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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


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

 

For the quarterly period ended September 30, 2021.

or

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

 

For the transition period from              to             

 

Commission File Number 000-19709

 


BIOLARGO, INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware

65-0159115

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

14921 Chestnut St.

Westminster, CA 92683

(Address of principal executive offices)

 

(888) 400-2863

(Registrants telephone number, including area code)

 


 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock

BLGO

OTC Markets (OTCQB)

 


 

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

 

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

 

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

 

Large accelerated filer   ☐   Accelerated filer ☐
   
Non-accelerated filer   ☒   Smaller reporting company ☒
   
  Emerging growth company ☐

 

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

 

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

 

The number of shares of the Registrant’s Common Stock outstanding as of November 11, 2021 was 257,726,382 shares.  

 

 

 

BIOLARGO, INC.

FORM 10-Q

INDEX

 

PART I
     
     

Item 1

Financial Statements

3
     
Item 2 Management's Discussion and Analysis and Financial Condition and Results of Operations 26
     
Item 4 Controls and Procedures 36
     
PART II
     
     

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

37
     

Item 5

Other Information

38
     

Item 6

Exhibits

39
     
 

Signatures

40
     
 

Exhibit Index

39

 

 

PART IFINANCIAL INFORMATION

 
 

Item 1. Financial Statements

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

(in thousands, except for per share data)

 

   

September 30,

2021

(Unaudited)

   

December 31,

2020

 

Assets

 

Current assets:

               

Cash and cash equivalents

  $ 1,098     $ 716  

Accounts receivable, net of allowance

    464       484  

Inventories, net of allowance

    250       277  

Prepaid expenses and other current assets

    99       28  

Total current assets

    1,911       1,505  
                 

Non-current assets

               

In-process research and development (Note 8)

    2,150       2,150  

Equipment, net of depreciation

    64       60  

Other non-current assets

    35       35  

Investment in South Korean joint venture

    40       63  

Right of use operating lease, net of amortization

    296       341  

Clyra Medical prepaid marketing (Note 9)

    788       788  

Total non-current assets

    3,373       3,437  

Total assets

  $ 5,284     $ 4,942  

Liabilities and stockholdersequity (deficit)

 

Current liabilities:

               

Accounts payable and accrued expenses

  $ 424     $ 513  

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

          1,102  

Deferred revenue

    162       48  

Customer deposits

    79        

Lease liability

    114       114  

Clyra Medical accounts payable and accrued expenses (Note 9)

    729       536  

Clyra Medical debt obligations (Note 9)

    1,007       1,231  

Total current liabilities

    2,515       3,544  

Long-term liabilities:

               

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

    489       507  

Clyra Medical line of credit (Note 9)

    196        

Lease liability

    181       226  

Common stock held for redemption (Note 9)

    900       900  

Total long-term liabilities

    1,766       1,633  

Total liabilities

    4,281       5,177  
                 

COMMITMENTS AND CONTINGENCIES (Note 12)

                 
                 

STOCKHOLDERS’ EQUITY (DEFICIT):

               

Preferred Series A, $0.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at September 30, 2021 and December 31, 2020

           
Common stock, $0.00067 Par Value, 400,000,000 Shares Authorized, 255,368,553 and 225,885,682 Shares Issued, at September 30, 2021 and December 31, 2020     171       151  

Additional paid-in capital

    141,343       135,849  

Accumulated other comprehensive loss

    (110

)

    (101

)

Accumulated deficit

    (136,595

)

    (132,041

)

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

    4,809       3,858  

Non-controlling interest (Notes 9 and 10)

    (3,806

)

    (4,093

)

Total stockholders’ equity (deficit)

    1,003       (235

)

Total liabilities and stockholders’ equity (deficit)

  $ 5,284     $ 4,942  

 

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

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

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

(unaudited)

 

   

THREE MONTHS

   

NINE MONTHS

 
   

SEPTEMBER

30, 2021

   

SEPTEMBER

30, 2020

   

SEPTEMBER

30, 2021

   

SEPTEMBER

30, 2020

 
                                 

Revenues

                               

Product revenue

  $ 431     $ 506     $ 1,190     $ 1,086  

Service revenue

    281       160       553       436  

Total revenue

    712       666       1,743       1,522  
                                 

Cost of revenue

                               

Cost of goods sold

    (204 )     (185 )     (600 )     (422 )

Cost of service

    (158 )     (116 )     (363 )     (339 )

Total cost of revenue

    (362 )     (301 )     (963 )     (761 )

Gross profit

    350       365       780       761  
                                 

Selling, general and administrative expenses

    1,461       1,927       4,766       5,345  

Research and development

    344       347       1,027       1,031  

Operating loss:

    (1,455 )     (1,909 )     (5,013 )     (5,615 )

Other (expense) income:

                               

Interest expense

    (26 )     (318 )     (208 )     (1,823 )

Loss on debt extinguishment

          (228 )           (442 )

PPP loan forgiveness

                43        

Tax credit

    21       65       50       109  

Grant income

    25             25       64  

Total other expense:

    18       (481 )     (90 )     (2,092 )

Net loss

    (1,435 )     (2,390 )     (5,103 )     (7,707 )
                                 

Net loss attributable to noncontrolling interest

    (134 )     (284 )     (549 )     (901 )

Net loss attributable to common shareholders

  $ (1,301 )   $ (2,106 )   $ (4,554 )   $ (6,806 )
                                 

Net loss per share attributable to common shareholders:

                               

Loss per share attributable to shareholders – basic and diluted

  $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.04 )

Weighted average number of common shares outstanding:

    252,912,561       210,212,946       243,529,117       182,959,765  
                                 

Comprehensive loss:

                               

Net loss

  $ (1,435 )   $ (2,390 )   $ (5,103 )   $ (7,707 )

Foreign currency translation

    (7 )     (30 )     (9 )     (8 )

Comprehensive loss

    (1,442 )     (2,420 )     (5,112 )     (7,715 )

Comprehensive loss attributable to noncontrolling interest

    (134 )     (284 )     (549 )     (901 )

Comprehensive loss attributable to common stockholders

  $ (1,308 )   $ (2,136 )   $ (4,563 )   $ (6,814 )

 

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

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERSEQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(in thousands, except for share data)

(unaudited)

 

   

Common stock

   

Additional

paid-in

   

Accumulated

   

Accumulated

other

comprehensive

   

Non-

controlling

   

Total

stockholders’

 
   

Shares

   

Amount

   

capital

   

deficit

   

Loss

   

interest

   

equity (deficit)

 

Balance, December 31, 2020

    255,368,553     $ 151     $ 135,849     $ (132,041

)

  $ (101

)

  $ (4,093

)

  $ (235

)

Sale of common stock for cash

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

Issuance of common stock for service

    747,487       1       110                         111  

Stock option compensation expense

                424                         424  

Warrants and conversion feature issued as discount on convertible note payable

                35                         35  

Clyra Medical stock option expense

                161                         161  

Noncontrolling interest allocation

                (313

)

                313        

Clyra Medical securities offering

                                  50       50  

Net loss

                      (1,631

)

          (247

)

    (1,878

)

Foreign currency translation

                            (2

)

          (2

)

Balance, March 31, 2021

    239,963,788     $ 161     $ 138,363     $ (133,672

)

  $ (103

)

  $ (3,977

)

  $ 772  

Conversion of notes

    1,966,439       1       327                         328  

Sale of common stock for cash

    8,627,237       6       1,408                         1,414  

Issuance of common stock for service

    357,132             60                         60  

Issuance of common stock for interest

    81,777             16                         16  

Stock option compensation expense

                330                         330  

Clyra Medical stock option expense

                102                         102  

Noncontrolling interest allocation

                (314

)

                314        

Net loss

                      (1,622

)

          (168

)

    (1,790

)

Foreign currency translation

                                         

Balance, June 30, 2021

    250,996,373     $ 168     $ 140,292     $ (135,294

)

  $ (103

)

  $ (3,831

)

  $ 1,232  

Sale of common stock for cash

    3,306,708       2       598                         600  

Issuance of common stock for service

    648,805       1       122                         123  

Issuance of common stock for warrant exercise

    416,667             60                         60  

Stock option compensation expense

                251                         251  

Clyra Medical stock option expense

                179                         179  

Noncontrolling interest allocation

                (159

)

                159        

Net loss

                      (1,301

)

          (134

)

    (1,435

)

Foreign currency translation

                            (7 )           (7 )

Balance, September 30, 2021

    255,368,553     $ 171     $ 141,343     $ (136,595

)

  $ (110

)

  $ (3,806

)

  $ 1,003  

 

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

 

 

   

Common stock

   

Additional

paid-in

   

Accumulated

   

Accumulated

other comprehensive

   

Non-

controlling

   

Total

stockholders’

 
   

Shares

   

Amount

   

capital

   

deficit

   

Loss

   

interest

   

equity (deficit)

 

Balance, December 31, 2019

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

Conversion of notes

    3,387,649       2       432                         434  

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 )

Conversion of notes

    6,463,784       6       682                         688  

Issuance of common stock for service

    1,774,033       1       271                         272  

Issuance of common stock for interest

    297,001             30                         30  

Sale of common stock for cash

    3,689,246       2       558                         560  

Stock option compensation expense

                528                         528  

Clyra Medical securities offering

                476                   348       824  

Clyra Medical stock option expense

                20                         20  

Clyra Medical stock for other asset (See Note 2)

                788                         788  

Noncontrolling interest allocation

                4,401                   (4,401 )      

Net loss

                      (2,425 )           (275 )     (2,700 )

Foreign currency translation

                            22             22  

Balance, June 30, 2020

    190,703,381     $ 128     $ 130,875     $ (128,291 )   $ (77 )   $ (4,239 )   $ (1,604 )

Conversion of notes

    23,306,528       16       2,389                         2,405  

Issuance of common stock for service

    619,670             93                         93  

Issuance of common stock for interest

    1,412,052       1       149                         150  

Sale of common stock for cash

    5,640,509       3       916                         919  

Stock option compensation expense

                499                         499  

Loss on extinguishment

                228                         228  

Clyra Medical shares issued as a commitment fee

                70                         70  

Clyra Medical stock option expense

                140                         140  

Noncontrolling interest allocation

                (326 )                 326        

Net loss

                      (2,106 )           (275 )     (2,390 )

Foreign currency translation

                            (30 )           (30 )

Balance, September 30, 2020

    221,682,140     $ 148     $ 135,033     $ (130,397 )   $ (107 )   $ (4,197 )   $ 480  

 

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 AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(in thousands, except for per share data)

(unaudited)

 

   

SEPTEMBER

30,

2021

   

SEPTEMBER

30,

2020

 

Cash flows from operating activities

               

Net loss

  $ (5,103

)

  $ (7,707

)

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

               

Stock option compensation expense

    1,447       1,712  

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

    294       542  

Common stock issued for interest

    16       184  

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

    114       1,575  

PPP loan forgiveness

    (43

)

     

Loss on extinguishment of debt

          442  

Loss on investment in South Korean joint venture

    23       27  

Bad debt expense

          11  

Depreciation expense

    17       50  

Changes in assets and liabilities:

               

Accounts receivable

    20       (69

)

Prepaid expenses and other current assets

    (71

)

    (12

)

Inventories

    27       (273

)

Customer deposits

    79       (1

)

Accounts payable and accrued expenses

    (85

)

    (41 )

Deferred revenue

    114       37  

Clyra Medical accounts payable and accrued expenses

    189       205  

Net cash used in operating activities

    (2,962

)

    (3,318

)

Cash flows from investing activities

               

Investment in South Korean joint venture

          (100

)

Purchase and sale of equipment

    (21

)

    4  

Net cash used in investing activities

    (21

)

    (96

)

Cash flows from financing activities

               

Proceeds from sales of common stock

    4,120       2,380  

Proceeds from the sale of stock in Clyra Medical

    50       849  

Proceeds from payroll protection program loan

          507  

Proceeds from line of credit Clyra Medical

          200  

Exercise of warrants

    60        

Payment of debt obligations

    (828

)

    (25

)

Payment of Clyra Medical debt obligations

    (28

)

    (27

)

Net cash provided by financing activities

    3,374       3,884  

Net effect of foreign currency translation

    (9

)

    (8

)

Net change in cash

    382       462  

Cash at beginning of period

    716       655  

Cash at end of period

  $ 1,098     $ 1,117  

Supplemental disclosures of cash flow information

               

Cash paid for:

               

Interest

  $ 56     $ 81  

Income taxes

  $     $ 2  

Non-cash investing and financing activities

               

Fair value of warrants issued with convertible notes

  $ 35     $  

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

  $     $ (122

)

Conversion of notes payable to common stock

  $ 328     $ 3,526  

Exchange of consulting services for Clyra common shares

  $     $ 788  

Increase in liability to Clyra Medical shareholder

  $     $ 129  

Fair Value of Clyra shares issued as a commitment fee

  $     $ 70  

Deemed dividend

  $     $ 100  

Allocation of noncontrolling interest

  $ 786     $ 4,513  

 

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 and a cleaner earth. The Company also owns a minority interest in a medical products subsidiary that has licensed BioLargo’s technologies.  Our business strategy is straightforward: we invent or acquire technologies that we believe have the potential to be disruptive in large commercial markets; we develop and validate these technologies to advance and promote their commercial success as we leverage our considerable scientific, engineering, and entrepreneurial talent; we then monetize these technical assets through a variety of business structures that may include licensure, joint venture, sale, spin off, or by deploying direct to market strategies.

 

Liquidity / Going concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. For the nine months ended September 30, 2021, we had a net loss of $5,103,000, used $2,962,000 cash in operations, and at September 30, 2021, we had a working capital deficit of $604,000, and current assets of $1,911,000. During the nine months ended September 30, 2021, we generated revenues of $1,743,000 through our operational subsidiaries. (See Note 11.) Our subsidiaries did not individually or in the aggregate generate profits sufficient to fund their operations, or contribute to our corporate operations. As our gross profits are not sufficient to fund our current level of operations, we will have to obtain further investment capital to continue to fund operations, such as through our purchase agreement with Lincoln Park Capital. (See Note 3.) We have been, and anticipate that we will continue to be, limited in terms of our capital resources.

 

As of September 30, 2021, our cash and cash equivalents totaled $1,098,000.  During the nine months ended September 30, 2021 we made cash payments to retire debt obligations totaling $856,000 (see Note 4 and Note 9 (“Inventory Line of Credit”)).  Our total debt as of September 30, 2021 was $1,717,000. Of that amount, $1,203,000 is owed by our partially owned subsidiary Clyra Medical Technologies, Inc. (“Clyra”) as follows: (i) a note with a maturity date that automatically extends each June (see Note 9,Note Payable (Scion)”), and (ii) a line of credit totaling $196,000, due in June 2023. Our remaining $514,000 of debt includes (i) $314,000 of loans issued as part of the Small Business Administration’s (“SBA”) Paycheck Protection Program (for which we have applied for forgiveness), (ii) a $150,000 loan accruing interest at 3.75% annually from the SBA’s Economic Injury Disaster Loan program that is payable over 30 years beginning August 2022, and (iii) a $50,000 convertible note due in March 2023, net of discount.

 

During the nine months ended September 30, 2021, we received $3,545,000 in proceeds from sales of our common stock to Lincoln Park and $575,000 from stock sales from our 2020 Unit Offering (see Note 3). The cash we receive from stock sales to Lincoln Park is a function of stock price and volume – a lower stock price and less trading volume results in less money we can receive from Lincoln Park. Our agreement with Lincoln Park precludes us from selling shares to Lincoln Park on a daily basis if our stock price falls below $0.10 per share.

 

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

 

To reduce our operational cash burdens, we regularly issue officers and vendors stock or options in lieu of cash compensation, and we anticipate that we will continue to be able to do so in the future. In the nine months ended September 30, 2021, our CEO and CSO accepted stock in lieu of $43,000 in unpaid salary, and other employees, vendors and consultants accepted stock and options in lieu of $408,000 owed to them. Our CFO has also agreed to receive options to purchase our common stock in lieu of cash, (see Note 5,Chief Financial Officer Extension”) as compensation for his services. Each has indicated a willingness to do so in the future.

 

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. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

8

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Organization

 

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

 

The unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to Rule 8-03 of Regulation S-X under the Securities Act of 1933, as amended. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. For some of our activities, we are still operating in the early stages of the sales and distribution process, and therefore our operating results for the nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, 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, 2020, filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2021.

 

 

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

 

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.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

As of September 30, 2021 and December 31, 2020, our cash balances were made up of the following (in thousands):

 

   

September 30,

2021

   

December 31,

2020

 

BioLargo, Inc. and subsidiaries

  $ 1,064     $ 637  

Clyra Medical Technologies, Inc.

    34       79  

Total

  $ 1,098     $ 716  

 

Accounts Receivable

 

Trade accounts receivable are recorded net of allowances for doubtful accounts. Estimates for allowances for doubtful accounts are determined based on payment history and individual customer circumstances. The allowance for doubtful accounts as of  September 30, 2021 was $12,000 and at December 31, 2020, was $13,000.

 

Credit Concentration

 

We have a limited number of customers that account for significant portions of our revenue. During the nine months ended September 30, 2021 and 2020, we had the following customers that accounted for more than 10% of consolidated revenues, as follows:

 

   

September 30,
2021

   

September 30,

2020

 

Customer A

    14

%

    <10

%

Customer B

    11

%

    <10

%

Customer C

    <10

%

    12

%

Customer D

    12

%

    <10

%

 

We had three customers that each accounted for more than 10% of consolidated accounts receivable at September 30, 2021, and two customers at December 31, 2020, as follows:

 

   

September 30,

2021

   

December 31,

2020

 

Customer C

    19

%

    <10

%

Customer D

    16

%

    <10

%

Customer E

    13

%

    <10

%

Customer F

    <10

%

    32

%

Customer G

    <10

%

    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  September 30, 2021, and December 31, 2020, was $3,000. Inventories consisted of (in thousands):

 

   

September 30,

2021

   

December 31,

2020

 

Raw material

  $ 100     $ 111  

Finished goods

    150       166  

Total

  $ 250     $ 277  

 

 

Other Assets

 

Other Assets consisted of security deposits of $35,000 related to our business offices.

 

 

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. The joint venture incurred a loss during the three and nine months ended September 30, 2021, and our 40% ownership share reduced our investment interest by $0 and $23,000.

 

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 and nine months ended September 30, 2021 and 2020, management determined that there was no impairment of its long-lived assets, including its In-process Research and Development (see Note 8).

 

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 and nine months ended September 30, 2021 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.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following methodology and assumptions were used to calculate share-based compensation for the nine months ended September 30, 2021 and 2020:

 

   

2021

   

2020

 
   

Non Plan

   

2018 Plan

   

Non Plan

   

2018 Plan

 

Risk free interest rate

    1.73

%

    0.93 1.73%       0.66 1.02%

 

    0.64 1.90%  

Expected volatility

    124

%

    121 124%       129 - 131%

 

    126 133%  

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.

 

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

 

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

 

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.

 

Products sold a through a contract with the customer and written purchase order, in which the details of the contract are defined including the transaction price and method of shipment. The only performance obligation is to create and ship the product and each product has separate pricing. Revenue is recognized at a point in time when the goods are shipped if the agreement is FOB manufacturer, and when goods are delivered if FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order.

 

Service contracts are performed through a written contract, which specifies the performance obligations and the rate at which the services will be billed, typically by time and materials. Each service is separately negotiated and priced. Revenue is recognized as services are performed and completed, or, for services related to product installations, at the completion of the installation. A few contracts have called for milestone or fixed cost payments, where we invoice 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.

 

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

 

Government Grants

 

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

 

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

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Income Taxes

 

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

 

We account for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by generally accepted accounting principles (“GAAP”).  Under GAAP, the tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date.  If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized.  Management believes there are no unrecognized tax benefits or uncertain tax positions as of September 30, 2021, and December 31, 2020.

 

The Company assessed its earnings history, trends and estimates of future earnings and determined that the deferred tax asset could not be realized as of September 30, 2021. Accordingly, a 100% valuation allowance was recorded against the net deferred tax asset.

 

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

 

Fair Value of Financial Instruments

 

Management believes the carrying amounts of the Company’s financial instruments (excluding debt and equity instruments) as of September 30, 2021 and December 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.

 

Tax Credits

 

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

 

Leases

 

In accordance with ASC 842, the Company elects 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 September 30, 2021, the right of use assets on our balance sheet related to our operating leases total $296,000.

 

Recent Accounting Pronouncements

 

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

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

 

Note 3. Sale of Stock for Cash

 

Lincoln Park Financing

 

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

 

During the nine months ended September 30, 2021 and 2020, we sold 21,444,128 and 9,692,613 shares, respectively, to Lincoln Park, and received $3,545,000 and $1,588,000 in gross and net proceeds, respectively. Subsequent to September 30, 2021, we continue to draw on the Purchase Agreement for working capital from time to time (see Note 13).

 

2020 Unit Offering

 

During the nine months ended September 30, 2021 and 2020, pursuant to an offering commenced in March 2020, we sold 3,820,436 and 2,318,194 shares, respectively, of our common stock and received $575,000 and $367,000, respectively, in gross and net proceeds, from a total of nine accredited investors. In addition to the shares, we issued each investor a nine-month and a five-year warrant to purchase additional shares (see Note 6,Warrants Issued in 2020 Unit Offering”).

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

Note 4. Debt Obligations

 

The following table summarizes our debt obligations outstanding as of September 30, 2021, and December 31, 2020 (in thousands). The table does not include debt obligations of our partially owned subsidiary Clyra Medical (see Note 9,Debt Obligations of Clyra Medical”).

 

   

September 30 2021

(Unaudited)

   

December 31, 2020

 

Current portion of debt:

               

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

  $     $ 50  

Line of credit, matures on 30-day demand

          50  

Total notes payable and line of credit

  $     $ 100  
                 

Convertible notes payable:

               

Convertible note payable, matures April 20, 2021

  $     $ 100  

Convertible note payable, matures August 9, 2021

          600  

Convertible notes, mature August 12 and 16, 2021

          406  

Total convertible notes payable

          1,106  

Debt discount, net of amortization

          (104

)

Total current liabilities

          1,102  
                 

Long-term debt:

               

Convertible note payable, matures March 1, 2023

  $ 50     $  

Debt discount, net of amortization

    (25

)

     

SBA Paycheck Protection Program loans

    314       357  

SBA EIDL Loan

    150       150  

Total long-term liabilities

    489       507  

Total

  $ 489     $ 1,609  

 

For the nine months ended September 30, 2021 and 2020, we recorded $208,000 and $1,823,000, respectively, of interest expense related to the amortization of discounts on convertible notes payable, and coupon interest from our note payable, 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 during the nine months ended September 30, 2021 and 2020. Each of the debt instruments contained in the above table are disclosed more fully in the financial statements contained in the Company’s Form 10-K filed March 30, 2021.

 

Cash payment of debt obligations

 

On August 13, 2021, we paid $178,000 in cash to Vernal Bay Investments, LLC, as payment of one-half the outstanding principal on the convertible note scheduled to mature on August 12, 2021. In addition, we issued 1,272,321 shares of our common stock to pay the remaining principal and interest due on the note.

 

On March 1, 2021, we paid in cash the outstanding principal of $600,000 on the promissory note issued August 9, 2019, and scheduled to mature on August 9, 2021.

 

On March 1, 2021, we paid in cash the outstanding principal of $50,000 on the remaining amount due on a line of credit in which was due on demand at any time after September 1, 2019. There is no remaining balance on this line of credit, and we no longer have the ability to draw on the line of credit.

 

Conversion of Debt into shares of common stock

 

On May 18, 2021, we converted to equity a promissory note that was scheduled to mature on August 18, 2021, in the principal balance of $50,000 into 294,118 shares of our common stock.

 

On its maturity date of April 20, 2021, we converted to equity a promissory note in the principal balance of $100,000 into 400,000 shares of our common stock.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

On March 1, 2021, we and the holder of a $50,000 note payable modified the note to set a specific maturity date of March 1, 2023, and allow the investor to convert the note to our common stock at a price of $0.16 per share. In lieu of interest during the extended period of the note, we issued the investor a stock purchase warrant (see Note 6).

 

 

Note 5. Share-Based Compensation

 

Issuance of Common Stock in exchange for payment of payables

 

Payment of Officer Salaries

 

On September 30, 2021, we issued 61,842 shares of our common stock at $0.19 per share in lieu of $12,000 of accrued and unpaid salary to our officers. On March 31, 2021, we issued 137,364 shares of our common stock at $0.23 per share in lieu of $31,000 of accrued and unpaid salary to our officers.

 

On September 30, 2020, we issued 349,670 shares of our common stock at $0.15 per share in lieu of $52,000 of accrued and unpaid salary to our officers. On June 30, 2020, we issued 367,403 shares of our common stock at $0.16 per share in lieu of $59,000 of accrued and unpaid salary to our officers. On March 31, 2020, we issued 648,755 shares of our common stock at $0.17 per share in lieu of $110,000 of accrued and unpaid salary to our officers.

 

Payment of Consultant Fees

 

On September 30, 2021, we issued 586,963 shares of our common stock at $0.19 per share in lieu of $71,000 of accrued and unpaid salary to consultants. On June 30, 2021, we issued 357,132 shares of our common stock at $0.17 per share in lieu of $60,000 of accrued and unpaid obligations to consultants. On March 31, 2021, we issued 610,123 shares of our common stock at $0.23 per share in lieu of $81,000 of accrued and unpaid obligations to consultants.

 

On September 30, 2020, we issued 270,000 shares of our common stock at $0.15 per share in lieu of $41,000 of accrued and unpaid salary to consultants. On June 30, 2020, we issued 1,406,630 shares of our common stock at $0.16 per share in lieu of $213,000 of accrued and unpaid salary to consultants. On March 31, 2020, we issued 390,735 shares of our common stock at $0.17 per share in lieu of $67,000 of accrued and unpaid obligations to consultants.

 

Payment of Accrued Interest

 

During the nine months ended September 30, 2021, we issued 81,777 shares of our common stock at $0.17 per share in lieu of $16,000 of accrued and unpaid interest. No shares were issued in the three months ended September 30, 2021.

 

On September 30, 2020, we issued 1,415,221 shares of our common stock at $0.11 per share in lieu of $150,000 of accrued and unpaid interest. On June 30, 2020, we issued 594,428 shares of our common stock at $0.16 per share in lieu of $30,000 of accrued and unpaid interest.  On March 31, 2020, we issued 19,278 shares of our common stock at $0.17 per share in lieu of $4,000 of accrued interest.

 

Stock Option Expense

 

During the nine months ended September 30, 2021 and 2020, we recorded an aggregate $1,005,000 and $1,347,000, in selling general and administrative expense related to the issuance of stock options. We issued options through our 2018 Equity Incentive Plan, our now expired 2007 Equity Incentive Plan, and outside of these plans. See Note 9 for information on stock option expense for options issued by subsidiary Clyra.

 

2018 Equity Incentive Plan

 

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

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Activity for our stock options under the 2018 Plan for the nine months ended September 30, 2021 and September 30, 2020, is as follows:

 

                       

Weighted

         
                       

Average

   

Aggregate

 
   

Options

   

Exercise

   

Price per

   

intrinsic

 
   

Outstanding

   

Price per share

   

share

   

Value(1)

 

Balance, December 31, 2020

    18,865,525       $0.16 0.40     $ 0.19          

Granted

    3,686,462       0.13 0.23       0.19          

Expired

                             

Balance, September 30, 2021

    22,591,987       $0.12 0.43     $ 0.19          

Non-vested

    (4,797,058

)

    0.12 0.40       0.21          

Vested, September 30, 2021

    17,754,929       $0.12 0.43     $ 0.18     $ 474,000  
                                     

Balance, December 31, 2019

    9,214,356       $0.16 0.43     $ 0.25          

Granted

    9,738,196       0.15 0.22       0.15          

Expired

    (1,546,518 )     0.16 0.34       0.26          

Balance, September 30, 2020

    17,406,034       $0.16 0.43     $ 0.20          

(1) Aggregate intrinsic value based on closing common stock price of $0.19 at September 30, 2021.

 

The options granted to purchase 3,686,462 shares during the nine months ended September 30, 2021 were issued to an officer, board of directors, employees and consultants: (i) we issued options to purchase 300,000 shares of our common stock at an exercise price on the respective grant date of $0.17 per share to our CFO as described below; (ii) we issued options to purchase 1,049,024 shares of our common stock at an exercise price on the respective grant date of $0.17 and $0.23 per share to members of our board of directors for services performed, in lieu of cash; the fair value of these options totaled $198,000; (iii) we issued options to purchase 1,800,011 shares of our common stock to employees as part of an employee retention and expiring options plan at exercises price on the respective date ranging between $0.17 and $0.23 per share; the fair value of employee retention plan options totaled $327,000 and will vest quarterly over four years as long as they are retained as employees; and (iv) we issued options to purchase 537,427 shares of our common stock to consultants and employees in lieu of cash for unpaid obligations totaling $95,000. All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

 

The options granted under the 2018 Plan to purchase 9,738,196 shares during the nine months ended September 30, 2020 were issued to officers, board of directors, employees and consultants: (i) we issued options to purchase 4,880,945 shares of our common stock at an exercise price of $0.14 per share to employees and consultants as a bonus during the COVID-19 pandemic. These options vest quarterly over one year and the fair value totaled $616,000; (ii) we issued options to purchase 517,500 shares of our common stock at an exercise price range of $0.14 – $0.21 per share to our CFO, with 392,500 shares having vested during the nine months ended September 30, 2020, and the remaining shares to vest 25,000 monthly through January 31, 2021, the fair value of the options issued to our CFO totals $100,000; (iii) we issued options to purchase 1,308,934 shares of our common stock at an exercise price on the respective grant date of $0.17 ,$0.16 and $0.15 per share to members of our board of directors for services performed, all options vested at issuance and the fair value of these options totaled $200,000; (iv) we issued options to purchase 1,346,732 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, $0.16 and $0.15 per share; the fair value of employee retention plan options totaled $201,000 and vest quarterly over four years as long as they are retained as employees; (v) we issued options to purchase 531,298 shares of our common stock to consultants in lieu of cash for unpaid obligations totaling $74,000; and (vi) we issued options to purchase 1,152,787 shares of common stock at an exercise price ranging between $0.14 – $0.17 per share to employees to convert accrued and unpaid obligations and for previously issued options that expire. All of these options vested at issuance and the fair value totaled $156,000. All stock option expense is recorded on our consolidated statement of operations as selling, general and administrative expense.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Chief Financial Officer Contract Extension

 

On March 17, 2021, we and our Chief Financial Officer Charles K. Dargan, II, formally agreed to extend the engagement agreement dated February 1, 2008 (the “Engagement Agreement”, which had been previously extended multiple times), pursuant to which Mr. Dargan has been and continues to serve as the Company’s Chief Financial Officer. The Engagement Extension Agreement dated as of February 25, 2020 (the “Engagement Extension Agreement”) provides for an additional term to begin retroactively on October 1, 2019, and to expire January 31, 2022 (the “Extended Term”).

 

As compensation for the Extended Term, Mr. Dargan was issued an option (“Option”) to purchase 300,000 shares of our common stock. The Option vests over the period of the Extended Term, with 200,000 shares having vested as of September 30, 2021, and the remaining 100,000 shares to vest monthly through January 31, 2022, so long as the agreement is in full force and effect. The Option is exercisable at $0.23 per share, the closing price of our common stock on March 17, 2021, expires ten years from the grant date, and was issued pursuant to the 2018 Equity Incentive Plan. The fair value of these options totaled $49,000, which expense is recorded ratably over the twelve-month agreement term.

 

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

 

2007 Equity Incentive Plan

 

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

 

Activity for our stock options under the 2007 Plan for the nine months ended September 30, 2021 and 2020 is as follows:

 

                       

Weighted

         
                       

Average

   

Aggregate

 
   

Options

   

Exercise

   

Price per

   

intrinsic

 
   

Outstanding

   

price per share

   

share

   

Value(1)

 

Balance, December 31, 2020

    5,689,363       $0.23 0.94     $ 0.44          

Expired

    (1,769,008

)

    0.39 - 0.51       0.40          

Balance, September 30, 2021

    3,920,355       $0.23 1.65     $ 0.45     $  
                                     

Balance, December 31, 2019

    8,769,451       $0.23 0.94     $ 0.42          

Expired

    (2,899,425

)

    0.39 0.58       0.38          

Balance, September 30, 2020

    5,870,026       $0.23 1.65     $ 0.44        

(1) – Aggregate intrinsic value based on closing common stock price of $0.19 at September 30, 2021.

 

Non-Plan Options issued

 

Activity of our non-plan stock options issued for the nine months ended September 30, 2021 and 2020 is as follows:

 

                       

Weighted

         
   

Non-plan

               

average

   

Aggregate

 
   

Options

   

Exercise

   

price per

   

Intrinsic

 
   

outstanding

   

price per share

   

share

   

value(1)

 
                                     

Balance, December 31, 2020

    20,749,583       $0.17 1.00     $ 0.41          

Granted

    43,956         0.23         0.23          
Expired     (800,000

)

      1.00         1.00          

Balance, September 30, 2021

    19,993,539       $0.17 1.00     $ 0.39          

Non-vested

    (1,810,010

)

    0.17 0.45       0.45          

Vested, September 30, 2021

    18,183,529       $0.17 1.00     $ 0.38     $ 59,000  
                                     

Balance, December 31, 2019

    19,888,718       $0.23 1.00     $ 0.41          

Granted

    820,476       0.15 0.21       0.16          

Balance, September 30, 2020

    20,709,194       $0.15 1.00     $ 0.40          
 

(1)

– Aggregate intrinsic value based on closing common stock price of $0.19 at September 30, 2021.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

During the nine months ended September 30, 2021, we issued an option to purchase 43,956 shares of our common stock at $0.23 per share to a vendor for services. The fair value of these options total $10,000 and is recorded in our selling, general and administrative expense.

 

During the nine months ended September 30, 2020, we issued options to purchase 820,476 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 $135,000, is recorded in our selling, general and administrative expense.

 

 

Note 6. Warrants

 

We issued warrants to purchase our common stock, at various prices for the nine months ended September 30, 2021 and 2020, is as follows:

 

                       

Weighted

         
                       

average

   

Aggregate

 
   

Warrants

   

Exercise

   

price per

   

Intrinsic

 
   

outstanding

   

price per share

   

share

   

value(1)

 
                                     

Balance, December 31, 2020

    32,980,989       $0.16 1.00     $ 0.29          

Issued

    7,865,872       0.14 0.26       0.20          

Exercised

    (416,667

)

    $0.14       0.14          

Expired

    (2,743,406

)

    0.12 0.70       0.59          

Balance, September 30, 2021

    37,686,788       $0.12 1.00     $ 0.27     $ 140,000  
                                     

Balance, December 31, 2019

    43,231,161       $0.16 1.00     $ 0.35          

Issued

    5,427,648       0.13 - 0.24       0.20          

Expired

    (14,272,820

)

    0.40 - 0.49       0.46          

Balance, September 30, 2020

    34,385,989       $0.16 1.00     $ 0.29          
 

(1)

Aggregate intrinsic value based on closing common stock price of $0.19 at September 30, 2021

 

Warrants issued in 2020 Unit Offering

 

During the nine months ended September 30, 2021, pursuant to our 2020 Unit Offering (see Note 3), we issued six-month stock purchase warrants to purchase an aggregate 3,820,436 shares of our common stock at exercise prices between $0.14 – 0.22 per share, and five-year stock purchase warrants to purchase an aggregate 3,820,436 shares of our common stock at exercise prices between $0.18 – 0.27 per share.

 

On August 6, 2021 a holder of a six-month stock purchase warrant exercised the warrant and we received $60,000 and issued 416,667 shares of our common stock.

 

Warrant issued in conjunction with amendment to note payable

 

On March 1, 2021, we and the holder of a $50,000 note payable modified the note (see Note 4). In lieu of interest during the extended period of the note, we issued the investor a warrant to purchase 225,000 shares of our common stock at $0.16 per share for a period of five years.  The fair value of these warrants totaled $35,000 and is recorded as a debt discount on our consolidated balance sheets, of which amount will be amortized to interest expense over the two-year term of the debt.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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:

 

   

September 30,

2021

   

September 30,

2020

 

Risk free interest rate

      0.71%         0.15 - 0.23%

 

Expected volatility

      100%         100 - 112%

 

Expected dividend yield

                   

Forfeiture rate

                   

Expected life in years

    .5 5       0.33 5  

 

 

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

 

 

Note 7. Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses for our operations other than our partially-owned subsidiary Clyra Medical included the following (in thousands):

 

   

September 30,

2021

   

December 31,

2020

 

Accounts payable and accrued expense

  $ 220     $ 315  

Accrued interest

    25       42  

Accrued payroll

    179       156  

Total accounts payable and accrued expenses

  $ 424     $ 513  

 

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

 

 

Note 8. In-process Research and Development

 

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

 

 

Note 9. Noncontrolling InterestClyra Medical

 

As discussed in Note 2, we consolidate the operations of our partially owned subsidiary Clyra Medical, of which we owned 45% of its outstanding shares as of September 30, 2021.

 

Acquisition of In-process Research and Development

 

On September 26, 2018, Clyra Medical entered into a transaction with Scion for the purchase of its intellectual property, including its SkinDisc (see also Note 8). 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.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 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. As of September 30, 2021, a total of 9,300 shares remain in escrow, the difference having been vested in accordance with the performance metrics.

 

Debt Obligations of Clyra Medical

 

Note Payable (Scion)

 

In conjunction with the transaction in which certain intellectual property was purchased from Scion, Clyra issued a promissory note to Scion in the principal amount of $1,250,000 on September 26, 2018 (“Clyra-Scion Note”), accruing interest at an annual rate of 5%. Clyra is obligated to make principal and interest payments periodically, based on a percent (25%) of investment proceeds, and 5% of revenues. Payments are due annually each June 26th until paid. At September 30, 2021 and December 31, 2020, the balance due on the Clyra Medical Note Payable totaled $1,007,000. On June 26, 2021, the maturity date of the note automatically extended by one year, to June 26, 2022.

 

Inventory Line of Credit

 

On September 30, 2020, Clyra entered into a one-year revolving Line of Credit Agreement whereby Vernal Bay Capital Group, LLC committed to provide a $1,000,000 inventory line of credit to Clyra.  Clyra has received $260,000 in draws since the inception of the line of credit.

 

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

 

During the nine months ended September 30, 2021, we made payments on the line of credit totaling $28,000. In April, 2021, Vernal agreed to extend the maturity date by one year, to June 30, 2022. Clyra agreed to make interest-only payments through August 31, 2021, and then, in addition to interest payments, principal payments equal to the greater of (i) $7,500 and (ii) 40% of product sales beginning September 2021, for nine months, and thereafter the greater of (i) $7,500 and (ii) 60% of product sales.

 

As of September 30, 2021, the balance outstanding on this line of credit totals $196,000.

 

Prepaid Marketing - Consulting Agreement

 

On December 30, 2015, Clyra entered into a consulting agreement with Beach House Consulting, LLC, through which Jack B. Strommen will be providing consulting services to Clyra related to its sales and marketing activities, and in exchange receive $23,000 per month for a period of four years. On June 30, 2020, at Clyra’s request, Beach House Consulting agreed to accept 3,639 shares of Clyra common stock, in lieu of cash, as full prepayment of the consulting fee. The obligation to provide the consulting services is dependent on Clyra generating an average of $250,000 in monthly sales over three consecutive months, which has not been met. The value of the shares issued to Beach House totaled $788,000 and is recorded as a non-current asset (prepaid marketing) on our balance sheet.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Clyra Medical Equity transactions

 

As of September 30, 2021, Clyra Medical had the following common shares outstanding:

 

Shareholder

 

Shares

   

Percent

 

BioLargo, Inc.

    49,207       45

%

Sanatio Capital

    18,704       17

%

Scion Solutions

    21,700       20

%

Other

    19,280       18

%

Total

    108,891          

 

 

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

 

Sales of Common Shares

 

During the nine months ended September 30, 2021 and 2020 Clyra raised $50,000 and $849,000 at $310 per Clyra share.

 

Stock Options

 

Clyra issues options to its employees and consultants in lieu of compensation owed on a regular basis. As of December 31, 2020, the Company had issued options to purchase 11,411 shares of Clyra stock. During the nine months ended September 30, 2021 and 2020, Clyra issued options to purchase 2,074 and 2,685 shares of its common stock, respectively. Each option issued has an exercise price of $1.00 per share, are vested upon issuance and an expiration date 10 years from the date of grant. The fair value of the options issued in in the nine months ended September 30, 2021 and 2020 totaled $442,000 and $580,000, respectively. 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%.

 

Clyra Accounts Payable and Accrued Expenses

 

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

 

   

September 30,

2021

   

December 31,

2020

 

Accounts payable and accrued expense

  $ 551     $ 402  

Accrued interest

    51       32  

Accrued payroll

    127       102  

Total Clyra Medical accounts payable and accrued expenses

  $ 729     $ 536  

 

 

 

Note 10. BioLargo Engineering, Science and Technologies, LLC

 

In September 2017, we commenced a full-service environmental engineering firm and formed a Tennessee entity named BioLargo Engineering, Science & Technologies, LLC (“BLEST”).  (See Note 11,Business Segment Information”.) The company was capitalized with two classes of membership units: Class A, 100% owned by BioLargo, and Class B, held by management of BLEST, and which initially had no “profit interest,” as that term is defined in Tennessee law. The Class B members can earn up to a 30% profit interest. They were also 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 vesting schedule tied to the performance of the subsidiary 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. As of September 30, 2021, management holds 6.25% profit interests in the company, and have vested 437,500 shares in the BioLargo options. The vesting of option shares during the nine months ended September 30, 2020, resulted in a fair value totaling $65,000 recorded on our consolidated statement of operations as selling, general and administrative expense. No shares have vested during the nine months ended September 30, 2021.

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

Note 11. Business Segment Information

 

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

 

 

1.

ONM Environmental (formerly Odor-No-More) (“ONM”) -- which sells odor and volatile organic control products and services (located in Westminster, California);

 

2.

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

3.

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

4.

BioLargo Water (“Water”) -- our Canadian team of scientists and engineers focused on refining and commercializing our AOS water treatment system, and supporting our other research and development efforts.

 

Historically, none of our operating business units have operated at a profit and therefore each required additional cash to meet its monthly expenses. The additional sources of the cash to fund the shortfall from operations of ONM, BLEST and BioLargo Water have been provided by BioLargo’s sales of debt or equity, research grants, and tax credits. Clyra Medical has primarily 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 and nine months ended September 30, 2021 and 2020, is as follows (in thousands):

 

   

Three months ended September 30,

   

Nine months ended September 30,

 
   

2021

   

2020

   

2021

   

2020

 

Revenue

                               

BioLargo corporate

  $     $     $ 7     $  

ONM

    420       356       1,058       952  

BLEST

    416       334       1,070       778  

Water

    2       124       11       21  

Clyra Medical

    9       21       119       145  
Intersegment revenue (BLEST)     (135 )     (169 )     (522 )     (374 )

Total

  $ 712     $ 666     $ 1,743     $ 1,522  
                                 

Operating loss

                               

BioLargo corporate

  $ (868 )   $ (870

)

  $ (2,726 )   $ (2,970 )

ONM

    (72 )     (144

)

    (355 )     (431 )

Clyra Medical

    (219 )     (491

)

    (958 )     (1,219 )

BLEST

    (140 )     (298

)

    (513 )     (465 )

Water

    (156 )     (106

)

    (461 )     (530 )

Total

  $ (1,455 )   $ (1,909

)

  $ (5,013 )   $ (5,615 )
                                 

Interest expense

                               

BioLargo corporate

  $ (6 )   $ (281

)

  $ (112 )   $ (1,761 )

Clyra Medical

    (20 )     (37

)

    (96 )     (62 )

Total

  $ (26 )   $ (318

)

  $ (208 )   $ (1,823 )
                                 

Research and development expense

                               

BioLargo corporate

  $ (220 )   $ (259

)

  $ (765 )   $ (580 )

Clyra Medical

    (20 )     (68

)

    (53 )     (129 )

BLEST

    (130 )     (106

)

    (358 )     (272 )

Water

    (109 )     (83

)

    (366 )     (83 )

Intersegment R&D

    135       169       515       350  

Total

  $ (344 )   $ (347

)

  $ (1,027 )   $ (1,031 )

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The segment information for September 30, 2021 and December 31, 2020, is as follows (in thousands):

 

As September 30, 2021

 

BioLargo

   

ONM

   

Clyra

   

BLEST

   

Water

   

Elimination

   

Total

 

Tangible assets

  $ 805     $ 449     $ 1,030     $ 390     $ 171     $ (47 )   $ 2,798  

Right of use

    170                   126                   296  

Investment in South Korean joint venture

    40                                     40  

Intangible assets

    2,150                                     2,150  

 

 

As of December 31, 2020

 

BioLargo

   

ONM

   

Clyra

   

BLEST

   

Water

   

Elimination

   

Total

 

Tangible assets

  $ 388     $ 624     $ 1,125     $ 188     $ 105     $ (42 )   $ 2,388  

Right of use

    215                   126                   341  

Investment in South Korean joint venture

    63                                     63  

Intangible assets

    2,150                                     2,150  

 

 

 

Note 12. 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 nine months ended September 30, 2021 and 2020, rental expense was $170,000 and $167,000, respectively.  As of September 30, 2021, our weighted average remaining lease term is two years and the total remaining operating lease payments is $390,000.

 

 

Note 13. Subsequent Events.

 

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

 

Sales to Lincoln Park

 

From October 1, 2021, through November 11, 2021, we sold 2,357,829 shares of our common stock to Lincoln Park (see Note 3), and received $395,000 in gross and net proceeds.

 

 

 

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

 

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

 

Unless otherwise expressly stated herein, all statements, including forward-looking statements, set forth in this Form 10-Q are as of September 30, 2021, unless expressly stated otherwise, and we undertake no duty to update this information.

 

As used in this report, “we” and “Company” refers to (i) BioLargo, Inc., a Delaware corporation; (ii) its wholly-owned subsidiaries BioLargo Life Technologies, Inc., a California corporation, ONM Environmental, Inc., a California corporation, and 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.

 

Our Business - Innovator and Solution Provider

 

BioLargo, Inc. invents, develops, and commercializes innovative platform technologies to solve challenging environmental problems like PFAS contamination, advanced water and wastewater treatment, industrial odor and VOC control, air quality control, and infection control. Having conducted over thirteen years of extensive research and development, BioLargo holds a wide array of issued patents, maintains a robust pipeline of products, and provides full-service environmental engineering. We invent or acquire novel technologies and develop them to maturity through our operating subsidiaries using cutting-edge scientific and engineering methodologies. With a keen emphasis on partnerships with academic, government, and commercial organizations and associations, BioLargo has proven itself with over 80 awarded grants and numerous pilot projects. We monetize through direct sales, recurring service contracts, licensing agreements, strategic joint venture formation and/or the sale of the IP.

 

The past few months was marked by important advancements in the commercialization of our innovative cleantech products and a notable financial performance improvement of our engineering subsidiary, which far surpassed its previous quarterly and monthly revenue records. We launched the first phase of the commercial roll-out of our PFAS water treatment business, the commercial testing of contaminated water provided by prospective clients as part of our “PFAS Testing Program”. As part of our Garratt-Callahan partnership, we designed and manufactured the first unit of a new water treatment technology based on their patented process that is expected to result in first sales in Q1 of 2022. We launched a new partnership for a consumer pet odor product with a group of experienced marketing professionals which is now in its test-marketing phase with its first television commercials now on the air. Finally, our AOS technology pilot project at the wastewater treatment plant near Montreal confirmed that our technology is faster and more energy efficient at removing micropollutants from real wastewater than other technologies. In this section, we’ll discuss each of these milestones in detail.

 

Formula for Success: Technology, Talent and Purpose

 

Technology

 

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

 

 

Water decontamination, including:

 

 

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

 

 

 

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Micropollutant destruction and removal

 

 

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Legionella detection and water treatment solutions

 

 

Air quality controls and systems including odor and VOC control

 

 

Mineral processing

 

 

Infection control

 

 

Wound management

 

 

Regenerative tissue therapy

 

 

Disinfection

 

Talent

 

We have steadily grown our team to 27 team members and numerous other part-time consultants, including highly qualified PhDs, engineers, MDs and medical professionals, construction professionals, field service technicians, innovators, sales marketing specialists, entrepreneurial and executive leadership.

 

Purpose

 

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

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