020, our subsidiaries ONM Environmental, BLEST and Clyra Medical received $218,000, $96,000 and $43,000, respectively, in loans pursuant to the Small Business Association’s (“SBA”) Paycheck Protection Program (“PPP”). The loans mature two years from the inception date (although any payments due are deferred once a forgiveness application has been filed), and incur interest at 1%. Management believes that it has fully complied with the terms of forgiveness as set forth by the SBA, and each subsidiary has filed forgiveness applications.  On March 1, 2021, February 7, 2022, we paidreceived notice that the SBA had partially approved ONM Environmental's application for forgiveness of its PPP loan in cash the outstanding principalamount of $600,000,$174,000; ONM has appealed and $7,000 in accrued interest, on the promissory note issued August 9, 2019, and scheduledprovided additional documentation to mature on August 9, 2021.

On March 1, 2021, we paid in cash the outstanding principalsupport forgiveness of $50,000, and $1,000 in accrued interest, on the remaining amount due on a line$44,000. The forgiveness application of credit in which was due on demand at any time after September 1, 2019. There is no remaining balance on this line of credit, and BLEST remains pending. On March 19, 2021, we no longer havereceived notice that the ability to draw onSBA had approved the line of credit.

Amendment to Note payable matures on 60 days notice (or March 8, 2023)

On March 1, 2021, we and the holder of a $50,000 note payable modified the note to set a specific maturity date of March 1, 2023, and allow the investor to convert the note to our common stock at a price of $0.16 per share. In lieu of interest during the extended period of the note, we issued the investor a warrant to purchase 225,000 shares of our common stock at $0.16 per shareapplication for a period of five years. (See Note 6).forgiveness Clyra’s PPP loan.

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

 

Note 5. Share-Based Compensation

 

Issuance of Common Stock in exchange for payment of payables

 

Payment of Officer Salaries

 

NaN shares were issued as payment of officer salary in the three month period March 31, 2022.

On March 31, 2021, we issued 137,364 shares of our common stock at $0.23 per share in lieu of $31,000 of accrued and unpaid salary to our officers.

 

On March 31, 2020, we issued 648,755 shares of our common stock at $0.17 per share in lieu of $110,000 of accrued and unpaid salary to our officers.

Payment of Consultant Fees

 

On March 31, 2022, we issued 86,752 shares of our common stock at $0.23 per share in lieu of $17,000 of accrued and unpaid obligations to consultants.

On March 31, 2021, we issued 610,123 shares of our common stock at $0.23 per share in lieu of $81,000 of accrued and unpaid obligations to consultants.

On March 31, 2020, we issued 390,735 shares of our common stock at a range of $0.17 per share in lieu of $67,000$80,000 of accrued and unpaid obligations to consultants.

 

Payment of Accrued Interest

On March 31, 2020, we issued 19,278 shares of our common stock at $0.17 per share in lieu of $4,000 of accrued interest.

Stock Option Expense

 

During the three months ended March 31, 2021 2022 and 2020,2021, we recorded an aggregate $424,000$660,000 and $320,000,$424,000, in selling general and administrative expense related to the issuance of stock options. We issued options through our 2018 Equity Incentive Plan, our now expired 2007 Equity Incentive Plan, and outside of these plans. See Note 98 for information on stock option expense for options issued by subsidiary Clyra Medical.

 

2018 Equity Incentive Plan

 

On June 22, 2018, our stockholders adopted the BioLargo 2018 Equity Incentive Plan (“(2018 Plan”) as a means of providing our directors, key employees and consultants additional incentive to provide services. Both stock options and stock grants may be made under this plan for a period of 10 years. Our Board of Director’s Compensation Committee administers this plan. As plan administrator, the Compensation Committee has sole discretion to set the price of the options. The plan authorizes the following types of awards: (i) incentive and non-qualified stock options, (ii) restricted stock awards, (iii) stock bonus awards, (iv) stock appreciation rights, (v) restricted stock units, and (vi) performance awards. The total number of shares reserved and available for awards pursuant to this Plan as of the date of adoption of this 2018 Plan by the Board is 40 million shares. The number of shares available to be issued under the 2018 Plan increases automatically each January 1st by the lesser of (a) 2 million shares, or (b) such number of shares determined by our Board.

 

Activity for our stock options under the 2018 Plan for the three months ended March 31, 2021 2022 and March 31, 2020,2021, is as follows:

 

            

Weighted

     
            

Average

   

Aggregate

 
  Options  

Exercise

  Price per   

intrinsic

 
  Outstanding  Price per share  share   Value(1) 

Balance, December 31, 2020

  18,865,525   $0.160.40  $0.19     

Granted

  1,217,670   0.120.23   0.21     

Expired

               

Balance, March 31, 2021

  20,083,195   $0.120.43  $0.19     

Non-vested

  (5,656,509

)

  0.170.23   0.20     

Vested, March 31, 2021

  14,426,686   $0.160.45  $0.18  $763,000 

Balance, December 31, 2019

  9,214,356   $0.160.43  $0.25     

Granted

  1,343,344   0.170.22   0.18     

Expired

               

Balance, March 31, 2020

  10,557,700   $0.160.43  $0.25     

(1) Aggregate intrinsic value based on closing common stock price of $0.23 at March 31, 2021.

            Weighted     
            Average  Aggregate 
  Options  Exercise  Price per  intrinsic 
  Outstanding  Price per share  share  Value(1) 

Balance, December 31, 2021

  23,186,142   $0.160.40  $0.19     

Granted

  2,621,229   0.120.23   0.23     

Expired

  0        0     

Balance, March 31, 2022

  25,807,371   $0.220.40  $0.19     

Non-vested

  (4,742,688

)

  0.170.40   0.22     

Vested, March 31, 2022

  21,064,683   $0.160.40  $0.19  $1,015,000 
                   

Balance, December 31, 2020

  18,865,525   $0.160.40  $0.19     

Granted

  1,217,670   0.120.23   0.19     

Expired

  0   00   0     

Balance, March 31, 2021

  20,083,195   $0.120.40  $0.20     

(1)

Aggregate intrinsic value based on closing common stock price of $0.23 at March 31, 2022.

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(UNAUDITED)The options granted to purchase 2,621,229 shares during the three months ended March 31, 2022 were issued to officers, board of directors, employees and consultants: (i) we issued options to purchase 39,848 shares of our common stock at an exercise price on the respective grant date of $0.23 per share to our CFO and President to replace options that had expired; (ii) we issued options to purchase 444,092 shares of our common stock at an exercise price on the respective grant date of $0.23 per share to members of our board of directors for services performed, in lieu of cash; the fair value of these options totaled $96,000; (iii) we issued options to purchase 1,690,257 shares of our common stock to employees as part of an employee retention plan at an exercise price on the respective date of $0.23 per share; the fair value of employee retention plan options totaled $362,000 and will vest quarterly over four years as long as they are retained as employees; and (iv) we issued options to purchase 447,032 shares of our common stock to consultants in lieu of cash for expiring options and per agreement totaling $97,000. All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

 

The options granted to purchase 1,217,670 shares during the three months ended March 31, 2021 were issued to an officer, board of directors, employees and consultants: (i) we issued options to purchase 300,000 shares of our common stock at an exercise price on the respective grant date of $0.17 per share to our CFO as described below;CFO; (ii) we issued options to purchase 296,704 shares of our common stock at an exercise price on the respective grant date of $0.23 per share to members of our board of directors for services performed, in lieu of cash; the fair value of these options totaled $65,000 and is recorded as selling, general and administrative expenses; (iii) we issued options to purchase 407,713 shares of our common stock to employees as part of an employee retention plan at an exercise price on the respective date of $0.23 per share; the fair value of employee retention plan options totaled $89,000 and will vest quarterly over four years as long as they are retained as employees; and (iv) we issued options to purchase 213,253 shares of our common stock to consultants and employees in lieu of cash for unpaid obligations totaling $37,000. All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

 

Chief Financial Officer Contract Extension2007 Equity Incentive Plan

 

On March 17, 2021, we and our Chief Financial Officer Charles K. Dargan, II, formally agreed to extend the engagement agreement dated February 1, 2008 (the “Engagement Agreement”, which had been previously extended multiple times), pursuant to which Mr. Dargan has been and continues to serve as the Company’s Chief Financial Officer. The Engagement Extension Agreement dated as of February 25, 2020 (the “Engagement Extension Agreement”) provides for an additional term to begin retroactively on October 1, 2019, and to expire January 31, 2021 (the “Extended Term”).

As compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 300,000 shares of our common stock. The Option vests over the period of the Extended Term, with 50,000 shares having vested as of March 31, 2021, and the remaining 250,000 shares to vest monthly through January 31, 2022, so long as the agreement is in full force and effect. The Option is exercisable at $0.23 per share, the closing price of our common stock on March 17, 2021, expires ten years from the grant date, and was issued pursuant to the 2018 Equity Incentive Plan. The fair value of these options totaled $49,000, which expense is recorded ratably over the twelve-month agreement term.

The Option is Mr. Dargan’s sole compensation for the Extended Term. As was the case in all prior terms of his engagement, there is no cash component of his compensation for the Extended Term. Mr. Dargan is eligible to be reimbursed for business expenses he incurs in connection with the performance of his services as the Company’s Chief Financial Officer (although he has made no such requests for reimbursement in the past). All other provisions of the Engagement Agreement not expressly amended pursuant to the Engagement Extension Agreement remain the same, including provisions regarding indemnification and arbitration of disputes.

2007 Equity Incentive Plan

On September 7,2007, and as amended April 29, 2011, the BioLargo, Inc. 2007 Equity Incentive Plan (“(2007 Plan”) was adopted as a means of providing our directors, key employees and consultants additional incentive to provide services. Both stock options and stock grants may be made under this plan for a period of 10 years, which expired on September 7, 2017. The Board’s Compensation Committee administers this plan. As plan administrator, the Compensation Committee has sole discretion to set the price of the options. As of September 2017, the Plan was closed to further stock option grants.

 

17

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Activity for our stock options under the 2007 Plan for the three months ended March 31, 2021 2022 and 20202021 is as follows:

 

           

Weighted

               

Weighted

    
           

Average

  

Aggregate

           

Average

 

Aggregate

 

  Options   

Exercise

  

Price per

  

intrinsic

  Options  

Exercise

 

Price per

 

intrinsic

 

 Outstanding  

price per share

  

share

  

Value(1)

  Outstanding  

price per share

 

share

 

Value(1)

 

Balance, December 31, 2021

 2,879,246   $0.230.94  $0.49    

Expired

           

Balance, March 31, 2022

 2,879,246   $0.230.94  $0.49  $ 

Balance, December 31, 2020

  5,689,363   $0.230.94  $0.44      5,689,363   $0.230.94  $0.44    

Expired

  (920,000)  0.45-0.50   0.49      (920,000) 0.450.50  0.49    

Balance, March 31, 2021

  4,769,363   $0.231.65  $0.43      4,769,363   $0.230.94  $0.43    

Balance, December 31, 2019

  8,769,451   $0.230.94  $0.42     

Expired

  (870,000)  0.390.57   0.57     

Balance, March 31, 2020

  7,899,451   $0.231.65  $0.41  $ 

 

(1)(1) – Aggregate intrinsic value based on closing common stock price of $0.23 at March 31, 2021.2022.

 

16

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Non-Plan Options issued

 

During the three months ended March 31, 2022, we issued an option to purchase 32,609 shares of our common stock at $0.23 per share to a vendor for services. The fair value of these options total $7,000 and is recorded in our selling, general and administrative expense.

During the three months ended March 31, 2021, we issued an option to purchase 43,956 shares of our common stock at $0.23 per share to a vendor for services. The fair value of these options total $10,000 and is recorded in our selling, general and administrative expense.

 

During the three months ended March 31, 2020, we issued options to purchase 292,437 shares of our common stock at exercise prices ranging between $0.17 – $0.21 per share to vendors for fees for service. The fair value of the options issued totaled $50,000, is recorded in our selling, general and administrative expense.

Activity of our non-plan stock options issued for the three months ended March 31, 2021 2022 and 20202021 is as follows:

 

           

Weighted

               Weighted    
 

Non-plan

        

average

  

Aggregate

  Non-plan      average Aggregate 
 Options  

Exercise

  price per  

Intrinsic

  Options Exercise price per Intrinsic 
 outstanding  price per share  share  

value(1)

  outstanding price per share share value(1) 

Balance, December 31, 2021

 20,119,207   $0.120.83  $0.38    

Granted

 32,609   0.23   0.23    

Balance, March 31, 2022

 20,151,816   $0.120.83  $0.39    

Non-vested

 (1,206,986

)

 0.230.45  0.44    

Vested, March 31, 2022

 18,944,830   $0.120.83  $0.38  $130,000 
                         

Balance, December 31, 2020

  20,749,583   $0.171.00  $0.41      20,749,583   $0.171.00  $0.41    

Granted

  43,956    0.23    0.23      43,956   0.23   0.23    

Balance, March 31, 2021

  20,793,539   $0.171.00  $0.41      20,793,539   $0.171.00  $0.41    

Non-vested

  (870,642

)

  0.170.45   0.45     

Vested, March 31, 2021

  19,922,897   $0.171.00  $0.40  $125,000 
                

Balance, December 31, 2019

  19,604,107   $0.231.00  $0.41     

Granted

  292,437   0.170.21   0.18     

Balance, March 31, 2020

  19,896,544   $0.171.00  $0.41     

 

(1)(1) – Aggregate intrinsic value based on closing common stock price of $0.23 at March 31, 2021.2022.

18

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

Note 6. Warrants

 

We issued warrants to purchase our common stock, at various prices for the three months ended March 31, 2021 2022 and 2020,2021, is as follows:

 

            

Weighted

     
            

average

  

Aggregate

 
  Warrants  

Exercise

  

price per

  

Intrinsic

 
  outstanding  price per share  

share

  

value(1)

 
                   

Balance, December 31, 2020

  32,980,989   $0.161.00  $0.29     

Issued

  1,975,000   0.140.18   0.16     

Expired

  (746,528)  0.190.22   0.20     

Balance, March 31, 2021

  34,209,461   $0.141.00  $0.29  $609,000 
                   

Balance, December 31, 2019

  43,231,161   $0.161.00  $0.42     

Issued

  791,260    0.13    0.13     

Expired

  (266,000)   0.30    0.30     

Balance, March 31, 2020

  43,756,421   $0.161.00  $0.35     

            Exercise  Aggregate 
  Warrants  Exercise  price per  Intrinsic 
  outstanding  price per share  share  value(1) 

Balance, December 31, 2021

  36,765,502   $0.161.00  $0.27     

Issued

  10,393,936   0.200.25   0.22     

Expired

  (388,889)   0.22    0.22     

Balance, March 31, 2022

  46,770,549   $0.141.00  $0.26  $342,000 
                   

Balance, December 31, 2020

  32,980,989   $0.161.00  $0.29     

Issued

  1,975,000   0.140.18   0.16     

Expired

  (746,528)  0.190.22   0.20     

Balance, March 31, 2021

  34,209,461   $0.141.00  $0.29     
 

(1)(1)

– Aggregate intrinsic value based on closing common stock price of $0.23 at March 31, 2021.2022.

 

17

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Warrants issued in 2020 Unit Offering

 

During the three months ended March 31, 2021, 2022, pursuant to our 2020 Unit Offering (see Note 3)3), we issued six-monthsix-month stock purchase warrants to purchase an aggregate 5,196,968 shares of our common stock at $0.21 per share, and five-year stock purchase warrants to purchase an aggregate 5,196,968 shares of our common stock at $0.25 per share.

During the three months ended March 31, 2021, pursuant to our 2020 Unit Offering (see Note 3), we issued six-month stock purchase warrants to purchase an aggregate 875,000 shares of our common stock at $0.14 per share, and five-yearfive-year stock purchase warrants to purchase an aggregate 875,000 shares of our common stock at $0.18 per share.

 

Amendment to Note payable matures on 60 days notice (or March 8, 2023)

On March 1, 2021, we and the holder of a $50,000 note payable modified the note to set a specific maturity date of March 1, 2023, and allow the investor to convert the note to our common stock at a price of $0.16 per share. In lieu of interest during the extended period of the note, we issued the investor a warrant to purchase 225,000 shares of our common stock at $0.16 per share for a period of five years.  The fair value of these warrants totaled $35,000 and is recorded as a debt discount on our consolidated balance sheets, of which amount will be amortized to interest expense over the two-year term of the debt.

Fair Value Interest Expense

 

To determine interest expense related to our outstanding warrants issued in conjunction with debt offerings, the fair value of each award grant is estimated on the date of grant using the Black-Scholes option pricing model and the relative fair values are amortized over the life of the warrant. For the determination of expense of warrants issued for services, extinguishment of debt and settlement, management also uses the option-pricing model. The principal assumptions we used in applying this model were as follows:

 

 

March 31,

2021

  

March 31,

2020

  

March 31,

2022

  

March 31,

2021

 

Risk free interest rate

   0.71% 

 

  0.23

%

 

%

  0.71% 

 

Expected volatility

   100% 

 

  112

%

 

%

  100% 

 

Expected dividend yield

              

Forfeiture rate

              

Expected life in years

  .5-5   2    .5-5 

 

The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant. Expected volatilities are based on historical volatility of our common stock. The expected life in years is based on the contract term of the warrant.

 

 

Note 7. Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses included the following (in thousands):

 

  

March 31,

2021

  

December 31,

2020

 

Accounts payable and accrued expense

 $187  $315 

Accrued interest

  49   42 

Accrued payroll

  178   156 

Total accounts payable and accrued expenses

 $414  $513 

19

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

  

March 31,

2021

  

December 31,

2020

 

Accounts payable and accrued expense

 $461  $349 

Accrued interest

  25   25 

Accrued payroll

  186   185 

Total accounts payable and accrued expenses

 $672  $559 

 

Accounts payable and accrued expenses includes ordinary business payables incurred by the Company and its operational subsidiaries. See Note 9, “Accounts8, “Accounts Payable and Accrued ExpensesExpenses”, for the accounts payable and accrued expenses of Clyra Medical.

 

 

Note 8. In-process Research and Development

On September 26, 2018, BioLargo and Clyra Medical entered into a transaction (the “Scion Transaction”) whereby BioLargo would acquire, and then license back to Clyra, the intangible assets of Scion Solutions, LLC (“Scion”), and in particular its in-process research and development of the “SkinDisc,” a method for treating advanced hard-to-treat wounds including diabetic ulcers. In addition to a pending patent application, the assets included the technical know-how and data developed by the Scion team.

Note 9.8. Noncontrolling Interest Clyra Medical

 

As discussed in Note 2, weWe consolidate the operations of our partially owned subsidiary Clyra Medical, of which we owned 45%58% of its outstanding shares as of March 31, 2021.2022.

 

Acquisition of In-process ResearchBioLargo and Development

On September 26, 2018,its partially owned subsidiary Clyra Medical entered into a transaction with Scion Solutions, LLC, for the purchasean agreement dated March 3, 2022, whereby BioLargo agreed to convert $633,000 in working capital advances, made to or on behalf of its intellectual property, including its SkinDisc. The consideration provided to Scion is subject to an escrow agreement (“Escrow Agreement”) and earn out provisions and includes: (i) 21,000 shares of the Clyra Medical, common stock; (ii) 10,000into 2,042 shares of Clyra Medical common stock redeemable for 7,142,858 BioLargo common shares (detailed below); and (iii)at a promissory note in the principal amountrate of $1,250,000 to be paid through new capital investments and revenue, as detailed below. This consideration was initially held in escrow pending Clyra Medical raising $1 million “base capital” to fund its business operations.$310 per share.

 

On December 17, 2018, the parties entered into a closing agreement (“Closing Agreement”) reflecting the satisfaction

18

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Debt Obligations of Clyra Medical

 

Note Payable (Scion)

In conjunction with the transaction in which certain intellectual property was purchased from Scion, Clyra issued a promissory note to Scion in the principal amount of $1,250,000 on September 26, 2018 (“Clyra-Scion Note”), accruing interest at an annual rate of 5%. Clyra is obligated to make principal and interest payments periodically, based on a percent (25%) of investment proceeds, and 5% of revenues. Payments are due annually each June 26th until paid. At March 31, 2021 and December 31, 2020, the balance due on the Clyra Medical Note Payable totaled $1,007,000.

Inventory Line of Credit

 

On June 30, 2020, Clyra Medical entered into a one-year Revolving Line of Credit Agreement whereby Vernal Bay Capital Group, LLC committed to provide a $1,000,000 inventory line of credit to Clyra.credit. Clyra hasMedical received $260,000 in draws since and made repayments totaling $83,000. As of March 31, 2022, the inception of thebalance outstanding on this line of credit.

Clyra is required to use fundscredit totals $177,000. Funds from the line of credit must be used to produce inventory. Additional draws are conditional upon Clyra presentingthe presentation of invoices or purchase orders to the lender equal to the greater of one-halfone-half of principal outstanding on the line of credit, and $200,000. The line of credit note earns interest at 15%, matures in one year, on June 30, 2022, and requires Clyra pay interest and principal from gross product sales. For the first 180 days, on a monthly basis, Clyra is required to pay 30%60% of gross product sales to reduce amounts owed and thereafter 60%on the line of gross sales.credit. Clyra issued Vernal Bay 323 shares of its common stock as a commitment fee for the line of credit, valued at $70,000. A security agreement of the same date grants Vernal Bay a security interest in Clyra’s inventory, as that term is defined in the Uniform Commercial Code. Clyra may prepay the note at any time.

 

20

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)Clyra Medical other asset

 

DuringOn December 30, 2015, Clyra entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen will be providing consulting services to Clyra related to its sales and marketing activities, and in exchange receive $23,000 per month for a period of four years. On June 30, 2020, at Clyra’s request, Beach House Consulting agreed to accept 3,639 shares of Clyra common stock, in lieu of cash, as full prepayment of the consulting fee. The obligation to provide the consulting services is dependent on Clyra generating an average of $250,000 in monthly sales over three consecutive months, ended March 31, which has not been met. The value of the shares issued to Beach House were higher but the asset was impaired in 2021, we made payments the asset totals $591,000 and is recorded as a non-current asset on the line of credit totaling $24,000. As of March 31, 2021, theour balance outstanding on this line of credit totals $200,000. (See Note 13.)sheet.

 

Clyra Medical Equity transactions

 

As of March 31, 2021, 2022, Clyra Medical had the following common and preferred shares outstanding:

 

Shareholder

 

Shares

  

Percent

 

BioLargo, Inc.

  49,207   45%

Sanatio Capital

  18,704   17%

Scion Solutions(1)

  21,700   20%

Other

  19,280   18%

Total

  108,891     

Notes:

(1)

Does not include an additional 9,300 shares held in escrow subject to performance metrics that have not been met.

Shareholder

 

Shares

  

Percent

 

BioLargo, Inc.

  51,249   58%

Sanatio Capital

  18,704   21%

Other

  19,118   21%

Total

  89,071     

 

Sales of Common Shares

 

There were 0 sales of Clyra shares during the three months ended March 31, 2022.

During the three months ended March 31, 2021, Clyra raised $50,000 at $310 per Clyra share.

 

Stock Options

 

Clyra issues options to its employees and consultants in lieu of compensation owed on a regular basis. As of December 31, 2020, 2021, the Company had issued options to purchase 11,41114,004 shares of Clyra stock. During the three months ended March 31, 2021 2022 and 2020,2021, Clyra issued options to purchase 777648 and 1,945777 shares of its common stock. Each option issued has an exercise price of $1.00 per share, are vested upon issuance and an expiration date 10 years from the date of grant. The fair value of the options issued in in the three months ended March 31, 2021 2022 and 20202021 totaled $161,000$141,000 and $420,000.$161,000. We used the Black-Scholes model to calculate the initial fair value, assuming a stock price on date of grant of $310 per share. Because Clyra is a private company with no secondary market for its common stock, the resulting fair value was discounted by 30%. We also used a risk-free rate of 2.32%, a volatility of 40% and an expected life of 10 years.

 

Clyra Accounts Payable and Accrued Expenses

 

Clyra had the following accounts payable and accrued expenses as follows:

 

  

March 31,

2021

  

December 31,

2020

 

Accounts payable and accrued expense

 $498  $402 

Accrued interest

  115   32 

Accrued payroll

  52   102 

Total Clyra Medical accounts payable and accrued expenses

 $665  $536 

Note 10. BioLargo Engineering, Science and Technologies, LLC

In September 2017, we commenced a full-service environmental engineering firm and formed a Tennessee entity named BioLargo Engineering, Science & Technologies, LLC (“BLEST”). In conjunction with the start of this subsidiary, we entered into a three-year office lease in the Knoxville, Tennessee area, and entered into employment agreements with six scientists and engineers. (See Note 11, “Business Segment Information”.) The company was capitalized with two classes of membership units: Class A, 100% owned by BioLargo, and Class B, held by management of BLEST, and which initially have no “profit interest,” as that term is defined in Tennessee law. However, over the succeeding five years, the Class B members can earn up to a 30% profit interest. They also have been granted options to purchase up to an aggregate 1,750,000 shares of BioLargo, Inc. common stock. The profit interest and option shares are subject to a five year vesting schedule tied to the performance of the subsidiary, including gross revenue targets that increase over time, obtaining positive cash flow by March 31, 2018 (which was not met), collecting 90% of its account receivables, obtaining a profit of 10% in its first year (and increasing in subsequent years), making progress in the scale-up and commercialization of our AOS system, and using BioLargo research scientists (such as our Canadian team) for billable work on client projects. These criteria are to be evaluated annually by BLEST’s compensation committee (which includes BioLargo’s president, CFO, and BLEST’s president), beginning September 2018. Given the significant performance criteria, the Class B units and the stock options will only be recognized in compensation expense if or when the criteria are satisfied.

  

March 31,

2022

  

December 31,

2021

 

Accounts payable and accrued expense

 $201  $149 

Accrued interest

  0   51 

Accrued payroll

  3   30 

Total Clyra Medical accounts payable and accrued expenses

 $204  $230 

 

2119

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

 

Note 11.9. Business Segment Information

 

BioLargo currently has four operating business segments, plus its corporate entity which is responsible for general corporate operations, including administrative functions, finance, human resources, marketing, legal, etc. The four operational business segments are:

 

 

1.

ONM Environmental Inc. (“ONM”) -- which sells odor and volatile organic control products and services(locatedservices (located in Westminster, California);

 

2.

Clyra Medical Technologies (“Clyra”Clyra Medical”) -- which develops and sells medical products based on our technologies;

 

3.

BLEST -- which provides professional engineering services on a time and materials basis for outside clients and supports our internal operations as needed (located in Oak Ridge, Tennessee); and

BLEST -- which provides professional engineering services on a time and materials basis for outside clients and supports our internal operations as needed (located in Oak Ridge, Tennessee); and

 

4.

BioLargo Water (“Water”) -- which historically focused entirely on R&D, and has now shifted its focus to commercializing the AOS technology (located in Edmonton, Alberta Canada).

 

Historically, none of our operating business units have operated at a profit and therefore each required additional cash to meet its monthly expenses. The additional sources of the cash to fund the shortfall from operations of ONM, BLEST and BioLargo Water have been provided by BioLargo’s sales of debt or equity, research grants, and tax credits. Clyra Medical has been funded by third party investors who invest directly in Clyra Medical in exchange for equity ownership in that entity.

 

The segment information for the three months ended March 31, 2021 2022 and 2020,2021, is as follows (in thousands):

 

March 31, 2021

 

BioLargo

  

ONM

  

Clyra

  

BLEST

  

Water

  

Elimination

  

Total

 

March 31, 2022

 

BioLargo

  

ONM

  

Clyra

  

BLEST

  

Water

  

Elimination

  Total 

Revenue

 $7  $320  $115  $388  $8  $(267) $571  $2  $600  $10  $545  $0  $(192) $965 

Intersegment revenue

  (7)        (260)     267     (2) (2) 0  (188) 0  192  0 

Research and development

  (336)     (27)  (105)  (119)  260   (327) (265) 0  (16) (108) (197) 194  (392)

Operating loss

  (923)  (176)  (439)  (183)  (137)     (1,858)

Operating income (loss)

 (1,220) 13  (240) (35) (228) 0  (1,710)

Grant income

              30      30  0  0  0  0  5  0  5 

Interest expense

  (55)     (38)           (93) (6) 0  (7) 0  0  0  (13)

Net loss

  (978)  (176)  (434)  (183)  (107)     (1,878)

Net income (loss)

 (1,226) 187  (247) (35) (223) 0  (1,544)

 

March 31, 2020

 

BioLargo

  

ONM

  

Clyra

  

BLEST

  

Water

  

Elimination

  

Total

 

Revenue

 $  $298  $  $284  $  $(143) $439 

Intersegment revenue

           (143)     143    

Research and development

  (202)     (14)  (82)  (180)  143   (335)

Operating loss

  (972)  (153)  (306)  (43)  (228)     (1,702)

Grant income

              57      57 

Interest expense

  (744)     (13)           (757)

Net loss

  (1,716)  (153)  (533)  (43)  (171)     (2,616)

March 31, 2021

 

BioLargo

  

ONM

  

Clyra

  

BLEST

  

Water

  

Elimination

  

Total

 

Revenue

 $7  $320  $115  $388  $8  $(267) $571 

Intersegment revenue

  (7)  0   0   (260)  0   267   0 

Research and development

  (336)  0   (2)  (105)  (119)  260   (327)

Operating loss

  (923)  (176)  (439)  (183)  (137)  0   (1,858)

Grant income

  0   0   0   0   30   0   30 

Interest expense

  (55)  0   (38)  0   0   0   (93)

Net loss

  (978)  (176)  (434)  (183)  (107)  0   (1,878)

As of March 31, 2022

 

BioLargo

  

ONM

  

Clyra

  

BLEST

  

Water

  

Elimination

  

Total

 

Tangible assets

 $788  $590  $817  $502  $177  $(46) $2,828 

Right of use

  200   0   0   221   0   0   421 

Investment in South Korean joint venture

  40   0   0   0   0   0   40 

Total

 $1,028  $590  $817  $723  $177  $(46) $3,289 

As of December 31, 2021

 

BioLargo

  

ONM

  

Clyra

  

BLEST

  

Water

  

Elimination

  

Total

 

Tangible assets

 $690  $451  $832  $445  $152  $(47) $2,522 

Right of use

  222   0   0   231   0   0   453 

Investment in South Korean joint venture

  48   0   0   0   0   0   48 

Total

  960   451   832   676   152   (47) $3,023 

 

2220

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

As of March 31, 2021

 

BioLargo

  

ONM

  

Clyra

  

BLEST

  

Water

  

Elimination

  

Total

 

Tangible assets

 $849  $542  $1,024  $267  $173  $(47) $2,808 
Right of use  200         126         326 

Investment in South Korean joint venture

  53                  53 

Intangible assets

  2,150                  2,150 

BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

As of December 31, 2020

 

BioLargo

  

ONM

  

Clyra

  

BLEST

  

Water

  

Elimination

  

Total

 

Tangible assets

 $603  $624  $1,125  $314  $105  $(42) $2,388 
Right of Use  215         126         341 

Investment in South Korean joint venture

  63                  63 

Intangible assets

  2,150                  2,150 

Note 12.10. Commitments and Contingencies

 

Office Leases

 

We have long-term operating leases for office, industrial and laboratory space in Westminster, California, Oak Ridge, Tennessee, and Alberta, Canada. Payments made under operating leases are charged to the Consolidated Statement of Operations and Comprehensive Loss on a straight-line basis over the term of the operating lease agreement. For the three months ended March 31, 2021 2022 and 2020,2021, rental expense was $56,000$63,000 and $55,000,$56,000, respectively.  As of March 31, 2021, 2022, our weighted average remaining lease term is threefour years and the total remaining operating lease payments is $479,000.$670,000.

 

We have long-term operating leases for office, industrial and laboratory space in Westminster, California, Oak Ridge, Tennessee, and Alberta, Canada. Payments made under operating leases are charged to the Consolidated Statement of Operations and Comprehensive Loss on a straight-line basis over the term of the operating lease agreement. On January 1, 2019, we adopted ASC 842 which resulted in a right-of-use asset and lease liability. Short-term leases are not included in our analysis. The adoption resulted in an immaterial cumulative effect of an accounting change that was not recorded.  The lease of our Westminster facility qualifies for the new treatment; it originated in expires August 2016, was originally scheduled to expire August 2020, contains a yearly escalation of 3%, and includes a four-year renewal option whereby the base rent is adjusted to then market value. During 2020, we exercised our option to extend the lease for four years. 2024. It is too early for management to determine if it will exercise its option to extend another the lease four years, therefore the additional four-yearfour-year extension is not included in the analysis. The lease of our Oak Ridge, Tennessee facility also qualifies, and it had one three-yearthree-year extension to September 2022, and has one renewal option for another five years where the rental rate would adjust to greater of the current price and fair market value. No determination has been made whether toManagement determined that it will exercise the five-yearfive-year renewal option for the Oak Ridge facility. The lease of our Canadian facility is less than one year. None of our leases have additional terms related to the payments or mechanics of the lease. The leases have no additional payment terms such as common area maintenance payments, tax sharing payments or other allocable expenses. Likewise, the leases do not contain other terms and conditions of use, such as variable lease payments, residual value guaranties or other restrictive financial terms. Since there is no explicit interest rate in our leases, management used its incremental borrowing rate, which is estimated to be 18% to determine lease liability.

 

 

Note 13.11. Subsequent Events.

 

Management has evaluated subsequent events through the date of the filing of this Annual Reportreport and management noted the following for disclosure.

 

Unit Offering InvestmentInvestments

 

From On April 1, 2021, through May 12, 2021, we received one investment in our 2020 Unit Offering (see Note 3) of $50,000 and issued 285,714 shares of common stock, a six-month warrant to purchase 285,714 shares of common stock, and a five-year warrant to purchase 285,714 shares of common stock.

Sales to Lincoln Park

From April 1, 2021, through May 12, 2021, 19, 2022, we sold 2,658,9553,723,077 shares of our common stock to Lincoln Parkfour investors and received $454,000$726,000 in gross and net proceeds. (See Note 3.)

ConversionEach investor received two stock purchase warrants: (i) a warrant expiring six months after the investment date allowing for the purchase of Debt due April 2021

On its maturitythe number of shares the investor purchased, for $0.234 per share, and (ii) a warrant expiring five years after the investment date allowing for the purchase of April 20, 2021, we converted to equity a promissory note in the principal balancenumber of $100,000, plus $9,995 of accrued interest, into 448,706 shares of our common stock.

Extension of Clyra Line of Credit

Subsequent to March 31, 2021, Clyra and the holder of its inventory line of credit (See Note 9) extended the maturity date to June 30, 2022.investor purchased, for $0.2925 per share.

2321

 

 

Item 2.                  Managements Discussion and Analysis of Financial Condition and Results of Operations

 

This quarterly report on Form 10-Q contains forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding BioLargo’s capital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding BioLargo’s ability to carry out its planned development and production of products. Forward-looking statements are made, without limitation, in relation to BioLargo’s operating plans, BioLargo’s liquidity and financial condition, availability of funds, operating and exploration costs and the market in which BioLargo competes. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined in our Form most recent annual report on Form 10-K, and, from time to time, in other reports BioLargo files with the SEC. These factors may cause BioLargo’s actual results to differ materially from any forward-looking statement. BioLargo disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Unless otherwise expressly stated herein, all statements, including forward-looking statements, set forth in this Form 10-Q are as of March 31, 2021,2022, unless expressly stated otherwise, and we undertake no duty to update this information.

 

As used in this report, “we” and “Company” refers to (i) BioLargo, Inc., a Delaware corporation; (ii) its wholly-owned subsidiaries BioLargo Life Technologies, Inc., a California corporation, ONM Environmental, Inc., a California corporation, BioLargo Development Corp., a California corporation, and BioLargo Water Investment Group, Inc., a California corporation, and its wholly owned Canadian subsidiary BioLargo Water, Inc. (iii) its majority-owned subsidiary BioLargo Engineering, Science & Technologies, LLC, a Tennessee limited liability company, and Canadian subsidiary BioLargo Water, Inc.;company; and (iv) Clyra Medical Technologies, Inc. (“Clyra”), a partially owned subsidiary.

 

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the related notes to the consolidated financial statements included elsewhere in this report.

 

Our Business - Innovator and Solution Provider

 

BioLargo, Inc. invents, develops, and commercializes innovative platform technologies to solve challenging environmental problems like PFAS contamination, advanced water and wastewater treatment, industrial odor and VOC control, air quality control, infection control, and infection control. With over thirteen years ofmyriad environmental remediation challenges. Having conducted continual and extensive R&D,research and development, BioLargo holds a wide array of issued patents, maintains a robust pipeline of products, and provides full-service environmental engineering. Our peer-reviewed scientific approach allows us toWe invent or acquire novel technologies and develop them to maturity through our operating subsidiaries.subsidiaries using cutting-edge scientific and engineering methodologies. With a keen emphasis on collaborationspartnerships with academic, municipal,government, and commercial organizations and associations, BioLargo has proven itself withby executing on challenging environmental engineering projects, demonstrating its powerful technologies through pilots, trials, and early commercial adoption, publishing high-impact academic and industry publications, and winning over 80 awarded grants and numerous pilot projects.90 grants. We monetize our innovations through direct sales and recurring service contracts, as well as through channel partnerships, meaning licensing agreements, exclusive and non-exclusive distribution agreements, brand development partnerships, sale referral partnerships, strategic joint venture formation, and/or the sale of the IP. Channel partnerships allow us to extend the commercial reach of our products and services disproportionately to our core infrastructure and staffing.

The past year held a shift in focus at BioLargo toward the development and commercial execution of several key business initiatives with the potential to generate significant organizational and revenue growth for the company. Three of these projects in particular represent the dominant catalysts for near-term monetization of our core technologies and engineering services: 1) the advancement of our PFAS removal system (the AEC, or “Aqueous Electrostatic Concentrator”) toward commercial trials with a Southern California municipal water agency and a federal government agency, 2) the design, manufacture, pre-trial testing, and preparation for field trials with first customers of a novel “minimal liquid discharge” wastewater treatment system in partnership with Garratt-Callahan, the largest privately held water treatment company in America with more than 100 years history, and 3) the manufacture and successful launch of a new pet odor control product based on BioLargo’s intellectual property launched by our partners at Ikigai Marketing Works, LLC, a venture aimed at building a national pet odor-control brand with distribution through big-box retailers to position for sale of the brand to a multi-national consumer products company. Additionally, our engineering services division has begun the initial phase of a large capital project in the cleantech and environmental technologies space - a waste-to-energy conversion plant in South America (see Waste-to-Energy Conversion Plant Project below).

Three main factors differentiate this past year from the years that preceded it for BioLargo. First, we have built our credibility as cleantech technology innovators and environmental engineering service providers to the point where industry stakeholders, clients, and prospective partners rightfully view us as an effective and reliable means to solve their challenges. This has resulted in what we believe will continue advancing to become high-revenue and profit generating projects with channel partners such as Garratt-Callahan and Ikigai. This “critical mass” of credibility as a cleantech solutions provider is a result of our investments in our talented team of engineers and scientists with a track record of executing complex engineering projects, and our history of developing creative and powerful new technologies. Secondly, our core patented water treatment technologies, the BioLargo Advanced Oxidation System (AOS) and Aqueous Electrostatic Concentrator (AEC), have now been demonstrated in successful pilot projects, either on-site at a prospective client’s facility, or in-house with client-provided contaminated waters. Both of these technologies are now primed for commercialization and monetization. Third, our multi-year effort to remove debt from our balance sheet has almost concluded, with only one $50,000 fixed-price convertible note due in 2023 remaining, along with covid-related low-interest U.S. Small Business Administration loans (not including debt owed by our partially owned subsidiary Clyra Medical Technologies).

 

In the last year,first quarter of 2022, our subsidiary ONM Environmental generated net operating income of $187,000, as compared with a net operating loss in the first quarter of 2021 of $176,000, and our engineering subsidiary reduced its operating loss from $183,000 in the first quarter of 2021, to only $35,000 in this most recent quarter. Several factors contributed to this: 1) each subsidiary benefited from significant organic growth of contracts within its main target market, 2) both executed some larger projects as compared to prior experience, and 3) in the case of ONM Environmental, license royalties on products based on our intellectual property began to generate a larger amount of revenue. Of the Company’s other two subsidiaries, Clyra Medical Technologies is presently working to raise capital to support the marketing and sales of its newly launched Bioclynse product, and BioLargo Water is working to land the first commercial accounts for its innovative low-energy water treatment technology the BioLargo AOS. After years of investing heavily in research and development of our patented cleantech technologies (roughly $1.5 million in 2021 alone), we developed and refined new technologies thatare at a turning point where our core assets are either seeing early fruits of commercialization or are now ready for commercial trials (see Development of AEC to Combat PFAS Crisis, and New Technology – Mineral Extraction), formalized strategic relationships to expand sales and revenues (see South Korean Joint Venture, and Full Service Environmental Engineering), arranged for demonstration pilot projects for our AOS water treatment system (see Sunworks Farm Pilot and Municipal Wastewater Treatment Pilot – Montreal), increased revenues, including those of our flagship product, CupriDyne Clean (see Results of Operations), and began the process to register our CupriDyne technology with the EPA to make advanced sanitization and disinfection claims, all the while we and the world struggled through the challenges presented by the COVID-19 pandemic.

Several of our technologies are commercially available and are advancing as disrupters in their respective markets.monetization.

 

Formula for Success: Technology, Talent and Purpose

 

Technology

 

The CompanyBioLargo has continually advanced its robust portfolio of technologies since the first acquisition of early iterations of the BioLargo technology in the spring of 2007. Our innovations have primarily been developed through the company’sour internal resources, and some through acquisition. These include patents, patents pending, and trade secrets that include solutions for:

 

PFAS removal

SARS-CoV-2 solutions

Air quality controls and systems including odor and VOC control

 

Water decontamination, including:

o

Removal of per- and poly-fluoroalkyl substances (PFAS) from drinking and ground water

o

Micropollutant destruction and removal

o

Legionella detection and water treatment solutions

 

Micro-pollutant destructionAir quality controls and removalsystems including odor and VOC control

 

Legionella detection and water treatment solutionsMineral processing

 

Mineral processingInfection control

 

Infection controlWound management

Wound management

Regenerative tissue therapy

 

Disinfection

 

Talent

 

We have steadily grown our team to 2731 team members and numerous other part-time consultants, including highly qualified PhDs, engineers, MDs and medical professionals, construction professionals, field service technicians, innovators, sales marketing specialists, entrepreneurial and executive leadership.

 

Purpose

 

Our mission to make life better centers our company on servingdrives us to serve others with integrity, knowledge, technology, and solutions that protect the environment, improve quality of life, and protect lives. All our technologies were developed from the ground-up to be sustainable, practical solutions to significant global challenges. We are unique in our ability to tailor our offerings to serve our customers with proven expertise, proven technology and, if needed, we often have the ability to develop new technical solutions to meet our customer’s needs.

 

Development of AEC to CombatCombating the PFAS Forever-Chemical  Crisis – the AEC

 

One of the most significant and timely innovations in our portfolio is our PFAS removal and collection/disposal solution we call the Aqueous Electrostatic Concentrator (AEC). Our engineers at BLEST have developed and are now preparing to commercialize the AEC, which is a novel water treatment system called the AEC (Aqueous Electrostatic Concentrator), that removes per- and poly-fluoroalkyl substances (PFAS) from water at a fraction of the operating cost and generating only a fraction of existing solutions.the PFAS-laden waste of the most common currently used solutions (carbon filtration, ion exchange, and reverse osmosis). PFAS chemicals can causehave been linked to cancer, infertility, asthma,immune disorders, liver dysfunction, and many other human health problems, in human beings,and are presentcontained in a vast range of manufactured goods, common household products (e.g., cleaning products, cookware), and electronics, and contaminate drinking water in unsafe levels all over the globe. Governments

PFAS is often referred to as the “contaminant of the decade”, and industryas such, it is considered a multi-billion dollar commercial market opportunity. The White House has named the PFAS crisis as a top policy agenda item and the EPA has and will continue to tighten the regulatory requirements to mitigate and manage and limit human exposure to PFAS, all of which will continue to push the market to find and adopt commercially viable solutions. Notably, some emerging regulations on PFAS in the U.S. are activelyexpected to skew the market toward seeking less expensivetreatment technologies and processes to eliminate PFAS from groundwater and drinking water. The U.S. Environmental Protection Agency (“EPA”) has made finding an economical solutionthat produce as little PFAS-laden solid waste as possible, a priority, announcing in February 2021 final regulatory determinations on the safe maximumfavorable trend for our AEC that generates very little PFAS-laden waste. Detection of unsafe levels of PFAS around the world has given rise to a number of market opportunities, including in drinking water, paving the way for regulating the chemicals through the Safe Drinking Water Actindustrial wastewater, municipal wastewater, solid waste, organic foods and creating a regulatory environment where municipalities will be required to install technologies that help remove PFAS from their drinking water supplies prior to distribution.

PFAS water contamination is a significant problem worldwide. In the United States, PFAS chemicals have been estimated to be present in the blood of 98% of the population and have been linked to a plethora of health problems including high cholesterol, liver dysfunction, immune disorders and various cancers. Over 1,400 communities so far in the U.S. have been proven to be affected by PFAS water contamination. In Orange County, California, where our corporate offices are located, more than 40 drinking water wells have been taken out of service due to PFAS contamination, and county officials estimate that treating the wells using existing technologies will cost more than $200 million in capital costs and more than $400 million in maintenance and operating costs, with a total cost over 30 years of nearly $1 billion. When PFAS-laden carbon is incinerated, not only does it produce vast volumes of greenhouse gases such as carbon dioxide, but new evidence suggests volatile fluorochemicals like carbon tetrafluoride, hexafluoroethane, and hydrogen fluoride are released into the air which may have serious human health impacts on adjacent communities. Our technology does not require incineration.

Our AEC treatment system has been proven in lab-scale studies to meet or exceed the performance of current incumbent solutions (such as carbon-filtration and reverse osmosis) while consuming as little as $0.30 in electrical costs per 1,000 gallons treated. And most significantly, the AEC produces substantially less waste than carbon-filtration and reverse osmosis systems, creating far less of a disposal liability. We believe testing will show that total operating costs of the AEC represent a significant potential cost savings compared to reverse osmosis and carbon sequestration technologies.

In the first quarter of 2021, BioLargo Engineering achieved a critical technical milestone in the development and refinement of the AEC that may have far-reaching effects on the technology’s commercial rollout and long-term profitability as cornerstone technology for BioLargo. The development involved modifying the electrical configuration of the AEC to extend the useful lifespan of its specialized membranes, which are a crucial component of the technology. This advancement has improved the operating and maintenance metrics for the technology, potentially reducing the frequency of membrane replacement by a factor of six. The company has filed at least one patent application to expand the existing intellectual property coverage for the AEC with the new modification.more. 

 

 

We are in the final stages of refininghave successfully validated the AEC technology prioras an effective system to commercial sales.selectively extract and collect PFAS chemicals from contaminated water including performance testing that shows “non-detect” levels of removal. We have received interest in the system from multiple municipal water agencies, the federal government, multiple service providers that want to partner to serve airports and military bases, and large engineering firms that want to discuss potential business alliances. We have completed third-party testing to validate the efficacyrecently demonstrated more than six months of continuous operation showing no materially significant degradation of the system. We have designed a modular system that can theoretically handle large projects. We are constructing a pilot unit for testing at an ongoing project at a municipal water treatment plant in Canada (see Wastewater Treatment Pilot – Montreal, below). We are hopeful to start multiple pre-commercial trials in the U.S. by the end of summer.AEC system’s components or performance over time. We have also initiated discussions with potential partnerssuccessfully demonstrated that the AEC is scalable and functional to explore business alliancesa commercial scale and that our engineering team has the experience and proven experience to servesuccessfully deliver commercial systems to meet the European markets.needs of a commercial installation and sale. Our team has a history of successful execution in the environmental remediation industry and the knowhow to successfully commercialize the AEC.

 

ThereEquipped with a comprehensive set of data, including removal of PFAS chemicals to “non-detect” levels utilizing client-provided contaminated water, we have expanded our initial marketing of the AEC over the past six months and, through that process, have created a prospective list of commercial opportunities and projects that has provided critical affirmation for our value proposition for the customer market. The process has allowed us to learn from our prospective customers how to tailor our offering to best meet their needs, while at the same time it has created an ever-expanding list of commercial prospects that exceeds $90 million in total revenue potential, subject to our ability to stage in this level of growth. While these potential customers are three main markets for PFAS water treatment in the U.S.considering other competing solutions (like carbon filtration, ion exchange and reverse osmosis systems), each of which have serious negative features, they are actively seeking an alternative like our AEC. Although we intendare highly encouraged and working to address inturn these prospective customers into clients, we are still at the coming years. The first is municipal water treatment – that is water which needs treatment for PFAS before it can be distributed toearly stage of the public or water that must be treated from a wastewater treatment plant. Southern California, Michigancommercial process on each.

We are also currently negotiating with three channel partners and Wisconsin may be hotbeds for this market, as the states have adopted stringent regulations on PFAS limits in drinking water and wastewater, and significant initiatives have begun to implement systems to address the problem. The second market is military bases, where the use of PFAS-containing fire-fighting foam has contaminated the soil and groundwater. These sites are numerous and have significant groundwater and soil contamination problems which regulators are likely to require remediation for in the coming years. The third market is treatment for water intake or outfalls of industrial facilities that use PFAS compounds in manufacturing and other industrial processes. Our first pilot projects are in municipal water treatment. As our engineers are already providing environmental engineering services on U.S. Air Force bases, we believe that work may lead to sales in that arena. While the AEC is designed to efficiently remove and collect PFAS to allow for efficient disposal, our engineers have also conceived of a number of techniquesprospective industrial customers to provide efficient destructioncontract for revenue-generating projects to treat their PFAS.  Having completed our initial testing of concentrated PFAS andclient water (to “non-detect” levels) from a leading water district in southern California, we are working on a proposal to proceed with a commercial field trial. We are preparing a comprehensive plan for review with the membrane collection systems involvedagency to be delivered in the AEC system.near future.

 

ONM Environmental - Industrial Odor and VOC Solutions

 

In 2020, we changed the name of our odor control subsidiary Odor-No-More, Inc., to ONM Environmental, Inc., is BioLargo’s subsidiary that delivers robust and comprehensive products and services to reflect the expansioncontrol and mitigate odor and volatile organic compounds (“VOCs”) emitted from a variety of its work from odor control sales to more robust environmental services.industrial activities, including landfills and other waste handling facilities. Its flagship product, CupriDyne® Clean, reduces and eliminates tough odors and volatile organic compounds (“VOCs”)VOCs in various industrial settings. CupriDyne Clean is delivered through misting systems, sprayers, water trucks and similar water delivery systems designed, manufactured and installed by ONM. We believe the product is the number-one performing odor-control product in the market, and that it offers substantial savings to our customers compared with competing products. In response to customer demand for expanded services, ONM Environmental now holds General, Electrical, Plumbing and Low Voltage contractor licenses issued by the California Contractors State License Board, and offers a menu of services to landfills, transfer stations, wastewater treatment facilities as well as facilities in non-waste related industries. These services include engineering design, construction, installation, ongoing maintenance and on-site support services to assist our clients in the implementation and continued use of the various systems that deliver our liquid products in the field (such as misting systems).

 

Our customer base for our odor and VOC business was expanding prior to the COVID-19 crisis and we expect it to continue doing so as the United States recovers from the pandemic. We have been and expect to continue selling product to the largest solid waste handling companies in the country. Very recently, some of the capital projects that ONM previously had on hold due to logistical limitations imposed by the pandemic have begun to come back online, with decision-makers from these clients requesting that ONM resume work on these projects. We also have a number of potential partners actively engaged in commercial trials around the globe and we are actively in discussion with a number of groups to leverage our commercial focus through distribution partnerships.

Last year, ONM Environmental acquiredoffers a deodorizing and sanitizing technology, called EcoMist®, that helps raise the customer care bar for solid waste collectors to treat all types of waste receptacles in real time during pick up. EcoMist® is a devicecan be installed directly onto any waste collection vehicle thatvehicles and automatically sprays odor control products and/or sanitizer into refuse bins or dumpsters during the waste collection process. ONM plans to test market the product directly with its major solid waste handling customers by packaging it with CupriDyne Clean. A video showing EcoMist® in operation can be viewed here: https://www.biolargo.com/ecomist-video. EcoMist® is easy to install and use – it worksan “out-of-the-box”, product, allowing customers to install the system themselves, and will thus not require a significant investment in logistics and servicing to support sales. ONM’s acquisition of EcoMist®ONM Environmental is part offocusing on selling the product to its strategycurrent customers and garbage truck manufacturers.

We have been and expect to grow revenues of its air quality control division through chemistry deployment systems that leadcontinue selling product to more scalable sales of CupriDyne Clean. It also helps ensure ONM can provide the largest solid waste handling companies in the country, with a broad rangeportion of toolschemistry product sales resulting from national purchasing agreements (NPAs) with large waste handling companies. ONM Environmental also is currently servicing an exclusive three-year supply contract with a large municipality in Southern California for the delivery of CupriDyne Clean, which will provide a steady source of chemistry supply revenue for the company over the next three years.

In addition to solve theirgrowing its revenues organically through the sale of odor and VOC control challengeschemistry and air quality control systems to its primary market segment (municipal solid waste handling in all facetsCalifornia), ONM Environmental aims to accelerate its growth through development of new sales and distribution channels. Some of these, including our partnership with Ikigai Marketing Works, LLC (see Consumer Products below) and our joint venture with BKT Co. Ltd. in South Korea (see South Korean Joint Venture) are already actively advancing toward their business. ONM’s only obligation underend-goal, which is to foster new distribution opportunities for our patented odor and VOC control chemistry without being limited by our own sales and distribution infrastructure. Additional new opportunities for distribution channels are presently being developed, including in new vertical market segments such as pulp and paper, wastewater, oil and gas, construction, and the acquisition agreement is a 10% royaltyauto industry, as well as in new geographical markets including South and Central America. Company management will provide more information on EcoMist® system sales.each of these emerging partnerships as they each become finalized.

 

Cannabis IndustryConsumer Private-Label Products

 

Our CupriDyne CleanIkigai Marketing Works, LLC, which was founded by accomplished industry executives from the consumer-packaged goods industry who have executed successful launches of at least five blockbuster products, has licensed from us a CupriDyne-based household pet odor removal product is soldand a laundry additive for pet related odors. After development of television commercials and a successful test marketing campaign, they have begun a national advertising campaign, and plan to launch the Cannabis industry under a private-label brand through a third party, Mabre Systems. Testing shows that CupriDyne Clean eliminatesproducts in major retailers in the odors emitted by Cannabis grow and production facilities. Sales toUnited States (e.g., Walmart, Target, etc.). Initial sales volume for the industry we severely impacted by the pandemic, and we expect and hope that sales will increase this fiscal year.product has exceeded early expectations.

 

South Korean Joint Venture

 

On February 12, 2020, we executed a “Joint Venture Framework Agreement” with a leading wastewater treatment solution provider based in South Korea (BKT Co. Ltd., “BKT”), to create a South Korean entity that would manufacture odor and VOC control products based on our CupriDyne Clean products. We own 40% of the joint venture. Although the joint venture established manufacturing and is marketing the product, the COVID-19 pandemic significantly impacted the expected growth of the company. In late 2020,company, and continues to do so as the joint venture (under the name Odin) established corporate offices at the Korea Water Cluster, which is a new world-renowned water innovation campus located in Daegu,country of South Korea a centercontinues implementing measures to reduce infections. Management at Odin reports that while initial sales have required extraordinary efforts, continued testing and trial success has reinforced its confidence in continued expansion of sales for industrial innovation in Asia. The move positions Odin well to interface with other innovators in the water treatment sector as well as with industry leaders who may need Odin’s products for air quality control.future.

 

Full Service Environmental Engineering

 

Our subsidiary BioLargo Engineering, Science & Technologies, LLC (“BLEST”) offers full service environmental engineering to third parties and provides engineering support services to our internal teams to accelerate the commercialization of our technologies. Its website is found at www.BioLargoEngineering.com.

 

BLEST focuses its efforts in three areas:

 

providing engineering services to third-party clients;

 

providing engineeringsupporting internal product development and business units’ services to third-party clients;customers (e.g., the AOS); and

 

supporting internal product development and business units’ services to customers (e.g., the AOS); and

 

advancing their own technical innovations such as the AEC.AEC PFAS treatment technology

 

The subsidiary is located in Oak Ridge (a suburb of Knoxville, Tennessee), and employs sevena group of scientists and engineers who collectively worked together for almost 30 years and experience in diverse engineering fields. The team is led by Randall Moore, who served as Manager of Operations for Consulting and Engineering for the Knoxville office of CB&I Environmental & Infrastructure and was formerly a leader at The Shaw Group, Inc., a Fortune 500 global engineering firm. The other team members are also former employees of CB&I and Shaw. The team is highly experienced across multiple industries and they are considered experts in their respective fields, including chemical engineering, wastewater treatment (including design, operations, data gathering and data evaluation), process safety, energy efficiency, air pollution, design and control, technology evaluation, technology integration, air quality management & testing, engineering management, permitting, industrial hygiene, applied research and development, air testing, environmental permitting, HAZOP review, chemical processing, thermal design, computational fluid dynamics, mechanical engineering, mechanical design, NEPDES permitting, RCRA/TSCA compliance and permitting, project management, storm water design & permitting, computer assisted design (CAD), bench chemistry, continuous emission monitoring system operator, data handling and evaluation and decommissioning and decontamination of radiological and chemical contaminated facilities. The engineering team also has developed an extended network of trusted engineering subcontractors that assist in serving specific client projects as needed, from time to time.

 

BLEST established a partnershipIn association with Garratt-Callahan, a national industrial water treatment company, to develop and then sell customBLEST is developing a “minimal liquid discharge” wastewater treatment equipment to recycle water from commercial facilities. They plansystem based on Garratt-Callahan proprietary technology that would industrial wastewater discharge and therefore reduce wastewater discharge fees for customers. Garratt-Callahan is currently preparing to launch the commercial sales of the new systems in late 2021 or early 2022.MLD system to its customers. BLEST will serve as the manufacturing partner and Garratt Callahan will serve as the selling distributor to leverage their national sales force and over one hundred years of providing services and products to customers. BLESTBioLargo’s engineers finished building the first full-scale prototype of this new technology and tested it with Garratt-Callahan client provided water, with Garratt-Callahan technical staff present on-site at BLEST’s facility. In this “factory acceptance” testing, the system removed over 98% of the target contaminants from water provided by a Garratt-Callahan client in continuous operation, in line with results achieved by Garratt-Callahan’s original bench-scale and batch processing tests. This factory acceptance testing was a necessary step before commercial trials with Garratt-Callahan customers can begin. The first customer has already been identified, and initially the plan was to conduct an on-site field trial for that customer. Now, in collaboration with the technical team at Garratt-Callahan, we are recommending that a field trial is also working with Garratt Callahan to expand salesnot required given the level of other BioLargo products. While early, the partiesvalidation that has been done. We are working closely together and have successfully sold other BioLargo productson contractual agreements to customers withinmove the Garratt Callahan network of customers.

BLEST has recently hired a regional vice presidentproject forward to lead and open an office for BLEST at our corporate offices in Westminster, California.first sales.

 

New Technology Mineral ExtractionWaste-to-Energy Conversion Plant Project

 

AtIn April, our engineering subsidiary (BLEST) was hired to conduct a comprehensive project plan (i.e., “feasibility”) study by a Southern California based sustainable energy services company intending to build a waste-to-energy conversion plant in South America. The site of the requestproposed conversion plant is approximately 296 acres, where it is planned to process over two million tons of municipal solid waste annually. A feasibility study is typically the first step in the design process for a new project of this size, and will address multiple fundamental factors that will influence the design and operation of the anticipated facility, including technology options, rough costs to construct and operate, environmental impacts, and rough equipment sizing. The feasibility study would then inform and facilitate the development of a client,design basis document, then conceptual design, and ultimately the front-end engineering design. It is important to note that the term feasibility as used in this context does not involve any sort of technology trials to determine if they are workable, rather the comprehensive plan being prepared is to assist the developer in proper planning, permitting, budgeting for a very large project. Thus far, BioLargo’s engineers have been contracted on the feasibility study only, but expect to be involved in subsequent phases should the project move forward as planned. ONM Environmental was critical in bringing this project to the company and will work with BioLargo’s engineers to execute this project. ONM Environmental brings to the table a team with extensive expertise surrounding the design and operation of waste handling facilities, and BLEST developedbrings a proprietaryteam of veteran engineers with decades of experience designing and patent-pending process to extract valuable minerals from certain typesintegrating complex projects as well as specific expertise in the area of industrial waste. As a resultwaste-to-energy conversion.

 

BioLargo Water and the Advanced Oxidation SystemAOS

 

BioLargo Water is our wholly owned subsidiary located on campus at the University ofin Edmonton, Alberta, Edmonton, Canada, that developed and is commercializing our Advanced Oxidation Systemwater treatment system (AOS). The AOS is our patented water treatment device that generates a series of highly oxidative and energetic species of iodine and other molecules that, because of its proprietary configuration and inner constituents,which allow it to rapidly and effectively eliminate pathogenic organisms and organic contaminants as water passes through the device. The key value proposition of the AOS is its ability to reduce or eliminate a wide variety of waterborne contaminants with high performance while consuming extremely low levels of inputusing very little electricity and extremely low levels of chemistry inputs – a traitinput chemicals. This is made possible by the complex set of highly oxidative iodine compounds and reactive oxygen species generated within the AOS reactor as well as the unique and proprietary physical constitution and geometry of the reactor. Our proof-of-concept studies and case studieson-site pilot projects have generated results that project the AOS will be more cost- and energy-efficient than commonly used advanced water treatment technologies such as UV, electro-chlorination, and ozonation. This value proposition mayFurthermore, our technology has been proven capable of removing hard-to-treat organic micropollutants such as pharmaceuticals from water more quickly and energy-efficiently than other technologies. Together, these characteristics make the AOS an economical and versatile tool to enable wastewater treatment and reuse in the face of emerging water contaminants and increasing regulatory scrutiny on industrial wastewater discharge. The capabilities of the AOS as a sustainable water treatment technology have been the subject of several high-impact academic papers in scientific journals. The company pursues a policy of publishing about the technology in academic journals as much as possible in order to promote transparency about the technology’s safety and efficacy while also contributing to the field of advanced water treatment in applications where it otherwise would have been prohibitively costly. Secondly, the AOS has been proven effective against certain soluble organic molecules, pharmaceuticals and a host of other micropollutants which are difficult to treat with other conventional tertiary water treatment technologies like UV. This characteristic of the AOS may offer a significant incentive for prospective customers to choose this technology over established incumbents because of the need in certain contexts to address these hard-to-treat contaminants, in addition to traditional targets of tertiary treatment like microorganisms.science.

 

BioLargo’s AOS water treatment technology has completed several pre-commercial demonstration pilots, including one at a poultry farm in Alberta, one at a microbrewery in Southern California, and another in Southern California where stormwater was treated by the AOS. It has an ongoing pilot near Montreal to treat municipal wastewater. Presently, we are working to plan the first commercial trials for the AOS technology, starting with Sunworks Farm (read more below). The company plans to secure additional agreements for commercial trials with suitable early-adopter industrial and agricultural wastewater treatment customers in 2021 as part of its plan to directly market the technology for its first revenue-generating projects. To help achieve this goal, in the last quarter BioLargo participated in an invite-only Isle Utilities Industrial Technology Approval Group (iTAG) event to develop leads among potential multinational wastewater treatment customers. At Isle Utilities’ iTAG (Industrial Technology Approval Group) events, which are held three times per year, water specialists, sustainability/innovation managers and other experts from global industries vote on promising water technologies they would like to learn about. Some iTAG member companies include Coca-Cola, Shell, and Proctor & Gamble.

Sunworks Farm Pilot

Our efforts to establish our first commercial pilot for the AOS system, at a poultry and livestock farm in Alberta, Canada, is progressing. We plan to have installed a fully functional treatment train featuring our AOS water system at the client’s farm in the third quarter of 2021, although ongoing Canadian pandemic lockdowns may delay the project. When complete, the system will be the first of its kind to allow for the complete reuse of this industrial wastewater, allowing the client to significantly save on water costs and expand production. The project budget of approximately $600,000 will be funded in part by government grants and in part by the client. We expect the project to be successful, and to set a precedent for the AOS and BioLargo’s total water treatment solutions for future customers seeking water reuse, or even “zero liquid discharge” systems, and we believe will lead to follow-up projects with customers who follow Sunworks’ example.

Municipal Wastewater Treatment Pilot - Montreal

BioLargo Water has commenced a second commercial-scale AOS demonstration pilot, which was installed at a municipal wastewater treatment facility near Montreal, Quebec, to be run in partnership with acclaimed water experts at the Centre des Technologies de L’Eau (CTE). The purpose of the project is to assess the AOS (and eventually, an AEC unit to be added on to the treatment train) as effective, cost-efficient, and complementary solutions for disinfecting and eliminating a broad range of recalcitrant contaminants from municipal wastewater in an operating wastewater treatment plant. It is our belief that once these pre-commercial pilots have concluded with the AOS, our ability to entice major water industry players to partner with BioLargo Water to accelerate market adoption of the AOS will be increased dramatically. Our team in Canada is in discussions with potential early adopters in the agriculture space, and has secured significant provincial and federal grant funding to help defray the cost of a first commercial project.

In the first quarter of 2022, BioLargo Water received a grant from Next Generation Manufacturing Canada (NGen) to support the company’s collaboration with a specialized electrical component designer to assist in optimizing the electrical performance of the AOS with the ultimate goal of maximizing the lifespan of the AOS’ components.

 

Municipal Wastewater Treatment Pilot Montreal

Our commercial-scale AOS demonstration pilot (run in partnership with acclaimed water experts at the Centre des Technologies de L’Eau) at a municipal wastewater treatment plant near Montreal, Quebec, is ongoing and providing important data that shows the AOS is removing five target pharmaceuticals from the wastewater faster and using less electricity than the ultraviolet disinfections system used in the facility. Notably, the pilot project also showed that the AOS was able to also remove total coliforms (bacteria) from the municipal wastewater more effectively than the UV disinfection system currently in use at the facility.

Recently, BioLargo Water was awarded a grant from the government of Canada’s Natural Sciences and Engineering Research Council (NSERC) that allowed for the extension of the pilot project to allow for use of a new, higher flow-rate AOS system, as well as the installation of an AEC system at the pilot to assess its removal of PFAS chemicals from the municipality’s wastewater.  

Clyra Medical Technologies

 

Clyra Medical Technologies, Inc. is our partially owned subsidiary creating medical products based on our technology.

When the COVID-19 crisis began, we immediately responded by supporting the team at Clyra Medical to develop It is launching a product that could help frontline workers battle the pandemic. In response, they developed Clyraguard Personal Protection Spray. Testing and peer-reviewed published data confirmed that Clyraguard inactivates the SARS CoV-2 coronavirus. The product was registered with the FDA as a Class I general purpose disinfectant, and initially sales were brisk. After consultation with legal and regulatory advisors, we decided that the product’s claims required an EPA registration, and sales were stopped. We are actively working on this now (see CupriDyne Plus, below).

Clyra is preparing to launch a prescription-only product to be used by surgeons generally, with a first target market aimed toward orthopedic surgeons for use as a wound irrigation solution and to reduce infections in kneehelp manage patient care and hip replacement surgeries.outcomes. Clyra has secured its first two hospital customers for the product, established a robust quality control system for FDA compliance, recruited a national director of sales, and is negotiating with three separate channel partners to form a commercial alliance. Its other product designs are on hold until such time as it is able to secure the capital and resources to complete any final development and support additional inventory, technical support and sales for these products. In March 2022, Clyra and BioLargo finalized an agreement with Scion Solutions, LLC, whereby the intellectual property (primarily, the SkinDisc) acquired in September 2018 was returned to Scion, and in exchange Scion forgave the outstanding principal and interest due on the promissory note owed by Clyra with an outstanding principal amount of $1,007,000, returned all its shares of Clyra common stock, and its two principals forgave $305,000 in accounts payable owed to them. In addition to the SkinDisc intellectual property, Scion received 2,000,000 of the 5,000,000 shares it had earned from the September 2018 sale of SkinDisc to Clyra/BioLargo. There are channel partnerships in development for Clyra’s BioClynse product in three separate healthcare markets.

 

CupriDyne PlusConclusion

 

AtIn the outset of the Covid-19 pandemic, we set out to revisit and modify the CupriDyne technology with the goal of creating a powerful yet comparatively safer, non-toxic, and environmentally friendly disinfectant and/or surface sanitizer. The result of this redevelopment process, which involved over 500 hours bypast quarter, our engineers and scientists, was “CupriDyne Plus”, a product that delivers a potent concentration of the active ingredient iodine (I2) as compared to traditional CupriDyne based formulations, meaning it can achieve much faster and more complete results. We were successful in achieving these technical objectives.company:

EPA Registration of CupriDyne Plus

We are actively working to obtain an EPA registration for CupriDyne Plus for a number of different applications. CupriDyne Plus has the potential to offer a safer, more environmentally friendly alternative to bleach and other common antimicrobials for applications like hard surface disinfection, sanitization of non-porous non-food contact surfaces, disinfection of air, textiles, and more. Our scientists have conducted many of the tests required for EPA registration. Based on our extensive work, we are confident it meets the minimum performance requirements required for EPA registration as a disinfectant and/or surface sanitizer. We have met with and presented data to officials at the EPA for the purpose of refining our product and determining additional data requirements, and have retained a firm specializing in EPA registration work to help us through the process. While we are not able to predict the results of any EPA application we submit, or the time it will take to complete the process, we believe the market opportunities are large, with the U.S. market for surface disinfectants at more than $1 billion annually. 

Conclusion

grew its revenues significantly, with consolidated revenue growing 69% over the same period in 2021, to $965,000. ONM Environmental was profitable, and BLEST came just shy of profitability

continued to demonstrate the commercial viability of our cleantech products and services through organic growth leading to increased revenue

improved its financial condition by through increasing cash flow from revenues, adding to the improved balance sheet resulting from dramatic reduction in debt over the past year

advanced the commercialization of its technology assets in target markets through channel partnerships that are either already in place and executing, or are currently developing

 

BioLargo has advanced its technologies and infrastructure to achieve a critical mass to capitalize on its commercial efforts and have a positive impact around the world with clean water, clean air, and infection control solutions. The company presents a scalable business model that targets high impacthigh-impact cleantech market opportunities. We leverage our considerable scientific, engineering, and entrepreneurial talent to monetize our technologies and ensure high-quality customer service and increased revenue potential. We seek to unlock the value of our portfolio of disruptive technologies to advance our mission to “make life better” and continue creating shareholder value.

 

As we plan to retire our last convertible debt this coming summer and continue to achieve new technical and business accomplishments, we are experiencing a swell in customer awareness and market acceptance of our special skills to serve customers.

Our revenue and commercial opportunities are extensive, important and expanding. We offer services through our team of highly qualified specialists in engineering, science and general contractor and construction and maintenance teams.  We leverage those efforts with top performing products like our CupriDyne based products, the AOS, the AEC and more.  We continue to expand our distribution and sales tools through partnerships like BKT/Odin and Garratt-Callahan. We leverage the combination of talent and products through engagement by and through our professional engineering services company to bid and win projects.  We are expanding our technology portfolio through organic innovation, collaborations and through acquisition. 

 

Results of Operations

 

We operate our business in distinct business segments:

 

 

ONM Environmental, which manufactures and sells our odor and VOC control products and services including our flagship product, CupriDyne Clean;for sale by itself and third parties through private labels;

 

 

BLEST, our professional engineering services division, supporting our internal business units andadvancing innovations like the AEC to remove PFAS contaminants from water, serving outside clients on a fee for service and/or project bid basis;basis, and supporting our internal business units;

 

Clyra Medical, our partially owned subsidiary which develops and sells medical products based on our technology;

 

BioLargo Water, our Canadian division that has been historically pure research and development, and is now transitioning to focus on commercializing our AOS system; and

 

 

Clyra Medical, our partially owned subsidiary focused on the medical device industry; and

Our corporate operations, which support the operating segments with legal, accounting, human resources, and other services.

 

Of these business segments, three generate revenue: ONM Environmental, BLEST, and Clyra Medical. OurConsolidated revenue increased for the three months ended March 31, 20212022, was $965,000, which is a 69% increase over the same period in 2021. Our service revenue increased 180%, while revenue from product sales and related services increased by 30% as compared to the prior year’s period.

Due to an almost 90% decrease in interest expense as a result37%. Our product revenue includes sales of paymentour CupriDyne Clean industrial odor control product, and conversion to equitysales of debt instruments in the past twelve months,private-label products based on our net loss for the three months ended March 31, 2021, decreased by 28% as compared to the prior year’s period.CupriDyne formula.

 

ONM Environmental

 

During the three months ended March 31, 2021, our wholly ownedOur wholly-owned subsidiary ONM Environmental generatedgenerates revenues through (i) sales of itsour flagship product CupriDyne Clean, and by providingincluding related design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’ facilities. Of its gross sales in the three months ended March 31, 2021, approximately 90% werefacilities, and (ii) sale of private-label products to the waste handling industry.third parties.

 

Revenue (ONM Environmental)

 

ONM Environmental’s revenues for the three months ended March 31, 2021, increased $24,0002022, were $598,000, an increase of $278,000 or 8%87% from the same period in 2020,2021. The increase in revenues was due to an increase in the volume of sales of private label odor-control products, and decreased $297,000an increase in license royalties. Because ONM Environmental has no control over the marketing and sales activity or 48% from the prior three months ended December 31, 2020. Substantially alllevels of its revenue is fromprivate-label clients, it cannot predict sales of CupriDyne Clean products and related system installations, and the remaining from sales of our absorption products to the U.S. military. The small increase in revenue in the first quarter of 2021 as compared with the first quarter of 2020 is due to a decrease last yearvolumes related to these clients in future periods. One client has indicated it intends to continue to increase the pandemic. The decreasenumber of products it is purchasing from ONM Environmental in revenue in the first quarter of 2021 as compared with the fourth quarter of 2020 is due seasonal increases and decreases related to the year-end, we completed multiple capital projects as our customers closed out their year of operations and budgets.  This is a pattern that the company has experienced in prior years, and historically which has rebounded as the season shifts.

Of our CupriDyne Clean sales, approximately one-half were made pursuant to “national purchasing agreements” (“NPA”) with the three largest waste handling companies in the United States.future periods.

 

Cost of Goods Sold (ONM Environmental)

 

ONM Environmental’s cost of goods sold includes costs of raw materials, contract manufacturing, and portions of depreciation, salaries and expenses related to the manufacturing and installation of ourits products. As a percentage of revenue, ONM Environmental’s costs of goods was 41%increased 6% in the three months ended March 31, 2021, versus 45% in2022, to 51%, compared to the same period in 2020.2021. The increase in cost of goods wasis due to increased labor charges from prevailing-wage requirements for public works jobslower margins in the recent quarter.private-label products, and increases in raw material costs.

 

Selling, General and Administrative Expense (ONM Environmental)

 

ONM Environmental’s selling, general and administrative expenses remained consistent at approximately at $320,000 indecreased by 8% ($26,000) during the three months ended March 31, 2021 and 2020.2022, as compared with the same period in 2021. These expenses have remained consistent as we workdecreased due to increase revenues with our current levela reduction of sales and administrativesupport staff. We do not expect these expenses to increase further unless and until our revenues increase.remain consistent in the year ending December 31, 2022.

 

Net LossOperating Income (Loss) (ONM Environmental)

 

For the three months ended March 31, 2021, ONM Environmental generated $320,000$598,000 in revenue, a gross margin of $144,000,$309,000, and had total costs and expenses of $320,000,$292,000, resulting in a netoperating income of $13,000, compared with an operating loss of $176,000.$176,000 for the three months ended March 31, 2021. Provided that its private-label clients continue to purchase product, we expect this trend to continue.

 

 

BLEST (engineering division)

 

Revenue (BLEST)

 

Our engineering segment (BLEST) generated $127,000$355,000 of revenuesrevenue from third party clientsparties in the three months ended March 31, 2022, compared to $128,000 in 2021, versus $156,000 inrepresenting a 177% increase from the prior year. The increase is due to completion of projects within our budgeted amount, an increased number of client contracts, and the recognition of $119,000 of deferred revenue in comparable period in 2020.for ongoing projects that had achieved certain completion milestones.

In addition to providing service to third party clients, BLEST revenues reported on our consolidated statement of operations do not include work performed onprovides services to BioLargo and its subsidiaries for internal BioLargo projects, such as itsprojects. These services are billed internally, are considered intersegment revenue, and are eliminated in the consolidation of our financial statements. In the three months ended March 31, 2022, it totaled $188,000, primarily used to further engineeringengineer and development of thedevelop our flagship AOS water filtration system developmentand our AEC PFAS treatment system. In addition, BLEST engineers are performing a critical role in the AOS pilot projects, some of the AEC to combat the PFAS crisis (see “Development of AEC to Combat PFAS Crisis” above),which are supported by third-party research grants and other new innovations. Its revenues decreased due to its focus on these internal projects.has been instrumental in developing and supporting a professional engineered design service for misting systems being sold by our ONM operating unit.

 

Cost of Goods (Services) Sold (BLEST)

 

BLEST’s cost of services includes employee labor as well as subcontracted labor costs. In the three months ended March 31, 2021,2022, its cost of services were 82%42% of its revenues, versus 83%82% in 2021. This decrease is due to recognition of deferred revenue, and contracts with better margins. Without the three months ended March 31, 2020.recognition of deferred revenue, its cost of services were 63% of revenues.  We expect the cost of services to remain closer to 80%increase in the reminder of the year ending December 31, 2021,2022 based on our current client activity.the contracts currently in progress.

 

Selling, General and Administrative Expense (BLEST)

 

BLEST’SBLEST's SG&A expenses include expense related to its operations, although because it primarily delivers services to its clients, most of its labor costs are includedwere $134,000 in its cost of services (for third party clients), and research and development for its work on BioLargo technologies. BLEST selling, general and administrative expenses during the three months ended March 31, 2021 totaled $100,0002022, compared to $113,000 for$100,000 in the three months ended March 31, 2020.same period in 2021. We expect these expenses to remain flat in 2022; increases in engineering staff are included in cost of services.

 

NetOperating Loss (BLEST)

 

BLEST generated $127,000$357,000 in revenue to outside clients, withfrom third parties, a gross margin of $23,000,$207,000, and had total costs and expenses of $206,000,$242,000, resulting in a netan operating loss of $183,000.$35,000, compared with an operating loss of $183,000 in 2021.

 

BLEST provides substantial support to BioLargo’s other operations, including BioLargo Water and Odor-No-More. While we are unable to record revenues generated from intracompany services by the engineering group to other BioLargo operating divisions for important project such as the development of the AOS and AEC technologies, it is important to note that theits net loss would be eliminated if BLESTit were an outside contract for hire services company selling these services to BioLargo ora third party at fair market value.

Because the subsidiary had a net loss, we invested cash during the year to allow it to maintain operations. BLEST’s need for a cash subsidy to support its subsidiaries.operations has decreased over time. We expect that in 2022 its sales and thus its gross profit will continue to increase. Our goal for this operation is that it produces a profit and contributes to corporate overhead in a significant way, although predicting when that will happen given the uncertainties in the market, and our limited resources, is difficult.

 

Other IncomeSelling, General and Administrative Expense consolidated

 

Our Selling, General and Administrative expense (“SG&A”) include both cash (for example, salaries to employees) and non-cash (for example, stock option compensation expense) expenses. Our consolidated SG&A increased in the aggregate by 4% ($75,000) in the three months ended March 31, 2022, to $1,839,000. Our non-cash expenses (through the issuance of stock and stock options) were relatively flat 2022 compared with 2021 ($818,000 compared to $696,000). The largest components of our SG&A expenses included (in thousands):

  

Three months ended

March 31, 2022

(in thousands,

unaudited)

  

Three months ended

March 31, 2021

(in thousands,

unaudited)

 

Salaries and payroll related

 $809  $731 

Professional fees

  149   168 

Consulting

  316   404 

Office expense

  310   282 

Board of director expense

  111   65 

Sales and marketing

  59   78 

Investor relations

  85   35 

Research and Development

In the three months ended March 31, 2022, we spent $392,000 in the research and development of our technologies and products. This was an increase of 20% (+$65,000) compared to 2021.

Interest expense

Our interest expense for the three months ended March 31, 2022, was $13,000, a decrease of 86% compared with 2021. The significant decrease in interest expense is related to the significant decrease of our debt obligations and a reduction of debt issued during 2022 versus 2021. Of our total interest expense in 2022, $7,000 was paid in cash, and the remainder, comprised primarily of non-cash debt discounts related to warrants issued in conjunction with debt instruments being amortized over the life of the debt instrument; for the three months ended March 31, 2022, non-cash interest expense totaled $4,000.

Our outstanding debt as of March 31, 2022, was lower than as of December 31, 2021. We expect our interest expense in the year ending December 31, 2022, to be in line with the prior year, provided we do not issue debt with attached warrants during the remainder of the year. Additionally, we record the relative fair value of the warrants and the intrinsic value of the beneficial conversion feature sold with the convertible notes payable which typically results in a full discount on the proceeds from the convertible notes. This discount is amortized as interest expense over the term of the convertible notes. We also are currently selling units of common stock and warrants instead of using convertible debt for financing our working capital needs, which if continued, will continue to reduce our ongoing interest expense as compared with prior years.

Other Income

ONM Environmental’s total net income of $187,000 for the three months ended March 31, 2022, includes a one-time recognition of $174,000 in income attributed to the cancellation (forgiveness) of a portion of its Paycheck Protection Program (“PPP”) loan.

Primarily through our wholly owned Canadian subsidiary, haswe have been awarded more than 80 research grants over the years from various Canadian public and private agencies, including the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP), the National Science and Engineering Research Council of Canada (NSERC), and the Metropolitan Water District of Southern California’s Innovative Conservation Program “ICP”. The research grants received are considered reimbursement grants related to costs we incur and therefore are included as Other Income. We continuedThe amount of grant income decreased $25,000 in the three months ended March 31, 2022, to win grants and it is important to note that amounts$5,000.  Grant funds paid directly to third parties are not included as income in our financial statements.

 

Although we are continuing to apply for government and industry grants, and indications from the various grant agencies is highly encouraging, we cannot be certain of continuing those successes in the future. We are very active in both the US and Canada, pursuing grant support for various uses of our products.

 

Selling, General and Administrative Expense consolidated

Our SG&A expenses include both cash expenses (for example, salaries to employees) and non-cash expenses (for example, stock option compensation expense or non-cash charges to interest). Our SG&A expenses increased by 14% ($215,000) in the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Our non-cash expenses totaled $730,000, through the issuance of stock, stock options, amortization of debt discounts and loss on extinguishment of debt in the three months ended March 31, 2021, compared to $1,590,000 in the three months ended March 31, 2020. Our employees, vendors and consultants chose to receive a greater number of stock and stock options in lieu of cash owed and as part of an employee retention program. The largest components of our SG&A expenses included (in thousands):

  

March 31, 2021

  

March 31, 2020

 

Salaries and payroll related

 $731  $548 

Professional fees

  168   228 

Consulting

  404   289 

Office expense

  282   299 

Board of directors expense

  65   68 

Sales and marketing

  78   80 

Investor relations

  35   36 

The increase in salaries and payroll expenses is primarily related to the implementation of a stock option bonus compensation program for employees and other related stock option compensation expenses, and also the hiring of additional personnel to support increasing operations. Consulting expense increased as we have engaged consultants to identify business opportunities and to help with the retail sales of the Clyraguard product. The reduction in professional fees is largely due to the reduced use of outside legal counsel and other service providers.

Research and Development

In the three months ended March 31, 2021, we spent $327,000 in the research and development of our technologies and products. This was a decrease of 2% ($7,000) compared to the three months ended March 31, 2020.

Interest expense

Our interest expense for the three months ended March 31, 2021, was $93,000, a decrease of $664,000 compared with the three months ended March 31, 2020, of which $26,000 was paid in cash, and $43,000 is related to the amortization of discount on convertible notes, and the remaining to other non-cash expense. Our interest expense related to the issuance of and modification of convertible promissory notes. Since March 31, 2020, we converted or paid almost $4 million in debt. As such, we expect our interest expense to be significantly lower in each quarterly period of the year ending December 31, 2021, as compared with the same periods in 2020.

Loss on extinguishment of debt

In the three months ended March 31, 2020, we recorded a loss on extinguishment of debt related to transactions with current vendor and employees where Clyra Medical is unable to pay obligations in cash. In lieu of cash, the vendors and employees accepted options to purchase shares of Clyra stock. The fair value of those options exceeded the debt that was converted by $214,000.

Net Loss

 

Net loss for the three months ended March 31, 2021,2022, was $1,878,000,$1,544,000 a loss of $0.01 per share, compared to a net loss for the three months ended March 31, 2020,2021, of $2,616,000,$1,878,000 a loss of $0.01 per share. The 28% decrease inOur net loss is duethis year declined primarily tobecause of an increase in sales, a reduction in interest expense. As noted in above (see “Interest Expense”), the reduction of interest expense, is directly relatedand the ONM Environmental’s recognition $174,000 in income attributed to our reductionthe cancellation (forgiveness) of the usea portion of debt instruments to finance our working capital requirements.a Paycheck Protection Program loan.

 

The net lossincome (loss) per business segment is as follows (in thousands):

 

Net loss

 

March 31, 2021

  

March 31, 2020

 

Net income (loss)

 

Three months ended

March 31, 2022

(in thousands,

unaudited)

  

Three months ended

March 31, 2021

(in thousands,

unaudited)

 

ONM Environmental

 $(176) $(153) $187  $(176)

BLEST

  (183)  (43)  (35)  (183)

Clyra Medical

  (434)  (535)  (247)  (434)

BioLargo Water

  (107)  (171)  (223)  (107)

Corporate

  (978)  (1,714)

BioLargo corporate

  (1,226)  (978)

Consolidated net loss

 $(1,878) $(2,616) $(1,544) $(1,878)

In the three months ended March 31, 2022, approximately 53% of our net loss was due to non-cash expenses, including $4,000 in interest expense, $801,000 of stock option compensation expense, and $17,000 of services paid by the issuance of stock options.

In the three months ended March 31, 2021, approximately 46% of our net loss was due to non-cash expenses, including $464,000 in interest expense, $585,000 of stock option compensation expense, and $111,000 of services paid by the issuance of common stock.

We believe that ONM Environmental and BLEST (engineering) can achieve net income and positive cash flow from operations in the future, although predicting when that will happen is difficult given numerous uncertainties in the market, our limited capital resources, and our lack of history achieving current results. We expect the Company to continue to incur a aggregate net loss on a consolidated basis for the foreseeable future, even if these two subsidiaries show net income rather than a net loss. 

 

Liquidity and Capital Resources

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. For the three months ended March 31, 2021,2022, we had a net loss of $1,878,000,$1,544,000, used $845,000$1,140,000 cash in operations, and at March 31, 2021,2022, we had a working capital deficit of $1,051,000,$804,000, and current assets of $1,922,000. $2,048,000. During the three months ended March 31, 2022, we generated revenues of $965,000. (See Note 9.)  Only one of our subsidiaries – ONM Environmental – generated positive operating income. None of our other operational subsidiaries did so.

We do not believe gross profits in 2021the year ended December 31, 2022, will be sufficient to fund our current level of operations, or pay our debts as they become due during the next 12 months, and therefore believe we will have to obtain further investment capital to continue to fund operations, such as through our purchase agreement with Lincoln Park Capital, and seek to refinanceprivate sales of our existing debt.securities. (See Note 3.) We have been, and anticipate that we will continue to be, limited in terms of our capital resources.

During the three months ended March 31, 2021, we generated revenues of $571,000 through our subsidiaries. Our subsidiaries did not individually or in the aggregate generate profits sufficient to fund their operations, or for our corporate operations or other business segments. Thus, to fund our working capital requirements, we have continued to sell securities to raise cash.

As of March 31, 2021, our cash and cash equivalents totaled $1,341,000, and our total liabilities included $506,000 in debt that is convertible at the option of the debtholders, $100,000 of debt that we converted to equity at the April 2021 maturity date, $100,000 notes due on demand, $200,000 owed by our partially owned subsidiary Clyra due in June 2021, and $1,007,000 owed by Clyra with a maturity date that automatically extends each June.

During the three months ended March 31, 2021, we received $2,001,000 in proceeds from stock sales to Lincoln Park and $105,000 from investments in our 2020 Unit Offering (see Part II, Item 2 and Item 5), and made repayments of debt totaling $674,000. We have two promissory notes due in August 2021, each of which may be converted by the holder into equity at $0.14 per share. If the holders do not voluntarily convert the notes to equity, we intend to pay the notes with cash raised through sales of stock to Lincoln Park, although there is no guarantee that we will be able to do so. The proceeds we receive from stock sales to Lincoln Park is a function of stock price and volume – a lower stock price and less trading volume results in less money we can receive from Lincoln Park. Our agreement with Lincoln Park precludes us from selling shares to Lincoln Park on a daily basis if our stock price falls below $0.10 per share. If we are unable to make daily sales, it is not likely we will be able to sell enough shares to Lincoln Park to pay the debt due in August 2021. In such event, we intend to negotiate for a delay in repayment with the holders of the notes.

 

If we are unable to rely on our current arrangement with Lincoln Park to fund our working capital requirements, we will have to rely on other forms of financing, and there is no assurance that we will be able to do so, or if we do so, it will be on favorable terms.

 

To reduceThe foregoing factors raise substantial doubt about our operational cash burdens,ability to continue as a going concern, unless we regularly issue officers and vendors stock or options in lieu of cash, and anticipate that we willare able to continue to be ableraise funds through stock sales to do soLincoln Park or other private financings, and in the future. In the three months ended March 31, 2021, they accepted shares in lieulong term, our ability to attain a reasonable threshold of $31,000 of accruedoperating efficiencies and unpaid salaryachieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to our officers. Each has indicatedcontinue as a willingness to do so in the future.going concern.

 

We operate our business in five distinct business segments. Each of these segments obtains cash to fund operations in unique ways. ONM and BLEST generate cash by selling products and services. Clyra Medical obtains cash from revenues, and third-party investments of sales of its common stock. BioLargo Water generates cash through government research grants and tax credits as well Our corporate operations currently generate cash through private offerings of stock, debt instruments, and warrants and then provides supplemental capital to support to its various subsidiaries as they advance their technologies, products and commercial efforts.

Critical Accounting Policies

 

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, valuation of offerings of debt with equity or derivative features which include the valuation of the warrant component, any beneficial conversion feature and potential derivative treatment, and share-based payments. We base our estimates on anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position.

 

Note 2, “Summary of Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2020 Form 10-K filed with the SEC on March 31, 2022, and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the 2020 Form 10-K, describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s critical accounting policies and estimates since the 2020filing of the Company’s Form 10-K.10-K on March 31, 2022.

 

Item 4.         Controls and Procedures

 

We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended – the “Exchange Act”) as of the end of the period covered by this Report. There were no changes in our internal control over financial reporting during the quarter ended March 31, 2021,2022, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

Our procedures have been designed to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure. However, our Company is continuing to grow and evolve, as our product and services sales continues to grow, and as we diversify our clients to include municipalities, increasing strain on our accounting systems. These activities put stress on our overall controls and procedures. As our operations do not yet generate enough cash to fund operations, and we rely on financing activities to maintain our level of operations and fund our anticipated growth, we do not yet have the ability to implement the more sophisticated control systems used by larger companies. Although we have made some improvements, our chief executive officer and chief financial officer have concluded that, as of the evaluation date, our disclosure controls and procedures were not effective, due to the material weakness identified below.

 

It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

Under the supervision and with the participation of our management, including our chief executive officer and the chief financial officer, we have established internal control procedures in accordance with the guidelines established in the 2013 Framework —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management evaluated the effectiveness of our internal controls, and concluded that due to our limited financial and personal resources, the fact that we operate our business in three distinct locations in the U.S. and Canada, and the lack of sophisticated reporting systems, we continue to have a material weakness in our internal controls with respect to the closing our financial statements. Until the company has the financial resources to implement more robust automated systems, or to hire additional dedicated accounting personal, we expect this material weakness to continue.

 

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting, or any system we design or implement in the future, will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

 

PART II

 

OTHER INFORMATION

 

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

 

The following is a report of the sales of unregistered securities during the period covered by this report not previously reported in an annual report on Form 10-K, a Quarterly Report on Form 10-Q, or a Current Report on Form 8-K.

 

Stock

During the three months ended March 31, 2021, pursuant to an offering commenced in May 2020 (the “2020 Unit Offering”),On April 19, 2022, we sold 875,0003,723,077 shares of our common stock to four investors and received $105,000$726,000 in gross and net proceeds from three accredited investors. In addition toproceeds. Each investor received two stock purchase warrants: (i) a warrant expiring six months after the investment date allowing for the purchase of the number of shares we issued eachthe investor a six-month and a five-year warrant to purchase an aggregate 875,000 additional shares.

On March 31, 2021, we issued 137,364 shares of our common stock at $0.23purchased, for $0.234 per share, in lieuand (ii) a warrant expiring five years after the investment date allowing for the purchase of $31,000the number of accrued and unpaid salary to our officers.

On March 31, 2021, we issued 610,123 shares of our common stock at $0.23the investor purchased, for $0.925 per share in lieu of $81,000 of accrued and unpaid obligations to consultants.

Options

During the three months ended March 31, 2019, we issued options to purchase an aggregate 213,253 shares of our common stock at $0.23 per share to vendors in lieu of cash for unpaid obligations totaling $37,000.share.

 

All of these offerings and sales were made in reliance on the exemption from registration contained in Section 4(2) of the Securities Exchange Act and/or Regulation D promulgated thereunder as not involving a public offering of securities.

 

Item 5.         Other Information

 

On March 30, 2020, we entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which the Company has the right to sell to Lincoln Park up to $10,250,000 in shares of the Company’s common stock, $0.00067 par value per share (the “Common Stock”), over the 36-month term of the Purchase Agreement, subject to certain limitations and conditions set forth in the Purchase Agreement.

Concurrently with the execution of the Purchase Agreement on March 30, 2020, we entered into a registration rights agreement (the “Registration Rights Agreement”) with Lincoln Park pursuant to which the Company agreed, among other things, to file a registration statement with the SEC to register for sale under the Securities Act of 1933, as amended (the “Act”), the shares of common stock that may be issued and sold to Lincoln Park from time to time under the Purchase Agreement. We filed a registration statement on Form S-1 with the SEC, which was deemed effective on April 21, 2020.

Lincoln Park agreed to make an initial purchase of $250,000 of shares for $0.14 per share. That purchase was completed March 31, 2020.

The Purchase Agreement provides that, commencing on the date that a registration statement is declared effective by the SEC and a final prospectus in connection therewith is filed and the other terms and conditions of the Purchase Agreement are satisfied from time to time on any trading day the Company selects, the Company has the right, in its sole discretion, subject to the conditions and limitations in the Purchase Agreement, to direct Lincoln Park to purchase up to 100,000 shares of Common Stock (each such purchase, a “Regular Purchase”) over the 36-month term of the Purchase Agreement, provided that at least one trading day has passed since the last Regular Purchase. The purchase price of shares of Common Stock pursuant to the Purchase Agreement will be based on the prevailing market price at the time of sale as set forth in the Purchase Agreement. There are no trading volume requirements or restrictions under the Purchase Agreement. Lincoln Park’s obligation under each Regular Purchase shall not exceed $500,000. There is no upper limit on the price per share that Lincoln Park must pay for Common Stock under the Purchase Agreement.

In addition to regular purchases, as described above, the Company may also direct Lincoln Park to purchase additional amounts as accelerated purchases. In all instances, the Company may not sell shares of its Common Stock to Lincoln Park under the Purchase Agreement if it would result in Lincoln Park beneficially owning more than 4.99% of the Common Stock.

Lincoln Park represented to the Company, among other things, that it was an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended), and the Company sold the securities in reliance upon exemptions from the registration requirements of United States federal and state securities laws.

The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. During any “event of default” under the Purchase Agreement, all of which are outside of Lincoln Park’s control, Lincoln Park does not have the right to terminate the Purchase Agreement; however, the Company may not initiate any regular or other purchase of shares by Lincoln Park, until such event of default is cured. There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement, other than a prohibition on entering into any “Variable Rate Transaction,” as defined in the Purchase Agreement.

Actual sales of shares of Common Stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. As set forth in the Purchase Agreement, in consideration for entering in the Purchase Agreement, the Company has agreed to issue to Lincoln Park 1,785,715 shares of Common Stock. The Company will not receive any cash proceeds from the issuance of these shares.

The net proceeds under the Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its stock to Lincoln Park. The Company expects that any proceeds received by the Company from such sales to Lincoln Park will be used for working capital and general corporate purposes.

During the three months ended March 31, 2021, we sold 12,455,619 shares of our common stock to Lincoln Park, and received $2,001,000 and in gross and net proceeds. We intend to continue to sell stock to Lincoln Park to fund our working capital requirements from time to time.None.

 

 

Item 6.         Exhibits

 

See the Exhibit Index for a list of exhibits filed as part of this report and incorporated herein by reference.

 

Exhibit Index

 

  

Incorporated by

Reference Herein

Exhibit

Number

Exhibit Description

Form

File Date

3.1

Bylaws of BioLargo, Inc., as amended and restated

Form 10-KSB

5/23/2003

3.2

Amended and Restated Certificate of Incorporation for BioLargo, Inc. filed March16, 2007

Form 10-KSB

5/4/2007

3.3

Certificate of Amendment to Certificate of Incorporation, filed May 25, 2018

Pos Am

6/22/2018

3.4

Amended and Restated Articles of Incorporation of Clyra Medical Technologies, Inc.

Form 8-K

1/6/2016

4.1BioLargo, Inc. 2007 Equity Incentive PlanForm 10-QSB11/19/2007
4.2Amendment No. 1 to BioLargo 2007 Equity Incentive PlanDef 14C (Exhibit A)5/2/2011

4.14.3

2018 Equity Incentive Plan

Form S-8

6/22/2018

4.24.4

Stock Option Award Agreement under 2018 Equity Incentive Plan

Form S-8

6/22/2018

4.34.5

Notice of Stock Option Grant under 2018 Equity Incentive Plan

Form S-8

6/22/2018

4.44.6

Restricted Stock Unit Award Agreement under 2018 Equity Incentive Plan

Form S-8

6/22/2018

4.54.7

Notice of Restricted Stock Unit Award under 2018 Equity Incentive Plan

Form S-8

6/22/2018

4.64.8

Form of Stock Options issued in exchange for reduction in accounts payable.

Form 10-K

3/31/2015

4.7

Convertible Promissory Note issued to Vista Capital Investments LLC dated January 7, 2019

Form 8-K

1/11/2019

4.8

Form of Warrant issued to One Year Note holder dated December 30, 2016

Form S-1

1/25/2017

4.9

Purchase Agreement, dated as of August 25, 2017 by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC

Form 8-K

8/31/2017

4.10

Promissory note issued by Clyra Medical to Scion Solutions dated September 26, 2018

Form 8-K

10/2/2018

4.11

Amendment dated March 5, 2019 to Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018

Form 8-K

3/8/2019

4.12

Amendment dated March 5, 2019 to Promissory Note issued to Chappy Bean, LLC on September 19, 2018

Form 8-K

3/8/2019

4.13

$50,000 convertible note, matures March 8, 2020

Form 10-Q

5/14/2018

4.14

Amendment dated August 12, 2019 to Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018

Form 10-Q

8/14/2019

4.15

Amended and restated note issued to Vernal August 12, 2019

Form 10-Q

8/14/2019

4.16

Form of convertible notes that mature April 20, 2021 (Spring 2018 Offering)

Form 10-Q

5/14/2018

4.17

Warrant issued to Vernal August 12, 2019

Form 10-Q

8/14/2019

4.184.10

Revolving Line of Credit Agreement dated June 30, 2020, between Clyra Medical and Vernal Bay

Form 8-K

7/7/2020

4.194.11

Security Agreement dated June 30, 2020, between Clyra Medical and Vernal Bay

Form 8-K

7/7/2020

4.204.12

Revolving Line of Credit Note issued by Clyra Medical to Vernal Bay on June 30, 2020

Form 8-K

7/7/2020

4.214.13

Convertible Promissory Note issued to Tangiers Global,Stock Purchase Agreement and Plan of Reorganziation dated September 26, 2018, with Scion Solutions, LLC dated January 31, 2019

Form 8-K

10/2/11/20192018

4.22

Stock Purchase Warrant Issued to Lincoln Park Capital on January 31, 2019

Form 8-K

2/11/2019

4.23

OID twelve-month promissory note

Form 8-K

8/2/2019

4.24

$600,000 Promissory note dated August 9, 2019

Form 10-Q

8/14/2019

4.25

Registration Rights Agreement, dated as of March 30, 2020, by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC

Form 8-K

3/31/2020

4.264.14

Warrant issued in 2020 Unit Offeringunit offerings

Form 10-Q

8/14/2020

4.274.15

Amendment to $50,000 Convertible Note dated March 8, 2018

Form 10-K

3/30/2021

4.284.16

Warrant issued to $50,000 Convertible Noteholder on March 1, 2020

Form 10-K

3/30/2021

10.1

License Agreement to Clyra Medical Technologies, Inc., dated December 17, 2012

Form 8-K

1/6/2016

10.2

December 30, 2015 amendment to License Agreement with Clyra Medical Technologies, Inc.

Form 8-K

1/6/2016

10.3Escrow Agreement dated September 26, 2018 regarding Clyra/Scion transactionForm 8-K10/2/2018
10.4Closing Agreement dated December 17, 2018 between Clyra Medical and Scion SolutionsForm 8-K12/19/2018
10.5Amendment dated June 30, 2020 to License Agreement with Clyra Medical Technologies, Inc.Form 8-K7/7/2020
10.6Amendment dated June 30, 2020 to Consulting Agreement dated December 30, 2015 between Clyra Medical and Beach House Consulting LLCForm 8-K7/7/2020

10.310.7

Consulting Agreement dated December 30, 2015 with Beach House Consulting LLC

Form 8-K

1/6/2016

10.410.8

Commercial Office Lease Agreement for 14921 Chestnut St., Westminster, CA 92683

Form 8-K

8/24/2016

10.5†10.9

January 16, 2019 Engagement ExtensionCommercial Office Lease Agreement by and between BioLargo, Inc. and Charles K. Darganfor Oak Ridge Tennessee

Form 8-K

1/18/20199/8/2017

10.6†

2020 Engagement Extension Agreement with CFO

Form 8-K

2/27/2020

10.710.10

Purchase Agreement, dated as of March 30, 2020 by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC.

Form 8-K

3/31/2020

10.8†10.11†

2021 Engagement Extension Agreement with CFO

Form 8-K

3/19/2021

10.12Agreement dated March 1, 2022, by and between Scion Solutions, LLC, Clyra Medical Technologies, Inc., and BioLargo, Inc.Form 8-K3/3/2022
10.13Agreement dated March 1, 2022, by and between Clyra Medical Technologies, Inc., and BioLargo, Inc.Form 8-K3/3/2022
10.14†2022 Engagement Extension Agreement with CFOForm 8-K3/24/2022

31.1*

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934

  

31.2*

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934

  

32*32.1*

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

  

101.INS**

Inline XBRL Instance

  

101.SCH**

Inline XBRL Taxonomy Extension Schema

  

101.CAL**

Inline XBRL Taxonomy Extension Calculation

  

101.DEF**

Inline XBRL Taxonomy Extension Definition

  

101.LAB**

Inline XBRL Taxonomy Extension Labels

  

101.PRE**

Inline XBRL Taxonomy Extension Presentation

  
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

* Filed herewith

** Furnished herewith

† Management contract or compensatory plan, contract or arrangement

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

BIOLARGO, INC.

Date: May 17, 202116, 2022

 

BIOLARGO, INC.

 

By: /s/ DENNIS P. CALVERT

 
  

Dennis P. Calvert

Chief Executive Officer

 
    
    

Date: May 17, 202116, 2022

 

By: /s/ CHARLES K. DARGAN, II

 
  

Chief Financial Officer

 

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