Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
|
QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31,
2020.
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 ☐ |
Accelerated filer ☐ |
Non-accelerated
filer ☐ |
Smaller reporting company ☒ |
|
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of the Registrant’s Common Stock outstanding
as of May 12, 2020 was 179,191,783 shares.
PART I – FINANCIAL
INFORMATION
Item 1. Financial
Statements
BIOLARGO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND MARCH
31, 2020
(in thousands, except for per share data)
|
|
DECEMBER 31,
2019
|
|
|
MARCH 31, 2020
(unaudited)
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
655 |
|
|
$ |
744 |
|
Accounts receivable
|
|
|
355 |
|
|
|
259 |
|
Inventories, net of allowance
|
|
|
16 |
|
|
|
33 |
|
Prepaid expenses and other current assets
|
|
|
39 |
|
|
|
44 |
|
Total current assets
|
|
|
1,065 |
|
|
|
1,080 |
|
|
|
|
|
|
|
|
|
|
In-process research and development (Note 8)
|
|
|
1,893 |
|
|
|
1,893 |
|
Property and equipment, net of depreciation
|
|
|
95 |
|
|
|
63 |
|
Other non-current assets
|
|
|
35 |
|
|
|
35 |
|
Right-of-use, operating lease, net of amortization
|
|
|
411 |
|
|
|
386 |
|
Deferred offering cost
|
|
|
122 |
|
|
|
— |
|
Investment in South Korean Joint Venture
|
|
|
— |
|
|
|
99 |
|
Total assets
|
|
$ |
3,621 |
|
|
$ |
3,556 |
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ deficit
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
602 |
|
|
$ |
812 |
|
Clyra Medical note payable (Note 8)
|
|
|
1,007 |
|
|
|
1,007 |
|
Note payable
|
|
|
50 |
|
|
|
50 |
|
Line of credit
|
|
|
50 |
|
|
|
50 |
|
Convertible notes payable
|
|
|
3,957 |
|
|
|
3,523 |
|
Discount on convertible notes payable, and line of credit, net of
amortization
|
|
|
(1,472 |
) |
|
|
(834 |
) |
Lease liability
|
|
|
125 |
|
|
|
114 |
|
Deferred revenue
|
|
|
35 |
|
|
|
9 |
|
Total current liabilities
|
|
|
4,354 |
|
|
|
4,731 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Convertible notes and note payable
|
|
|
700 |
|
|
|
700 |
|
Liability to Clyra Medical shareholder (Note 8)
|
|
|
643 |
|
|
|
643 |
|
Discount on convertible notes payable, net of amortization
|
|
|
(182 |
) |
|
|
(153 |
) |
Lease liability
|
|
|
286 |
|
|
|
271 |
|
Total liabilities
|
|
|
5,801 |
|
|
|
6,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and 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, 2019
and March 31, 2020, respectively.
|
|
|
— |
|
|
|
— |
|
Common stock, $.00067 Par Value, 400,000,000 shares authorized,
166,256,024 and 178,479,317 shares issued, at December 31, 2019 and
March 31, 2020.
|
|
|
111 |
|
|
|
119 |
|
Additional paid-in capital
|
|
|
121,327 |
|
|
|
123,121 |
|
Accumulated other comprehensive loss
|
|
|
(99 |
) |
|
|
(99 |
) |
Accumulated deficit
|
|
|
(123,492 |
) |
|
|
(125,866 |
) |
Total BioLargo, Inc. and subsidiaries stockholders’ deficit
|
|
|
(2,153 |
) |
|
|
(2,725 |
) |
Non-controlling interest (Note 8)
|
|
|
(27 |
) |
|
|
89 |
|
Total stockholders’ deficit
|
|
|
(2,180 |
) |
|
|
(2,636 |
) |
Total liabilities and stockholders’ equity (deficit)
|
|
$ |
3,621 |
|
|
$ |
3,556 |
|
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 MONTHS ENDED MARCH 31,
2019 AND 2020
(in thousands, except for share and per share data)
(unaudited)
|
|
MARCH
31, 2019
|
|
|
MARCH
31, 2020
|
|
Revenue
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$ |
301 |
|
|
$ |
283 |
|
Service revenue
|
|
|
63 |
|
|
|
156 |
|
Total revenue
|
|
|
364 |
|
|
|
439 |
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(140 |
) |
|
|
(128 |
) |
Cost of service
|
|
|
(52 |
) |
|
|
(132 |
) |
Total cost of revenue
|
|
|
(192 |
) |
|
|
(260 |
) |
Gross profit
|
|
|
172 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,408 |
|
|
|
1,546 |
|
Research and development
|
|
|
426 |
|
|
|
335 |
|
Total operating expenses
|
|
|
1,834 |
|
|
|
1,881 |
|
Operating loss
|
|
|
(1,662 |
) |
|
|
(1,702 |
) |
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Grant income
|
|
|
82 |
|
|
|
57 |
|
Interest expense
|
|
|
(985 |
) |
|
|
(757 |
) |
Loss on extinguishment of debt
|
|
|
(184 |
) |
|
|
(214 |
) |
Total other (expense) income
|
|
|
(1,087 |
) |
|
|
(914 |
) |
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,749 |
) |
|
|
(2,616 |
) |
Net loss attributable to noncontrolling interest
|
|
|
(173 |
) |
|
|
(342 |
) |
Net loss attributable to common shareholders
|
|
$ |
(2,576 |
) |
|
$ |
(2,274 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Loss per share attributable to shareholders – basic and diluted
|
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
Weighted average number of common shares outstanding:
|
|
|
142,246,766 |
|
|
|
168,873,233 |
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to common shareholders
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,749 |
) |
|
$ |
(2,616 |
) |
Foreign translation adjustment
|
|
|
(4 |
) |
|
|
— |
|
Comprehensive loss
|
|
|
(2,753 |
) |
|
|
(2,616 |
) |
Comprehensive loss attributable to noncontrolling interest
|
|
|
(173 |
) |
|
|
(342 |
) |
Comprehensive loss attributable to shareholders
|
|
$ |
(2,580 |
) |
|
$ |
(2,274 |
) |
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 MONTHS ENDED MARCH
31, 2019 AND 2020
(in thousands, except for share data)
(unaudited)
|
|
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 |
|
Fair value of warrants for extension of debt
|
|
|
— |
|
|
|
— |
|
|
|
56 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
56 |
|
Deemed dividend for the change in accounting for derivative
liability
|
|
|
— |
|
|
|
— |
|
|
|
342 |
|
|
|
(342 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Clyra Medical securities offering
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
89 |
|
|
|
110 |
|
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 |
) |
|
|
Common stock
|
|
|
Additional
paid-in
|
|
|
Accumulated
|
|
|
Accumulated
other comprehensive
|
|
|
Non-
controlling
|
|
|
Total stockholders’
equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
Loss
|
|
|
interest
|
|
|
(deficit)
|
|
Balance, December 31, 2019
|
|
|
166,256,024 |
|
|
$ |
111 |
|
|
$ |
121,327 |
|
|
$ |
(123,492 |
) |
|
$ |
(99 |
) |
|
$ |
(27 |
) |
|
$ |
(2,180 |
) |
Conversion of notes
|
|
|
3,387,649 |
|
|
|
2 |
|
|
|
432 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
434 |
|
Issuance of common stock for service
|
|
|
1,039,490 |
|
|
|
1 |
|
|
|
177 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
178 |
|
Issuance of common stock for interest
|
|
|
19,278 |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
Sale of common stock for cash
|
|
|
4,848,305 |
|
|
|
3 |
|
|
|
898 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
901 |
|
Common stock issued as a financing fee; deferred offering costs
|
|
|
2,928,571 |
|
|
|
2 |
|
|
|
(124 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(122 |
) |
Stock option compensation expense
|
|
|
— |
|
|
|
— |
|
|
|
320 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
320 |
|
Deemed dividend for the change in accounting for derivative
liability
|
|
|
— |
|
|
|
— |
|
|
|
100 |
|
|
|
(100 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Clyra Medical securities offering
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
25 |
|
Clyra Medical stock option expense
|
|
|
— |
|
|
|
— |
|
|
|
420 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
420 |
|
Allocation of noncontrolling interest from Clyra Stock option
issuance
|
|
|
— |
|
|
|
— |
|
|
|
(448 |
) |
|
|
— |
|
|
|
— |
|
|
|
448 |
|
|
|
— |
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,274 |
) |
|
|
— |
|
|
|
(342 |
) |
|
|
(2,616 |
) |
Balance, March 31, 2020
|
|
|
178,479,317 |
|
|
$ |
119 |
|
|
$ |
123,121 |
|
|
$ |
(125,866 |
) |
|
$ |
(99 |
) |
|
$ |
89 |
|
|
$ |
(2,636 |
) |
The accompanying notes are an integral part of these
unaudited consolidated financial statements.
BIOLARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
2019 AND 2020
(in thousands, except for per share data)
(unaudited)
|
|
MARCH
31, 2019
|
|
|
MARCH
31, 2020
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,749 |
) |
|
$ |
(2,616 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Stock option compensation expense
|
|
|
352 |
|
|
|
526 |
|
Common stock issued in lieu of salary to officers and fees for
services from vendors
|
|
|
206 |
|
|
|
178 |
|
Common stock issued for interest
|
|
|
25 |
|
|
|
4 |
|
Interest expense related to amortization of the discount on
convertible notes payable and line of credit
|
|
|
851 |
|
|
|
668 |
|
Interest expense related to the fair value of warrants issued as
consent for variable debt
|
|
|
54 |
|
|
|
— |
|
Loss on extinguishment of debt
|
|
|
184 |
|
|
|
214 |
|
Depreciation expense
|
|
|
16 |
|
|
|
16 |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
47 |
|
|
|
96 |
|
Inventories
|
|
|
— |
|
|
|
(17 |
) |
Deferred revenue
|
|
|
— |
|
|
|
(26 |
) |
Accounts payable and accrued expenses
|
|
|
129 |
|
|
|
210 |
|
Prepaid expenses and other current assets
|
|
|
(17 |
) |
|
|
(5 |
) |
Customer deposits
|
|
|
32 |
|
|
|
(1 |
) |
Net cash used in operating activities
|
|
|
(869 |
) |
|
|
(753 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Investment in South Korean joint venture
|
|
|
— |
|
|
|
(100 |
) |
Sale of equipment
|
|
|
— |
|
|
|
16 |
|
Net cash used in investing activities
|
|
|
— |
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from sales of common stock
|
|
|
— |
|
|
|
901 |
|
Proceeds from convertible notes payable
|
|
|
750 |
|
|
|
— |
|
Proceeds from the sale of stock in Clyra Medical
|
|
|
110 |
|
|
|
25 |
|
Repayment of note payable
|
|
|
(300 |
) |
|
|
— |
|
Proceeds from notes payable
|
|
|
170 |
|
|
|
— |
|
Net cash provided by financing activities
|
|
|
730 |
|
|
|
926 |
|
Net effect of foreign currency translation
|
|
|
(4 |
) |
|
|
— |
|
Net change in cash
|
|
|
(143 |
) |
|
|
89 |
|
Cash at beginning of year
|
|
|
655 |
|
|
|
655 |
|
Cash at end of period
|
|
$ |
512 |
|
|
$ |
744 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
32 |
|
|
$ |
25 |
|
Income taxes
|
|
$ |
3 |
|
|
$ |
2 |
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Fair value of warrants issued with convertible notes
|
|
$ |
1,061 |
|
|
$ |
— |
|
Conversion of convertible notes payable into common stock
|
|
$ |
220 |
|
|
|
434 |
|
Convertible notes issued with original issue discount
|
|
$ |
217 |
|
|
$ |
— |
|
Lincoln Park deferred offering costs, recorded as additional
paid-in capital
|
|
$ |
— |
|
|
$ |
(122 |
) |
Deemed dividend
|
|
$ |
342 |
|
|
$ |
100 |
|
Allocation of stock option expense within noncontrolling
interest
|
|
$ |
— |
|
|
$ |
448 |
|
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. is an innovative technology developer and
environmental engineering company driven by a mission to "make life
better" by delivering robust, sustainable solutions for a broad
range of industries and applications, with a focus on clean water,
clean air. The company also owns a minority interest in
an advanced wound care subsidiary that has licensed BioLargo
Technologies and it plans to spin out or sell when the appropriate
opportunity is identified. Our business strategy is
straightforward: we invent or acquire technologies that we believe
have the potential to be disruptive in large commercial markets; we
develop and validate these technologies to advance and promote
their commercial success as we leverage our considerable
scientific, engineering, and entrepreneurial talent; we then
monetize these technical assets through a variety of business
structures that may include licensure, joint venture, sale, spin
off, or by deploying direct to market strategies.
Liquidity / Going concern
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and
commitments in the normal course of our business. For the three
months ended March 31, 2020, we had a net loss of $2,616,000, used
$753,000 cash in operations, and at March 31, 2020, we had a
working capital deficit of $3,651,000, and current assets of
$1,080,000. We do not believe gross profits in the immediate future
will be sufficient to fund our current level of operations or pay
the $550,000 in debt due August, 2020 which is convertible at the
option of the debt-holder. We have been, and anticipate that we
will continue to be, limited in terms of our capital resources.
During the three months ended March 31, 2020, we generated revenues
of $439,000 through two business segments (Odor-No-More and
BLEST – see Note 10, “Business Segment Information”). Neither
generated enough revenues to fund their operations, or fund our
corporate operations, overhead or other business segments, and
thus, in light of our cash position at December 31, 2019, in order
to continue operations, during the quarter we conducted private
securities offerings and sold common stock to Lincoln Park (see
Note 3). With respect to the debt due August 2020, we intend to pay
the debt through proceeds from our various financing resources,
convert the remaining balance to equity, or renegotiate the terms;
the remainder of debt due in 2020 is convertible at our option at
maturity.
On March 30, 2020, we entered into a new three-year agreement with
Lincoln Park (see Note 3), which allows us to sell to Lincoln Park
up to 100,000 shares of our common stock per day, up to a maximum
of $10,250,000. We intend to continue to sell stock to Lincoln Park
to provide working capital as needed. We also intend to raise money
through private securities offerings. And, we continue to negotiate
for more financing from private investors. Other than sales of
stock to Lincoln Park, no assurance can be made of our success at
raising money through private or public offerings.
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 four
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; and BioLargo Development Corp., organized under the laws of
the State of California in 2016. Additionally, we own 97.5% (see
Note 10) of BioLargo Engineering Science and Technologies, LLC,
organized under the laws of the State of Tennessee in 2017
(“BLEST”). We also own 36% of Clyra Medical Technologies, Inc.
(“Clyra Medical”), organized under the laws of the State of
California in 2012, and consolidate their financial statements (see
Note 2, subheading “Principles of Consolidation,” and Note 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 three months ended March 31, 2020 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2020, 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, 2019 filed with
the Securities and Exchange Commission (the “SEC”) on March 31,
2020.
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 36% 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.
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, 2019 and March 31, 2020
was $24,000.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Credit Concentration
We have a limited number of customers that account for significant
portions of our revenue. During the three months ended March 31,
2019 and 2020, we had three customers that each accounted for more
than 10% of consolidated revenues in the respective periods, as
follows:
|
|
March 31,
2019
|
|
|
March 31,
2020
|
|
Customer A
|
|
|
<10 |
% |
|
|
14 |
% |
Customer B
|
|
|
<10 |
% |
|
|
11 |
% |
Customer C
|
|
|
<10 |
% |
|
|
10 |
% |
Customer D
|
|
|
43 |
% |
|
|
<10 |
% |
Customer E
|
|
|
10 |
% |
|
|
<10 |
% |
Customer F
|
|
|
26 |
% |
|
|
<10 |
% |
We had two customers that accounted for more than 10% of
consolidated accounts receivable at December 31, 2019 and one
customer that accounted for more than 10% of consolidated accounts
receivable at March 31, 2020 as follows:
|
|
December 31,
2019
|
|
|
March 31,
2020
|
|
Customer G
|
|
|
<10 |
% |
|
|
12 |
% |
Customer H
|
|
|
25 |
% |
|
|
<10 |
% |
Customer I
|
|
|
11 |
% |
|
|
<10 |
% |
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, 2019 and March 31, 2020 was
$3,000. As of December 31, 2019 and March 31, 2020,
inventories consisted of (in thousands):
|
|
December 31,
2019
|
|
|
March 31,
2020
|
|
Raw material
|
|
$ |
11 |
|
|
$ |
30 |
|
Finished goods
|
|
|
5 |
|
|
|
3 |
|
Total
|
|
$ |
16 |
|
|
$ |
33 |
|
Other Assets
Other Assets consisted of security deposits of $35,000 related to
our business offices.
Leases
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 effective date option, 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. Upon the
transition to the ASC 842, the Company elected to use hindsight as
a practical expedient with respect to determining the lease terms
(as we considered our updated expectations of acceptance of the
Westminster California facility lease renewal) and in assessing any
impairment of right-of-use assets for existing leases. No
impairment is expected at this time. As of March 31, 2020,
the gross up of our balance sheet related to our operating leases
totals $386,000.
Impairment
Long-lived and definite lived intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the
sum of the expected future undiscounted cash flows from the use of
the asset and its eventual disposition is less than the carrying
amount of the asset, then an impairment loss is recognized. The
impairment loss is measured based on the fair value of the asset.
Any resulting impairment is recorded as a reduction in the carrying
value of the related asset in excess of fair value and a charge to
operating results. For the three months ended March 31, 2019 and
2020, management determined that there was no impairment of its
long-lived assets, including its In-process Research and
Development at Clyra (see Note 8).
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Equity Method of
Accounting
On March 20, 2020, we invested $100,000 into a South Korean entity
(Odin Co. Ltd., “Odin”) pursuant to a Joint Venture agreement we
had entered into with BKT Co. Ltd. and its U.S. subsidiary,
Tomorrow Water. We received a 40% non-dilutive equity interest, and
BKT and Tomorrow Water each received 30% equity interests for an
aggregate $150,000 investment.
We account for our investment in the joint venture under the equity
method of accounting. We have determined that while we have
significant influence over the joint venture through our technology
license and our position on the Board of Directors, we do not
control the joint venture or are otherwise involved in managing the
entity and we own less than a majority of the equity. Therefore, we
record the asset on our consolidated balance sheet and record an
increase or decrease the recorded balance by our percentage
ownership of the profits or losses in the joint venture. During the
three months ended March 31, 2020, the joint venture incurred a
loss and our 40% ownership share reduced our investment interest by
$1,000.
Earnings (Loss) Per Share
We report basic and diluted earnings (loss) per share (“EPS”)
for common and common share equivalents. Basic EPS is computed by
dividing reported earnings by the weighted average shares
outstanding. Diluted EPS is computed by adding to the weighted
average shares the dilutive effect if stock options and warrants
were exercised into common stock. For the three months ended March
31, 2019 and 2020, the denominator in the diluted EPS computation
is the same as the denominator for basic EPS due to the
anti-dilutive effect of the warrants and stock options on the
Company’s net loss.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the period
reported. Actual results could differ from those estimates.
Estimates are used when accounting for stock-based transactions,
debt transactions, derivative liabilities, allowance for bad debt,
asset depreciation and amortization, among others.
The methods, estimates and judgments we use in applying these most
critical accounting policies have a significant impact on the
results of our financial statements.
Share-Based Compensation Expense
We recognize compensation expense for stock option awards on a
straight-line basis over the applicable service period of the
award, which is the vesting period. Fair value is determined on the
grant date. Share-based compensation expense is based on the grant
date fair value estimated using the Black-Scholes Option Pricing
Model.
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.
For equity instruments issued and outstanding where performance is
not complete, but the instrument has been recorded, those
instruments are measured again at their then current fair market
values at each of the reporting dates (they are “marked-to market”)
until the performance and the contract are complete.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following methodology and assumptions were used to calculate
share-based compensation for the three months ended March 31, 2019
and 2020:
|
|
2019
|
|
|
2020
|
|
|
|
Non Plan
|
|
|
2018 Plan
|
|
|
Non Plan
|
|
|
2018 Plan
|
|
Risk free interest rate
|
|
1.68 |
- |
2.65% |
|
|
1.68 |
- |
2.65% |
|
|
|
0.88 |
%
|
|
0.88 |
- |
1.90% |
|
Expected volatility
|
|
133 |
- |
152% |
|
|
133 |
- |
152% |
|
|
|
131 |
%
|
|
131 |
- |
133% |
|
Expected dividend yield
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
Forfeiture rate
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
Life in years
|
|
|
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.
The convertible 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 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. At present, these
equity features of the convertible promissory notes have recorded a
discount to the convertible notes that is substantially equal to
the proceeds received.
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.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenue Recognition
We account for revenue in accordance with ASC 606, “revenue from
Contacts with Customers”. The guidance focuses on the core
principle for revenue recognition, which is that an entity should
recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those
goods or services. To achieve that core principle, the guidance
provides that an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance
obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a
performance obligation.
We have revenue from two subsidiaries, Odor-No-More and BLEST.
Odor-No-More 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 revenue
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, 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. Odor-No-More also
installs misting systems for which it bills on a time and materials
basis. It identifies its contract with the customer through a
written purchase order in which the details of the time to be
billed and materials purchased and an estimated completion date.
The performance obligation is the completion of the installation.
Revenue is recognized in arrears as the work is performed.
BLEST identifies services to be performed in a written contract,
which specifies the performance obligations and the rate at which
the services will be billed. Each service is separately negotiated
and priced. Revenue is recognized as services are performed and
completed. BLEST’s contracts typically call for invoicing for time
and materials incurred for that contract. A few contracts have
called for milestone or fixed cost payments, where BLEST invoices
an agreed-to amount per month for the life of the contract. In
these instances, completed work, billed hourly, is recognized as
revenue. If the billing amount is greater or lesser than the
completed work, a receivable or payable is created. These accounts
are adjusted upon additional billings as the work is completed. To
date, there have been no discounts or other financing terms for the
contracts.
In the event that we generate revenues from royalties or license
fees from our intellectual property, we anticipate a licensee would
pay a license fee in one or more installments and ongoing royalties
based on their sales of products incorporating or using our
licensed intellectual property. Upon entering into a licensing
agreement, we will determine the appropriate method of recognizing
the royalty and license fees.
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. We received our first grant in 2015 and have been
awarded over 75 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 six and eighteen months and support
a majority, but not all, of the related research budget costs. This
cooperative research allows us to utilize (i) a depth of resources
and talent to accomplish highly skilled work, (ii) financial aid to
support research and development costs, (iii) independent and
credible validation of our technical claims.
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.
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, 2019 and March 31, 2020 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.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. Management has concluded that new guidance does not
impact the Company’s financial statements.
Note 3. Lincoln Park Financing
During the three months ended March 31, 2020, pursuant to our
August 2017 agreement with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), we elected to sell to Lincoln Park 1,398,223 shares of our
common stock for which we received $295,000. Additionally, we
issued Lincoln Park 14,420 “additional commitment” shares. We
did not sell any shares to Lincoln Park during the three months
ended March 31, 2019. In conjunction with the signing of the
March 2020 agreement with Lincoln Park (see below), we recorded the
remaining deferred offering costs totaling $122,000 as additional
paid in capital on our consolidated balance sheet.
On March 30,, 2020,
we entered into a Purchase Agreement with Lincoln Park, pursuant to
which Lincoln Park agreed to purchase from us at our request up to
an aggregate of $10,250,000 of our common stock (subject to certain
limitations) from time to time over a period of three years. The
agreement allows us, at our sole discretion, to direct Lincoln Park
to purchase shares of our common stock, subject to limitations in
both volume and dollar amount. The purchase price of the shares
that may be sold to Lincoln Park under the 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 other than a prohibition on entering into a
“Variable Rate Transaction,” as defined in the agreement. Lincoln
Park may not assign or transfer its rights and obligations under
the Purchase Agreement. This agreement replaced the August 2017
agreement with Lincoln Park. Concurrently with the Purchase
Agreement, we entered into a Registration Rights Agreement,
pursuant to which we filed a registration statement on Form S-1
with the SEC on April 10, 2020. This registration statement was
declared effective on April 21, 2020, and as of April 29, 2020, we
commenced regular purchases under the agreement.
In the March 30, 2020 agreement, we agreed to issue 2,928,571
shares to Lincoln Park as a commitment fee, valued at $527,000 and
recorded as additional paid in capital on our consolidated balance
sheet as of March 31, 2020. Additionally, the Purchase
Agreement provided for an initial sale of 1,785,715 shares to
Lincoln Park for $250,000. We received those funds and issued the
shares on March 31, 2020.
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, 2019 and as of March 31, 2020.
|
|
December 31,
2019
|
|
|
March 31,
2020
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Note payable, matures on demand 60 days’ notice (or March 8,
2023)
|
|
$ |
50 |
|
|
$ |
50 |
|
Line of credit, matures September 1, 2019 or later (on 30-day
demand)
|
|
|
50 |
|
|
|
50 |
|
Note payable issued by Clyra Medical to Scion, matures June 17,
2020 Clyra note payable (See Note 8)
|
|
|
1,007 |
|
|
|
1,007 |
|
Total notes payable and line of credit
|
|
$ |
1,107 |
|
|
$ |
1,107 |
|
Convertible notes payable:
|
|
|
|
|
|
|
|
|
Convertible note, matures April 7, 2020
|
|
|
270 |
|
|
|
— |
|
Convertible note, matures June 20, 2020(1)
|
|
|
25 |
|
|
|
25 |
|
Convertible 12-month OID notes, mature beginning June
2020(1)
|
|
|
3,112 |
|
|
|
2,948 |
|
Convertible notes, mature August 12 and 16, 2020
|
|
|
550 |
|
|
|
550 |
|
Total convertible notes payable
|
|
|
3,957 |
|
|
|
3,523 |
|
Total current liabilities
|
|
$ |
5,064 |
|
|
$ |
4,630 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Convertible note payable, matures August 9, 2021
|
|
|
600 |
|
|
|
600 |
|
Convertible notes payable, mature April 20, 2021(1)
|
|
|
100 |
|
|
|
100 |
|
Total long-term liabilities
|
|
$ |
700 |
|
|
$ |
700 |
|
Total
|
|
$ |
5,764 |
|
|
$ |
5,330 |
|
(1)
These notes are convertible at our option at maturity.
For the three months ended March 31, 2019 and 2020 we recorded
$985,000 and $757,000 of interest expense related to the
amortization of discounts on convertible notes payable, coupon
interest from our convertible notes and line of credit.
The following discussion includes debt instruments to which
amendments were made or included other activity that management
deemed appropriate to disclose. Each of the debt instruments
contained in the above table are disclosed more fully in the
financial statements contained in the Company’s Annual Report filed
March 31, 2020, as amended.
Convertible Note, matures October 7, 2019 (Vista
Capital)
On January 7, 2019, Vista Capital Investments LLC (“Vista Capital”)
invested $300,000 and in exchange we issued a convertible
promissory note (the “Vista 2019 Note”) in the principal amount of
$330,000. Originally set to mature nine months from the date of
issuance, the maturity date was extended multiple times. The note
earned a one-time interest charge of 12%, which was recorded as a
discount on convertible notes and was amortized over the term of
the note. The note allowed conversion of the note into our common
stock 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 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 was recorded in 2019.
During the three months ended March 31, 2020, Vista Capital elected
to convert the remaining balance of $270,000 of the outstanding
principal and interest due on the note, and we issued 2,417,059
shares of our common stock.
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.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
During the three months ended March 31, 2020, noteholders elected
to convert $165,000 of the outstanding principal of 12-Month OID
Notes and we issued 970,590 shares of our common stock. As of March
31, 2020, the outstanding balance on the 12-Month OID Notes was
$2,948,000.
Note 5. Share-Based Compensation
Issuance of Common Stock in exchange for payment of
payables
Payment of Officer Salaries
On March 31, 2020, we issued 648,755 shares of our common stock at
$0.17 per share in lieu of $110,000 of accrued and unpaid salary to
our officers.
On March 29, 2019, we issued 579,996 shares of our common stock at
$0.16 per share in lieu of $93,000 of accrued and unpaid
obligations to our officers.
Payment of Consultant Fees
On March 31, 2020, we issued 390,735 shares of our common stock at
a range of $0.17 per share in lieu of $67,000 of accrued and unpaid
obligations to consultants.
On March 29, 2019, we issued 649,545 shares of our common stock at
$0.16 per share in lieu of $113,000 of accrued and unpaid
obligations to consultants.
Payment of Accrued Interest
On March 31, 2020, we issued 19,278 shares of our common stock at
$0.17 per share in lieu of $4,000 of accrued interest.
During the three months ended March 31, 2019, we issued 139,362
shares of our common stock at a range of $0.17 – $0.23 per share in
lieu of $25,000 of accrued interest.
Stock Option Expense
During the three months ended March 31, 2019 and 2020, we recorded
an aggregate $352,000 and $320,000, in selling general and
administrative expense related to the issuance and vesting of stock
options issued through our 2018 Equity Incentive Plan, our (now
expired) 2007 Equity Incentive Plan, and outside of these plans
(see Note 8 related to stock options issued by Clyra Medical).
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2018 Equity Incentive Plan
On June 22, 2018, our stockholders adopted the BioLargo 2018 Equity
Incentive Plan (“2018 Plan”) as a means of providing our directors,
key employees and consultants additional incentive to provide
services. Both stock options and stock grants may be made under
this plan for a period of 10 years. Our Board of Director’s
Compensation Committee administers this plan. As plan
administrator, the Compensation Committee has sole discretion to
set the price of the options. The plan authorizes the following
types of awards: (i) incentive and non-qualified stock options,
(ii) restricted stock awards, (iii) stock bonus awards, (iv) stock
appreciation rights, (v) restricted stock units, and (vi)
performance awards. The total number of shares reserved and
available for awards pursuant to this Plan as of the date of
adoption of this 2018 Plan by the Board is 40 million shares. The
number of shares available to be issued under the 2018 Plan
increases automatically each January 1st by the
lesser of (a) 2 million shares, or (b) such number of shares
determined by our Board.
Activity for our stock options under the 2018 Plan for the three
months ended March 31, 2019 and March 31, 2020, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Price per
|
|
|
intrinsic
|
|
|
|
Outstanding
|
|
|
Price per share
|
|
|
share
|
|
|
Value(1)
|
|
Balance, December 31, 2018
|
|
|
1,318,517 |
|
|
$0.22 |
– |
0.43 |
|
|
$ |
0.30 |
|
|
|
|
|
Granted
|
|
|
890,280 |
|
|
0.16 |
– |
0.22 |
|
|
|
0.19 |
|
|
|
|
|
Expired
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
Balance, March 31, 2019
|
|
|
2,208,797 |
|
|
$0.16 |
– |
0.43 |
|
|
$ |
0.25 |
|
|
|
|
|
Balance, December 31, 2019
|
|
|
9,214,356 |
|
|
$0.22 |
– |
0.43 |
|
|
$ |
0.25 |
|
|
|
|
|
Granted
|
|
|
1,343,344 |
|
|
0.17 |
– |
0.22 |
|
|
|
0.18 |
|
|
|
|
|
Expired
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
Balance, March 31, 2020
|
|
|
10,557,700 |
|
|
$0.16 |
– |
0.43 |
|
|
$ |
0.25 |
|
|
|
|
|
Non-vested
|
|
|
(4,677,385 |
)
|
|
0.17 |
– |
0.45 |
|
|
|
0.27 |
|
|
|
|
|
Vested, March 31, 2020
|
|
|
5,880,315 |
|
|
$0.16 |
– |
0.45 |
|
|
$ |
0.22 |
|
|
$ |
4,000 |
|
(1) – Aggregate intrinsic value based on closing common stock price
of $0.16 at March 31, 2020.
The options granted to purchase 1,343,344 shares during the three
months ended March 31, 2020 were issued to an officer, board of
directors, employees and consultants: (i) we issued options to
purchase 300,000 shares of our common stock at an exercise price on
the respective grant date of $0.22 per share to our CFO as
described below; and (ii) we issued options to purchase 397,058
shares of our common stock at an exercise price on the respective
grant date of $0.17 per share to members of our board of directors
for services performed, in lieu of cash. The fair value of these
options totaled $65,000 and is recorded as selling, general and
administrative expenses. Additionally, we issued options to
purchase 454,080 shares of our common stock to employees as part of
an employee retention plan at an exercise price on the respective
date of $0.17 per share. The fair value of employee retention plan
options totaled $76,000 and vest quarterly over four years as long
as they are retained as employees. We also issued options to
purchase 64,706 shares of our common stock to consultants in lieu
of cash for unpaid obligations totaling $11,000. All stock option
expense is recorded on our consolidated statement of operations as
selling, general and administrative expense.
Chief Financial Officer Contract Extension
On February 25, 2020, we and our Chief Financial Officer Charles K.
Dargan, II, formally agreed to extend the engagement agreement
dated February 1, 2008 (the “Engagement Agreement”, which had been
previously extended multiple times), pursuant to which Mr. Dargan
has been and continues to serve as the Company’s Chief Financial
Officer. The Engagement Extension Agreement dated as of February
25, 2020 (the “Engagement Extension Agreement”) provides for an
additional term to begin retroactively on October 1, 2019, and to
expire January 31, 2021 (the “Extended Term”).
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As compensation for the Extended Term, Mr. Dargan was issued
an option (“Option”) to purchase 427,500 shares of our common
stock. The Option vests over the period of the Extended Term, with
177,500 shares having vested as of March 31, 2020, and the
remaining 250,000 shares to vest monthly through January 31, 2021,
so long as the agreement is in full force and effect. The Option is
exercisable at $0.21 per share, the closing price of our common
stock on February 25, 2020, expires ten years from the grant date,
and was issued pursuant to the 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.
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 three
months ended March 31, 2019 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Price per
|
|
|
intrinsic
|
|
|
|
Outstanding
|
|
|
price per share
|
|
|
share
|
|
|
Value(1) |
|
Balance, December 31, 2018
|
|
|
9,831,586 |
|
|
$0.23 |
– |
1.89 |
|
|
$ |
0.44 |
|
|
|
|
|
Expired
|
|
|
(50,000 |
) |
|
|
1.89 |
|
|
|
|
0.91 |
|
|
|
|
|
Balance, March 31, 2019
|
|
|
9,781,586 |
|
|
$0.23 |
– |
1.65 |
|
|
$ |
0.43 |
|
|
$ |
— |
|
Balance, December 31, 2019
|
|
|
9,691,586 |
|
|
$0.23 |
– |
0.94 |
|
|
$ |
0.42 |
|
|
|
|
|
Expired
|
|
|
(870,000 |
) |
|
|
0.57 |
|
|
|
|
0.57 |
|
|
|
|
|
Balance, March 31, 2020
|
|
|
8,821,586 |
|
|
$0.23 |
– |
1.65 |
|
|
$ |
0.41 |
|
|
$ |
— |
|
(1) – Aggregate intrinsic value based on closing common stock price
of $0.16 at March 31, 2020.
Non-Plan Options issued
During the three months ended March 31, 2020, we issued options to
purchase 292,437 shares of our common stock at exercise prices
ranging between $0.17 – $0.21 per share to vendors for fees for
service. The fair value of the options issued totaled $50,000, is
recorded in our selling, general and administrative expense.
During the three months ended March 31, 2019, we issued options to
purchase 731,250 shares of our common stock at exercise prices
ranging between $0.16 – $0.25 per share to members of our board of
directors and vendors for fees for services totaling $139,000.
Activity of our non-plan stock options issued for the three months
ended March 31, 2019 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Non-plan
|
|
|
|
|
|
|
|
average
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Exercise
|
|
|
price per
|
|
|
intrinsic
|
|
As of March 31, 2019:
|
|
outstanding
|
|
|
price per share
|
|
|
share
|
|
|
value(1)
|
|
Balance, December 31, 2018
|
|
|
19,319,496 |
|
|
$0.25 |
– |
1.00 |
|
|
$ |
0.51 |
|
|
|
|
|
Granted
|
|
|
731,250 |
|
|
0.16 |
– |
0.25 |
|
|
|
0.19 |
|
|
|
|
|
Balance, March 31, 2019
|
|
|
20,050,746 |
|
|
$0.25 |
– |
1.00 |
|
|
$ |
0.45 |
|
|
$ |
— |
|
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of March 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
19,888,718 |
|
|
$0.23 |
– |
1.00 |
|
|
$ |
0.41 |
|
|
|
|
|
Granted
|
|
|
292,437 |
|
|
0.17 |
– |
0.21 |
|
|
|
0.18 |
|
|
|
|
|
Balance, March 31, 2020
|
|
|
20,181,155 |
|
|
$0.17 |
– |
1.00 |
|
|
$ |
0.41 |
|
|
|
|
|
Non-vested
|
|
|
(3,191,096 |
)
|
|
0.17 |
– |
0.45 |
|
|
|
0.45 |
|
|
|
|
|
Vested, March 31, 2020
|
|
|
16,989,249 |
|
|
$0.23 |
– |
1.00 |
|
|
$ |
0.40 |
|
|
$ |
5,000 |
|
(1) – Aggregate intrinsic value based on closing common stock price
of $0.16 at March 31, 2020.
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 March 31, 2019:
|
|
outstanding
|
|
|
price per share
|
|
|
share
|
|
|
value(1) |
|
Balance, December 31, 2018
|
|
|
26,872,430 |
|
|
$0.25 |
– |
1.00 |
|
|
$ |
0.42 |
|
|
|
|
|
Issued
|
|
|
3,861,041 |
|
|
0.16 |
– |
0.25 |
|
|
|
0.24 |
|
|
|
|
|
Balance, March 31, 2019
|
|
|
30,733,471 |
|
|
$0.16 |
– |
1.00 |
|
|
$ |
0.40 |
|
|
$ |
— |
|
As of March 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
43,231,161 |
|
|
$0.16 |
– |
1.00 |
|
|
$ |
0.35 |
|
|
|
|
|
Issued
|
|
|
791,260 |
|
|
|
|
0.13 |
|
|
|
0.13 |
|
|
|
|
|
Expired
|
|
|
(266,000 |
) |
|
|
|
0.30 |
|
|
|
0.30 |
|
|
|
|
|
Balance, March 31, 2020
|
|
|
43,756,421 |
|
|
$0.16 |
– |
1.00 |
|
|
$ |
0.35 |
|
|
$ |
131,000 |
|
(1) – Aggregate intrinsic value based on closing common stock price
of $0.16 at March 31, 2020.
Warrants Issued to One-Year Noteholders
In conjunction with two investments of one-year convertible notes,
we issued warrants in July 2017 to purchase an aggregate 400,000
shares to two investors at an exercise price of $0.65 per share.
Each of these warrants contained provisions that required a
reduction to the exercise price and increase to the number of
warrant shares in the event that we sold our common stock at a
lower price than the exercise price (subject to some exceptions).
During the three months ended March 31, 2020, we adjusted downward
the warrant exercise price to $0.13, resulting in an increase of
791,260 warrants available for exercise. The increase in warrants
resulted in a fair value totaling $100,000, recorded as a deemed
dividend in our consolidated 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 used in applying this model were as
follows:
|
|
March 31,
2019
|
|
|
March 31,
2020
|
|
Risk free interest rate
|
|
2.18 |
– |
2.62% |
|
|
|
0.23 |
%
|
Expected volatility
|
|
86 |
– |
110% |
|
|
|
112 |
%
|
Expected dividend yield
|
|
|
— |
|
|
|
|
— |
|
Forfeiture rate
|
|
|
— |
|
|
|
|
— |
|
Expected life in years
|
|
2 |
— |
5 |
|
|
|
2 |
|
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The risk-free interest rate is based on U.S. Treasury yields in
effect at the time of grant. Expected volatilities are based on
historical volatility of our common stock. The expected life in
years is based on the contract term of the warrant.
Note 7. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses included the following (in
thousands):
|
|
December 31,
2019
|
|
|
March 31,
2020
|
|
Accounts payable and accrued expense
|
|
$ |
346 |
|
|
$ |
430 |
|
Accrued interest
|
|
|
123 |
|
|
|
203 |
|
Accrued payroll
|
|
|
133 |
|
|
|
179 |
|
Total accounts payable and accrued expenses
|
|
$ |
602 |
|
|
$ |
812 |
|
Accounts payable and accrued expenses includes ordinary business
payables incurred by the Company and its operational
subsidiaries.
Note 8. Noncontrolling Interest – Clyra Medical
We consolidate the operations of our partially owned subsidiary
Clyra Medical (see Note 2).
Acquisition of In-process Research and
Development
On September 26, 2018, Clyra Medical entered into a transaction
with Scion Solutions, LLC, for the purchase 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) 10,000 shares of Clyra Medical common
stock redeemable for 7,142,858 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. This consideration was initially held in escrow
pending Clyra Medical raising $1 million “base capital” to fund its
business operations.
On December 17, 2018, the parties entered into a closing agreement
(“Closing Agreement”) reflecting the satisfaction of the obligation
to raise $1 million “base capital”; at that time, one-half of 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.
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.
Non-Controlling Interest
During the three months ended March 31, 2020, Clyra raised $25,000
at $310 per Clyra share.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
At March 31, 2020, the balance due on the Clyra-Scion Note equaled
$1,007,000. The shares of BioLargo common stock held by Clyra for
the benefit of Scion (the redemption shares) totals $643,000 and is
recorded on our balance sheet as a liability to “Clyra Medical
Shareholder”.
As of March 31, 2020, Clyra Medical had the following common and
preferred shares outstanding:
Shareholder
|
|
Shares
|
|
|
Percent
|
|
BioLargo, Inc.
|
|
|
26,203 |
|
|
|
36% |
|
Sanatio Capital
|
|
|
15,064 |
|
|
|
21% |
|
Scion Solutions(1)
|
|
|
15,500 |
|
|
|
21% |
|
Other
|
|
|
15,979 |
|
|
|
22% |
|
Total
|
|
|
72,746 |
(2) |
|
|
|
|
Notes:
(1) Does not include an additional 15,500 shares held in
escrow subject to performance metrics.
(2) Does not include options to purchase 9,569 of shares of
Clyra stock.
During 2019, Clyra began issuing options to its employees and
consultants in lieu of compensation owed. As of December 31, 2019,
the Company had issued options to purchase 7,624 shares of Clyra
stock. In the three months ended March 31, 2020, Clyra issued
options to purchase 1,945 shares of common stock to employees and
vendors in exchange for a reduction of $206,000 in payables owed.
Each option issued has an exercise price of $1.00 per share, are
vested upon issuance and an expiration date 10 years from the date
of grant. The fair value of the options issued in the three months
ended March 31, 2020, totaled $420,000, and the additional fair
value totaling $214,000 was recorded as a loss on extinguishment of
debt in our consolidated statement of operations. We used the
Black-Scholes model to calculate the initial fair value, assuming a
stock price on date of grant of $310 per share. Because Clyra is a
private company with no secondary market for its common stock, the
resulting fair value was discounted by 30%.
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 six scientists and
engineers. (See Note 12 “Business Segment Information”.) The
company was capitalized with two classes of membership units: Class
A, 100% owned by Biolargo, and Class B, held by management of
BLEST, and which initially have no “profit interest,” as that term
is defined in Tennessee law. However, over the succeeding five
years, the Class B members can earn up to a 30% profit interest.
They also have been granted options to purchase up to an aggregate
1,750,000 shares of BioLargo, Inc. common stock. The profit
interest and option shares are subject to a five year vesting
schedule tied to the performance of the subsidiary, including gross
revenue targets that increase over time, obtaining positive cash
flow by March 31, 2018 (which was not met), collecting 90% of its
account receivables, obtaining a profit of 10% in its first year
(and increasing in subsequent years), making progress in the
scale-up and commercialization of our AOS system, and using
BioLargo research scientists (such as our Canadian team) for
billable work on client projects. These criteria are to be
evaluated annually by BLEST’s compensation committee (which
includes BioLargo’s president, CFO, and BLEST’s president),
beginning September 2018. Given the significant performance
criteria, the Class B units and the stock options will only be
recognized in compensation expense if or when the criteria are
satisfied.
Since the commencement of operations, the Compensation
Committee has met twice, once in September 2018, and once in
November 2019. In 2018, it reviewed the operating performance and
determined that the performance metrics were not met and as a
result, did not award any Class B units or stock options. The
Committee decided to roll forward one additional year to the time
allowed for the performance metrics to be met and for the Class B
units and stock options to be awarded.
In November 2019, the Compensation Committee again reviewed the
operating performance and determined that a portion of the
performance metrics were met. It was agreed that one-half of the
eligible profits interests would be vested (2.5% in the aggregate).
The fair value of the profit interest was nominal and not recorded.
Nevertheless, Biolargo treats the 2.5% profits interest as part of
the noncontrolling interest on both the balance sheet and the
statement of operations.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 10. 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-More (“ONM”) -- which is selling 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 featuring
its new product Clyraguard;
|
|
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);
|
|
4.
|
BioLargo Water (“Water”) -- which historically focused entirely on
R&D, and has now shifted its focus to commercializing the AOS
technology, developing manufacturing operations for hand sanitizers
and supporting the development of iodine based disinfecting
products for the company (located in Edmonton, Alberta Canada);
and
|
Historically, none of our operating business units operated at a
profit and therefore each required additional cash to meet its
monthly expenses. The additional sources of the cash to fund the
shortfall from operations of Odor-No-More, BLEST and BioLargo Water
have been provided by BioLargo’s sales of debt or equity, research
grants, and tax credits. Clyra Medical has been funded by third
party investors who invest directly in Clyra Medical in exchange
for equity ownership in that entity.
The segment information for the three months ended March 31, 2019
and 2020, is as follows (in thousands):
March 31, 2020
|
|
BioLargo
|
|
|
ONM
|
|
|
Clyra
|
|
|
BLEST
|
|
|
Water
|
|
|
Elimination(1)
|
|
|
Total
|
|
Revenue
|
|
$ |
— |
|
|
$ |
298 |
|
|
$ |
— |
|
|
$ |
284 |
|
|
$ |
— |
|
|
$ |
(143 |
) |
|
$ |
439 |
|
Intersegment revenue
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(143 |
) |
|
|
— |
|
|
|
143 |
|
|
|
— |
|
Operating loss
|
|
|
(972 |
) |
|
|
(153 |
) |
|
|
(306 |
) |
|
|
(43 |
) |
|
|
(228 |
) |
|
|
— |
|
|
|
(1,702 |
) |
Grant income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
57 |
|
|
|
— |
|
|
|
57 |
|
Interest expense
|
|
|
(744 |
) |
|
|
— |
|
|
|
(13 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(757 |
) |
Depreciation
|
|
|
— |
|
|
|
(5 |
) |
|
|
— |
|
|
|
(11 |
) |
|
|
— |
|
|
|
— |
|
|
|
(16 |
) |
Research and development
|
|
|
(202 |
) |
|
|
— |
|
|
|
(14 |
) |
|
|
(82 |
) |
|
|
(180 |
) |
|
|
143 |
|
|
|
(335 |
) |
Net loss
|
|
|
(1,716 |
) |
|
|
(153 |
) |
|
|
(533 |
) |
|
|
(43 |
) |
|
|
(171 |
) |
|
|
— |
|
|
|
(2,616 |
) |
March 31, 2019
|
|
BioLargo
|
|
|
ONM
|
|
|
Clyra
|
|
|
BLEST
|
|
|
Water
|
|
|
Elimination(1)
|
|
|
Total
|
|
Revenue
|
|
$ |
— |
|
|
$ |
301 |
|
|
$ |
— |
|
|
$ |
183 |
|
|
$ |
— |
|
|
$ |
(120 |
) |
|
$ |
364 |
|
Intersegment revenue
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(120 |
) |
|
|
— |
|
|
|
120 |
|
|
|
— |
|
Operating loss
|
|
|
(948 |
) |
|
|
(90 |
) |
|
|
(287 |
) |
|
|
(110 |
) |
|
|
(227 |
) |
|
|
— |
|
|
|
(1,662 |
) |
Grant income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
82 |
|
|
|
— |
|
|
|
82 |
|
Interest expense
|
|
|
(632 |
) |
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(985 |
) |
Depreciation
|
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
|
|
(16 |
) |
Research and development
|
|
|
(172 |
) |
|
|
— |
|
|
|
(49 |
) |
|
|
(122 |
) |
|
|
(209 |
) |
|
|
126 |
|
|
|
(426 |
) |
Loss on extinguishment
|
|
|
(184 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(184 |
) |
Net loss
|
|
|
(2,105 |
) |
|
|
(90 |
) |
|
|
(299 |
) |
|
|
(110 |
) |
|
|
(145 |
) |
|
|
— |
|
|
|
(2,749 |
) |
As of March 31, 2020
|
|
BioLargo
|
|
|
ONM
|
|
|
Clyra
|
|
|
BLEST
|
|
|
Water
|
|
|
Elimination(1)
|
|
|
Total
|
|
Tangible assets
|
|
$ |
844 |
|
|
$ |
423 |
|
|
$ |
8 |
|
|
$ |
275 |
|
|
$ |
57 |
|
|
$ |
(42 |
) |
|
$ |
1,565 |
|
Investment in South Korean joint venture
|
|
|
99 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
99 |
|
Intangible assets
|
|
|
1,893 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,893 |
|
As of December 31, 2019
|
|
BioLargo
|
|
|
ONM
|
|
|
Clyra
|
|
|
BLEST
|
|
|
Water
|
|
|
Elimination(1)
|
|
|
Total
|
|
Tangible assets
|
|
$ |
862 |
|
|
$ |
410 |
|
|
$ |
3 |
|
|
$ |
396 |
|
|
$ |
77 |
|
|
$ |
(31 |
) |
|
$ |
1,728 |
|
Intangible assets
|
|
|
1,893 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,893 |
|
(1) – the
“elimination” column reflects an adjustment for revenues generated
between our related entities and are eliminated in
consolidation.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 11. Commitments and Contingencies
Office Leases
We have long-term operating leases for office, industrial and
laboratory space in Westminster, California, Oak Ridge, Tennessee,
and Alberta, Canada. Payments made under operating leases are
charged to the Consolidated Statement of Operations and
Comprehensive Loss on a straight-line basis over the term of the
operating lease agreement. For the three months ended March 31,
2019 and 2020, rental expense was $51,000 and $55,000,
respectively. On January 1, 2019, we adopted ASC 842 which
resulted in a right-of-use asset and lease liability. Short-term
leases are not included in our analysis. The adoption resulted in
an immaterial cumulative effect of an accounting change that was
not recorded. The lease of our Westminster facility qualifies
for the new treatment; it originated in August 2016, expires August
2020, contains a yearly escalation of 3%, and includes a four-year
renewal option whereby the base rent is adjusted to then market
value. We intend to exercise the option to extend the lease for
four years. That has been included in the analysis. The lease of
our Oak Ridge, Tennessee facility also qualifies, and it had one
executed extension to September 2022, and has one renewal option
for another five years where the rental rate would adjust to
greater of the current price and fair market value. No
determination has been made whether to exercise the renewal option
for the Oak Ridge facility. The lease of our Canadian facility is
less than one year. None of our leases have additional terms
related to the payments or mechanics of the lease: there are not
any common area maintenance charges or tax sharing arrangements,
easement provisions or any free rent. Since there is no explicit
interest rate in leases, management used its incremental borrowing
rate, which is estimated to be 18%. As of March 31, 2020, our
weighted average remaining lease term is four years and the
total remaining operating lease payments is $667,000.
Clyra Medical Consulting Agreement
Clyra Medical (see Note 8) 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. The agreement originally provided that
Clyra’s obligation to pay fees under the agreement begin the month
following Clyra reception of FDA pre-market clearance on its first
product, which occurred in September 2019. In December 2019, the
parties modified the agreement such that fees are incurred once
Clyra generates $250,000 in monthly revenue on average for three
consecutive months. The total cash obligation related to the
agreement would be approximately $1.1 million.
Note 12. Subsequent Events.
Management has evaluated subsequent events through the date of the
filing of this Annual Report and management noted the following for
disclosure.
Paycheck Protection Program SBA Loans
Our subsidiaries BLEST and Clyra Medical received advances of
$93,000 and $43,000, respectively from the Small Business
Administration Paycheck Protection Program. The loans
mature in two years and incur interest at 1%. All or a portion
of the loans may be forgiven if the companies comply with the terms
of forgiveness as set forth by the Small Business
Administration.
Investments Received
On May 1, 2020, Biolargo commenced a private offering of units,
each unit consisting of (i) common stock, (ii) a four-month stock
purchase warrant, and (iii) a five-year stock purchase warrant.
Unit prices are set from time-to-time based on market conditions.
The number of shares of common stock issued, and the number of
shares available for purchase under each warrant, are based on the
quotient of the unit price and investment amount (e.g., a $100,000
investment and unit price of $0.25 is equal to 400,000 shares). The
four-month warrant exercise price is equal to 120% of the unit
price, and the five-year warrant is equal to 150% of the unit
price. As of the date of this report, we have received an aggregate
$142,000 of investments from two investors at unit prices equal to
$0.15, issued 946,667shares of our common stock, and issued
warrants to purchase an aggregate 1,893,334 shares.
BIOLARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Sales to Lincoln Park
From April 1, 2020, through May 12, 2020, we sold 500,000 shares of
our common stock to Lincoln Park and received $73,000 in gross
proceeds.
Capital Secured by Clyra Medical
From April 1, 2020, through May 12, 2020, Clyra Medical has sold
2,545 shares of its common stock and received $775,000 in gross
proceeds from seven investors pursuant to its private securities
offering.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
This quarterly report on Form 10-Q contains forward-looking
statements. These forward-looking statements involve risks and
uncertainties, including statements regarding BioLargo’s capital
needs, business plans and expectations. Such forward-looking
statements involve risks and uncertainties regarding BioLargo’s
ability to carry out its planned development and production of
products. Forward-looking statements are made, without limitation,
in relation to BioLargo’s operating plans, BioLargo’s liquidity and
financial condition, availability of funds, operating and
exploration costs and the market in which BioLargo competes. Any
statements contained herein that are not statements of historical
facts may be deemed to be forward-looking statements. In some
cases, you can identify forward-looking statements by terminology
such as “may”, “will”, “should”, “expect”, “plan”, “intend”,
“anticipate”, “believe”, “estimate”, “predict”, “potential” or
“continue”, the negative of such terms or other comparable
terminology. Actual events or results may differ materially. In
evaluating these statements, you should consider various factors,
including the risks outlined in our Form most recent annual report
on Form 10-K, and, from time to time, in other reports BioLargo
files with the SEC. These factors may cause BioLargo’s actual
results to differ materially from any forward-looking statement.
BioLargo disclaims any obligation to publicly update these
statements, or disclose any difference between its actual results
and those reflected in these statements. The information
constitutes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Given these
uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements.
Unless otherwise expressly stated herein, all statements, including
forward-looking statements, set forth in this Form 10-Q are as of
March 31, 2020, unless expressly stated otherwise, and we undertake
no duty to update this information.
As used in this report, “we” and “Company” refers to
(i) BioLargo, Inc., a Delaware corporation; (ii) its
wholly-owned subsidiaries BioLargo Life Technologies, Inc., a
California corporation, Odor-No-More, Inc., a California
corporation, BioLargo Development Corp., a California corporation,
, (iii) its majority-owned subsidiary BioLargo Engineering, Science
& Technologies, LLC, a Tennessee limited liability company, and
Canadian subsidiary BioLargo Water, Inc.; and (iv) Clyra
Medical Technologies, Inc. (“Clyra”), a partially owned
subsidiary.
The following discussion and analysis should be read in conjunction
with our unaudited consolidated financial statements and the
related notes to the consolidated financial statements included
elsewhere in this report.
Recent Events
The COVID-19 pandemic is currently impacting countries,
communities, supply chains and markets as well as the global
financial markets. Governments have imposed laws requiring social
distancing, travel bans and quarantine, and these laws may limit
access to our facilities, customers, management, support staff and
professional advisors. These factors, in turn, may not only impact
our operations, financial condition and demand for our goods and
services, but our overall ability to react timely to mitigate the
impact of this event. Also, it may hamper our efforts to comply
with our filing obligations with the Securities and Exchange
Commission. Depending on the severity and longevity of the COVID-19
pandemic, our business, customers, and stockholders may experience
a significant negative impact.
Our Business- A Sustainable Products, Technology and Solutions
Provider
BioLargo, Inc. is an innovative technology developer and
environmental engineering company driven by a mission to
“make life better” by delivering robust,
sustainable solutions for a broad range of industries and
applications, with a focus on clean water, clean air, and advanced
wound care. We develop 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.
Response to COVID-19 Pandemic
In response to the COVID-19 pandemic through which many states
issued “shelter-at-home” orders, we took rapid action to bring
forth solutions to assist in the crisis, stabilize operations,
protect our staff, and shore up financial resources to continue
growing the company. We have achieved the following over the past 6
weeks:
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1.
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Our engineers prepared a low-cost ventilator design in response to
a U.S. Department of Defense call for innovation to support a
government challenge, which has led to the ongoing collaboration
with the University of California Sa Diego and their National
Security Innovation Catalyst, and the collaboration/evaluation of
CupriDyne with multiple branches of the U.S. military, all made
possible through our work with TMA Bluetech, on which our president
Dennis Calvert serves as a board member;
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2.
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Clyra Medical created, began to manufacture and successfully
secured an FDA registration of the “Clyraguard Personal Protection
Spray” (www.clyramedical.com/clyraguard);
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3.
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We received confirmation through third-party testing by
UTMB-Galveston National Lab that our CupriDyne products inactivate
the SARS-CoV-2 (COVID-19) virus;
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4.
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We received confirmation through third-party testing at
UTMB-Galveston National Lab that Clyra Medical’s FDA registered
products inactivate the SARS-CoV-2 (COVID-19) virus;
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5.
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We organized a small-scale production and sale of hand sanitizers
in our Westminster, Oak Ridge, and Canadian facilities;
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6.
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We completed revisions of waterworks fund crowdfunding offering in
order to highlight its role in COVID-19 crisis for AOS to remove
the virus from wastewater;
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7.
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We negotiated and executed a new financing instrument with Lincoln
Park Capital which will provide up to $10,250,000 in new capital
should we elect to draw down the facility, any time over the next
three years (see “Item 5 “Other Information”); and
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8.
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We completed three applications for Paycheck Protection Program
stimulus money, two of which have been accepted, the third
pending.
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COVID-19 Testing
We sponsored research with one of the leading researchers in the
study of pandemic diseases, Dr Slobadan Praessler’s laboratory
located at the Galveston National Laboratory at the University of
Texas Medical Branch, to confirm that CupriDyne as well as
Clyraguard, a product of Clyra Medical, inactivated the Coronavirus
that causes COVID-19. The tests were successful. The research
concluded that “CupriDyne was shown to be effective in inactivating
the virus in a time-dependent manner, reducing virus titers by 99%
(2 logs) after 30 minutes, and reducing virus titers to below the
detection limit after 60 minutes. The novel iodine complex tested
herein offers a safe and gentle alternative to conventional
disinfectants for use on indoor and outdoor surfaces.” The actual
report can be seen at the following link:
https://www.biorxiv.org/content/10.1101/2020.05.08.082701v1.
The CupriDyne abstract states:
“The coronavirus known as SARS-CoV-2, which causes COVID-19
disease, is presently responsible for a global pandemic wherein
more than 3.5 million people have been infected and more than
250,000 killed to-date. There is currently no vaccine for COVID-19,
leaving governments and public health agencies with little defense
against the virus aside from advising or enforcing best practices
for virus transmission prevention, which include hand-washing,
physical distancing, use of face covers, and use of effective
disinfectants. In this study, a novel iodine complex called
CupriDyne® was assessed for its ability to inactivate SARS-CoV-2.
CupriDyne was shown to be effective in inactivating the virus in a
time-dependent manner, reducing virus titers by 99% (2 logs) after
30 minutes, and reducing virus titers to below the detection limit
after 60 minutes. The novel iodine complex tested herein offers a
safe and gentle alternative to conventional disinfectants for use
on indoor and outdoor surfaces.”
We intend to fully explore any and all alternatives available
to develop a new CupriDyne based product to help combat COVID-19
and secure appropriate regulatory approvals.
The UTMB-Galveston National Laboratory also tested Clyra’s new
Clyraguard product, and confirmed that it inactivates the
SARS-CoV-2 (COVID-19) virus. The associated study results and
academic paper is expected to publish soon.
While we are actively engaged in responding the COVID-19 crisis, we
have not ceased operations of our previous and long-term operating
activities or plans. However, our normal operations and rate of
growth been negatively impacted during the crisis, namely with
delays by our customers until such time as our customers operations
resume some sense of normalcy. For example, our growth in the waste
handling industry has reversed course as operators, in light of the
COVID-19 crisis, are less concerned about managing odor than during
normal times. As such, we believe these commercial operations will
resume its growth track after the crisis subsides.
Our second commercial operation, BioLargo Engineering, Science
& Technologies, LLC (“BLEST”), provides professional
engineering and consulting services to third party clients on a
fee-for-service basis, and also serves as our in-house engineering
team to advance our proprietary technologies and complement service
offerings of our other business segments. This operating unit has a
number of near- and long-term prospects for substantial growth, all
of which have been delayed due to the COVID-19 crisis.
Each incremental success 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. We believe that the future of our medical and clean
water technologies has similar and also very large market
opportunities ahead as they are introduced commercially.
In addition to our two commercial operating subsidiaries, we have
technologies and products in the development pipeline progressing
towards commercialization, 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 Clyraguard (Disinfecting Personal
Protection Spray for Personal Protection Equipment, healing chronic
wounds, including our 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”).
Clyra Medical is launching its Clyraguard
(www.clyramedical.com/clyraguard ) product now, and given its
unique value proposition as a disinfectant for personal protection
equipment like facemasks, which is a safe and gentle solution (safe
on skin) to help protect people from cross contamination and its
proven effectiveness at inactivating the SARS-CoV-2 virus, and the
fact that it FDA cleared and registered, we expect Clyraguard to
experience rapid revenue growth.
Odor-No-More Industrial Odor and VOC
Solutions
Our CupriDyne Clean industrial products reduce and eliminate tough
odors and VOC’s in various industrial settings, delivered through
misting systems, sprayers, water trucks and similar water delivery
systems. We believe the product is the number one performing
odor-control product in the market, and offers substantial savings
to our customers compared with competing products.
Our customer base for our odor and VOC business was expanding prior
to the COVID-19 crisis and we expect it to continue doing so once
the world returns back to work. We have been and expect to continue
selling product to three of the largest solid waste handling
companies in the country, 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, 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 a non-performing and competitive products, some of which have
been in use by customers for as many as 30 years. Upon using
CupriDyne Clean, the majority of customers have expressed a very
high degree of satisfaction with its performance compared to prior
solutions. Because of this, we were realizing systematic adoption
by our very large corporate customers and expect to resume the
adoption cycle post crisis, 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 offering a menu of
services to landfills, transfer stations, and wastewater treatment
facilities. These services include ongoing maintenance and on-site
support services to assist our clients in the design 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. During late 2019 we were awarded and completed more
than 15 projects.
South Korean Joint Venture
On February 12, 2020, we executed a “Joint Venture Framework
Agreement” with a leading wastewater treatment solution provider
based in South Korea (BKT Co. Ltd., “BKT”), to create a South
Korean entity that would manufacture odor and VOC control
products based on our CupriDyne Clean products. We received a
$350,000 investment from BKT and issued 1,593,087 shares of our
common stock, and invested $100,000 into the joint venture for a
40% ownership share. BKT and its U.S. based subsidiary invested
$150,000 into the joint venture for the remaining 60% ownership
share. The joint venture has established their manufacturing, and
we expect will be proceeding with operations in the near
future.
1
“Municipal Solid Waste Landfills - Economic Impact Analysis for the
Proposed New Subpart to 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.
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 Analysis for the Proposed New Subpart
to 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 rounded.
3
1“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.
Full Service Environmental Engineering
In September 2017, we formed a subsidiary (BioLargo Engineering,
Science & Technologies, LLC, or “BLEST”), for the purpose of
offering full service environmental engineering to third parties,
and to provide 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 three areas:
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Providing engineering services to third party clients;
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Supporting the internal product development (e.g., the AOS and AEC
water treatment systems); and
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Supporting our team at Odor-No-More to provide engineering and
design of the CupriDyne Clean delivery systems.
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The subsidiary is located in Oak Ridge (a suburb of Knoxville,
Tennessee), and employs seven scientists and engineers who
collectively have over two hundred years of experience in diverse
engineering fields. The team is led by Randall Moore, who served as
Manager of Operations for Consulting and Engineering for the
Knoxville office of CB&I Environmental & Infrastructure and
was formerly a leader at The Shaw Group, Inc., a Fortune 500 global
engineering firm. The other team members are also former employees
of CB&I and Shaw. The team is highly experienced across
multiple industries and they are considered experts in their
respective fields, including chemical engineering, wastewater
treatment (including design, operations, data gathering and data
evaluation), process safety, energy efficiency, air pollution,
design and control, technology evaluation, technology integration,
air quality management & testing, engineering management,
permitting, industrial hygiene, applied research and development,
air testing, environmental permitting, HAZOP review, chemical
processing, thermal design, computational fluid dynamics,
mechanical engineering, mechanical design, NEPDES permitting,
RCRA/TSCA compliance and permitting, project management,
storm water design & permitting, computer assisted design
(CAD), bench chemistry, continuous emission monitoring system
operator, data handling and evaluation and decommissioning and
decontamination of radiological and chemical contaminated
facilities.
Development of AEC to Combat PFAS Crisis
In 2019, BLEST was awarded an SBIR Phase I Competitive Grant by the
Environmental Protection Agency in the amount of $100,000 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 had applied for Phase II funding from the EPA
to sponsor a go-to-market strategy for its AEC and was notified on
May 18, 2020, that its request for funding was not granted. While
management is disappointed by this news, at the same time it
is not deterred from pursuing what it believes will be a
substantial business opportunity. The scale-up work on the AEC
continues with our own resources, and we expect to be ready
for commercial trails in the near future.
BioLargo Water and the Advanced Oxidation System –
AOS
BioLargo Water is our wholly owned subsidiary located on campus at
the University of Alberta, Canada, that has been primarily engaged
in the research and development of our Advanced Oxidation System
(AOS). The AOS is our patented water treatment device that
generates a series of highly oxidative species of iodine and other
molecules that, because of its proprietary configuration and inner
constituents, 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 extremely efficient
decontamination and the disinfection of various waste waters. 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.
The key value proposition of the AOS is its ability to eliminate a
wide variety of contaminants with high performance while consuming
extremely low levels of input electricity and extremely low levels
of chemistry inputs – a trait made possible by the complex set of
highly oxidative iodine compounds generated within the AOS reactor.
Our proof-of-concept studies and case studies 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 sets the AOS technology above other water
treatment options, as we believe the AOS may allow safe and
reliable water treatment for significantly lower cost compared to
its competitors and may even enable advanced water treatment in
applications where it otherwise would have been prohibitively
costly.
The AOS has the potential to allow reliable and cost-effective
water treatment in numerous industries and applications 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 AOS 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, we recently
reinitiated discussions with a number of 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 continue to
apply for significant grant funding to re-initiate our work to help
treat OSPW and other oil and gas wastewaters using the AOS. We
believe that this opportunity requires substantial grant support to
be viable for our company and, therefore we will continue to focus
on energies on other markets until such time as resources are
available.