Quarterly Report (10-q)

Date : 11/14/2019 @ 10:04PM
Source : Edgar (US Regulatory)
Stock : BioLargo Inc (QB) (BLGO)
Quote : 0.21325  -0.02575 (-10.77%) @ 9:05PM

Quarterly Report (10-q)

 

 

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019.

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission File Number 000-19709

 


BIOLARGO, INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware

65-0159115

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

14921 Chestnut St.

Westminster, CA 92683

(Address of principal executive offices)

 

(888) 400-2863

(Registrant’s telephone number, including area code)

 


 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock

BLGO

OTC Markets (OTCQB)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒     No  ☐

 

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

 

Large accelerated filer     ☐

 

Non-accelerated filer       ☒          

Accelerated filer ☐

 

Smaller reporting company ☒

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

The number of shares of the Registrant’s Common Stock outstanding as of November 8, 2019 was 163,916,660 shares.

 

 

 

BIOLARGO, INC.

 

FORM 10-Q

INDEX

 

PART I

 

   

Item 1

Financial Statements

   

Item 2

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

   

Item 4

Controls and Procedures

 

PART II

 

   

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

   

Item 5

Other Information

   

Item 6

Exhibits

   
 

Signatures

   
 

Exhibit Index

 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2018 AND SEPTEMBER 30, 2019

(in thousands, except for per share data)

 

   

DECEMBER 31,
2018

   

SEPTEMBER 30, 2019

(unaudited)

 

Assets

 

Current assets:

               

Cash and cash equivalents

  $ 655     $ 2,136  

Accounts receivable

    257       306  

Inventories, net of allowance

    26       19  

Prepaid expenses and other current assets

    17       105  

Total current assets

    955       2,566  

In-process research and development (Note 8)

    1,893       1,893  

Equipment, net of depreciation

    126       106  

Other non-current assets

    35       35  

Right-of-use, operating lease, net of amortization

          341  

Deferred offering cost

    176       163  

Total assets

  $ 3,185     $ 5,104  

Liabilities and stockholders’ equity (deficit)

 

Current liabilities:

               

Accounts payable and accrued expenses

  $ 501     $ 546  

Clyra Medical note payable (Note 8)

          1,007  

Notes payable

    400       50  

Line of credit

    430       225  

Convertible notes payable

    1,365       5,224  

Discount on convertible notes payable, and line of credit, net of amortization

    (205 )     (2,438 )

Lease liability

          116  

Customer deposit

          27  

Total current liabilities

    2,491       4,757  

Long-term liabilities:

               

Convertible notes and note payable

    285       700  

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 )     (211 )

Lease liability

          225  

Total long-term liabilities

    1,817       1,357  

Total liabilities

    4,308       6,114  

COMMITMENTS, CONTINGENCIES (Note 11)

               

STOCKHOLDERS’ EQUITY (DEFICIT):

               

Preferred Series A, $.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at December 31, 2018 and September 30, 2019, respectively.

           

Common stock, $.00067 Par Value, 400,000,000 Shares Authorized, 141,466,071 and 158,671,346 Shares Issued, at December 31, 2018 and September 30, 2019, respectively.

    95       106  

Additional paid-in capital

    110,222       119,421  

Accumulated other comprehensive loss

    (90 )     (91 )

Accumulated deficit

    (111,723 )     (120,556 )

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

    (1,496 )     (1,120 )

Non-controlling interest (Note 8)

    373       110  

Total stockholders’ equity (deficit)

    (1,123 )     (1,010 )

Total liabilities and stockholders’ equity (deficit)

  $ 3,185     $ 5,104  

 

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

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2019

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

(unaudited)

 

   

THREE MONTHS

   

NINE MONTHS

 
   

SEPTEMBER

30, 2018

   

SEPTEMBER

30, 2019

   

SEPTEMBER

30, 2018

   

SEPTEMBER

30, 2019

 
                                 

Revenues

                               

Product revenue

  $ 246     $ 396     $ 786     $ 1,013  

Service revenue

    31       138       81       311  

Total revenue

    277       534       867       1,324  
                                 

Cost of revenue

                               

Cost of goods sold

    (98 )     (171 )     (426 )     (448 )

Cost of service

    (24 )     (95 )     (60 )     (238 )

Gross profit

    155       268       381       638  
                                 

Selling, general and administrative expenses

    1,365       1,803       3,852       4,498  

Research and development

    442       332       1,391       1,126  

Depreciation

    13       17       36       48  

Operating loss:

    (1,665 )     (1,884 )     (4,898 )     (5,034 )
                                 

Other (expense) income:

                               

Interest expense

    (266 )     (1,289 )     (2,827 )     (2,773 )

Debt conversion expense

                (276 )      

Loss on debt extinguishment

    (578 )     (801 )     (578 )     (1,029 )

Tax credit

    73       62       73       62  

Grant income

    58       26       96       149  

Total other expense:

    (713 )     (2,002 )     (3,512 )     (3,591 )

Net loss

    (2,378 )     (3,886 )     (8,410 )     (8,625 )
                                 

Net loss attributable to noncontrolling interest

    (118 )     (207 )     (320 )     (572 )

Net loss attributable to common shareholders

  $ (2,260 )   $ (3,679 )   $ (8,090 )   $ (8,053 )
                                 

Net loss per share attributable to common shareholders:

                               

Loss per share attributable to shareholders – basic and diluted

  $ (0.02 )   $ (0.02 )   $ (0.07 )   $ (0.05 )

Weighted average number of common shares outstanding:

    130,445,351       156,435,220       118,057,635       148,239,912  
                                 

Comprehensive loss:

                               

Net loss

  $ (2,378 )   $ (3,886 )   $ (8,410 )   $ (8,625 )

Foreign currency translation

    47       (4 )     (5 )     (1 )

Comprehensive loss

    (2,331 )     (3,890 )     (8,415 )     (8,626 )

Comprehensive loss attributable to noncontrolling interest

    (118 )     (207 )     (320 )     (572 )

Comprehensive loss attributable to common stockholders

  $ (2,213 )   $ (3,683 )   $ (8,095 )   $ (8,053 )

 

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

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2019

(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 )

Conversion of notes

    1,336,952       1       333                         334  

Issuance of common stock for services

    691,791             198                         198  

Issuance of common stock for interest

    83,062             21                         21  

Sale of stock for cash

    1,565,762       1       444                         445  

Stock option compensation expense

                288                         288  

Warrants and beneficial conversion feature issued as discount on convertible notes payable, note payable and line of credit

                256                         256  

Fair value of warrants for extension of debt

                506                         506  

Net loss

                      (2,260 )           (118 )     (2,378 )

Foreign currency translation

                            (80 )           (80 )

Balance, September 30, 2018

    132,036,574       86       108,213       (109,590 )     (141 )     375       (1,055 )

 

 

   

Common stock

   

Additional

paid-in

   

Accumulated

   

Accumulated

other comprehensive

   

 

Non-

controlling

   

Total stockholders’ equity

 
   

Shares

   

Amount

   

capital

   

deficit

   

Loss

   

interest

   

(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

    87,478             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

    152,554,904       102       114,745       (116,876 )     (98 )     208       (1,919 )

Conversion of notes

    2,791,300       2       392                         394  

Issuance of common stock for service

    629,198             166                         166  

Issuance of common stock for interest

    395,944             107                         107  

Warrant exercise

    2,300,000       2       274                         276  

Convert BioLargo convertible note to Clyra Medical shares

                440                         440  

Stock option compensation expense

                552                         552  

Debt extinguishment expense

                619                         619  

Warrants and conversion feature issued as discount on convertible notes payable and line of credit

                2,060                         2,060  

Issuance of Clyra Medical common stock

                66                   109       175  

Net loss

                      (3,680 )           (207 )     (3,887 )

Foreign currency translation

                            7             7  

Balance, September 30, 2019

    158,671,346     $ 106     $ 119,421     $ (120,556 )   $ (91 )   $ 110     $ (1,010 )

 

 

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, 2018 AND 2019

(in thousands, except for per share data)

(unaudited)

 

   

SEPTEMBER 30,

2018

   

SEPTEMBER 30,

2019

 

Cash flows from operating activities

               

Net loss

  $ (8,410 )   $ (8,625 )

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

               

Stock option compensation expense

    984       1,201  

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

    644       587  

Common stock issued for interest

    519       147  

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

    2,213       2,381  

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

    578       1,029  

Bad debt expense

    1        

Deferred offering expense

    19       13  

Depreciation expense

    36       48  

Changes in assets and liabilities:

               

Accounts receivable

    (19 )     (72 )

Inventories

    8       7  

Accounts payable and accrued expenses

    143       88  

Prepaid expenses and other current assets

    (43 )     (66 )

Customer deposits

          27  

Net cash used in operating activities

    (3,051 )     (3,181 )

Cash flows from investing activities

               

Leasehold improvements

    (43 )     (27 )

Net cash used in investing activities

    (43 )     (27 )

Cash flows from financing activities

               

Proceeds from convertible notes payable

    880       4,335  

Proceeds from conversion inducement

    357        

Proceeds from warrant exercise-price reduction

    149        

Proceeds from warrant exercise

          380  

Proceeds from the sale of stock in Clyra Medical

          470  

Repayment of notes payable

          (495 )

Proceeds from sale of stock to Lincoln Park Capital

    827        

Proceeds from line of credit

    430        

Net cash provided by financing activities

    2,643       4,690  

Net effect of foreign currency translation

    (5 )     (1 )

Net change in cash

    (456 )     1,481  

Cash at beginning of year

    990       655  

Cash at end of period

  $ 534     $ 2,136  

Supplemental disclosures of cash flow information

               

Cash paid during the year for:

               

Interest

  $ 5     $ 116  

Income taxes

  $ 6     $ 3  

Non-cash investing and financing activities

               

Fair value of warrants issued with convertible notes

  $ 570     $ 3,931  

Conversion of convertible notes payable into common stock

  $ 5,930     $ 908  

Convertible Notes issued with Original Issue Discount

  $ 10     $ 1,008  

Conversion of convertible note payable into shares of Clyra

  $     $ 440  

Exercise of stock options

  $ 2     $  

Fair value of stock issued for financing fees

  $ 85     $  

Right of use, operating lease and liability

  $     $ 341  

Deemed dividend

  $ 297     $ 781  

 

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

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

Note 1. Business and Organization

 

Description of Business 

 

BioLargo, Inc. delivers innovative and sustainable technology-based products and services, as well as environmental engineering expertise, across a broad range of industries with an overriding mission to “make life better” with a focus on clean water, clean air, and advanced wound care. 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 nine months ended September 30, 2019, we had a net loss of $8,625,000, used $3,181,000 cash in operations, and at September 30, 2019, had a working capital deficit of $2,191,000 and current assets of $2,566,000. 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 nine months ended September 30, 2019, we generated revenues of $1,364,000 and $1,324,000 through our business segments (Odor-No-More and BLEST – see Note 10, “Business Segment Information”). Neither generated an operating profit sufficient to fund their operations.

 

As of September 30, 2019, we had approximately $2.1 million cash on hand, and over $5 million current debt obligations. Subsequent to September 30, 2019, $645,000 have been satisfied through the payment of cash, and $609,000 through conversion to our common stock (see Note 12). As of the date of this Report, one debt obligation due within 12 months, in the amount of $370,000, must be paid in cash if the investor does not exercise the right to convert the note to our common stock (see Note 4, “Convertible Note, matures April 7, 2020”). Additionally, we have approximately $3.2 million in 12-month OID notes due within 12 months, which will be converted to common stock unless the Company receives at least $3.5 million in gross proceeds from a financing transaction. All other debt obligations due within 12 months are convertible at maturity. We continue to raise money through private securities offerings, and continue to negotiate for more substantial financings from private and institutional investors. During the nine months ended September 30, 2019, we received $4,690,000 net cash provided by financing activities, and at September 30, 2019 had cash of $2,136,000.

 

The foregoing factors raise substantial doubt about our ability to continue as a going concern. Ultimately, 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 five wholly-owned subsidiaries: BioLargo Life Technologies, Inc., organized under the laws of the State of California in 2006; Odor-No-More, 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; BioLargo Development Corp., organized under the laws of the State of California in 2016; and BioLargo Engineering Science and Technologies, LLC, organized under the laws of the State of Tennessee in 2017 (“BLEST”). Additionally, we own 38% of Clyra Medical Technologies, Inc. (“Clyra Medical”), organized under the laws of the State of California in 2012, and consolidate their financial statements (see Notes 2 and 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 nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, 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, 2018 filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2019, as amended.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

Note 2. Summary of Significant Accounting Policies

 

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

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, 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 38% 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).

 

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 December 31, 2018 and September 30, 2019, our cash balances were made up of the following (in thousands):

 

   

December 31,

2018

   

September 30,

2019

 

BioLargo, Inc. and wholly owned subsidiaries

  $ 193     $ 2,071  
                 

Clyra Medical Technologies, Inc.

    462       65  
                 

Total

  $ 655     $ 2,136  

 

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 December 31, 2018 and September 30, 2019 was zero.

 

Credit Concentration

 

During the nine months ended September 30, 2018 and 2019, we had two customers that each accounted for more than 10% of consolidated revenues in the respective periods, as follows:

 

   

September 30,
2018

   

September 30,

2019

 

Customer A

    44 %     13 %

Customer B

    12 %     <10 %

Customer C

    <10 %     10 %

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

We had two customers that accounted for more than 10% of consolidated accounts receivable at December 31, 2018 and at September 30, 2019 as follows:

 

   

December 31,

2018

   

September 30,

2019

 

Customer W

    12 %     <10 %

Customer X

    31 %     <10 %

Customer Y

    <10 %     17 %

Customer Z

    <10 %     15 %

 

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 December 31, 2018 and September 30, 2019 was $3,000. As of December 31, 2018 and September 30, 2019, inventories consisted of (in thousands):

 

   

December 31,

2018

   

September 30,

2019

 

Raw material

  $ 14     $ 10  

Finished goods

    12       9  

Total

  $ 26     $ 19  

 

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, 2018 and September 30, 2019, management determined that there was no impairment of its long-lived assets.

 

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 shareholders 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 nine months ended September 30, 2018 and 2019, 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.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

 

Share-Based Compensation Expense

 

We recognize compensation expense for stock option awards on a straight-line basis 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 fair value 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 calculated on the grant date and the expense is amortized and recorded according to the vesting schedule. 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 on the grant date using the Black Scholes option model.

 

The following methodology and assumptions were used to calculate share-based compensation for the nine months ended September 30, 2018 and 2019:

 

   

2018

   

2019

 
   

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

%

Expected volatility

   538 - 563

%

   538 - 548 %    147 - 152

%

   147 - 152

%

Expected dividend yield

                               

Forfeiture rate

                               

Life in years

      7         7         7         7  

 

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 issued with other securities

 

Warrants issued with our convertible promissory notes, note payables, and lines 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 note issued with the warrant is 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 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.

 

Debt Modification and Extinguishment

 

Per the guidance of ASC 470-50, Debt Modifications and Extinguishments, modified terms are considered substantially different if the present value of the cash flows after modification differ by at least 10% prior to the modification. If so, it is an extinguishment of the debt. Loss on extinguishment of debt is calculated by analyzing fair value of the new debt instrument and its beneficial conversion feature, if any, plus the value of the warrant issued with the new debt instrument, if any, and comparing with the carrying value of the extinguished debt.

 

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, “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.

 

For product revenue, we identify the 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 revenue at a point in time when the order for its goods are shipped if the agreement with our customer is FOB our warehouse facility, and when goods are delivered to its customer if the agreement with our customer is FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order.

 

For service revenue, we identify 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. To date, there have been no discounts or other financing terms for the contracts.

 

In the future, we may generate revenues from 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 royalties based on their sales of products incorporating or using our licensed intellectual property. Upon entering into a licensing agreement, we will determine the appropriate method of recognizing the royalty and license fees.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Government Grants

 

We have been awarded multiple research grants from governmental and quasi-governmental institutions. The grants received are considered “other income” and are included in our Consolidated Statements of Operations and Comprehensive Loss. We received our first grant in 2015 and have been awarded over 65 grants totaling over $3.6 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 nine 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

 

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.

 

Fair Value of Financial Instruments

 

Management believes the carrying amounts of the Company’s financial instruments (excluding debt and equity instruments) as of December 31, 2018 and September 30, 2019 approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, prepaid assets, accounts payable, lines of credit, and other assets and liabilities.

 

Tax Credits

 

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

 

Recent Accounting Pronouncements

 

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 requires 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 are also required. We adopted this standard effective January 1, 2019 using the modified retrospective transition method approved by the FASB in July 2018, which resulted in a $399,000 gross up of assets and liabilities; this balance may fluctuate over time as we enter into new leases, extend or terminate current leases. As of September 30, 2019, the gross up of our balance sheet related to our operating leases totals $341,000.

 

 

Note 3. Lincoln Park Financing

 

On August 25, 2017, we entered into a stock purchase agreement (“LPC Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $10 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 time and at our sole discretion, to direct Lincoln Park to purchase shares of our common stock, subject to limitations in both volume and dollar amount. The purchase price of the shares that may be sold to Lincoln Park under the Purchase Agreement is the lower of (i) the lowest sale price on the date of purchase, or (ii) the average of the three lowest closing prices in the prior 12 business days. There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages 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 nine months ended September 30, 2019. Since we have not used this financing option during 2019, in September 2019, we began amortizing the deferred offering cost to interest expense over the remaining term through September 30, 2020. We recorded $13,000 of interest expense during the nine months ended September 30, 2019, and we will record $13,000 of interest expense per month through September 30, 2020.

 

During the nine months ended September 30, 2018, we elected to sell to Lincoln Park 2,800,733 shares of our common stock for which we received $826,000. Additionally, we issued Lincoln Park 40,400 “additional commitment” shares, pursuant to the LPC Purchase Agreement. We record stock sales 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)

 

 

Note 4. Debt Obligations

 

The following table summarizes our debt obligations outstanding as of December 31, 2018 and as of September 30, 2019 (in thousands). A portion of these debt obligation have been paid or converted to our common stock (see Note 12).

 

   

December 31,

2018

   

September 30,
2019

 

Current liabilities:

               

Notes payable and line of credit

               

Notes payable, previously due September 6, 2019

  $ 400     $  

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       225  

Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (Note 8)

          1,007  

Total notes payable and line of credit

  $ 830     $ 1,282  
                 

Convertible notes payable:

               

Convertible note, matured January 11, 2019

    300        

Convertible note, matures July 20, 2019(1)

    440        

Convertible nine-month OID notes, mature beginning October 2019(2)

          213  

Convertible three-month OID note, matures November 12, 2019(2)

          110  

Convertible notes, mature December 7, 2019(2)

          185  

Convertible notes, mature December 31, 2019(1)

    75       75  

Convertible notes, mature February 14 and March 17, 2020(2)

          200  

Convertible note, matures February 28, 2020(2)

    550       101  

Convertible note, matures March 4, 2020

           

Convertible note, matures April 7, 2020

          370  

Convertible note, matures April 18, 2020(2)

          220  

Convertible note, matures June 20, 2020(1)

          25  

Convertible 12-month OID notes, mature beginning June 2020

          3,175  

Convertible notes, mature August 12 and 16, 2020

          550  

Total convertible notes payable

  $ 1,365     $ 5,224  
                 

Total current liabilities

  $ 2,195     $ 6,506  
                 

Long-term liabilities:

               

Convertible note payable, matures August 9, 2021

          600  

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        

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

    50        

Total long-term liabilities

  $ 1,292     $ 700  
                 

Total

  $ 3,487     $ 7,206  

 

(1)    These notes are convertible at our option at maturity.

(2)    These notes have been paid and/or converted to common stock subsequent to September 30, 2019 (see Note 12).

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following discussion includes debt instruments to which amendments were made during the three months ended September 30, 2019, and includes other activity that management deemed appropriate to disclose. Each of the debt instruments contained in the above table are more fully disclosed in the financial statements contained in the Company’s Annual Report filed with the SEC on March 29, 2019.

 

Notes payable, mature August 12 and 16, 2020 (previously due September 6, 2019)

 

On June 4, 2019, we exercised 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”) 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. The extended maturity date was September 6, 2019. On August 12, 2019, Vernal agreed to refinance the $380,000 principal and interest due September 6, 2019, through the issuance of amended and restated convertible promissory note in the principal amount of $475,000 due in 12 months, which included a 25% original issue discount, and is convertible by the holder at $0.17 per share. The interest rate was reduced from 18% to 5% per annum. Vernal also received a stock purchase warrant (see Note 6). On August 16, 2019, Chappy Bean agreed to refinance the $60,000 remaining on its note due September 6, 2019, through the issuance of amended and restated convertible promissory note in the principal amount of $75,000 due in 12 months, which included a 25% original issue discount, and is convertible by the holder at $0.17 per share. The interest rate was reduced from 18% to 5% per annum. Chappy Bean also received a stock purchase warrant (see Note 6).

 

The total of the fair value of the warrants and the fair value of the new notes and their beneficial conversion features exceeded the carrying value of the old notes by $422,000, resulting in a loss on debt extinguishment recorded on our statement of operations.

 

Line of credit, due on demand 30 days’ notice after September 1, 2019

 

During July and August 2019, line of credit holders in the principal amount of $205,000, agreed to satisfy the line of credit through the issuance of an amended and restated convertible promissory note totaling $256,000 due in 12 months, August 2020, including a 25% original issue discount. They also received a warrant to purchase 1,130,515 shares of our common stock (See Note 6). The amended and restated note is convertible by the holder at $0.17 per share. The interest rate was reduced from 18% to 5% per annum.

 

The total of the fair value of the warrant and the fair value of the new note and its beneficial conversion feature exceeded the carrying value of the old note by $315,000, resulting in a loss on debt extinguishment recorded on our statement of operations.

 

As of September 30, 2019, the line of credit outstanding balance totaled $225,000. Subsequent to September 30, 2019, the remaining balance of $225,000 was paid in full (see Note 12).

 

Convertible Notes, mature June 15, 2021 (OID Note)

 

During September 2019, the notes holders of the June 15, 2021 convertible notes totaling $110,000 agreed to satisfy these notes through the issuance of an amended and restated convertible promissory note totaling $125,000 due in 12 months, September 2020, including a 25% original issue discount. They also received a warrant to purchase 551,471 shares of our common stock (See Note 6). The amended and restated note is convertible by the holder at $0.17 per share. The interest rate was reduced from 18% to 5% per annum.

 

The total of the fair value of the warrant and the fair value of the new note and its beneficial conversion feature exceeded the carrying value of the old note by $64,000, resulting in a loss on debt extinguishment recorded on our statement of operations.

 

Convertible note payable, matures January 11, 2019 (Triton)

 

On October 16, 2018, we entered into a Securities Purchase Agreement (“Triton Purchase Agreement”) with Triton Fund, LP (“Triton”) for a $225,000 bridge loan, and issued a promissory note in the principal amount of $300,000 (the “Triton Note”). The Triton Note incurred interest at an annual rate of 5%, and was scheduled to mature January 11, 2019. The $75,000 original issue discount was recorded as a discount on our convertible note and was amortized to interest expense in the three-month ended March 31, 2019.

 

On January 8, 2019, we paid the Triton Note in full.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Convertible note, matured July 20, 2019

 

On the July 20, 2019 maturity date, the holder of a note in the principal amount of $440,000 elected to convert the principal amount due on the note into 2,000 shares of Clyra Medical common stock held by BioLargo, and $106,600 in accrued and unpaid interest into 384,980 shares of BioLargo common stock using the 20-day closing average of $0.27 per share. (See Note 10).

 

Convertible Nine-Month OID Notes

 

During 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 available for purchase under the warrants.

 

Subsequent to September 30, 2019, these notes converted to common stock (see Note 12).

 

Convertible Three-month OID note, matures November 12, 2019

 

On August 15, 2019, we received $100,000 and issued a convertible promissory note in the aggregate principal amount of $110,000, with a 10 % original issue discount, to one accredited investor. The convertible note is due November 12, 2019. The note is convertible at the holder’s option at $0.17 per share. The original issue discount totaling $10,000 and the intrinsic value of the beneficial conversion feature resulted in a fair value totaling $47,000, are both recorded as discount on convertible notes and will be amortized to interest expense over the term of the note.

 

Subsequent to September 30, 2019, this note was converted to common stock (see Note 12).

 

Convertible Notes, matures 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, in the amount of $150,000, on March 7, 2019, increasing the principal amount due under the note to $495,000. This second amount, plus guaranteed interest, is due December 7, 2019. In the aggregate, the principal amount of the note, plus guaranteed interest, totals $554,000.

 

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.

 

On July 29, 2019, Tangiers Global, LLC, elected to convert $369,000 principal amount due on its promissory note issued January 31, 2019, into 2,640,000 shares of common stock. As of September 30, 2019, the outstanding note balance totals $185,000.

 

Subsequent to September 30, 2019, the remaining balance of the note was converted to common stock (see Note 12).

 

 

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. 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. The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of $134,000 recorded as a discount on convertible notes on our balance sheet which will be amortized over the terms of the notes as interest expense.

 

Subsequent to September 30, 2019, we paid these notes in full (see Note 12).

 

Convertible Note, matures February 28, 2020 (Vista Capital)

 

On January 7, 2019, we 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 in a fair value totaling $487,000, all of which was recorded as interest expense during the nine months ended September 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 and again on August 13, 2019, we and Vista Capital agreed to extend by nine months the maturity date to February 28, 2020. No additional consideration was given for these extensions.

 

During the nine months ended September 30, 2019, Vista Capital elected to convert $550,000 of the outstanding principal of the Vista 2017 Note, and we issued 4,557,611 shares of our common stock to Vista pursuant to the conversions. As of September 30, 2019, the outstanding balance on the Vista Note totaled $101,000.

 

Subsequent to September 30, 2019, the remaining balance of the note was converted to common stock (see Note 12).

 

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.

 

On September 24, 2019, we paid this note in full.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Convertible Note, matures April 7, 2020 (Vista Capital)

 

On January 7, 2019, Vista Capital invested $300,000 and we issued a convertible promissory note (the “Vista 2019 Note”) in the principal amount of $330,000, maturing nine months from the date of issuance (October 7, 2019). 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 extent 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 file with the SEC (but not the registration statement filed November 6, 2018). The intrinsic value 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. On August 13, 2019, we and Vista Capital amended the note extending the maturity date to April 7, 2020.

 

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.

 

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. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling $120,000 recorded as a discount on convertible notes on our balance sheet which will be amortized over the term of the note as interest expense.

 

Subsequent to September 30, 2019, we paid this note in full (see Note 12).

 

Convertible Twelve-month OID notes

 

From June 7, 2019 through September 30, 2019, we received $2,235,000 and issued convertible promissory notes (each, a “12-Month OID Note”) in the aggregate principal amount of $2,794,000, with a 25% original issue discount, to 34 accredited investors. The original issuance discount totaled $559,000 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 $2,235,000, 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.

 

During the three months July 1, 2019 through September 30, 2019, in exchange for $305,000 of convertible note payables that were coming due, we issued an additional $381,000 convertible promissory notes (each, a “12-Month OID Note), with a 25% original issue discount. The original issue discount totaled $76,000 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 $381,000 and is recorded as debt extinguishment expense on our statement of operations. The discount will be amortized and recorded to interest expense over the term of the notes. These notes mature twelve months from the date of issuance.

 

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. The Company is obligated to prepay the notes in the event it receives at least $3.5 million gross proceeds in a financing transaction. At maturity, the Company may redeem the notes through the issuance of common stock at a conversion price equal to the lower of the “conversion price” (initially $0.17, as may be adjusted), and 70% of the lowest daily volume weighted average price of the Company’s common stock during the 25 trading days preceding the conversion date.

 

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 received a warrant to purchase a certain number of shares common stock at $0.25 per share calculated based on the amount invested (see Note 6).

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Convertible notes, matures August 9, 2021

 

On August 9, 2019, we received $600,000 from one accredited investor and issued a promissory note in the principal amount of $600,000, maturing in two years, accruing interest at 15% to be paid in cash monthly, and which converts to common stock at the holder’s option at $0.30 per share. This investor also received a warrant to purchase 1,200,000 shares of our common stock at $0.30 per share, expiring five years from the grant date.

 

 

Note 5. Share-Based Compensation

 

Issuance of Common Stock in exchange for payment of payables

 

Payment of Officer Salaries

 

On March 29, 2019, we issued 579,996 shares of our common stock in lieu of $93,000 of accrued 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, we issued 465,875 shares of our common stock in lieu of $107,000 of accrued 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 September 30, 2019, we issued 35,080 shares of our common stock in lieu of $11,000 of accrued salary and unreimbursed business expenses owed to an officer. The price-per-share of $0.31 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, we issued 323,030 shares of our common stock in lieu of $84,000 of accrued salary and unreimbursed business expenses owed to two of our officers. The price-per-share of $0.26 was based on the closing price of our common stock on the last business day of the month.

 

On June 29, 2018, we issued 176,947 shares of our common stock in lieu of $76,000 of accrued salary and unreimbursed business expenses owed to two of our officers. The price-per-share of $0.43 was based on the closing price of our common stock on the last business day of the month.

 

On September 28, 2018, we issued 249,258 shares of our common stock at $0.27 per share in lieu of $67,000 of accrued and unpaid obligations to two of our officers. The price-per-share was based on the closing price of our common stock on the last day of the month.

 

Payment of Consultant Fees

 

During the nine months ended September 30, 2019, we issued 1,759,472 shares of our common stock at a range of $0.16 – $0.23 per share in lieu of $376,000 accrued and unpaid obligations to consultants.

 

During the nine months ended September 30, 2018, we issued 1,390,813 shares of our common stock, at prices ranging between $0.23 - $0.41 per share, in lieu of $417,000 of accrued and unpaid obligations to consultants.

 

Payment of Interest on Notes

 

During the nine months ended September 30, 2019, we issued 622,784 shares of our common stock, at prices ranging between $0.10 - $0.27per share, in lieu of $147,000 of accrued interest due on promissory notes.

 

During the nine months ended September 30, 2018, we issued 2,002,868 shares of our common stock, at prices ranging between $0.31 – 0.42 per share, in lieu of accrued interest totaling $519,000.

 

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.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Stock Option Expense

 

Share-based compensation expense was $984,000 and $1,201,000 for the nine months ended September 30, 2018 and 2019, and is recorded in selling, general and administrative expense on the consolidated statements of operations.

 

The grant-date fair value of the stock options granted was an aggregate $526,000 and $1,486,000 for the nine months ended September 30, 2018 and 2019, respectively.

 

The grant-date fair value of the stock options that vested was $984,000 and $1,193,000 for the nine months ended September 30, 2018 and 2019, respectively.

 

As of September 30, 2019, there was $1,594,000 of unrecognized stock compensation expense related to unvested stock options issued as part of our 2018 Plan issuances.

 

We issued options through our 2018 Equity Incentive Plan, and outside of this plan. Our 2007 Plan is closed. Stock option activity is described below.

 

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 Directors’ 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 was 40 million shares. The number of shares available to be issued under the 2018 Plan increases automatically each January 1st by the lesser of (a) 2 million shares, or (b) such number of shares determined by our Board.

 

Activity for our stock options under the 2018 Plan from inception through September 30, 2018 and from December 31, 2018 through the nine months ended September 30, 2019, is as follows:

 

As of September 30, 2018:

 

Options

Outstanding

   

Exercise

Price

per share

   

Weighted

Average

Exercise

Price per

share

   

Aggregate

intrinsic

Value(1)

 

Inception, June 22, 2018

                             

Granted

    790,087        0.25 - 0.43       0.34          

Balance and vested, September 30, 2018

    790,087     $ 0.25 - 0.43     $ 0.34     $  

 

 

As of September 30, 2019:  

Options

Outstanding

   

Exercise

Price

per share

   

Weighted

Average

Exercise

Price per

share

   

Aggregate

intrinsic

Value(1)

 

Balance, December 31, 2018

    1,318,517     $ 0.22 0.43     $ 0.30          

Granted

    7,072,342        0.16 0.40       0.27          

Expired

                             
                                     

Balance, September 30, 2019

    8,390,859     $ 0.16 0.43     $ 0.27          

Non-vested

    (4,144,926

)

     0.16 0.40       0.29          
                                     

Vested, September 30, 2019

    4,245,933     $ 0.17 0.36     $ 0.23     $ 457,000  

(1) – Aggregate intrinsic value based on closing common stock price of $0.31 at September 30, 2019.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The options to purchase 7,072,342 shares granted during the nine months ended September 30, 2019 are comprised of options issued to employees, consultants, officers, and directors. We issued options to purchase 6,097,702 shares of our common stock employees as part of their employment agreement and as part of an employee retention program on their respective grant dates ranging between $0.16 – 0.40 per share. The vesting terms for employment agreements generally called for a portion of option to vest immediately and the remaining portion to vest over four years. Certain option issuances to our officers and employees have vesting terms that are based on metrics over a period of time, these are described in more detail below. We issued options to purchase 974,640 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 dates ranging between $0.16 – 0.32 per share.

 

Chief Financial Officer Contract Extension

 

On January 16, 2019, we agreed to extend the engagement agreement dated February 1, 2008 (the “Engagement Agreement”, which had been previously extended multiple times) with our Chief Financial Officer, Charles K. Dargan, II. The Engagement Extension Agreement dated as of January 16, 2019 (the “Engagement Extension Agreement”) provides for an additional term to expire September 30, 2019 (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.

 

For the Extended Term, Mr. Dargan was issued an option (“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 $0.22, 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, and each month thereafter, so long as the Engagement Agreement is in full force and effect. The Option 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. As was the case in all prior terms of his engagement, there is no cash component of his compensation for this 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 of Operations Contract Extension

 

On May 28, 2019, the Compensation Committee of the Board of Directors approved the terms of an employment agreement for Joseph L. Provenzano to continue his work as Vice President of Operations and President of our subsidiary Odor-No-More, and granted to Mr. Provenzano an incentive stock option to purchase 1,000,000 shares of the Company’s common stock pursuant to the terms of our 2018 Plan. The exercise price and fair value of the option is equal to the closing price of our common stock on the May 28, 2019 grant date, at $0.17 per share. The option will vest annually in 200,000 increments over five years. 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 Mr. Provenzano’s employment agreement.

 

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. 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.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Director of Business Development for Odor-No-More

 

On July 23, 2019, the Compensation Committee of the Board of Directors approved the terms of an employment agreement for Odor-No-More’s Director of Business Development, who also serves as BioLargo’s Director of Corporate Development, and issued him options to purchase an aggregate 1,000,000 shares of the Company’s common stock at $0.35 per share pursuant to the terms of our 2018 Plan. The first option allows the purchase of 400,000 shares and vests 100,000 90 days after issuance, 100,000 shares on the first anniversary, and 200,000 shares on the second anniversary of the employment agreement. The remaining options to purchase an aggregate 600,000 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 at September 30, 2019, and we are unable to estimate at this time if these metrics will be met.

 

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. As of September 2017, the Plan was closed to further stock option grants.

 

Activity for our stock options under the 2007 Plan for the nine months ended September 30, 2018 and 2019 is as follows:

 

As of September 30, 2018:   

Options

Outstanding
   

Exercise

price per share
   

 

Weighted

Average

Price per

share
   

Aggregate

intrinsic

Value(1)
 

Balance, December 31, 2017

    9,831,586     $ 0.23 1.89     $ 0.44          

Expired

    (110,000 )     1.45  – 1.89       1.60          

Balance, September 30, 2018

    9,721,586     $ 0.23 1.65     $ 0.43          
                                     
As of September 30, 2019:                                    

Balance, December 31, 2018

    9,691,586     $ 0.23 0.94     $ 0.43          

Expired

    (902,135 )      0.28 0.70       0.48          

Balance, September 30, 2019

    8,789,451     $ 0.23 1.65     $ 0.47     $ 25,000  

(1) – Aggregate intrinsic value based on closing common stock price of $0.31 at September 30, 2019.

 

Non-Plan Options issued

 

Activity of our non-plan stock options issued for the nine months ended September 30, 2018 and 2019 is as follows:

 

As of September 30, 2018:

 

Non-plan

Options

outstanding

   

Exercise

price per share

   

Weighted

Average

price per

share

   

Aggregate

intrinsic

value(1)

 

Balance, December 31, 2017

    20,018,408     $ 0.25 1.00     $ 0.51          

Granted

    1,211,527       0.23 0.43       0.26          

Expired

    (2,400,000

)

        0.99       0.99          

Balance, September 30, 2018