We need to outsource and rely on third parties for the manufacture of the chemicals, material components or delivery apparatus used in our technology, and part of our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.
We do not have the required financial and human resources or capability to manufacture the chemicals necessary to make our odor control products. Our business model calls for the outsourcing of the manufacture of these chemicals in order to reduce our capital and infrastructure costs as a means of potentially improving our financial position and the profitability of our business. Accordingly, we must enter agreements with other companies that can assist us and provide certain capabilities, including sourcing and manufacturing, which we do not possess. We may not be successful in entering into such alliances on favorable terms or at all. Even if we do succeed in securing such agreements, we may not be able to maintain them. Furthermore, any delay in entering into agreements could delay the development and commercialization of our technology or reduce its competitiveness even if it reaches the market. Any such delay related to such future agreements could adversely affect our business.
If any party to which we have outsourced certain functions fails to perform its obligations under agreements with us, the commercialization of our technology could be delayed or curtailed.
To the extent that we rely on other companies to manufacture the chemicals used in our technology, or sell or market products incorporating our technology, we will be dependent on the timeliness and effectiveness of their efforts. If any of these parties does not perform its obligations in a timely and effective manner, the commercialization of our technology could be delayed or curtailed because we may not have sufficient financial resources or capabilities to continue such efforts on our own.
We rely on a small number of key supply ingredients in order to manufacture our products.
All of the supply ingredients used to manufacture our products are readily available from multiple suppliers. However, commodity prices for these ingredients can vary significantly, and the margins that we are able to generate could decline if prices rise. If our manufacturing costs rise significantly, we may be forced to raise the prices for our products, which may reduce their acceptance in the marketplace.
If our technology or products incorporating our technology do not gain market acceptance, it is unlikely that we will become profitable.
The potential markets for products into which our technology can be incorporated are rapidly evolving, and we have many successful competitors including some of the largest and most well-established companies in the world. (see, herein: “Description At this time, our technology is unproven in all but one industry – waste management – and the use of our technology by others, and the sales of our products, is relatively nominal. The commercial success of products incorporating our technology will depend on the adoption of our technology by commercial and consumer end users in various fields.
Market acceptance may depend on many factors, including:
● the willingness and ability of consumers and industry partners to adopt new technologies from a company with little or no history in the industry;
● our ability to convince potential industry partners and consumers that our technology is an attractive alternative to other competing technologies;
● our ability to license our technology in a commercially effective manner;
● our ability to continue to fund operations while our products move through the process of gaining acceptance, before the time in which we are able to scale up production to obtain economies of scale; and
● our ability to overcome brand loyalties.
If products incorporating our technology do not achieve a significant level of market acceptance, then demand for our technology itself may not develop as expected, and, in such event, it is unlikely that we will become profitable.
Any revenues that we may earn in the future are unpredictable, and our operating results are likely to fluctuate from quarter to quarter.
We believe that our future operating results will fluctuate due to a variety of factors, including:
● delays in product development by us or third parties;
● market acceptance of products incorporating our technology;
● changes in the demand for, and pricing of, products incorporating our technology;
● competition and pricing pressure from competitive products; and
● expenses related to, and the results of, proceedings relating to our intellectual property.
We expect our operating expenses will continue to fluctuate significantly in 2019 and beyond, as we continue our research and development and increase our marketing and licensing activities. Although we expect to generate revenues from licensing our technology in the future, revenues may decline or not grow as anticipated, and our operating results could be substantially harmed for a particular fiscal period. Moreover, our operating results in some quarters may not meet the expectations of stock market analysts and investors. In that case, our stock price most likely would decline.
Some of our revenue is dependent on the award of new contracts from the U.S. government, which we do not directly control.
A substantial portion of our revenue and is generated from sales to the U.S. defense logistics agency through a bid process in response to request for bids. The timing and size of requests for bids is unpredictable and outside of our control. The number of other companies competing for these bids is also unpredictable and outside of our control. In the event of more competition for these awards, we may have to reduce our margins. These variables make it difficult to predict when or if we will sell more products to the US government, which in turns makes it difficult to stock inventory and purchase raw materials.
We have limited product distribution experience, and we rely in part on third parties who may not successfully sell our products.
We have limited product distribution experience and rely in part on product distribution arrangements with third parties. In our future product offerings, we may rely solely on third parties for product sales and distribution. We also plan to license our technology to certain third parties for commercialization of certain applications. We expect to enter into additional distribution agreements and licensing agreements in the future, and we may not be able to enter into these additional agreements on terms that are favorable to us, if at all. In addition, we may have limited or no control over the distribution activities of these third parties. These third parties could sell competing products and may devote insufficient sales efforts to our products. As a result, our future revenues from sales of our products, if any, will depend on the success of the efforts of these third parties.
Our internal controls are not effective.
We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls, has not yet, but could in the future, materially adversely affect our financial condition and ability to carry out our business plan, and the accuracy of our financial statements. As more financial resources come available, we need to invest in additional personnel to better manage the financial reporting processes.
We may not be able to attract or retain qualified senior personnel.
We believe we are currently able to manage our current business with our existing management team. However, as we expand the scope of our operations, we will need to obtain the full-time services of additional senior management and other personnel. Competition for highly-skilled personnel is intense, and there can be no assurance that we will be able to attract or retain qualified senior personnel. Our failure to do so could have an adverse effect on our ability to implement our business plan. As we add full-time senior personnel, our overhead expenses for salaries and related items will increase from current levels and, depending upon the number of personnel we hire and their compensation packages, these increases could be substantial.
If we lose our key personnel or are unable to attract and retain additional personnel, we may be unable to achieve profitability.
Our future success is substantially dependent on the efforts of our senior management, particularly Dennis P. Calvert, our president and chief executive officer. The loss of the services of Mr. Calvert or other members of our senior management may significantly delay or prevent the achievement of product development and other business objectives. Because of the scientific nature of our business, we depend substantially on our ability to attract and retain qualified marketing, scientific and technical personnel. There is intense competition among specialized and technologically-oriented companies for qualified personnel in the areas of our activities. If we lose the services of, or do not successfully recruit, key marketing, scientific and technical personnel, then the growth of our business could be substantially impaired. At present, we do not maintain key man insurance for any of our senior management, although management is evaluating the potential of securing this type of insurance in the future as may be available.
Nondisclosure agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect our proprietary technology and processes, we rely in part on nondisclosure agreements with our employees, potential licensing partners, potential manufacturing partners, testing facilities, universities, consultants, agents and other organizations to which we disclose our proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. Since we rely on trade secrets and nondisclosure agreements, in addition to patents, to protect some of our intellectual property, there is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights.
We may become subject to product liability claims.
As a business that manufactures and markets products for use by consumers and institutions, we may become liable for any damage caused by our products, whether used in the manner intended or not. Any such claim of liability, whether meritorious or not, could be time-consuming and/or result in costly litigation. Although we maintain general liability insurance, our insurance may not cover potential claims of the types described above and may not be adequate to indemnify for all liabilities that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could harm our business and operating results, and you may lose some or all of any investment you have made, or may make, in our company.
Litigation or the actions of regulatory authorities may harm our business or otherwise distract our management.
Substantial, complex or extended litigation could cause us to incur major expenditures and distract our management. For example, lawsuits by employees, former employees, investors, stockholders, partners, customers or others, or actions taken by regulatory authorities, could be very costly and substantially disrupt our business. As a result of our financing activities over time, and by virtue of the number of people that have invested in our company, we face increased risk of lawsuits from investors. Such lawsuits or actions could from time to time be filed against our company and/or our executive officers and directors. Such lawsuits and actions are not uncommon, and we cannot assure you that we will always be able to resolve such disputes or actions on terms favorable to our company.
If we suffer negative publicity concerning the safety or efficacy of our products, our sales may be harmed.
If concerns should arise about the safety or efficacy of any of our products that are marketed, regardless of whether or not such concerns have a basis in generally accepted science or peer-reviewed scientific research, such concerns could adversely affect the market for those products. Similarly, negative publicity could result in an increased number of product liability claims, whether or not those claims are supported by applicable law.
Any revenues that we may earn in the future are unpredictable, and our operating results are likely to fluctuate from quarter to quarter.
We believe that our future operating results will fluctuate due to a variety of factors, including:
● | delays in product development by us or third parties; |
● | market acceptance of products incorporating our technology; |
● | changes in the demand for, and pricing of, products incorporating our technology; |
● | competition and pricing pressure from competitive products; and |
● | expenses related to, and the results of, proceedings relating to our intellectual property. |
We expect our operating expenses will continue to fluctuate significantly in 2023 and beyond, as we continue our research and development and increase our marketing and licensing activities. Although we expect to generate revenues from licensing our technology in the future, revenues may decline or not grow as anticipated, and our operating results could be substantially harmed for a particular fiscal period. Moreover, our operating results in some quarters may not meet the expectations of stock market analysts and investors. In that case, our stock price most likely would decline.
The licensing of our technology or the manufacture, use or sale of products incorporating our technology may infringe on the patent rights of others, and we may be forced to litigate if an intellectual property dispute arises.
If we infringe or are alleged to have infringed another party’s patent rights, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, do not successfully defend an infringement action or are unable to have infringed patents declared invalid, we may:
● | incur substantial monetary damages; |
● incur substantial monetary damages;
● | encounter significant delays in marketing our current and proposed product candidates; |
● encounter significant delays in marketing our current and proposed product candidates;
● | be unable to conduct or participate in the manufacture, use or sale of product candidates or methods of treatment requiring licenses; |
● be unable to conduct or participate in the manufacture, use or sale of product candidates or methods of treatment requiring licenses;
● | lose patent protection for our inventions and products; or |
● lose patent protection for our inventions and products; or
● |
|
Parties making such claims may be able to obtain injunctive relief that could effectively block our company’s ability to further develop or commercialize our current and proposed product candidates in the United States and abroad and could result in the award of substantial damages. Defense of any lawsuit or failure to obtain any such license could substantially harm our company. Litigation, regardless of outcome, could result in substantial cost to, and a diversion of efforts by, our company.
Our patents are expensive to maintain, our patent applications are expensive to prosecute, and thus we are unable to file for patent protection in many countries.
Our ability to compete effectively will depend in part on our ability to develop and maintain proprietary aspects of our technology and either to operate without infringing the proprietary rights of others or to obtain rights to technology owned by third parties. Pending patent applications relating to our technology may not result in the issuance of any patents or any issued patents that will offer protection against competitors with similar technology. We must employ patent attorneys to prosecute our patent applications both in the United States and internationally. International patent protection requires the retention of patent counsel and the payment of patent application fees in each foreign country in which we desire patent protection, on or before filing deadlines set forth by the International Patent Cooperation Treaty (“PCT”). We therefore choose to file patent applications only in foreign countries where we believe the commercial opportunities require it, considering our available financial resources and the needs for our technology. This has resulted, and will continue to result, in the irrevocable loss of patent rights in all but a few foreign jurisdictions.
Patents we receive may be challenged, invalidated or circumvented in the future, or the rights created by those patents may not provide a competitive advantage. We also rely on trade secrets, technical know-how and continuing invention to develop and maintain our competitive position. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.
We are subject to risks related to future business outside of the United States.
Over time, we may develop business relationships outside of North America, and as those efforts are pursued, we will face risks related to those relationships such as:
● | foreign currency fluctuations; |
● foreign currency fluctuations;
● | unstable political, economic, financial and market conditions; |
● unstable political, economic, financial and market conditions;
● | import and export license requirements; |
● import and export license requirements;
● | trade restrictions; |
● trade restrictions;
● | increases in tariffs and taxes; |
● increases in tariffs and taxes;
● | high levels of inflation; |
● high levels of inflation;
● | restrictions on repatriating foreign profits back to the United States; |
● restrictions on repatriating foreign profits back to the United States;
● | greater difficulty collecting accounts receivable and longer payment cycles; |
● greater difficulty collecting accounts receivable and longer payment cycles;
● | less favorable intellectual property laws, and the lack of intellectual property legal protection; |
● less favorable intellectual property laws, and the lack of intellectual property legal protection;
● | regulatory requirements; |
● regulatory requirements;
● | unfamiliarity with foreign laws and regulations; and |
● unfamiliarity with foreign laws and regulations; and
● | changes in labor conditions and difficulties in staffing and managing international operations. |
The volatility of certain raw material costs may adversely affect operations and competitive price advantages for products that incorporate our technology.
Most of the chemicals and other key materials that we use in our business, such as minerals, fiber materials and packaging materials, are neither generally scarce nor price sensitive, but prices for such chemicals and materials can be cyclical. Super Absorbent Polymer (SAP) beads, which are a petrochemical derivative, have been subject to periodic scarcity and price volatility from time to time during recent years, although prices are relatively stable at present. Should the volume of our sales increase dramatically, we may have difficulty obtaining SAP beads or other raw materials at a favorable price. Supply and demand factors, which are beyond our control, generally affect the price of our raw materials. We try to minimize the effect of price increases through production efficiency and the use of alternative suppliers, but these efforts are limited by the size of our operations. If we are unable to minimize the effects of increased raw material costs, our business, financial condition, results of operations and cash flows may be materially adversely affected.
Certain of our products sales historically have been highly impacted by fluctuations in seasons and weather.
Industrial odor control products have proven highly effective in controlling volatile organic compounds that are released as vapors produced by decomposing waste material. Such vapors are produced with the highest degree of intensity in temperatures between 40 degrees Fahrenheit (5 degrees Celsius) and 140 degrees Fahrenheit (60 degrees Celsius). When weather patterns are cold or in times of precipitation, our clients are less prone to use our odor control products, presumably because such vapors are less noticeable or, in the case of precipitation, can be washed away or altered. This leads to unpredictability in use and sales patterns for, especially, our CupriDyne Clean product line which accounts for over one-half our total sales.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our contractors and consultants, could be subject to pandemics, earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, acts of terrorism, acts of war and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely in part on third-party manufacturers to produce and process our products or the raw materials used to make our products. Our ability to obtain supplies of our products or raw materials could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster, pandemics, epidemics, or other business interruption, including the recent novel strain of coronavirus (SARS‑CoV‑2 aka COVID-19) that originally surfaced in Wuhan, China in December 2019. The extent to which COVID‑19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID‑19 and the actions to contain 2 or treat its impact, among others. Our corporate headquarters and offices of ONM are in Southern California near major earthquake faults and fire zones. Our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.
General Risks
The cost of maintainingCOVID-19 coronavirus pandemic is ongoing and may result in significant disruptions to our public company reporting obligations is high. clients and/or supply chain which could have a material adverse effect on our business and revenues.
WeThe COVID-19 pandemic is still ongoing as of the date of this prospectus, is still evolving and much of its impact remains unknown. It is impossible to predict the impact it may have on the development of our business and on our revenues in the future. As we head into winter, cases of coronavirus and other respiratory diseases are obligatedincreasing.
Our corporate headquarters and offices of our ONM Environmental division are in Southern California. On March 19, 2020, California’s Governor issued an executive order that all residents of the State must stay at home indefinitely except as needed to maintain “essential critical infrastructure”. Although some of these emergency provisions have since been eliminated or modified, some are still in place, and as COVID cases increase in United States and in California, it is impossible to predict whether new restrictions will be put in place. The restrictions put in place in March 2020 and thereafter to mitigate the pandemic affected our periodic public filingsclients’ willingness to purchase our products and public reporting requirements, on a timely basis, under the rules and regulationsservices. Their continuing affect is impossible for us to predict.
The severity of the SEC. In ordercoronavirus pandemic could also make access to meetour existing supply chain difficult or impossible by delaying the delivery of key raw materials used in our product candidates and therefore delay the delivery of our products. Any of these obligations,results could materially impact our business and have an adverse effect on our business.
Because of the Russian invasion of Ukraine, as well as high inflation and increased Federal Reserve interest rates in response, the effect on the capital markets and the economy is uncertain, and we may have to deal with a recessionary economy and economic uncertainty.
As a result of the Russian invasion of Ukraine, certain events are beginning to affect the global and United States economy including continued inflation, Federal Reserve interest rate increases in response, substantial increases in the prices of oil and gas, and dramatic declines in the capital markets. The duration of this war and its impact are at best uncertain. The economy appears to be headed into a recession with uncertain and potentially severe impacts upon public companies and us. We cannot predict how this will needaffect the market for our products and services, but the impact may be adverse.
A recession in the United States may affect our business.
If the U.S. economy were to continuecontract into a recession or depression, our existing clients, and potential future clients, may divert their resources to raise capital. If adequate funds are not available, we will be unableother goods and services, and our business may suffer.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business.
The federal securities laws require us to comply with thoseSEC reporting requirements relating to our business and securities following the effectiveness of the registration statement of which this prospectus is a part. Complying with these reporting and other regulatory obligations is time-consuming and will result in increased costs to us which could cease to be qualified to have a negative effect on our stock traded in the public market.financial condition or business. As a public company, we incur significant legal, accountingare subject to the reporting requirements of the Exchange Act and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as related rules adopted by the SEC, has imposed substantial requirements on public companies, including certain corporate governance practices and requirements relating to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. We will be required to file annual, quarterly and current reports with the SEC disclosing certain aspects and developments of our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional executive officers and personnel and provide for additional management oversight. We intend to implement additional procedures and processes for the purpose of addressing the standards and requirements applicable to SEC reporting companies. Sustaining our growth will also require us to commit additional managerial, operational and financial resources to identifying competent professionals to join our Company and to maintain appropriate operational and financial systems to adequately support our intended expansion. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our results of operations, financial condition or business.
Risks Relating to our Common Stock
If we are not successful, you may lose your entire investment.
Prospective investors should be aware that if we are not successful in our business, their entire investment in the Company could become worthless. Even if the Company is successful, we can provide no assurances that investors will derive a profit from their investment. We need additional capital to meet our obligations and achieve our business objectives, and we cannot guarantee we will be successful in locating additional required capital as and when needed or that any such amounts will be sufficient for us to establish material revenue growth. If we are not successful, you may lose your entire investment.
The sale or issuance of our common stock to Lincoln Park may cause dilution, and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.
On August 25, 2017,December 13, 2022, we entered into the LPCa Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committedagreed to purchase from us at our request up to an aggregate of $10,000,000 of our common stock (subject to certain limitations) from time to time over a period of three years, noted above in our Risks Related to our Business. We generally have the right to control the timing and amount of any sales of our shares to Lincoln Park. Sales of our common stock, if any, to Lincoln Park will depend on market conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the shares of our common stock that may be available for us to sell pursuant to the LPC Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or none of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our common stock, as well as sales of our stock by Lincoln Park into the open market causing reductions in the price of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise desire to effect sales.
Our common stock is thinly traded and largely illiquid.
Our stock is currently quoted on the OTC Markets (OTCQB). Being quoted on the OTCQB has made it more difficult to buy or sell our stock and from time to time has led to a significant decline in the frequency of trades and trading volume. Continued trading on the OTCQB will also likely adversely affect our ability to obtain financing in the future due to the decreased liquidity of our shares and other restrictions that certain investors have for investing in OTCQB traded securities. While we intend to seek listing on the Nasdaq Stock Market (“Nasdaq”) or another national stock exchange when our company is eligible, there can be no assurance when or if our common stock will be listed on Nasdaq or another national stock exchange.
The market price of our stock is subject to volatility.
Because ourOur stock price has been and is thinly traded, its price can change dramatically over short periods, even inlikely to continue to be volatile. As a single day. An investment in ourresult of this volatility, investors may not be able to sell their common stock is subject to such volatility and, consequently, is subject to significant risk.at or above their purchase price. The market price of our common stock couldand warrants may fluctuate widelysignificantly in response to numerous factors, many factors,of which are beyond our control, including:
● | Because our stock is thinly traded, its price can change dramatically over short periods, even in a single day. An investment in our stock is subject to such volatility and, consequently, is subject to significant risk. The market price of our common stock could fluctuate widely in response to many factors, including: |
● developments with respect to patents or proprietary rights;
● | developments with respect to patents or proprietary rights; |
●
● | announcements of technological innovations by us or our competitors; |
● | announcements of new products or new contracts by us or our competitors; |
● | actual or anticipated variations in our operating results due to the level of development expenses and other factors; |
● | changes in financial estimates by securities analysts and whether any future earnings of ours meet or exceed such estimates; |
● | conditions and trends in our industry; |
● | new accounting standards; |
● announcements of new products or new contracts by us or our competitors;
● | the size of our public float; |
● actual or anticipated variations in our operating results due to the level of development expenses and other factors;
● | short sales, hedging, and other derivative transactions involving our common stock; |
● changes in financial estimates by securities analysts and whether any future earnings of ours meet or exceed such estimates;
● | sales of large blocks of our common stock including sales by our executive officers, directors, and significant stockholders, including Lincoln Park; |
● conditions and trends in our industry;
● | general economic, political and market conditions and other factors; and |
● new accounting standards;
●
| the occurrence of any of the risks described herein. |
You may have difficulty selling our shares because they are deemed “penny stocks”a “penny stock”.
Because our common stock is not quoted or listed on a national securities exchange, if the trading price of our common stock remains below $5.00 per share, which we expect for the foreseeable future, trading in our common stock will be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, before any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally defined as an investor with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with a spouse). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction before the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer and current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed on broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market liquidity of our common stock and the ability of holders of our common stock to sell their shares.
Because our shares are deemed “penny stocks,a “penny stock,” new rules enacted by FINRA make it more difficult to remove restrictive legends. sell previously restricted stock.
Rules put in place by the Financial Industry Regulatory Authority (FINRA) require broker-dealers to perform due diligence before depositing unrestricted common shares of penny stocks, and as such, some broker-dealers, including many large national firms (such as eTrade and Charles Schwab), are refusing to deposit previously restricted common shares of penny stocks. We routinely issued non-registered restricted common shares to investors, vendors and consultants. The issuance of such shares is subjected to the FINRA-enacted rules. As such, it maycan be more difficult for purchasesholders of sharesrestricted stock, including those issued in our private securities offerings, to deposit the shares with broker-dealers and sell those shares on the open market.
Because we will not pay dividends in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.
We have never declared or paid a cash dividend to stockholders. We intend to retain any earnings that may be generated in the future to finance operations. Accordingly, any potential investor who anticipates the need for current dividends from his investment should not purchase our common stock, and must rely on the benefit of owning shares, and presumably a rise in share price. We cannot predict the future price of our stock, and due to the factors enumerated herein, can make no assurance of a future increase in the price of our common stock.
We regularly issue stock, or stock options, instead of cash, to pay some of our operating expenses. These issuances are dilutive to our existing stockholders.
We are party to agreements that provide for the payment of, or permit us to pay at our option, securities rather than cash in consideration for services provided to us. We include these provisions in agreements to allow us to preserve cash. We anticipate that we will continue to do so in the future. All such issuances preserve our cash reserves, but are also dilutive to our stockholders because they increase (and will increase in the future) the total number of shares of our common stock issued and outstanding, even though such arrangements assist us with managing our cash flow. These issuances also increase the expense amount recorded.
Our stockholders face further potential dilution in any new financing.
In the year ended December 31, 2021, we issued almost 30 million shares of our common stock in financing activities. Our private securities offerings typically offer convertible securities, including notes and warrants. Those warrants often include provisions that require investors to pay for the underlying shares with cash, which if executed would generate working capital for the company. Any additional capital that we raise would dilute the interest of the current stockholders and any persons who may become stockholders before such financing. Given the price of our common stock, such dilution in any financing of a significant amount could be substantial.
Our stockholders face further potential adverse effects from the terms of any preferred stock that may be issued in the future.
Our certificate of incorporation authorizes 50 million shares of preferred stock. None are outstanding as of the date hereof. In order to raise capital to meet expenses or to acquire a business, our board of directors may issue additional stock, including preferred stock. Any preferred stock that we may issue may have voting rights, liquidation preferences, redemption rights and other rights, preferences and privileges. The rights of the holders of our common stock will be subject to, and in many respects subordinate to, the rights of the holders of any such preferred stock. Furthermore, such preferred stock may have other rights, including economic rights, senior to our common stock that could have a material adverse effect on the value of our common stock. Preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, can also have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock, thereby delaying, deferring or preventing a change in control of our company.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this prospectus regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management are forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that the expectations underlying our forward-looking statements are reasonable, these expectations may prove to be incorrect, and all of these statements are subject to risks and uncertainties. Therefore, you should not place undue reliance on our forward-looking statements. We have included important risks and uncertainties in the cautionary statements included in this prospectus, particularly the section titled “Risk Factors” incorporated by reference herein. We believe these risks and uncertainties could cause actual results or events to differ materially from the forward-looking statements that we make. Should one or more of these risks and uncertainties materialize, or should underlying assumptions, projections or expectations prove incorrect, actual results, performance or financial condition may vary materially and adversely from those anticipated, estimated or expected. Our forward-looking statements do not reflect the potential impact of future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We do not assume any obligation to update any of the forward-looking statements contained herein, whether as a result of new information, future events or otherwise, except as required by law. In the light of these risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. Any forward-looking statement made by us in this prospectus is based only on information currently available to us and speaks only as of the date on which it is made.
This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders upon exercise of outstanding warrants to purchase common stock.Lincoln Park. We will receive no proceeds from the sale of shares of common stock by the selling stockholdersLincoln Park in this offering. We may receive up to $7,449,204 in$10,000,000 aggregate gross proceeds, upon exerciseand up to an aggregate $9,700,000 net proceeds, under the Purchase Agreement from any sales we make to Lincoln Park pursuant to the Purchase Agreement after the date of this prospectus over an approximately 36-month period, assuming that we sell the full amount of our common stock that we have the right, but not the obligation, to sell to Lincoln Park under that agreement and other estimated fees and expenses. This amount is net offering expenses of $50,000, and net of the underlying warrants.$250,000 commitment fee we must pay to Lincoln Park if we direct purchases in the aggregate of $3,000,000 or more pursuant to the Purchase Agreement. See “Plan of Distribution” elsewhere in this prospectus for more information.
We expect to use any proceeds that we receive under the exercise of the warrantsPurchase Agreement to help fund the engineering, scale-up and commercialization of our technologies and products, including our AEC PFAS-removal system; development of new products; marketing, sales and working capital for our subsidiaries; working capital for our BioLargo Engineering division; working capital for our research and development work; refinancing existing debt obligations; and in general working capital for our corporate operations and repayment of debt. .operations.
We have never declared or paid a cash dividend to stockholders. We intend to retain any earnings that may be generated in the future to finance operations.
The following table sets forth our actual cash and cash equivalents and our capitalization as of December 31, 2018 and JuneSeptember 30, 2019,2022 (unaudited), and as adjusted to give effect to the exercisesale of the warrants underlyingshares offered hereby and the sharesuse of common stock offered hereby.proceeds, as described in the section titled “Use of Proceeds” above.
You should read this information in conjunction with “Managements’ Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing in our Annual Report on Form 10-K for the periods ended December 31, 2018 and our unaudited financial statements appearing in the Quarterly Report on Form 10-Q for the three and sixnine months ended JuneSeptember 30, 2019.2022, as filed with the SEC on November 14, 2022.
December 31, 2018 (in thousands) | June 30, 2019 (in thousands) | |||||||||||
Audited | Unaudited | As Adjusted(1) | ||||||||||
Cash and cash equivalents | $ | 655 | $ | 706 | $ | 8,147 | ||||||
Total liabilities | $ | 4,308 | $ | 5,502 | $ | 5,502 | ||||||
STOCKHOLDERS’ DEFICIT: | ||||||||||||
Convertible Preferred Series A, $.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at June 30, 2019 and as adjusted. | ||||||||||||
Common stock, $.00067 Par Value, 400,000,000 Shares Authorized, 141,466,071 and 152,054,904 Shares Issued at December 31, 2018 and June 30, 2019, respectively, and 178,173,083 as adjusted | 95 | 102 | 120 | |||||||||
Additional paid-in capital | 110,222 | 114,745 | 122,168 | |||||||||
Accumulated other comprehensive loss | (90 | ) | (98 | ) | (98 | ) | ||||||
Accumulated deficit | (111,723 | ) | (116,876 | ) | (116,876 | ) | ||||||
Total BioLargo stockholders’ deficit | (1,496 | ) | (2,127 | ) | 5,314 | |||||||
Non-controlling interest | 373 | 208 | 208 | |||||||||
Total stockholders’ deficit | (1,123 | ) | (1,919 | ) | 5,522 | |||||||
Total liabilities and stockholders’ deficit | $ | 3,185 | $ | 3,583 | $ | 11,024 | ||||||
As of September 30, 2022 | ||||||||
Actual | As Adjusted(1) | |||||||
CASH AND CASH EQUIVALENTS | $ | 1,268,000 | $ | 10,968,000 | ||||
STOCKHOLDERS’ EQUITY: | ||||||||
Convertible Preferred Series A, $.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at December 31, 2021 and September 30, 2022. | — | — | ||||||
Common stock, $.00067 Par Value, 550,000,000 Shares Authorized, 274,662,640 Shares Issued at September 30, 2022, and 305,872,640 Shares Issued, as adjusted. | 184,000 | 205,000 | ||||||
Additional paid-in capital | 147,470,000 | 157,149,000 | ||||||
Accumulated other comprehensive loss | (185,000 | ) | (185,000 | ) | ||||
Accumulated deficit | (142,505,000 | ) | (142,505,000 | ) | ||||
Total Biolargo stockholders’ equity | 4,964,000 | 14,664,000 | ||||||
Non-controlling interest | (2,931,000 | ) | (2,931,000 | ) | ||||
Total stockholders’ equity | 2,033,000 | 11,733,000 | ||||||
Total liabilities and stockholders’ equity | 4,371,000 | 14,071,000 | ||||||
(1) |
|
The net tangible book value of our company as of JuneSeptember 30, 20192022, was negative $3,812,000$2,033,000 or approximately $(0.025)$0.007 per share of common stock. Net tangible book value per share is determined by dividing the net tangible book value of our company (total tangible assets less total liabilities) by the number of outstanding shares of our common stock.
Assuming all warrants issuednet proceeds of $10,000,000 from the sale of shares to Lincoln Park pursuant to the Selling Stockholders are exercised (see Note 1 inPurchase Agreement, and less the Capitalization section immediately above) and the exercise price is received by the Company,projected $300,000 offering expenses, our adjusted net tangible book value as of JuneSeptember 30, 20192022, would have been $3,628,000$11,733,000 or approximately $0.02$0.038 per share. This represents an immediate increase in net tangible book value of approximately $0.045$0.031 per share to existing stockholders.
MARKETPRICE OF ANDAND DIVIDENDS ON COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market Information
Since January 23, 2008, our common stock has been quoted on the OTC Markets “OTCQB” marketplace (formerly known as the “OTC Bulletin Board”) under the trading symbol “BLGO”.
The table below represents the quarterly high and low closing prices of our common stock for the last three fiscal years as reported by www.otcmarkets.com.Yahoo Finance (through December 20, 2022).
2017 | 2018 | 2019 | 2022 | 2021 | 2020 | |||||||||||||||||||||||||
High | Low | High | Low | High | Low | High | Low | High | Low | High | Low | |||||||||||||||||||
First Quarter | $0.83 | $0.47 | $0.41 | $0.21 | $0.27 | $0.16 | $ | 0.29 | $ | 0.20 | $ | 0.25 | $ | 0.12 | $ | 0.29 | $ | 0.12 | ||||||||||||
Second Quarter | $0.53 | $0.39 | $0.45 | $0.23 | $0.31 | $0.16 | $ | 0.25 | $ | 0.16 | $ | 0.24 | $ | 0.16 | $ | 0.20 | $ | 0.14 | ||||||||||||
Third Quarter | $0.66 | $0.42 | $0.45 | $0.22 | N/A | $ | 0.30 | $ | 0.17 | $ | 0.22 | $ | 0.17 | $ | 0.22 | $ | 0.15 | |||||||||||||
Fourth Quarter | $0.52 | $0.39 | $0.30 | $0.18 | N/A | |||||||||||||||||||||||||
Fourth Quarter* | $ | 0.29 | $ | 0.17 | $ | 0.23 | $ | 0.17 | $ | 0.16 | $ | 0.12 | ||||||||||||||||||
* Fourth quarter of 2022 reported through December 20, 2022.
The closing price for our common stock on September 16, 2019,December 20, 2022, was $0.22$0.1826 per share.
Holders of our Common Stock
As of September 12, 2019, 157,604,022December 22, 2022, 278,350,555 shares of our common stock were outstanding and held of record by approximately 530650 stockholders of record, and approximately 2,600 beneficial owners.
Dividends
We have never declared or paid a cash dividend to stockholders. We intend to retain any earnings that may be generated in the future to finance operations.
Securities Authorized for Issuance Under Equity Compensation Plans
OnEquity Compensation Plan Information as of September 30, 2022
Plan Category | Number of securities to be issued upon exercise of outstanding options and rights (a) | Weighted average exercise price of outstanding options and rights (b) | Number of securities remaining available for future issuance (c) | |||||||||
Equity compensation plans approved by security holders | 29,838,439(1) | $0.214 | 20,065,646 | |||||||||
Equity compensation plans not approved by security holders(2) | 20,255,004 | $0.39 | n/a | |||||||||
Total | 50,093,443 | $0.285 | 20,065,646 | |||||||||
(1) | Includes 1,904,085 shares issuable under the 2007 Equity Plan, which expired September 6, 2017, and 27,934,354 shares issuable under the 2018 Equity Incentive Plan adopted by the Board on March 7, 2018 and subsequently approved by stockholders on May 23, 2018, of which 23,484,480 are vested. |
(2) | This includes various issuances to specific individuals either as a conversion of un-paid obligations pursuant to a plan adopted by our board of directors, or as part of their agreement for services |
2018 Equity Incentive Plan
On June 22, 2018, our board of directorsstockholders adopted the BioLargo Inc. 2018 Equity Incentive Plan (“2018 Equity Plan”) as a means of providing our directors, key employees and consultants additional incentive to provide services. ThisBoth stock options and stock grants may be made under this plan was approved by our stockholders at our annual meetingfor a period of 10 years. It is set to expire on May 23, 2018. Theits terms on June 22, 2028. Our Board of Director’s Compensation Committee administers this plan, except for awards made to non-employee directors. The plan allows for the grant of stock options, restricted stock awards, stock bonus awards, stock appreciation rights, restricted stock units and performance awards in any combination, separately or in tandem. Subject to the terms of the 2018 Equity Plan, the Compensation Committee will determine the terms and conditions of awards, including the times when awards vest or become payable and the effect of certain events such as termination of employment. Under the 2018 Equity Plan, 40,000,000 shares of our common stock are reserved for issuance under awards. Each January 1, through January 1, 2028, the number of shares available for grant and issuance will be increased by the lesser of 2,000,000 and such number of shares set by the Board. As of December 31, 2018, and June 30, 2019, we had issued options under the plan to purchase 1,318,517 and 5,046,883 shares, respectively.
On August 7, 2007, our board of directors adopted the BioLargo, Inc. 2007 Equity Incentive Plan (“2007 Equity Plan”) as a means of providing our directors, key employees, and consultants additional incentive to provide services. This plan expired on September 6, 2017. The Compensation Committee administers this plan. The plan allowed for grants of common shares or options to purchase common shares. As plan administrator, the Compensation Committee has sole discretion to set the price of the options. The Compensation Committee may at any time amendplan authorizes the plan.
Under the 2007 Equity Plan, as amended in 2011, 12,000,000 sharesfollowing types of our commonawards: (i) incentive and non-qualified stock are reserved for issuance underoptions, (ii) restricted stock awards, (iii) stock bonus awards, (iv) stock appreciation rights, (v) restricted stock units, and (vi) performance awards. Only shares actually issued under the 2007 Equity Plan will reduce the share reserve. If we acquire another entity through a merger or similar transaction and issue replacement awards under the 2007 Equity Plan to employees, officers and directors of the acquired entity, those awards, to the extent permitted under applicable laws and securities exchange rules, will not reduce theThe 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. As of the date of this prospectus, there are 20,065,646 shares available for issuance under the 2018 Plan.
2007 Equity Plan.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.
Equity Compensation Plans not approved by stockholders
In addition to the 2018 and 2007 Equity Plan,Plans, our board of directors has approved a plan for employees, consultants and vendors that do not otherwise qualify for issuance under the 2018 Equity Plan by which outstanding amounts owed to them by our companyCompany may be converted to common stock or options to purchase common stock. The conversion and exercise price is based on the closing price of our common stock on the date of agreement. If an option is issued, the number of shares purchasable by the option is calculated by dividing the amount owed by the exercise price, times one and one-half.
Equity Compensation Plan Information as of June 30, 2019
Plan category |
| Number of securities to be issued upon exercise of outstanding options, warrants and rights |
|
| Weighted average exercise price of outstanding options, warrants and rights |
|
| Number of securities remaining available for future issuance |
| |||
|
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation plans approved by security holders (1) |
|
| 13,896,334 |
|
| $ | 0.37 |
|
|
| 36,953,167 |
|
Equity compensation plans not approved by security holders (2) |
|
| 19,597,901 |
|
|
| 0.42 |
|
|
| n/a |
|
Total |
|
| 33,494,235 |
|
| $ |
|
|
| --- |
| |
|
|
|
|
BioLargo, Inc. is a corporation organized under the laws of the state of Delaware. Since January 23, 2008, our common stock has been quoted on the OTC Bulletin Board (now called the OTCQB – the OTC Markets “Venture Marketplace”) under the trading symbol “BLGO”.
As used in this report, “we”Our Business - Innovator and “Company” refers to (i) BioLargo, Inc., a Delaware corporation; (ii) its wholly-owned subsidiaries BioLargo Life Technologies, Inc., a California corporation; Odor-No-More, Inc., a California corporation; BioLargo Development Corp., a California corporation; BioLargo Engineering, Science & Technologies, LLC, a Tennessee limited liability company; and BioLargo Water Investment Group, Inc., a California corporation and sole shareholder of Canadian subsidiary BioLargo Water, Inc.; and (iii) 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- A Sustainable Products, Technology and SolutionsSolution Provider
BioLargo, Inc. is aninvents, develops, and commercializes innovative technology developerplatform technologies to solve challenging environmental problems like PFAS water contamination, advanced water and wastewater treatment, industrial odor and VOC control, air quality control, infection control, and myriad environmental remediation challenges. Having conducted continual and extensive research and development, BioLargo holds a wide array of issued patents, maintains a robust pipeline of products, and provides full-service environmental engineering. With a keen emphasis on partnerships with academic, government, and commercial organizations and associations, BioLargo has proven itself by executing on challenging environmental engineering company driven by a mission to “make life better” by delivering robust, sustainable solutions for a broad range of industriesprojects, demonstrating its powerful technologies through pilots, trials, and applications, with a focus on clean water, clean air,early commercial adoption, publishing high-impact academic and advanced wound care.industry publications, and winning over 90 grants. We developmonetize our innovations through direct sales and commercialize disruptive technologies by providing the capital, support, and expertise to expedite them from “cradle” to “maturity”. Our business strategy is straightforward: we invent or acquire technologies that we believe have the potential to be disruptive in large commercial markets; we incubate and develop these technologies to advance them 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. We seek to unlock the value of our portfolio of underlying technologies to both advance our purposeful mission while we create value for our stockholders.
Our first significant commercial success is currently unfolding in our subsidiary, Odor-No-More, Inc., which is focused on odor and volatile organic compound (“VOC”) control products sold under the brands CupriDyne Clean and Nature’s Best Science. We are gearing up for rapid growth as our products are experiencing more widespread market adoption in the waste handling industry through national purchasing agreements with four of the largest industry members. To this end, we have recently begun to offer a menu of services to our clients including engineering design, construction, and installation of misting systems and related equipment used to deliver our liquid chemistry products,recurring service contracts, as well as ongoing maintenancethrough 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.
In the third quarter of 2022 we again set a new company-wide quarterly revenue record, building on the second quarter’s unprecedented performance. As a result, the Company has already locked in a record revenue growth rate for installed systems. We have also begun expanding with early adopters into new vertical segments such as wastewater treatment, the cannabis industry and various industrial facilities like steel manufacturing and livestock processing operations. In 2019 we executed a five-year white-label distribution agreement with Cannabusters, Inc. a company organized and ownedentire year, even before the fourth quarter. A standout this quarter was the pet odor product sold by Mabre Corporationour consumer-packaged goods partners at Ikigai, called Pooph, whose sales contributed significantly to featurethe record product revenues of our odor and VOC control products division ONM Environmental.
The Company has several key projects that management believes will stimulate accelerated growth through 2023. These are:
● | The expected launch in major retailers of the Pooph pet odor control product (see “Consumer Packaged Goods Products”, below). |
● | Our first PFAS removal project at a large industrial site (see “Combating the PFAS Forever-Chemical Crisis – the AEC”, below), currently in the initial phase of a multi-phase process, which we expect to continue advancing as we engineer a comprehensive PFAS mitigation plan for the site. |
● | Expanded commercial roll-out of the company’s PFAS treatment technology through its growing network of sales representative organizations. |
● | Garratt-Callahan’s launch of the jointly developed minimal liquid discharge wastewater treatment product. |
● | The Company’s ongoing engineering services provided to Ultra Safe Nuclear. |
● | Our engineering services division completed the first 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). This project is expected to advance to additional phases in 2023, and has the potential to lead to additional projects of a similar nature. |
Technology, Talent and Purpose
Technology
We have continually advanced our portfolio of technologies over the past decade and a half. Our innovations have primarily been developed through our internal resources, and some through acquisition. These include patents, patents pending, and trade secrets that include solutions for:
● | Water decontamination, including: |
o | Removal of per- and poly-fluoroalkyl substances (PFAS) from drinking and ground water |
o | Micro-pollutant destruction and removal |
o | Legionella detection and water treatment solutions |
o | Minimum and zero liquid discharge systems (MLD/ZLD) |
o | Disinfection |
o | Electro-oxidation |
● | Air quality controls and systems including odor and VOC control |
● | Mineral processing |
● | Infection control |
● | Wound management |
● | Disinfection |
Talent
We have grown our team to the cannabis industry in combination with their air handling32 full time team members, one part time team member, and air quality systems. We believe this to be an important opportunity for BioLargo’s odornumerous other part-time consultants, including highly qualified PhDs, engineers, MDs and VOC control products, as the cannabismedical professionals, construction professionals, field service technicians, innovators, sales marketing specialists, entrepreneurial and hemp industries are predicted to grow significantly in the US in the coming years and are known to contend with significant odor and VOC challenges (read more under executive leadership.
Emerging High-Growth Opportunity in Cannabis / Hemp IndustryPurpose).
Our secondmission to make life better drives 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.
Combating the PFAS Forever-Chemical Crisis–our AEC system
One of the most significant and timely innovations in our portfolio is our per- and poly-fluoroalkyl substances (PFAS) removal and collection/disposal solution we call the Aqueous Electrostatic Concentrator (AEC). Our engineers developed and are now commercializing the AEC, which is a novel water treatment system that removes PFAS from water at a fraction of the operating cost and generating only a fraction of the PFAS-laden waste of the most common currently used solutions (carbon filtration, ion exchange, and reverse osmosis). PFAS chemicals have been linked to cancer, auto-immune disorders, liver dysfunction, and many other human health problems, and are contained 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.
PFAS is often referred to as the “contaminant of the decade”. Experts expect the EPA and local regulatory agencies to continue to tighten the regulatory requirements to mitigate, manage and limit human exposure to PFAS, all of which we believe will continue to push the market to find and adopt commercially viable solutions. Notably, some emerging regulations on PFAS in the U.S. are expected to skew the market toward seeking treatment technologies that produce as little PFAS-laden solid waste as possible, a favorable 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, industrial wastewater, municipal wastewater, solid waste, organic foods and more.
We have successfully validated the AEC as an effective system to selectively extract and collect PFAS chemicals from contaminated water including performance testing that shows “non-detect” levels of removal. We have demonstrated more than nine months of continuous operation showing no materially significant degradation of the AEC system’s components or performance over time. We have also successfully demonstrated that the AEC is scalable to a commercial operation, BioLargo Engineering, Science & Technologies, LLC (“BLEST”), provides professional engineeringscale and consulting services to third party clients on a fee-for-service basis, and also serves asthat our in-house engineering team has the proven experience to advancesuccessfully deliver systems to meet the developmentneeds of our proprietary technologiesa commercial installation and complement service offeringssale. Our team has a history of our other business segments.successful execution in the environmental remediation industry and the knowhow to successfully commercialize the AEC.
In additionAugust 2022, our engineering division secured its first customer to our two operating subsidiaries,engineer a comprehensive PFAS mitigation plan for an industrial site. The customer contract is for the first phase of what is expected to be a multi-phase comprehensive PFAS remediation project. The contract was secured in collaboration with a new channel partner, which has been appointed to promote, market, and distribute BioLargo’s water treatment equipment and PFAS-related engineering and project integration services.
The AEC’s commercial roll-out will be executed with the help of a network of sales representative organizations whose role will be to market and sell the treatment system, related equipment, and the Company’s engineering services to municipal and industrial customers across the country. Thus far, we have technologiesalready secured channel partner agreements with several sales representative organizations, and productswe believe we have verbal “soft” commitments from several more as a result of our own business development efforts at recent water industry trade shows.
In October 2022, we entered into a channel partner agreement with Product Recovery Management, Inc. (PRM) to sell, distribute and act as a contract manufacturer for the AEC and other BioLargo water treatment technologies. Product Recovery Based out of Butner, North Carolina, PRM is a UL-certified equipment integrator specializing in remediation services with over 40 years of history serving customers. PRM designs and manufactures treatment systems that address a wide variety of contamination challenges in the development pipeline progressing towards commercialization,remediation and landfill industries, including our water treatment system for decontamination and disinfection (our “Advanced Oxidation System”, or “AOS” – see Pilot Projects discussion below), and our medical products focused on healing chronic wounds, including our recently acquired stem cell therapy called the SkinDiscTM, which is focused on regenerative tissue management and is licensed to our subsidiary Clyra Medical Technologies, Inc. (“Clyra Medical”).PFAS contamination. Their Butner operations include a 250,000 square foot manufacturing facility with large-scale fabrication capabilities.
We believeare also in negotiations with multiple prospective industrial and municipal customers to treat PFAS contaminated water. Having completed our current successinitial testing of client water (to “non-detect” levels) from a leading water district in Southern California, we are in continuing discussions with their technical team to organize a practical commercial field trial. In light of the fact that we now have our industrial odor and VOC control products serves to validate our overall business strategy which is focused on technology-based products and services capable of disrupting the status quo in their applicable industry market segment. Wefirst commercial project under contract, we believe that our expected success will be a key factor to help advance marketing efforts in the future of our medical and clean water technologies has similar and also very largemunicipal market opportunities ahead as they are introduced commercially.well as potentially minimize the need for small scale field piloting.
Odor-No-MoreONM Environmental - Industrial Odor and VOC Solutions
Our CupriDyneONM Environmental, Inc. (“ONM Environmental”) is BioLargo’s subsidiary that delivers robust and comprehensive products and services to control and mitigate odor and volatile organic compounds (“VOCs”) emitted from a variety of industrial activities, including landfills and other waste handling facilities. Its flagship product, CupriDyne® Clean, industrial products reducereduces and eliminateeliminates tough odors and VOC’sVOCs in various industrial settings,settings. CupriDyne Clean is delivered through misting systems, sprayers, water trucks and similar water delivery systems.systems designed, manufactured and installed by ONM Environmental. We believe the product is the number onenumber-one performing odor-control product in the market, and that it offers substantial savings to our customers compared with competing products.
Waste Handling
Our customer base for our odor ONM Environmental holds General, Electrical, Plumbing and VOC business is expanding. We are now selling product to four ofLow Voltage contractor licenses issued by the largest solid waste handling companies in the country,California Contractors State License Board, and also have secured multiple flagship clients in the wastewater treatment industry, which we expect to become a priority market. We are also expanding with early adopters into new industrial markets, including steel manufacturing, paper production, construction, building and facilities management, livestock production, and the cannabis industry. Opportunities for our products are available internationally. We have in the past and plan to continue marketing these products through industry associations like the “Technology Approval Group” program offered by Isle Utilities that serves the wastewater treatment industry. 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.
Many of our customers have adopted CupriDyne Clean as a replacement for non-performing competitive products, some of which have been in use by customers for decades. Upon using CupriDyne Clean, our customers consistently express a very high degree of satisfaction with its performance compared to prior solutions. Because of this, we are realizing systematic adoption by our very large corporate customers and expect to serve these customers for years to come. Our experience has helped refine our value proposition and assemble a comprehensive menu of products and services. Our success in this market has validated the market opportunity for our products and services and encourages us to continue investing in infrastructure and sales and marketing to increase revenues. We estimate there are approximately 2,000 active landfills1, 8,000 transfer stations2, and 15,000 wastewater treatment agencies3 in the United States. While all may not have ongoing odor problems or neighbor complaints, we believe many of the facilities have need for a disruptive odor solution like CupriDyne Clean.
The total addressable market for the waste handling and wastewater treatment industries is greater than $1.3 billion. While we are still assessing the size of the cannabis, agriculture and steel manufacturing industries, we believe they could readily double the market opportunities for our product CupriDyne Clean.
Turn-key Full-service Solutions
At the request of our clients, we have begun offeringoffers a menu of services to landfills, transfer stations, and wastewater treatment facilities.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 designimplementation and continued use of the various systems that deliver our liquid products in the field (such as misting systems). We have recently expanded these serves to engineering design, construction and installation. Our engineering team at BLEST has been instrumental in supporting these operations. Our system design, build and install business continues to grow. We have completed multiple installs during the last quarter and have several bids outstanding for CupriDyne Clean delivery systems.
Regional Adoption
Sales of our CupriDyne Clean productsWe have been and related services were initially made at the local level, on a per-location/facility basis. We would demonstrate ourexpect to continue selling product to the manager of operations at a transfer station or landfill, and he or she ultimately would decide whether to use our products. If owned by a national company, in some instances before the operations manager could buy our products, we were required to obtain official “vendor” status with the company and sign a “national purchasing agreement” (“NPA”). Doing so required a tremendous amount of effort and time. These agreements typically include the addition of our line of products which will be offered through an online purchasing portal to the members around the nation. The process of integrating the data is often delayed by months from the start date of our agreements given their very technical nature. As an example, we just completed work to finish this portion of the startup process with our fourth national agreement account. These processes establish an easy and familiar selling and purchasing process for the ongoing and long-term relationships we seek to develop. We now have NPAs with four of the largest solid waste handling companies in the United States. Somecountry, with a portion of these accounts are now introducing us to regional managers around the country who have the ability to direct the facilitieschemistry 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 their region to use our product. Because of our continued success with our existing clients, our national accounts are expanding their support for, and expanding resources to encourage increased awareness and broad adoption of our products and services. It is also important to note that we are often replacing companies that have served these customers for 20 to 30 years giving support for our claim of ‘disruption’ to an industry.
1 “Municipal Solid Waste Landfills - Economic Impact AnalysisSouthern California for the Proposed New Subpart to the New Source Performance Standards” (2014), by U.S. Environmental Protection Agency Officedelivery of Air and Radiation and OfficeCupriDyne Clean, which will provide a steady source of Air Quality Planning and Standards.
2 The top 5 Waste Management companies in the US, as of 2011, operated 624 transfer stations, and 565 landfills. “Municipal Solid Waste Landfills - Economic Impact Analysischemistry supply revenue for the Proposed New Subpart tocompany over the New Source Performance Standards” (2014), by U.S. Environmental Protection Agency Office of Air and Radiation and Office of Air Quality Planning and Standards. This is a ratio of 1:4 (landfill to transfer stations). The estimated number of transfer stations is this ratio multiplied by the approximate 1,900 total landfills, and then rounded.
31“Failure to Act, The Economic Impact of Current Investment Trends in Water and Wastewater Treatment Infrastructure” (2011), by American Society of Civil Engineers and Economic Development Research Group. Figure includes treatment facilities owned and operated by municipalities, as well as those owned and/or operated by private entities contracting with municipalities.next three years.
We believe that “regional adoption” is a scalable approach for the larger solid waste handling companies that, with sufficient resources, we can implement nationwide. Our current national accounts represent the opportunity to serve more than 3,000 local operations around North America. Because of our success serving the transfer stations, material transfer facilities, and landfills, these very large companies are also evaluating the use of CupriDyne Clean in various transportation segments as well.
We now have a body of evidence that has been developed through direct work with our large national accounts that supports our product claims, namely superior performance, cost savings and service excellence. As a result, we are receiving support from the leadership of our national accounts to help expand our services within their organizations. This support has and will continue to demand that we increase our activity to deliver RFPs (requests for proposals), follow up with and make site visits as a result of introductions to local operators by regional and corporate leaders, follow up on referrals from local operators to other local operators and provide high level customer service and responsiveness to regional office requests for site visits, and offer our products and services to multiple locations with these regional operations. This activity is increasing and as a result we are focused on adding qualified staff to our team and believe that sales will continue to increase as a function of increased staffing. Our experience has shown that the cycle from identifying a new customer that wants to use our products to installing delivery systems and related equipment (if needed), to deploying our products can take from 60 to 180 days. The work is demanding but we know the up-front investment by our team will be rewarded with expanded adoption and recurring revenues. We are continually reminded that in many instances we are replacing companies that have been serving these customers for decades.
We believe that our products will become known as the odor and VOC elimination product that will become selected as a “best practices” tool for the waste handling industry. As we continue to achieve that level of recognition, we believe our large national accounts will want to modify their stance to encourage their local operators around the country to choose our product as the top performer and highest value provider.
Expanding our Brand
CupriDyne Clean is gaining a reputation as “the one that actually works” to control odors and VOCs. We are constantly reminded that decision-makers in many industries, including the waste handling industry, have been conditioned to believe that “nothing actually works” to address industrial nuisance odors. We are working to help change the industry mindset to being proactive, investing to avoid problems rather than to rush to fix problems that have escalated to an emergency intervention status. One of our most important branding goals is to educate decision-makers that the “cost of doing nothing” can be the most expensive choice by a customer. The alternative is to use the best-performing odor mitigation product – CupriDyne Clean – to save them money and reduce or eliminate their risk and costs associated with managing odors and VOCs. Our company is committed to raise the bar of awareness with consistent performance, brand awareness and marketing to help industry see the value and make the correct choice to use and deploy CupriDyne Clean. In the past few months, we have received opening orders from more than 14 new customers, from both national accounts and new independent customers as a result of our marketing and branding awareness. We expect that trend to continue. New Product Expansion with Existing Customers
In line with our mandate as an innovator and full services solution provider, Odor-No-More was recently asked by one of its national customers to expand the use of its CupriDyne based products to include a wash out and odor control product for transportation devices, compactors and containers. While this work is still early, our first trials demonstrate that the new product saves our customers money and labor costs. Although sales for this new product have just begun, we believe the opportunity for this product is significant.
Additionally, we have been approached by two of our large customers to develop a series of educational and training tools to assist in their continuing focus to refine ‘best practices’ operating procedures for odor management at waste processing facilities. While this work is early, and our scope of services and role is still being defined, we believe this is another important validation of how we are being adopted as a reliable and high value total solutions provider.
Emerging High-Growth Opportunity in Cannabis / Hemp Industry
Odor-No-More recently entered into a 5-year “white-label” distribution agreement with Cannabusters, Inc., a sister company to Mabre Air Systems, to sell its CupriDyne Clean odor and VOC control products to Cannabis and Hemp grow and production facilities, which represent a target market that management’s research indicates is in sore need of new odor control products and services. Cannabusters has decades of experience with air quality management through their sister company Mabre Air Systems, a leader in air quality control systems in Italy. Cannabusters has committed to a comprehensive marketing program that includes more than 25 trade show events over the next two years to quickly introduce the Cannabusters product to the cannabis and hemp industries.
The cannabis industry is facing increased scrutiny by regulators to better control of hazardous air pollutants called terpenes that are a natural part of production and processing. These gases can also cause malodors that demand attention and can be problematic as these companies seek to maintain good community relations and avoid legal entanglements or lawsuits over nuisance odors. Odor abatement operating procedures are part and parcel to the permitting processes for companies involved in the industry and have typically included traditional carbon filters. With the growth and concentration of cannabis related operators, the industry has come to recognize that the volume of terpenes and air flow in a typical operation are often more than the traditional carbon filter-based systems can manage effectively. Odor complaints persist. We have been able to successfully demonstrate that our products are effective as eliminating these VOC’s and related odors, just as we have done in the waste handling industry. As a result, we have had a number of experts in the cannabis industry tell us that our products could become part of the ‘best practices’ operating procedures for this industry and are working toward that goal.
The global legal cannabis market is expected to grow to $146.4B in 2025 at an astounding 34.6% annual growth rate. Some call cannabis the 21st century’s gold rush. With an estimated 15,000 companies operating in our California alone, we believe the opportunity for our product is significant. A number of recent examples have surfaced with leading companies in this industry that highlight the nuisance odor issue and their inability to adequately manage the volume of terpenes escaping the operations. To that end, we are organizing a series of strategic relationships within the Cannabis industry to capture the opportunity quickly. We are working to finalize agreements with equipment manufacturers, regulatory consultants, key opinion leaders, and marketing partners. Our value proposition is unmatched for odor and VOC control and this is another great example how our platform continues to expand in high value markets.
Wastewater TreatmentConsumer Packaged Goods Products
We have begun sellingsell pet odor-control products under the brand “Pooph” to Ikigai Marketing Works, LLC (“Ikigai”). The Pooph products are marketed through a national television advertising campaign, are available on Amazon.com, and servicesin November 2022 launched at in select Walmart stores. Our agreement with Ikigai grants them an exclusive license to wastewater treatment facilitiessell the Pooph pet odor-control product, provided certain minimum volume thresholds are met once retail sales begin, and requires, in our local markets. Our clientsaddition to purchasing product from us at an agreed-upon manufacturing margin, they pay a 6% royalty on sales. We are prominent municipal agencies and have indicated a desirein negotiations to expand their rights under the use of our products and services to additional locations in their service areas. As a result of our success in the field, a client featured our product as an example of ‘Best Practices’ for the wastewater treatment industry at a national water quality conference hosted by the Water Environment Federation. We anticipate overall longer selling cycles given the technical sophistication of the customers in this market, and believe that channel partnerships with leading companies that already sell and service this highly technical market will be required for our ultimate success. We are encouraged and are evaluating various strategies to maximize our marketing and selling proposition into this mature and well-established market. We are actively engaged in discussions with potential distribution partners and leading engineering firms with well established relationships to the clients in order to service this very large market.license agreement.
Infrastructure and Capital Needs for Odor-No-MoreFull Service Environmental Engineering
We recognize the scope of the opportunity for CupriDyne Clean and related services, and understand the task of building the personnel and infrastructure to become a disruptive company in the waste handling industry. In the United States, we currently operate out of two locations – Southern California and Tennessee. As of now, our manufacturing facilities are located in California. However, we expect to expand our manufacturing and staffing in our Tennessee operation as we achieve critical mass in that region. We are also contemplating the opportunity to establish a manufacturing facility in Canada to serve the Canadian odor and VOC control market. In the meantime, as a result of the rapid adoption we are experiencing in our local Southern California market, we want to focus on adding staff and infrastructure to meet the obvious need for our products and services. We believe that we need to invest in qualified sales and support personnel to properly focus our energies on capturing the client opportunities already under contract with our national accounts and expand revenues accordingly. As of August 1, 2019, we added waste-industry veteran Mitch Noto to our team as Director of Business Development.
We believe that a significant number of personnel will be required to fully service the solid waste handling and wastewater treatment industries. We plan to expand as adequate capital to fund these needs becomes available.
Full Service Environmental Engineering
In September 2017, we formed aOur subsidiary (BioLargoBioLargo Engineering, Science & Technologies, LLC or “BLEST”(“BLEST”), for the purpose of offering offers full service environmental engineering to third parties and to provideprovides engineering support services to our internal teams to accelerate the commercialization of our AOS technologies. Its website is found at www.BioLargoEngineering.com.
BLEST focuses its efforts in fourthree areas:
● |
|
|
|
● |
|
● |
|
|
|
|
|
|
|
|
|
The subsidiary is basedlocated in Oak Ridge (a suburb of Knoxville)Knoxville, Tennessee), Tennessee, and employs sevena group of scientists and engineers who collectively have over two hundred years of experience in diverse engineering fields.engineers. 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. TheWe believe 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.
In association with Garratt-Callahan, a national industrial water treatment company, BLEST developed a “minimal liquid discharge” (MLD) wastewater treatment system based on Garratt-Callahan proprietary technology that is able to reduce industrial wastewater discharge and therefore reduce wastewater discharge fees for customers. Garratt-Callahan is currently preparing to launch 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. BioLargo’s engineers completed 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 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 and/or sales to Garratt-Callahan customers can begin. Garret-Callahan has identified multiple customer prospects, as has BioLargo, through its own marketing efforts. We are working on contractual agreements to move the project forward to first sales.
In the second quarter of 2022, BLEST was contracted by Ultra Safe Nuclear to assist in producing the first prototype fuel production systems for their new nuclear reactor called the Micro Modular Reactor (MMR®). Ultra Safe Nuclear is a Seattle-based nuclear energy that has invented a “fission battery” - a fourth generation modular nuclear reactor – that can deliver safe, zero-carbon, cost-effective energy. The MMR® uses ceramic-encapsulated nuclear fuel – Fully Ceramic Micro-encapsulated (FCM+++) – an extremely rugged and stable fuel with high temperature stability. BLEST has been retained to provide engineering design support, fabrication, and integration for the company’s prototype fuel production systems. Because of the success of the early phase of the project, this project is expected to expand over the coming months in scope and significance to BioLargo, making them an important customer for BLEST.
Business Development at BLESTWaste-to-Energy Conversion Plant Project
BLEST has had success in several noteworthy areas in the past months. The company is increasing its customer base and executing more and larger projects than in its first year. Additionally, BLEST has made strides toward creating lucrative new opportunities through development of new processes, which BioLargo intend to seek new IP for where possible.
BLESTIn April 2022, our engineering subsidiary was recently awarded three subcontracts to do work on U.S. Air Force bases in Texas, Kansas, Illinois and Arizona. Primary contractor Bhate Environmental Associates, Inc. has bid multiple projects with BioLargohired to conduct “Fence-to-Fence (F2F) environmental compliance”.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 total valuesite of the contracts awarded (splitproposed conversion plant is approximately 296 acres, where it is planned to process between the prime contractor Bhatetwo million and its subcontractors, including BLEST) is in excess of $15 million over five years (with one year guaranteed). BLEST is responsible for one of the three major components of the services: air quality compliance.
BLEST was recently awarded an SBIR Phase I Competitive Grant by the Environmental Protection Agency in the amount of $100,000up to investigate solutions for the removal of per- and polyfluoroalkyl substances (PFAS) from water. PFAS have been linked to cancer, fertility problems, asthma, and more, and are present in a vast range of manufactured goods including food, common household products (e.g., cleaning products, cookware), and electronics. PFAS also pose widespread and serious water safety problems around the world, with governments and industry actively seeking new technologies and processes to eliminate PFAS from groundwater and drinking water. BLEST will compete for a Phase II grant for $1,000,000 in funding to finish the product design and start a go to market campaign.
BLEST recently began a feasibility and placement study for 1.18 million tons of magnesium rich production tailings in Northern California for a new client.
Notably, BLEST recently begun workmunicipal solid waste annually and is projected to develop a new process by which to manage and mitigate Legionella contamination in the water distribution systemsproduce 500 megawatts of large buildings including hospitals, office buildings, condos, and more. BioLargo recently filed a patent for this new process, which is referenced below in the Intellectual Property section. BLEST intends to leverage this patented process to offer Legionella mitigation services to customers.energy per year.
BLEST has recently been notified that as a result of its recent audit work on assisting a leading healthcare products company in transitioning to the 2015 revision of the ISO 14001 standard for environmental management systems (EMS) it is being awarded another small project from the client. The new time and materials project involved preparing a detailed GAP analysis, and subsequently updating the client’s EMS procedures to reflect the significant changes to the new EMS standard which places new emphasis on upper management involvement, the life cycle of products and services, emergency preparedness and response, and sustainability. There is also a new focus on evaluating risks and opportunities and integrating this assessment into the EMS program.
The formation of BLEST was predicated oninitial feasibility study having been completed, our engineers are now preparing proposals for the concept that 60%next phase of the revenue would be provided by external clientsproject. The client has reviewed the feasibility study and is currently evaluating its plans for advancing the remaining 40% would be provided by internal clients (i.e. BioLargo Water or Odor-No-More). By reaching this goal, BLEST will provide direct positive cash flow toproject forward. It is expected that if the BioLargo, Inc. while fulfilling its mission to provide professional engineering services to the internal client base. For calendar 2018, the ratio was approximately 40% of revenue provided by external clients and 60% provided by internal sources. Inproject moves forward, the second quarter of 2019, BLEST has now reached and exceeded its target threshold of 60% of revenues coming from external clients and less than 40% coming from internal sources, meaning BLEST has achieved its goal of generating the majority of its revenues from external contracts. . This occurred andphase is occurring principally because of an increasing number of perpetual contracts including the U.S. Air Force contracts, Citizens Gas Utility District, HAVCO, Powell Valley Utilities, and APTIM/Picatinny Arsenal. These perpetual contracts, which are anticipatedexpected to be renewed annually, will provide a steady base load of outside client revenue that is reasonably predictable and secure.
In addition to continued organic growthbegin in the external client base, BLEST is developing new technologies and services for water pollution control, the microbrewery sector, legionella prevention in public buildings and hospitals. They are evaluating similar approaches for the cannabis industry as well. These markets are expanding in areas across the United States and represent significant opportunities for BLEST.
BLEST management believes the company can expect growth in several additional areas. For one, BLEST is under contract to design, build, and install wastewater treatment equipment and “treatment trains” for clients in collaboration with BioLargo’s water technology subsidiary BioLargo Water. Not only does this represent important synergy between two BioLargo business units, but it offers BLEST the opportunity to become a total water treatment solutions provider for customers in the widely under-served small industrial wastewater treatment sector. Another area of predicted growth is the conduct of environmental engineering and permitting work for large industrial facilities such as fuel conversion plants, an area in which BLEST has experienced an increasing number of contracts in the past quarter.first quarter 2023.
BioLargo Water and the Advanced Oxidation System - –AOS
BioLargo Water is our wholly owned subsidiary located on campus at the University ofin Edmonton, Alberta, Canada, that has been primarily engaged in the researchdeveloped and development ofis 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 eliminate pathogenic organisms and organic contaminants as water passes through the device and it performs with extreme efficacy while consuming very little electricity. Its key application is rapid and efficient decontamination and disinfection of various wastewaters. The AOS recently began its first pre-commercial pilot project, wherein an AOS and treatment train has been installed on-site at Sunworks Farm, a poultry farm in Alberta. This pilot project is discussed in more detail in the Pre-commercial Pilot Projects section below.
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 both inputusing very little electricity and chemistry – 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 setsFurthermore, 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 technology above otheran 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 options,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 we believemuch as possible in order to promote transparency about the AOS may allow safetechnology’s safety and reliable water treatment for significantly lower cost comparedefficacy while also contributing to its competitors and may even enablethe field of advanced water treatment science. In June of 2022, the fourth peer-reviewed scientific paper about the AOS was published, in applications where it otherwise would have been prohibitively costly.the journal Environmental Science and Pollution Research.
TheBioLargo’s AOS has the potential to allow reliable and cost-effective water treatment technology has completed several pre-commercial demonstration pilots, including one at a poultry farm in numerous industriesAlberta, one at a microbrewery in Southern California, and applicationsanother in Southern California where high-level disinfection or elimination of hard-to-treat organic contaminants is required. We believe the total serviceable market for our AOS is $10.75 billion for the poultry processing, food & beverage, and storm water segments with a target beachhead market for poultry processing in North America at an estimated $240 million.
Our AOSstormwater was the result of breakthroughs in both advanced iodine electrochemistry and advances in materials engineering, and its invention led to BioLargo’s co-founding of a multi-year industrial research chair whose goal was to solve the contaminated water issues associated with the Canadian Oil Sands at the University of Alberta Department of Engineering in conjunction with the top five oil companies in Canada, the regional water district, and various environmental agencies of the Canadian government. Based on recovering oil prices and our ongoing work in Canada, in 2018 re reinitiated discussions with stakeholders in the oil sands industry to support the completion of AOS development for oil and gas water treatment and to discuss the initiation of pre-commercial and commercial pilots for our AOS to help treat and remediate oil sands process-affected water (“OSPW”) found in tailings ponds in the Canadian oil sands, an application that currently has no good economically viable solution. We have been unsuccessful in raising grant or private funds for this project, and, therefore we will continue to focus on energies on other markets until such time as proper resources are available.
Our AOS is an award-winning invention that is supported by science and engineering financial support and highly competitive grants (66 and counting) from various federal and provincial funding agencies in Canada such as NSERC, NRC- IRAP, and Alberta Innovates and in the United Statestreated by the Metropolitan Water District of Southern California.
Our immediate goals for the development and commercialization of the AOS are: 1)AOS. It has an ongoing pilot near Montreal to secure direct investment into the BioLargo Water subsidiary to empower its staff to complete its development cycle, 2) complete the ongoing pre-commercial field pilot studies which are necessary to generate the techno-economic data required to secure commercial trials, entice future customers, and commence traversal of regulatory pathways, 3) conduct the first commercial trials with the AOS, and 4) secure first sale of the AOS.treat municipal wastewater. It is our belief that once these pre-commercial pilots have concluded with the AOS, we will be ableour ability to entice major water industry players to partner with BioLargo Water to accelerate market adoption of the AOS..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. In the second quarter, the development work funded by this grant advanced, focusing on improving the performance of the conductive materials within the AOS which allow for water disinfection and decontamination.
Recent AOS MilestonesMunicipal Wastewater Treatment Pilot – Montreal
The mostOur commercial-scale AOS demonstration pilot (run in partnership with water experts at the Centre des Technologies de L’Eau) at a municipal wastewater treatment plant near Montreal, Quebec, is ongoing and providing important advancesdata 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 developmentwas able to also remove total coliforms (bacteria) from the municipal wastewater more effectively than the UV disinfection system currently in recent months have been 1) recent validationuse at the facility.
In January 2022, our Canadian subsidiary 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 an effective and transformativewell as the installation of our AEC water treatment technology ablesystem to eliminate hard-to-treat “micropollutants”assess its ability to remove PFAS chemicals from wastewater; 2) design and engineering advances and changes to the AOS in preparation for piloting and scale-up for industrial flow-rates and conditions; and 3)municipality’s wastewater. (See “Combating the planning and design of pre-commercial field pilot projects.PFAS Forever-Chemical Crisis – our AEC system”, above.) This AEC system has been operational at that facility since November 2022.
One recent and important AOS milestone was the demonstration that it eliminated or reduced the toxicity of certain high-concern pharmaceutical byproducts (micropollutants) common in some municipal wastewater (“MWW”) streams. Currently, there are no economically viable solutionsClyra Medical Technologies
Clyra Medical Technologies, Inc. is our partially owned subsidiary creating medical products based on our technology. It is launching a product to remove these compounds from MWW, and incumbent technologies fall short. We believe that the value proposition for our AOSbe used by surgeons generally, with a first target market aimed toward orthopedic surgeons for use as a new technologywound irrigation solution and to help manage patient care and outcomes. Clyra has secured its first two hospital customers for the municipal water treatment industryproduct, established a robust quality control system for FDA compliance, recruited a national director of sales, and is negotiating with three separate channel partners to efficiently remove micropollutants could increase our total serviceable marketform a commercial alliance. It has secured its first manufacturer’s representatives and is actively expanding these efforts to 5% or more ofbuild out a national rep network. Its other product designs are on hold until such time as it is able to secure the total industry which is recognized at + $700 billion globally or approximately $35 billion.
Several advancescapital and improvementsresources to the AOS have also been made in recent months with the purpose of preparing the technologycomplete any final development and support additional inventory, technical support and sales for pre-commercial piloting, commercial piloting, and subsequent mass production, as well as to prepare it for scale-up to allow industrial flow rates. These advancements have largely been proprietary physical improvements to the AOS, including the transitioning of the AOS to using inner substrates more amenable to mass-production and greater flow rates and pressures. Management believes it will continue to advance the scale-up to higher volume throughputs of water flow and enhances the AOS ability to be more compact and longer lasting in the field. This work is not complete, but management believes it does represent a significant step forward to achieving high throughput quality results. Importantly, we have also designed and begun assembling our own proprietary water treatment train that will be used in pilots for the AOS and that will pave the way for complete wastewater treatment in industrial settings.
Pre-commercial Pilot Projects for AOS
We are now underway on multiple pre-commercial field pilot projects.
The first project involves treating poultry wastewater on-site at a facility in Alberta Canada, with support from the Poultry Growers Association. In this pilot, the AOS is being assessed for its ability to eliminate bacteria and other contaminants from poultry processing wastewater effectively and cost-efficiently and to establish operating costs (OPEX) and capital costs (CAPEX) in a field setting. BioLargo Water built and installed a complete “treatment train” with equipment to address all aspects of the client’s water treatment needs, including organic contaminants, suspended solids, and biological organisms, in addition to the connected AOS unit. Therefore, this pilot also represents BioLargo’s first assessment as a “total solutions provider”, which could open the door for a wider array of future water treatment market opportunities. Funded in part by Canadian government grants, this system is operating successfully. We hope to report data from the project before the end of the year.
In another pilot project, the AOS is being used on-site at a Californian micro-brewery as a polishing (final) step in a wastewater “treatment train” whose goal is to reduce wastewater contaminant load to levels that would allow the microbrewery to reduce its wastewater discharge fines and enable water reuse. The treatment train includes several pieces of wastewater treatment equipment including a proprietary technology developed and manufactured by our project partner Aquacycl, an emerging wastewater treatment technology company based in the San Diego area that was introduced to our company by The Maritime Alliance, a trade organization in San Diego committed to fostering maritime business and technology innovation. This pilot will help establish the efficacy of the AOS in a field setting, the OPEX and CAPEX of the system, and the AOS’ ability to “plug and play” in the context of diverse supporting equipment and logistics.these products.
In addition, we recently commenced a pre-commercial demonstration pilot that will utilize the company’s Advanced Oxidation System (AOS) to treat captured stormwater in Southern California at BioLargo’s Westminster, California facility. The pilot’s goal is to demonstrate the technical and economic feasibility of deploying the AOS to enable stormwater treatment and reuse, an important and emerging water management application in the US and Canada. The pilot project is supported in part by research and development funding of to up to $189,000 from the National Research Council of Canada Industrial Research Assistance Program (NRC IRAP). BioLargo Water is collaborating on the project with Richard Watson & Associates, Inc. and Carollo Engineers, Inc. Richard Watson has been active in stormwater quality management since 1990 and currently consults to three watershed management groups in Los Angeles County. Carollo Engineers, a leading environmental engineering firm providing cost-effective, innovative, and reliable water treatment solutions, will provide engineering and water treatment validation for the project. The goals of this demonstration pilot will focus on the efficacy of the AOS to treat captured stormwater to water reuse standards. The pilot will also help establish the capital and operating costs of the AOS in this application, a crucial step before potential commercial pilot clients and paying customers would consider the technology in this industrial setting.
All of these pilot projects represent an important step for our AOS technology, as well as for our company. We are confident in our disruptive water treatment technology and have proven its treatment capabilities in the lab. However, pilot projects for the AOS, as with any technology, are crucial to prove its reliability to industry stakeholders as well the capital cost and operating costs of our technology at-scale. These data will be critical to pave the way for future market adoption. As a reminder, we have many other pilots in evaluation to support this same cause.
We believe that our current designs for the AOS are cost-effective, commercially viable and should be ready for their first commercial launch in late 2019 or early 2020. We secured a patent on the AOS in 2018, and another in March 2019. We intend to continue refining and improving the AOS continually to accomplish a series of goals: expanded patent coverage, extended useful life, lower capital costs, lower energy costs, optimized performance, precise configurations for specific industry challenges, portability, and identifying its performance limits. Our current and most pressing goal for the AOS, as evidenced by the pilot projects described above, is to demonstrate its efficacy in field settings, which is a crucial and necessary step for the commercialization of any water treatment system.
Advanced Wound Care - Clyra Medical
We initially formed Clyra Medical to commercialize our technology in the medical products industry, which we believe can be disruptive to many competing product lines. Our initial product designs focus in the “advanced wound care” field, which includes traumatic injury, diabetic ulcers, and chronic hard-to-heal wounds. We also have designs for products focused on preventing or controlling infections. In late 2018, we also acquired our second technology, a stem cell therapy technology, SkinDisc, that is both complementary to our antimicrobial product designs and it also presents a high value proposition to offer stand-alone products to the advanced wound care industry to assist in regenerating tissue. With the addition of highly skilled team members with extensive experience and proven track record of success in the medical industry and, the addition of the SkinDisc, we have expanded our plans to focus and build out a complete line of products to deliver state of the art solutions to assist in healing wounds. Therefore, we are also presently evaluating a number of additional licensing opportunities to add complementary technologies and products to our medical products portfolio with the goal of offering a complete menu of proprietary and patent protected products to better serve the advanced wound care patient population with state-of-the-art medical products. We are presently seeking pre-market clearance for our first advanced wound care product (application in process), from the U.S. Food & Drug Administration (“FDA”) under Section 510(k) of the Food, Drug, and Cosmetic Act.
We believe the total addressable market for Clyra Medical’s existing product designs in the advanced wound care market, dental, orthopedics and regenerative tissue markets will exceed $2.5 billion by 2022.
Our first and original advanced wound care product combines the broad-spectrum antimicrobial capabilities of iodine in a platform complex that promotes and facilitates wound healing. Our products are highly differentiated from existing antimicrobials in multiple ways - by the gentle nature in which they perform, extremely low dosing of active ingredients, reduced product costs, extended antimicrobial activity, and biofilm efficacy. In addition, iodine has no known acquired microbial resistance, unlike many competing products. We believe the future markets for some of our product designs may also include infection control and wound therapy in orthopedics, dental and veterinary markets. We also intend to pursue and study the use of our technology as a complimentary and synergistic platform for use with regenerative tissue therapy.
We have three patent applications pending for medical products, and are preparing additional applications. While these patent applications are pending, we intend to continue expanding patent coverage as we refine and expand our medical products.
We are in the process of obtaining regulatory approval (pre-market clearance) from the FDA for our first advanced wound care product. These efforts are ongoing as of the date of this report. Although the process has taken considerable time and money, and we have faced a number of delays as a result of the FDA’s requirements of us, we remain highly encouraged by our current interactions with the FDA staff and our current position. The process has confirmed that our product design falls in the scope of the 510(k) process and the pathway to clearance has now been better defined by senior staff at FDA. We are preparing to report to the FDA results of a 30-day animal study that confirmed the Clyra product has no adverse effects on wound healing. This animal study is the last material item asked of us by FDA staff, and we believe we can submit this new data and have a response back from the FDA as soon as possible, with expectations of delivery within weeks and a timely response from the FDA promptly thereafter. While we remain confident that we will ultimately receive premarket clearance for this product, and we continue to invest substantial recourses in anticipation of our ultimate success, we are continually reminded by legal counsel that we can make no assurance or prediction as to success of these efforts, or whether additional information will be requested after this animal study, and must wait patiently for the process with the FDA to conclude. Notwithstanding these disclosures, having spent a significant amount of time and money responding to the various technical questions by the staff, including two trips to Washington D.C., we are confident we will see a successful conclusion.
We believe this product’s future role in the advanced wound care industry will be disruptive to many incumbent competing products like silver, hypochlorous acid and even other iodine-based products and therefore our extraordinary investment of time and money will have significant opportunity to generate a considerable return on investment as the products find their way through the FDA process for clearance and then to market adoption. Simply stated, we believe it is worth it and that we will succeed.
Our second technology and its related products center around the SkinDisc technology which we acquired in late 2018 from Scion Solutions, LLC (“Scion”). Scion is led by Spencer Brown, a medical device industry veteran with more than 35 years’ experience in sales, account management, and distribution in the medical device industry. The SkinDisc product was developed by Dr. Brock Liden, a renowned medical podiatrist and expert in wound care and diabetic limb salvage. The SkinDisc is a therapy product that uses a patient’s own bone marrow and plasma in a unique mixture to generate a cell-rich bio gel for use with chronic wounds. It has been tested in over 250 patient cases with no adverse effects, and has successfully aided in the salvage of limbs that otherwise would have been amputated. The regenerative tissue therapy technique has been shown to assist in successful wound closure in time frames as short at 4 to 7 weeks with one or two applications and is patent pending.
Clyra Medical also continues to actively work on the development of new products.
Clyra is currently successfully recruiting Key Opinion Leaders from the medial field to join Clyra’s Medical Advisory Board and is actively evaluating a number of technologies and products to add to its product portfolio in anticipation of its near-term plans to launch its commercial sales efforts.
We are committed to see these advanced wound care products go to market and we believe they will make a positive impact for a greater good around the world and generate meaningful financial results for our stockholders.
Scion Solutions Acquisition – SkinDiscTM
On September 26, 2018, we and Clyra Medical agreed to a transaction whereby we would acquire the intangible assets of Scion Solutions, LLC (“Scion”), and in particular its stem cell-based technology, the SkinDisc, and the know-how of key team members to support further research as well as the sale and distribution of Clyra Medical’s products based on our BioLargo technologies.
The parties entered into a Stock Purchase Agreement and Plan of Reorganization (“Purchase Agreement”) whereby Clyra Medical acquired (and then sold to BioLargo) the Scion intangible assets, including the SkinDisc. The consideration provided to Scion is subject to an escrow agreement and earn out provisions and includes: (i) 21,000 shares of the Clyra Medical common stock; (ii) 10,000 shares of Clyra Medical common stock redeemable for BioLargo common shares (detailed below); and (iii) a promissory note in the principal amount of $1,250,000 to be paid through new capital investments and revenue, as detailed below. The Clyra Medical common stock was initially held in escrow subject to the new entity raising $1,000,000 “base capital” to fund its business operations, which was raised effective December 17, 2018 (see below). One-half of the common stock was released to scion, and the second half remains subject to the following performance metrics, each vesting one-fifth of the remaining shares of common stock: (a) notification of FDA premarket clearance of certain orthopedics products, or recognition by Clyra Medical of $100,000 gross revenue; (b) the recognition by Clyra Medical of $100,000 in aggregate gross revenue; (c) the granting of all or any part of the patent application for the SkinDisc product, or recognition by Clyra Medical of $500,000 in gross revenue; (d) recognition by Clyra Medical of $1,000,000 in aggregate gross revenue; and (e) recognition by Clyra Medical of $2,000,000 in gross revenue. In addition, Clyra and Scion entered into the $1,250,000 promissory note called for by the Purchase Agreement. The promissory note accrues interest at the rate of 5%. Principal and interest due under the note are to be paid periodically at a rate of 25% of investment proceeds received. If the note is not paid off within 18 months after the date of issuance, it is automatically extended for additional 12-month periods until the note is repaid in full. Payments after the initial 18-month maturity date are required to be made as investment proceeds are received, at a rate of 25% of such proceeds, and 5% of Clyra Medical’s gross revenues.
Immediately following Clyra Medical’s purchase of Scion’s assets, Clyra Medical sold to BioLargo the assets, along with 12,755 Clyra Medical common shares. In exchange, BioLargo issued Clyra Medical 7,142,858 shares of BioLargo common stock. Concurrently, BioLargo licensed back to Clyra Medical the Scion assets. Scion may exchange its 10,000 Clyra Medical common shares for the 7,142,858 shares of BioLargo common stock issued to Clyra Medical, subject to the escrow and earn-out provisions described above. As of December 31, 2018, per the Closing Agreement, one-half of these shares have been earned and thus may be redeemed, and one-half remain subject to the earn-out provisions.
On December 17, 2018, we entered into a closing agreement (“Closing Agreement”) reflecting the satisfaction of the obligation to raise $1,000,000 “base capital” established under the Purchase Agreement. With the satisfaction of the obligation to raise $1,000,000 in base capital, Clyra Medical agreed to release to Scion one-half of the shares of Clyra common stock exchanged for the Scion assets. The remaining Clyra Medical common shares remain subject to the Escrow Agreement dated September 26, 2018, subject to the metrics identified above. We were initially introduced to the SkinDisc product and Scion Solutions through Dr. Liden and Tanya Rhodes’s consulting work with Clyra Medical (both Dr. Liden and Ms. Rhodes have ownership interest in Scion). Prior to the execution of the above-described agreements, BioLargo did not have any material relationship with Scion’s founder Spencer Brown.
Intellectual Property
We have 2026 patents issued, including 1820 in the United States, and multiple pending. We believe these patents provide a foundation from which to continue building our patent portfolio, and we believe that our technology istechnologies are sufficiently useful and novel that we have a reasonable basis upon which to rely on our patent protections. We also rely on trade secrets and technical know-how to establish and maintain additional protection of our intellectual property. As our capital resources permit, we expect to expand our patent protection as we continue to refine our inventions as well as make new discoveries. See the detailed discussion below of our patent portfolio.
We regard our intellectual property as critical to our ultimate success. Our goal is to obtain, maintain and enforce patent protection for our products and technologies in geographic areas of commercial interest and to protect our trade secrets and proprietary information through laws and contractual arrangements.
Our Chief Science Officer, Mr. Kenneth R. Code, has been involved in the research and development of the technology since 1997. He has participated in the Canadian Federal Scientific Research and Experimental Development program, and he was instrumental in the discovery, preparation and filing of the first technology patents. He has worked with manufacturers, distributors and suppliers in a wide variety of industries to gain a full appreciation of the potential applications and the methodologies applicable to our technology for their manufacture and performance. He continues to research methods and applications to continue to expand the potential uses of our technology as well as work to uncover new discoveries that may provide additional commercial applications to help solve real world problems in the field of disinfection.
We incurred approximately $1,700,000 in expense related to our research and development activities in 2018, an increase of approximately $100,000 over the prior year. We have shifted the focused in our Canadian research facility to focus on commercializing our AOS technology and thus expect these expenses to decrease in 2019.
We believe that our suite of intellectual property covers the presently targeted major areas of focus for our licensing strategy. The description of our intellectual property, at present, is as follows:
Current U.S. Patents |
|
● U.S. Patent 11,457,632, issued October 5, 2022, relating to liquid antimicrobial disinfectant compositions for treatment of coronaviruses and SARS-CoV-2 on skin and surfaces, which have extended antimicrobial and antiviral activity for more than 24 hours, are suitable for personal, clinical and surgical use, and are safe to skin, mucous membranes and wounds. |
|
● U.S. Patent 10,654,731, issued on May 19, 2020, 10,238,990, issued on March 26, 2019, and 10,051,866, issued on August 21, 2018, which protect our AOS system. |
|
● U.S. Patent 10,046,078, issued on August 14, 2018, relating to the misting systems that eliminate odors in waste transfer stations, landfills, and other waste handling facilities. ● U.S. Patent 9,883,653 issued on February 8, 2018, which encompasses a litter composition used in the absorption of animal wastes. ● US Patent 9,414,601 granted August 16, 2016, relating to the use of an article for application to a surface to provide antimicrobial and/or anti-odor activity. At least one of the reagents is coated with a water-soluble, water dispersible or water-penetrable covering that prevents ambient conditions of 50% relative humidity at 25ºC from causing more than 10% of the total reagents exposed to the ambient conditions from reacting in a twenty-four hour period. ● U.S. Patent 8,846,067, issued on September 30, 2014, which encompasses a method of treating a wound or burn on tissue to reduce microbe growth about a wound comprising applying an antimicrobial composition to the wound or burn on tissue using a proprietary stable iodine gel or liquid. This patent covers our technology as used in products being developed by our subsidiary, Clyra Medical Technologies. ● U.S. Patent 8,757,253, issued on June 24, 2014, relating to the moderation of oil extraction waste environments. ● U.S. Patent 8,734,559, issued on May 27, 2014, relating to the moderation of animal waste environments. ● U.S. Patent 8,679,515 issued on March 25, 2014, titled “Activated Carbon Associated with Alkaline or Alkali Iodide,” which provides protection for our BioLargo® AOS filter. ● U.S. Patent 8,642,057, issued on February 14, 2014, titled “Antimicrobial and Antiodor Solutions and Delivery Systems,” relating to our liquid antimicrobial solutions, including our gels, sprays and liquids imbedded into wipes and other substrates. |
|
● U.S. Patent 8,574,610, issued on November 5, 2013, relating to flowable powder compositions, including our cat litter additive. |
|
● U.S. Patent 8,257,749, issued on September 4, 2012, relating to the use of our technology as protection of against antimicrobial activity in environments that need to be protected or cleansed of microbial or chemical material. These environments include closed and open environments and absorbent sheet materials that exhibit stability until activated by aqueous environments. The field also includes novel particle technology, coating technology or micro-encapsulation technology to control the stability of chemicals that may be used to kill or inhibit the growth of microbes to water vapor or humidity for such applications. |
|
● U.S. Patent 8,226,964, issued on July 24, 2012, relating to use of our technology as a treatment of residue, deposits or coatings within large liquid carrying structures such as pipes, drains, ducts, conduits, run-offs, tunnels and the like, using iodine, delivered in a variety of physical forms and methods, including using its action to physically disrupt coatings. The iodine’s disruptive activity may be combined with other physical removal systems such as pigging, scraping, tunneling, etching or grooving systems or the like. |
|
● U.S. Patent 8,021,610, issued on September 20, 2011, titled “System providing antimicrobial activity to an environment,” relating to the reduction of microbial content in a land mass. Related to this patent are patents held in Canada and the European Union. |
|
● U.S. Patent 7,943,158, issued on May 17, 2011, titled “Absorbent systems providing antimicrobial activity,” relating to the reduction of microbial content by providing molecular iodine to stabilized reagents. |
|
● U.S. Patent 7,867,510, issued on January 11, 2011, titled “Material having antimicrobial activity when wet,” relating to articles for delivering stable iodine-generating compositions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pending Patent Applications
Most recently, we filed two patent applications in the United States for our advanced wound care formulas. The inventions in these applications form the basis for the work at Clyra Medical and the products for which that subsidiary intends to seek FDA approval. In addition to these applications, we have filed patent applications in multiple foreign countries, including the European Union, pursuant to the PCT, and other provisional applications.
Subject to adequate financing, we intend to continue to expand and enhance our suite of intellectual property through ongoing focus on product development, new intellectual property development and patent applications, and further third-party testing and validations for specific areas of focus for commercial exploitation. We currently anticipate that additional patent applications will be filed during the next 12 months with the USPTO and the PCT, although we are uncertain of the cost of such patent filings, which will depend onupon the number of such applications prepared and filed. The expense associated with seeking patent rights in multiple foreign countries is expensive and will require substantial ongoing capital resources. However, we cannot give any assurance that adequate capital will be available. Without adequate capital resources, we will be forced to abandon patent applications and irrevocably lose rights to our technologies.
Competition
We believe that our products contain unique characteristics that distinguish them from competing products. In spite of these unique characteristics, our products face competition from products with similar prices and similar claims. We face stiff competition from companies in all of our market segments, and many of our competitors are larger, better-capitalized, sell under valuable and better-capitalized.long-established brands, and have more industry experience.
For example, we would compete with the following leading companies in our respective markets:
● | Disinfecting/Sanitizing: Johnson & Johnson, BASF Corporation, Dow Chemical Co., E.I. DuPont De Nemours & Co., Chemical and Mining Company of Chile, Inc., Proctor and Gamble Co., Diversey, Inc., EcoLab, Inc., Steris Corp., Clorox, and Reckitt Benckiser. |
● | Water Treatment: GE Water, Trojan UV, Ecolab, Pentair, Xylem and Siemens AG. |
● | Medical Markets: Smith & Nephew, 3M, ConvaTec and Derma Sciences. |
● |
|
| Industrial Odor Control: |
Each of these named companies and many other competitors are significantly more capitalized than we are and have many more years of experience in producing and distributing products.
Additionally, our technology and products incorporating our technology must compete with many other applications and long embedded technologies currently on the market (such as, for example, chlorine for disinfection).
In addition to the competition we face for our existing products, we are aware of other companies engaged in research and development of other novel approaches to applications in some or all the markets identified by us as potential fields of application for our products and technologies. Many of our present and potential competitors have substantially greater financial and other resources and larger research and development staffs than we have. Many of these companies also have extensive experience in testing and applying for regulatory approvals.
Finally, colleges, universities, government agencies, and public and private research organizations conduct research and are becoming more active in seeking patent protection and licensing arrangements to collect royalties for the use of technology that they have developed, some of which may be directly competitive with our applications.
Governmental Regulation
We will haveOur medical subsidiary (Clyra) has products (each, a “Medical Device”) that will be subject to the Federal Food, Drug, and Cosmetic Act, as amended (including the rules and regulations promulgated thereunder, the “FDCA”), or similar Laws (including Council Directive 93/42/EEC concerning medical devices and its implementing rules and guidance documents) in any foreign jurisdiction (the FDCA and such similar Laws, collectively, the “Regulatory Laws”) that are developed, manufactured, tested, distributed or marketed by our company or its subsidiary Clyra. Each such Medical Device will need to be developed, manufactured, tested, distributed, and marketed in compliance with all applicable requirements under the Regulatory Laws, including those relating to investigational use, premarket clearance or marketing approval to market a medical device, good manufacturing practices, labeling, advertising, record keeping, filing of reports and security, and in compliance with the Advanced Medical Technology Association Code of Ethics on Interactions with Healthcare Professionals.
We believe that no article or part of any Medical Device intended to be manufactured or distributed by our company or any of our subsidiaries will be classified as (i) adulterated within the meaning of Sec. 501 of the FDCA (21 U.S.C. § 351) (or other Regulatory Laws), (ii) misbranded within the meaning of Sec. 502 of the FDCA (21 U.S.C. § 352) (or other Regulatory Laws) or (iii) a product that is in violation of Sec 510 of the FDCA (21 U.S.C. § 360) or Sec. 515 of the FDCA (21 U.S.C. § 360e) (or other Regulatory Laws).
Neither our companyCompany nor any of its subsidiaries, nor, to the knowledge of our company,Company, any officer, employee or agent of our company or any of its subsidiaries, has been convicted of any crime or engaged in any conduct for which such Person or entity could be excluded from participating in the federal health care programs under Section 1128 of the Social Security Act of 1935, as amended (the “Social Security Act”), or any similar Law in any foreign jurisdiction.
Neither our companyCompany nor any of its subsidiaries has received any written notice that the FDA or any other Governmental Authority has commenced, or threatened to initiate, any action to enjoin research, development, or production of any Medical Device.
Employees
As of the date of this prospectus, we employ 25 persons.have 32 full-time employees, and one part-time employee. We also engage consultants on an as needed basis who provide certain specified services to us. None of our employees are represented by a labor union, and we consider our employee relations to be good. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees. The principal purposes of our equity incentive plans are to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus awards.
Description of Property
Our companyCompany owns no real property. We are party to three commercial property leases for our corporate offices and manufacturing facility in California, our research and development facility in Canada, and our engineering division in Tennessee.
We currently lease approximately 9,000 square feet of office and industrial space at 14921 Chestnut St.,Street, Westminster, California 92683. The current lease term is from September 1, 2016 to August 31, 2020, at a monthly base rent of $8,379 throughout the term.California. In addition to serving as our principal offices, it is also a manufacturing facility where we manufacture our products, including our CupriDyne Clean Industrial Odor control product, and Specimen Transport Solidifiers.
We also lease approximately 1,500 square feetthe home of office and lab space from the University of Alberta. The current lease term expires on January 31, 2020, at monthly fee of $5,266 Canadian dollars. These offices serve as our primary research and development facilities.subsidiary ONM Environmental.
We also lease approximately 13,000 square feet of office and warehouse space at 105 Fordham Road, Oak Ridge, Tennessee, 37830, for our professional engineering division. Thedivision, BioLargo Engineering, Science & Technologies, LLC.
We also lease termapproximately 1,500 square feet of office and lab space from the University of Alberta. These offices serve as our primary research and development facilities and is from September 1, 2017 through August 31, 2020, at a monthly base rentthe home of $5,400 throughout the term.our subsidiary, BioLargo Water.
Our telephone number is (888) 400-2863.
Legal Proceedings
Our companyCompany is not a party to any legal proceeding.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we described under “Risk Factors” and elsewhere in this prospectus. Certain statements contained in this discussion, including, without limitation, statements containing the words “believes,” “anticipates,” “expects” and the like, constitute “forward-looking statements” within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). However, as we will issue “penny stock,” as such term is defined in Rule 3a51-1 promulgated under the ExchangeAct,we are ineligible to rely on these safe harbor provisions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any of the future results, performance or achievements expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any of such factors or to announce publicly the results of revision of any of the forward-looking statements contained herein to reflect future events or developments. For information regarding risk factors that could have a material adverse effect on our business, refer to the “Risk Factors” section of this prospectus beginning on page 3.
4.
Results of Operations—Operations—Comparison of the three and sixnine months ended JuneSeptember 30, 20182022 and 2019
2021
We operate our business in distinct business segments:
● |
|
● | BLEST, our professional engineering services division supporting our internal business units and serving outside clients on a fee for service and/or project bid basis; |
● | BioLargo Water, our Canadian division that has been historically pure research and development, and is now transitioning to focus on commercializing our AOS system; |
● | Clyra Medical, our partially owned subsidiary focused on the |
● | Our corporate operations, which support the operating segments with legal, accounting, human resources, and other services. |
We invest cash into each of these segments on a regular basis, as none of the segments yet generates enough cash to fund their operations. However, both Odor-No-More and BLEST are trending towards cash-flow positive, and we expect each of those two segments to begin to generate positive cash for BioLargo in 2019. Additionally, Clyra Medical raises capital directly, rather than relying on BioLargo for cash to operate.
RevenueConsolidated revenue for the three and sixnine months ended JuneSeptember 30, 20192022, was $426,000$1,500,000 and $790,000, respectively. This$3,786,000 which is a 30%111% and 34%117% increase over the same periods in 2018. We generated2021. Our service revenue increased 1% and 127% for the three and nine months ending September 30, 2022, while revenue from twoproduct sales and related services increased by 182% and 113% for the three and nine months ending September 30, 2022 as compared to the same periods in the prior year. Our product revenue includes sales of our operating divisions – Odor-No-MoreCupriDyne Clean industrial odor control product, and BLEST. Our business segments obtain cash to support operations in different ways. Odor-No-More and BLEST generate revenues from third parties, and receive funding as needed from their parent corporation, BioLargo. Our Canadian team, BioLargo Water, receives funds from government research grants (reportedsales of consumer packaged goods products based on our financial statements as “Other income – Grant income”), and receives funding as needed from BioLargo. Clyra Medical, however, relies on direct investment from third parties for 100% of its operating costs and is not supported with capital from BioLargo’s corporate budget or fundraising.CupriDyne formula.
Odor-No-MoreONM Environmental
Our wholly owned subsidiary Odor-No-More generatesONM Environmental generated revenues through sales of ourits flagship product CupriDyne Clean, and by providing design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’ facilities, and through sales of odor absorption products to the U.S. Government.facilities.
Revenue (Odor-No-More)(ONM Environmental)
Odor-No-More’sONM Environmental’s revenues for the sixthree and nine months ended JuneSeptember 30, 2019, increased $76,000 (34%)2022, were $1,199,000 and $2,499,000, an increase of $779,000 and $1,441,000 from the same periodperiods in 2018. Its revenue2021, and an increase of $411,000 as compared with the prior quarter. The increase in revenues was almost entirely due to an increase in the volume sales of private label odor-control products, specifically the Pooph branded pet-odor product, and an increase in license royalties from sales of the Pooph branded pet-odor product. License royalties were $218,000 and $316,000 for the three and nine months ended JuneSeptember 30, 2019, was equal to that of2022; no license royalties were recognized in the same periodperiods in 2018. The fluctuation2021. Because ONM Environmental has no control over the marketing and sales activity or levels of Pooph, it cannot predict sales volumes related to it in our revenues is duefuture periods. Management at Pooph has indicated their intentions to timing of orders, weather at customer facilities (suchcontinue their national advertising campaign as rain and snow), and shipping schedules. Approximately three-quarters of our revenue is generated from sales of CupriDyne Clean products and related services, andthey place the remaining mostly from sales to the U.S. military.product in national retail chains.
Sales of our CupriDyne Clean products increased 31% and 24% in the three and six months ended June 30, 2019, as compared to same periods in 2018, due to the acquisition of more clients and client locations, and the sale and delivery of more products. Of our CupriDyne Clean sales, approximately one-half were made pursuant to “national purchasing agreements” (“NPA”) with the four largest waste handling companies in the United States. With the addition of an industry veteran as Director of Business Development, and increased capital resources, we expect sales to our NPA clients as well as new independent customers will increase in the remainder of 2019.
Sales to the U.S. military are primarily our Specimen Transport Solidifier pouches, and are made to the U.S. Defense Logistics Agency through our distributor Downeast Logistics. These sales decreased by 65% and 59% in the three and six months ended June 30, 2019 as compared with the same periods in 2018. The vast majority of these sales are made through a bid process in response to a request for bids to which any qualified government vendor can respond, and our decreased revenue in 2019 is due to a reduced number of opportunities from the government for our products, and to the cyclical nature and timing of the government procurement process. We cannot know in advance the frequency or size of such requests from the US Government, or whether our bids will be successful, and as such we are uncertain as to our future revenues through this system. We believe that the sales of CupriDyne Clean will continue to grow and help offset this segment of our business which we do not view as a high growth opportunity.
Cost of Goods Sold (Odor-No-More)(ONM Environmental)
Odor-No-More’sONM Environmental’s cost of goods sold includes costs of raw materials, contract manufacturing, and portions of salaries and expenses related to the manufacturing of our products. For installation and other services, it includes labor and materials. As a percentage of gross sales, Odor-No-More’srevenue, costs of goods was 43%42% and 45% in the three and sixnine months ended JuneSeptember 30, 20192022, versus 61%48% and 50% in the same periods in 2018. In mid-2018, because of higher volumes, Odor-No-More was able to2021. The decrease itsin costs by purchasing raw materials directly from manufacturers at more favorable prices, resulting in the year-to-year cost of goods decrease.
Selling, General and Administrative Expense (Odor-No-More)
Odor-No-More’s Selling, General and Administrative (“SG&A”) expenses are remaining consistent between the three and six months ended June 30, 2019 and 2018. They are averaging $235,000 per quarter in 2019 comparedis related to an average of $223,000 in 2018. These expenses have increased alongside Odor-No-More’s efforts to increase revenues by hiring additional sales and support staff. We expect its SG&A expenses to increase in 2019 as it continues to add sales and support personnel as its number of customers and revenues increase.private-label products.
Operating Loss (Odor-No-More)Income (ONM Environmental)
Odor-No-More had a netFor the three and nine month ended September 30, 2022, ONM Environmental generated operating income of $400,000 and $418,000, compared with an operating loss of $51,000$72,000 and $141,000$355,000 for the three and sixnine months ended JuneSeptember 30, 2019. This was a 65% and 45% improvement over the same periods in 2018. Odor-No-More is continuing2021. Provided that its private-label clients continue to increase sales to work toward profitability. Its gross margin fromtheir purchase of product, sales is at 55%, and its loss from operations is trending downward. We believe these trends will continue. The loss from operations is trending downward for two reasons. First, Odor-No-More was able to reduce its product costs as a result of its increased volume (purchasing power). Second, increased sales resulted in increased gross margin contributing to the company’s operational costs.
We expect that Odor-No-More’s sales will continue to increase. By the end of 2019, assuming the company is properly capitalized with a marketing budget and additional salespeople, we expect that Odor-No-More will no longer require a cash subsidythis trend to operate.continue.
BLEST (engineering division)
Revenue (BLEST)
BLEST generated $241,000 and $424,000 of revenue forFor the three and sixnine months ended JuneSeptember 30, 2019. Included in that total is intersegment2022, our engineering segment (BLEST) generated $283,000 and $1,254,000 of revenue of $130,000from third parties, compared to $281,000 and $250,000$555,000 for the same three and sixnine months ended June 30, 2019. Intersegment revenue is eliminated in consolidation.
BLEST generated $111,000 and $174,000 of revenues from third party clients in the three and six months ended June 30, 2019, compared to $11,000 and $50,000 in revenue in same periods in 2018.2021. The increase is due to completion of projects, an increase in theincreased number of client contracts, being serviced. The impactand the recognition of $83,000 of deferred revenue for ongoing projects that had achieved certain completion milestones.
In addition to providing service to third party clients, BLEST provides services to BioLargo and its recently signed subcontracts to service the United States Air Force will begin generating revenuessubsidiaries for internal BioLargo projects. These services are billed internally, are considered intersegment revenue, and are eliminated in the third quarterconsolidation of 2019.
Cost of Goods (Services) Sold (BLEST)
BLEST’s cost of services includes employee labor as well as subcontracted labor costs. In the three and sixnine months ended JuneSeptember 30, 2019,2022, its cost of services were 84%82% and 83%60% of its revenues, versus 72%71% and 62% in the three and six months ended June 30, 2018. Costs were higher in the six-month comparison as we utilized sub-contractors with lower margins and we had fixed fee contracts that were not profitable. Those trends are declining as we add new, profitable contracts.
Selling, General and Administrative Expense (BLEST)
BLEST selling, general and administrative expenses during the three and six months ended June 30, 2019 totaled $107,000 and $198,000, which is comparable to the same periods in 2018. BLEST primarily delivers services to its clients, most of its labor costs are included in its76% cost of services (for third party clients),in comparable periods in 2021. These fluctuations are a result of more subcontract costs for the three months and research and developmentincreases in efficiencies related to flat-fee monthly contracts for its work on BioLargo technologies.the nine months.
Operating Loss (BLEST)
BLEST had a net operating loss of $108,000 and $137,000 duringFor the three and sixnine months ended JuneSeptember 30, 2019, compared to $69,000 and $117,000 for the same periods in 2018. Because the subsidiary2022, BLEST had an operating loss we invested cash duringof $179,000 and $158,000. For the year to allow it to maintain operations. BLEST’s need for a cash subsidy to support its operations has decreased over time. We expect this trend to continue,three and expect that in the remaindernine months ended September 30, 2021, BLEST had an operating loss of 2019 its revenues will continue to increase. We expect that this subsidiary will become profitable$140,000 and contribute cash to our corporate operations.$513,000.
Other Income
Our wholly owned Canadian subsidiary has been awarded more than 6780 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 continued to win grants and it is important to note that amounts paid directly to third parties are not included as income in our financial statements. Our grant income increased $9,000 and $86,000 in
During the three and sixnine months ended JuneSeptember 30, 2019, compared with2022, we received grant income totaling $44,000 and $52,000, which was an increase of $19,000 and $27,000 from the same periods in 2018. This increase is due to additional and higher value grants awarded in 2019.
2021. 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.
On February 7, 2022, we received notice that the SBA had partially approved ONM Environmental's application for forgiveness of its PPP loan in the amount of $174,000. During the three months ended September 30, 2022, Biolargo Water recorded $66,000 of tax credits, primarily related to the refund filed pertaining to the research and development tax credit.
On March 19, 2021, we received notice that the SBA had approved the application for forgiveness Clyra’s PPP loan totaling $43,000.
Selling, General and Administrative Expense – company-wide consolidated results
Our SG&A expenses include both cash expenses (for example, salaries to employees) and non-cash expenses (for example,(including non-cash stock option compensation expense)expenses). Our SG&A expenses decreased by 1%2% ($14,000) during35,000) and increased by 2% ($79,000) in the three and nine months ended JuneSeptember 30, 20192022, compared to the threesame periods in 2021. Our non-cash expenses totaled $1,640,000 in the nine months ended JuneSeptember 30, 2018, and increased by 8% ($210,000) for2022, compared to $1,314,000 in the six-month periods.nine months ended September 30, 2021. The largest components of our SG&A expenses included (in thousands):
Three months | Six months | Three months ended: | Nine months ended: | |||||||||||||||||||||||||||||
June 30, 2018 | June 30, 2019 | June 30, 2018 | June 30, 2019 | September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||
Salaries and payroll related | $ | 521 | $ | 476 | $ | 972 | $ | 969 | $ | 593 | $ | 552 | $ | 2,035 | $ | 1,912 | ||||||||||||||||
Professional fees | 187 | 164 | 379 | 360 | $ | 110 | $ | 149 | $ | 451 | $ | 500 | ||||||||||||||||||||
Consulting | 192 | 299 | 353 | 590 | $ | 155 | $ | 189 | $ | 605 | $ | 805 | ||||||||||||||||||||
Office expense | 258 | 224 | 468 | 464 | $ | 341 | $ | 311 | $ | 1,072 | $ | 900 | ||||||||||||||||||||
Sales and marketing | 63 | 34 | 117 | 93 | $ | 71 | $ | 96 | $ | 205 | $ | 255 | ||||||||||||||||||||
Investor relations | 28 | 37 | 61 | 82 | $ | 86 | $ | 100 | $ | 233 | $ | 196 | ||||||||||||||||||||
Board of director expense | 68 | 68 | 135 | 135 | $ | 68 | $ | 64 | $ | 246 | $ | 198 | ||||||||||||||||||||
The increase in salaries and payroll expenses in the nine months ended September 30, 2022 versus 2021 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. The decline in the three months ended September 30, 2022 versus 2021 is consistent with reduced stock option grants to employees. Consulting expense increaseddecreased as we have reduced the use of consultants to identify business opportunities. The reduction in 2019professional fees is largely due to increased cash at Clyrathe reduced use of outside legal counsel and resulting increasedother service providers.
Research and Development
In the three and nine months ended September 30, 2022, we spent $271,000 and $1,018,000 in the research and development activities,of our technologies and our hiring firms related to business developmentproducts. In the three and brand exposure. . We have also increased our investor relations expense to continue to developnine months ended September 30, 2021, we spent $343,000 and spread$1,027,000 in the word about our company.
Research and Development
Our company-wide research and development expenses decreased by 14%of our technologies and 17% comparedproducts. This was due to limited liquidity and $59,000 capitalized equipment related to the three and six months ended June 30, 2018. In some areas, such as indevelopment of our medical subsidiary, these expenses increased as the company was better financed and ramping up activities in anticipation of an FDA decision regarding their first wound care product. In Canada, we have transitioned from pure research and development towards a focus on commercializing the AOS system, decreasing R&D.AEC filters.
Interest expense
Our interest expense for the three and sixnine months ended JuneSeptember 30, 2019 decreased by $1,231,000 (71%)2022, was $14,000 and $1,078,000 (42%)$42,000, a decrease of 46% and 80% compared with the three and six months ended June 30, 2018. Of our total interest expense, $40,000 was paid in cash, and the remaining is non-cash expenses related to financing transactions.same periods of 2021. Our interest expense decreased in 2019 primarily because (i) over $5 million inincludes interest from outstanding debt matured inand it is related to the first six monthsissuance of 2018, and (ii) we accepted cash from somemodification of convertible noteholders to reduce their conversion prices.promissory notes. We expect our interest expense to increasebe lower in each quarterly period of the second half of 2019year ending December 31, 2022, as compared with the same periods in 2021, due to the recent issuancereduced amounts of more than $2 million in Twelve Month OID Notes. Each investor also received a stock purchase warrant and we record the relative fair value of the warrants and the intrinsic value of the beneficial conversion feature sold with the convertible notes which typically results in a full discountdebt on the proceeds from the convertible notes. This discount is then amortized as interest expense over the term of the convertible notes. Ultimately, it is management’s objective to secure equity and discontinue the use of convertible interest-bearing debt to finance its ongoing growth. In the six months ended June 30, 2019, we recorded non-cash expenses of $1,254,000 related to amortization of the fair value of warrants issued in connection with our debt, and $228,000 related to debt extension.balance sheet.
Net Loss
Net loss for the three and sixnine months ended JuneSeptember 30, 20192022, was $1,987,000 ($0.01$847,000 and $3,724,000, a loss of $0.00 and $0.01 per share) and $4,736,000 ($0.03 per share). Netshare, compared to a net loss for the three and sixnine months ended JuneSeptember 30, 2018 was $3,600,000 ($0.032021, of $1,435,000 and $5,103,000, a loss of $0.01 and $0.02 per share) and $6,029,000 ($0.05 per share). Ourshare. The decrease in net loss is due primarily to a reduction in 2019 has decreased primarily due to lowerinterest expense. As noted above (see “Interest Expense”), the reduction of interest expense and an increase in revenue. Ofis directly related to our total net loss, approximately $2.9 million (60%) was non-cash expense, andreduction of the remaining $1.85 million (40%) was cash used in operating activities.use of debt instruments to finance our working capital requirements.
The net lossincome (loss) per business segment is as follows (in thousands):
Three months | Six months | |||||||||||||||
June 30, 2018 | June 30, 2019 | June 30, 2018 | June 30, 2019 | |||||||||||||
BioLargo corporate | (3,056 | ) | (1,486 | ) | (4,980 | ) | (3,591 | ) | ||||||||
Odor-no-more | (145 | ) | (51 | ) | (254 | ) | (141 | ) | ||||||||
Clyra | (177 | ) | (332 | ) | (376 | ) | (631 | ) | ||||||||
BLEST | (71 | ) | (26 | ) | (117 | ) | (137 | ) | ||||||||
BioLargo Water | (151 | ) | (92 | ) | (302 | ) | (237 | ) | ||||||||
Net loss | (3,600 | ) | (1,987 | ) | (6,029 | ) | (4,736 | ) | ||||||||
Liquidity and Capital Resources
For the six months ended June 30, 2019, we had a net loss of $4,736,000, used $1,851,000 cash in operations, and at June 30, 2019, had a working capital deficit of $3,473,000 and current assets of $1,001,000. We do not have sufficient working capital and do not believe gross profits will be sufficient to fund our current level of operations or pay our debt due prior to December 31, 2019, and will have to obtain further investment capital to continue to fund operations and seek to refinance our existing debt. We have been, and anticipate that we will continue to be, limited in terms of our capital resources. During the year ended December 31, 2018, and the six months ended June 30, 2019, we generated revenues of $1,364,000 and $790,000 through our business segments (Odor-No-More and BLEST – see Note 10, “Business Segment Information”). Neither generated enough revenues to fund their operations. We have $2,119,000 in debt obligations due in the next 12 months (see Notes 4 and 12): (i) $1,724,000in notes that are convertible at the option of the holder, (ii) a $145,000 note due September 6, 2019, and (iii) a line of credit in the amount of $250,000 due on 30-day demand beginning September 1, 2019. We intend to either refinance or renegotiate these obligations, as our cash position is insufficient to maintain our current level of operations and pay these liabilities. Thus, we will be required to raise additional capital. We continue to raise money through private securities offerings, and continue to negotiate for more substantial financings from private and institutional investors. During the six months ended June 30, 2019, we received $1,924,000 net cash provided by financing activities, and at June 30, 2019 had cash of $706,000. Subsequent to June 30, 2019, we received $2,360,000 from new financing activities. No assurance can be made of our success at raising money through private or public offerings.
Clyra Medical is unique in that it funds its operations through third party investments, as it has done since 2016. We do not currently intend and are under no obligation to subsidize its operations in the future.
Three months ended | Nine months ended | |||||||||||||||
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
BioLargo corporate | $ | (789 | ) | $ | (851 | ) | $ | (2,944 | ) | $ | (2,813 | ) | ||||
ONM Environmental | $ | 400 | $ | (72 | ) | $ | 592 | $ | (355 | ) | ||||||
Clyra Medical | $ | (248 | ) | $ | (239 | ) | $ | (760 | ) | $ | (1,011 | ) | ||||
BLEST | $ | (152 | ) | $ | (136 | ) | $ | (131 | ) | $ | (513 | ) | ||||
BioLargo Water | $ | (58 | ) | $ | (137 | ) | $ | (481 | ) | $ | (411 | ) | ||||
Net loss | $ | (847 | ) | $ | (1,435 | ) | $ | (3,724 | ) | $ | (5,103 | ) | ||||
Results of Operations—Operations—Comparison of the years ended December 31, 20172021 and 20182020
We operate our business in distinct business segments:
● |
|
● | BLEST, our professional engineering services division supporting our internal business units, advancing innovations like the AEC to remove PFAS contaminants from water, and serving outside clients on a fee for service basis; |
● | Clyra Medical, our partially owned subsidiary which develops and sells medical products based on our technology; and |
● | BioLargo Water, our Canadian division that has been historically pure research and development, and is now transitioning to focus on commercializing our AOS |
|
|
● | Our corporate operations, which support the operating segments with legal, accounting, human resources, and other services. |
We invest cash into each of these segments on a regular basis, as none of the segments yet generates enough cash to fund their operations. However, both Odor-No-More and BLEST are trending towards cash-flow positive, and we expect each of those two segments to begin to generate positive cash for BioLargo in 2019.
AnnualConsolidated revenue for the year ended December 31, 20182021 was $1,364,000, more than double$2,531,000, which is a 4% increase over the same period in 2020. Our service revenue of $516,000 in 2017. We generatedincreased 58%, while revenue from twoproduct sales and related services decreased by 14%. Our product revenue includes sales of our operating divisions – Odor-No-MoreCupriDyne Clean industrial odor control product, Clyraguard Personal Protection Spray, and BLEST. Our business segments obtain cashhand sanitizers, which were affected by the COVID-19 pandemic. While we expect overall revenues to support operations in different ways. Odor-No-More and BLEST generate revenues from third parties, and receive funding as needed from their parent corporation, BioLargo. Our Canadian team, BioLargo Water, receives funds from government research grants (reported on our financial statements as “Other income – Grant income”), and receives funding as needed from BioLargo. Clyra Medical, however, relies direct investment from third parties for 100%continue to increase, given the considerable extended time of its operating costs and is not supported with capital from BioLargo’s corporate budget or fundraising.the COVID-19 pandemic, we cannot be certain.
Odor-No-MoreONM Environmental
Our wholly ownedwholly-owned subsidiary Odor-No-MoreONM Environmental generates revenues through sales of our flagship product CupriDyne Clean, by providing design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’ facilities, and through sales of odor absorption products to the U.S. Government. Although Odor-No-More did not generate a net profitDuring 2020, ONM Environmental added two employees to focus on business development, increasing sales and increased levels of construction and maintenance contracts. During 2021, ONM Environmental reduced staff in 2018, its revenues continued to increase throughoutline with the year, andreduction in the fourth quarter of 2018 its net loss was only $68,000 (for the year, its net loss was $433,000).sales.
Revenue (Odor-No-More)(ONM Environmental)
Odor-No-More’sONM Environmental’s revenues more than doubled in 2018, to $1,123,000, comprisedfor the year ended December 31, 2021, were $1,419,000, a decrease of $1,016,000 in product sales, and $107,000 in design, installation and maintenance services (including related parts). Of product sales, approximately 50% was generated from sales of CupriDyne Clean products, and approximately one-third from sales to the U.S. military.
Sales of our CupriDyne Clean products increased 68%$148,000 or 9% from the same period in 2020. ONM Environmental’s revenue during the three months ended December 31, 2021, was approximately $360,000[GB1] , a decrease of 42% over the prior year,quarter due to the acquisitioninstallation of more clients and client locations, and the sale and delivery of more products than in years past. Of ourlarge custom CupriDyne Clean misting systems in that quarter. Of its gross sales in 2021, approximately two-thirds were made pursuant to “national purchasing agreements” (“NPA”) with the four largest waste handling companies in the United States.industry. We expect ourONM’s revenues from product sales to NPA clients to continue to increase in 2019 as we expect to continue to add new service locations for those customers. And, for one such company, we have only recently become fully authorized in their corporate system, opening up potential sales to their more than 1,000 U.S. locations.
Sales to the U.S. military are primarily our Specimen Transport Solidifier pouches, and are made to the U.S. Defense Logistics Agency through our distributor Downeast Logistics. These sales increased by almost three-fold in 2018 as compared with 2017. The vast majority of these sales are made through a bid process in response to a request for bids to which any qualified government vendor can respond, and our increased revenue in 2018 isyear ended December 31, 2022, due to an increasedanticipated increase in the volume of sales from the bidding process. We cannot know in advance the frequency or size of such requests from the US Government, or whether our bids will be successful, and as such we are uncertain as to our future revenues through this system.consumer product sales.
Cost of Goods Sold (Odor-No-More)(ONM Environmental)
Odor-No-More’sONM 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 gross sales, Odor-No-More’srevenue, ONM Environmental’s costs of goods was 51%increased 9% in 2018 versus 64%2021 to 47%. The increase in 2017. In mid-2018, because of higher volumes, Odor-No-More was able to decrease its costs by purchasing raw materials directly from manufacturers at more favorable prices, resulting in the year-to-year cost of goods decrease.is due to increase in raw material costs.
Selling, General and Administrative Expense (Odor-No-More)(ONM Environmental)
Odor-No-More’s Selling, GeneralONM Environmental’s selling, general and Administrative (“SG&A”) expenses include both cash and non-cash expense related to its operations. Odor-No-More’s SG&Aadministrative expenses increased by 13% to $969,000 in 2018, as compared with $661,000 in 2017, an increase of 47%.$1,235,000 during the year ended December 31, 2021. These expenses have increased alongside Odor-No-More’s effortsdecreased due to increase revenues by hiring additionala reduction of sales and support staff. We expect its SG&Athese expenses to increaseremain consistent in 2019 as it continues to add sales and support personnel as its number of customers and revenues increase.the year ending December 31, 2022.
NetOperating Loss (Odor-No-More)(ONM Environmental)
Odor-No-MoreONM Environmental generated $1,123,000$1,419,000 in revenue, a gross margin of $552,000,$724,000, and had total costs and expenses of $985,000,$1,235,000, resulting in a netan operating loss of $433,000. Odor-No-More is trending toward profitability. Its gross margin from product sales has increased significantly since 2017, and its loss from operations is trending downward:
We believe these trends will continue. The loss from operations is trending downward for two reasons. First, Odor-No-More was able to reduce its product costs as a result of its increased volume (purchasing power). Second, increased sales resulted in increased gross margin contributing to the company’s operational costs.
Because the subsidiary had a net loss, we invested cash into it during the year to allow it to fund its operations. However, this need for cash decreased as 2018 progressed, and in the fourth quarter of 2018, it needed only $51,000 cash (as$511,000, compared with over $400,000 for the year). We expect that Odor-No-More’s sales will continue to increase, and thus its gross margin will continue to increase. By the end of 2019, we expect that Odor-No-More will no longer require a cash subsidy to operate, but will be contributing cash to our corporate operations.$493,000 in 2020.
BLEST (engineering division)
Revenue (BLEST)
Our engineering segment (BLEST) generated $241,000$961,000 of revenuesrevenue in 2021, net of intersegment revenue, compared to $615,000 in 2020, representing a 56% increase from the prior year. The increase is due to an increased number of client contracts, including those as a subcontractor for Bhate pursuant to which BLEST is providing services to U.S. Air Force bases.
In addition to providing service to third party clients, inBLEST provides services to BioLargo and its first full year of operation, versus only $12,000 insubsidiaries for internal BioLargo projects. These services are billed internally, are considered intersegment revenue, in its first three months of operation in 2017. BLEST’s revenues increasedand are eliminated in the latter partconsolidation of our financial statements. In the year with approximately one-half of its revenues generated during the fourth quarter 2018. Its revenues do not include over $600,000 of work performed on internal BioLargo projects, such as itsended December 31, 2021, it totaled $674,000, primarily used to further engineeringengineer and development of thedevelop our flagship AOS water filtration system and our AEC PFAS treatment system. OurIn addition, BLEST engineers are performing a critical role in the AOS pilot projects, some of which are supported by third-party research grants and has been instrumental in developing and supporting a professional engineered design service for misting systems being sold by our Odor-No-MoreONM operating unit.
Cost of Goods (Services) Sold (BLEST)
BLEST’s cost of services includes employee labor as well as subcontracted labor costs. In 2018,2021, its cost of services were 71%69% of its revenues, versus 66%77% in 2017.2020. This decrease is due to contracts with better margins. We expect the cost of services to remain stableconsistent in 2019.2022 based on the contracts currently in progress.
Selling, General and Administrative Expense (BLEST)
BLEST’SBLEST SG&A expenses include both cash and non-cash expense relatedwere $441,000 in 2021, compared to its operations, although because it primarily delivers services to its clients, most of its labor costs are included$413,000 in its cost of services (for third party clients), and research and development for its work on BioLargo technologies. Because BLEST began operations in the fourth quarter of 2017, and thus its SG&A expenses of $409,000 in 2018 does not have a comparable period in 2017.2020. We expect these expenses to increase only slightlyremain flat in 2019, as the2022.Increases in engineering staff required to increase service to its clients and revenues will beare included in cost of services.
NetOperating Loss (BLEST)
BLEST generated $241,000$961,000 in revenue from third parties, a gross margin of $69,000,$300,000, and had total costs and expenses of $991,000,$929,000, resulting in a netan operating loss of $750,000.$629,000, compared with an operating loss of $619,000 in 2020.
BLEST provides substantial support to BioLargo’s other operations, including BioLargo Water and ONM Environmental. 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 our water company or our industrial odor and VOC control operating unit.a 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 operations has decreased considerably towards the end of calendar year 2018.over time. We expect this trend to continue, and expect that in 20192022 its sales will continue to increase, and thus its gross profit will continue to increase. By the end of 2019, we expectOur goal for this operation is that it produces a profit and contributes to corporate overhead in a significant way, although predicting when that will no longer require a cash subsidy to operate, but will be contributing cash tohappen given the COVID-19 pandemic and other uncertainties in the market, and our corporate operations.limited resources, is difficult.
Other Income
OurPrimarily through our wholly owned Canadian subsidiary, haswe have been awarded more than 6580 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. The amount of grant income remained consistent between 2017 and 2018. We continueddecreased $82,000 in the year ended December 31, 2021, to win grants and it is important to note that amounts$55,000. Grant funds paid directly to third parties are not included as income in our financial statements.
Our Canadian subsidiary applied for and received a refund on our income taxes pursuant to the “Scientific Research and Experimental Development (SR&ED) Program”, a Canadian federal tax incentive program designed to encourage Canadian businesses to conduct research and development in Canada. For the yearyears ended December 31, 20172021 and 2018,2020, we received $71,000a refund of $20,000 and $73,000.$110,000, respectively.
The U.S. Small Business Administration forgave a Paycheck Protection Program loan in the principal amount of $43,0000 granted to our partially owned subsidiary, Clyra Medical.
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 that we believe can help in managing the COVID-19 crisis.
Selling, General and Administrative Expense – company wide consolidated
Our Selling, General and Administrative expense (“SG&A expenses&A”) include both cash expenses (for example, salaries to employees) and non-cash expenses (for example, stock option compensation expense). Our consolidated SG&A expenses increaseddecreased in the aggregate by 19%17% ($834,000)1,301,000) in 2018the year ended December 31, 2021, to $5,264,000.4$6,172,000. Our non-cash expenses (through the issuance of stock and stock options) increased in 2018were relatively flat 2021 compared with 20172020 ($2,242,0002,241,000 compared to $1,564,000) because our employees, vendors and consultants chose to receive a greater number of stock and stock options in lieu of cash owed.$2,232,000). The largest components of our SG&A expenses included (in thousands):
Year ended December 31, 2017 | Year ended December 31, 2018 | |||||||
Salaries and payroll related | $ | 1,610 | $ | 1,973 | ||||
Professional fees | 651 | 800 | ||||||
Consulting | 810 | 839 | ||||||
Office expense | 627 | 987 | ||||||
Board of director expense | 306 | 280 | ||||||
Sales and marketing | 224 | 246 | ||||||
Investor relations | 201 | 139 | ||||||
4 This includes all of our operational segments (including Odor-No-More and BLEST discussed above).
Year ended December 31, 2021 | Year ended December 31, 2020 | |||||||
Salaries and payroll related | $ | 2,581 | $ | 2,855 | ||||
Professional fees | $ | 662 | $ | 859 | ||||
Consulting | $ | 920 | $ | 1,624 | ||||
Office expense | $ | 1,177 | $ | 1,207 | ||||
Board of director expense | $ | 262 | $ | 259 | ||||
Sales and marketing | $ | 315 | $ | 494 | ||||
Investor relations | $ | 255 | $ | 175 | ||||
Our salaries and payroll-related and office-related expenses increased in 2018 due to the addition of our engineering subsidiary for the full year of 2018 compared to only three months of 2017. Our professional fees increased in 2018 due to increased needs for legal and accounting as a result of the registration statements filed during 2018, the special stockholder meeting held in September 2018 and other work related to our efforts to list our common stock on a national exchange, and the purchase of the intellectual property of Scion Solutions (see Part I, Item I, “Advanced Wound Care – Clyra Medical,” above). Office expense increased due to the addition our engineering segment in Tennessee. Our investor relations fees decreased in 2018 compared with 2017the year ended December 31, 2021, due to a reduction of sales personnel and office staff at ONM Environmental. Consulting expense decreased due primarily to a reduction in the use of outside investor relation firms during that period. The Company has maintained investor relations support with internal personnel.consultants at Clyra as its business focused shifted to its surgical wash product. There was a decline in professional fees and sales and marketing as Biolargo as Biolargo reduced its efforts in those areas in order to control costs.
Research and Development
In the year ended December 31, 2018,2021, we spent approximately $1,700,000$1,367,000 in the research and development of our technologies and products. This was a slightan increase of 5%2% ($86,000) over 2017. This number does not include over $300,000 in internal billings from our engineering division’s work on the AOS system.
As we transition our Canadian operations from pure research and development towards a focus on commercializing the AOS system, we expect their contribution29,000) compared to our total research and development expenses to decrease in 2019. We expect this to be offset by increased research and development at Clyra Medical, which we expect to be funded entirely from its own resources.2020.
Interest expense
Our interest expense for the year ended December 31, 20182021, was $3,494,000,$234,000, a decrease of $366,00088% compared with 2017,2020. The significant decrease in interest expense is related to the significant decrease of our debt obligations and a reduction of which $54,000debt issued during 2021 versus 2020. Of our total interest expense in 2021, $99,000 was paid in cash, and the remainder, $3,440,000, is non-cash expense.$135,000, was paid by issuing shares of our common stock. Our non-cash interest related expenses were comprised primarily as follows: (i) $2,766,000 as one-time,of $119,000 in non-cash debt discounts related to warrants issued in conjunction with debt instruments being amortized over the life of the debt instrument (in 2017, it was $3,058,000), and (ii) $524,000 related to interest paid in stock on debt instruments. While we cannot predict ourinstrument; for the year ended December 31, 2021, non-cash interest expense in 2019, ourtotaled $1,618,000.
Our outstanding debt as of December 31, 20182021, was substantially lesslower than as of December 31, 2019, and thus we2020. We expect our interest expense in 2019the year ending December 31, 2022, to decline.
Webe 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 being amortized as interest expense over the term of the convertible notes. We expectalso 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 to decrease in 2019 because the total amount we amortize (the line item on our balance sheet “Discount on convertible notes payable and line of credit, net of amortization”) decreased by $1,784,000 in 2018 – from $2,107,000 at December 31, 2017, to $323,000 at December 31, 2018. However, any decrease would be offset if we issue new debt instruments in 2019 that are combinedas compared with warrants, or if we issue new warrants as consideration to extend maturity dates on existing debt instruments.prior years.
Net Loss
Net loss for the year ended December 31, 20182021, was $10,696,000$6,894,000 a loss of $0.09$0.03 per share, compared to a net loss for the year ended December 31, 20172020, of $9,547,000$9,700,000 a loss of $0.10$0.05 per share. Our net loss this year was somewhat offset by an increasedeclined because of reduction in revenue; nevertheless, the net loss increased mainly due to the increasesales, general and administrative costs, and in financing costs, non-cash interest expense to obtain capital, and increased payroll and related office expenses which are primarily associated with the start-up expenses related to our engineering operating unit. The decrease in net loss per share for the year ended December 31, 2018 is primarily attributable to the increase in the number of shares outstanding from 2017 to 2018.expense.
The net lossincome (loss) per business segment is as follows (in thousands):
Net loss | Year ended December 31, 2017 | Year ended December 31, 2018 | ||||||||||||||
Odor-No-More | $ | (500 | ) | $ | (433 | ) | ||||||||||
Net income (loss) | Year ended December 31, 2021 | Year ended December 31, 2020 | ||||||||||||||
ONM Environmental | $ | (511 | ) | $ | (483 | ) | ||||||||||
BLEST | (90 | ) | (750 | ) | $ | (629 | ) | $ | (619 | ) | ||||||
Clyra Medical | (915 | ) | (883 | ) | $ | 593 | $ | (2,139 | ) | |||||||
BioLargo Water | (741 | ) | (571 | ) | $ | (566 | ) | $ | (466 | ) | ||||||
Corporate | (7,301 | ) | (8,059 | ) | ||||||||||||
BioLargo corporate | $ | (5,781 | ) | $ | (5,993 | ) | ||||||||||
Consolidated net loss | $ | (9,547 | ) | $ | (10,696 | ) | $ | (6,894 | ) | $ | (9,700 | ) | ||||
In the year ended December 31, 2021, approximately 40% of our net loss was due to non-cash expenses, including $135,000 in interest expense, $1,872,000 of stock option compensation expense, and $367,000 of services paid by the issuance of our common stock. Clyra Medical’s net income of $593,000 during the year ended December 31, 2021, was not due to operating activities, but rather due to the recent transaction with Scion Solutions (see Note 9).
In the year ended December 31, 2020, over half of our net loss is due to non-cash expenses, such as interest and stock/stock options issued to employees and vendors in lieu of cash. Of the net loss of $9,700,000, interest expense was $1,923,000, of which $1,805,000 was non-cash expense. Additionally, we recorded $2,459,000 of stock option compensation expense, an additional $666,000 of services were paid by the issuance of our common stock and we recorded $442,000 loss on extinguishment of debt. The total of these non-cash items account for $5,372,000 of the consolidated loss of $9,700,000.
It is important to note that of the corporate net loss of $8,059,000, interest expense was $3,494,000, of which $3,440,000 was a non-cash expense. R & D was $1,700,000 primarily attributed to the accelerated development of the AOS technology. These two items alone account for $5.2 million in losses of the consolidated loss of $10,696,000 in total losses. With expanding sales, weWe believe that Odor-No-MoreONM and BLEST (engineering) can achieve positive cash flow from operations. However, withoperations at some point in the continued development costs associated with Clyra Medical (even though itfuture, although predicting when that will happen given the COVID-19 pandemic and other uncertainties in the market, and our limited capital resources, is financed directly through the sale of stock in Clyra), and with the addition of any ongoing development costs associated with BioLargo Water to be incurred through pre-commercial piloting, wedifficult. We expect to continue to incur a net loss for the foreseeable future.
We have made considerable investments in our water and medical technologies as well as supporting the start-up expenses for our engineering team. We believe those investment will pay off as we now are narrowly focused on commercial sales.
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 yearnine months ended December 31, 2018,September 30, 2022, we had a net loss of $10,696,000,$3,724,000, used $3,891,000$2,803,000 cash in operations, and at December 31, 2018,September 30, 2022, we had a working capital deficit of $1,536,000,$1,503,000, and current assets of $955,000. At December 31, 2018,$2,532,000. During the nine months ended September 30, 2022, we had convertible debt, promissory notes, and linegenerated revenues of credit obligations outstanding with an$3,786,000 through our operational subsidiaries. Our subsidiaries did not individually or in the aggregate principal balance of $3,487,000, an accumulated deficit of $111,723,000, and net stockholders’ deficit of $1,496,000.generate profits sufficient to fund their operations, or for our corporate operations or other business segments. We do not believe gross profits in the year ended December 31, 2022, will be sufficient to fund our current level of operations or pay our debt due prior to December 31, 2019,during the next 12 months, and thus we believetherefore we will have to raise additionalobtain further investment capital to bothcontinue to fund our operations and seek to refinance our existing debt.debt, such as through our purchase agreement with Lincoln Park Capital and private securities offerings. We have been, and anticipate that we will continue to be, limited in terms of our capital resources.
If we are unable to rely on our current arrangement with Lincoln Park to fund our working capital requirements (see “Lincoln Park Transaction”, below), we would 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.
We operate our business in five distinct business segments. Each of these segments obtains cash to fund operations in unique ways. Odor-No-MoreONM and BLEST generate cash by selling products and services. Clyra Medical obtains cash from third partyrevenues, and third-party investments of sales of its common stock. BioLargo Water generates cash through government research grants and tax credits. Ourcredits; our corporate operations currently generate cash through private offerings of stock, debt instruments, and warrants. In 2018, cash was generatedwarrants, and then provides supplemental capital to support to our various business segments as follows (in thousands):they advance their technologies, products and commercial efforts.
SOURCES OF INCOME AND CASH | 2017 (year) | 2018 (Year) | ||||||
Revenue from operations | $ | 516 | $ | 1,364 | ||||
Grant income | 140 | 158 | ||||||
Tax credit income | 71 | 73 | ||||||
Cash investments (to BioLargo) | 3,373 | 2,637 | ||||||
Cash investments (to Clyra) | 750 | 1,005 | ||||||
Total: | $ | 4,850 | $ | 5,237 | ||||
Only two segments (Odor-No-More and BLEST) generated revenues in the year ended December 31, 2018. As such, we provided a cash subsidy to each business segment to allow it to fund its operations. For our two revenue generating divisions, cash needs have decreased as their revenues have increased. In the fourth quarter of 2018, Odor-No-More’s gross margin and cash receipts from clients were such that it needed only $51,000 extra cash from corporate to meet its operational expenses. BLEST similarly increased its revenues such that it needed little cash from corporate during the fourth quarter to maintain it operations. We expect these trends to continue, and expect that at some point in the calendar year 2019 both Odor-No-More and BLEST will be generating profits and contributing cash to corporate operations.
In the first quarter of 2019, we shifted focus at our Canadian subsidiary (BioLargo Water) from pure research and development to commercializing the AOS system. In doing so, we reduced our research staff and thus reduced its monthly cash needs by $15,000.
Clyra Medical is unique in that it funds its operations through third party investments. We do not intend to subsidize its operations in the future.
We used almost four million dollars cash in our total operations in 2018. At December 31, 2018, we had current assets of just less than one million dollars. Thus, to maintain the same level of operations in 2019, and notwithstanding the increasing revenues at Odor-No-More and BLEST, we expect to continue to need to raise investment capital. In 2018, we conducted private securities offerings and received $3,642,000 net proceeds. Since first acquiring the BioLargo technology in the spring of 2007, we have received investment capital of approximately $22,000,000 which we have invested in development and commercialization efforts. We intend to continue to raise money through private securities offerings for the foreseeable future. Although we engaged an investment banking firm and filed a registration statement to raise $7,500,000 in conjunction with an application for listing our common stock on the Nasdaq Capital Markets, no assurance can be made that we will move forward in the near future with that offering or our listing application. We may reconsider and postpone these efforts as management believes our current market capitalization does not reflect the true value of the Company or recognize the significant business opportunities that lie ahead. Our board intends to evaluate these and other factors, including the anticipated dilution to our stockholders of an offering of the size required to meet the initial and continued listing requirements. No assurance can be made of our success at raising money through private or public offerings, or of our intended listing on a national exchange.
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. We believe that the following significant accounting policies and assumptions may involve a higher degree of judgment and complexity than others.
The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results of the Company reports in its financial statements.
Revenue Recognition
We adopted ASU 2014-09, “Revenue from Contracts with Customers”, Topic 606, on January 1, 2018. The guidance focuses on the core principle for revenue recognition.
The core principle of the guidance 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, 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 havegenerate revenue from two subsidiaries, Odor-No-More and BLEST. Odor-No-Morethrough our subsidiaries. For the sale of goods, the subsidiary identifies 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. Odor-No-More recognizes revenueRevenue is recognized at a point in time when the order for its goods are shipped if its agreement with the customer is FOB Odor-No-More’s warehouse facility,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. In association with certain product purchases, ONM Environmental 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.
BLESTFor services, such as through our engineering group, the subsidiary 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’sService contracts typically call for invoicing for time and materials incurred for that contract, although some provide for milestone or fixed cost payments, where an agreed-to amount is invoiced 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 contract receivable or contract liability is created. As of September 30, 2022, we had $6,000 of contract liability. As of December 31, 2021, we had contract liability totaling $89,000. To date, there have been no discounts or other financing terms for the contracts.
In the future, we may generate revenues from royaltiesRoyalties or license fees from our intellectual property. In the event we do so, we anticipate a licensee would pay a license fee in one or more installments and ongoing royaltiesproperty are based on theirthe licensee’s 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.
Warrants and Conversion Features
Warrants issued with our convertible and non-convertible debt instruments 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. AsAt 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.
Share-based Payments
It is the Company’s policy to expense share-based payments as of the date of grant or over the term of the vesting period in accordance with Auditing Standards Codification Topic 718 “Share-Based Payment.” Application of this pronouncement requires significant judgment regarding the assumptions used in the selected option pricing model, including stock price volatility and employee exercise behavior. Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking expectations projected over the expected term of the award.
Fair Value Measurement
Generally accepted accounting principles establishes a hierarchy to prioritize the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest ranking to the fair values determined by using unadjusted quoted prices in active markets for identical assets (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). Observable inputs are those that market participants would use in pricing the assets based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The Company has determined the appropriate level of the hierarchy and applied it to its financial assets and liabilities.
Management believes the carrying amounts of the Company’s financial instruments as of December 31, 20182021 and June 30, 20192020, approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist ofinclude cash, accounts receivable, prepaid assets, and accounts payable, convertible notes, and other assets and liabilities.payable.
Recent Accounting Pronouncements
See Note 2In August 2020, the FASB issued Accounting Standards Update No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic815-40): 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) those with embedded conversion features that are not clearly and closely related to the Consolidated Financial Statements, “Summaryhost contract, that meet the definition of Significant Accounting Policies – Recent Accounting Pronouncements”,a derivative, and that do not qualify for a scope exception from derivative accounting and (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 applicablederivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting pronouncements affectingconclusions. The FASB observed that the Company.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; early adoption is permitted. Management has evaluated this update and adopted it as of January 1, 2022. In doing so, we evaluated the convertible debt issued by Clyra Medical during the three months ended June 30, 2022 (see Note 8 to the financial statements for the three and nine months ended September 30, 2022), and determined that the beneficial conversion feature was fixed at the time of issuance and not an embedded derivative under Subtopic 815-15. As a result of the early adoption, there are no other potential effects on the Company’s current financial statements.
Executive Officers and Directors
The following table sets forth information about our executive officers and directors as of the date of this prospectus:
Name |
| Age |
| Position | |
Dennis P. Calvert |
|
|
| President, CEO, Chairman, Director | |
Charles K. Dargan II |
|
|
|
| |
Kenneth R. Code |
| Chief Science Officer, Director | |||
Joseph L. Provenzano |
| Vice President of Operations, Corporate Secretary | |||
| Dennis E. Marshall(2)(3) |
|
|
|
|
|
|
| |||
|
| Director | |||
Jack B. Strommen |
| Director | |||
Linda Park(1)(2)(3) | 44 | Director | |||
Christina Bray(1)(5)(6) | 35 | Director | |||
______________
(1) | Member of Audit Committee |
(2) | Member of Compensation Committee |
(3) |
|
(4) | Chairman of |
(5) |
|
(6) | Chairman of Nominating and Corporate Governance Committee |
Dennis P. Calvert is our President, Chief Executive Officer and Chairman of the Board. He also serves in the same positions for BioLargo Life Technologies, Inc. and BioLargo Water U.S.A.Investment Group., Inc., both wholly owned subsidiaries, and chairman of the board of directors of our subsidiaries Odor-No-More,ONM Environmental, Inc., Clyra Medical Technologies, Inc. and BioLargo Water, Inc. (Canada). Mr. Calvert was appointed a director in June 2002 and has served as President and Chief Executive Officer since June 2002, Corporate Secretary from September 2002 until March 2003 and Chief Financial Officer from March 2003 through January 2008. Mr. Calvert holds a B.A. degree in Economics from Wake Forest University, where he was a varsity basketball player. Mr. Calvert also studied at Columbia University and Harding University. He also serves on the board of directors at The Maximum Impact Foundation, a 501(c)(3), committed to bridging the gap for lifesaving work around the globe for the good of man and in the name of Christ. He serves as a Director of Sustain SoCal, (formerly known as Sustain OC) in and serves on their “Technology Breakthrough” committee. Sustain SoCal is a trade association that seeks to promote economic growth in the Orange CountySouthern California clean technology industry. Most recently, he joinedHe also serves on the Board of Directors at The Maritime Alliance of San DiegoTMA Bluetech the leading regional water cluster promoting science-based ocean water industries and also serves on the Board of Directors of Tilly’s Life Center, a nonprofit charitable foundation aimed at empowering teens with a positive mindset and enabling them to effectively cope with crisis, adversity and tough decisions. He serves on the leadership board at Water UCI, which is an interdisciplinary center in the School of Social Ecology at the University of California- Irvine, that facilitates seamless collaboration across schools, departments, and existing research centers around questions of fundamental and applied water science, technology, management, and policy. Mr. Calvert is a scholarship sponsor for the National Water Research Institute. He is also an Eagle Scout. He is married and has two children. He has been an active coach in youth sports organizations and ministry activity in his home community. Mr. Calvert has an extensive entrepreneurial background as an operator, investor and consultant. Prior to his work with BioLargo, he had participated in more than 300 consulting projects and more than 50 acquisitions as well as various financing transactions and companies that ranged from industrial chemicals, healthcare management, finance, telecommunications and consumer products.
Charles K. Dargan II is our Chief Financial Officer and has served as such since February 2008. Since January 2003, Mr. Dargan has served as founder and principalPresident of CFO 911, an organization of senior executives that provides accounting, finance and operational expertise to both small capitalization public and middle market private companies who are at strategic inflection pointsin all phases of their development and helps them effectively transition from one business stage to another.life cycle. From March 2000 to January 2003, Mr. Dargan was the Chief Financial Officer of Semotus Solutions, Inc., an American Stock Exchange-listed wireless mobility software company. Mr. Dargan also serves as a director of Hiplink Software, Inc. and CPSM, Inc. Further, Mr. Dargan began his finance career in investment banking with Drexel Burnham Lambert and later became Managing Director of two regionalother investment banking firms, including Houlihan Lokey Howard & Zukin, where he was responsible for the management of the private placement activities of the firm. Mr. Dargan received his B.A. degree in Government from Dartmouth College, and his M.B.A. degree and M.S.B.A. degree in Finance from the University of Southern California. Mr. Dargan is also a CPA (inactive). and CFA.
Kenneth R. Code is our Chief Science Officer. He has been a director since April 2007. Mr. Code is our single largest stockholder. He is the founder of IOWC, which is engaged in the research and development of advanced disinfection technology, and from which our companythe Company acquired its core iodine technology in April 2007. Mr. Code has authored several publications and holds several patents, with additional patents pending, concerning advanced iodine disinfection. Mr. Code graduated from the University of Calgary, Alberta, Canada.
Joseph L. Provenzano is our Vice President of Operations, Corporate Secretary. He has been a director since June 2002, assumed the role of Corporate Secretary in March 2003, was appointed Executive Vice President of Operations in January 2008, and was elected President of our subsidiary, Odor-No-More,ONM Environmental, Inc., upon the commencement of its operations in January 2010. He is a co-inventor on several of our company’sthe company's patents and proprietary manufacturing processes, and he has developed over 30 products from our CupriDyne® technology. Mr. Provenzano began his corporate career in 1988 in the marketing field. In 2001 he began work with an investment holding company to manage their mergers and acquisitions department, participating in more than 50 corporate mergers and acquisitions.
Dennis E. Marshall has been a director since April 2006. Mr. Marshall has over 4645 years of experience in real estate, asset management, management level finance and operations-oriented management. Since 1981, Mr. Marshall has been a real estate investment broker in Orange County, California, representing buyers and sellers in investment acquisitions and dispositions. From March 1977 to January 1981, Mr. Marshall was a real estate syndicator at McCombs Corporation as well as the assistant to the Chairman of the Board. While at McCombs Corporation, Mr. Marshall became the Vice President of Finance, where he financially monitored numerous public real estate syndications. From June 1973 to September 1976, Mr. Marshall served as an equity controller for the Don Koll Company, an investment builder and general contractor firm, at which Mr. Marshall worked closely with institutional equity partners and lenders. Before he began his career in real estate, Mr. Marshall worked at Arthur Young & Co. (now Ernst & Young) from June 1969 to June 1973, where he served as Supervising Senior Auditor and was responsible for numerous independent audits of publicly held corporations. During this period, he obtained Certified Public Accountant certification. Mr. Marshall earned a degree in Accounting from the University of Texas, Austin in 1966 and earned a Master of Science Business Administration from the University of California, Los Angeles in 1969. Mr. Marshall serves as Chairman of the Audit Committee.
Kent C. Roberts III has been a director since August 2011. Mr. Roberts is an analyst and portfolio manager for Vulcan Capital is Seattle Washington. He joined Vulcan Capital in April 2017. Mr. Roberts has had a long and successful career in the asset management business as a north American practice leader or at the senior partner level. His investment experience spans 25 years where he served in senior positions in business management, trading, currency risk management, business development and marketing strategy, as well as governance and oversight roles. He has worked for both large firms as well as boutiques that bring unique investment expertise to investors around the world. Those firms include: Global Evolution USA, First Quadrant and Bankers Trust Company. He has presented at numerous industry conferences and as a guest speaker at numerous industry conferences and events. Before entering the financial services industry Mr. Roberts worked in the oil and gas exploration industry. Mr. Roberts received a MBA in Finance from the University of Notre Dame and a BS in Agriculture and Watershed Hydrology from the University of Arizona. Mr. Roberts holds a series 3 securities license.
John S. Runyan has been a director since October 2011. He has spent his career in the food industry. He began as a stock clerk at age 12, and ultimately served the Fleming Companies for 38 years, his last 10 years as a Senior Executive Officer in its corporate headquarters where he was Group President of Price Impact Retail Stores with annual sales of over $3 billion. He retired from Fleming Companies in 2001, and then established JSR&R Company Executive Advising, with a primary emphasis in the United States and international food business. His clients have included Coca Cola, Food 4 Less Price Impact Stores, IGA, Inc., Golden State Foods, Bozzuto Companies Foodstuffs New Zealand, Metcash Australia and McLane International. In 2005, he joined Associated Grocers in Seattle, Washington as President and CEO, overseeing its purchase in 2007 by Unified Grocers, at which time he became Executive Advisor to its CEO and to its President. Mr. Runyan currently serves on the board of directors of Western Association of Food Chains and Retailer Owned Food Distributors of America. Additionally, Mr. Runyan served eight years as a board member of the City of Hope’s Northern California Food Industry Circle, which included two terms as President, and was recognized with the City of Hope “Spirit of Life” award. He was the first wholesale executive to be voted “Man of the Year” by Food People Publication. He is a graduate of Washburn University, which recognized his business accomplishments in 2007 as the honoree from the School of Business “Alumni Fellow Award.” Mr. Runyan serves as Chairman of the Compensation and Nominating/Corporate Governance Committees.
Jack B. Strommen has been a director since June 2017, and also is a member of the board of directors of our subsidiary, Clyra Medical Technologies, as the representative of Sanatio Capital LLC. Mr. Strommen is the CEO of PD Instore, a leader in the design, production and installation of retail environments and displays for many Fortune 500 companies including Target, Adidas, Verizon, Disney and Sony. He also is the Chairman of Our House Films, an angel investor in several private companies ranging from bio-tech to med-tech to real estate, and serves on the board of directors of several private and public companies. A relentless force of growth, Mr. Strommen has taken his company, PD Instore, to new and ever increasing levels of success. Mr. Strommen purchased the family owned, local based printing firm, PD Instore from his grandfather in 1999. With his vision and leadership, it went from a local company with $25M in revenues to a global company with $180M in global sales. Mr. Strommen led the company in a private sale in 2015, remaining as CEO.
Linda Park joined our board of directors in November 2022. She is currently the Senior Vice President, Associate General Counsel and Corporate Secretary of Edwards Lifesciences Corporation, a global leader of patient-focused innovations for structural heart disease and critical care monitoring. Ms. Park is a member of the Senior Leadership Team and has been a member of the board of directors of the Edwards Lifesciences Foundation since January 2022. Prior to joining Edwards, from June 2013 to October 2017, she served as Assistant General Counsel of Western Digital Corporation, a company creating breakthrough innovations and powerful data storage solutions that enable the world to actualize its aspirations. From September 2003 to June 2013, Ms. Park worked in private practice, including at the firms of Latham & Watkins, LLP and Gibson, Dunn & Crutcher LLP in New York City where she advised issuer and investment banking clients on corporate and securities matters, mergers and acquisitions, bank financings and capital markets, including initial public offerings. Ms. Park has 20 years of experience counseling public companies and advancing organizations’ corporate governance and strategic goals; she is an active partner and thought leader on environmental, social and corporate governance (ESG) issues. Ms. Park holds a Bachelor of Arts degree from Johns Hopkins University and a Juris Doctor from Duke University School of Law. We believe that Ms. Park’s broad corporate governance, securities, sustainability and M&A knowledge gives her the qualifications, expertise and skills to serve as a director.
Christina Bray joined our board of directors in November 2022. She is currently CEO of BlueDot Energies, Inc., a company founded in January 2021 that designs, builds and manages electrical vehicle charging stations. From January 2021 to February 2022, she was the manager of Strategic Partnerships at Sunlight Financial in New York, a provider of point-of-sale financing to homeowners and contractors for solar systems and home improvements. From September 2018 to January 2021, she was President of PGC Bancorporation, which was an acquisition vehicle for community banks in the Western states. From November 2016 to September 2018, she was Assistant Vice President of Alpine Bank in Boulder Colorado, where she controlled a $100 million commercial loan portfolio and underwrote in excess of $120 million in loans. From October 2015 to November 2016, she was a manager at Beaver Creek Sports in Avon Colorado. From September 2013 to October 2015, she was a key leader and community manager for lululemon in New Orleans, LA where she developed sales and market development strategies for a team of 20. From August 2012 to September 2013 she was office manager at MBA Financial Services in Boulder Colorado - a boutique private wealth management firm. Ms. Bray has a Bachelor of Arts from Yale University in Modern Middle Eastern Studies, and a Master of Arts in Military History from Norwich University in Vermont. We believe that Ms. Bray’s financial experience and entrepreneurial experience give her the qualifications, expertise and skills to serve as a director.
Our corporate website, www.biolargo.com, contains the charters for our Audit and Compensation Committees and certain other corporate governance documents and policies, including our Code of Ethics. Any changes to these documents and any waivers granted with respect to our Code of Ethics will be posted at www.biolargo.com. In addition, we will provide a copy of any of these documents without charge to any stockholder upon written request made to Corporate Secretary, BioLargo, Inc., 14921 Chestnut St., Westminster, California 92683. The information at www.biolargo.comis not, and shall not be deemed to be, a part of this prospectus.
Director Independence
Our board of directors has determined that each of Messrs.Mr. Marshall, Roberts,Mr. Strommen, Ms. Park, and RunyanMs. Bray is independent as defined under applicable Nasdaq Stock Market, LLC (“Nasdaq”) listing standards.standards, as were retired board members John Runyan and Kent C. Roberts II. Our board of directors has determined that neither Mr. Calvert, Mr. Provenzano, nor Mr. Code is independent as defined under applicable Nasdaq listing standards. Neither Mr. Calvert, Mr. Provenzano, nor Mr. Code serve on any committee of our board of directors.
Meetings of our Board of Directors
Our board of directors held five meetings during 2017,2021, and acted via unanimous written consent four times.once. Each of the incumbent directors attended all the meetings of our board of directors and committees on which the director served, except for two absences at the annual board meeting in June 2017, and one absence at a meeting inthe August 2017.2021 and November 2021 quarterly board meetings, and one at the March 2021 and August 2021 audit committee meetings. Each of our directors is encouraged to attend our Annual Meeting of Stockholders, when these are held, and to be available to answer any questions posed by stockholders to such director.
Communications with our Board of Directors
The following procedures have been established by our board of directors to facilitate communications between our stockholders and our board of directors:
Stockholders may send correspondence, which should indicate that the sender is a Stockholder, to our board of directors or to any individual director, by mail to Corporate Secretary, BioLargo, Inc., 14921 Chestnut St., Westminster, California 92683.
Our Corporate Secretary will be responsible for the first review and logging of this correspondence and will forward the communication to the director or directors to whom it is addressed unless it is a type of correspondence which our board of directors has identified as correspondence which may be retained in our files and not sent to directors. Our board of directors has authorized the Corporate Secretary to retain and not send to directors communications that: (a) are advertising or promotional in nature (offering goods or services), (b) solely relate to complaints by clients with respect to ordinary course of business customer service and satisfaction issues or (c) clearly are unrelated to our business, industry, management or Board or committee matters. These types of communications will be logged and filed but not circulated to directors. Except as set forth in the preceding sentence, the Corporate Secretary will not screen communications sent to directors.
The log of stockholder correspondence will be available to members of our board of directors for inspection. At least once each year, the Corporate Secretary will provide to our board of directors a summary of the communications received from stockholders, including the communications not sent to directors in accordance with the procedures set forth above.
Our stockholders also may communicate directly with the non-management directors as a group, by mail addressed to Dennis E. Marshall, c/o Corporate Secretary, BioLargo, Inc., 14921 Chestnut St., Westminster, California 92683.
Our Audit Committee has established procedures for the receipt, retention and treatment of complaints regarding questionable accounting, internal controls and financial improprieties or auditing matters. Any of our employees may confidentially communicate concerns about any of these matters by mail addressed to Audit Committee, c/o Corporate Secretary, BioLargo, Inc., 14921 Chestnut St., Westminster, California 92683.
All the reporting mechanisms also are posted on our corporate website, www.biolargo.com. Upon receipt of a complaint or concern, a determination will be made whether it pertains to accounting, internal controls or auditing matters and, if it does, it will be handled in accordance with the procedures established by the Audit Committee.
Committees of our Board of Directors
Our board of directors has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee.
The Audit Committee meets with management and our independent registered public accounting firm to review the adequacy of internal controls and other financial reporting matters. Dennis E. Marshall served as Chairman of the Audit Committee during 20152021 and continues to serve in that capacity. John S. Runyan also servesand Kent C. Roberts II, served on the Audit Committee.committee until their retirement November 1, 2022, replaced by new board members Linda Park and Christina Bray. Our board of directors has determined that Mr. Marshall qualifies as an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934, as amended.amended (“Regulation S-K”). The Audit Committee met four times in 2018.2021.
The Compensation Committee reviews the compensation for all our officers and directors and affiliates. The Committee also administers our equity incentive option plan. Mr. John Runyan served as Chairman of the Compensation Committee during 2018.2021, and until November 1, 2022. Ms. Park now serves as Chairman. Mr. Marshall also serves on the Compensation Committee. The Compensation Committee met once and acted by consent three timesonce during 2018.2021.
Our board of directors did not modify any action or recommendation made by the Compensation Committee with respect to executive compensation for the 20172020 or 20182021 fiscal years. It is the opinion of the Compensation Committee that the executive compensation policies and plans provide the necessary total remuneration program to properly align their performance and the interests of our stockholders using competitive and equitable executive compensation in a balanced and reasonable manner, for both the short and long term.
The Nominating and Corporate Governance Committee was established in November 2018. Its responsibilities include to identify and screen individuals qualified to become members of the Board, to make recommendations to the Board regarding to the Board regarding the selection and approval of the nominees for director to be submitted to a stockholder vote at the annual meeting of stockholders, subject to approval by the Board, to development corporate governance guidelines and oversee corporate governance practices, to develop a process for an annual evaluation of the Board and its committees, to review all director compensation and benefits, to review, approve and oversee and related party transaction,transactions, to develop and recommend director independent standards, and to develop and recommend a companyCompany code of conduct, to investigate any alleged breach and enforce the provisions of the code. Since its inception and until November 1, 2022, the committee was comprised of John Runyan, Dennis Marshall, and Kent C. Roberts. This committee hasdid not yet held any meetings or taken any formal action.meet in 2021.
Our board of directors follows athe written code of ethics that applies to its principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Leadership Structure of our Board of Directors
Mr. Calvert serves as both principal executive officer and Chairman of the Board. Our companyThe Company does not have a lead independent director. Messrs. Marshall, Roberts, Strommen and Runyan serve asThe board has four independent directors who provide active and effective oversight of our strategic decisions.decisions: Dennis Marshall, Jack Strommen, and, until their retirement on November 1, 2022, John Runyan and Kent C. Roberts, replaced by Linda Park and Christina Bray. As of the date of this prospectus, our companyfiling, the Company has determined that the leadership structure of our board of directorsthe Board has permitted our board of directorsthe Board to fulfill its duties effectively and efficiently and is appropriate given the size and scope of our companythe Company and its financial condition.
Our Board of Directors’Directors’ Role in Risk Oversight
As a smaller reporting company, our executive management team, consisting of Messrs. Calvert Code and Provenzano,Code, are also members of our board of directors. Our board of directors, including our executive management members and independent directors, is responsible for overseeing our executive management team in the execution of its responsibilities and for assessing our company’s approach to risk management. Our board of directors exercises these responsibilities on an ongoing basis as part of its meetings and through its committees. Each member of the management team has direct access to the other Board members, and our committees of our board of directors, to ensure that all risk issues are frequently and openly communicated. Our board of directors closely monitors the information it receives from management and provides oversight and guidance to our executive management team regarding the assessment and management of risk. For example, our board of directors regularly reviews our company’s critical strategic, operational, legal and financial risks with management to set the tone and direction for ensuring appropriate risk taking within the business.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 2021, the Compensation Committee consisted of two members – John Runyan, and Dennis Marshall. Neither Mr. Runyan nor Mr. Marshall was or has ever been an employee or officer of the Company. Neither had transactions with the Company that would require disclosure under Item 404 of Regulation S-K (see “Transactions with Related Parties”, below).
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, certain officers and persons holding 10% or more of the Company’s Common stock to file reports regarding their ownership and regarding their acquisitions and dispositions of our Common stock with the SEC. Such persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
To our knowledge, based solely upon review of Forms 3, 4, and 5 (and amendments thereto) and written representations provided to us by executive officers, directors and stockholders beneficially owning 10% or greater of the outstanding shares, we believe that such persons filed pursuant to the requirements of the SEC on a timely basis during the year ended December 31, 2021, except for one Form 4 filed by our chief financial officer related to a transaction disclosed timely on Form 8-K.
Family Relationships
There are no family relationships among the directors and executive officers of our company.
The following table sets forth all compensation earned for services rendered to our company in all capacities for the fiscal years ended December 31, 20172020 and 2018,2021, by our principal executive officer and our three most highly compensated executive officers other than our principal executive officer, collectively referred to as the “Named Executive Officers.”
Summary Compensation Table
Name and Principal Positions |
| Year |
| Salary |
| Stock Awards(1) |
| Option Awards(1) |
| All other Compensation |
| Total |
| Year | Salary | Stock Awards(1) | Option Awards(1) | All other Compensation | Total | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Dennis P. Calvert, | 2017 | $ | 288,603 | (2) | $ | — | (3) | $ | 195,894 | (4) | $ | 49,600 | (5) | $ | 534,097 | |||||||||||||||||||||||||||||
Chairman, Chief Executive Officer and President |
| 2018 |
| $ | 288,603 | (2) |
| $ | — | (3) |
| $ | 335,820 | (4) |
| $ | 31,325 | (5) |
| $ | 655,748 |
| 2020 | $ | 288,603 | (2) | $ | — | $ | 388,716 | (3) | $ | 31,696 | (4) | $ | 709,016 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 | 288,603 | — | 335,820 | 27,022 | 651,446 | |||||||||||||||||||||||||
Kenneth R. Code, |
| 2017 |
| $ | 288,603 | (6) |
| $ | — |
| $ | — |
| $ | 72,600 | (5) |
| $ | 361,203 |
| ||||||||||||||||||||||||
Chief Science Officer |
| 2018 |
| $ | 288,603 | (6) |
| $ | — |
| $ | — |
| $ | 12,600 | (5) |
| $ | 301,203 |
| 2020 | $ | 288,603 | (5) | $ | — | $ | 46,176 | (6) | $ | 12,600 | (4) | $ | 347,379 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 | 288,603 | — | — | 12,600 | 301,203 | |||||||||||||||||||||||||
Charles K. Dargan | 2017 | $ | — | $ | $ | 236,250 | (7) | $ | — | $ | 236,250 | |||||||||||||||||||||||||||||||||
Chief Financial Officer |
| 2018 |
| $ | — |
| $ | — |
| $ | 87,750 | (7) |
| $ | — |
| $ | 87,750 |
| 2020 | $ | — | $ | — | $ | 128,954 | (7) | $ | — | $ | 128,954 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 | — | — | 54,250 | 54,250 | ||||||||||||||||||||||||||
Joseph Provenzano, | 2017 | $ | 169,772 | (8) | $ | — | $ | 47,000 | (9) | $ | 12,900 | (10) | $ | 229,672 | ||||||||||||||||||||||||||||||
Corporate Secretary; President Odor-No-More, Inc |
| 2018 |
| $ | 169,772 | (8) |
| $ | — |
| $ | 37,600 | (9) |
| $ | 16,565 | (5) |
| $ | 224,937 |
| |||||||||||||||||||||||
Corporate Secretary; President ONM Environmental, Inc | 2020 | $ | 169,772 | (8) | $ | — | $ | 44,495 | (9) | $ | 16,789 | (4) | $ | 231,056 | ||||||||||||||||||||||||||||||
2021 | $ | 169,772 | (8) | $ | — | $ | 8,600 | (9) | $ | 12,266 | (4) | $ | 190,639 | |||||||||||||||||||||||||||||||
________________
____________
(1) | Our company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award, which is the vesting period. Share-based compensation expense is based on the grant date fair value estimated using the Black-Scholes method. The amounts in the “Stock Awards” and “Option Awards” columns reflect the aggregate fair value of awards of stock or options calculated as of the grant date, if the award is fully vested at grant date. These amounts do not represent cash paid to or realized by any of the recipients during the years indicated. |
(2) | In |
(3) |
|
| On May 2, 2017, pursuant to his employment agreement, we granted to our president, Dennis P. Calvert, an option to purchase 3,731,322 shares of the Company’s common stock. The option is a non-qualified stock option, exercisable at $0.45 per share, the closing price of our common stock on the grant date, exercisable for ten years from the date of grant, and vesting in equal increments on the anniversary of the option agreement for five years. Any portion of the option which has not yet vested shall immediately vest in the event of, and prior to, a change of control, as defined in the employment agreement. The option cliff vests in 4 equal amounts on each anniversary of the option agreement. The option agreement contains the other terms standard in option agreements issued by the Company, including provisions for a cashless exercise. The fair value of this option totaled $1,679,095 and |
| Includes health insurance premiums, automobile allowance, and bonus. |
| In |
(6) | On May 1, 2020, Mr. Code received an option to purchase 343,571 shares of the Company’s common stock. The option is a qualified stock option vested upon issuance, exercisable at $0.13 per share, the closing price of our common stock on the grant date, exercisable for ten years from the date of grant. The fair value of this option totaled $46,176. |
(7) | Our Chief Financial Officer, Charles K. Dargan II, did not receive any cash compensation during the years ended December 31, |
(8) | In |
(9) |
|
|
|
Employment Agreements
Dennis P. Calvert
On May 2, 2017, weBioLargo, Inc. (the “Company”) and ourits President and Chief Executive Officer Dennis P. Calvert entered into an employment agreement (the “Calvert Employment Agreement”), replacing in its entirety the previous employment agreement with Mr. Calvert dated April 30, 2007.
The Calvert Employment Agreement provides that Mr. Calvert will continue to serve as the President and Chief Executive Officer of the Company and receive base compensation equal to his current rate of pay of $288,603 annually. In addition to this base compensation, the agreement provides that he is eligible to participate in incentive plans, stock option plans, and similar arrangements as determined by the Company’s Board of Directors, health insurance premium payments for himself and his immediate family, a car allowance of $800 per month, paid vacation of four weeks per year, and bonuses in such amount as the Compensation Committee may determine from time to time.
The Calvert Employment Agreement provides that Mr. Calvert will be granted an option (the “Option”) to purchase 3,731,322 shares of the Company’s common stock. The Option shall be a non-qualified stock option, exercisable at $0.45 per share, which represents the market price of the Company’s common stock as of the date of the agreement, exercisable for ten years from the date of grant and vesting in equal increments over five years. Notwithstanding the foregoing, any portion of the Option which has not yet vested shall be immediately vested in the event of, and prior to, a change of control, as defined in the Calvert Employment Agreement. The agreement also provides for a grant of 1,500,000 shares of common stock, subject to the execution of a “lock-up agreement” whereby the shares remain unvested unless and until the earlier of (i) a sale of the Company, (ii) the successful commercialization of the Company’s products or technologies as demonstrated by its receipt of at least $3,000,000 in cash, or the recognition of $3,000,000 in revenue, over a 12-month period from the sale of products and/or the license of technology, and (iii) the Company’s breach of the employment agreement resulting in his termination. The Option contains the other terms standard in option agreements issued by the Company, including provisions for a cashless exercise.
The Calvert Employment Agreement has a term of five years, unless earlier terminated in accordance with its terms. The Calvert Employment Agreement provides that Mr. Calvert’s employment may be terminated by the Company due to his death or disability, for cause, or upon a merger, acquisition, bankruptcy or dissolution of the Company. “Disability” as used in the Calvert Employment Agreement means physical or mental incapacity or illness rendering Mr. Calvert unable to perform his duties on a long-term basis (i) as evidenced by his failure or inability to perform his duties for a total of 120 days in any 360-day period, or (ii) as determined by an independent and licensed physician whom the Company selects, or (iii) as determined without recourse by the Company’s disability insurance carrier. “Cause” means that Mr. Calvert has (i) engaged in willful misconduct in connection with the Company’s business; or (ii) been convicted of, or plead guilty or nolo contendre in connection with, fraud or any crime that constitutes a felony or that involves moral turpitude or theft. If Mr. Calvert’s employment is terminated due to merger or acquisition, then he will be eligible to receive the greater of (i) one year’s compensation plus an additional one halfone-half year for each year of service since the effective date of the employment agreement or (ii) one year’s compensation plus an additional one half year for each year remaining in the term of the agreement. Otherwise, he is only entitled to receive compensation due through the date of termination.
The Calvert Employment Agreement requires Mr. Calvert to keep certain information confidential, not to solicit customers or employees of the Company or interfere with any business relationship of the Company, and to assign all inventions made or created during the term of the Calvert Employment Agreement as “work made for hire”.
Kenneth R. Code
We entered into an employment agreement dated as of April 29, 2007 with Mr. Code, our Chief Science Officer (the “Code Employment Agreement”), which we amended on December 28, 2012 such that his salary will remain at $288,603, the level paid in April 2012, with no further automatic increases. The Code Employment Agreement can automatically renew for one year periods on April 29th of each year but may be terminated “without cause” at any time upon 120 days’ notice, and upon such termination, Mr. Code would not receive the severance originally provided for. All other terms in the 2007 agreement remain the same in the Code Employment Agreement.
In addition, Mr. Code will be eligible to participate in incentive plans, stock option plans, and similar arrangements as determined by our board of directors. When such benefits are made available to our senior employees, Mr. Code is also eligible to receive health insurance premium payments for himself and his immediate family, a car allowance of $800 per month, paid vacation of four weeks per year plus an additional two weeks per year for each full year of service during the term of the agreement up to a maximum of 10 weeks per year, life insurance equal to three times his base salary and disability insurance.
The Code Employment Agreement further requires Mr. Code to keep certain information confidential, not to solicit customers or employees of our company or interfere with any business relationship of our company, and to assign all inventions made or created during the term of the Code Employment Agreement as “work made for hire”.
Charles K. Dargan II
Charles K. Dargan, II has served as our Chief Financial Officer since February 2008 pursuant to an engagement agreement with his company, CFO 911, that has been renewed each year. For the renewal effective February 1, 2015, Mr. Dargan was compensated through the issuance of an option to purchase an additional 300,000 shares of our common stock, at an exercise price of $0.57 per share, to expire September 30, 2025, and vest over the term of the engagement with 120,000 shares vested as of September 30, 2015, and the remaining shares to vest 15,000 monthly, provided that the Engagement Extension Agreement with Mr. Dargan has not been terminated prior to each vesting date. Mr. Dargan receives no cash compensation from our company and continues to serve as our Chief Financial Officer.
On February 10, 2017,25, 2020, we and Mr. Dargan furtheragain extended his engagement agreement. The extension provides for an additional termagreement to expire September 30, 2017 (the “Extended Term”), and is retroactively effective toJanuary 31, 2021. As the termination ofsole compensation for the prior extension on October 1, 2016. This more recent extension again compensatesExtended Term, Mr. Dargan through the issuance ofwas issued an option (“Option”) to purchase 300,00025,000 shares of the Company’s common stock. The strike price of the option is $0.69 per share, which is equal to the closing price of the Company’s common stock on February 10, 2017, expires February 10, 2027, and vests overfor each month during the term of the engagement with 125,000 shares having vested as of February 10, 2017, and the remaining shares to vest 25,000 shares monthly beginning March 1, 2017, and each month thereafter, so long as his agreement is in full force and effect.
On December 31, 2017, we and Mr. Dargan further extended his engagement agreement. The extension provides for an additional term to expire September 30, 2018 (the “Extended Term”), and is retroactively effective to the termination of the prior extension on October 1, 2017. This more recent extension again compensates Mr. Dargan through the issuance of(thus, an option to purchase 300,000400,000 shares reflecting an extended term of the Company’s common stock.16 months). The strike price of the option is $0.39 per share, which is equal to the closing price of the Company’s common stock on December 29, 2017, expires December 31, 2027, andOption vests over the termperiod of the engagementagreement, with 75,000 shares having vested as of December 31, 2017,2019, and the remaining shares to vest 25,000 shares monthly beginning January 31, 2018, and each month thereafter, so long as his agreement is in full force and effect.
On January 16, 2019, we and Mr. Dargan formally agreed to extend his engagement agreement. The extension provides for an additional term to expire September 30, 2019, and is retroactively effective to the termination of the prior extension on September 30, 2018. Mr. Dargan has been serving as the Company’s Chief Financial Officer since such termination pursuant to the terms of the December 31, 2017 extension. This extension again compensates Mr. Dargan through the issuance of an option to purchase 300,000 shares of the Company’s common stock, at a strike price equal to the closing price of the Company’s common stock on January 16, 2019 of $0.223, to expire January 16, 2029, and to vest over the term of the engagement with 75,000 shares having vested as of December 31, 2018, and the remaining shares to vest 25,000 shares monthly beginning January 31, 2019,2020, and each month thereafter, so long as the engagement agreement is in full force and effect. The Option is exercisable at $0.21 per share, the closing price of BioLargo’s common stock on February 25, 2020, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan. The issuance of the Option is Mr. Dargan’s sole source of compensation for the extended term.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.
On March 18, 2021, we and Mr. Dargan again extended his engagement agreement. The Engagement Extension Agreement dated as of March 18, 2021 (the “Engagement Extension Agreement”) provides for an additional one-year term to expire January 31, 2022 (the “Extended Term”).
As the sole compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 25,000 shares of the Company’s common stock for each month during the Extended Term (thus, an option to purchase 300,000 shares reflecting an extended term of 12 months). The Option vests over the period of the Extended Term, with 25,000 shares having vested as of March 15, 2021, and the remaining shares to vest 25,000 shares monthly beginning March 31, 2021, and each month thereafter, so long as the agreement is in full force and effect. The Option is exercisable at $0.174 per share, the closing price of BioLargo’s common stock on the March 18, 2021 grant date, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan.
On March 22, 2022, 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 March 22, 2022 (the “Engagement Extension Agreement”) provides for an additional one-year term to expire January 31, 2023 (the “Extended Term”).
As the sole compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 25,000 shares of the Company’s common stock for each month during the Extended Term (thus, an option to purchase 300,000 shares reflecting an extended term of 12 months). The Option vests over the period of the Extended Term, with 25,000 shares having vested as of March 22, 2022, and the remaining shares to vest 25,000 shares monthly beginning March 22, 2022, and each month thereafter, so long as the agreement is in full force and effect. The Option is exercisable at $0.24 per share, the closing price of BioLargo’s common stock on the March 22, 2022, grant date, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan.
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.
Joseph Provenzano
Mr. Provenzano has served as Vice President of Operations since January 1, 2008, in addition to continuing to serve as our Corporate Secretary. On May 28, 2019, the Compensation Committee of the Board of Directors approved the terms of a new employment agreement for Mr. Provenzano, and granted to him an incentive stock option (the “Option”) to purchase 1,000,000 shares of the Company’s common stock pursuant to the terms of the Company’s 2018 Equity Incentive Plan (“Plan”). As set forth in the Plan, the exercise price of the Option is equal to the closing price of the Company’s common stock on the May 28 grant date, at $0.17 per share. The shares in the Option vest in five in equal increments over five years, and the Option may be exercised for up to ten years following the grant date. Notwithstanding the foregoing, any portion of the Option which has not yet vested shall be immediately vested in the event of, and prior to, a change of control, as defined in the Provenzano Employment Agreement. The Option contains the other terms standard in option agreements issued by the Company, including provisions for a cashless exercise. On May 28, 2019, the Committee also granted Mr. Provenzano a restricted stock unit of 500,000 shares of common stock, subject to the execution of a “lock-up agreement” whereby the shares remain unvested unless and until the earlier of (i) a sale of the Company, (ii) the successful commercialization of the Company’s products or technologies as demonstrated by its receipt of at least $3,000,000 in cash, or the recognition of $3,000,000 in revenue, over a 12-month period from the sale of products and/or the license of technology, and (iii) the Company’s breach of the employment agreement resulting in his termination. On June 18, 2019, we and Mr. Provenzano entered into anthe other terms of his employment agreement (the “Provenzano Employment Agreement”), replacing in its entiretywere finalized and a document fully executed. Although fully executed on June 18, 2019, the previous employment agreement with Mr. Provenzano dated January 1, 2008.is effective as of May 28, 2019, to reflect Option grant date.
The Provenzano Employment Agreement provides that Mr. Provenzano will serve as our Executive Vice President of Operations, as well as the President and Chief Executive Officer of our wholly owned subsidiary Odor-No-More.ONM Environmental. Mr. Provenzano’s base compensation will remain at his current rate of $169,772$170,000 annually. In addition to this base compensation, the agreement provides that he is eligible to participate in incentive plans, stock option plans, and similar arrangements as determined by the our Board of Directors, health insurance premium payments for himself and his immediate family, a car allowance covering the expenses of his personal commercial grade truck which the company uses in company operations on a continual basis, paid vacation of four weeks per year, and bonuses in such amount as the Compensation Committee may determine from time to time.
In conjunction with this agreement, our Compensation Committee awarded Mr. Provenzano an option to purchase common stock and restricted stock units under our 2018 Equity Incentive Plan (see Note 5).
The Provenzano Employment Agreement has a term of five years, unless earlier terminated in accordance with its terms. The Provenzano Employment Agreement provides that Mr. Provenzano’s employment may be terminated by the Company due to his death or disability, for cause, or upon a merger, acquisition, bankruptcy or dissolution of the Company. “Disability” as used in the Provenzano Employment Agreement means physical or mental incapacity or illness rendering Mr. Provenzano unable to perform his duties on a long-term basis (i) as evidenced by his failure or inability to perform his duties for a total of 120 days in any 360-day period, or (ii) as determined by an independent and licensed physician whom the Company selects, or (iii) as determined without recourse by the Company’s disability insurance carrier. “Cause” means that Mr. Provenzano has (i) engaged in willful misconduct in connection with the Company’s business; or (ii) been convicted of, or plead guilty or nolo contendre in connection with, fraud or any crime that constitutes a felony or that involves moral turpitude or theft. If Mr. Provenzano’s employment is terminated due to merger or acquisition, then he will be eligible to receive the greater of (i) one year’s compensation plus an additional one half year for each year of service since the effective date of the employment agreement or (ii) one year’s compensation plus an additional one half year for each year remaining in the term of the agreement. Otherwise, he is only entitled to receive compensation due through the date of termination.
The Provenzano Employment Agreement requires Mr. Provenzano to keep certain information confidential, not to solicit customers or employees of the Company or interfere with any business relationship of the Company, and to assign all inventions made or created during the term of the Provenzano Employment Agreement as “work made for hire”.
Director Compensation
Each director who is not an officer or employee of our company receives an annual retainer of $60,000, paid in cash or shares of our common stock, or options to purchase our common stock (pursuant to a plan put in place by our board of directors), in our sole discretion. Historically, all but one director has received the entirety of his fees in the form of options to purchase stock, rather than cash.. In addition, Mr. Marshall and Mr. Runyan eachcommittee chairpersons receive an additional $15,000 for their services as the chairman of the Audit Committee and chairman of the Compensation Committee, respectively.per year. The following table sets forth information for the fiscal yearsyear ended December 31, 20182021, regarding compensation of our non-employee directors. Our employee directors do not receive any additional compensation for serving as a director.
Name | Fees Earned or Fees Paid in Cash |
| Option Awards |
| Non-Equity Incentive Plan Compensation | All Other Compensation | Total |
| Fees Earned or Fees Paid in Cash | Option Awards | Non-Equity Incentive Plan Compensation | All Other Compensation | Total | |||||||||||||||||
Dennis E. Marshall | $ | 75,000 | (1) | — | — | — | $ | 75,000 | $ | 76,117 | (1) | — | — | — | $ | 76,117 | ||||||||||||||
Jack B. Strommen | $ | 60,000 | (2) | — | — | — | $ | 60,000 | $ | 57,118 | (2) | — | — | — | $ | 57,118 | ||||||||||||||
Kent C. Roberts III | $ | 60,000 | (3) | — | — | — | $ | 60,000 | $ | 57,118 | (3) | — | — | — | $ | 57,118 | ||||||||||||||
John S. Runyan | $ | 75,000 | (4) | — | — | — | $ | 75,000 | $ | 71,398 | (4) | — | — | — | $ | 71,398 | ||||||||||||||
____________________________
(1) | In |
|
|
(2) | In |
|
|
(3) | In |
| |
(4) | In |
(5) | Mr. Roberts and Mr. Runyan retired from the Board on November 1, 2022. |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding unexercised stock options and equity incentive plan awards for each of the Named Executive Officers outstanding as of December 31, 2018. All stock or options that were granted to the Named Executive Officers during the fiscal year ended December 31, 2018 have fully vested, except as indicated.
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Share Price on Grant Date | Option Expiration Date | |||||||||||||||
Dennis P. Calvert | 3,731,322 | -- | $ | 0.45 | $ | 0.45 | May 2, 2027 | ||||||||||||||
| 60,000 | -- | $ | 0.55 | $ | 0.37 | April 27, 2019 | |||||||||||||||
| 691,974 | -- | $ | 0.55 | $ | 0.37 | April 27, 2019 | |||||||||||||||
| 200,000 | -- | $ | 0.575 | $ | 0.50 | February 1, 2020 | |||||||||||||||
Charles K. Dargan II | 10,000 | -- | $ | 0.38 | $ | 0.38 | January 31, 2019 | ||||||||||||||
| 50,000 | -- | $ | 0.28 | $ | 0.28 | February 23, 2019 | |||||||||||||||
| 10,000 | -- | $ | 0.30 | $ | 0.30 | April 29, 2019 | |||||||||||||||
| 36,000 | -- | $ | 0.50 | $ | 0.30 | April 29, 2019 | |||||||||||||||
| 10,000 | -- | $ | 0.45 | $ | 0.45 | May 31, 2019 | |||||||||||||||
| 10,000 | -- | $ | 0.45 | $ | 0.45 | June 30, 2019 | |||||||||||||||
| 10,000 | -- | $ | 0.50 | $ | 0.50 | July 31, 2019 | |||||||||||||||
| 10,000 | -- | $ | 0.43 | $ | 0.43 | August 31, 2019 | |||||||||||||||
| 10,000 | -- | $ | 0.40 | $ | 0.40 | September 30, 2019 | |||||||||||||||
| 10,000 | -- | $ | 0.45 | $ | 0.45 | October 31, 2019 | |||||||||||||||
| 10,000 | -- | $ | 0.57 | $ | 0.57 | November 30, 2019 | |||||||||||||||
| 10,000 | -- | $ | 0.70 | $ | 0.70 | December 31, 2019 | |||||||||||||||
| 10,000 | -- | $ | 0.50 | $ | 0.50 | January 31, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.45 | $ | 0.45 | February 28, 2020 | |||||||||||||||
| 60,000 | -- | $ | 0.575 | $ | 0.50 | February 1, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.50 | $ | 0.50 | March 31, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.39 | $ | 0.39 | April 29, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.31 | $ | 0.31 | May 31, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.25 | $ | 0.25 | June 30, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.24 | $ | 0.24 | July 31, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.23 | $ | 0.23 | August 30, 2020 | |||||||||||||||
| 200,000 | -- | $ | 0.30 | $ | 0.30 | August 4, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.35 | $ | 0.35 | September 30, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.42 | $ | 0.42 | October 31, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.40 | $ | 0.40 | November 30, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.50 | $ | 0.50 | December 31, 2020 | |||||||||||||||
| 10,000 | -- | $ | 0.42 | $ | 0.42 | January 31, 2021 | |||||||||||||||
| 120,000 | -- | $ | 0.41 | $ | 0.41 | February 28, 2021 | |||||||||||||||
| 300,000 | -- | $ | 0.35 | $ | 0.35 | April 10, 2022 | |||||||||||||||
| 410,000 | -- | $ | 0.30 | $ | 0.30 | December 28, 2022 | |||||||||||||||
| 300,000 | -- | $ | 0.30 | $ | 0.30 | July 17, 2023 | |||||||||||||||
| 300,000 | -- | $ | 0.30 | $ | 0.30 | June 23, 2024 | |||||||||||||||
| 300,000 | -- | $ | 0.57 | $ | 0.57 | September 30, 2025 | |||||||||||||||
| 300,000 | -- | $ | 0.69 | $ | 0.69 | February 10, 2027 | |||||||||||||||
| 300,000 | -- | $ | 0.39 | $ | 0.39 | December 31, 2027 | |||||||||||||||
Kenneth R. Code | 200,000 | -- | $ | 1.03 | $ | 0.94 | July 17, 2023 | ||||||||||||||
| 200,000 | -- | $ | 0.575 | $ | 0.50 | February 1, 2020 | |||||||||||||||
Joseph L. Provenzano | 30,000 | $ | 0.50 | $ | 0.37 | April 27, 2019 | |||||||||||||||
| 200,000 | $ | 0.575 | $ | 0.50 | February 1, 2020 | ||||||||||||||||
| 296,203 | $ | 0.30 | $ | 0.30 | August 4, 2020 | ||||||||||||||||
| 200,000 | $ | 0.41 | $ | 0.41 | March 21 2021 | ||||||||||||||||
| 100,000 | $ | 0.45 | $ | 0.45 | October 23 2027 | ||||||||||||||||
Limitation of Liability and Indemnification Matters
As permitted by the Delaware general corporation law, we have included a provision in our certificate of incorporation to eliminate the personal liability of our directors for monetary damages for breach of their fiduciary duties as directors, except for liability (i) for any breach of the director’s duty of loyalty to our company, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware general corporation law or (iv) for any transaction from which the director derived an improper personal benefit. Our certificate of incorporation also provides that our company shall, to the full extent permitted by section 145 of the Delaware general corporation law, as amended from time to time, indemnify all persons whom it may indemnify pursuant thereto.
In addition, our Bylaws provide that we are required to indemnify our officers and directors even when indemnification would otherwise be discretionary, and we are required to advance expenses to our officers and directors as incurred in connection with proceedings against them for which they may be indemnified.
We may enter into indemnification agreements with our officers and directors containing provisions that are in some respects broader than the specific indemnification provisions contained in the Delaware general corporation law. The indemnification agreements would require us to indemnify our officers and directors against liabilities that may arise by reason of their status or service as officers and directors other than for liabilities arising from willful misconduct of a culpable nature, to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain our directors’ and officers’ insurance if available on reasonable terms. As of the date of this prospectus, our company has not entered into any indemnification agreement with any of its directors or officers, except for Mr. Strommen.
We have obtained directors’ and officers’ liability insurance in amounts comparable to other companies of our size and in our industry.
No pending litigation or proceeding involving a director, officer, employee or other agent of our company currently exists as to which indemnification is being sought. We are not aware of any threatened litigation that may result in claims for indemnification by any director, officer, employee or other agent of our company.
See “Disclosure of SEC Position on Indemnification for Securities Act Liabilities.”
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of shares of our Commoncommon stock as of September 12, 2019,December 22, 2022, including rights to acquire beneficial ownership of shares of our Commoncommon stock within 60 days of September 12, 2019,December 22, 2022, by (a) all stockholders known to the Company to be beneficial owners of more than 5% of the outstanding Common stock; (b) each director, (c) each Named Executive Officer, and (d) all directors and executive officers of the Company as a group:
Name and Address of Beneficial Owner(1) | Amount of Beneficial Ownership | Percent of Class(2) | Amount of Beneficial Ownership | Percent of Class(2) | ||||||
Kenneth R. Code | 23,266,703 | 14.6% | 25,280,231 | 8.6 | % | |||||
Dennis P. Calvert | 9,636,555 | 6.0% | 13,948,827 | 4.7 | % | |||||
Jack B. Strommen | 8,603,094 | 5.4% | 6,050,138 | 2.1 | % | |||||
Charles K. Dargan II | 3,396,244 | 2.1% | 4,426,744 | 1.5 | % | |||||
Dennis E. Marshall | 2,842,881 | 1.8% | 3,854,761 | 1.3 | % | |||||
Joseph L. Provenzano | 2,096,946 | 1.3% | 3,042,039 | 1.0 | % | |||||
Kent C. Roberts II(10) | 2,004,778 | 1.3% | ||||||||
John S. Runyan(11) | 1,851,716 | 1.2% | ||||||||
Linda Park(9) | 590,362 | 0.2 | % | |||||||
Christina Bray(10) | 25,000 | 0.0 | % | |||||||
All directors and officers as a group (8 persons) | 53,548,917 | 33.7% | 57,218,102 | 19.4 | % | |||||
Except as noted in any footnotes below, each person has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by them. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
|
|
| The address for all directors and the Named Executive Officers is: c/o BioLargo, Inc., 14921 Chestnut St., Westminster, CA 92683, except |
| Our |
| Includes 22,139,012 shares owned indirectly by Mr. Code issued |
| Includes 1,528,695 |
| Includes |
| Includes |
| Includes |
| Includes |
| Includes |
| Includes |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our companyCompany has adopted a policy that all transactions between our companyCompany and its executive officers, directors and other affiliates must be approved by a majority of the members of our board of directors and by a majority of the disinterested members of our board of directors, and must be on terms no less favorable to our company than could be obtained from unaffiliated third parties.
From time to time, our company is unable to payOur officers and board members routinely forego cash compensation in full amounts due to its officers for salary and business expenses, and those amounts are recorded as liabilities in our financial statements. These amounts are then paid in the future as our company’s cash position allows, or through the issuancelieu of ourreceiving common stock or an optionoptions to purchase common stock, pursuant to a plan adopted by our board for the payment of outstanding payables. These transactions are routinely under the threshold for disclosure.
On June 30, 2019, we issued options to purchase 293,478 sharesThe following information discloses any transaction, since the beginning of our common stock at an exercise pricelast fiscal year, or any currently proposed transaction, in which we were or are proposed to be a participant and the amount involved exceeds $120,000 or 1% of $0.23 per share to four membersthe average of our board of directors,total assets over the last two completed fiscal years, and in lieu of $67,500 in fees, as follows: 81,522 to Mr. Marshall in exchange for $18,750 in fees due; 65,217 to Mr. Strommen in exchange for $15,000 in fees due; 65,217to Mr. Roberts in exchange for $15,000 in fees due; and 81,522 to Mr. Runyan in exchange for $18,750 in fees due. The options expire 10 years from the date of grant.
On March 31, 2019, we issued options to purchase 421,876 shares of our common stock at an exercise price of $0.16 per share to four members of our board of directors, in lieu of $67,500 in fees, as follows: 117,188 to Mr. Marshall in exchange for $18,750 in fees due; 93,750 to Mr. Strommen in exchange for $15,000 in fees due; 93,750 to Mr. Roberts in exchange for $15,000 in fees due; and 117,188 to Mr. Runyan in exchange for $18,750 in fees due. The options expire 10 years from the date of grant.
On March 31, 2019, we issued an aggregate 579,996 shares of our common stock to two executive officers in exchange forwhich any related person had or will have a reduction of $92,799 of salary and unreimbursed business expenses owed to the officers.
On December 31, 2018, we issued options to purchase 281,250 shares of our common stock at an exercise price of $0.22 per share to four members of our board of directors, in lieu of $67,500 in fees, as follows: 78,125 to Mr. Marshall in exchange for $18,750 in fees due; 62,500 to Mr. Strommen in exchange for $15,000 in fees due; 62,500to Mr. Roberts in exchange for $15,000 in fees due; and 78,125 to Mr. Runyan in exchange for $18,750 in fees due. The options expire 10 years from the date of grant.
On December 31, 2018, we issued an aggregate 381,801 shares of our common stock to two executive officers in exchange for a reduction of $91,632 of salary and unreimbursed business expenses owed to the officers.
On September 30, 2018, we issued options to purchase 250,000 shares of our common stock at an exercise price of $0.27 per share to four members of our board of directors, in lieu of $67,500 in fees, as follows: 69,444 to Mr. Marshall in exchange for $18,750 in fees due; 55,556 to Mr. Strommen in exchange for $15,000 in fees due; 55,556 to Mr. Roberts in exchange for $15,000 in fees due; and 69,444 to Mr. Runyan in exchange for $18,750 in fees due. The options expire 10 years from the date of grant.
On September 30, 2018, we issued an aggregate 249,258 shares of our common stock to two executive officers in exchange for a reduction of $67,300 of salary owed to the officers.
On June 29, 2018, we issued options to purchase 156,978 shares of our common stock at an exercise price of $0.31 per share to four members of our board of directors, in lieu of $62,500 in fees, as follows: 43,605 to Mr. Marshall in exchange for $18,750 in fees due; 34,884 to Mr. Strommen in exchange for $15,000 in fees due; 34,884 to Mr. Roberts in exchange for $15,000 in fees due; and 43,605 to Mr. Runyan in exchange for $18,750 in fees due. The options expire 10 years from the date of grant.
On June 29, 2018, we issued an aggregate 176,950 shares of our common stock to two executive officers in exchange for a reduction of $76,087 of salary owed to the officers.
On March 31, 2018, we issued options to purchase 260,620 shares of our common stock at an exercise price of $0.295 per share to four members of our board of directors, in lieu of $62,500 in fees, as follows: 72,394 to Mr. Marshall in exchange for $18,750 in fees due; 57,916 to Mr. Strommen in exchange for $15,000 in fees due; 57,916 to Mr. Roberts in exchange for $15,000 in fees due; and 72,394 to Mr. Runyan in exchange for $18,750 in fees due. The options expire 10 years from the date of grant.
On March 31, 2018, we issued an aggregate 323,030 shares of our common stock to two executive officers in exchange for a reduction of $83,664 of salary owed to the officers.
On March 31, 2017, we issued options to purchase an aggregate 130,000 shares of our common stock at an exercise price of $0.50 per share to four members of our board of directors, in lieu of $65,000 in fees, as follows: 37,500 to Mr. Marshall in exchange for $18,750 in fees due; 25,000 to Mr. Cox in exchange for $12,500 in fees due; 30,000 to Mr. Roberts in exchange for $15,000 in fees due; 37,500 to Mr. Runyan in exchange for $18,750 in fees due. The options expire 10 years from the date of grant.direct or indirect material interest: none.
On June 30, 2017, we issued options to purchase 145,350 shares of our common stock at an exercise price of $0.43 per share to four members of our board of directors, in lieu of $62,500 in fees, as follows: 43,605 to Mr. Marshall in exchange for $18,750 in fees due; 18,992 to Mr. Cox in exchange for $8,167 in fees due; 34,884 to Mr. Roberts in exchange for $15,000 in fees due; 43,605 to Mr. Runyan in exchange for $18,750 in fees due; and 4,264 to Mr. Strommen in exchange for $1,833 in fees due. The options expire 10 years from the date of grant.
On September 30, 2017, we issued options to purchase 132,354 shares of our common stock at an exercise price of $0.51 per share to four members of our board of directors, in lieu of $62,500 in fees, as follows: 36,765 to Mr. Marshall in exchange for $18,750 in fees due; 29,412 to Mr. Roberts in exchange for $15,000 in fees due; 36,765 to Mr. Runyan in exchange for $18,750 in fees due; and 29,412 to Mr. Strommen in exchange for $15,000 in fees due. The options expire 10 years from the date of grant.
On December 31, 2017, we issued options to purchase 173,078 shares of our common stock at an exercise price of $0.39 per share to four members of our board of directors, in lieu of $62,500 in fees, as follows: 48,077 to Mr. Marshall in exchange for $18,750 in fees due; 38,462 to Mr. Strommen in exchange for $15,000 in fees due; 38,462 to Mr. Roberts in exchange for $15,000 in fees due; and 48,077 to Mr. Runyan in exchange for $18,750 in fees due. The options expire 10 years from the date of grant.
On December 31, 2017, we issued an aggregate 148,705 shares of our common stock to two executive officers in exchange for a reduction of $57,994 of salary owed to the officers.
During 2016, we issued options to purchase 170,377 shares of our common stock to a member of our Board of Directors, Mr. Marshall, in exchange for the payment of $86,250 of board of director fees due. Pursuant to a plan adopted by our Board of Directors for the reduction of outstanding accounts payable, the options were issued at a strike price equal to the closing price of our common stock on the date of the agreement, and the number of shares purchasable was calculated by dividing the total amount of fees due by the exercise price and multiplying that number by one point five. As a result, the aggregate value of the options issued to Mr. Marshall was equal to $86,250.
During 2016, we issued options to purchase 121,115 shares of our common stock to a member of our Board of Directors, Mr. Runyan, in exchange for the payment of $63,750 of board of director fees due. Pursuant to a plan adopted by our Board of Directors for the reduction of outstanding accounts payable, the options were issued at a strike price equal to the closing price of our common stock on the date of the agreement, and the number of shares purchasable was calculated by dividing the total amount of fees due by the exercise price and multiplying that number by one point five. As a result, the aggregate value of the options issued to Mr. Runyan was equal to $63,750.
On March 31, 2017, we issued options to purchase an aggregate 130,000 shares of our common stock at an exercise price of $0.50 per share to four members of our board of directors, in lieu of $65,000 in fees, as follows: 37,500 to Mr. Marshall in exchange for $18,750 in fees due; 25,000 to Mr. Cox in exchange for $12,500 in fees due; 30,000 to Mr. Roberts in exchange for $15,000 in fees due; 37,500 to Mr. Runyan in exchange for $18,750 in fees due. The options expire 10 years from the date of grant.
On June 30, 2017, we issued options to purchase 145,349 shares of our common stock at an exercise price of $0.43 per share to four members of our board of directors, in lieu of $62,500 in fees, as follows: 43,605 to Mr. Marshall in exchange for $18,750 in fees due; 18,992 to Mr. Cox in exchange for $8,167 in fees due; 34,884 to Mr. Roberts in exchange for $15,000 in fees due; 43,605 to Mr. Runyan in exchange for $18,750 in fees due; and 4,264 to Mr. Roberts in exchange for $1,833 in fees due. The options expire 10 years from the date of grant.
Mr. Strommen was first elected to our board of directors on June 20, 2017. Prior to joining our board, Mr. Strommen invested in the Company’s 2015 Unit Offering, receiving a promissory note and stock purchase warrant. Pursuant to the terms of the notes issued to investors in the 2015 Unit Offering, the Company has elected to pay interest due by issuing common stock. On June 26, 2017, and September 20, 2017, Mr. Strommen was issued 71,423 and 61,792 shares of our common stock, respectively, in payment of interest. All other investors in the 2015 Unit Offering were also issued shares on those days. Prior to those dates, and prior to joining the board, Mr. Strommen had been issued 339,868 shares of our common stock in payment of interest.
On March 28, 2018, Mr. Strommen invested $100,000 in the Company’s private securities offering, receiving a promissory note in the face amount of $100,000, bearing annual interest at the rate of 12%, which is convertible into the Company’s common stock by Mr. Strommen at any time, or the Company at the April 30, 2021 maturity, at the rate of $0.30 per share. Investors in the offering also receive a stock purchase warrant to purchase the number of shares calculated by dividing the investment amount by the note conversion price. Mr. Strommen received a warrant to purchase 333,334 shares of common stock at $0.48 per share, which expires April 20, 2023.
As reflected in the Certificate of Incorporation, as amended May 25, 2018,August 30, 2022, our authorized capital stock consists of 400,000,000550,000,000 shares of common stock, par value $0.00067 per share, and 50,000,000 shares of preferred stock, par value $0.00067 per share.
Authorized and Issued Stock |
|
|
|
|
|
| ||||||||||||||||||
|
| Number of shares at September 12, 2019 |
|
| Number of shares at December 22, 2022 |
| ||||||||||||||||||
Title of Class |
| Authorized |
| Outstanding |
| Reserved(1) |
|
| Authorized |
| Outstanding |
| Reserved(1) |
| ||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Common stock, par value $0.00067 per share |
| 400,000,000 |
| 157,604,022 |
| 75,663,046 |
|
| 550,000,000 |
| 278,350,555 |
| 156,059,734 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Preferred stock, $0.00067 par value per share |
| 50,000,000 |
| -0- |
| -0- |
|
| 50,000,000 |
| -0- |
| -0- |
| ||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
________________
(1) | The |
Common Stock
Dividends. Each share of our common stock is entitled to receive an equal dividend, if one is declared. We cannot provide any assurance that we will declare or pay cash dividends on our common stock in the future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant. Our board of directors may determine it to be necessary to retain future earnings (if any) to finance operations. See “Risk Factors” and “Dividend Policy.”
Liquidation. If our company is liquidated, then assets that remain (if any) after the creditors are paid and the owners of preferred stock receive liquidation preferences (as applicable) will be distributed to the owners of our common stock pro rata.
Voting Rights. Each share of our common stock entitles the owner to one vote. There is no cumulative voting. A simple majority can elect all of the directors at a given meeting, and the minority would not be able to elect any director at that meeting.
Preemptive Rights. Owners of our common stock have no preemptive rights. We may sell shares of our common stock to third parties without first offering such shares to current stockholders.
Redemption Rights. We do not have the right to buy back shares of our common stock except in extraordinary transactions, such as mergers and court approved bankruptcy reorganizations. Owners of our common stock do not ordinarily have the right to require us to buy their common stock. We do not have a sinking fund to provide assets for any buy back.
Conversion Rights. Shares of our common stock cannot be converted into any other kind of stock except in extraordinary transactions, such as mergers and court approved bankruptcy reorganizations.
Nonassessability. All outstanding shares of our common stock are fully paid and nonassessable.
Preferred Stock
Our certificate of incorporation authorizes our board of directors to issue “blank check” preferred stock. Our board of directors may divide this preferred stock into series and establish the rights, preferences and privileges thereof. Our board of directors may, without prior stockholder approval, issue any or all of the shares of this preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the relative voting power or other rights of our common stock. Preferred stock could be used as a method of discouraging, delaying or preventing a takeover or other change in control of our company. Issuances of preferred stock in the future could have a dilutive effect on our common stock.
As of the date of this prospectus, there are no shares of our preferred stock outstanding.
This prospectus relates to the possible resale by the selling stockholdersstockholder, Lincoln Park, of shares of common stock that have been or may be issued upon exercise of issued and outstanding warrants. The following table summarizesto Lincoln Park pursuant to the material terms of the warrants underlying the shares to be sold in this offering. The warrant agreements setting forth the terms of each warrantPurchase Agreement. We are filed as Exhibits tofiling the registration statement of which this prospectus is part.forms a part pursuant to the provisions of the Registration Rights Agreement, which we entered into with Lincoln Park on December 13, 2022 concurrently with our execution of the Purchase Agreement, in which we agreed to provide certain registration rights with respect to sales by Lincoln Park of the shares of our common stock that have been or may be issued to Lincoln Park under the Purchase Agreement.
Exhibit Number | Issue Date of the Warrants | Number of Shares | Exercise Price ($/share) | Expiration Date | Aggregate Exercise Price |
4.2 | December 2014 – January 2015 | 616,000 | 0.300 | December 2019 | $184,800 |
4.4 | June 2016 | 300,000 | 0.350 | June 2021 | 105,000 |
4.6 | December 2016 – January 2017 | 512,281 | 0.700 | December 2021 | 358,597 |
4.9 | June 2017 – March 2018 | 2,012,334 | 0.441 | June 2022 | 904,600 |
4.13 | February – March 2018 | 390,000 | 0.350 | March 2023 | 136,500 |
4.14 | March 2018 | 150,000 | 0.500 | March 2023 | 75,000 |
4.16 | March 2018 | 333,334 | 0.480 | April 2023 | 160,000 |
4.17 | September 2018 | 2,484,375 | 0.200 | September 2023 | 496,875 |
4.18 | October 2018 | 1,000,000 | 0.250 | October 2023 | 250,000 |
4.19 | January 2019 | 300,000 | 0.250 | January 2024 | 75,000 |
4.20 | January – September 2019 | 14,393,385 | 0.250 | January-September 2024 | 3,736,214 |
4.21 | August 2019 | 1,200,000 | 0.300 | August 2024 | 360,000 |
4.22 | August 2019 | 2,426,470 | 0.250 | August 2024 | 606,618 |
Total/Average | 26,669,650 | 0.279 | $7,449,204 |
TheLincoln Park, as the selling stockholders,stockholder, may, from time to time, offer and sell pursuant to this prospectus any or all of the shares that theywe have acquired upon exercise ofsold or may sell to Lincoln Park under the warrants.Purchase Agreement. The selling stockholdersstockholder may sell some, all or none of theirits shares. We do not know how long the selling stockholdersstockholder will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with any of the selling stockholdersstockholder regarding the sale of any of the shares.
The following table presents information regarding the selling stockholdersstockholder and the shares that theyit may offer and sell from time to time under this prospectus. The table is prepared based on information supplied to us by the selling stockholders,stockholder, and reflects theirits holdings as of August 13, 2019. None of the selling stockholders,December 22, 2022. Neither Lincoln Park nor any of theirits affiliates has held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates, other than as indicated in the table below.affiliates. Beneficial ownership is determined in accordance with Section 13(d) of the Exchange Act and Rule 13d-3 thereunder.
Selling Stockholder | Shares Beneficially Owned Before this Offering(1) | Percentage of Outstanding Shares Beneficially Owned Before this Offering(2) | Shares to be Sold in this Offering | Percentage of Outstanding Shares Beneficially Owned After this Offering(2) | ||||||||||||
Brandan M. Adams | 879,424 | * | 401,052 | * | ||||||||||||
Spence Allen | 277,735 | * | 275,735 | * | ||||||||||||
William Anderson | 766,355 | * | 551,471 | * | ||||||||||||
Anne B. Baddour | 103,392 | * | 83,333 | * | ||||||||||||
Stephen G. Bellamy | 188,927 | * | 162,868 | * | ||||||||||||
Harvey Bibicoff | 690,874 | * | 486,029 | * | ||||||||||||
Chappy Bean LLC(3) | 1,080,882 | * | 1,080,882 | * | ||||||||||||
Richard Charter | 140,294 | * | 110,294 | * | ||||||||||||
Sean Cook | 68,612 | * | 43,860 | * | ||||
Robert J. Cullinan | 393,006 | * | 237,868 | * | ||||
Demosthenes Dionis | 235,413 | * | 137,868 | * | ||||
Jason Dombroski | 736,941 | * | 165,441 | * | ||||
Mark J. Fissore | 100,000 | * | 100,000 | * | ||||
Peter Garvy | 551,471 | * | 551,471 | * | ||||
Steven Helms | 551,471 | * | 551,471 | * | ||||
Christopher Alan Herr | 984,186 | * | 131,579 | * | ||||
Sean J. Hunter | 3,308,824 | * | 3,308,824 | * | ||||
Howard Isaacs | 137,868 | * | 137,868 | * | ||||
Jeff Jackson | 437,268 | * | 137,868 | * | ||||
Michael Jones | 413,603 | * | 413,603 | * | ||||
Anne Marie Johnson | 110,294 | * | 110,294 | * | ||||
Eric P. Johnson | 1,243,362 | * | 100,000 | * | ||||
Bruce Kelber | 242,857 | * | 150,000 | * | ||||
Michael A. Krever | 503,569 | * | 373,309 | * | ||||
Wesley J. Larsen | 500,168 | * | 325,735 | * | ||||
Philip S. LaRussa | 350,735 | * | 350,735 | * | ||||
Larry Levine | 858,491 | * | 87,719 | * | ||||
Lincoln Park Capital Fund, LLC(4) | 300,000 | * | 300,000 | * | ||||
Rainer Lipski | 1,159,250 | * | 468,750 | * | ||||
| James Masteller | 2,254,939 | 1.2% | 413,603 | 1.0% | ||||
Paul McDermott | 252,686 | * | 137,868 | * | ||||
Douglas J. Morgan | 1,326,941 | * | 1,326,941 | * | ||||
Scott Mortara | 110,294 | * | 110,294 | * | ||||
Frederik Nielsen | 275,735 | * | 275,735 | * | ||||
Don Oates | 260,588 | * | 220,588 | * | ||||
Partner Ship, Inc.(5) | 768,843 | * | 150,000 | * | ||||
Bob Peters | 275,735 | * | 275,735 | * | ||||
Renji Philip | 152,868 | * | 137,868 | * | ||||
Platinum Point Capital LLC(6) | 551,471 | * | 551,471 | * | ||||
Raymond A. Pronto | 1,064,610 | * | 100,000 | * | ||||
Mark Rice | 598,289 | * | 137,868 | * | ||||
Michael Rivkind | 233,334 | * | 178,071 | * | ||||
R. Jonathan Robinson | 801,583 | * | 190,294 | * | ||||
Tim Romanow | 387,868 | * | 137,868 | * | ||||
Sanatio Capital, LLC(7) | 395,512 | * | 333,334 | * | ||||
Vincent J. Severino | 3,162,432 | 1.7% | 1,358,873 | * | ||||
Mark Sherman | 687,616 | * | 212,868 | * | ||||
John L. & Sheryl A. Stephan | 425,999 | * | 166,667 | * | ||||
William M. Stephens | 307,595 | * | 108,333 | * | ||||
Jeanne M. Stratta | 307,531 | * | 50,000 | * | ||||
Thomas J. Talbot | 2,992,886 | 1.6% | 1,200,000 | * | ||||
Tangiers Global LLC(8) | 1,930,147 | 1.1% | 1,930,147 | * | ||||
Shelly Thompson | 422,665 | * | 400,000 | * | ||||
Triton Funds LP(9) | 1,150,000 | * | 1,000,000 | * | ||||
Robert David Vednor | 264,302 | * | 66,000 | * | ||||
Vernal Bay Investments LLC(10) | 3,829,963 | 2.1% | 3,829,963 | * | ||||
John M. Winovich | 733,215 | * | 333,334 | * | ||||
26,669,650 |
Selling Stockholder | Shares Beneficially Owned Before this Offering | Percentage of Outstanding Shares Beneficially Owned Before this Offering | Shares to be Sold in this Offering Assuming the Company issues the Maximum Number of Shares Under the Purchase Agreement | Percentage of Outstanding Shares Beneficially Owned After this Offering | ||||
Lincoln Park Capital Fund, LLC(1) | 6,629,412(2) | *%(3) | 31,250,000 | *% |
*Lessless than one percent.1%
____________________
(1) |
|
|
|
|
| Josh Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, are deemed to be beneficial owners of all of the shares of common stock owned by Lincoln Park Capital Fund, LLC. Messrs. Cope and Scheinfeld have shared voting and investment power over the shares being offered under the prospectus filed with the SEC in connection with the transactions contemplated under the Purchase Agreement. Lincoln Park Capital, LLC is not a licensed broker dealer or an affiliate of a licensed broker dealer. |
| Includes (i) 4,197,059 shares of common stock acquired by Lincoln Park prior to the date of this prospectus in one or more transactions unrelated to the transactions contemplated by the Purchase Agreement, 50,000 shares of common stock issuable upon exercise of warrants acquired by Lincoln Park in a transaction unrelated to the transactions contemplated by the Purchase Agreement, at an exercise price of $0.25, which warrants expire on January 31, 2024, 250,000 shares of common stock issuable upon exercise of warrants acquired by Lincoln Park in a transaction unrelated to the transactions contemplated by the Purchase Agreement, at an exercise price of $0.25, which warrants expire on January 18, 2024, and 882,353 shares of common stock issuable upon exercise of warrants acquired by Lincoln Park in a transaction unrelated to the transactions contemplated by the Purchase Agreement, at an exercise price of $0.255, which warrants expire on June 16, 2027, none of which shares described in this clause (i) are being registered in the registration statement that includes this prospectus, and (ii) 1,250,000 shares of our common stock issued to Lincoln Park on December 13, 2022 as a fee for its commitment to purchase shares of our common stock under the Purchase Agreement, all of which shares described in this clause (ii) are covered by the registration statement that includes this prospectus. In accordance with Rule 13d-3(d) under the Exchange Act, we have excluded from the number of shares beneficially owned prior to the offering all of the additional shares of common stock that we may issue to Lincoln Park pursuant to the Purchase Agreement as Purchase Shares from and after the date of this prospectus, because the issuance of such shares is solely at our discretion and is subject to certain conditions, the satisfaction of all of which are outside of Lincoln Park’s control, including the registration statement of which this prospectus is a part becoming and remaining effective. Furthermore, under the terms of the Purchase Agreement, issuances and sales of shares of our common stock to Lincoln Park are subject to certain limitations on the amounts we may sell to Lincoln Park at any time, including the Beneficial Ownership Cap. See the description under the heading “The Lincoln Park Transaction” for more information about the Purchase Agreement. |
(3) |
|
|
|
|
|
|
|
|
|
|
|
Lincoln Park Transaction
General
On December 13, 2022, we entered into the Purchase Agreement and the Registration Rights Agreement with Lincoln Park. Pursuant to the terms of the Purchase Agreement, Lincoln Park has agreed to purchase from us up to $10,000,000 of our common stock (subject to certain limitations) from time to time during the term of the Purchase Agreement. Pursuant to the terms of the Registration Rights Agreement, we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the Purchase Agreement.
As consideration for Lincoln Park’s commitment to purchase shares of the Company’s Common Stock from time to time at the Company’s direction upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, (i) we issued to Lincoln Park 1,250,000 shares of Common Stock (the “Commitment Shares”) upon the execution of the Purchase Agreement and (ii) have agreed to pay to Lincoln Park a cash fee of $250,000 upon the Company’s receipt of aggregate cash proceeds of $3.0 million from sales of Common Stock to Lincoln Park under the Purchase Agreement. The Company will not receive any cash proceeds from the issuance of the Commitment Shares to Lincoln Park pursuant to the Purchase Agreement.
We do not have the right to commence any further sales to Lincoln Park under the Purchase Agreement until certain conditions set forth in the Purchase Agreement, all of which are outside of Lincoln Park’s control, have been satisfied, including the registration statement that includes this prospectus being declared effective by the SEC. Thereafter, we may, from time to time and at our sole discretion, direct Lincoln Park to purchase shares of our common stock in amounts up to 100,000 shares on any single business day, which amounts may be increased to up to 200,000 shares of our common stock depending on the market price of our common stock at the time of sale but in no event greater than $500,000 per such purchase. The purchase price per share is based on the market price of our common stock immediately preceding the time of sale as computed under the Purchase Agreement. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.
The Purchase Agreement also prohibits us from directing Lincoln Park to purchase any shares of common stock if those shares, when aggregated with all other shares of our common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates exceeding the Beneficial Ownership Cap.
Purchase of Shares Under the Purchase Agreement
Under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 100,000 shares of our common stock on any such business day; provided, however, that (i) the Regular Purchase may be increased to up to 125,000 shares, provided that the closing sale price is not below $0.20 on the purchase date, (ii) the Regular Purchase may be increased to up to 150,000 shares, provided that the closing sale price is not below $0.30 on the purchase date, (iii) and the Regular Purchase may be increased to up to 200,000 shares, provided that the closing sale price is not below $0.50 on the purchase date. In each case, the maximum amount of any single Regular Purchase may not exceed $500,000 per purchase. The purchase price per share for each such Regular Purchase will be equal to the lower of:
● | the lowest sale price for our common stock on the purchase date of such shares; or |
● | the arithmetic average of the three lowest closing sale prices for our common stock during the 12 consecutive business days ending on the business day immediately preceding the purchase date of such shares. |
In addition to Regular Purchases described above, we may also direct Lincoln Park, on any business day on which we have properly submitted a Regular Purchase notice, and provided the closing price of our common stock on that day is greater than $0.10, to purchase an additional amount of our common stock, which we refer to as an Accelerated Purchase, not to exceed the lesser of:
● | 300% of the number of Purchase Shares directed by the Company to be purchased by Lincoln Park pursuant to the corresponding Regular Purchase Notice; and |
● | 30% of the aggregate shares of our common stock traded during normal trading hours on the purchase date. |
The purchase price per share for each such Accelerated Purchase will be equal to the lower of:
● | 94% of the volume weighted average price during (i) the entire trading day on the purchase date, if the volume of shares of our common stock traded on the purchase date has not exceeded a volume maximum calculated in accordance with the Purchase Agreement, or (ii) the portion of the trading day of the purchase date (calculated starting at the beginning of normal trading hours) until such time at which the volume of shares of our common stock traded has exceeded such volume maximum; or |
● | the closing sale price of our common stock on the accelerated purchase date. |
In addition to Regular Purchases and Accelerated Purchases described above, we may also direct Lincoln Park, on any business day on which we have properly submitted a Regular Purchase and Accelerated Purchase notice, and provided the closing price of our common stock on the prior day is greater than $0.10, to purchase an additional amount of our common stock, which we refer to as an Additional Accelerated Purchase, not to exceed the lesser of:
● | 300% of the number of Purchase Shares directed by the Company to be purchased by Lincoln Park pursuant to the corresponding Regular Purchase Notice; and |
● | 30% of the aggregate shares of our common stock traded during normal trading hours on the purchase date. |
The purchase price per share for each such Accelerated Purchase will be equal to the lower of:
● | 94% of the volume weighted average price during (i) the entire trading day on the purchase date, if the volume of shares of our common stock traded on the purchase date has not exceeded a volume maximum calculated in accordance with the Purchase Agreement, or (ii) the portion of the trading day of the purchase date (calculated starting at the beginning of normal trading hours) until such time at which the volume of shares of our common stock traded has exceeded such volume maximum; or |
● | the closing sale price of our common stock on the accelerated purchase date. |
In the case of the Regular Purchases, Accelerated Purchases, and Additional Accelerated Purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the business days used to compute the purchase price.
Other than as described above, there are no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales of our common stock to Lincoln Park.
Events of Default
Events of default under the Purchase Agreement include the following:
● | the effectiveness of the registration statement of which this prospectus forms a part lapses for any reason (including, without limitation, the issuance of a stop order), or any required prospectus supplement and accompanying prospectus are unavailable for the resale by Lincoln Park of our common stock offered hereby, and such lapse or unavailability continues for a period of 10 consecutive business days or for more than an aggregate of 30 business days in any 365-day period; |
● | suspension by our principal market of our common stock from trading for a period of one business day; |
● | the de-listing of our common stock from the OTC Markets, our principal market, provided our common stock is not immediately thereafter trading on the New York Stock Exchange, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE Market or the OTC Bulletin Board (or nationally recognized successor thereto); |
● | the failure of our transfer agent to issue to Lincoln Park shares of our common stock within three business days after the applicable date on which Lincoln Park is entitled to receive such shares; |
● | any breach of the representations or warranties or covenants contained in the Purchase Agreement or Registration Rights Agreement that has or could have a material adverse effect on us and, in the case of a breach of a covenant that is reasonably curable, that is not cured within five business days; |
● | any voluntary or involuntary participation or threatened participation in insolvency or bankruptcy proceedings by or against us; or |
● | if at any time we are not eligible to transfer our common stock electronically. |
Lincoln Park does not have the right to terminate the Purchase Agreement upon any of the events of default set forth above. During an event of default, all of which are outside of Lincoln Park’s control, we may not direct Lincoln Park to purchase any shares of our common stock under the Purchase Agreement.
Our Termination Rights
We have the unconditional right, at any time, for any reason and without any payment or liability to us, to give notice to Lincoln Park to terminate the Purchase Agreement. In the event of bankruptcy proceedings by or against us, the Purchase Agreement will automatically terminate without action of any party.
No Short-Selling or Hedging by Lincoln Park
Lincoln Park has agreed that neither it nor any of its affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the Purchase Agreement.
Prohibitions on Variable Rate Transactions
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 a “Variable Rate Transaction,” as defined in the Purchase Agreement.
Effect of Performance of the Purchase Agreement on Our Stockholders
All 31,250,000 shares registered in this offering that have been or may be issued or sold by us to Lincoln Park under the Purchase Agreement are expected to be freely tradable. It is anticipated that shares registered in this offering will be sold over a period of up to 36-months commencing on the date that the registration statement including this prospectus becomes effective. The sale by Lincoln Park of a significant number of shares registered in this offering at any given time could cause the market price of our common stock to decline and to be highly volatile. Sales of our common stock to Lincoln Park, if any, will depend on market conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the additional shares of our common stock that may be available for us to sell pursuant to the Purchase Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or none of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us under the Purchase Agreement may result in substantial dilution to the interests of other holders of our common stock. In addition, if we sell a substantial number of shares to Lincoln Park under the Purchase Agreement, or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with Lincoln Park may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise desire to effect such sales. However, we have the right to control the timing and amount of any additional sales of our shares to Lincoln Park, and the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.
Pursuant to the terms of the Purchase Agreement, we have the right, but not the obligation, to direct Lincoln Park to purchase up to $10,000,000 of our common stock. Depending on the price per share at which we sell our common stock to Lincoln Park, we may be authorized to issue and sell to Lincoln Park under the Purchase Agreement more shares of our common stock than are offered under this prospectus. If we choose to do so, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale by Lincoln Park under this prospectus is dependent upon the number of shares we direct Lincoln Park to purchase under the Purchase Agreement.
The following table sets forth the amount of gross proceeds we would receive from Lincoln Park from our sale of shares to Lincoln Park under the Purchase Agreement at varying purchase prices:
Assumed Average Purchase Price Per Share |
| Number of Registered Shares to be Issued if Full Purchase(1) |
| Percentage of Outstanding Shares(2) |
| Proceeds from the Sale of Shares to Lincoln Park Under the Purchase Agreement |
$0.20 | 30,000,000 | 9.73% | $6,000,000 | |||
$0.30 | 30,000,000 | 9.73% | $9,000,000 | |||
$0.50 | 20,000,000 | 6.70% | $10,000,000 | |||
$0.75 | 13,333,333 | 4.57% | $10,000,000 | |||
$1.00 | 10,000,000 | 3.47% | $10,000,000 |
____________________
(1) | Although the Purchase Agreement provides that we may sell up to $10,000,000 of our common stock to Lincoln Park, we are only registering 31,250,000 shares under this prospectus (comprised of the 1,250,000 shares of our common stock issued to Lincoln Park on December 13, 2022, as a fee for its commitment to purchase shares of our common stock under the Purchase Agreement, and the 30,000,000 shares we are registering in this prospectus that we may sell to Lincoln Park under the Purchase Agreement), which may or may not cover all the shares we ultimately sell to Lincoln Park under the Purchase Agreement, depending on the purchase price per share. As a result, we have included in this column only those shares that we are registering in this offering. |
(2) | The denominator is the sum of (i) 278,350,555 shares outstanding as of December 22, 2022, and (ii) the number of shares set forth in the adjacent column (#2) which we would have sold to Lincoln Park, assuming the purchase price in the first column. The numerator is based on the number of shares issued set forth in the second column. |
The common stock offered by this prospectus is being offered by the selling stockholders.stockholder, Lincoln Park. The common stock may be sold or distributed from time to time by athe selling stockholder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed. The sale of the common stock offered by this prospectus could be effected in one or more of the following methods:
● | ordinary brokers’ transactions; |
● | transactions involving cross or block trades; |
● | through brokers, dealers, or underwriters who may act solely as agents; |
● | “at the market” into an existing market for the common stock; |
● | in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents; |
● | in privately negotiated transactions; or |
| any combination of the foregoing. |
In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the state’s registration or qualification requirement is available and complied with.
Each selling stockholderLincoln Park is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.
Each selling stockholderLincoln Park has informed us that it intends to use an unaffiliated broker-dealer to effectuate all sales, if any, of the common stock that it may receivepurchase from us pursuant to the transactions described in the prospectus.Purchase Agreement. Such sales will be made at prices and at terms then prevailing or at prices related to the then current market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities Act. Each selling stockholderLincoln Park has informed us that each such broker-dealer will receive commissions from the selling stockholderLincoln Park that will not exceed customary brokerage commissions.
Brokers, dealers, underwriters or agents participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions from the selling stockholder and/or purchasers of the common stock for whom the broker-dealers may act as agent. The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions. Neither we nor the selling stockholdersLincoln Park can presently estimate the amount of compensation that any agent will receive.
We know of no existing arrangements between any selling stockholderLincoln Park or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares offered by this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters or dealers, any compensation from the selling stockholder, and any other required information.
We will pay the expenses incident to the registration, offering, and sale of the shares to the selling stockholders.Lincoln Park. We have agreed to indemnify the selling stockholdersLincoln Park and certain other persons against certain liabilities in connection with the offering of shares of common stock offered hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. Lincoln Park has agreed to indemnify us against liabilities under the Securities Act that may arise from certain written information furnished to us by Lincoln Park specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
Lincoln Park has represented to us that at no time prior to the Purchase Agreement has Lincoln Park or its agents, representatives or affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of our common stock or any hedging transaction, which establishes a net short position with respect to our common stock. Lincoln Park agreed that, during the term of the Purchase Agreement, it, its agents, representatives or affiliates will not enter into or effect, directly or indirectly, any of the foregoing transactions.
We have advised each selling stockholderLincoln Park that it is required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the selling stockholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution, from bidding for or purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered by this prospectus.
This offering will terminate on the date that all shares offered by this prospectus have been sold by the selling stockholders.Lincoln Park.
Our common stock is quoted on the OTC Markets under the symbol “BLGO”.
BlueSkyRestrictionsonResale
If athe selling stockholder desires to sell shares of our common stock under this prospectus in the United States, then suchthe selling stockholder will also need to comply with state securities laws, also known as “Blue Sky laws,” with regard to secondary sales. All states offer a variety of exemptions from registration for secondary sales. Many states, for example, have an exemption for secondary trading of securities registered under Section 12(g) of the Exchange Act or for securities of issuers that publish continuous disclosure of financial and non-financial information in a recognized securities manual, such as Standard & Poor’s.
Any person who purchases shares of our common stock from athe selling stockholder under this prospectus who then desires to sell such shares also will have to comply with Blue Sky laws regarding secondary sales.
INDEMNIFICATIONFORSECURITIESACTLIABILITIES
As permitted by the Delaware general corporation law, we have included a provision in our certificate of incorporation to eliminate the personal liability of our directors for monetary damages for breach of their fiduciary duties as directors, except for liability (i) for any breach of the director’s duty of loyalty to our company, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware general corporation law or (iv) for any transaction from which the director derived an improper personal benefit. Our certificate of incorporation also provides that our company shall, to the full extent permitted by section 145 of the Delaware general corporation law, as amended from time to time, indemnify all persons whom it may indemnify pursuant thereto.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to the directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by our company of expenses incurred or paid by such director, officer or controlling person of our company in the successful defense of any action, suit or proceeding) is asserted by any director, officer or controlling person of our company in connection with the securities being registered in the registration statement of which this prospectus is a part, the registrant will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by our company is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The validity of the shares covered by the registration statement of which this prospectus is a part has been passed upon for us by Wilson Bradshaw & Cao,Bradshaw, LLP.
The consolidated financial statements included in this prospectus for the years ended December 31, 20172021 and 20182020 have been audited by Haskell & White LLP, an independent registered public accounting firm, to the extent and for the periods set forth in their report appearing elsewhere herein (which expressed an unqualified opinion and includes an explanatory paragraph referring to conditions that raise substantial doubt about BioLargo, Inc. and subsidiaries’ ability to continue as a going concern) and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 233 Broadway, New York, New York 10279. You can obtain copies of these materials from the Public Reference Section of the SEC upon payment of fees prescribed by the SEC. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC’s website (www.SEC.gov) contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.
We have filed a registration statement on Form S-1 with the SEC under the Securities Act of 1933, as amended, with respect to the securities offered in this prospectus. This prospectus, which is filed as part of a registration statement, does not contain all of the information set forth in the registration statement, some portions of which have been omitted in accordance with the SEC’s rules and regulations. Statements made in this prospectus as to the contents of any contract, agreement or other document referred to in this prospectus are not necessarily complete and are qualified in their entirety by reference to each such contract, agreement or other document that is filed as an exhibit to the registration statement. The registration statement may be inspected without charge at the public reference facilities maintained by the SEC, and copies of such materials can be obtained from the Public Reference Section of the SEC at prescribed rates. You may obtain additional information regarding our company on our website, located at www.BioLargo.com.
Index to unaudited Consolidated Financial Statements of BioLargo, Inc. as of September 30, 2022 and 2021
Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021
Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021
Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2022 and 2021
Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021
Notes to Consolidated Financial Statements
Indexto Audited ConsolidatedFinancialStatementsofBioLargo,Inc.asofDecember31, 2021 and 20202018andforthethreeandsixmonthsendedJune30,2019
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 20182021 and June 30, 2019 (unaudited)December 31, 2020
Notes to Consolidated Financial Statements
IndextoAuditedConsolidatedFinancialStatementsofBioLargo,Inc.asofDecember31,2017and2018
BIOLARGO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2018 AND JUNE 30, 20192021
(in thousands, except for per share data)
DECEMBER 31, | JUNE 30, 2019 (unaudited) | September 30, 2022 (Unaudited) | December 31, 2021 | |||||||||||||
Assets | Assets | Assets | ||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 655 | $ | 706 | $ | 1,268 | $ | 962 | ||||||||
Accounts receivable | 257 | 232 | ||||||||||||||
Accounts receivable, net of allowance | 884 | 513 | ||||||||||||||
Inventories, net of allowance | 26 | 38 | 260 | 241 | ||||||||||||
Prepaid expenses and other current assets | 17 | 25 | 120 | 85 | ||||||||||||
Total current assets | 955 | 1,001 | 2,532 | 1,801 | ||||||||||||
In-process research and development (Note 8) | 1,893 | 1,893 | ||||||||||||||
Equipment, net of depreciation | 126 | 108 | ||||||||||||||
Non-current assets | ||||||||||||||||
Equipment and leasehold improvements, net of depreciation | 196 | 61 | ||||||||||||||
Other non-current assets | 35 | 35 | 123 | 69 | ||||||||||||
Right-of-use, operating lease, net of amortization | — | 370 | ||||||||||||||
Deferred offering cost | 176 | 176 | ||||||||||||||
Investment in South Korean joint venture | 33 | 48 | ||||||||||||||
Right of use operating lease, net of amortization | 896 | 453 | ||||||||||||||
Clyra Medical prepaid marketing (Note 8) | 591 | 591 | ||||||||||||||
Total assets | $ | 3,185 | $ | 3,583 | $ | 4,371 | $ | 3,023 | ||||||||
Liabilities and stockholders’ equity (deficit) | ||||||||||||||||
Liabilities and stockholders’ equity (deficit) | Liabilities and stockholders’ equity (deficit) | |||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and accrued expenses | $ | 501 | $ | 676 | $ | 520 | $ | 559 | ||||||||
Clyra Medical note payable (Note 8) | — | 1,007 | ||||||||||||||
Notes payable | 400 | 534 | ||||||||||||||
Line of credit | 430 | 430 | ||||||||||||||
Convertible notes payable | 1,365 | 2,863 | ||||||||||||||
Discount on convertible notes payable, and line of credit, net of amortization | (205 | ) | (1,180 | ) | ||||||||||||
Debt obligations, net of discount and amortization (Note 4) | 86 | 314 | ||||||||||||||
Contract liability | 6 | 89 | ||||||||||||||
Customer deposits | 109 | 79 | ||||||||||||||
Lease liability | — | 116 | 97 | 103 | ||||||||||||
Customer deposit | — | 28 | ||||||||||||||
Clyra Medical accounts payable and accrued expenses (Note 8) | 211 | 230 | ||||||||||||||
Total current liabilities | 2,491 | 4,474 | 1,029 | 1,374 | ||||||||||||
Long-term liabilities: | ||||||||||||||||
Convertible notes and note payable | 285 | 210 | ||||||||||||||
Clyra Medical note payable (Note 8) | 1,007 | — | ||||||||||||||
Liability to Clyra Medical shareholder (Note 8) | 643 | 643 | ||||||||||||||
Discount on convertible notes payable, net of amortization | (118 | ) | (79 | ) | ||||||||||||
Debt obligations, net of discount and amortization (Note 4) | 247 | 180 | ||||||||||||||
Clyra Medical debt obligations (Note 8) | 263 | 187 | ||||||||||||||
Lease liability | — | 254 | 799 | 349 | ||||||||||||
Total long-term liabilities | 1,817 | 1,028 | 1,309 | 716 | ||||||||||||
Total liabilities | 4,308 | 5,502 | 2,338 | 2,090 | ||||||||||||
COMMITMENTS, CONTINGENCIES (Note 11) | ||||||||||||||||
COMMITMENTS AND CONTINGENCIES (Note 10) | ||||||||||||||||
STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||||||||||
Preferred Series A, $.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at December 31, 2018 and June 30, 2019, respectively. | — | — | ||||||||||||||
Common stock, $.00067 Par Value, 400,000,000 Shares Authorized, 141,466,071 and 152,054,904 Shares Issued, at December 31, 2018 and June 30, 2019, respectively. | 95 | 102 | ||||||||||||||
Preferred Series A, $0.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at September 30, 2022 and December 31, 2021 | — | — | ||||||||||||||
Common stock, $0.00067 Par Value, 550,000,000 Shares Authorized, 274,622,640 and 255,893,726 Shares Issued, at September 30, 2022 and December 31, 2021 | 184 | 171 | ||||||||||||||
Additional paid-in capital | 110,222 | 114,745 | 147,470 | 143,718 | ||||||||||||
Accumulated deficit | (142,505 | ) | (139,121 | ) | ||||||||||||
Accumulated other comprehensive loss | (90 | ) | (98 | ) | (185 | ) | (115 | ) | ||||||||
Accumulated deficit | (111,723 | ) | (116,876 | ) | ||||||||||||
Total BioLargo Inc. and Subsidiaries stockholders’ equity (deficit) | (1,496 | ) | (2,127 | ) | ||||||||||||
Total BioLargo Inc. and subsidiaries stockholders’ equity | 4,964 | 4,653 | ||||||||||||||
Non-controlling interest (Note 8) | 373 | 208 | (2,931 | ) | (3,720 | ) | ||||||||||
Total stockholders’ equity (deficit) | (1,123 | ) | (1,919 | ) | ||||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 3,185 | $ | 3,583 | ||||||||||||
Total stockholders’ equity | 2,033 | 933 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 4,371 | $ | 3,023 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BIOLARGO, INC. AND SUBSIDIARIESSUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 20182022 AND 20192021
(in thousands, except for share and per share data)
(unaudited)
THREE MONTHS | NINE MONTHS | |||||||||||||||||||||||||||||||
THREE MONTHS | SIX MONTHS | SEPTEMBER 30, 2022 | SEPTEMBER 30, 2021 | SEPTEMBER 30, 2022 | SEPTEMBER 30, 2021 | |||||||||||||||||||||||||||
JUNE 30, 2018 | JUNE 30, 2019 | JUNE 30, 2018 | JUNE 30, 2019 | |||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Product revenue | $ | 316 | $ | 316 | $ | 540 | $ | 617 | $ | 1,216 | $ | 431 | $ | 2,532 | $ | 1,190 | ||||||||||||||||
Service revenue | 11 | 110 | 50 | 173 | 284 | 281 | 1,254 | 553 | ||||||||||||||||||||||||
Total revenue | 327 | 426 | 590 | 790 | 1,500 | 712 | 3,786 | 1,743 | ||||||||||||||||||||||||
Cost of revenue | ||||||||||||||||||||||||||||||||
Cost of goods sold | (194 | ) | (136 | ) | (328 | ) | (276 | ) | (515 | ) | (204 | ) | (1,174 | ) | (600 | ) | ||||||||||||||||
Cost of service | (7 | ) | (92 | ) | (36 | ) | (143 | ) | (233 | ) | (158 | ) | (720 | ) | (363 | ) | ||||||||||||||||
Total cost of revenue | (748 | ) | (362 | ) | (1,894 | ) | (963 | ) | ||||||||||||||||||||||||
Gross profit | 126 | 198 | 226 | 371 | 752 | 350 | 1,892 | 780 | ||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 1,316 | 1,302 | 2,486 | 2,696 | 1,424 | 1,461 | 4,847 | 4,766 | ||||||||||||||||||||||||
Research and development | 425 | 367 | 947 | 793 | 271 | 344 | 1,018 | 1,027 | ||||||||||||||||||||||||
Depreciation | 13 | 16 | 23 | 31 | ||||||||||||||||||||||||||||
Operating loss: | (1,628 | ) | (1,487 | ) | (3,230 | ) | (3,149 | ) | ||||||||||||||||||||||||
Total operating expenses | 1,695 | 1,805 | 5,865 | 5,793 | ||||||||||||||||||||||||||||
Operating loss | (943 | ) | (1,455 | ) | (3,973 | ) | (5,013 | ) | ||||||||||||||||||||||||
Other (expense) income: | ||||||||||||||||||||||||||||||||
Interest expense | (1,729 | ) | (498 | ) | (2,561 | ) | (1,483 | ) | (14 | ) | (26 | ) | (42 | ) | (208 | ) | ||||||||||||||||
Debt conversion expense | (276 | ) | — | (276 | ) | — | ||||||||||||||||||||||||||
Loss on debt extinguishment | — | (44 | ) | — | (228 | ) | ||||||||||||||||||||||||||
PPP loan forgiveness | — | — | 174 | 43 | ||||||||||||||||||||||||||||
Tax credit | 66 | 21 | 66 | 50 | ||||||||||||||||||||||||||||
Grant income | 33 | 42 | 38 | 124 | 44 | 25 | 51 | 25 | ||||||||||||||||||||||||
Total other expense: | (1,972 | ) | (500 | ) | (2,799 | ) | (1,587 | ) | ||||||||||||||||||||||||
Total other (expense) income: | 96 | 18 | 249 | (90 | ) | |||||||||||||||||||||||||||
Net loss | (3,600 | ) | (1,987 | ) | (6,029 | ) | (4,736 | ) | (847 | ) | (1,435 | ) | (3,724 | ) | (5,103 | ) | ||||||||||||||||
Net loss attributable to noncontrolling interest | (95 | ) | (192 | ) | (202 | ) | (365 | ) | (343 | ) | (134 | ) | (340 | ) | (549 | ) | ||||||||||||||||
Net loss attributable to common shareholders | $ | (3,505 | ) | $ | (1,795 | ) | $ | (5,827 | ) | $ | (4,371 | ) | $ | (504 | ) | $ | (1,301 | ) | $ | (3,384 | ) | $ | (4,554 | ) | ||||||||
Net loss per share attributable to common shareholders: | ||||||||||||||||||||||||||||||||
Loss per share attributable to shareholders – basic and diluted | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.03 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | ||||||||
Weighted average number of common shares outstanding: | 118,748,451 | 145,700,515 | 111,760,954 | 143,983,182 | 270,665,820 | 252,912,561 | 265,812,188 | 243,529,117 | ||||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||||||
Net loss | $ | (3,600 | ) | $ | (1,987 | ) | $ | (6,029 | ) | $ | (4,736 | ) | $ | (847 | ) | $ | (1,435 | ) | $ | (3,724 | ) | $ | (5,103 | ) | ||||||||
Foreign currency translation | 13 | (4 | ) | 1 | (8 | ) | (59 | ) | (7 | ) | (70 | ) | (9 | ) | ||||||||||||||||||
Comprehensive loss | (3,587 | ) | (1,991 | ) | (6,028 | ) | (4,744 | ) | (850 | ) | (1,442 | ) | (3,794 | ) | (5,112 | ) | ||||||||||||||||
Comprehensive loss attributable to noncontrolling interest | (95 | ) | (192 | ) | (202 | ) | (365 | ) | (343 | ) | (134 | ) | (340 | ) | (549 | ) | ||||||||||||||||
Comprehensive loss attributable to common stockholders | $ | (3,492 | ) | $ | (1,799 | ) | $ | (5,826 | ) | $ | (4,379 | ) | $ | (507 | ) | $ | (1,308 | ) | $ | (3,454 | ) | $ | (4,563 | ) | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BIOLARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 20182022 AND 20192021
(in thousands, except for share data)
(unaudited)
Common stock | Additional paid-in | Accumulated | Accumulated other comprehensive |
Non- controlling | ||||||||||||||||||||||||
Shares | Amount | capital | deficit | loss | interest | Total | ||||||||||||||||||||||
Balance, December 31, 2017 | 104,164,465 | $ | 70 | $ | 97,093 | $ | (101,205 | ) | $ | (62 | ) | $ | 695 | $ | (3,409 | ) | ||||||||||||
Issuance of common stock for services | 714,436 | — | 196 | — | — | — | 196 | |||||||||||||||||||||
Issuance of common stock for interest | 617,072 | — | 165 | — | — | — | 165 | |||||||||||||||||||||
Financing fee in stock | 252,385 | — | 85 | — | — | — | 85 | |||||||||||||||||||||
Sale of stock for cash | 658,226 | — | 168 | — | — | — | 168 | |||||||||||||||||||||
Stock option compensation expense | — | — | 320 | — | — | — | 320 | |||||||||||||||||||||
Warrants and beneficial conversion feature issued as discount on convertible notes payable, note payable and line of credit | — | — | 282 | — | — | — | 282 | |||||||||||||||||||||
Deemed dividend | — | — | 297 | (297 | ) | — | — | — | ||||||||||||||||||||
Net loss | — | — | — | (2,323 | ) | — | (107 | ) | (2,430 | ) | ||||||||||||||||||
Foreign currency translation | — | — | — | — | 8 | — | 8 | |||||||||||||||||||||
Balance, March 31, 2018 | 106,406,584 | $ | 70 | $ | 98,606 | $ | (103,825 | ) | $ | (54 | ) | $ | 588 | $ | (4,615 | ) | ||||||||||||
Conversion of notes | 19,298,723 | 13 | 6,215 | — | — | — | 6,228 | |||||||||||||||||||||
Issuance of common stock for services | 733,821 | — | 250 | — | — | — | 250 | |||||||||||||||||||||
Issuance of common stock for interest | 1,302,734 | 1 | 327 | — | — | — | 329 | |||||||||||||||||||||
Sale of stock for cash | 617,145 | — | 212 | — | — | — | 212 | |||||||||||||||||||||
Warrant exercise price reduction for cash | — | — | 149 | — | — | — | 149 | |||||||||||||||||||||
Stock option compensation expense | — | — | 376 | — | — | — | 376 | |||||||||||||||||||||
Warrants and beneficial conversion feature issued as discount on convertible notes payable, note payable and line of credit | — | — | 32 | — | — | — | 33 | |||||||||||||||||||||
Net loss | — | — | — | (3,505 | ) | — | (95 | ) | (3,600 | ) | ||||||||||||||||||
Foreign currency translation | — | — | — | — | (7 | ) | — | (7 | ) | |||||||||||||||||||
Balance, June 30, 2018 | 128,359,007 | $ | 84 | $ | 106,167 | $ | (107,330 | ) | $ | (61 | ) | $ | 493 | $ | (645 | ) | ||||||||||||
Common stock | Additional paid-in | Accumulated | Accumulated other comprehensive |
Non- controlling | Total stockholders’ | |||||||||||||||||||||||
Shares | Amount | capital | deficit | Loss | interest | equity (deficit) | ||||||||||||||||||||||
Balance, December 31, 2018 | 141,466,071 | $ | 95 | $ | 110,222 | $ | (111,723 | ) | $ | (90 | ) | $ | 373 | $ | (1,123 | ) | ||||||||||||
Conversion of notes | 1,638,479 | 1 | 218 | — | — | — | 219 | |||||||||||||||||||||
Issuance of common stock for service | 1,229,541 | 1 | 205 | — | — | — | 206 | |||||||||||||||||||||
Issuance of common stock for interest | 139,362 | — | 25 | — | — | — | 25 | |||||||||||||||||||||
Stock option compensation expense | — | — | 352 | — | — | — | 352 | |||||||||||||||||||||
Warrants and conversion feature issued as discount on convertible notes payable and line of credit | — | — | 1,115 | — | — | — | 1,115 | |||||||||||||||||||||
Issuance of Clyra Medical common stock | — | — | 21 | — | — | 89 | 110 | |||||||||||||||||||||
Fair value of warrants for extension of debt | — | — | 56 | — | — | — | 56 | |||||||||||||||||||||
Deemed dividend for the change in accounting for derivative liability | — | — | 342 | (342 | ) | — | — | — | ||||||||||||||||||||
Net loss | — | — | — | (2,576 | ) | — | (173 | ) | (2,749 | ) | ||||||||||||||||||
Foreign currency translation | — | — | — | — | (4 | ) | — | (4 | ) | |||||||||||||||||||
Balance, March 31, 2019 | 144,473,453 | 97 | 112,556 | (114,641 | ) | (94 | ) | 289 | (1,793 | ) | ||||||||||||||||||
Conversion of notes | 2,767,833 | 2 | 294 | — | — | — | 296 | |||||||||||||||||||||
Issuance of common stock for service | 981,684 | — | 213 | — | — | — | 213 | |||||||||||||||||||||
Issuance of common stock for interest | 87,748 | — | 15 | — | — | — | 15 | |||||||||||||||||||||
Warrant exercise | 3,744,456 | 3 | 101 | — | — | — | 104 | |||||||||||||||||||||
Stock issuance to officer (see note 7) | 500,000 | — | — | — | — | — | — | |||||||||||||||||||||
Stock option compensation expense | — | — | 296 | — | — | — | 296 | |||||||||||||||||||||
Warrants and conversion feature issued as discount on convertible notes payable and line of credit | — | — | 756 | — | — | — | 756 | |||||||||||||||||||||
Issuance of Clyra Medical common stock | — | — | 74 | — | — | 111 | 185 | |||||||||||||||||||||
Deemed dividend for the change in accounting for derivative liability | — | — | 440 | (440 | ) | — | — | — | ||||||||||||||||||||
Net loss | — | — | — | (1,795 | ) | — | (192 | ) | (1,987 | ) | ||||||||||||||||||
Foreign currency translation | — | — | — | — | (4 | ) | — | (4 | ) | |||||||||||||||||||
Balance, June 30, 2019 | 152,555,174 | $ | 102 | $ | 114,745 | $ | (116,876 | ) | $ | (98 | ) | $ | 208 | $ | (1,919 | ) | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BIOLARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2019
(in thousands, except for per share data)
(unaudited)
JUNE 30, 2018 | JUNE 30, 2019 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (6,029 | ) | $ | (4,736 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock option compensation expense | 696 | 648 | ||||||
Common stock issued in lieu of salary to officers and fees for services from vendors | 446 | 419 | ||||||
Common stock issued for interest | 484 | 40 | ||||||
Interest expense related to amortization of the discount on convertible notes payable and line of credit and deferred financing costs | 2,019 | 1,254 | ||||||
Interest expense related to the fair value of warrants issued as consent for variable debt | — | 54 | ||||||
Debt conversion expense | 276 | — | ||||||
Loss on extinguishment of debt | — | 229 | ||||||
Bad debt expense | 1 | — | ||||||
Deferred offering expense | 8 | — | ||||||
Depreciation expense | 23 | 31 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 3 | 24 | ||||||
Inventories | 28 | (12 | ) | |||||
Accounts payable and accrued expenses | 31 | 178 | ||||||
Prepaid expenses and other current assets | (39 | ) | (8 | ) | ||||
Customer deposits | — | 28 | ||||||
Net cash used in operating activities | (2,053 | ) | (1,851 | ) | ||||
Cash flows from investing activities | ||||||||
Leasehold improvements | (26 | ) | (14 | ) | ||||
Net cash used in investing activities | (26 | ) | (14 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from convertible notes payable | 463 | 1,825 | ||||||
Proceeds from conversion inducement | 357 | — | ||||||
Proceeds from warrant exercise-price reduction | 148 | — | ||||||
Proceeds from warrant exercise | — | 104 | ||||||
Proceeds from the sale of stock in Clyra Medical | — | 295 | ||||||
Repayment of note payable | — | (300 | ) | |||||
Proceeds from sale of stock to Lincoln Park Capital | 381 | — | ||||||
Proceeds from line of credit | 390 | — | ||||||
Net cash provided by financing activities | 1,739 | 1,924 | ||||||
Net effect of foreign currency translation | 1 | (8 | ) | |||||
Net change in cash | (339 | ) | 51 | |||||
Cash at beginning of year | 990 | 655 | ||||||
Cash at end of period | $ | 651 | $ | 706 | ||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | 5 | $ | 40 | ||||
Income taxes | $ | 5 | $ | 3 | ||||
Non-cash investing and financing activities | ||||||||
Fair value of warrants issued with convertible notes | $ | 225 | $ | 1,817 | ||||
Conversion of convertible notes payable into common stock | $ | 530 | $ | 515 | ||||
Convertible Notes issued with Original Issue Discount | $ | — | $ | 373 | ||||
Exercise of stock options | $ | 2 | $ | — | ||||
Fair value of stock issued for financing fees | $ | 85 | $ | — | ||||
Right of use, operating lease and liability | $ | — | $ | 370 | ||||
Deemed dividend | $ | 297 | $ | 782 | ||||
Common stock | Additional paid-in | Accumulated | Accumulated other comprehensive | Non- controlling | Total stockholders’ | |||||||||||||||||||||||
Shares | Amount | capital | deficit | Loss | interest | equity (deficit) | ||||||||||||||||||||||
Balance, December 31, 2021 | 255,893,726 | $ | 171 | $ | 143,718 | $ | (139,121 | ) | $ | (115 | ) | $ | (3,720 | ) | $ | 933 | ||||||||||||
Sale of common stock for cash | 6,703,789 | 4 | 1,198 | — | — | — | 1,202 | |||||||||||||||||||||
Issuance of common stock for service | 86,752 | — | 17 | — | — | — | 17 | |||||||||||||||||||||
Stock option compensation expense | — | — | 660 | — | — | — | 660 | |||||||||||||||||||||
Clyra Medical stock option expense | — | — | 141 | — | — | — | 141 | |||||||||||||||||||||
Noncontrolling interest allocation | — | — | (528 | ) | — | — | 528 | — | ||||||||||||||||||||
Net loss | — | — | — | (1,652 | ) | — | 108 | (1,544 | ) | |||||||||||||||||||
Foreign currency translation | — | — | — | — | (8 | ) | — | (8 | ) | |||||||||||||||||||
Balance, March 31, 2022 | 262,684,267 | $ | 175 | $ | 145,206 | $ | (140,773 | ) | $ | (123 | ) | $ | (3,084 | ) | $ | 1,401 | ||||||||||||
Sale of common stock for cash | 5,011,570 | 4 | 944 | — | — | — | 948 | |||||||||||||||||||||
Issuance of common stock for service | 340,891 | — | 59 | — | — | — | 59 | |||||||||||||||||||||
Stock option compensation expense | — | — | 234 | — | — | — | 234 | |||||||||||||||||||||
Clyra Medical stock option expense | — | — | 82 | — | — | — | 82 | |||||||||||||||||||||
Noncontrolling interest allocation | — | — | (103 | ) | — | — | 103 | — | ||||||||||||||||||||
Net loss | — | — | — | (1,228 | ) | — | (105 | ) | (1,333 | ) | ||||||||||||||||||
Foreign currency translation | — | — | — | — | (3 | ) | — | (3 | ) | |||||||||||||||||||
Balance, June 30, 2022 | 268,036,728 | $ | 179 | $ | 146,422 | $ | (142,001 | ) | $ | (126 | ) | $ | (3,086 | ) | $ | 1,388 | ||||||||||||
Sale of common stock for cash | 6,207,084 | 4 | 1,113 | — | — | — | 1,117 | |||||||||||||||||||||
Issuance of common stock for service | 378,828 | 1 | 95 | — | — | — | 96 | |||||||||||||||||||||
Stock option compensation expense | — | — | 253 | — | — | — | 253 | |||||||||||||||||||||
Clyra Medical stock option expense | — | — | 85 | — | — | — | 85 | |||||||||||||||||||||
Noncontrolling interest allocation | — | — | (498 | ) | — | — | 498 | — | ||||||||||||||||||||
Net loss | — | — | — | (504 | ) | — | (343 | ) | (847 | ) | ||||||||||||||||||
Foreign currency translation | — | — | — | — | (59 | ) | — | (59 | ) | |||||||||||||||||||
Balance, September 30, 2022 | 274,622,640 | $ | 184 | $ | 147,470 | $ | (142,505 | ) | $ | (185 | ) | $ | (2,931 | ) | $ | 2,033 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Common stock | Additional paid-in | Accumulated | Accumulated other comprehensive | Non- controlling | Total stockholders’ | |||||||||||||||||||||||
Shares | Amount | capital | deficit | Loss | interest | equity (deficit) | ||||||||||||||||||||||
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 | — | — | — | 2,106 | |||||||||||||||||||||
Issuance of common stock for service | 747,487 | 1 | 110 | — | — | — | 111 | |||||||||||||||||||||
Stock option compensation expense | — | — | 424 | — | — | — | 424 | |||||||||||||||||||||
Warrants and conversion feature issued as discount on convertible note payable | — | — | 35 | — | — | — | 35 | |||||||||||||||||||||
Clyra Medical stock option expense | — | — | 161 | — | — | — | 161 | |||||||||||||||||||||
Noncontrolling interest allocation | — | — | (313 | ) | — | — | 313 | — | ||||||||||||||||||||
Clyra Medical securities offering | — | — | — | — | — | 50 | 50 | |||||||||||||||||||||
Net loss | — | — | — | (1,631 | ) | — | (247 | ) | (1,878 | ) | ||||||||||||||||||
Foreign currency translation | — | — | — | — | (2 | ) | — | (2 | ) | |||||||||||||||||||
Balance, March 31, 2021 | 239,963,788 | $ | 161 | $ | 138,363 | $ | (133,672 | ) | $ | (103 | ) | $ | (3,977 | ) | $ | 772 | ||||||||||||
Conversion of notes | 1,966,439 | 1 | 327 | — | — | — | 328 | |||||||||||||||||||||
Sale of common stock for cash | 8,627,237 | 6 | 1,408 | — | — | — | 1,414 | |||||||||||||||||||||
Issuance of common stock for service | 357,132 | — | 60 | — | — | — | 60 | |||||||||||||||||||||
Issuance of common stock for interest | 81,777 | — | 16 | — | — | — | 16 | |||||||||||||||||||||
Stock option compensation expense | — | — | 330 | — | — | — | 330 | |||||||||||||||||||||
Clyra Medical stock option expense | — | — | 102 | — | — | — | 102 | |||||||||||||||||||||
Noncontrolling interest allocation | — | — | (314 | ) | — | — | 314 | — | ||||||||||||||||||||
Net loss | — | — | — | (1,622 | ) | — | (168 | ) | (1,790 | ) | ||||||||||||||||||
Foreign currency translation | — | — | — | — | — | — | — | |||||||||||||||||||||
Balance, June 30, 2021 | 250,996,373 | $ | 168 | $ | 140,292 | $ | (135,294 | ) | $ | (103 | ) | $ | (3,831 | ) | $ | 1,232 | ||||||||||||
Conversion of notes | 3,306,708 | 2 | 598 | — | — | — | 600 | |||||||||||||||||||||
Sale of common stock for cash | 648,805 | 1 | 122 | — | — | — | 123 | |||||||||||||||||||||
Issuance of common stock for interest | 416,667 | — | 60 | — | — | — | 60 | |||||||||||||||||||||
Stock option compensation expense | — | — | 251 | — | — | — | 251 | |||||||||||||||||||||
Clyra Medical stock option expense | — | — | 179 | — | — | — | 179 | |||||||||||||||||||||
Noncontrolling interest allocation | — | — | (159 | ) | — | — | 159 | — | ||||||||||||||||||||
Net loss | — | — | — | (1,301 | ) | — | (134 | ) | (1,435 | ) | ||||||||||||||||||
Foreign currency translation | — | — | — | — | (7 | ) | — | (7 | ) | |||||||||||||||||||
Balance, September 30, 2021 | 255,368,553 | $ | 171 | $ | 141,343 | $ | (136,595 | ) | $ | (110 | ) | $ | (3,806 | ) | $ | 1,003 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BIOLARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(in thousands, except for per share data)
(unaudited)
SEPTEMBER 30, 2022 | SEPTEMBER 30, 2021 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (3,724 | ) | $ | (5,103 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock option compensation expense | 1,455 | 1,447 | ||||||
Common stock issued in lieu of salary to officers and fees for services from vendors | 172 | 294 | ||||||
Common stock issued for interest | — | 16 | ||||||
Interest expense related to amortization of the discount on convertible notes payable and line of credit | 13 | 114 | ||||||
PPP loan forgiveness | (174 | ) | (43 | ) | ||||
Loss on investment in South Korean joint venture | 15 | 23 | ||||||
Depreciation expense | 28 | 17 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (371 | ) | 20 | |||||
Prepaid expenses and other current assets | (85 | ) | (71 | ) | ||||
Inventories | (19 | ) | 27 | |||||
Accounts payable and accrued expenses | (40 | ) | (85 | ) | ||||
Contract liability | (83 | ) | 114 | |||||
Customer deposits | 30 | 79 | ||||||
Clyra Medical accounts payable and accrued expenses | (20 | ) | 189 | |||||
Net cash used in operating activities | (2,803 | ) | (2,962 | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of equipment | (164 | ) | (21 | ) | ||||
Net cash used in investing activities | (164 | ) | (21 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from sales of common stock | 3,267 | 4,120 | ||||||
Proceeds from the sale of stock in Clyra Medical | — | 50 | ||||||
Proceeds from the issuance of Clyra Medical convertible notes | 100 | — | ||||||
Exercise of warrants | — | 60 | ||||||
Payment of debt obligations | — | (828 | ) | |||||
Payment of Clyra Medical debt obligations | (24 | ) | (28 | ) | ||||
Net cash provided by financing activities | 3,343 | 3,374 | ||||||
Net effect of foreign currency translation | (70 | ) | (9 | ) | ||||
Net change in cash | 306 | 382 | ||||||
Cash at beginning of period | 962 | 716 | ||||||
Cash at end of period | $ | 1,268 | $ | 1,098 | ||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid for: | ||||||||
Interest | $ | 11 | $ | 56 | ||||
Non-cash investing and financing activities | ||||||||
Fair value of warrants issued with convertible notes | $ | — | $ | 35 | ||||
Conversion of notes payable to common stock | $ | — | $ | 328 | ||||
Right of use | $ | 433 | $ | — | ||||
Allocation of noncontrolling interest | $ | 1,129 | $ | 786 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
(UNAUDITED)
Note 1. Business and Organization
Description of Business
BioLargo, Inc. deliversis an innovative technology developer and sustainable technology-based products and services, as well as environmental engineering expertise, acrosscompany driven by a mission to “make life better” by delivering robust, sustainable solutions for a broad range of industries with an overriding mission to “make life better”and applications, with a focus on clean water, clean air and advanced wound care.a cleaner earth. The company also owns a majority 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 sixnine months ended JuneSeptember 30, 2019,2022, we had a net loss of $4,736,000,$3,724,000, used $1,851,000$2,803,000 cash in operations, and at JuneSeptember 30, 2019,2022, we had a working capital deficit of $3,473,000$1,503,000, and current assets of $1,001,000. $2,532,000. During the three months ended September 30, 2022, we generated revenues of $1,500,000. Only one of our subsidiaries – ONM Environmental – generated operating income. (See Note 9.)
We do not have sufficient working capital and do not believe gross profits in the year ended December 31, 2022, or in the immediately subsequent quarterly periods, will be sufficient to fund our current level of operations, or pay our debt due prior to December 31, 2019, 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, which expires in March 2023, 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 year ended December 31, 2018, and the six months ended June 30, 2019,
If we generated revenues of $1,364,000 and $790,000 throughare unable to rely on our business segments (Odor-No-More and BLEST – see Note 10, “Business Segment Information”). Neither generated enough revenuescurrent arrangement with Lincoln Park to continue to fund their operations. Weour working capital requirements, we will have $2,119,000 in debt obligations due in the next 12 months (see Notes 4to rely on other forms of financing, and 12): (i) $1,724,000in notesthere is no assurance that are convertible at the option of the holder, (ii) a $145,000 note due September 6, 2019, and (iii) a line of credit in the amount of $250,000 due on 30-day demand beginning September 1, 2019. We intend to either refinance or renegotiate these obligations, as our cash position is insufficient to maintain our current level of operations and pay these liabilities. Thus, we will be requiredable to raise additional capital. We continue to raise money through private securities offerings, and continue to negotiate for more substantial financings from private and institutional investors. During the six months ended June 30, 2019,do so, or if we received $1,924,000 net cash provided by financing activities, and at June 30, 2019 had cash of $706,000. Subsequent to June 30, 2019, we received $2,540,000 from new financing activities. No assurance cando so, it will be made of our success at raising money through private or public offerings.on favorable terms.
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 fivefour wholly-owned subsidiaries: BioLargo Life Technologies, Inc., organized under the laws of the State of California in 2006; Odor-No-More,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; and2016. Additionally, we own 89% of BioLargo Engineering Science and Technologies, LLC (“BLEST”), organized under the laws of the State of Tennessee in 2017 (“BLEST”). Additionally, we2017. We also own 41.4%58% of Clyra Medical Technologies, Inc. (“ClyraClyra” or “Clyra Medical”), organized under the laws of the State of California in 2012, and consolidate their financial statements (see NotesNote 2, subheading “Principles of Consolidation,” and Note 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 8-03 of Regulation S-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 sixnine months ended JuneSeptember 30, 20192022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019,2022, 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-K for the year ended December 31, 20182021, filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2019, as amended.31, 2022.
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 41% 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. All intercompany accounts and transactions have been eliminated (see Note 8).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.
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 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 September 30, 2022 and December 31, 2018 and June 30, 2019,2021, our cash balances were made up of the following (in thousands):
December 31, 2018 | June 30, 2019 | September 30, 2022 | December 31, 2021 | |||||||||||||
BioLargo, Inc. and wholly owned subsidiaries | $ | 193 | $ | 553 | ||||||||||||
BioLargo, Inc. and subsidiaries | $ | 1,251 | $ | 941 | ||||||||||||
Clyra Medical Technologies, Inc. | 462 | 153 | 17 | 21 | ||||||||||||
Total | $ | 655 | $ | 706 | $ | 1,268 | $ | 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 September 30, 2022 was $12,000 and at December 31, 2018 and June 30, 20192021, was zero.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)$12,000.
Credit Concentration
We havehad a limited number of customers that account for significant portions of our revenue. During the sixnine months ended JuneSeptember 30, 20182022 and 2019,2021, we had twothe following customers that each accounted for more than 10% of consolidated revenues, in the respective periods, as follows:
June 30, | June 30, 2019 | |||||||
Customer A | 43 | % | 18 | % | ||||
Customer B | 15 | % | 10 | % | ||||
September 30, | September 30, 2021 | |||||||
Customer A | 44 | % | <10 | % | ||||
Customer B | 14 | % | <10 | % | ||||
Customer C | <10 | % | 12 | % | ||||
Customer D | <10 | % | 14 | % | ||||
Customer E | <10 | % | 11 | % | ||||
We had foura limited number of customers that accounted for more than 10% of consolidated accounts receivable at September 30, 2022, and at December 31, 2018 and at June 30, 20192021, as follows:
December 31, 2018 | June 30, 2019 | |||||||
Customer W | 12 | % | 11 | % | ||||
Customer X | 31 | % | <10 | % | ||||
Customer Y | <10 | % | 10 | % | ||||
Customer Z | <10 | % | 10 | % | ||||
September 30, 2022 | December 31, 2021 | |||||||
Customer A | 13 | % | <10 | % | ||||
Customer B | 15 | % | <10 | % | ||||
Customer F | 11 | % | <10 | % | ||||
Customer G | <10 | % | 32 | % | ||||
Customer H | <10 | % | 12 | % | ||||
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 September 30, 2022, and December 31, 2018 and June 30, 20192021, was $3,000. As of December 31, 2018 and June 30, 2019, inventoriesInventories consisted of (in thousands):
December 31, 2018 | June 30, 2019 | |||||||||||||||
September 30, 2022 | December 31, 2021 | |||||||||||||||
Raw material | $ | 14 | $ | 26 | $ | 123 | $ | 108 | ||||||||
Finished goods | 12 | 12 | 137 | 103 | ||||||||||||
Total | $ | 26 | $ | 38 | $ | 260 | $ | 241 | ||||||||
Other Non-Current Assets
September 30, 2022 | December 31, 2021 | |||||||
Patents | $ | 34 | $ | 34 | ||||
Security deposits | 35 | 35 | ||||||
Tax credit receivable | 54 | $ | - | |||||
| Total | $ | 123 | $ | 69 | ||||
Equity Method of Accounting
Other assets consistedOn 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 security depositsaccounting. We have determined that while we have significant influence over the joint venture through our technology license and our position on the Board of $35,000 related toDirectors, 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 real estate leases.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. The joint venture incurred a loss during the nine months ended September 30, 2022 and 2021, our 40% ownership share reduced our investment interest by $15,000 and $23,000, respectively.
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. As of December 31, 2018For the nine months ended September 30, 2022 and June 30, 2019,2021, management determined that there was no impairment of its long-lived assets.assets, including its patents.
Nevertheless, during the three months 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” 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 the loss attributable to common shareholdersreported 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 and sixnine months ended JuneSeptember 30, 20182022 and 2019,2021, 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.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Share-Based Compensation Expense
We recognize compensation expense for stock option awards on a straight-line basis for employees over the applicable service period of the award, which is the vesting period. We recognize compensation expense for stock option awards for non-employees at the fairFair value is determined on the grant date. Generally, the options issued to non-employees have been earned upon issuance. For the instances that options are issued to non-employees with a vesting schedule, the fair value is recorded on each vesting date. Share-based compensation expense is based on the grant date fair value estimated using the Black-Scholes Option Pricing Model.
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 sixnine months ended JuneSeptember 30, 20182022 and 2019:2021:
2018 | 2019 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
Non Plan | 2018 Plan | Non Plan | 2018 Plan | Non Plan | 2018 Plan | Non Plan | 2018 Plan | ||||||||||||||||||||||||||||
Risk free interest rate | 2.43 | - | 2.91% | 2.91 | % | 2.00 | - | 2.65% | 2.00 | - | 2.65% | 2.32 | – | 3.83% |
| 2.32 | – | 3.83% | 1.73 | % | 0.93 | – | 1.73% | ||||||||||||
Expected volatility | 548 | - | 563% | 548 | % | 147 | - | 152% | 147 | - | 152% | 115 | – | 117% |
| 115 | – | 117% | 124 | % | 121 | – | 124% | ||||||||||||
Expected dividend yield | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Forfeiture rate | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Life in years | 7 | 7 | 7 | 7 | 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.
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.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The convertible note issued with the warrant isConvertible debt instruments are recorded at its 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 promissory note is examined for any intrinsic beneficial conversion feature (“BCF”) of which the convertible price of the note is less than the closing common stock price on date of issuance. If the relative fair value method is used to value the convertible promissory note 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. As presented, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received.
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 adopted ASU 2014-09,account for revenue in accordance with ASC 606, “Revenue from ContractsContacts with Customers”, Topic 606, on January 1, 2018.. The guidance focuses on the core principle for revenue recognition.
The core principle of the guidancerecognition, 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 generate revenue through our subsidiaries. For product revenue, we identify the sale of goods, the subsidiary identifies its contract with the customer through a written purchase order, (which may be part of a national purchasing agreement), 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. We recognize revenueRevenue is recognized at a point in time when the order for its goods are shipped if theits agreement with ourthe customer is FOB our warehouse facility,manufacturer, and when goods are delivered to its customer if theits agreement with ourthe customer is FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order. In association with certain product purchases, ONM Environmental 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.
For service revenue, we identifyservices, such as through our engineering group, the subsidiary 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. Service contracts typically call for invoicing for time and materials incurred for that contract, although some provide for milestone or fixed cost payments, where an agreed-to amount is invoiced 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 contract receivable or contract liability is created. As of September 30, 2022, we had $6,000 of contract liability. As of December 31, 2021, we had contract liability totaling $89,000. To date, there have been no discounts or other financing terms for the contracts.
In the future, we may generate revenues from royalties
Royalties or license fees from our intellectual property. In the event we do so, we anticipate a licensee would pay a license fee in one or more installments and ongoing royaltiesproperty are based on theirthe licensee’s 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.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Government Grants
We have been awarded multiple research grants from governmentalthe Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP) and quasi-governmental institutions.the National Science and Engineering Research Council of Canada (NSERC). The grants received are considered “other income”other income and are included in our Consolidated Statementsconsolidated statements of Operations and Comprehensive Loss.operations. We received our first grant in 2015 and have been awarded over 6080 grants totaling over $3.6$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-party research scientist) to support research on our technology. The grants have terms generally ranging between sixnine 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.
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 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” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized. Management believes there are no unrecognized tax benefits or uncertain tax positions as of September 30, 2022, and December 31, 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 September 30, 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.
Fair Value of Financial Instruments
Management believes the carrying amounts of the Company’s financial instruments (excluding debt and equity instruments) as of September 30, 2022 and December 31, 2018 and June 30, 20192021, 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 areA refund has been submitted totaling $54,000, which is classified in Other Income on our Consolidated Statement of Operations and Comprehensive Loss.
Recent Accounting PronouncementsLeases
In August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Management has not concluded its evaluation of the guidance. Its initial analysis is that it does not believe the new guidance will substantially impact the Company’s financial statements.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In June 2018, The FASB issued Accounting Standards Update No. 2018-07, “Compensation – Stock Compensation (topic 718): Improvements to Nonemployee Share-Based Payment Accounting”. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts and Customers. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. This new guidance did not materially impact our stock compensation expense.
In February 2016, the FASB issued ASU Update No. 2016-02, “Leases,” which will requirerequires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability, and lessors to recognize a net lease investment. Additional qualitative and quantitative disclosures willare also be required.required (see Note 10). We adopted this standard effective January 1, 2019 using the modified retrospective transition methodeffective date option, as approved by the FASB in July 2018, which resulted in a $399,000 gross up of assets and liabilities;liabilities; this balance may fluctuate over time as we enter into new leases, extend or terminate current leases. Upon the transition to ASC 842, the Company elected to use hindsight as a practical expedient with respect to determining the lease terms and in assessing any impairment of right-of-use assets for existing leases. No impairment is expected at this time. As of JuneSeptember 30, 2019,2022, the gross upright of use assets on our balance sheet related to our operating leases totals $370,000.$896,000.
Recent Accounting Pronouncements
InAugust 2020,the FASB issued Accounting Standards UpdateNo.2020-06,“Debt—Debt with Conversion and Other Options (Subtopic470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic815-40): 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) those with embedded conversion features that arenotclearly and closely related to the host contract, that meet the definition of a derivative, and that donotqualify for a scope exception from derivative accounting and (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 afterDecember 15, 2021,including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning afterDecember 15, 2023,including interim periods within those fiscal years; early adoption is permitted. Management has evaluated this update and adopted it as of January 1, 2022. In do so, we evaluated the convertible debt issued by Clyra Medical during the three months ended June 30, 2022 (see Note 8), and determined that the beneficial conversion feature was fixed at the time of issuance and not an embedded derivative under Subtopic 815-15. As a result of the early adoption, there are no other potential affects on the Company’s current financial statements.
Note 3. Sale of Stock for Cash
Lincoln Park Financing
On August 25, 2017,During the three and nine months ended September 30, 2022, we entered into a stock purchase agreement (“LPC Purchase Agreement”) withsold 2,440,958 and 4,353,919 shares to Lincoln Park, Capital Fund, LLC (“and in exchange received $485,000 and $903,000 in gross and net proceeds.
During the three and nine months ended September 30, 2021, we sold 2,917,819 and 21,444,128 shares to Lincoln Park”),Park, and in exchange received $530,000 and $3,545,000 in gross and net proceeds.
Unit Offerings
During the three and nine months ended September 30, 2022, pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $10 million of our common stock (subject to certain limitations) from time to time over a period of three years. The LPC Purchase Agreement allows us, from time to timeunit offerings, we sold 3,766,126 and at our sole discretion, to direct Lincoln Park to purchase13,568,524 shares of our common stock subject to limitationsand received $632,000 and $2,364,000 in both volumegross and dollar amount. The purchase price of the shares that may be sold to Lincoln Park under the Purchase Agreement is the lower of (i) the lowest sale price on the date of purchase, or (ii) the average ofnet proceeds from thirty accredited investors.
During 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 in the LPC Purchase Agreement or LPC RRA other than a prohibition on entering into a “Variable Rate Transaction,” as defined in the Purchase Agreement. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.
We did not sell any shares to Lincoln Park during the sixnine months ended JuneSeptember 30, 2019. During the six months ended June 30, 2018,2021, pursuant to our unit offerings, we elected to sell to Lincoln Park 1,256,751sold 388,889 and 3,820,436 shares of our common stock for which weand received $381,000. Additionally,$70,000 and $575,000 in gross and net proceeds from four accredited investors.
In addition to the shares, we issued Lincoln Park 18,260 “additional commitment” shares.
We record stock saleseach investor a six-month and a five-year warrant to purchase additional shares (see Note 6, “Warrants Issued in our equity statement and the additional commitment shares issued reduce the deferred offering costs on our balance sheet.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)Unit Offerings”).
Note 4. Debt Obligations
The following table summarizes our debt obligations outstanding as of September 30, 2022, and December 31, 2018 and as of June 30, 20192021 (in thousands). The Company raised $2,360,000 new financing after June 30, 2019, and refinanced sometable does not include debt obligations of the obligations in the tableour partially owned subsidiary Clyra Medical (see Note 12)8, “Debt Obligations of Clyra Medical”).
December 31, 2018 | June 30, | |||||||
Current liabilities: | ||||||||
Notes payable and line of credit | ||||||||
Notes payable, mature September 6, 2019 | $ | 400 | $ | 484 | ||||
Note payable, due on demand 60 days’ notice (or March 8, 2023) | — | 50 | ||||||
Line of credit, due on demand 30 days’ notice after September 1, 2019 | 430 | 430 | ||||||
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (Note 8) | — | 1,007 | ||||||
Total notes payable and line of credit | $ | 830 | $ | 1,971 | ||||
Convertible notes payable: | ||||||||
Convertible note, matured January 11, 2019 | 300 | — | ||||||
Convertible notes, mature December 31, 2019(1) | 75 | 75 | ||||||
Convertible note, matures July 15, 2019 | 550 | 125 | ||||||
Convertible note, matures July 20, 2019(1) | 440 | 440 | ||||||
Convertible note, matures October 7, 2019 | — | 370 | ||||||
Convertible notes, mature November 5, 2019 and December 7, 2019 | — | 554 | ||||||
Convertible nine-month OID notes, mature beginning October 2019 | — | 213 | ||||||
Convertible note, matures April 18, 2020 | — | 220 | ||||||
Convertible notes, mature February 14 and March 17, 2020 | — | 200 | ||||||
Convertible note, matures March 4, 2020 | — | 110 | ||||||
Convertible 12-month OID notes, mature beginning June 2020 | — | 531 | ||||||
Convertible notes payable, mature June 20, 2020(1) | — | 25 | ||||||
Total convertible notes payable | $ | 1,365 | $ | 2,863 | ||||
Total current liabilities | $ | 2,195 | $ | 4,834 | ||||
Long-term liabilities: | ||||||||
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (See Note 8) | 1,007 | �� | — | |||||
Convertible notes payable, mature June 20, 2020(1) | 25 | — | ||||||
Convertible notes payable, mature April 20, 2021(1) | 100 | 100 | ||||||
Convertible notes, mature June 15, 2021(1) | 110 | 110 | ||||||
Note payable, matures March 8, 2023 (or on demand 60 days’ notice) | 50 | — | ||||||
Total long-term liabilities | $ | 1,292 | $ | 210 | ||||
Total | $ | 3,487 | $ | 5,044 | ||||
September 30, 2022 (Unaudited) | December 31, 2021 | |||||||
Current portion of debt: | ||||||||
SBA Paycheck Protection Program loans, mature April 2025 | $ | 43 | $ | 314 | ||||
Convertible note payable, matures March 1, 2023 | 50 | — | ||||||
Debt discount, net of amortization | (7 | ) | — | |||||
Total current portion of debt | $ | 86 | $ | 314 | ||||
Long-term debt: | ||||||||
SBA EIDL Loan | $ | 150 | $ | 150 | ||||
SBA Paycheck Protection Program loans, mature May 2025 | 97 | — | ||||||
Convertible note payable, matures March 1, 2023 | — | 50 | ||||||
Debt discount, net of amortization | — | (20 | ) | |||||
Total long-term debt | 247 | 180 | ||||||
Total | $ | 333 | $ | 494 | ||||
(1) TheseFor the three and nine months ended September 30, 2022, we recorded $14,000 and $42,000, and for the three and nine months ended September 30, 2021, we recorded $42,000 and $208,000, of interest expense related to the amortization of discounts on convertible notes arepayable, and coupon interest from our note payable, convertible at our option at maturity.notes and line of credit.
The following discussion includes debt instruments to which amendments were made during the three months ended June 30, 2019, and includesor included other activity that management deemed appropriate to disclose.disclose during the nine months ended September 30, 2022 and 2021. Each of the debt instruments contained in the above table are disclosed more fully in the financial statements contained in the Company’s Annual ReportForm 10-K filed March 29, 2019.31, 2022.
Notes payable, mature September 6, 2019SBA Program Loans
On June 4, 2019, we exercisedIn April 2020, our right to extend the maturity dates of two promissory notes due June 5, 2019 which were originally issued September 19, 2018 to Vernal Bay Investments, LLC (“Vernal”)subsidiaries ONM Environmental, BLEST and Chappy Bean, LLC (“Chappy Bean”). Our election to extend the maturity dates increased the principal amount of each note by 10%, such that the aggregate principal balance of the two notes increased to $484,000 as of June 4, 2019. Subsequent to June 30, 2019, we refinanced one of the two notes (see Note 12).
Convertible Note, matures July 15, 2019 (Vista Capital)
On January 7, 2019, weClyra Medical received $218,000, $96,000 and Vista Capital agreed to amend the convertible promissory note originally issued December 14, 2017 (“Vista 2017 Note”) and extend its maturity date to April 15, 2019. The principal amount of the note was increased to $605,100. The note will continue to earn interest at the rate of five percent per annum. The amendment re-defined the conversion price to equal 80% of the lowest closing bid price of the Company’s common stock during the 25 consecutive trading days immediately preceding the conversion date. The amendment also reduced the prepayment penalty from 20% to 15%, such that a prepayment requires the payment of an additional 15% of the then outstanding balance, and reduced the penalty for a default from 30% to 25% of the outstanding balance. The intrinsic value of the beneficial conversion feature resulted$43,000, respectively, in a fair value totaling $487,000, all of which was recorded as interest expense during the six months ended June 30, 2019.
On March 28, 2019, we and Vista agreed to further extend the maturity date of the Vista 2017 Note, to July 15, 2019. In consideration for the extension, we agreed to increase the principal balance of the note by 10 percent, to $420,000. The increase in principal totaling $38,000 was recorded as a loss on debt extinguishment on our statement of operations. On July 16, 2019, we and Vista further agreed to extend the maturity date to August 31, 2019. No additional consideration was given for the extension (see Note 12).
During the six months ended June 30, 2019, Vista Capital elected to convert $515,000 of the outstanding principal of the Vista 2017 Note, and we issued 4,406,312 shares of our common stock to Vistaloans pursuant to the conversions. As of June 30, 2019, the outstanding balance on the Vista Note totaled $125,000. Subsequent to June 30, 2019, we and Vista agreed to extend the maturity date of the Note to February 28, 2020 (see Note 12).
Convertible Note, matures October 7, 2019 (Vista Capital)
On January 7, 2019, Vista Capital invested $300,000 and we issued a convertible promissory note (the “Vista 2019 Note”Small Business Association’s (“SBA”) in the principal amount of $330,000, maturing nine monthsPaycheck Protection Program (“PPP”). The loans mature two years from the inception date of issuance (October 7, 2019)(although any payments due are deferred once a forgiveness application has been filed), and incur interest at 1%. The Vista 2019 Note earned a one-time interest charge of 12%, recorded as a discount on convertible notes and will be amortized over the term of the note. The Vista 2019 Note allows Vista Capital to convert the note to our common stock at any time at a price equal to 65% of the lowest closing bid price of the Company’s common stock during the 25 consecutive trading days immediately preceding the conversion date. The Vista 2019 Note contains standard provisions of default, and precludes the issuance of shares to the extentManagement believes that Vista Capital would beneficially own more than 4.99% of our common stock. The Vista 2019 Note also includes a term that allows Vista Capital to adopt any term of a future financing more favorable than what is provided in the note. For example, these provisions could include a more favorable interest rate, conversion price, or original issue discount. The Vista 2019 Note also requires that we include the shares underlying conversion of the note on the next registration statement we fileit has fully complied with the SEC (but notterms of forgiveness as set forth by the registration statementSBA, and each subsidiary has filed November 6, 2018). The intrinsic valueforgiveness applications. On February 7, 2022, we received notice that the SBA had partially approved ONM Environmental's application for forgiveness of the beneficial conversion feature resulted in a fair value totaling $300,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the term of the note as interest expense, all of which will be recorded in 2019. Subsequent to June 30, 2019, we and Vista agreed to extend the maturity date of the Note to April 7, 2020 (see Note 12).
Convertible Notes, mature November 5, 2019 and December 7, 2019 (Tangiers)
On January 31, 2019, we issued a 12% Convertible Promissory Note to Tangiers Global, LLC (“Tangiers”) in the aggregate principal amount of up to $495,000 (the “Tangiers Note”). The note allows for two payments, each due in nine months after receipt, and incurs a guaranteed interest of 12% at inception. The initial payment of $300,000 was received on February 5, 2019, representing a $330,000 principal amount and 10% original issue discount. It is due November 5, 2019. We received the second payment,its PPP loan in the amount of $150,000, on March 7, 2019, increasing the principal amount due under the note$174,000; ONM has appealed and provided additional documentation to $495,000. This second amount, plus guaranteed interest, is due December 7, 2019. In the aggregate, the principal amountsupport forgiveness of the note, plus guaranteed interest, totals $554,000.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Tangiers Note is convertible at the option of Tangiers at a conversion price equal to 75% of the lowest closing bid price of the Company’s common stock during the 25 consecutive trading days prior to the conversion date. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $185,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the term of the note as interest expense, all of which will be recorded in 2019.
We may prepay the Tangiers Note up to 180 days after the effective date. If a prepayment is made within 90 days,BLEST remains pending. On March 19, 2021, we must pay a prepayment penalty of 25%; from 91 to 180 days, we must pay a prepayment penalty of 30%. We may pay such prepayment penalties, if we so choose, by issuing common stock at the conversion price. If such shares are not eligible for removal of restrictions pursuant to a registration statement or Rule 144 within 10 trading days following the six-month anniversary of the effective date, Tangiers may rescind the stock issuance and force the Company to pay the prepayment penalty in cash. Upon the occurrence of an event of default, as such term is defined under the Tangiers Note, additional interest will accrue from the date of the event of default at a rate equal to the lower of 22% per annum or the highest rate permitted by law, and an additional 25% shall be added to the principal amount of the note.
In connection with the Tangiers Note, the Company caused its transfer agent to reserve 3,000,000 shares of the Company’s common stock, in the eventreceived notice that the Tangiers Note is converted.
On July 29, 2019, Tangiers elected to convert $369,600 into equity, and subsequently agreed to invest an additional $350,000 (see Note 12).
Convertible Nine-Month OID Notes
DuringSBA had approved the three months ended March 31, 2019, we issued convertible promissory notes (each, an “OID Note”) in the aggregate principal amount of $213,000, with a 25% original issue discount. These notes were initially convertible into shares of the Company’s common stock at a conversion price of $0.25 per share, and mature nine months from the date of issuance. Our agreement with the investors provided that the initial conversion price may be adjusted downward in the event the Company subsequently issues a convertible promissory note at a lower conversion rate (with this lower conversion rate becoming the adjusted conversion rate under the OID Note), or conducts an equity offering at a per-share price less than $0.25. Each investor also received a stock purchase warrant equal to 75% of the principal amount, divided by the conversion price of $0.25 (see Note 6).
On June 7, 2019, we began issuing twelve-month OID notes at a lower conversion price ($0.17; see “Convertible Twelve-month OID notes”, below). As such, we reduced conversion prices of these notes to $0.17, resulting in an increase of 300,000 shares availableapplication for purchase under the warrants.
Convertible Note, matures April 18, 2020
On April 18, 2019, we received $188,000 and issued a convertible note to Bellridge Capital, LP (“Bellridge”) in the principal amount of $220,000 (the “Bellridge Note”), representing a 10% original issue discount, and a deduction of $10,000 for legal fees paid to the investor. The note is due April 18, 2020 and earns interest at 10% per annum. We and Bellridge concurrently entered into a Securities Purchase Agreement through which, upon our mutual consent, Bellridge may invest up to an additional $400,000 (in two tranches) that would be reflected in two additional notes, each of which would mature one year from the date of issuance.
The Bellridge Note is convertible at the option of Bellridge at a conversion price equal to 70% of the lowest closing bid price of the Company’s common stock during the 25 trading days prior to the conversion date. We may prepay the Bellridge Note at any time. If we do so up to 90 days after the effective date, the amount due is equal to 125% of the unpaid principal amount of the note along with any accrued interest, and thereafter, the amount due is 130% of the unpaid principal amount of the note along with any accrued interest. Upon the occurrence of an event of default, as such term is defined under the Bellridge Note, additional interest will accrue from the date of the event of default at a rate equal to the lesser of 24% per annum or the highest rate permitted by law. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $120,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the twelve-month term of the note as interest expense.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Convertible notes, mature February 14 and March 17, 2020
On May 14, 2019, we received $95,000 and issued a convertible note to Crossover Capital Fund I, LP (“Crossover Capital”) in the principal amount of $110,000 , representing a 10% original issue discount, and a deduction of $5,000 for legal fees and due diligence. The note is due nine months from the date of issuance, on February 14, 2020.
On June 17, 2019, we received a second investment from Crossover Capital in the amount of $77,000 and issued a convertible note in the principal amount of $90,000, representing a 10% original issue discount, and a deduction of $5,000 for legal fees and due diligence. The note is due nine months from the date of issuance, March 17, 2020.
Concurrently with these two investments, we and Crossover Capital entered into Securities Purchase Agreements. The notes are convertible at the option of Crossover Capital at a conversion price equal to 70% of the lowest closing bid price of our common stock during the 25 trading days prior to the conversion date. We may prepay the notes up to 180 days after issuance, by paying a prepayment penalty that increases from 5% within the first 30 days, to 30% during the last 30. Upon the occurrence of an event of default, as such term is defined under the note, additional interest will accrue from the date of the event of default at a rate equal to the lesser of 24% per annum or the highest rate permitted by law. The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of $134,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the nine-month terms of the notes as interest expense.
Convertible note, matures March 4, 2020
On June 4, 2019, we received $95,000 and issued a convertible note to EMA Financial, LLC (“EMA”) in the principal amount of $110,000 (the “EMA Note”), representing a 10% original issue discount, and a deduction of $5,000 for legal and diligence fees. The note is due nine-months from the date of issuance, on March 4, 2020, and earns interest at a rate of 10% per annum.
The EMA Note is convertible at the option of EMA at a conversion price equal to 70% of the lowest closing bid price of the Company’s common stock during the 25 trading days prior to the conversion date. We may prepay the EMA Note at any time. If we do so up to 90 days after the effective date, the amount due is equal to 125% of the unpaid principal amount of the note along with any accrued interest, and thereafter, the amount due is 130% of the unpaid principal amount of the note along with any accrued interest. Upon the occurrence of an event of default, as such term is defined under the EMA Note, additional interest will accrue from the date of the event of default at a rate equal to the lesser of 24% per annum or the highest rate permitted by law. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $77,000, and is recorded as a discount on convertible notes on our balance sheet. This discount will be amortized over the nine-month term of the note as interest expense.
Convertible Twelve-month OID notes
During the three months ended June 30, 2019, we received $425,000 and issued convertible promissory notes (each, a “12-Month OID Note”) in the aggregate principal amount of $531,000, with a 25% original issue discount, to four accredited investors. The original issuance discount totaled $106,000 and is recorded as a discount on convertible notes payable on our balance sheet. The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of $425,000, and is recorded as a discount on convertible notes on our balance sheet. The discounts will be amortized and recorded to interest expense over the term of the notes. These notes mature twelve months from the date of issuance. The earliest maturity date is June 7, 2020.
Each Twelve-month OID Note is convertible by the investor at any time at $0.17 per share. This initial conversion price shall be adjusted downward in the event the Company subsequently issues a convertible promissory note at a lower conversion rate (with this lower conversion rate becoming the adjusted conversion rate under the note), or conducts an equity offering at a per-share price less than $0.17. The notes earn interest at a rate of five percent (5%) per annum, due at maturity. The Company may prepay the notes only upon 10 days’ notice to the investor, during which time the investor may exercise his/her right to convert the note to stock.
We must prepay the OID Notes upon the conclusion of a “qualifying offering” (an offering raising $3.5 million or more); in the event a qualified offering is not concluded prior to the maturity date, or the Note is otherwise not paid in full, the Company shall redeem the notes by issuing the number of shares of common stock equal to the outstanding balance divided by the lower of (i) the current conversion price and (ii) seventy percent (70%) of the lowest daily volume weighted average price (“VWAP”) during the 25 trading days immediately preceding the conversion.
In addition to the note, each OID investor will receive a warrant to purchase common stock exercisable at $0.25 per share (see Note 6).
Subsequent to June 30, 2019, we issued additional 12-month OID notes and closed the offering (see Note 12).
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)forgiveness Clyra’s PPP loan.
Note 5. Share-Based Compensation
Issuance of Common Stock in exchange for payment of payables
Payment of Officer Salaries
On March 29, 2019,September 30, 2022, we issued 579,996167,781 shares of our common stock at $0.27 per share in lieu of $93,000$72,000 of accrued and unpaid salary and unreimbursed business expenses owed to two of our officers. The price-per-share of $0.16 was based on the closing price of our common stock on the last business day of the month. These shares were issued pursuant to our 2018 Equity Incentive Plan.
On June 28, 2019,September 30, 2021, we issued 465,87561,842 shares of our common stock at $0.19 per share in lieu of $107,000$12,000 of accrued and unpaid salary and unreimbursed business expenses owed to two of our officers. The price-per-share of $0.23 was based on the closing price of our common stock on the last business day of the month. These shares were issued pursuant to our 2018 Equity Incentive Plan.
On March 31, 2018,2021, we issued 323,030137,364 shares of our common stock at $0.23 per share in lieu of $84,000$31,000 of accrued and unpaid salary and unreimbursed business expenses owed to two of our officers. The price-per-share
Payment of $0.26 was based on the closing price of our common stock on the last business day of the month.Consultant Fees
On June 29, 2018,September 30, 2022, we issued 176,947211,047 shares of our common stock at $0.27 per share in lieu of $76,000$24,000 of accrued salary and unreimbursed business expenses owedunpaid obligations to two of our officers. The price-per-share of $0.43 was based on the closing priceconsultants. On June 30, 2022, we issued 76,996 shares of our common stock on the last business dayat $0.18 per share in lieu of the month.$60,000 of accrued and unpaid obligations to consultants. On March 31, 2022, we issued 86,752 shares of our common stock at $0.23 per share in lieu of $31,000 of accrued and unpaid obligations to consultants.
On September 30, 2021, we issued 586,963 shares of our common stock at $0.19 per share in lieu of $71,000 of accrued and unpaid salary to consultants. On June 30, 2021, we issued 357,132 shares of our common stock at $0.17 per share in lieu of $60,000 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.
Payment of Consultant FeesAccrued Interest
During the three months ended June 30, 2019,2021, we issued 515,80981,777 shares of our common stock at a range of $0.16 – $0.23$0.17 per share in lieu of $107,000$16,000 of accrued and unpaid obligations to consultants.interest.
Stock Option Expense
During the three and nine months ended JuneSeptember 30, 2018, we issued 556,874 shares of our common stock, at prices ranging between $0.17 - $0.23 per share, in lieu of $174,000 of accrued and unpaid obligations to consultants.
Payment of Interest on Notes
During the three months ended June 30, 2019, we issued 87,478 shares of our common stock, at prices ranging between $0.23 - $0.43 per share, in lieu of $15,000 of accrued interest due on promissory notes.
During the three months ended June 30, 2018, we issued 1,302,734 shares of our common stock, at prices ranging between $0.23 - $0.45 per share, in lieu of $329,000 of accrued interest due on promissory notes.
Restricted Stock Units
On May 28, 2019, our Compensation Committee, in conjunction with the approval of a new employment agreement for our Vice President of Operations and President of our subsidiary Odor-No-More, granted Joseph L. Provenzano a restricted stock unit of 500,000 shares of common stock, subject to the execution of a “lock-up agreement” whereby the shares remain unvested unless and until the earlier of (i) a sale of the Company, (ii) the successful commercialization of the Company’s products or technologies as demonstrated by its receipt of at least $3,000,000 in cash, or the recognition of $3,000,000 in revenue, over a 12-month period from the sale of products and/or the license of technology, and (iii) the Company’s breach of the employment agreement resulting in his termination.
Stock Option Expense
During the six months ended June 30, 2018 and 2019,2022, we recorded an aggregate $696,000$338,000 and $648,000, respectively,$1,455,000, and during the three and nine months ended September 30, 2021, we recorded an aggregate $430,000 and $1,447,000 in selling general and administrative expense related to the issuance and vesting of stock options. We issued options through our 2018 Equity Incentive Plan, our now expired 2007 Equity Incentive Plan, and outside of this plan.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)these plans. See Note 8 for information on stock option expense for options issued by subsidiary Clyra.
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 wasis 40 million shares. The number of shares available to be issued under the 2018 Plan increases automatically each January 1st1st 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 from inception through June 30, 2018 and from December 31, 2018 throughfor the sixnine months ended JuneSeptember 30, 2019,2022 and September 30, 2021, is as follows:
Weighted | ||||||||||||||||
Average | Aggregate | |||||||||||||||
Options | Exercise | Price per | intrinsic | |||||||||||||
As of June 30, 2018: | Outstanding | Price per share | share | Value(1) | ||||||||||||
Inception, June 22, 2018 | — | — | — | |||||||||||||
Granted | 296,976 | 0.43 | 0. 43 | |||||||||||||
Balance, June 30, 2018 | 296,976 | $ | 0.43 | $ | 0.43 | $ | — | |||||||||
Weighted | |||||||||||||||||
Average | Aggregate | ||||||||||||||||
Options | Exercise | Price per | intrinsic | ||||||||||||||
As of June 30, 2019: | Outstanding | Price per share | share | Value(1) | |||||||||||||
Balance, December 31, 2018 | 1,318,517 | $0.22 | – | 0.43 | $ | 0.30 | |||||||||||
Granted | 3,728,366 | 0.16 | – | 0.22 | 0.18 | ||||||||||||
Expired | — | — | — | ||||||||||||||
Balance, June 30, 2019 | 5,046,833 | $0.16 | – | 0.43 | $ | 0.21 | $ | 109,000 | |||||||||
Weighted | |||||||||||||||||
Average | Aggregate | ||||||||||||||||
Options | Exercise | Price per | intrinsic | ||||||||||||||
Outstanding | Price per share | share | Value(1) | ||||||||||||||
Balance, December 31, 2021 | 23,186,142 | $0.12 | – | 0.43 | $ | 0.19 | |||||||||||
Granted | 4,748,212 | 0.18 | – | 0.27 | 0.22 | ||||||||||||
Balance, September 30, 2022 | 27,934,354 | $0.12 | – | 0.43 | $ | 0.19 | |||||||||||
Non-vested | (4,449,874 | ) | 0.12 | – | 0.40 | 0.22 | |||||||||||
Vested, September 30, 2022 | 23,484,480 | $0.12 | – | 0.43 | $ | 0.19 | $ | 1,893,000 | |||||||||
Balance, December 31, 2020 | 18,865,525 | $0.16 | – | 0.40 | $ | 0.19 | |||||||||||
Granted | 3,686,462 | 0.13 | – | 0.23 | 0.19 | ||||||||||||
Balance, September 30, 2021 | 22,591,987 | $0.12 | – | 0.43 | $ | 0.19 | |||||||||||
(1) – Aggregate intrinsic value based on closing common stock price of $0.23$0.27 at JuneSeptember 30, 2019.2022.
The options granted to purchase 3,528,3664,748,212 shares granted during the sixnine months ended JuneSeptember 30, 2019 are comprised of options2022 were issued to officers, board of directors, employees consultants, officers, and directors. Weconsultants: (i) we issued options to purchase 513,012 shares of our common stock to employees and consultants in lieu of salary and fees due at an exercise price on the respective grant dates ranging between $0.16 - $0.25 per share. The fair value of these options totaled $93,000 and is recorded as selling, general and administrative expense. We issued options to purchase 715,354 shares of our common stock to members of our board of directors for services performed, in lieu of cash, at an exercise price on the respective grant date of $0.16 and $0.23 per share. We issued options to purchase 300,000290,135 shares of our common stock at an exercise price on the respective grant date of $0.22 and $0.23 per share to our Chief Financial Officer as described immediately below. WeCFO and President to replace options that had expired; (ii) we issued options to purchase 1,000,0001,134,356 shares of our common stock at an exercise price on the respective grant date of $0.17ranging between $0.18 – $0.27 per share to members of our Vice Presidentboard of Operations as described below. Wedirectors for services performed, in lieu of cash; the fair value of these options totaled $246,000; (iii) we issued options to purchase 1,200,0002,340,730 shares of our common stock to employees as part of an employee retention plan at an exercise price on the respective grant date of $0.17ranging between $0.18 – $0.27 per share to our Vice President of Sales as described below. Theshare; the fair value of the 2018 Planemployee retention plan options totaled $492,000 and will vest quarterly over four years as long as they are retained as employees; (iv) we issued during the six months ended June 30, 2019, totaled $137,000options to purchase 682,991 shares of our common stock to consultants in lieu of cash for expiring options and per agreement totaling $145,000, and (v) we issued options to our Chief Financial Officer (see “Chief Financial Officer Contract Extension” immediately below). All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expenses.expense.
Chief Financial Officer Contract Extension
On January 16, 2019,March 22, 2022, 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) with our, pursuant to which Mr. Dargan has been and continues to serve as the Company’s Chief Financial Officer, Charles K. Dargan, II.Officer. The Engagement Extension Agreement dated as of January 16, 2019March 22, 2022 (the “Engagement Extension Agreement”) provides for an additional one-year term to expire September 30, 2019January 31, 2023 (the “Extended Term”), and is retroactively effective to the termination of the prior extension on September 30, 2018. Mr. Dargan has been serving as the Company’s Chief Financial Officer since such termination pursuant to the terms of the December 31, 2018 extension.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED).
ForAs the sole compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 300,00025,000 shares of the Company’s common stock at a strike price equalfor each month during the Extended Term (thus, an option to purchase 300,000 shares reflecting an extended term of 12 months). The Option vests over the closing priceperiod of the Company’s common stock on January 16, 2019 of $0.22, to expire January 16, 2029, and to vest over the term of the engagementExtended Term, with 75,00025,000 shares having vested as of June 30, 2019,March 22, 2022, and the remaining shares to vest 25,000 shares monthly beginning January 31, 2019,March 22, 2022, and each month thereafter, so long as the Engagement Agreementagreement is in full force and effect. The Option is exercisable at $0.24 per share, the closing price of BioLargo’s common stock on March 22, 2022, the grant date, expires ten years from the grant date, and was issued pursuant to the Company’s 2018 Equity Incentive Plan. The fair value of the option totaled $67,000, of which $50,000 was recorded as selling, general and administrative expense during the six months ended June 30, 2019.
The issuance of the Option is Mr. Dargan’s sole source of 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 this term.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.
Vice President
On May 28, 2019,The options granted to purchase 3,686,462 shares during the Compensation Committeenine months ended September 30, 2021 were issued to an officer, board of the Board of Directors approved the terms of an employment agreement for our Vice President of Salesdirectors, employees and consultants: (i) we issued him options to purchase an aggregate 1,200,000300,000 shares of the Company’s common stock pursuant to the terms of our 2018 Plan. The exercise price of the first option to purchase 200,000 shares is equal to the closing price of our common stock at an exercise price on the May 28respective grant date atof $0.17 per share. One-thirdshare to our CFO as described below; (ii) we issued options to purchase 1,049,024 shares of our common stock at an exercise price on the option vests uponrespective grant date of $0.17 and $0.23 per share to members of our board of directors for services performed, in lieu of cash; the next third at the first anniversary of the grant, and the final third upon the second anniversary of the grant. Fairfair value of $34,000 wasthese options totaled $198,000; (iii) we issued options to purchase 1,800,011 shares of our common stock to employees as part of an employee retention and expiring options plan at exercises price on the respective date ranging between $0.17 and $0.23 per share; the fair value of employee retention plan options totaled $327,000 and will vest quarterly over four years as long as they are retained as employees; and (iv) we issued options to purchase 537,427 shares of our common stock to consultants and employees in lieu of cash for unpaid obligations totaling $95,000. All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expenses at issuance. The remaining options to purchase an aggregate 1,000,000 shares are unvested at grant date, and contingent upon certain performance metrics based on sales of our Odor-No-More subsidiary, none of which have been met. As such, no additional fair value was recorded and we are unable to estimate at this time if these metrics will be met. Upon execution of his employment agreement on July 5, 2019, an additional option to purchase 300,000 shares was granted, with an exercise price as of July 5 ($0.25), vesting 100,000 shares on the first, second and third anniversary of the agreement.expense.
Vice President of Sales
On May 28, 2019, the Compensation Committee of the Board of Directors approved the terms of an employment agreement for our Vice President of Sales and issued him options to purchase an aggregate 1,200,000 shares of the Company’s common stock pursuant to the terms of our 2018 Plan. The exercise price of the first option to purchase 200,000 shares is equal to the closing price of our common stock on the May 28 grant date, at $0.17 per share. One-third of the option vests upon grant, the next third at the first anniversary of the grant, and the final third upon the second anniversary of the grant. Fair value of $34,000 was recorded as selling, general and administrative expenses at issuance. The remaining options to purchase an aggregate 1,000,000 shares are unvested at grant date, and contingent upon certain performance metrics based on sales of our Odor-No-More subsidiary, none of which have been met. As such, no additional fair value was recorded and we are unable to estimate at this time if these metrics will be met. Upon execution of his employment agreement on July 5, 2019, an additional option to purchase 300,000 shares was granted, with an exercise price as of July 5 ($0.25), vesting 100,000 shares on the first, second and third anniversary of the agreement.
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.
Activity for our stock options under the 2007 Plan for the sixnine months ended JuneSeptember 30, 20182022 and 20192021 is as follows:
Weighted | ||||||||||||||||||
Average | Aggregate | |||||||||||||||||
Options | Exercise | Price per | intrinsic | |||||||||||||||
As of June 30, 2018: | Outstanding | price per share | share | Value(1) | ||||||||||||||
Balance, December 31, 2017 | 9,831,586 | $0.23 | – | 1.89 | $ | 0.44 | ||||||||||||
Expired | (70,000 | ) | 1.45 | – | 1.89 | 1.79 | ||||||||||||
Balance, June 30, 2018 | 9,761,586 | $0.23 | – | 1.65 | $ | 0.43 | $ | — | ||||||||||
| As of June 30, 2019: | ||||||||||||||||||
Balance, December 31, 2018 | 9,691,586 | $0.23 | – | 0.94 | $ | 0.43 | ||||||||||||
Expired | (842,136 | ) | 0.28 | – | 0.70 | 0.49 | ||||||||||||
Balance, June 30, 2019 | 8,849,451 | $0.23 | – | 1.65 | $ | 0.46 | $ | — | ||||||||||
Weighted | |||||||||||||||||
Average | Aggregate | ||||||||||||||||
Options | Exercise | Price per | intrinsic | ||||||||||||||
Outstanding | price per share | share | Value(1) | ||||||||||||||
Balance, December 31, 2021 | 2,879,246 | $0.28 | – | 0.94 | $ | 0.49 | |||||||||||
Expired | (975,161 | ) | $0.28 | – | 0.35 | 0.36 | |||||||||||
Balance, September 30, 2022 | 1,904,085 | $0.28 | – | 0.94 | $ | 0.56 | $ | — | |||||||||
Balance, December 31, 2020 | 5,689,363 | $0.28 | – | 0.94 | $ | 0.44 | |||||||||||
Expired | (1,769,008 | ) | 0.39 | – | 0.51 | 0.40 | |||||||||||
Balance, September 30, 2021 | 3,920,355 | $0.28 | – | 1.65 | $ | 0.45 | |||||||||||
(1) – Aggregate intrinsic value based on closing common stock price of $0.23$0.27 at JuneSeptember 30, 2019.2022.
Non-Plan Options issued
Activity of our non-plan stock options issued for the nine months ended September 30, 2022 and 2021 is as follows:
Weighted | |||||||||||||||||
Non-plan | average | Aggregate | |||||||||||||||
Options | Exercise | price per | Intrinsic | ||||||||||||||
Outstanding | price per share | share | value(1) | ||||||||||||||
Balance, December 31, 2021 | 20,119,207 | $0.17 | – | 1.00 | $ | 0.41 | |||||||||||
Granted | 105,797 | $0.23 | – | 0.27 | 0.26 | ||||||||||||
Balance, September 30, 2022 | 20,225,004 | $0.17 | – | 1.00 | $ | 0.39 | |||||||||||
Non-vested | (1,050,000 | ) | 0.17 | – | 0.45 | 0.45 | |||||||||||
Vested, September 30, 2022 | 19,175,004 | $0.17 | – | 1.00 | $ | 0.38 | $ | 274,000 | |||||||||
Balance, December 31, 2020 | 20,749,583 | $0.17 | – | 1.00 | $ | 0.41 | |||||||||||
Granted | 43,956 | 0.23 | 0.23 | ||||||||||||||
Expired | (800,000 | ) | 1.00 | 1.00 | |||||||||||||
Balance, September 30, 2021 | 19,993,539 | $0.17 | – | 1.00 | $ | 0.39 | |||||||||||
(1) – Aggregate intrinsic value based on closing common stock price of $0.27 at September 30, 2022.
Non-Plan Options issued
During the sixnine months ended JuneSeptember 30, 2019,2022, we issued options to purchase 970,380105,797 shares of our common stock at exercise prices on the grant date ranging between $0.16$0.23 – $0.25$0.27 per share to vendorsa vendor for fees for service resulting in a fair value totaling $194,000.services. The fair value of thethese options issuedtotal $36,000 and vested during the six months ended June 30, 2019 totaled $367,000, is recorded in our selling, general and administrative expense.
During the sixnine months ended JuneSeptember 30, 2018,2021, we issued optionsan option to purchase 1,008,26843,956 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.
Note 6. Warrants
We issued warrants to purchase our common stock, at various prices for the nine months ended September 30, 2022 and 2021, is as follows:
Weighted | |||||||||||||||||
average | Aggregate | ||||||||||||||||
Warrants | Exercise | price per | Intrinsic | ||||||||||||||
outstanding | price per share | share | value(1) | ||||||||||||||
Balance, December 31, 2021 | 36,765,502 | $0.16 | – | 1.00 | $ | 0.27 | |||||||||||
Issued | 27,137,048 | 0.19 | – | 0.33 | 0.23 | ||||||||||||
Expired | (10,273,722 | ) | 0.19 | – | 0.48 | 0.25 | |||||||||||
Balance, September 30, 2022 | 53,628,828 | $0.14 | – | 1.00 | $ | 0.26 | $ | 2,094,000 | |||||||||
Balance, December 31, 2020 | 32,980,989 | $0.16 | – | 1.00 | $ | 0.29 | |||||||||||
Issued | 7,865,872 | 0.14 | - | 0.27 | 0.20 | ||||||||||||
Exercised | (416,667 | ) | 0.14 | 0.14 | |||||||||||||
Expired | (2,743,406 | ) | 0.12 | - | 0.70 | 0.59 | |||||||||||
Balance, September 30, 2021 | 37,686,788 | $0.12 | – | 1.00 | $ | 0.27 | |||||||||||
(1) | Aggregate intrinsic value based on closing common stock price of $0.27 at September 30, 2022 |
Warrants issued in Unit Offerings
During the nine months ended September 30, 2022, pursuant to our Unit Offerings (see Note 3), we issued nine-month stock purchase warrants to purchase an aggregate 13,568,524 shares of our common stock at $0.19 - $0.23 per share, and five-year stock purchase warrants to purchase an aggregate 13,568,524 shares of our common stock at $0.24 - $0.33 per share.
During the nine months ended September 30, 2021, pursuant to our Unit Offerings (see Note 3), we issued six-month stock purchase warrants to purchase an aggregate 3,932,936 shares of our common stock at exercise prices ranging between $0.23$0.14 – $0.43 per share to vendors and to members of our board of directors in exchange for unpaid obligations for their services. The fair value of the options totaled $261,000 and is recorded as selling, general and administrative expenses.
Activity of our non-plan stock options issued for the six months ended June 30, 2018 and 2019 is as follows:
Weighted | ||||||||||||||||||
| Non-plan | average | Aggregate | ||||||||||||||||
| Options | Exercise | price per | intrinsic | |||||||||||||||
| As of June 30, 2018: | outstanding | price per share | share | value(1) | ||||||||||||||
Balance, December 31, 2017 | 20,018,408 | $0.25 | – | 1.00 | $ | 0.51 | ||||||||||||
Granted | 1,008,268 | 0.23 | – | 0.43 | 0.26 | |||||||||||||
Expired | (2,400,000 | ) | 0.99 | 0.99 | ||||||||||||||
Balance, June 30, 2018 | 18,626,676 | $0.25 | – | 1.00 | $ | 0.45 | $ | — | ||||||||||
| As of June 30, 2019: | ||||||||||||||||||
Balance, December 31, 2018 | 19,319,496 | $0.23 | – | 1.00 | $ | 0.43 | ||||||||||||
Granted | 970,380 | 0.16 | – | 0.25 | 0.19 | |||||||||||||
Expired | (691,975 | ) | 0.55 | 0.55 | ||||||||||||||
Balance, June 30, 2019 | 19,597,901 | $0.16 | – | 1.00 | $ | 0.42 | $ | 34,000 | ||||||||||
(1) – Aggregate intrinsic value based on closing common stock price of $0.23 at June 30, 2019.
Note 6. Warrants
We have certain warrants outstanding to purchase our common stock, at various prices, as described in the following table:
Weighted | ||||||||||||||||||
average | Aggregate | |||||||||||||||||
Warrants | Exercise | price per | intrinsic | |||||||||||||||
As of June 30, 2018: | outstanding | price per share | share | value(1) | ||||||||||||||
Balance, December 31, 2017 | 22,104,817 | $0.125 | – | 1.00 | $ | 0.45 | ||||||||||||
Issued | 2,611,513 | 0.25 | – | 0.48 | 0.35 | |||||||||||||
Expired | (2,683,400 | ) | 0.40 | 0.40 | ||||||||||||||
Balance, June 30, 2018 | 22,032,930 | $0.125 | – | 1.00 | $ | 0.44 | ||||||||||||
| As of June 30, 2019: | ||||||||||||||||||
Balance, December 31, 2018 | 26,872,430 | $0.25 | – | 1.00 | $ | 0.42 | ||||||||||||
Issued | 9,031,871 | 0.10 | – | 0.25 | 0.15 | |||||||||||||
Exercised | (5,205,746 | ) | 0.10 | – | 0.12 | 0.11 | ||||||||||||
Balance, June 30, 2019 | 30,698,555 | $0.10 | – | 1.00 | $ | 0.39 | $ | 547,000 | ||||||||||
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Warrants issued as part of debt extension
On March 5, 2019, we executed amendments extending the maturity dates of notes issued to Vernal Bay and Chappy Bean (see Note 4, subsection titled “Notes payable, mature September 6, 2019”). As consideration for this extension, we agreed to reduce the exercise price, and increase the number of shares purchasable, by the warrants held by Vernal Bay and Chappy Bean. Vernal Bay had been issued a warrant to purchase 1,387,500 shares at $0.25 per share, expiring September 19, 2023. We agreed to lower the exercise price to $0.200.22 per share, and proportionately increase the number of shares in the warrant to 1,734,375. By doing so, the maximum investment amount under the warrant of $346,875 remained the same. Chappy Bean’s warrantfive-year stock purchase warrants to purchase 600,000 shares was similarly modified, such that it now allows for the purchase of 750,000 shares at $0.20 per share. The reduction in warrant exercise price resulted in a fair value of $56,000 recorded as loss on debt extinguishment in the three months ended March 31, 2019. In thean aggregate the number of shares purchasable under these two warrants increased by 496,875.
Warrants issued as consent for variable rate debt
On January 7 and January 31, 2019, Lincoln Park Capital Fund, LLC agreed to waive the provisions of the Purchase Agreement dated August 25, 2017, prohibiting variable rate transactions. As consideration for the waivers, we issued to Lincoln Park a warrant to purchase 300,0003,923,936 shares of our common stock at $0.25exercise prices between $0.18 – 0.27 per share, expiring five years from the dateshare.
On August 6, 2021 a holder of grant. In the event the shares underlyinga six-month stock purchase warrant exercised the warrant are not registered, the warrant allows the holder to do a “cashless” exercise. The fair value of these warrants totaled $54,000 and was recorded as a discount on note payable on our consolidated balance sheetwe received $60,000 and will amortize to interest expense in 2019 over the term of the notes. (See Note 4).
Warrants Issued concurrently with the Nine-month OID notes
In conjunction with the issuance of our nine-month OID notes (see Note 4), we issued each investor a warrant to purchase common stock for $0.25 per share, expiring 5 years from the date of issuance. During the three months ended March 31, 2019, we issued warrants to purchase 637,500416,667 shares of our common stock to the three investors. The fair value of these warrants totaled $89,000 and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense over the term of the notes. During the three months ended June 30, 2019, we reduced the conversion prices of the notes from $0.25 to $0.17, and this resulted in an increase in the number of warrants purchasable by the investors by 300,000 to 937,500, which resulted our recording the fair value of $85,000, which is recorded as a deemed dividend.
Warrants Issued concurrently with Twelve-month OID notes
During the three-months ended June 30, 2019, we issued warrants to purchase 2,619,485 shares of our common stock to purchasers of our Twelve-month OID Notes (see Note 4). The warrants allow the holder to purchase common stock for $0.25 per share, expiring 5 years from the date of issuance. The number of shares purchasable under each warrant was equal to the 75% of the principal balance of the investor’s note, divided by $0.17 (thus, for example, a $300,000 investment would yield a note with principal balance of $375,000, and a warrant allowing for the purchase of up to 1,654,412 shares). The warrant will allow for cashless exercise after 18 months so long as the shares underlying the warrant are not registered. The Company does not have the obligation to register the shares underlying the warrant, but intends to dos o The fair value of these warrants totaled $252,000 and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense over the term of the notes.
Warrants exercised
During the three months ended June 30, 2019, we received $104,000 from the exercise of a warrant to purchase 866,666 shares.
During the three months ended June 30, 2019, Vista Capital exercised its stock purchase warrant issued September 12, 2018, electing to utilize the cashless exercise features in the warrant. As a result, we issued Vista Capital 2,877,790 shares of common stock. A previous adjustment to the number of shares available for purchase under the warrant resulted in a fair value totaling $355,000, recorded as a deemed dividend in our statement of stockholders’ equity.
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 usedDuring the nine months ended September 30, 2022 and 2021, no warrants were issued in applying this model were as follows:conjunction with debt offerings.
June 30, 2018 | June 30, 2019 | |||||||||
Risk free interest rate | 2.54% |
| 1.70 | – | 2.62% | |||||
Expected volatility | 252% |
| 86 | – | 110% | |||||
Expected dividend yield | — | — | ||||||||
Forfeiture rate | — | — | ||||||||
Expected life in years | 5 | – | 10 | 2 | – | 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 for our operations other than our partially-owned subsidiary Clyra Medical included the following (in thousands):
December 31, 2018 | June 30, 2019 | September 30, 2022 | December 31, 2021 | |||||||||||||
Accounts payable and accrued expense | $ | 302 | $ | 328 | $ | 334 | $ | 349 | ||||||||
Accrued interest | 122 | 209 | 25 | 25 | ||||||||||||
Accrued payroll | 77 | 139 | 161 | 185 | ||||||||||||
Total accounts payable and accrued expenses | $ | 501 | $ | 676 | $ | 520 | $ | 559 | ||||||||
Accounts payable and accrued expenses includes ordinary business payables incurred by the Company and its operational subsidiaries. See Note 8, “Accounts Payable and Accrued Expenses”, for the accounts payable and accrued expenses of Clyra Medical.
Note 8. Noncontrolling Interest – Clyra Medical
We consolidate the operations of our partially owned subsidiary Clyra Medical, (see Note 2).of which we owned 58% of its outstanding shares as of September 30, 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 rate of $310 per share.
Debt Obligations of Clyra Medical
On April 8, 2022, Clyra Medical issued a promissory note in the principal amount of $1,250,000$100,000 to an individual investor, payable April 8, 2024 bearing 8% annual interest. The note may be paid through new capital investmentsconverted by its holder at any time prior to the maturity date, and revenue, as detailed below. This consideration was initially held in escrow pending Clyra Medical raising $1 million “base capital”automatically converts to fundstock upon (i) Clyra’s sale of $5,000,000 or more of its business operations.common or preferred stock, or (ii) the maturity date, at a conversion price equal to 70% of the lowest price-per-share of shares sold to a future investor prior to the maturity date.
On December 17, 2018, the partiesJune 30, 2020, Clyra Medical entered into a closingRevolving Line of Credit Agreement whereby Vernal Bay Capital Group, LLC committed to provide a $1,000,000 inventory line of credit. Since inception, $260,000 in line of credit draws were made and Clyra has repaid $97,000. As of September 30, 2022, the balance outstanding on this line of credit totals $163,000. Funds from the line of credit must be used to produce inventory. Additional draws are conditional upon the presentation of invoices or purchase orders to the lender equal to the greater of one-half of principal outstanding on the line of credit, and $200,000. The line of credit accrues interest at 15%, requires Clyra pay interest and principal from gross product sales, and is due on demand. Clyra is required to pay 60% of gross product sales to reduce amounts owed on the line of 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 (“Closing Agreement”) reflecting the satisfaction of the obligation to raise $1 million “base capital”; atsame date grants Vernal Bay a security interest in Clyra’s inventory, as that time, one-half ofterm is defined in the shares of Clyra Medical common stock exchanged for the Scion assets were released to Scion. The remaining Clyra Medical common shares (a total of 15,500 shares) remain subject to the Escrow Agreement’s performance metrics, each vesting one-fifth of the remaining shares of common stock: (a) notification of FDA premarket clearance of certain orthopedics products, or recognition by Clyra Medical of $100,000 gross revenue; (b) the recognition by Clyra Medical of $100,000 in aggregate gross revenue; (c) the granting of all or any part of the patent application for the SkinDisc product, or recognition by Clyra Medical of $500,000 in gross revenue; (d) recognition by Clyra Medical of $1 million in aggregate gross revenue; and (e) recognition by Clyra Medical of $2 million in gross revenue.Uniform Commercial Code.
(UNAUDITED)Prepaid Marketing - Consulting Agreement
On 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, which has not been met. The value of the shares issued to Beach House were higher but the asset was impaired in 2021, the asset totals $591,000 and is recorded as a non-current asset on our balance sheet.
Scion Solutions – Note Payable and Clyra Liability
The promissory note in the principal amount of $1,250,000 issued by Clyra Medical to Scion on September 26, 2018 (“Clyra-Scion Note”) accrues interest at the rate of 5%. Principal and interest due under the note are to be paid periodically at a rate of 25% of investment proceeds received by Clyra Medical. If the note is not paid off within 18 months after the date of issuance, it is automatically extended for additional 12-month periods until the note is repaid in full. Payments after the initial 18-month maturity date are required to be made in annual installments in an amount equal to the greater of (i) 25% of investment proceeds received during the 12-month period, and (ii) 5% of Clyra Medical’s gross revenues. At June 30, 2019, the balance due on the Clyra-Scion Note equaled $1,007,000.
Non-Controlling InterestEquity transactions
During the six months ended June 30, 2019, Clyra sold $295,000 of its common stock at a price of $200 per share. The shares of BioLargo common stock held by Clyra for the benefit of Scion (the redemption shares) are recorded on our balance sheet as a liability to “Clyra Medical Shareholder”.
As of JuneSeptember 30, 2019,2022, Clyra Medical had the following common and preferred shares outstanding:
Shareholder | Shares | Percent | Shares | Percent | ||||||||||
BioLargo, Inc. | 28,053 | 41.4% | 51,249 | 58 | % | |||||||||
Sanatio Capital | 11,520 | 17.0% | 18,704 | 21 | % | |||||||||
Scion Solutions(2) | 15,500 | 22.9% | ||||||||||||
Other | 12,697 | 18.7% | 19,118 | 21 | % | |||||||||
Total | 67,770 | 89,071 | ||||||||||||
Notes:
Sales of Common Shares
(1) Includes 9,830 Series A Preferred shares (see below),During the nine months ended September 30, 2022 and 1,690 common shares.2021, Clyra raised $0 and $50,000 at $310 per Clyra share.
(2) Does not include an additional 15,500 shares held in escrow subject to performance metrics.Stock Options
Sanatio Capital purchased Series A Preferred sharesClyra issues options to its employees and consultants in 2015. Sanatio Capital is owned by Jack B. Strommen, who subsequently joined BioLargo’s boardlieu of directors. Preferred Shares accrue an annual dividend of 8% for a period of five years. Although the dividends began to accrue immediately, Clyra Medical has no obligation to declare a dividend until a product of the company has received a premarket approval by the United States Federal Drug Administration (“FDA”), or for which a premarket notification pursuant to form 510(k) has been submitted and for which the FDA has given written clearance to market the product in the United States (either, “FDA Approval”). After FDA Approval, annually on December 20, and unless prohibited by California law governing distributions to shareholders, Clyra Medical is required to declare and pay any accruing dividends to holders of Preferred Shares then accrued but unpaid. As the declaration and payment of such dividends is contingent on an uncertain future event, no liability has been recorded for the dividends. The accumulated and undeclared dividend balance as of June 30, 2019 is $215,000.
Holders of Preferred Shares are entitled to preferential payments in the event of a liquidation, dissolution or winding up of the company, in an amount equal to any accrued and unpaid dividends. After such preference, any remaining assets are distributed pro-rata between holders of Clyra Medical common stock and Preferred Shares as if the Preferred Shares had converted to Clyra Medical common stock. Holders of Preferred Shares may convert the shares to Clyra Medical common stock initiallycompensation owed on a one-to-oneregular basis. The conversion formula is subject to change inAs of December 31, 2021, the event Clyra Medical sells stock at a lower price than the price paid by Sanatio.
Preferred shares may be converted to common shares on a one-to-one basis, and have voting rights equal to common shares on a one-to-one basis.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 9. 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 seven scientists and engineers. (See Note 10 “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 grantedCompany had issued options to purchase up to an aggregate 2 million14,004 shares of BioLargo, Inc.Clyra stock. During the nine months ended September 30, 2022 and 2021, Clyra issued options to purchase 1,403 and 2,074 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 profit interest and option shares are subject to a five year vesting schedule tied to the performancefair value 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 progressoptions issued in the scale-upnine months ended September 30, 2022 and commercialization2021 totaled $304,000 and $442,000. We used the Black-Scholes model to calculate the initial fair value, assuming a stock price on date of our AOS system,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 ranging between 2.32% - 3.83%, a volatility of 40% 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). 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. No such units have been issued.an expected life of 10 years.
Clyra Accounts Payable and Accrued Expenses
Clyra had the following accounts payable and accrued expenses as follows:
September 30, 2022 | December 31, 2021 | |||||||
Accounts payable and accrued expense | $ | 202 | $ | 149 | ||||
Accrued interest | 4 | 51 | ||||||
Accrued payroll | 5 | 30 | ||||||
Total Clyra Medical accounts payable and accrued expenses | $ | 211,000 | $ | 230 | ||||
Note 10.9. 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. Odor-No-MoreONM Environmental (“ONM”) -- which is sellingsells odor and volatile organic control products and services (located in Westminster, California);
2. Clyra Medical (“Clyra”) -- which is engaged in developing medical products and preparing launch into commercial activity with approval
1. | ONM Environmental (“ONM”) -- which sells odor and volatile organic control products and services (located in Westminster, California); |
2. | Clyra Medical Technologies (“Clyra”) -- which develops and sells medical products based on our technologies, including BioClynse wound irrigation solution; |
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);
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 |
4. BioLargo Water (“Water”) -- which has now shifted its focus from R&D/product development to commercializing the AOS technology (located in Edmonton, Alberta Canada).
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 (other than ONM this last quarter) and therefore each required additional cash to meet its monthly expenses. The additional sources of the cash to fund the shortfall from operations of Odor-No-More, BLEST and BioLargo Water have been provided byexpenses, funded through BioLargo’s sales of debt or equity, research grants, and tax credits. Clyra Medical has also been funded by third party investors who invest directly in Clyra Medical in exchange for equity ownership in that entity. For example, during the year ended December 31, 2018, we provided Odor-No-More with approximately $417,000 in cash to supplement its operations. As this subsidiary’s sales have increased (from approximately $500,000 in calendar year 2017 to over $1 million in calendar year 2018), and its gross margins have improved, it has generated more cash for its operations and relied less on corporate to supplement its cash to pay its bills. For the six months ended June 30, 2019, we provided it with approximately $54,000 in cash to supplement its operations.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The segment information for the three and sixnine months ended JuneSeptember 30, 20182022 and 2019,2021, is as follows (in thousands):
Three months ended June 30, | Six months ended June 30, | Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||
2018 | 2019 | 2018 | 2019 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||
Odor-No-More | $ | 316 | $ | 315 | $ | 540 | $ | 616 | ||||||||||||||||||||||||
BioLargo corporate | $ | 2 | $ | — | $ | 4 | $ | 7 | ||||||||||||||||||||||||
ONM | 1,199 | 420 | 2,499 | 1,058 | ||||||||||||||||||||||||||||
BLEST | 161 | 241 | 350 | 424 | 401 | 416 | 1,613 | 1,070 | ||||||||||||||||||||||||
BLEST - Intercompany revenue | (150 | ) | (130 | ) | (300 | ) | (250 | ) | ||||||||||||||||||||||||
Water | 1 | 2 | 1 | 9 | ||||||||||||||||||||||||||||
Clyra Medical | 17 | 9 | 34 | 114 | ||||||||||||||||||||||||||||
Intersegment revenue | (120 | ) | (135 | ) | (365 | ) | (522 | ) | ||||||||||||||||||||||||
Total | $ | 327 | $ | 426 | $ | 590 | $ | 790 | $ | 1,500 | $ | 712 | $ | 3,786 | $ | 1,743 | ||||||||||||||||
Operating loss | ||||||||||||||||||||||||||||||||
Operating income (loss) | ||||||||||||||||||||||||||||||||
BioLargo corporate | $ | (1,052 | ) | $ | (956 | ) | $ | (2,145 | ) | $ | (1,904 | ) | $ | (783 | ) | $ | (868 | ) | $ | (2,925 | ) | $ | (2,726 | ) | ||||||||
Odor-No-More | (145 | ) | (51 | ) | (254 | ) | (141 | ) | ||||||||||||||||||||||||
Clyra | (177 | ) | (319 | ) | (376 | ) | (606 | ) | ||||||||||||||||||||||||
ONM | 400 | (72 | ) | 418 | (355 | ) | ||||||||||||||||||||||||||
Clyra Medical | (240 | ) | (219 | ) | (736 | ) | (958 | ) | ||||||||||||||||||||||||
BLEST | (70 | ) | (27 | ) | (115 | ) | (137 | ) | (179 | ) | (140 | ) | (158 | ) | (513 | ) | ||||||||||||||||
Water | (184 | ) | (134 | ) | (340 | ) | (361 | ) | (141 | ) | (156 | ) | (572 | ) | (461 | ) | ||||||||||||||||
Total | $ | (1,628 | ) | $ | (1,487 | ) | $ | (3,230 | ) | $ | (3,149 | ) | $ | (943 | ) | $ | (1,455 | ) | $ | (3,973 | ) | $ | (5,013 | ) | ||||||||
Interest expense | ||||||||||||||||||||||||||||||||
BioLargo Corporate | $ | (1,729 | ) | $ | (485 | ) | $ | (2,559 | ) | $ | (1,458 | ) | ||||||||||||||||||||
Clyra | — | (13 | ) | (2 | ) | (25 | ) | |||||||||||||||||||||||||
BioLargo corporate | $ | (6 | ) | $ | (6 | ) | $ | (18 | ) | $ | (106 | ) | ||||||||||||||||||||
Clyra Medical | (8 | ) | (20 | ) | (24 | ) | (96 | ) | ||||||||||||||||||||||||
Total | $ | (1,729 | ) | $ | (498 | ) | $ | (2,561 | ) | $ | (1,483 | ) | $ | (14 | ) | $ | (26 | ) | $ | (42 | ) | $ | (208 | ) | ||||||||
Research and development expense | ||||||||||||||||||||||||||||||||
BioLargo Corporate | $ | (281 | ) | $ | (210 | ) | $ | (624 | ) | $ | (382 | ) | ||||||||||||||||||||
Odor-No-More | — | — | — | — | ||||||||||||||||||||||||||||
Clyra | (57 | ) | (106 | ) | (144 | ) | (155 | ) | ||||||||||||||||||||||||
BioLargo corporate | $ | (140 | ) | $ | (220 | ) | $ | (570 | ) | $ | (765 | ) | ||||||||||||||||||||
Clyra Medical | (31 | ) | (20 | ) | (73 | ) | (53 | ) | ||||||||||||||||||||||||
BLEST | (105 | ) | (73 | ) | (205 | ) | (195 | ) | (100 | ) | (123 | ) | (288 | ) | (358 | ) | ||||||||||||||||
Water | (132 | ) | (108 | ) | (274 | ) | (317 | ) | (119 | ) | (109 | ) | (446 | ) | (366 | ) | ||||||||||||||||
Intersegement BioLargo corporate | 150 | 130 | 300 | 256 | ||||||||||||||||||||||||||||
Intersegment R&D | 119 | 135 | 359 | 515 | ||||||||||||||||||||||||||||
Total | $ | (425 | ) | $ | (367 | ) | $ | (947 | ) | $ | (793 | ) | $ | (271 | ) | $ | (344 | ) | $ | (1,018 | ) | $ | (1,027 | ) | ||||||||
As of June 30, 2019 | BioLargo | ONM | Clyra | BLEST | Water | Elimination | Total | |||||||||||||||||||||
Tangible assets | $ | 1,000 | $ | 198 | $ | 302 | $ | 163 | $ | 33 | $ | (6 | ) | $ | 1,690 | |||||||||||||
Intangible assets | 1,893 | — | — | — | — | — | 1,893 | |||||||||||||||||||||
The segment asset information for September 30, 2022 and December 31, 2021, is as follows (in thousands):
As of December 31, 2018 | BioLargo | ONM | Clyra | BLEST | Water | Elimination | Total | |||||||||||||||||||||
Tangible assets | $ | 353 | $ | 220 | $ | 462 | $ | 230 | $ | 33 | $ | (6 | ) | $ | 1,292 | |||||||||||||
Intangible assets | 1,893 | — | — | — | — | — | 1,893 | |||||||||||||||||||||
As September 30, 2022 | BioLargo | ONM | Clyra | BLEST | Water | Elimination | Total | |||||||||||||||||||||
Tangible assets | $ | 785 | $ | 1,079 | $ | 814 | $ | 590 | $ | 194 | $ | (20 | ) | $ | 3,442 | |||||||||||||
Right of use | 157 | — | — | 739 | — | — | 896 | |||||||||||||||||||||
Investment in South Korean joint venture | 33 | — | — | — | — | — | 33 | |||||||||||||||||||||
Total | 975 | 1,079 | 814 | 1,329 | 194 | (20 | ) | 4,371 | ||||||||||||||||||||
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 | — | — | 231 | — | — | 453 | |||||||||||||||||||||
Investment in South Korean joint venture | 48 | — | — | — | — | — | 48 | |||||||||||||||||||||
Total | 960 | 451 | 832 | 676 | 152 | (47 | ) | 3,023 | ||||||||||||||||||||